The cost of college
- Thread starter PWMDMD
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I skimmed through this as it is and will most certainly be extremely relevant in 4 years. As it stands trying to fund both children in private school is already eating at me in ways only an amoeba would understand.
Luckily the eldest won a partial scholarship to HS and the grandparents choose to pitch in next year for the younger one. We make an average income for a dual income family so basically private school next year is my 2nd mortgage. I cringe at college tuition.
Why private? It started with no public full day kindergarten and a failing school district, thankfully they turned it around but that only happened when the eldest went into 4th grade. Once Covid was a factor I was 100% grateful we stuck with it as even with a small private school's limited resources their implementation of distance learning far exceeded the public school district's offering.
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Luckily the eldest won a partial scholarship to HS and the grandparents choose to pitch in next year for the younger one. We make an average income for a dual income family so basically private school next year is my 2nd mortgage. I cringe at college tuition.
Why private? It started with no public full day kindergarten and a failing school district, thankfully they turned it around but that only happened when the eldest went into 4th grade. Once Covid was a factor I was 100% grateful we stuck with it as even with a small private school's limited resources their implementation of distance learning far exceeded the public school district's offering.
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Can you clarify regarding what you mean by 100% available for college (I'm talking about Educational IRA and 529s)? My understanding at least in the case of 529s (parent or dependent student owned) and a quick read on educational IRAs is they fall under the parents assets for purposes of a FAFSA.
Are Investments Factored into Financial Aid on the FAFSA?
Some types of student and parent investments are reported on the Free Application for Federal Student Aid (FAFSA) and some are not. Money in qualified retirement plans, small businesses owned and controlled by the family, and net home equity for the family home are not reported on the FAFSA.
www.savingforcollege.com
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Education IRA: Definition, Rules and Limits, Vs. 529 Plan
An education IRA is a tax-advantaged investment account for higher education, now more formally known as a Coverdell Educational Savings Account (ESA).
Were you talking specific to school grant(s) that may be determined based on the FAFSA or CSS profile?
Especially in the business world, luck goes a long way.
Meeting the right people and them helping you goes a looooong way.
yep.. random luck has probably provided more success for more for the world than all the hard work put together.
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Painting an oversimplified picture of a very complex subject. My mother was deputy director of financial aid at UMass before she passed away. The worse part of her job was meeting with many NY and NJ parents who were not wealthy as you state but on paper were above thresholds for increased fin aid. The salary needed to support a family in NY/NJ is much higher than what the state of MA considers as its baseline eligibility for $$. There is no accounting of parents' salaries in different geographical regions.
Yeah, where they’re listed on the FAFSA, and how the school views them, are two different considerations.Can you clarify regarding what you mean by 100% available for college (I'm talking about Educational IRA and 529s)? My understanding at least in the case of 529s (parent or dependent student owned) and a quick read on educational IRAs is they fall under the parents assets for purposes of a FAFSA.
Are Investments Factored into Financial Aid on the FAFSA?
Some types of student and parent investments are reported on the Free Application for Federal Student Aid (FAFSA) and some are not. Money in qualified retirement plans, small businesses owned and controlled by the family, and net home equity for the family home are not reported on the FAFSA.
Education IRA: Definition, Rules and Limits, Vs. 529 Plan
An education IRA is a tax-advantaged investment account for higher education, now more formally known as a Coverdell Educational Savings Account (ESA).www.investopedia.com
Were you talking specific to school grant(s) that may be determined based on the FAFSA or CSS profile?
The FAFSA is a pain, almost as much fun as doing your own taxes (and I do my own taxes), and it’s like 20 pages long. I built a FAFSA spreadsheet to do the calculations, which made subsequent years easier.
So, you list the 529 under your assets, but it’s 100% available to pay for that child’s expenses and that’s how the school will usually interpret it.
Each school takes the FAFSA data, puts it through their own, proprietary process, and makes their own determination of ability to pay.
The variation in how institutions come up with their numbers, when provided with the same data set, is both interesting, and dramatic.
My stepson’s school, in Blacksburg, VA, was in state for us. They looked at the FAFSA data, and awarded no aid, none, in the year I mentioned above. We had to come up with $27,000 for him. This despite his brother and sister being in school that year.
My daughter’s school, with a much higher cost, looked at the same FAFSA, awarded her $36,000 in aid, and we had to come up with $18,000 for her.
