How Latinos are handling college planning

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Sep 21, 2018

Hispanic families value college education more than ever before, with record numbers sending their kids to college in pursuit of a brighter future, but many still struggle to save for tuition against a backdrop of competing priorities.

The number of Hispanics attending college in the U.S. has surged over the last few decades. The Department of Education reports that Hispanic undergraduate enrollment nearly doubled between 2000 and 2016, and 27 percent of young Hispanics now have at minimum an associate degree, up from 15 percent in 2000.1

Such gains in postsecondary education reflect not only the explosive growth of the Latino population, but also the groundswell of first and second-generation families who wish to give their children the opportunity of a college education and an opportunity to move up economically as they enter the professional workforce and become America’s future doctors, lawyers, engineers and teachers.

According to MassMutual’s 2018 State of the American Family survey , 61 percent of Latino respondents with household income of $50,000 or more and at least one dependent under age 26 indicated that “paying for college” was among their top financial priorities — more than any other ethnic group apart from African Americans, 66 percent of whom identified “paying for college” as a financial priority. By comparison, 57 percent of Asian Indian and Korean respondents, 56 percent of Chinese, and 54 percent of Caucasian families prioritized paying for their kids’ financial education.

With the lowest average household income of all ethnic groups, however, and the expense of caring for their aging parents in many cases, Latino families are realistic about their ability to put college tuition money away.

Indeed, just 45 percent of the Hispanic survey respondents indicated that paying for college was “something that they insisted on doing.”

“It’s very common for my clients to say their top priority is paying for college,” said Mariana Ruiz-Posada , a financial advisor in Houston, Texas, who works primarily with Hispanic clients. “Some are very risk averse and choose to put their money in a piggy bank and then transfer to a savings account, so I try to educate them that they’re losing purchasing power due to inflation and losing the time value of money.”

She said, too, that many families who are struggling to pay the bills choose to save for their kids’ education before fully funding their own retirement accounts. That’s a mistake, said Ruiz-Posada.

“For those who would forgo saving for their future to pay for college I tell them that it’s OK for their kids to get loans,” she said. If there’s money to spare after you’ve saved for your own retirement needs, even if it’s to help your kids pay off their student loans, all the better, she added.

But no one gives scholarships to retirees, she said.

Tools to help pay for tuition

There are general methods and tools experts recommend for all families that want to save smart for college and cut the cost of tuition down to size.

529 plans are a good starting point.

There are two types of 529 plans: prepaid tuition plans and savings plans. A 529 prepaid plan enables families to purchase units of tuition based on today’s price for use when their child attends college down the road. Those units are guaranteed to increase in value at the same rate as college tuition, potentially a big plus given that tuition costs have been climbing far faster than the annual inflation rate for decades.

By contrast, a 529 savings plan, the more popular option, allows you to invest in mutual funds for a beneficiary, generally your child. Similar to a Roth IRA, 529 savings plans are funded with after-tax dollars and the earnings grow tax-deferred. If used to pay for qualified education expenses, the earnings become federally (and often state) tax free. ( Learn more: 529 plans )

Depending on market performance and the funds you select, 529 savings plans can potentially produce a bigger return on investment, but there is no guarantee. Thus, the savings plan involves a degree of risk.

Be aware, too, that if your child decides not to attend college, there’s a question of what to do with those savings. You could switch beneficiaries or use the funds for some other approved educational purpose. But if you make a non-qualified withdrawal, your earnings will be hit with a 10 percent penalty.(Learn more: Alternative uses for 529 money )

“If you’ve already maximized your 401(k) or IRA and you have money left over, I do recommend 529s,” said Ruiz-Posada.

UGMA or UTMA custodial accounts are another avenue, allowing you to save and invest on behalf of a minor. There is no limit to how much you can save, but anything beyond $15,000 per year, or $30,000 for married couples filing jointly, will incur a federal gift tax.

