How Should We Think About College Savings?

[ronocnikral]

NB is correct to some degree. However, if you know where you want to go and which program you want enroll in before you start, it can be very advantageous. My college wouldn't accept Physics classes from any other school (even MIT or Caltech if you tried). But, Calculus (lowest level of math offered), chemistry, economics, liberal arts, physical activity etc were all accepted. If one knows beforehand where they want to go, they can talk to both schools and make sure what they are doing at the juco makes sense/cents. I helped a young person from my church do this very thing and I was surprised that most juco's already knew what would transfer, we still checked with the school this girl wanted to go to.

Also, I am also going to advocate DD to start attending juco in high school. for instance, instead of me taking 2 years of calculus in high school and 2 years of chemistry, I could have knocked out some college classes and high school classes at the same time.

 

[NeverBored]

I was surprised that most juco's already knew what would transfer, we still checked with the school this girl wanted to go to.

Also, I am also going to advocate DD to start attending juco in high school. for instance, instead of me taking 2 years of calculus in high school and 2 years of chemistry, I could have knocked out some college classes and high school classes at the same time.

If you are in California - sounds like you are - you can go to assist.org and look up the transfer articulation lists for all the CA community colleges and state universities. You can see exactly what courses will transfer and will be equivalent to the required university course. These are listed by academic year, by department, major, etc., and it's a great tool.

Good luck to your daughter. That's a great way to get some things out of the way. AP credit can help too.

 

[ronocnikral]

Well, my daughter is only 2.5 months. I am making big assumptions that things won't change much in the next 15 years or so. And I'm in UT, but I helped the young lady out in TX!

Thanks for the website though!

 

[Independent]

I'll repeat stuff that's said above.

We were aggressive savers when our kids were small, but we didn't have any savings labeled "college".

We paid off the mortgage about the time our oldest child started college. That freed up cash flow. We also found that our supermarket bill really did go down when those kids lived away from home. And our savings rate went down, but not so much that I had to work to 65.

All three went to private colleges, but I'm not convinced that was a cost effective choice. We could afford it. If we had less money, I would have said public universities or scholarships.

If kids are very bright, they will get academic scholarships to most private schools - remember there is a sticker price and a real price.

 

[ProGolferWannabe]

My thoughts:

If your kids do well in their high school studies, and demonstrate that they have some reasonable outside interests, there is no reason they won't be able to secure some merit based aid when they attend college. My own personal experience with our kids is that smaller liberal arts schools are rather generous with merit based aid in order to attract decent students who might otherwise go elsewhere. In short, the list price of college is probably not what you will have to pay. Seems to me like you are on a good track to fund your kids' educations.

 

[bubba]

Repeating stuff already mentioned, but seriously reconsider the private school stuff. DS is a 25 y.o. engineer with MS from a state school. He scored a 31 on the ACT, so tuition was covered by scholarship. We paid room and board, etc. out of our current income (no loans). He only worked during the 3 co-op semesters and as an extreme LBHM type of kid, he stretched that co-op pay a mile! With no loans to repay all the savings we had for his education are now for his first house (still renting).

He is doing very well and enjoyed his college experience. Would he be in better shape now had he gone to a private school? No way to know, but he is very happy to have no student loans (a lot of his friends do have loans).

 

[Hamlet]

I think it depends a lot on which private school you are talking about.

I think I would pony up for a degree from Harvard or MIT.

I would be less likely to spend the money on the little local liberal arts colleges.

I'm not convinced that an undergraduate degree at a private college/university is worth the premium. That also includes paying for out-of-state tuition. Spend the money for the better school for the advanced degree(s). DD would not take my advice on this one. It was very expensive. We told her if she'd go to school in-state, we'd pay for her graduate degree too. We couldn't sell that idea. Now DD is thinking about an advanced degree and is faced with some bills/loans beyond her imagination. The choice was hers. I haven't asked her whether she now regrets her original decision. It's not my problem now.

 

[alexbalex]

I have two young kids and am planning on saving around $108K a piece for them, which I think with interest should provide an adequate cover for them to graduate a four year college without a crushing debt-load (I'm planning on asking them to contribute a very small amount towards their overall education costs, maybe like $1K a year, so they take college seriously)

One point I would like to raise: there is no way college costs can continue to increase by 6-7%, an inflation which has happened due to the increase in people going to college and the increase in access to student loans.