Same data. Interestingly, I had a quite modest 529 balance for her. So, the net difference in schools was made more dramatic by the fact that there was $4,000 in her 529, while there was no 529 for my stepson.
So, I withdrew and applied the 529 that first year for my daughter.
The next year, with three in school (oldest had graduated), my daughter’s school granted even more aid, which offset the increase in tuition.
Our need went down (fewer kids in school) and our resources went down slightly (no 529 balance in her name) and we ended up with more aid, based on the ability to pay determination.
That was 12 years ago, and my last time doing the FAFSA was two years ago. Things may have changed a bit since then but the point is this: schools each have a unique method of determining ability to pay.
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I would argue the cost of Harvard or any elite college is irrelevant. One's child gets accepted, in any possible case (up to 250k gross income before) it will be cheaper than a state university. And a child will leave as a graduate with zero debt. What the child is dealing with is 3-6% acceptance. Not only that, many of the ~ 94% who are rejected are in fact people with perfect grades, scores, activities, and IQs. Was not the case in my parents' time, nor mine. Then, legacy, hard work, and wanting it had some factor.
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My ex-boss said his auto insurance nearly doubled when his daughter got her license, same two cars. I said huh?!
Then he said for his son's mediocre college, he pays $27k out of pocket after aid. I said huh?!
Then he said his daughter is entering college and he likely will pay $27k or more after aid, I said wow.
At least by everyone's standards, he's rich. (is he really?)
To do a reality check? He told me he contributes $0 to his 401k, can't afford it. Also, his car is a 10 year old Kia, the smallest 4 door they made that year. Is he rich?
I found out about his 401k because I had to ask about deferred comp which I was forced into, because I earn so much. If you believe that, the Mario M Cuomo bridge eliminated tolling for the next 100 years
So, you’re arguing the same thing that I said:
if you can get in, you can afford to go.
I’ve said that several times in threads on this subject. You and I aren’t arguing that point, we agree on that point.
You‘re morphing the discussion into one on admission criteria. Different topic altogether. Harvard admitted 3.4% this year. Yale 3.6%.
There are several factors that have influenced that, but it’s honestly a very different topic.
I think Astro is saying that if you have $100k in a 529 in the kid’s name they assume that 100% of that can be used for school and if school costs $100k then no need-based aid given. All things being equal that $100k in your 401k is off the table as far use for education and now you may get aid because now you essentially have $0 saved for college. That $100k in retirement serves you better in two ways.Can you clarify regarding what you mean by 100% available for college (I'm talking about Educational IRA and 529s)? My understanding at least in the case of 529s (parent or dependent student owned) and a quick read on educational IRAs is they fall under the parents assets for purposes of a FAFSA.
Are Investments Factored into Financial Aid on the FAFSA?
Some types of student and parent investments are reported on the Free Application for Federal Student Aid (FAFSA) and some are not. Money in qualified retirement plans, small businesses owned and controlled by the family, and net home equity for the family home are not reported on the FAFSA.
Education IRA: Definition, Rules and Limits, Vs. 529 Plan
An education IRA is a tax-advantaged investment account for higher education, now more formally known as a Coverdell Educational Savings Account (ESA).
Were you talking specific to school grant(s) that may be determined based on the FAFSA or CSS profile?
This example strikes to the heart of my point - he is failing to prepare for his retirement out of a sense of obligation. This is a huge mistake.My ex-boss said his auto insurance nearly doubled when his daughter got her license, same two cars. I said huh?!
Then he said for his son's mediocre college, he pays $27k out of pocket after aid. I said huh?!
Then he said his daughter is entering college and he likely will pay $27k or more after aid, I said wow.
At least by everyone's standards, he's rich. (is he really?)
To do a reality check? He told me he contributes $0 to his 401k, can't afford it. Also, his car is a 10 year old Kia, the smallest 4 door they made that year. Is he rich?
I found out about his 401k because I had to ask about deferred comp which I was forced into, because I earn so much. If you believe that, the Mario M Cuomo bridge eliminated tolling for the next 100 years
What other options were available for his kids?
Why those schools?
If they’re mediocre, why bankrupt your own future for that opportunity?
There is little ROI in this plan. What’s really sad is the powerful, and misguided, combination of the parental sense of obligation and the child’s sense of entitlement that drives everyone into a colossal waste of money.
Precisely.
I understand.
