College Funding - what did you budget for your kids?

[Aiming_4_55]

There was another thread about ER/College/Financial Aid, so it had me thinking....

I know there could be a large range of what is a fair or good number/budget for a kid's college fund, based on many factors, i.e. parents/kids age, income, Midwest region, in/out of state, public/private, tuition hikes, inflation, etc.

DW and I are on the same page of wanting to fund college education/trade school for our kids within reason. We're thinking 4 years of in-state university tuition, but open to trade school if it fits them better.

General background: DW and I are turning 44 this year and DD will be 7 and DS 6. I plan to semi-retire (landlording only) by 48 - 50 depending on the joys of work. All the basic 401ks and IRAs are max'd out each year. No outstanding mortgages, loans, or credit cards.

Currently in 529 plans, DD has $67k and DS has $28k. I'm thinking of getting both to $75k, DD should reach that this year and DS will take 2 - 3 years. Both are with Vanguard equity and age based investment options with about 10 years before any money is needed for college. Maybe it'll double in 10 years, thus giving each kid $150k to get an education of some sort. (BTW I don't plan to tell them we have this set aside, but pay as you go scenario)

Now that I've typed this, it's a heck of alot more than I thought I would provide to my kids just for college, but it's getting more expensive.

Is $75k with 10 years of sitting in the market a reasonable amount in your mind?

 

[pb4uski]

What I would suggest is look at the 4 year cost of a handful of schools where DD and DS are likely to go - take the highest and make that your target. That is essentially assuming that investment results and college education inflation are about the same over the next 10 years.

But overall your $75k seems in the ball park. A simple investment might be a target date retirement fund with a target date equal to when you children will be in school. FWIW, I used the Vanguard Star Fund and was happy with the results.

 

[NanoSour]

I ran ESPlanner Basic assuming 30K/year per child (State University cost). You might try it out and see how different amounts affects your long term living standard. Enter your Family information in using the My Family link on the upper left side of the page, then enter your data.

Home | ESPlannerBasic

 

[Aiming_4_55]

What I would suggest is look at the 4 year cost of a handful of schools where DD and DS are likely to go - take the highest and make that your target.

Thanks pb4uski.

State Universities range from $7 - 13k for school year 2012-2013. Technical and Community colleges are low $5k.

So, avg $10k/year tuition at a State U, but the one I am guessing as likely is $8k.

Maybe I should lower the target to $50k.

I also don't plan to have much income during these years, so we qualify for some assistance as the application is required for part time university jobs too.

 

[Aiming_4_55]

I ran ESPlanner Basic assuming 30K/year per child (State University cost). You might try it out and see how different amounts affects your long term living standard. Enter your Family information in using the My Family link on the upper left side of the page, then enter your data.

Home | ESPlannerBasic

Thanks for the ESP. I've played with it previously I believe, but will check it out again. The affects on long term living standards .... that debate might have me working an extra 10 years.

 

[studbucket]

Our kids are 3 years and 10 months. We are planning on saving about $25,000 each in a 529 plan. It may be more or less depending on the market, but we invest the same amount monthly, aiming for that goal.

This is enough money to give them a nice start at a public university, giving them at least a free semester, and hopefully more.

 

[growing_older]

Total costs for a year at college are made up of more than just tuition. You should also figure room and board, plus books and expenses, which are usually not included in "tuition" figures. There's also some travel if it's far away. You may want your kids to pick up more or less of these costs, but as long as you are thinking about how expensive college is, you might as well think about all the expenses.

 

[jon-nyc]

I recognize I'm at one extreme here, but here goes...

I saved approximately 250k in my son's 529 prior to his 4th birthday, and prior to my retirement. I accept that there's a large overfunding risk inherent in that number, but I am entirely unconcerned about that. Really I wanted the comfort of having his education fully funded and off balance sheet* before I pulled the plug.

Note that 250k will pay for 4 years at tier one privates today. Thus if the 529 grows at the same rate as university costs, it would still do so in the future. I think the more likely scenario is the investments grow faster than university costs (in particular, private university costs), thus I expect this amount to fund grad school as well.

Of course if my planning assumptions are incorrect, or if there's a major dip in the markets in the next decade, I can midcourse correct.



