College Funding - what did you budget for your kids?

[Mariez]

Thanks to all for your input. I am in agreement with many of you that Purdue seems to be the smarter, most cost-effective choice. I have not heard from anyone that chose Indiana for the additional $20,000 cost. In retrospect I should have tried to get my son to state more clearly what his goals were for college. He said he wanted Big 10 so I had him apply to the four that were closest to us and that was it. We were going to pony up the extra cost of out-of-state tuition and then at the last minute Purdue came through with this offer. I called Indiana and they indicated that there was no scholarship money left to give him additional help. We have a visit scheduled to Purdue in a couple of weeks so hopefully that will persuade him to go there.

 

[FinanceDude]

Are you in a state that has reciprocity with Wisconsin? very good business school............

 

[Bestwifeever]

... have a visit scheduled to Purdue in a couple of weeks so hopefully that will persuade him to go there.

A lot of kids from our local high school go to Purdue as their first choice and I've never heard of anyone not loving it and not graduating with good to excellent job prospects, even my friend's daughter who was an English major (I think their Midwest alum network is incredibly strong). Your son might fall in love with it.

 

[Mariez]

Thanks. I am hoping for a nice warm day in West Lafayette so the "frisby factor" kicks in--lots of kids outside throwing frisbies and having fun. It seems to be a major decision factor in selecting a school.

 

[Mariez]

Unfortunately, no reciprocity.

 

[jon-nyc]

Thanks to all for your input. I am in agreement with many of you that Purdue seems to be the smarter, most cost-effective choice. I have not heard from anyone that chose Indiana for the additional $20,000 cost. In retrospect I should have tried to get my son to state more clearly what his goals were for college. He said he wanted Big 10 so I had him apply to the four that were closest to us and that was it. We were going to pony up the extra cost of out-of-state tuition and then at the last minute Purdue came through with this offer. I called Indiana and they indicated that there was no scholarship money left to give him additional help. We have a visit scheduled to Purdue in a couple of weeks so hopefully that will persuade him to go there.

I would never pay more for IU, but then I'm a Purdue grad...

 

[ronocnikral]

I would tell him you will pay the fees for Purdue and if he really wants to go to Indiana he's going to have to find a way to cover the 20k/year difference. If you want to be nice you can tell him you'll match him on the student loan payments dollar for dollar once he finishes and starts paying back.

He wants to go to business school -- he better get used to cost/benefit analysis...

And does the ranking of the school really matter THAT much for a BA? I could possibly see the value in paying more for an MBA at a top-ranked school, due to the networking spilloffs such programs usually provide, but not necessarily at the undergraduate level.

Worked out for Mark Cuban, who picked IU based on its ranking (and cost!). Of course, I think he probably would be ok financially regardless of what he did, and that includes not going to college at all.

 

[karluk]

I am confused. You are saying you have ALL education funds in 529 plans, and yet you expouse the virtues of UGMA accounts? Also, could you explain to me how "overfunding" a 529 plan involves a big tax hit? You do know the taxation rules on 529 distributions for qualifying education expenses, right?

Quite frankly, I am struggling to suppress the impression that you're the one who's unfamiliar with the taxation rules on 529 distributions. I never said I had "all of my education funds in 529 plans", rather that I had them in a mixture of 529 plans, UGMA accounts and other accounts. The reason for this is specifically to avoid some of the negative consequences of the 529 withdrawal rules. The IRS doesn't allow tax free 529 distributions to be used to pay the $4,000 in expenses needed to qualify for the full American Opportunity credit. You either have to pay taxes on part of your 529 distributions or not claim the American Opportunity credit.

I would direct your attention to example 2 in the following IRS publication, in which Sara's parents incurred (perhaps unwittingly) additional taxable income by taking a 529 distribution to pay for the $4,000 in expenses used to claim the American Opportunity credit. If they had been able to withdraw that $4,000 from some other account instead, they would have reduced their tax liability.

So in order to accomplish the dual goal of minimizing taxes while maximizing educational tax credits, it's generally necessary to keep only a portion of one's educational funds in a 529 account. In my earlier post I was advocating UGMA accounts for the funds kept outside of the 529. That has worked well for my family, and is worthwhile for others to consider as well. If that doesn't work out in individual circumstances, there are certainly other choices as well. The key is to avoid dumping everything into the 529 on the theory that withdrawals will be tax free. The "100% into a 529" approach is probably going to lead to unpleasant suprises once withdrawals begin, especially for people like jon-nyc, who already had $250k in his son's 529 plan prior to his 4th birthday.

Publication 970 (2012), Tax Benefits for Education

 

[sengsational]

Regarding the cost, I've loved this infographic from NPR (supplemental to a podcast) showing that the true net cost college has not increased like everyone claims it does. Sticker price has raised, but what kids pay (on average) has actually decreased when factoring in inflation.

