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Re: College Costs While ER'd
Old 04-14-2006, 10:49 AM   #21
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Re: College Costs While ER'd

Lots of good points here, like the kids incomes cannot keep up with college expenses and often college is taking more than 4 years. Another reason for choosing a public college is not only are they cheaper and can be of good quality but they tend to follow a formula about admission and financial aid. With private schools they can ask *whatever* questions they want. A friend of mine's son went to CALTECH and the school required my friend to take out a mortage on his paid off home to pay for part of the college costs. Now this school is so well endowed, they have enough money to pay for 100% of every student. If you are at the very top of the nation academically you get a free ride regardless of parental resources.
So there are a lot of issues but IMHO nothing beats putting some money away now because there are too many variables in the whole college process.
If my younger son, still in high school, were to get into Stanford or CALTECH I would be happy to keep working (in part since I like my job) because nothing gives me more pleasure then seeing my kids succeed. But I will support him rather than push him in his studies. And I've set up a DRIP stock fund for our first grandchild, maybe she will not have to worry about college financing.
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Re: College Costs While ER'd
Old 04-14-2006, 11:00 AM   #22
 
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Re: College Costs While ER'd

We have 2 sons. *Several years ago we used the Texas Tomorrow Fund, which is a prepaid tuition plan, to fund 4 years of college for each son. *This was just before tuition and fee costs were about to skyrocket, so each child cost us about $17,000 for 4 years of college at any Texas university. *

Fast forward to the present... Older son is a freshman at one of the flagship universities and very happy. *Younger son is several years away from college but very happy to attend same college as older brother. *

Room and board is about $3500 hundred per semester which totals about $28,000+ for 4 years for older son and about $35,000 for younger son due to inflation..

They both have enough in their college funds plus some extra to cover room and board. *The college funds are UGMA funds started when they were young. *They will each be responsible for misc expenses, textbooks, car expenses etc. *Older son has held summer jobs since he was 16 and can easily cover those expenses. *

So each child (hopefully) will have a 4 year education at a very good state school for about $50K total... For graduate school they are on their own...*
. *
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Re: College Costs While ER'd
Old 04-14-2006, 11:37 AM   #23
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Re: College Costs While ER'd

Quote:
Originally Posted by samclem
But, then, she's one of the dwindling few HS juniors at her school without her own car, too.* Damn cheapskate dad.
We're saving our '94 Ford Taurus wagon for our kid's use.* 98K miles, two tons of sheet metal, automatic transmission, & ABS.* We'll ignore for now the fact that it could also haul seven passengers or be transformed into a rolling bordello.

We know a kid at tae kwon do who just reached 2nd dan black belt.* She's the daughter of a patrol cop dad and mom is also a black belt.* When the kid turns 16 (a few more years) she'll be permitted to drive her dad's three-year-old Shelby Cobra.* Hmmmm...

Phew, Al, don't let our kid find out what your kid gets for an allowance!

As for our kid's college money, we've set aside what we think should cover four years at UH's resident rates or at least a couple years anywhere else.* We've also told her that there will be profit sharing of every scholarship that she manages to pull down, so winning scholarships will literally put money in her pocket as well as pay for her education.* (Gotta motivate her to fill out all those applications.)* And eventually she'll realize that what's left of her college UTMA will fund a home down payment (or a heckuva party)-- more scholarship motivation.

2009, the year before she goes to college, we'll optimize the FAFSA.* There will be no IRA conversions, no Reserve paychecks, no momentum-trading cap gains, and an absolute minimum of passive income.* It never occurred to me that we'll be doing FAFSAs & scholarship applications every year, though.* I'm not sure that we can maintain such discipline all the way through 2013, though.*

If all of this doesn't work out, she's always free to join the military and go to a service academy.* Over her mother's dead body, anyway.

The college-savings strategy that confuses me is when to shift to bonds.* Theoretically we're supposed to exit the stocks this year (she's starting 9th grade) and start moving toward a bond/CD portfolio over the next year or two.* However we already have some EE/I bonds set aside for the first year's tuition, there's always the unexpected prospect of a little help (however small) from Grandma & Grandpa, and work/study plus scholarships will probably pick up a good bit of the load.* Plus it makes no sense to me to go to bonds now for the portion of her college expenses that won't be paid until 2013-4 (senior year).

