How to Pay for College, From 529 Hacks to $12,000 Tokyo Tuition

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1:45Carol Massar:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Well, check this out, Emily. I don't know what your college costs. I know what my daughter's college costs. Cost of a four-year degree, though, in the U.S. has climbed roughly 40 % in 20 years. And at some schools, elite schools, cost of attendance alone is closing in on about $100 ,000 a year. So we're talking about a full four-year tab at nearly half a million dollars. And that's just one student. Imagine a family that has, you know, a couple kids that they have to get through college.

2:24Carol Massar:Yeah, and figuring it out. Even families earning as much as$300 ,000 a year can struggle to keep up. And while financial aid can lower costs for some students, and we hear that from a lot of schools, the reality is many families can fall into an uncomfortable gray area, and that is too rich to qualify, too middle class to cover skyrocketing bills. It's a really tough spot to be. A lot of folks and families, though, who can use 529 plans, and that's what we want to talk a little bit more about. Anne Garcia is a certified financial planner. She's a wealth advisor at the Mather Group. She joins us from Portland, Oregon.

2:54Carol Massar:I'm just back from Portland, my first trip there, and it is beautiful. I'm just going to put that out there. Anne, good to have you here with Emily and me. 529s, a lot of folks in our audience know what they are, but for those who might not, what do we need to know some of the basics about them? Because they've been around for a while. They have been around for a while, and they've gotten better and better over time is one of the pieces of good news. A 529 is a tax-advantaged college savings fund, although given how over the years the rules have changed to allow lots and lots of different uses for them, I like to think of them as a launch fund for your kid.

3:31It's money that can be used for four-year college, two-year college, K-12 expenses, apprenticeship, and other such programs. So there are lots and lots of ways to use a 529. The big piece of it is it's a tax-advantaged education savings account. You work with a lot of clients. What are the biggest misconceptions about how this education fund works? There's so many. I think the biggest one is that they're not very flexible. And in fact, they are very, very flexible. Like I said, they can be used for four-year colleges. They can be used for two-year colleges. They can be used for almost any post-high school savings, educational expense, tuition, fees, room and board, books, you name it, just about any piece of the college experience.

4:24They're also a lot easier than people think. There's so many different choices out there, and that's primarily because 529s initially were state-run programs. And so there's a lot of confusion about, well, if I open one in my state, what happens if my kid goes to college in another state or what happens if I moved? And the good news is any 529 can be used at any college. You know, another big one is if I save, it's going to cost me in financial aid. And for most, the impact of a 529 on your financial aid package tends to be pretty negligible. And as a general rule, the more savings you have, the more choices you'll have when it comes time for your kid to go to college.

5:06Carol and I started this segment talking about how putting a full, like, four-year university, the tab is nearly half a million dollars, and that's just for one family. The cost is just skyrocketing here. Are you seeing clients now they're asking for the 529 more or are there also a subset of people that are just completely rethinking higher education because of the financial strain? Well, I think there's two important prices to be cognizant of when it comes to college. Yes, the list price of college has gone through the roof. There are multiple colleges that are over$100 ,000 a year. But the reality is most people don't pay full price.

5:47In fact, about 90 % of students have some form of scholarship or financial aid. And in fact, there's a recent study that just came out of college business officers that showed that the average tuition discount rate for the previous school year was over 57%. which means that for every thousand dollars of tuition that's billed, only 430 actually gets paid. The rest of it is discounted away in the form of scholarships and grants. So people who see the headline prices, yeah, it is discouraging. But if you look a little below that, there are a lot of opportunities. And in fact, college is available at just about every price point.

6:24And pretty much every student is available for scholarships somewhere if they're willing to put in the work to figure out where.

6:31Carol Massar:You know, one of the things I think about, Anne, too, is just we've created kind of an environment where there's private loans, there's lots of money. I don't feel like there's as much government money sometimes for kids going to college. We've created a financial business, if you will, of having kids tap private loans to go to school and then they're in debt, hundreds of thousands of dollars, and maybe coming out and not finding a job or a job that doesn't pay much. And I just do wonder if we've created some momentum that isn't really speaking about true ROI on getting a degree, especially in an environment today where we've got AI wondering, you know, college grads and those entry-level jobs, whether they're going to have it.

7:18Carol Massar:So is there something that we need to be kind of looking at really harshly about the financial infrastructure that's been built up to fund getting a college education. And maybe that's not always the smartest thing. There is absolutely that. You know, I think one of the biggest mistakes we've made as a society is letting the Harvards and Stanfords of the world drive the college narrative. They educate a very, very tiny fraction of our population. And yet everything we know about college tends to trace back to them. You know, witness the previous conversation about great inflation and what have you.

7:54And, you know, as a result, they're commanding a premium in the marketplace. And part of the reason they're commanding a premium is that people are willing to pay that. And so, yes, there's an issue of money coming in from other places, the availability of loans and whatnot. But a really big issue in college pricing is the willingness of people to pay these prices. And, you know, there's tons of data out there showing that...

8:24Yeah.

8:24Carol Massar:Oh, I'm sorry. We're going to have to jump in and I apologize. Come back soon because I know that this is certainly a hot topic that people care about. Ann Garcia with the Mather Group, Wealth Advisor right here on Bloomberg.

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