Three essays on financial planning for college

The study of education planning is imperative to households, financial professionals, and public policy. This dissertation, consisting of three essays on financial planning for college, investigates the how households may optimize their savings for a college education. The first essay examines the relationship between participating in 529 education savings plans and college enrollment. The second essay evaluates optimal account choice, given college completion probabilities. The Third essay investigates financial aid maximization for households that are penalized for saving. These three essays advance current knowledge of education planning by providing insight to the efficiency of public policy and how households with prospective college students can better plan for the cost of a postsecondary education. This dissertation supports the idea that 529 education savings plans may be inefficient products for household college savings. High income households are more likely to participate in 529 education savings plans, but due to low college completion rates, it is important that college savers are properly informed of the potential penalties when making a sub-optimal account choice. Financial professionals can provide this important information to consumers. This study finds a lack of evidence to support the goal of public policy for 529 education savings plans to increase college enrollment. Households that have higher income, more educated parents, and begin saving early for a child’s college education have a higher probability of participating in a 529 plan. The use of a 529 plan explains very little of college completion, and with college completion rates below 50%, households may be better off avoiding them. This study finds that low income households are better off not participating in 529 plans due to recent changes in tax law, while middle and high income households may benefit from 529 plan participation if the child’s probability of completing college is greater than 50%. Households that do save are penalized on the FAFSA application. This study finds that these households may maximize financial aid by repositioning assets into home equity. Findings from this dissertation can help policy makers, financial professionals, and households make more informed decisions with respect to college affordability. Contrary to the goal of public policy, 529 education savings plans, which are designed to reduce the cost of college, may not improve college enrollment. Agreeing with prior research, low income households are better off not participating in tax-advantaged accounts.