I'd hate to get hammered with a bear market in the year before college, but I'd hate just as much to cash in all those cap gains for a kid who could end up not needing any of it.* Admittedly the first issue is fiscal and the second is mainly emotional.

Anyone else solved the college-fund asset-allocation strategy problem?*
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Re: College Costs While ER'd
Old 04-14-2006, 12:10 PM   #24
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Re: College Costs While ER'd

"Anyone else solved the college-fund asset-allocation strategy problem? "


A few months ago I moved my son's main UGTMA fund from a pretty mutual fund into the local credit union. Although I probably lost some growth I cannot take the chance of the fund tanking. Also it makes it easyier to spend down now on current school related expenses. My son's high school band just spend spring break on a trip to China. There went $1.5K, but I think it was money well spent.
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Re: College Costs While ER'd
Old 04-14-2006, 12:56 PM   #25
 
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Re: College Costs While ER'd

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Phew, Al, don't let our kid find out what your kid gets for an allowance!
I figured someone would notice that.* That $100/month allowance was for everything except food (at home) and things required at school.* That is, she paid for her own clothing, entertainment, any food outside the home, gifts, shampoo, etc.

That system worked very well, and she's grown up to be as cheap as her old man.
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Re: College Costs While ER'd
Old 04-14-2006, 01:07 PM   #26
 
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Re: College Costs While ER'd

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Anyone else solved the college-fund asset-allocation strategy problem?
Well, here's my solution. The guiding principle "It's all one bucket." That is, it doesn't matter that some money is earmarked for education, some for emergency funds, some for retirement, etc. As far as asset allocation is concerned, it's just one bucket.

So, you decide on your allocation (e.g. 60/30/10) and adjust to that for your portfolio as a whole.

Now, if there is some money that has to be spent, say, on education, such as UTMA money, and will be needed soon, then use that for your cash portion of your allocation. When you write the check to the University, you rebalance.
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Re: College Costs While ER'd
Old 04-14-2006, 01:14 PM   #27
 
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Re: College Costs While ER'd

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We've also told her that there will be profit sharing of every scholarship that she manages to pull down...
Have you figured out exactly how you will structure this?

We tried this by saying "We'll pay a certain amount, and if you get more scholarships than needed to cover the rest, you get to use the excess to reduce your loans or your personal contribution."

But that didn't really work, because the cost of the college was so high that the scholarships didn't come close to paying the difference between our planned contribution and the full cost.

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Re: College Costs While ER'd
Old 04-14-2006, 01:39 PM   #28
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Re: College Costs While ER'd

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Originally Posted by Nords
Anyone else solved the college-fund asset-allocation strategy problem?
I plan to do prety much what Al suggested. We don't have any 429 or UGMA accounts set up, so we`plan to rebalance our investments each year and sell overweighted assets to pay for school.
- Two issues I know we'll face:
- Should we sell and pay capital gains on an asset, or take the money out of the Roth IRA and pay nothing? My gut tells me that we should sell up approx the next income bracket, then take out of the Roth. I'l have to crunch numbers on this.
- I-Bonds: We bought these when they were still a really good deal (approx 3.5% plus inflation). I bought them intending to sell them to pay for DD's college, but I can't get that rate anywhere else today. I really hate to sell 'em, even though I can avoid all taxes if the $$ goes to pay for school. Nords, I see you've got 'em too, are you planing to sell them for college costs?

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Re: College Costs While ER'd
Old 04-14-2006, 04:39 PM   #29
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Re: College Costs While ER'd

I just worked six years and put all of my money towards state college education while DH paid the family bills. After the six years was up I put all my money towards savings for the past four. We have the best of both worlds, 2 kids with little college debt and money in the bank. we'll still retire by 55.

I have no regrets. My kids also contributed, and graduated in four years with professional degrees and make more than me.

Was it a sacrifice? Yes. Was it worth it? Yes.

