College Funding - what did you budget for your kids?

[hakuna matata]

We sort of lucked out on the school thing I think. Here in Washington State they have a program called GET in which you they use the largest school here (University of Washington) as the marker for 100 credits. So you purchase 100 credits at today's tuition and when your kid goes to school they can purchase 100 credits in that year but at today's prices. So when I started purchasing credits they were $61/credit or $6100 for one year at the UofW (other schools you might only use 75 credits or 80 credits). The current price is $172/credit so that same 100 credits would now be $17,200!

But I took my bonuses at the time and in 4 years bought 400 credits (total outlay of about $34k)so she has guaranteed tuition for 4 years (or more depending on which school she goes to). If she chooses one of the smaller state schools the funds will go further. It was interesting I started out at $61 credit and finished at $99 credit and now it is $172 and rising.

She further helped as her last two years in high school she is attending the local community college in a program called "Running Start". In this program the state pays the tuition for the local community college and she gets credit for both high school AND the two year community college. (Btw--bragging dad here, she has made the deans list every semester this year!)

In theory next year she will graduate with both her high school diploma but also her 2 year associate degree. So when she goes to the UofW she will only have 2 years to go to get her bachelor degree.

We also have a fund set aside for her with about $18k in it. So overall I feel we are in good shape but who knows. I know she understands it is a local state school she has to attend, and she is on board with that.

 

[Enjoy the Ride]

We have 2 kids (4 and 3) and have set aside 33k for each kid. I'm planning to save at least enough to cover UC tuition so maybe another 15k for each kid.

Looking back my college years, I think it'll be important for them to work in college. I'm an accountant so I'm thinking, when they're senior in high school, they'll take an accounting class and I'll start a bookkeeping business and they can assist me. With that experience, they can land a comfortable job making decent money in college so they can pay for room+board. After college, they'll have solid work experience so it'll help with their job prospects. Perfect plan!! At least, I hope it works out that way...

 

[sengsational]

...when they're senior in high school, they'll take an accounting class and I'll start a bookkeeping business and they can assist me. ... At least, I hope it works out that way...

Obviously you haven't enjoyed the teenage years yet. My kids went their own way. They both kicked-butt at what they chose to do, but my ideas along the way just got eye rolls. Of course, I'm no iron fist ruler, hehe.

You have plenty of time to pump up the balance. I'd keep an eye on total cost of an education. The idea of working at school is a good idea, I think; some skin in the game.

 

[studbucket]

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.

<SNIPPED FOR BREVITY>

Thanks for the response, and thanks for not taking it as an attack. I can totally appreciate the value of a top school, especially for graduate school. I think the value at an undergraduate level may not be as high, but that's just my opinion (if I'm not wrong, many of those Ivy grads did grad school there, not necessarily undergrad).

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.

 

[stephaniee36]

I am saving for my daughter's college expenses, but have been telling her for years that if she gets a full scholarship that I will give her $10K in cash per year for expenses. She is 12 now and I HOPE this is sinking in.

 

[karluk]

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.

I would be willing to place a substantial wager that you will come to regret making such a large contribution to your son's 529 plan. Even if it turns out that there is no overfunding and your son uses the entire amount for his education, you will be in danger of losing out on valuable tax deductions that would be available if part of his educational funding came from non-529 sources. Current tax law says that you can't take (for example) the American Opportunity Credit based on educational expenses paid for from tax-free withdrawals from a 529 plan. You can get either the tax-free withdrawal or the American Opportunity credit, not both. Other tax credits have the same restriction. So for tax planning purposes, it is generally a better idea to put funds earmarked for education in a mixture of 529 and other custodial accounts, such as uniform gift to minors. That gives you a much better chance to minimize taxes while still qualifying for all available tax credits.

Of course you know your financial situation better than I do, so you may have already thought of this issue. In any case, it is highly laudable of you to provide so generously for your son's education, even if it turns out there are more tax-efficient ways of doing so.

