The College Planning Scam

Recently we’ve become more acutely aware of the college planning marketing scheme that has spread throughout the financial services industry and is fleecing a lot of honest people of their hard-earned money.  There are certainly some honest people floating around the college planning industry but we’ve yet to encounter any of them.

In fact, most of what we’ve seen has been the mess they’ve created.  And even in the cases where they’ve not really screwed anything up, they’ve certainly been paid fees for a whole lot of nothing.

See, the problem is really one that is completely market driven.

What do I mean by that?

Well, there are a host of insurance agents and/or registered representatives out there that have no particular skill, knowledge or expertise to build a practice around.  Unfortunately these people are the type who are constantly chasing the “magic bullet” and no I’m not referring that technological marvel pictured below.

magic bullet

They need to have some sort of “system” in place to market insurance/investment products to consumers in a way that makes it seem like they’re not trying to sell them insurance/investment products.  Hope that makes sense?

So, some brilliant marketer figured out years ago that a hot button for upwardly mobile people with children was…college planning.  After all, everybody wants their kids to go to college and figure out some magical way to have grants pay for the whole thing.

That would be awesome…right?

Yet in the land of unicorns and candy mountains, there’s not much substance.

The whole thing about government grants sounds vaguely familiar…where I have heard that before?

Remember this guy?

matt lesco

Yeah if you’re anything like Brandon and me we got a great chuckle remember that guy and his late night infomercials promising free money!

But I digress.

College Planning Is a Marketing Business

Most college planners are “for profit” and that doesn’t make them bad; however, we question some of their marketing practices.  Just a quick stumble around the web and I was able to find plenty of language like this (and no I won’t link to the site…we actually like our readers and would like to protect them):

…provides unique, cutting-edge tax, cash flow and academic strategies to reduce the cost of college. For the higher income, higher net worth family we are best known for our signature college funding tax strategy combinations that create “tax scholarships” to pay for college.

A tax scholarship is any new found tax deduction that creates money you can use to reduce the cost of college. Unlike financial aid, the higher your income and tax bracket, the greater the benefit of any tax strategy or tuition discount because it’s gross income you don’t have to earn to fund college.

In essence, the IRS can pay a big piece of your college expenses!

I’ve left the text exactly as they have it posted on their site so that you can get a feel for how the information is being presented and how totally misleading these statements are.  In my quick look around the net, this was some of the most egregious language that I witnessed.

But not to worry there’s more…

 Here’s a sampling of some other things I found (thanks to College Kris for compiling some of this): 

  • Downloadable FREE Report  on the “10 DEADLIEST MISTAKES most parents make in the college planning process”
  • The ONE single mistake 91% of all parents make that costs them thousands…and they don’t even realize it.
  • How to obtain a “tax scholarship” to pay for ALL of your tuition—right from the IRS.  100% legal, but not one in 1000 accountants know how to get it!

 and my personal favorite…

  • Get Your Child Into The College of Their Dreams and Receive FREE Money For College, REGARDLESS of Your Income, Assets, or Your Student’s Grades

Really?  Would anyone really believe that?  I shudder to think it so.

What in the world are all these statements and where does it come from?

At the heart of the matter is the FAFSA which is the acronym for Free Application for Federal Student Aid.  Basically, this is a form that all high school seniors fill out to see if they if they will be eligible to receive any grants or Federally subsidized loans.

To save you and me the chore of explaining every little detail of what’s happening on this form I’ll give you a brief run-down.

You’re listing income and assets so that financial aid officers can determine your Expected Family Contribution (EFC).  Here’s a complete definition as listed on the FAFSA website.

 The Expected Family Contribution (EFC) is a measure of your family’s financial strength and is calculated according to a formula established by law. Your family’s taxed and untaxed income, assets, and benefits (such as unemployment or Social Security) are all considered in the formula. Also considered are your family size and the number of family members who will attend college or career school during the year.

The information you report on your Free Application for Federal Student Aid (FAFSA) is used to calculate your EFC. Schools use the EFC to determine your federal student aid eligibility and financial aid award.

Note: Your EFC is not the amount of money your family will have to pay for college nor is it the amount of federal student aid you will receive. It is a number used by your school to calculate the amount of federal student aid you are eligible to receive.

 For those who are more visual (like me) here’s a picture that makes it easy to understand EFC


That last “Note” is really important because that’s often times the manipulation made by college planners and it is indeed a very slippery slope.  They will create a belief among people that they have to get that EFC number to be very low.

Seems reasonable right? 

As long as you’re operating within the confines of the language defined by FAFSA, there’s no harm in taking advantage of any loophole that exists.

But here’s the problem.

Lowering your EFC won’t necessarily change your total cost.  Most institutions don’t bridge the entire gap between the actual cost and what you have to pay.  What’s more is that any amount of “aid” you receive will most likely be a mix of loans, grants and word study programs.  Furthermore, your income plays a much more crucial role in the EFC than does your assets.

And what many agents/planners are in the college planning business to do is find money they can shift into life insurance and annuity contracts. Why? Because life insurance and annuities are not includable assets for calculating the EFC. This can be totally legitimate strategy, however, it doesn’t work out for as many people as the marketing would have you believe.

You mean there’s no FREE money?

Yep that’s precisely what I mean.

Now I’ve seen some other really creative ways to get your student’s EFC lower and get them tons of financial aid. Trust me, you’re gonna love this idea.

Have them get married!

Yep, that’s right, two 18 year old kids probably won’t make much money and they certainly don’t have any assets to speak of so their EFC is likely to be as close to zero as you can get.

I won’t even charge you for that little nugget.

But seriously, stay away from people who feel the need to hype things that sound too good to be true and if they’re trying to pitch you on using cash value life insurance or annuities as your sure fire way to lower the EFC, reach out to us and let us have a look. It may not be a terrible idea but it’s certainly not the panacea all these bogus marketing claims make it out to be.


Brantley Whitley

2 Responses to “The College Planning Scam”

  1. Ken S. says:

    I can’t believe you guys posted a Charlie the Unicorm video.

    My (at the time) 3 year old daughter found these on youtube and would play it all the time. Very funny to see it in an insurance blog!

    Nicely done (the video and the whole blog!).

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