The problem with those averages is that not everyone will get the discounts. Those discounts come largely from financial aid. Since financial aid ignores retirement accounts, maybe people here who have "everything" in retirement accounts, could get the discount. But the financial aid formulas expect the parent to drop about 6% of your non-retirement assets annually. So if you have two kids, not at college at the same time, after they're done, the formulas have you with about half the assets you started with, not to mention a good chunk of your paycheck. The bottom line for the discounts is "if you have the money, you won't get the discount". And I presume that most people on this board "have the money".

And for all of the discussion about a couple thousand here and there with taxes, that's peanuts compared to the discounts (many thousands per semester) you can get with the "right" FAFSA inputs. One thing is for sure: UGMA is a super dumb idea if you're going to try for financial aid. You save $12 is taxes and then your financial aid discount is cut by $1,200, hehe.

 

[Mulligan]

The problem with those averages is that not everyone will get the discounts. Those discounts come largely from financial aid. Since financial aid ignores retirement accounts, maybe people here who have "everything" in retirement accounts, could get the discount. But the financial aid formulas expect the parent to drop about 6% of your non-retirement assets annually. So if you have two kids, not at college at the same time, after they're done, the formulas have you with about half the assets you started with, not to mention a good chunk of your paycheck. The bottom line for the discounts is "if you have the money, you won't get the discount". And I presume that most people on this board "have the money".

And for all of the discussion about a couple thousand here and there with taxes, that's peanuts compared to the discounts (many thousands per semester) you can get with the "right" FAFSA inputs. One thing is for sure: UGMA is a super dumb idea if you're going to try for financial aid. You save $12 is taxes and then your financial aid discount is cut by $1,200, hehe.

I am with you on this. I have true apples to apples comparison, and college costs swamp the inflation rate in competition personally for me anyways. I paid $30 a credit hour in mid 80s. Now this year it is $290 a credit hour. I got the privilege of paying full rack rate then, and get an encore opportunity with DD this year. This is not including all the newly created "fees" over the years which almost entails everything up to a "breathing campus oxygen air fee".

 

[Sue J]

Our older son was at a state university 2002-2006. Tuition, room and board was around $13,000 for the first year, increased around $1000 each year for a total of $58,000 for the 4 years.

DH's parents had set up a granchildren's college fund in a 529 that supplied around $5,000 each year. He also had a $2000/year scholarship from the state for a high GPA. We covered the rest with Stafford loans (his name but our debt) savings and cash from income. When he graduated we paid the loans for a couple of years and then paid them off early when DH retired.

The other son was in college 2005-2009. He did one semester at the same state university as his brother but didn't like it and transferred to a nearby state university and commuted from home. Tuition, fees and books was approximately $9000 - $10,000 a year but we also covered his car expenses (gas, insurance, parking, repairs and maintenance) and meals associated with his school schedule. We paid for all this with the grandparents college 529 of $5000/year and the rest from income and savings.

So both sons have 4 year degrees and no student loan debt. The grandparents 529 is now covering 5 other grandchildren and they are receiving quite a bit more than $5000/year due to the funds increasing over time. Three of the grandkids are in Colorado and college at a state university there is much less expensive than in Ohio.

 

[studbucket]

The problem with those averages is that not everyone will get the discounts. Those discounts come largely from financial aid. Since financial aid ignores retirement accounts, maybe people here who have "everything" in retirement accounts, could get the discount. But the financial aid formulas expect the parent to drop about 6% of your non-retirement assets annually. So if you have two kids, not at college at the same time, after they're done, the formulas have you with about half the assets you started with, not to mention a good chunk of your paycheck. The bottom line for the discounts is "if you have the money, you won't get the discount". And I presume that most people on this board "have the money".

And for all of the discussion about a couple thousand here and there with taxes, that's peanuts compared to the discounts (many thousands per semester) you can get with the "right" FAFSA inputs. One thing is for sure: UGMA is a super dumb idea if you're going to try for financial aid. You save $12 is taxes and then your financial aid discount is cut by $1,200, hehe.

I guess I don't get the criticism that the problem with averages is that no everyone gets them...

Isn't that the nature of an average, there are extreme outliers on each side? Some students get nothing, some students get more than they need. On average, students pay less than the sticker price. The sticker price is all the media ever reports on, so we get tons of college about stories of people with tons of student loan debt, because they choose from the outliers, not the average.

I am with you on this. I have true apples to apples comparison, and college costs swamp the inflation rate in competition personally for me anyways. I paid $30 a credit hour in mid 80s. Now this year it is $290 a credit hour. I got the privilege of paying full rack rate then, and get an encore opportunity with DD this year. This is not including all the newly created "fees" over the years which almost entails everything up to a "breathing campus oxygen air fee".