 

[Katsmeow]

I believe overall that state schools are fine for undergraduate (there may be exceptions, but I am speaking generalities). When my kids were young I knew that with our income, DH and I could not expect much financial aid (I ran a calculator once on expected family contribution and it came out to $90k a year).

I also believe that in my state there is great benefit in spending the first 2 years in community college since academic courses will fully transfer to the state university and tuition is about 25% to 33% of the state university tuition.

We were willing to pay for room and board for the last 2 years with the first 2 years at home.

Of, course, best laid plans and all. It didn't shake out exactly as I expected:

Older son - We started paying room and board right away as he attended a community college that had dorms. We were OK with it as it was still less expensive than a 4 year school. However, after a semester he decided that higher education was not for him and he left school and joined the workforce (we tried to encourage him to attend CC for a career oriented course of study, but he refused).

Younger son - Younger son has ADHD, but was academically advanced. We ended up spending the equivalent of private college tuition for him to attend a therapeutic school and then the equivalent of public college tuition for him to attend a private high school. He graduated high school early and started CC at 16. Our expenses immediately went down as it was way less expensive than the other schools he had attended.

With his ADHD, he can't take more than 9 to 12 hours a semester and he has changed majors a few times so he is on the 6 year plan to graduate. Since he is relatively low cost for college, we are OK with that. He has spent 3 years in CC living at home - very low cost. We pay tuition, gas for him to drive to school, and his basic living expenses.

He is transferring to a state university in the fall and will need 5, maybe 6, semesters to graduate. We moved last year so that we are only an hour away from the university so he will be living at home for at least a year. We have said we will pay for him to live in a dorm (or maybe an apartment) for the last year or two.

Daughter - Currently in 11th grade - She is clear that she does not want an academic degree. She wants to attend community college and do a career oriented program. Most of those are 1 1/2 or 2 years long. She will probably live at home while she does this.

 

[jon-nyc]

I would be willing to place a substantial wager that you will come to regret making such a large contribution to your son's 529 plan. Even if it turns out that there is no overfunding and your son uses the entire amount for his education, you will be in danger of losing out on valuable tax deductions that would be available if part of his educational funding came from non-529 sources. Current tax law says that you can't take (for example) the American Opportunity Credit based on educational expenses paid for from tax-free withdrawals from a 529 plan. You can get either the tax-free withdrawal or the American Opportunity credit, not both. Other tax credits have the same restriction. So for tax planning purposes, it is generally a better idea to put funds earmarked for education in a mixture of 529 and other custodial accounts, such as uniform gift to minors. That gives you a much better chance to minimize taxes while still qualifying for all available tax credits.

Of course you know your financial situation better than I do, so you may have already thought of this issue. In any case, it is highly laudable of you to provide so generously for your son's education, even if it turns out there are more tax-efficient ways of doing so.

The American Opportunity Credit expired in 2012 AFAIK. And since its limited to 2500, I'd be withdrawing in any event. But to your point, it's entirely possible there will be some other credit I miss out on in 2027 when he goes to school. It's another type of overfunding risk, which I'm still happy to accept. If my big financial regret in retirement is having saved too much for my son's college, I'll consider the game won...

 

[lhamo]

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.)

Typically you can only take 3 higher level subjects in the IB -- MAYBE four if you are really gifted and the school will agree to let you try.