There are other choices to help college funding, such as whole life insurance. Life insurance, of course, provides a death benefit for your loved ones should you pass away. And, should you pass away unexpectedly, such proceeds could be used to help pay for college.

But whole life insurance also builds up cash value over time.

Ruiz-Posada said parents can also potentially use the cash value in a whole life insurance policy to cover the costs of college tuition, especially those who already fund a 529 plan.

“A whole life policy can be a helpful instrument that gives you a hedge against the market,” she said. “It allows you to be more aggressive with your 529 investments, and if the market is way down when you need the money for college savings, you can leave your 529 plan untouched for a little longer and use the cash value in your life insurance plan instead.”

While the cash value you accumulate in a whole (or permanent) life insurance policy can be used to cover any expenses, keep in mind that access to cash values through borrowing or partial surrenders, will reduce the policy’s cash value and increase the chance the policy will lapse. If this happens, it may result in a tax liability. ( Learn more: Treat cash value with care )

Grants and scholarships

For those deterred by the staggering sticker price of college tuition, it is comforting to learn that most students do not pay full fare, particularly low-income families and students with a high grade point average.

According to the College Board, which administers the SAT test, the average published in-state price for tuition and fees for four-year public colleges is $9,410 per year, but the average net price, which is what the average family really pays, is just $3,980 per year.That does not include the cost of fees, room or board.

Low-income students may qualify for a Federal Pell grant , which offers need-based financial aid for qualifying students that does not need to be repaid. The maximum award amount, which is based upon your Expected Family Contribution, is $6,095 for 2018-2019.

Those who qualify for federal funds may also be eligible for state education grants, which can further reduce the amount you may need to incur in student loans. To determine whether you qualify, fill out the Free Application for Federal Student Aid ( FAFSA).

Those with exceptional financial need may also apply for the Federal Supplemental Education Opportunity Grant ( FEOG ), which awards recipients between $100 and $4,000 per year.

Other programs exist that can potentially provide tuition relief, including the Academic Competitiveness Grant (ACG) and the Science and Math Access to Retain Talent (SMART ) Grant for applicants majoring in STEM subjects.

If you plan to pursue a teaching degree, you may benefit from the Teacher Education Assistance for College and Higher Education ( TEACH ) program, which provides grants up to $4,000 a year to students who are pursuing a career in teaching.

Lastly, many organizations and businesses also offer scholarships tailored exclusively to those pursuing a specific degree or those who hail from a specific ethnic background. Student Loan Heroes compiled a list of the most generous academic awards for Latinos, as did Fast Web!.

Work for companies that help pay

In recognition of the staggering student loan debt saddling many millennials, private employers are increasingly using student loan reimbursement as a recruiting tool to attract top talent. Some employers are more generous than others.

Starbucks , for example, covers the total cost of earning an online bachelor’s degree at Arizona State University and Verizon Communications employees can earn up to $8,000 in tuition reimbursement if their coursework is relevant to the company’s business.

Amazon, Walmart, Chipotle, Disney, and Lowe’s also offer a generous tuition reimbursement benefits, according to Forbes.com.5

Latino families who wish to help their kids pay for college should focus first on their own financial security. They should then research savings tools that can potentially put any remaining money to work, said Ruiz-Posada.

If college savings is not in the budget, don’t despair. You can still support your kids by helping them research scholarships and grants, find employers who may help foot the bill, and being a source of emotional support.

More from MassMutual…

Combating high school stress

5 ways to cut college costs in half

Learn about college planning 

 

 

U.S. Department of Education, “The Condition of Education 2017,” 2018.

Internal Revenue Service, “529 Plans: Questions and Answers” Feb. 20, 2018.

College Board, “Focus on Net Price, Not Sticker Price,”

U.S. Department of Education Federal Student Aid, “Federal Pell Grants,” 2018.

Forbes, “Companies That Help Employees Pay for College,” June 1, 2018.

The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of MassMutual.