*Its not legally off balance sheet, but I think of it as such

 

[studbucket]

Total costs for a year at college are made up of more than just tuition. You should also figure room and board, plus books and expenses, which are usually not included in "tuition" figures. There's also some travel if it's far away. You may want your kids to pick up more or less of these costs, but as long as you are thinking about how expensive college is, you might as well think about all the expenses.

From my recent experience in college, there's no reason to pay for room/board after year 1. As a freshman in 2004, I paid ~$8k for room and board (for 8 months). The next year I bought my own condo, split it with a roommate and ended up paying $3-4k for the entire 12 months. That was similar to rent other students could get in the area. That's an amount that loans are not needed for at all and just working a basic job at McDonalds will cover those expenses no problem.

If the students get the good college jobs that pay $15-20/hr, now they're actually saving money or paying tuition as they go.

I recognize I'm at one extreme here, but here goes...

I saved approximately 250k in my son's 529 prior to his 4th birthday, and prior to my retirement. I accept that there's a large overfunding risk inherent in that number, but I am entirely unconcerned about that. Really I wanted the comfort of having his education fully funded and off balance sheet* before I pulled the plug.

Note that 250k will pay for 4 years at tier one privates today. Thus if the 529 grows at the same rate as university costs, it would still do so in the future. I think the more likely scenario is the investments grow faster than university costs (in particular, private university costs), thus I expect this amount to fund grad school as well.

Your philosophy is vastly different than mine, so I have to ask a few questions:
1) Why pay for all 4 years of your child's education, instead of kick-starting them with a good fund, then making them handle the rest of their education?
2) Why target a tier 1 private? Nothing I've read or seen seems to show there's a real advantage that's worth the extra $150-200k over 4 years.

Thanks!

 

[Tree-dweller]

DW and I started putting money away when kids were young; turns out it wasn't enough money and they weren't young enough. DD applied to and was accepted to what she thought was her "dream" school: a Big Ugly school in Boston. The entirety of what we had saved was used up her freshman year, after which she decided her dream school was not worth it. She transferred to another, less crazy expensive school (which threw scholarship money at her) and graduated Summa Cum Laude. It meant more from us to help out, but we did it without too much pain. (I could say it kept me in the workforce longer, but I was still enjoying my job at that time, so it's a wash.)

Lessons learned (by me; You hopefully will be much better at this):

• College costs wound up being way more than I anticipated when I started saving. Tuitions skyrocketed.
• The combination of her applying "early decision" and us in our peak earning years meant she got diddly-squat in aid. Zip. Zilch. Zero. Big Ouchie. (Early Decision was a big mistake for us. She got in, but we had to accept their offer of (no) aid.)
• We should have had the earnest talk about realistic college expectations early and often. I caved completely when DD so eagerly anticipated attending her dream school. DW and I decided it was worth our sacrifice for her to attend. Then she hated it after a year.

So...I can offer no advice, only my experience. Good Luck!

 

[JBmadera]

Here in California the cost per year for a school in the UC system (all in - tuition, books, room and board, etc) is about $32k (say goodbye to $135k) and that's what we have set aside.....thankfully DD is graduating in June!!!!

 

[FinanceDude]

$80K each in accounts for tuition, etc. $20K each for incidentals. If they want to go to a very expensive school they need to find a way to pay for it. DW went o a private school on a 50% academic scholarship and I paid my own way 100%, so we are open to a dicussion about helping more but they would need to come up with plan and present to us..........

 

[jon-nyc]

Your philosophy is vastly different than mine, so I have to ask a few questions:
1) Why pay for all 4 years of your child's education, instead of kick-starting them with a good fund, then making them handle the rest of their education?

Well, a couple of reasons. Firstly, I suppose, like many people my attitude is shaped by my own experience. In my family its something of an intergenerational pact - my grandfather paid for his kids, my parents paid for us, and I'll pay for mine. In fact, even my grandfather - the first in our lineage to go to school - had his way through MIT paid by much older siblings, his parents had passed away young.


The other reason is to not limit his options. 20-30 years ago when college was much cheaper I think the idea of paying your own way was much easier to pull off. Now it can still be done, of course, but it either forces you into the less expensive options or forces you to take on lots of debt. Even the higher-end state schools aren't affordable on a typical college kid's earnings.

2) Why target a tier 1 private? Nothing I've read or seen seems to show there's a real advantage that's worth the extra $150-200k over 4 years.