The reason for this is that in a very short amount of time, it would lead to college being completely unaffordable to the middle class. This would be a serious problem for any college, especially given the wealth of alternative options out there, including junior colleges, state schools, community colleges, etc.

If you look at the numbers recently, you'll notice that state school tuition is inflating at a higher rate than private schools. There are plenty of good reasons why this happening, but at least one of them, IMO, is that private schools have already inflated their tuition rates so high, that they have little ability to inflate them further without risking becoming completely unaffordable.

This is not to say that private tuition won't continue to go up, I just feel that it will go up at a more reasonable rate going forward.

 

[Sesq]

I have 529 plans for my two kids. Right now I am contributing a relatively paltry amount (2.5K/year). In a couple years when either the house is paid off and/or my wife goes back to work I intend to bump that up to ~17.5K/year.

I have 5% education inflation in my model, and expect the price to be about $75K private, ~35K public for my 6 year old. 85/40 for my 3 year old. My spreadsheet says I'll be able to fund 150% of public or 2/3rds of private for each kid. I intend to leave the choice to them. I think I owe it to them to at least fully fund a public education, if I can.

That said, I think something has got to give, and college is going to look different 10-15 years from now.

It was a tremendous help that my parents paid my tuition. I remember at 18, my father who did 13 years of night school supporting a wife and kids, saying how important education was to him that he would pay my tuition through a doctorate if that is what I wanted (unless I got married, at that point I am starting my own family, and on my own). I stopped at a Masters via a 5 year plan.

 

[haha]

I'm not convinced that an undergraduate degree at a private college/university is worth the premium. That also includes paying for out-of-state tuition. Spend the money for the better school for the advanced degree(s). DD would not take my advice on this one. It was very expensive. We told her if she'd go to school in-state, we'd pay for her graduate degree too. We couldn't sell that idea. Now DD is thinking about an advanced degree and is faced with some bills/loans beyond her imagination. The choice was hers. I haven't asked her whether she now regrets her original decision. It's not my problem now.

A young woman friend of mine lived in an upper midwest state with a very good public university system, including the flagship school which was almost right in her neighborhood. But after high school she decided to make a lateral move to an adjoining state and attend their flagship school, also a highly regarded state school. She funded this mostly through loans, rather than on the backs of her parents. Later she borrowed to get a mid-tier private MBA, which her husband would not pay for- so although he handled her living expenses, she had to borrow the full tuition amount.

Now she is divorced, working at 2 very so-so jobs, and making loan payments that exceed her studio apartment rent as a budget expense. She is really strapped.

I think we often do not consider what a snow job school guidance counselors and the whole academic system puts on students. They rarely have time to step back and consider whether any of this really makes any sense. Many people are also not yet aware that the major state universities are now very competitive in admissions. In any state with a large East Asian population, our sons and daughters are going to be studying all night just to keep in the middle of the curve. Anyone been on the Berkeley campus in the last 10 years?

Or walked down University Avenue in Seattle?

To get an education equal to, let alone better than, this type of environment is going to take the top Ivies or Stanford, or a few other very elite schools.
Parents need more authority over their kids, but this isn't going to happen in modern media-driven America.

Ha

 

[sheehs1]

Many smaller private schools have great scholarship/grant/merit awards, which as a package starts to compete with some of the more expensive public schools. The smaller privates publish a sticker price, but almost no one pays that sticker price.

We have two daughters graduating in May from two different small private colleges. They both have academic scholarships and loans, and one has a sports scholarship (which she's worked very hard to earn and keep). They both work, on and off campus (coaching, babysitting, tutoring, office assistant) and are responsible for their personal expenses and some living expenses. They pay their own car insurance/gas/repairs and cell phone bills.

What some people don't think about is - they will graduate in four years; most of their high school friends who took the community college or state university route will take five to seven years to complete their undergrad degree. A friend at a prestigious polytech university has waited two years to get into a required chemistry class that is a pre-req for his major courses. That slows you down a bit.