I would do it again. My feeling was part of having kids was giving them everything I could that was within my means that would help them. That did not include fancy shoes, cars, spring break trips etc. Education was the number one priority in our house. Besides, isn't financial aid for those who cannot afford it? You wouldn't expect someone to give you a car , you might drive a cheaper car or walk if you couldn't pay for one yourself.

I know I will get lots of negative comments for my opinion but too bad. Of course, I am not talking about people who cannot work due to disability, or get laid off and are making the best of their situation. I live in the USA, the greatest country on earth in my opinion. My life is better than most people on the planet. Most of the posters here are pretty well off from what I have read. I have more material possessions, more money in the bank and a bright future. I gave my kids a bright future too.
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Re: College Costs While ER'd
Old 04-14-2006, 09:16 PM   #30
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Re: College Costs While ER'd

Quote:
Originally Posted by yakers
"Anyone else solved the college-fund asset-allocation strategy problem? "
A few months ago I moved my son's main UGTMA fund from a pretty mutual fund into the local credit union. Although I probably lost some growth I cannot take the chance of the fund tanking. Also it makes it easyier to spend down now on current school related expenses. My son's high school band just spend spring break on a trip to China. There went $1.5K, but I think it was money well spent.
I guess we're going to have to do that in another year or two, but I wish I could figure out how much to set aside. The kid is infatuated with Eckerd College in St. Pete ($35K/year) but UH freshman tuition will only be about $8K. I guess the prudent thing to do would be to have about $15K in a CD by 2007 (for 2010) and another $15K in a 2011 CD. Then we could sell bonds or stocks to make up the difference.

Quote:
Originally Posted by TromboneAl
I figured someone would notice that. That $100/month allowance was for everything except food (at home) and things required at school. That is, she paid for her own clothing, entertainment, any food outside the home, gifts, shampoo, etc.
OK, we've been doing $50/month for her clothing/toiletries budget. Her allowance has been $3/week for seven years and I could see bumping it up to $10/week gas money when she's driving.

Quote:
Originally Posted by TromboneAl
Well, here's my solution. The guiding principle "It's all one bucket." That is, it doesn't matter that some money is earmarked for education, some for emergency funds, some for retirement, etc. As far as asset allocation is concerned, it's just one bucket.
So, you decide on your allocation (e.g. 60/30/10) and adjust to that for your portfolio as a whole.
Now, if there is some money that has to be spent, say, on education, such as UTMA money, and will be needed soon, then use that for your cash portion of your allocation. When you write the check to the University, you rebalance.
Her UTMA holds Tweedy, Browne. We parents hold EE bonds (from 1992-96) and a small I bond (last year) which we'll cash in tax-free for educational expenses. The I bond is last year's college savings amount set aside when I realized it'd probably be better to be in a bond/CD than to be buying TBGVX at $25/share.

We parents are also holding some Berkshire Hathaway in reserve but 35% of that is already cap gains. I'm not particularly interested in cashing that in, but I like your idea of taking something else out of the ER portfolio and putting it into a shorter-term bond/CD investment. We can take the long-term cap gains and maybe even balance a cap loss. Again the "how much" answer depends on the college tuition.

Quote:
Originally Posted by TromboneAl
Have you figured out exactly how you will structure this?
Nah, we thought of the idea but we're still pretty clueless on the implementation. Our first thought was a 50/50 split but then she'd just get a USNA appointment and expect us to pay her about $150K at graduation. (Yeah, she's show us!!) So that's probably a bad idea.

But I think we'd have to give her some sort of cash incentive. Maybe one-third for her, two-thirds for us parents. Or a smaller amount plus a promise to max out her W-2 contribution to her Roth IRA. As you say, profit-sharing would make a difference at UH but not much of one at Eckerd. But she's been practicing her foul shots and her fade-away jumper, too, so she's doing her share...

Quote:
Originally Posted by samclem
Nords, I see you've got 'em too, are you planing to sell them for college costs?
Yep, bonds don't have any place in our portfolio other than paying for college. We'll sell off those education bonds as soon as tuition's due, flatten her UGMA next, and we'll sell off stocks/CDs after that. Then, after she graduates, we'll sort it all out and figure out where our AA needs to be.

By that time she'll have her own Roth to use for her down payment on her first house...
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