I’m a great believer in luck and I find the harder I work, the more I have of it!yep.. random luck has probably provided more success for more for the world than all the hard work put together.
I get that. Actual reason for my question was in the buckets of money (@Astro14 called them three “colors” of money), bucket two was parent's money which is where I would stick 529s based on how I think they count towards a family's EFC. I also get there is a difference between how the FAFSA is used to determine federal aid (federal grant's, work study, loans) and how a school uses it to determine say school funded aid.
Maybe said a different way, I don't in any way disagree with the premise of funding one's retirement first, my mind immediately went to is there a difference between $100K sitting in a 529 versus $100K sitting in a brokerage account. If there is, one may want to start thinking differently about the tax benefits of a 529 contributions and distributions.
In my experience:
The $100K in the 529 is expected to be used 100% for college.
The $100K in the brokerage account is expected to be used at a much smaller %.
Edit: If the $100K were in a brokerage account that was part of your 401(k), it would be 0%.
They are absolutely treated differently. Very differently.
The tax benefits of contributing to a 529 are one side of the equation. How money is viewed in determining need is the other.
Each institution will view things slightly differently, but those two accounts are, in fact, viewed quite differently.
As you plan your future, the first priority, and first dollars, need to go to your retirement account. Then, once you are funding that at the proper level, you can consider a 529.
When my oldest child was eight years old, I started a 529 for her and her siblings. The next year, my company went into bankruptcy, and my pay was cut by 65%. I was struggling to pay the mortgage, so college would simply have to wait.
It wasn’t a matter of planning for me, it was the reality of very difficult times.
But, coming out of that, after I’d gone back on active duty, when paying for college, it was very interesting to see how colleges viewed things.
I sat in the office of the Director of financial aid at an elite school, where we discussed my financial situation, as well as their offer for my oldest daughter. That conversation, as well as the six college educations, for which I have paid, has shaped my comments here.
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The Federal GUBMENT created this problem.
" In 1987 then‐Secretary of Education William J. Bennett argued that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” The higher education establishment indignantly denied the claim.
But there was no doubt that tuitions were rising faster than the inflation level. And while some people insisted that federal and state aid to higher education was being cut back, that was hard to credit. Bennett pointed out in 1987 that federal student aid had risen 57 percent since 1980, while inflation had been 26 percent. A 2020 study by the Congressional Budget Office brought the numbers up to date: “Between 1995 and 2017, the balance of outstanding federal student loan debt increased more than sevenfold, from $187 billion to $1.4 trillion (in 2017 dollars).”
A 2017 study from the Federal Reserve Bank of New York found that the average tuition increase associated with expansion of student loans is as much as 60 cents per dollar. That is, more federal aid to students enables colleges to raise tuition more. Salaries rise; bureaucracies expand; more courses — from “History and Analysis of Rock Music” to “Ultimate Frisbee” — are offered; dorms, dining halls, and recreational centers become more lavish. Even with all this spending, employers don’t find that new grads are well prepared for the workplace."
FROM THE CATO INSTITUTE
" In 1987 then‐Secretary of Education William J. Bennett argued that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” The higher education establishment indignantly denied the claim.
But there was no doubt that tuitions were rising faster than the inflation level. And while some people insisted that federal and state aid to higher education was being cut back, that was hard to credit. Bennett pointed out in 1987 that federal student aid had risen 57 percent since 1980, while inflation had been 26 percent. A 2020 study by the Congressional Budget Office brought the numbers up to date: “Between 1995 and 2017, the balance of outstanding federal student loan debt increased more than sevenfold, from $187 billion to $1.4 trillion (in 2017 dollars).”
A 2017 study from the Federal Reserve Bank of New York found that the average tuition increase associated with expansion of student loans is as much as 60 cents per dollar. That is, more federal aid to students enables colleges to raise tuition more. Salaries rise; bureaucracies expand; more courses — from “History and Analysis of Rock Music” to “Ultimate Frisbee” — are offered; dorms, dining halls, and recreational centers become more lavish. Even with all this spending, employers don’t find that new grads are well prepared for the workplace."
FROM THE CATO INSTITUTE
I could not agree more. My 401k with match, my and my wife's backdoor Roth IRAs, and the HSA all got fully funded before we contributed the 529. The result is do I have all three 529's fully funded? Nope, and I will have to cash flow some it for the next two using the 10 month payment plans, etc, but that's doable.
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