Too late for your oldest child, but if you have younger kids you might want to have them look at the United World Colleges. US citizens who get accepted get full scholarships from the Shelby Davis Foundation for the two year IB program, and then can get generous financial aid awards if they enroll in certain designated schools for their BA (mostly Ivies and Selective Liberal Arts Colleges). There is a campus in Italy -- in Duino - that is BEAUTIFUL (part of it is in the old castle. I attended the college in Wales, got an excellent education, and a totally different life than I would have had otherwise. Seriously, if your kids are interested in the IB and/or any kind of international or boarding school experience, look into the UWCs. It is an amazing program [alumni plug over]

I'm not sure my kids will be interested in UWCs, but hoping they will as that would potentially help a lot with college costs. We've got a decent amount saved up so far in their 529s, thanks to throwing a bunch in their accounts during the downturn and then stepping up contributions while things were building up. But now we are looking at shelling out a fortune to fund their pre-college expenses -- long story, but not a lot of options for us here in Beijing and we are not happy with what is available at a more affordable cost. So, we may end up not putting much more in the college fund. Hopefully they will find less expensive college options attractive. Though to be honest, with the way things are going I'm thinking more and more that I may just offer them their college funds as a business startup fund that they can access with a simple business plan (ala Ramit Sethi's approach) and let them learn to earn their own income and THEN decide if they want to spend that on higher ed themselves.

 

[jollystomper]

My parents were big on education due to their immigrant background and sacrificed to get me and my siblings (6) to attend the best schools that we could get into. So DW and I saved with the goal of getting our kids through school with a "gift" to them of graduating with no loans. So far we have been able to do that, but in all honesty after $250K spent the results have been mixed.

We have one kid left who has decided to go to a good public university in our state which will cost around $85K for 4 years (tuition, room, board, incidentals) which we have set aside. For us that is relatively cheap. He had been looking at a private university that was very interested in him, but that would have been close to $200K for 4 years and would have definitely delayed my FIRE goals.

We should have pushed him more for sports, I have a brother and sister-in-law (both doctors) whose oldest will be going to college as well this fall but on a full ride athletic scholar ship. But, to each their own.

 

[Mariez]

What would you do?

This may be a bit off topic but the potential decision is driving me crazy. Our middle son has his college selection down to two choices. He has been accepted into the business school of both colleges. Option 1. Indiana University. Total annual cost (out of state tuition, room & board, misc. books, etc. less scholarships) = $36,186. Option 2. Purdue University (out of state tuition, room & board, misc. books, etc. less scholarships) = $17,130.
He wants to go to Indiana because its business school is ranked higher but is it worth an extra $20,000 per year? We (the parents) are paying for everything. We also have a 10th grader and a sophomore at another college. We have money saved up but I am hesitant to pay for the higher cost needlessly. My husband is 68 and still working and I am 10 years younger. Retirement is in the future and outside of our house purchase this will be the biggest spending decision we will make.

 

[retire2020]

I've three and planning to fund four years of college. Beyond that, I expect them to take a loan. This is what I've saved so far:


DD: Year 2014 97K...stopped monthly contribution a year ago. She's smart and most probably will get some sort of scholarship.
DS1: Year 2022 84K...Automatic contribution of 375/Month
DS2: Year 2022 84K...Automatic contribution of 375/Month

 

[imoldernu]

For anyone looking for flexibility in education planning, I would suggest a look at DeVry University.
Many choices with 95 Campuses across the country, or online courses, accelerated (shortened) degree options, and a good record of placement.
Work/study programs in many disciplines.
DS graduated in less than 3 years w/BS degree while working in related job to pay for education.
There are other similar schools, but this is the one that fit our situation best.
While this will not be everyone's choice, a look at the "Planning" process...
Courses/Degrees/Cost charts/Home or Campus etc. may help put some of the variables into perspective, and help with comparisons with other school options.
Aiming_4_5 ..... Keller @ Edina worth a look.

 

[FinanceDude]

I would be willing to place a substantial wager that you will come to regret making such a large contribution to your son's 529 plan. Even if it turns out that there is no overfunding and your son uses the entire amount for his education, you will be in danger of losing out on valuable tax deductions that would be available if part of his educational funding came from non-529 sources. Current tax law says that you can't take (for example) the American Opportunity Credit based on educational expenses paid for from tax-free withdrawals from a 529 plan. You can get either the tax-free withdrawal or the American Opportunity credit, not both. Other tax credits have the same restriction. So for tax planning purposes, it is generally a better idea to put funds earmarked for education in a mixture of 529 and other custodial accounts, such as uniform gift to minors. That gives you a much better chance to minimize taxes while still qualifying for all available tax credits.

