College Savings/Aid Update

[TromboneAl]

Some of you may recall that I was feeling some regret at sending DD to a $41,000 per year college instead of a cheaper state school. We paid almost the entire tab for freshman year, getting a $2,100 scholarship from the college plus a few thousand in independent one-year merit-based scholarships.

We had saved for college, and about $23K of this savings was in my daughter's name (UTMA Account). Most of you know that money in the child's name greatly reduces chances for financial aid.

A financial aid rep told me that for sophomore year, the aid could increase to cover increases in tution, but you could appeal that if your situation changed.

We spent the UTMA money, and my income went down as part of semi-retirement. Our aid was increased to $3,500 to cover the tuition increase.

I sent in the appeal and they increased the scholarship to $10,000, and added work study and a Perkins loan. Along with a Stafford loan, this brings the total aid to about $20,000! So now, the cost is more comparable to a state school.

The moral of the story is:

1. Don't save money in an UTMA
2. Talk to the financial aid reps so that you understand how things work.

 

[brewer12345]

Yay! T-Al is back!!!

Glad to have you back, buddy. How's the beaver?

 

[Daneboy]

Al - I learned the hard way about UTMAs - dang it!
Good news about the scholarship - as Yogi says everynight on my tv - that's just as good as money.
Lot of these schools have that stuff laying around waiting for someone to ask

My kids went to private schools but in the 25-33 range - what a deal! - but non-loan aid money sure makes it more reasonable.

We sweated a scholarship award - our youngest son was the next in line - waiting to see if the guy ahead of him was going to attend - he said no - so son has 4 years of full tuition!

Your so right - having done the financial aid route for the older two - The money should be in the parents name (529, etc.) to get the best deal on financial aid.

My pet peeve was the financial aid system rewarded the family that spent all their money on luxuries, went into debt, had hardly any assets, didn't save for school, the kid didn't work and didn't save for school - they would end up with a better financial aid package then those that did all the right things.

 

[KB]

Hi Al...

Glad things will be less expensive for her sophomore year.
Both of my kids dropped out of college

 

[mb]

So what's the consensus on 529 plans?

 

[samclem]

529 plans: Our daughter will start college in just over a year. We haven't started a 529 plan, it just didn't seem to be worth the trouble based on the relatively short time until she started school, and we weren't paying state taxes. We'll start one this year-- just to pump money through and get the state tax credit (up to the limit--it varies by state).
IIRC, the financial aid formulii don't treat 529 money as harshly as they do funds that are in the student's name.

 

[TromboneAl]

We also had money in a TIAA-CREF 529, and that worked out fine.

 

[Nords]

Al - I learned the hard way about UTMAs - dang it!

Hey, let's all stop beating ourselves up.

When our kid was born (in Oct 1992) I can't even remember if the 529 plan existed, but I do remember that in the '90s most 529s had high expenses, little/no tax advantage in Hawaii, and no tax advantage on withdrawals (since changed).

Coverdells (again I can't remember if they existed back then) had/have low contribution limits. Same for Education IRAs. It didn't seem to be worth the effort.

The Savings Bonds for Education problem was effectively gutted in 1996 when EE bond rates started floating.

So UTMAs were a pretty attractive savings mechanism in an era when tax rates went from 28%-33%. What were we responsible parents supposed to do-- blow it all on CSCO & MSFT and hope that the college aid people would step in?

As tax rates went down and UTMAs became less useful, we stopped contributing. Our "mistake" was putting the UTMA money in a successful mutual fund (Tweedy, Browne) and letting compounding work its magic. Sort of like our ER plan. Oh, well...

As Al said, the money will either pay for college or we'll spend it down and appeal the financial aid package. Hey, kid, have you talked with your friendly military recruiter about the MGIB?

 

[cute fuzzy bunny]

We just dont and wont pay enough in taxes to make any of these plans worth the limitations.

Might be nice for some dual income families with multiple kids that are in the high tax brackets.

ER sure solves a lot of problems.

 

[mb]

Have money in UTMAs, Education IRAs and 529s.

I'm still putting $200/month/kid (have two) into the 529s and will probably continue to do that until they start college.

MB

 

[larry]

Thought this link might be pertinent concerning this conversation. Looks like congress is closing another loophole. http://www.bankrate.com/brm/news/advice/college/20060707a2.asp