Planning for college in challenging times

Bill Cass, CFP®, CPWA®

Bill Cass, CFP®, CPWA®, 05/07/20


While many college planning activities are temporarily on hold, planning for the future can help families stay on track. Students and their families can still make progress toward their goals. Saving, whenever possible, becomes more important than ever.

Considerations under the CARES Act

Planning ideas may start with the recent CARES Act. The Act provides for a six-month delay in federal student loan payments. These payments can be delayed through September 30, 2020, without penalty or interest accrued. Each month in which a loan payment is suspended is treated as a month that payment is made, for purposes of various student loan forgiveness programs.

From a planning perspective, young parents with student loans may consider using those monthly payments to fund a 529 college savings plan for their children.

Parents with students in college

As most colleges were required to shut down their brick-and-mortar campuses in recent months, students or parents may receive refunds for room and board, and tuition and fees. Families need to be aware that if the payments were made with 529 plan funds, they can return the money to the 529 plan. The funds can be “re-contributed” to avoid being considered a non-qualified withdrawal* and to avoid having to pay taxes or a tax penalty.

With increased volatility in financial markets due to the economic disruption, investment assets may have lost some value. For greater tax efficiency, grandparents may want to consider gifting to 529 plans now, instead of waiting until the end of the year.

More time to prepare, assess colleges

In most states, standardized testing for college admissions has been delayed. This offers students more time to prepare for SATs and other entrance exams. Touring college campuses is also on hold. If not already available, it is likely that most colleges will offer virtual tours.

Consider using some 529 college plan savings for qualified expenses now. These funds can be distributed to purchase computers and software. It may be an opportune time to upgrade a laptop or personal computer with the latest software and add more storage for online learning.

Last year, Congress passed the SECURE Act, which expanded the types of qualified expenses from 529 plans to include qualified apprenticeship programs. Many students may want to take advantage of this opportunity when thinking about advanced education.

Future of higher education

Policies to contain the pandemic have had a huge impact on how we live, work, and learn. Work life has changed for many. Technology is likely to change the future of the workplace as well as how students access higher education. Colleges and universities have already had to move curriculum online. In the future, this may be expanded system wide. A recent Forbes article offered some views on how the pandemic may impact colleges in the near term.†

  • Fall enrollment is likely to decline as students opt for a gap year, as opposed to a full semester of virtual learning
  • For parents who have been laid off or furloughed, tuition may no longer be affordable
  • Universities that have suffered significant losses in their endowments may have to reduce merit- and need-based financial aid
  • The pandemic may place even more responsibility on families to save for college
  • Out-of-state tuition may also be reduced for online learning
Make a plan

The pandemic is challenging all aspects of life. It’s also creating enormous opportunities for innovation. Planning for college may seem daunting at the moment, but families will move beyond this immediate crisis and find ways to continue to plan for the future. As with any financial goal, careful planning is needed. Financial advisors can share best practices and innovative ideas to help families move ahead.

Saving for education is one of the biggest financial challenges faced by many families. Learn about the advantages of a Putnam 529 for America account and how it may help offset the potential burden of student debt.

* Savingforcollege.com, 2020.

† "Here's a Look at the Impact of Coronavirus (COVID-19) on Colleges and Universities in the U.S.," Forbes, 2020.

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