It's a big chunk (especially when you have twins) but manageable. Just be sure to look at all the options. One of the colleges our girls attends is considered to be one of the more expensive schools in our state. After her scholarships, college-based grants and interest-free loans, it is less expensive than the state school up the road. And she'll graduate in four years (many students at her school graduate in 3-1/2 years).

I had the same experience with our daughter. Our sons went to in state public. Our daughter went to in state private. As you said, no one pays the sticker price at the private colleges and in todays environment one should be able to get at least $8k to $10K off the sticker price right off the top. There are all sorts of scholarships and grants. This also is before any FASFA ranking (which like most here meant absolutely no aid to us).

Another factor to consider is room and board. We found the private college much cheaper. Our daughter lived in an apartment and then a town house with others on campus. No utility bills. College paid for all that and I'm sure it was embedded in the cost of room and board. Still, it was cheaper than what our sons did, renting housing within the city, paying utilities...etc.

 

[alexbalex]

I had the same experience with our daughter. Our sons went to in state public. Our daughter went to in state private. As you said, no one pays the sticker price at the private colleges and in todays environment one should be able to get at least $8k to $10K off the sticker price right off the top. There are all sorts of scholarships and grants. This also is before any FASFA ranking (which like most here meant absolutely no aid to us).

When you say no one pays sticker, how do they avoid it? I'm saving for my kids now, and am just wondering how people go about getting money off the sticker price.

I was fortunate enough to have my parents pay my college, so I'm not as familiar as I should be with the process.

 

[sheehs1]

If you look at the numbers recently, you'll notice that state school tuition is inflating at a higher rate than private schools. There are plenty of good reasons why this happening, but at least one of them, IMO, is that private schools have already inflated their tuition rates so high, that they have little ability to inflate them further without risking becoming completely unaffordable.

This is not to say that private tuition won't continue to go up, I just feel that it will go up at a more reasonable rate going forward.

ALso, private schools do not have the huge influx of students the public schools have had over the last 20 years. Most are small cities with 20K or 30K students. Infrastructure and maintenance needs are enormous. Public colleges have built and built and built.

 

[sheehs1]

When you say no one pays sticker, how do they avoid it? I'm saving for my kids now, and am just wondering how people go about getting money off the sticker price.

I was fortunate enough to have my parents pay my college, so I'm not as familiar as I should be with the process.

Alexbalex
It's not like we had to avoid paying sticker price. This is what happened in all cases with all private schools my daughter applied to. With the acceptance letter she received a tuition package or letter telling her how much each semester would be. It is offered up front. And it was always $8k to $10K off the sticker price.
It is not advertised on any of their websites...although you might be able to find an amount offered to the last class in tuition scholarships, grants...etc.
After the first year, my daughter was offered another academic scholarship that further reduced the tuition costs.
Private schools want to retain their students and do what they can to help them return each year.
I didn't know about this either when she started making applications to private colleges.
Might be worth calling a couple and asking them what the average semester cost is now for an entering freshmen. That might give you some idea of what is happening now.

 

[alexbalex]

Alexbalex
It's not like we had to avoid paying sticker price. This is what happened in all cases with all private schools my daughter applied to. With the acceptance letter she received a tuition package or letter telling her how much each semester would be. It is offered up front. And it was always $8k to $10K off the sticker price.
It is not advertised on any of their websites...although you might be able to find an amount offered to the last class in tuition scholarships, grants...etc.
After the first year, my daughter was offered another academic scholarship that further reduced the tuition costs.
Private schools want to retain their students and do what they can to help them return each year.
I didn't know about this either when she started making applications to private colleges.
Might be worth calling a couple and asking them what the average semester cost is now for an entering freshmen. That might give you some idea of what is happening now.

interesting, thanks for pointing this out. I'll try to do some research into this, when I have more time. Sounds like it could really result in some fantastic savings.

 

[sheehs1]

interesting, thanks for pointing this out. I'll try to do some research into this, when I have more time. Sounds like it could really result in some fantastic savings.

It was our experience. We are in Virginia. Others may have different experiences. Don't know.

 

[jIMOh]

My wife and I are ~40 with two boys, currently 6 and 8. We have a 529 plan for each boy and we have been making generous contributions to these plans since they were born.