Well, I don't know that I'm 'targeting' a private so much as keeping all of his options open. If he gets into Yale and wants to go, I want him to be able to go. If he wants to go to Albany State, I'll pay for that too. But I don't want his options limited by anything save his own abilities and interests.


As for advantages, I think there are clear advantages to elite institutions, I think where the advantages start to disappear is if the data get watered down by looking at all private institutions. Just to list some examples - its been 30 years since we've elected a president or confirmed a SCOTUS justice that didn't come out of Harvard or Yale. What are the odds that that could happen by pure chance? Some 15% of Fortune 500 CEOs have Harvard degrees, another 5% have degrees from Stanford. Again, what are the odds that is a result of pure chance?

To be sure - I'm not sitting here planning my son's run for the presidency or stint as CEO of JP Morgan. I merely list the above as clear examples that certain outcomes are far more likely if you attend an elite institution than if you attend a decent or even great public school (or non-elite private, for that matter).

I should add I graduated from a good (not great) public school myself, so I'm no education snob, and of course I realize there are lots of paths to success. I just am fortunate enough to be in a position where I can support whatever educational opportunity comes my sons way.

 

[Mulligan]

Only having one child made it simpler and less expensive. The plan was simple. Going to JUCO for first 2 years, which was basically free. I am paying one year at State U (about $20k) and the ex is paying the other year. She was told if she goes longer than 4 years it is coming out of her own wallet or loan. She has a roadmap to be out of college debt free, but she will have to follow it.

 

[rodi]

I'm targeting a good chunk toward a public school education. My goal is $100k per kid... which is enough for a Cal State University education, and almost enough for a UC education. If they live at home - good. If they live away from home they will have a ramen budget and probably a part time job.

I'm about 1/2 way towards the savings targets and my kids have 6 and 8 years left till college. I think I'm in good shape.

I have a budget item in my retirement to continue to fund at the current rate ($6k/kid/year) until the are 22 yo. If they take too long (like I did) they will have to shoulder more of the cost. If they go to a junior college (like I will encourage them) or finish their IB program completely in high school - that will free up money towards grad school. Or they can go to grad school like I did - using corporate tuition reimbursement, attending at night.

I'd like them to graduate without student loans. If they get accepted to a private school - the budget doesn't change so they better get academic grants/scholarships. (I'm strongly encouraging them to NOT acquire debt.)

FWIW - even in the UC system there is some variability of cost - on campus/in state for UCSD is only $120k. Cheaper if they live at home (and we're close - they could take a bus or ride a bike.)

 

[rodi]

I forgot to mention our plan B. My sons are dual citizens (Italian). So they could go to highly respected, but lower cost universities in the EU, without visa worries. This would save on tuition, but probably cost a lot more in travel... not just for them - we'd go visit a lot.

But if they manage to finish an IB degree in high school (oldest is starting an IB program this next year) they will have a jump up on college - both in Europe and in the US. IB can provide up to 30 units of credit with the UC system (assuming the kid passes all 6 higher level exams.)

 

[kmt1972]

I recognize I'm at one extreme here, but here goes...

I saved approximately 250k in my son's 529 prior to his 4th birthday, and prior to my retirement. I accept that there's a large overfunding risk inherent in that number, but I am entirely unconcerned about that. Really I wanted the comfort of having his education fully funded and off balance sheet* before I pulled the plug.

Note that 250k will pay for 4 years at tier one privates today. Thus if the 529 grows at the same rate as university costs, it would still do so in the future. I think the more likely scenario is the investments grow faster than university costs (in particular, private university costs), thus I expect this amount to fund grad school as well.

Of course if my planning assumptions are incorrect, or if there's a major dip in the markets in the next decade, I can midcourse correct.


*Its not legally off balance sheet, but I think of it as such

Wow. How did you get 250K into 529s? I thought putting more than 13K hits the gift tax. Perhaps it is under your name?

Anyhow, my kid is 2. I have about 40K in his 529 and I plan to put in 10K every year until he goes to college when I think it will be 200K in inflation adjusted terms mostly for the tax benefit. That is most likely not enough if he goes to a tier one private college but will cover a lot of it. On this topic my wife have very strong feelings on this with my support. Both she and I went to elite private colleges and while our respective parents paid for some of it, both of us were expected to work during the summer and school year to pay for part of it as well as get various scholarships. My wife's family actually paid very little for her very expensive education. My wife feels strongly that she wants our son to have the same experience even as we will have plenty of money to pay for the entire college and grad school costs. So if anything she feels we have too much in the 529s.

