If you’ve thought of hiring a college advisor for admissions or financial assistance, please keep reading, as the following may help you avoid an expensive mistake.
Over the past decade, there has been a significant increase in the number of “professionals” who call themselves college advisors or educational consultants. With this growth, has also come an increased number of advisors who say they do college admissions planning, but who really do financial or insurance sales. These individuals have little or no experience in education. They have never worked at a college or high school, do not have an education or related degree, and in most cases have never visited a college campus. They are not skilled at working with teenagers, and their focus is on the funding not the counseling piece.
They typically offer seminars or classes showing how mythical families paid $10,000 or less for a $55,000 college education. And they may charge relatively low fees for the “soft” side of the process in which they help students with career counseling, a selection of colleges, and their application work. These services are often conducted by a faceless, back office person – who may or may not have a counseling background – and who is miles away on the phone and has never met the student or the family.
While this is occurring, the advisor begins to counsel the parents on ways to “shelter” money from the colleges. One of the suggestions typically offered is to buy a large life insurance policy or annuity. Some families are even advised to refinance or take out a giant home equity loan, use the money to fund the insurance policy, and then apply the savings to pay college and other bills. This can be dangerous advice for several reasons.
First, some colleges assess the cash value of life insurance in their financial aid formulas, so employing this strategy will not get you any financial aid. Because many colleges use different formulas to assess your ability to pay, the selection of colleges, can, and should affect the strategies you use to qualify for aid. So this one size fits all strategy could fail miserably and cost you big. Second, the family may not want or need life insurance. Third, they may not have much equity in their home, and paying the loan off could be a significant challenge. Fourth, and most importantly, if a family’s income is decent, it doesn’t matter if they shelter ALL of their assets. They will NOT get any financial aid. This is where most people make the mistake of shifting assets because sometimes it makes no difference at all.
So why do these advisors proffer this advice? Because they make a huge commission on a life insurance policy, home equity loan or other financial product. In fact, the college admissions planning moniker they use is merely a lead generator for selling insurance and other financial products to unsuspecting parents. This practice is a considerable conflict of interest. The advisor is charging you for advice, and also making a commission on the product he just directed you to buy.
So, when deciding on a college advisor, ask tough questions like: What is your education and background? How did you get into this field? Can you provide references and testimonials for your services? Who will be counseling our child, and what is their background? Which schools have you visited over the last 5 years and where have your clients been admitted? What is your average admit rate for each student? What percentage of your students stay enrolled at the school at which they began? Are you a member of the Independent Educational Consultants Association (IECA – the most reputable professional association with the highest ethical standards)?
With today’s huge college costs, college planning should include a family’s finances. Reputable lenders, banks, and credit unions, like CAP COM Federal Credit Union, will integrate financial strategy with the college selection and admissions process so that families will enjoy a college that’s a great fit socially, academically, and financially. But they should not attempt to sell you insurance policies you don’t want or need.