My anecdote is different. I got 1 $1000 scholarship before going to school, but once you get in, departments and the school have scholarships you can apply for every year. With the internet added on, there's more scholarships then ever to go around. Once I became a grad student and got a TA/RAship, my school decided to fully pay my tuition.

My wife went to a small private college, which had a sticker price that was over twice as much as my public university. However, neither her, nor any of her 3 roommates, paid anything close to that. They all had tons of financial aid/scholarships (and they had very different family financial backgrounds). She paid less for me than college her first year. Then she transferred to the same state university as me and got a nice scholarship for transferring (literally, there's money set aside to provide scholarships for transfer students), and was still paying less than me.

Then you can look at my brothers, who did nothing special in high school from a grades, testing, or extra-curricular standpoint, but because their birth father was hispanic (and they've long since disowned him), they could mark "minority" on their application and get $20k scholarships. They lost them, because they're lacking wisdom, but that's another story.

Long story short, we hear all about how much college costs, but financial aid is more plentiful then ever, especially if you are willing to consider several different colleges, especially different types. Check out 2 small private schools along with the major state schools, and so on.

All the articles about people leaving with $150k in student loans, probably didn't try to find a decent deal at college and also probably spent all 4 years in student housing. Both of those are bad ideas when off-campus housing is less than half the price of university-provided housing.

 

[Mulligan]

I guess I don't get the criticism that the problem with averages is that no everyone gets them...

Isn't that the nature of an average, there are extreme outliers on each side? Some students get nothing, some students get more than they need. On average, students pay less than the sticker price. The sticker price is all the media ever reports on, so we get tons of college about stories of people with tons of student loan debt, because they choose from the outliers, not the average.

My anecdote is different. I got 1 $1000 scholarship before going to school, but once you get in, departments and the school have scholarships you can apply for every year. With the internet added on, there's more scholarships then ever to go around. Once I became a grad student and got a TA/RAship, my school decided to fully pay my tuition.

My wife went to a small private college, which had a sticker price that was over twice as much as my public university. However, neither her, nor any of her 3 roommates, paid anything close to that. They all had tons of financial aid/scholarships (and they had very different family financial backgrounds). She paid less for me than college her first year. Then she transferred to the same state university as me and got a nice scholarship for transferring (literally, there's money set aside to provide scholarships for transfer students), and was still paying less than me.

Then you can look at my brothers, who did nothing special in high school from a grades, testing, or extra-curricular standpoint, but because their birth father was hispanic (and they've long since disowned him), they could mark "minority" on their application and get $20k scholarships. They lost them, because they're lacking wisdom, but that's another story.

Long story short, we hear all about how much college costs, but financial aid is more plentiful then ever, especially if you are willing to consider several different colleges, especially different types. Check out 2 small private schools along with the major state schools, and so on.

All the articles about people leaving with $150k in student loans, probably didn't try to find a decent deal at college and also probably spent all 4 years in student housing. Both of those are bad ideas when off-campus housing is less than half the price of university-provided housing.

Without question people make poor choices and do not look for value or spend their money on spring break. But finding scholarships isn't directly related to the inflation rate of colleges. Receiving scholarships and having low income to qualify for financial aid may get around the problem of the inflation for some, but it is still there. I am not even saying that the increased cost is undeserved as in our state, the level of funding in terms of percentage of state revenues has declined significantly over the years, so there would be some need for revenue other ways. I love the trick some mediocre private schools do in my area on the unsuspecting or naive. Offer $15,000 scholarships to kids and they go there based solely on the ego of receiving the scholarship, but in reality the state school is still cheaper with no financial aide and a better reputation to boot. Or take advantage of kids who won't let go of their athletic dream and are offered an "athletic scholarship" to some nowhere private school and then dump them on the college JV team until they graduate or transfer. When in reality they would have been better served by no scholarship and saved money by going to the state university with the better education, also. Once again these are just examples based on individuals and is certainly not meant to be a reflection on colleges everywhere or for everyone.

 

[hausfrau]

We have about $25K in a 529 for DD's education (about 14 years away), but we are adding more to it each month. I hope to be able to pay for 4 years of state school. Who knows what kind of student DD will be though.

I'm amazed how fast the time goes with children. I imagine 14 years will be here before I know it.

 

[wmc1000]

My parents paid for my college education in full. I didn't appreciate it while I was in school and I must admit I probably didn't apply myself as hard as I could have. That being said, I have had a successful life financially. For my 3 kids, I paid for 50% of the cost for tuition, room and board, books and other living expenses and they paid for the other 50% either with summer job earnings, and student loans. This approach, I believe, where they had "skin" in the game made each of them more accountable for their own educational success and all 3 have successfully transitioned to an independent life after college without any boomerang issues. I love my kids but I want them to be independent of DW and I.