Recently I did some detailed research on what a private school college education is likely to cost for them, based on current tuition & fees and current annual increase rates. This was a sobering exercise: Tuition and fees (private school) are on track to hit $100K/year when our 6 year old is a senior in college.

I would greatly appreciate any wisdom you can offer on this topic. How should we be thinking about college savings as part of our overall savings picture? Do we just keep contributing $10K/year (each) to the 529 plans for the next 15 years and then pay the full sticker price when they go off to school? Am I missing something here? Thank you.

Compare the cost of saving $10k per year "now" vs the amount you pay annually to your mortgage "now".

My guess is you might be paying more than $24k per year to your mortgage ($250k financed 30 years at 5%...)

I would use a timeline approach... look where you want to be in 10 years, is it the plan to set aside the $100k and see it compound to maybe $150k (conservative allocation as time gets closer)? Or is the plan to have a retirement with a paid off house in 15-20 years?

Use the timeline, maybe move the house to be paid off in 10 years, then for the 6 years you have kids in school, apply the $34,000 you spend each year annually "now" ($24k mortgage+10k college contribution).

This way if one kid does not go to college (like the younger one) you don't have a huge 10% penalty... you have a paid off house and liquid cash in taxable accounts.

 

[jIMOh]

A young woman friend of mine lived in an upper midwest state with a very good public university system, including the flagship school which was almost right in her neighborhood. But after high school she decided to make a lateral move to an adjoining state and attend their flagship school, also a highly regarded state school. She funded this mostly through loans, rather than on the backs of her parents. Later she borrowed to get a mid-tier private MBA, which her husband would not pay for- so although he handled her living expenses, she had to borrow the full tuition amount.

Now she is divorced, working at 2 very so-so jobs, and making loan payments that exceed her studio apartment rent as a budget expense. She is really strapped.

I think we often do not consider what a snow job school guidance counselors and the whole academic system puts on students. They rarely have time to step back and consider whether any of this really makes any sense. Many people are also not yet aware that the major state universities are now very competitive in admissions. In any state with a large East Asian population, our sons and daughters are going to be studying all night just to keep in the middle of the curve. Anyone been on the Berkeley campus in the last 10 years?

Or walked down University Avenue in Seattle?

To get an education equal to, let alone better than, this type of environment is going to take the top Ivies or Stanford, or a few other very elite schools.
Parents need more authority over their kids, but this isn't going to happen in modern media-driven America.

Ha

This post struck a chord.

The community college dialog is a good one
The bigger question should be occupation...

If interested in Business (for example), working during college, gaining experience in a field of interest would be of decent importance. Community colleges would improve the ROI by adding income to the student, lowering costs and really not delaying any career path.

On another side, if being a doctor or lawyer is of interest, getting into a good 4 year school which prepares students for the complexities of applying to law or med school is more important (IMO) than saving a few dollars at a community college which meets the credit requirement, but might give less guidance to the student.

The most important part of college is graduating with a piece of paper and making friends which last a lifetime. If a person does not value one or the other, community colleges will fit that bill.

The contacts I made in college 15-20 years ago are still really important to me today, and I am glad I went to a college which gets 99% of their graduates employment in industry after 5 years. This network is quite valueable when looking for specific contacts which do specific things.

I have had similar college conversations with numerous adults, and vocational occupations (plumbers, electricians etc...) are in demand, but few students are educated by their counselors as to making those careers a viable option.

The most important thing is to make sure your kids can handle working, and know what background to get for a specific occupation.

 

[ER_Hopeful]

Tell me why you are considering private college for your kids? I went to a private college and my daughter now attends a private college that we are paying full list price for. Bummer. Is it worth it? I have no idea,

I'm glad I picked a state college when I was facing with the multiple choice.
a) state college - about $4k a year after 2 yr at a cc
b) private university - $40k a year

yeah, b talked about the usual corp. connections, alumni etc but how many graduates could actually land a job by having those connections. I'm glad I went the practical route and with my current income level, it's the best ROI. I think what you study/major in has far greater impact on your job outlook. Some of the people I've worked with at mega corps went to private universities. we work the same job, get similar pay but their piece of paper they got on their walk cost many, many times more.

 

[muddy]

I think it depends a lot on which private school you are talking about.

I think I would pony up for a degree from Harvard or MIT.

I would be less likely to spend the money on the little local liberal arts colleges.