One risk I see with putting in 250K in is if you end up not spending all of it on college there is a 10% penalty on the CG that were not spent on college. I guess if there is a surplus it can go to your grandchildren's college expenses.

 

[jon-nyc]

You could put 26k in as a couple until this year, now you can put 28k in without filling out any forms. With 529 you can also get an 'advance' on the gift tax exemption for up to 5 years, meaning as a couple you can put in 140k.

Also, my son was born in 09, when stocks were on sale. Every $ you put in then is worth $2 today.

 

[jon-nyc]

One risk I see with putting in 250K in is if you end up not spending all of it on college there is a 10% penalty on the CG that were not spent on college. I guess if there is a surplus it can go to your grandchildren's college expenses.

Yep there's an overfunding risk. I'm willing to accept that. As you point out it can go to grandkids or other qualified folks, or one could take it out and pay a penalty.

To me thats no real risk at all - I have more money than my family needs, so much will be passed down. If some of that goes in the form of a college fund that's ok by me.

 

[ronocnikral]

Our goal is to save up enough to pay for 4 years of tuition/fees for the little tike. She can either live at home, scrounge up scholarships, take out loans and/or take a j*b to supplement the rest. If she is really struggling at the time, we'll step in, but only as a last resort.

We currently have about $15k saved (contributions from grand parents included), and am targeting $30k in today's dollars. As inflation occurs and/or market returns are sub-par, We will supplement as needed.

 

[eytonxav]

With our kids, we budgeted for 4 years at state schools. What happened is DS went on for his Masters and we shared the cost of that with him, while DD went to a state u for year 1 and then transferred to a private, and is now thinking a Masters at the same private, after she graduates in May, just when I am retiring.

Like someone else mentioned, do not underestimate the room/board/books/transportation/etc expense on top of tuition. It is not trivial.

That said, what really bugs me is how we have seen college costs go through the roof, while at the same time decent paying jobs for new grads (except for a few select majors) have evaporated.

 

[MBAustin]

We paid for both kids to attend private schools of their choice (and in fact both of them turned down offers of partial merit scholarships from other schools). The only conditions we had were that we would pay for only 8 semesters and all payments stopped if they got a tattoo. (Not kidding.) We did this because our parents did the same for us and because we had planned to do it since they were born.

 

[W2R]

My daughter was in college in the mid 1990's. We paid her tuition for state schools, fees, and books, and gave her $500/month, with the idea being that she would work half time for the rest of her living expenses. She did, as the projectionist and then assistant manager at a local movie theater. So, our funding of her college expenses came to about $8K/year, IIRC.

We thought that was pretty generous, since neither his parents nor mine had paid for any college for us at all. Their parents did not pay for theirs, either. I guess these days most parents pay (or co-sign loans for) a gazillion dollars in college expenses, with costs rising so dramatically. It's got to be tough.

 

[EvrClrx311]

I greatly value the lessons learned by picking up loans to pay for my 4th year of school. My parents had more than enough to pay for it but instead encouraged me to learn how the loan application process works and apply for student aid to pay for my 4th year. They gave me $20,000 at graduation - so technically it was a wash in total figures.

They recommended I either use that money as a down payment for a house, or to pay off my loans - whichever I felt more comfortable with. They also realized I could just go buy a new car with it. However the lessons learned from carrying that debt my senior year taught me to use the graduation gift more wisely, at least looking back I felt it did.

There was also something gratifying in paying for a part of my schooling. I always took it seriously, but with my own money on the line I definitely took it more seriously the last year. At the time I didn't know they had planned to give me such a generous gift at graduation. I averaged an even mix of A's and B's all through the first 3 years of school and got straight A's as a senior.

 

[sengsational]

I put the profit from a house sale into 2 529 accounts at ages 2 and 6. $50k each. I added another 10k each a few years later. Now, after 3 years at a private $chool, the one account has only $20k left. But the untouched account is at $130k, to be tapped in the fall.

The only reason the nearly depleted account lasted as long as it did was because I put assets into a variable annuity. Got a huge discount at the $chool for doing that!

What I figured I could do if the one account runs out is change the beneficiary on the $130k account long enough to pay the expensive school for my older daughter, the switch it back to pay for the younger daughter's school (state public university