+1 there is a wide range in quality and income potential at different colleges (both public and private). Having attended a top 10-15 college, I think that I benefited from significantly better career opportunities then a lot of my friends from HS who attended State U (even though it was much cheaper). Painting all private colleges with the same brush would be like saying it doesn't make sense to spend $XX,000 dollars on a car and not specify whether it is a lemon, a dependable used car, a mid-range new car, or a Bugatti. While the costs are important, it is also important to understand you are getting....And the reality is that top schools (both public and private) provide a lot of great career opportunities to graduates, and some other colleges (again both public and private) offer little beyond student loan burdens.

 

[NeverBored]

When you say no one pays sticker, how do they avoid it? I'm saving for my kids now, and am just wondering how people go about getting money off the sticker price.

I was fortunate enough to have my parents pay my college, so I'm not as familiar as I should be with the process.

Many private colleges do advertise their scholarships on their websites. Most of these are academic, but there are other merit-based awards available. Here's a sample of academic scholarships that I just pulled off the website of one of our children's schools:


Competitive Full Tuition President’s $14,000 Provost’s $12,000 Dean’s $10,000
These levels are based on high school and test score performance. There are also awards for athletic, music, art, dance, and theatre. What is not on their website is that they have other very generous aid, such as interest-free loans and college-based grants. Some of these are need-based. DD received grant money from the college her junior and senior years. With athletic and academic scholarships, grants and interest-free loans, we paid about half the "sticker" price. Still a sacrifice for us, but it was the perfect school for her, and we are very happy that we were able to do it.

(And yes, the academic scholarship was more than the athletic one.)

 

[Nords]

Rice University just announced their retail rate sheet for this fall, which allows families to spend the summer discussing the financial situation.

Rice's policy is "If a family has a combined income of less than $80K then Rice will meet all financial need with some combination of grants, work study, and merit-based aid."

Of course tuition has doubled over the last decade, so Rice is trumpeting "only" a 4.9% rise for next year. Be sure to click on the graphic in the attached article.

Tuition up 4.9 percent, less growth than past - The Rice Thresher - Rice University

Incoming undergraduate students at Rice will be paying $36,610 for the 2012-2013 school year, 4.9 percent more tuition than current students are charged. This increase is a continuation of a trend that included a 5.4 percent rise in 2011-2012 and a 5.3 percent rise in 2010-2011.
In addition, the cost of room and board for 2012-2013 increased 2.7 percent to $12,600, bringing the total annual charge for undergraduates – including tuition, mandatory fees, and room and board – to $49,887, a 4.3 percent increase over last year.

I guess they're determined to hold the line on that $50K/year number.

Our daughter's sentiment can best be expressed as "Free tuition from NROTC, and the Navy's going to let me go submarines too?!? Woo-hoo!"

Second-generation sucker for a good deal. And a paycheck too.

 

[ProGolferWannabe]

There are an awful lot of very fine, lesser known small liberal arts colleges that tend to be very aggressive in giving merit based aid in order to attract students. This can make the cost of attending a private school competitive with attending a state school. I don't think attending a private school is necessarily better than going to State U, but for some kids, they may benefit from smaller class size, instruction from profs instead of grad students, the ability to participate in NCAA athletics (not everyone is a Division I athlete), etc. For other kids, they may get more out of attending a larger university---more diversity, more options academically, better research opportunities (especially in the sciences), etc. If your kids hit the books while in high school, they should have multiple options given you are putting money away now in a 529.

 

[jIMOh]

Kettering guarantees fixed-rate tuition | Kettering University

In 2012-13, Kettering will become the first STEM university in Michigan to guarantee fixed-rate tuition and eliminate all academic fees.

 

[ziggy29]

Kettering guarantees fixed-rate tuition | Kettering University

Best of luck with them in finding ways to prevent "education inflation" that exceeds their ability to fund it with this plan. Some states, Texas included, have pulled the plug on new enrollments into "prepaid tuition plans" that lock in specific, predefined tuition for enrollment periods years into the future. These often became unsustainable for the same reason insurers are getting out of the LTCI market (or have to reprice with massive premium hikes) -- chronic tendency to underprice the risk posed by rapid inflation that can't be kept in check.