Those tax deductions are minimal at best. Of course, I could relate horror stories of what happens in some instances with large balances in irrevocable gifts such as UGMA accounts but I digress. In addition, you do not mention that 529 plans are not counted as the child's assets like UGMA accounts are in figuring in financial aid eligibility.......

 

[lhamo]

This may be a bit off topic but the potential decision is driving me crazy. Our middle son has his college selection down to two choices. He has been accepted into the business school of both colleges. Option 1. Indiana University. Total annual cost (out of state tuition, room & board, misc. books, etc. less scholarships) = $36,186. Option 2. Purdue University (out of state tuition, room & board, misc. books, etc. less scholarships) = $17,130.
He wants to go to Indiana because its business school is ranked higher but is it worth an extra $20,000 per year? We (the parents) are paying for everything. We also have a 10th grader and a sophomore at another college. We have money saved up but I am hesitant to pay for the higher cost needlessly. My husband is 68 and still working and I am 10 years younger. Retirement is in the future and outside of our house purchase this will be the biggest spending decision we will make.

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.

 

[karluk]

Those tax deductions are minimal at best.

Not true. The American Opportunity credit is a straight forward $2,500 tax credit on the first $4,000 in eligible expenses per child for four years of school. Parents of college age children have the choice of writing a total of $10,000 in checks to the IRS over the four years or retaining said $10,000 in their own bank accounts. For me, with two children to provide educations for, the total is $20,000. If you classify $20,000 as "minimal at best", well all I can say is that you're a lot richer than I am to be volutarily handing over this much money to the Feds.

Of course, I could relate horror stories of what happens in some instances with large balances in irrevocable gifts such as UGMA accounts but I digress.

Of course, I could relate an equal number of stories where UGMA worked out perfectly as both a tax shelter and a source of non-529 funds to qualify for very generous tax credits, my own personal experience included. But I digress.

In addition, you do not mention that 529 plans are not counted as the child's assets like UGMA accounts are in figuring in financial aid eligibility.......

True, my post didn't go into that level of detail, but that doesn't mean I haven't done those calculations myself or am discouraging anyone else from making the same calculations. It turns out that, even with all my kids education funds sheltered in 529 plans, my expected family contribution is almost exactly twice my kids' college expenses. So there's no advantage in over-funding my 529 plans and a big tax hit for using them to the exclusion of other investments. I have a mixture of 529 money, UGMA money and other investments that will enable to me to both minimize taxes and qualify for the maximum tax credits that I'm eligible for.

 

[Sesq]

I built a spreadsheet based on what I thought I could afford when I started saving in 2008 (when my second child was born and my first was 3). I took figures from the net for median public and private tuition and rolled them forward assuming 5% education inflation. The way things worked out it looked like we thought we could afford about 160% of 4 years public or about 67% of 4 years private tuition. I plan to let them choose when they graduate. If there is money left over I would tell them they can get it rebated after some time to see if grad school was in the mix. If they went private, loans, work or scholarships would need to be in the mix.

My wife and I both had our undergrad degree's covered, so we want to do the same for our kids.

I recently shifted my funding strategy and upped my contributions to front load since 529 plans are deductible in my state, and my state tax rate is higher than my mortgage interest rate (where the money would otherwise go). If I am able to early retire, and FAFSA rules remain comparable, we likely will lose out on "need based" aid. I don't think I will be able to FIRE by the time the first one is in, and don't like having really different savings approaches for the kids in the event that something were to happen.

I still hope that technology disrupts the education industry in the next decade before my kids go, but can't count on that.

 

[seraphim]

BS (beloved son) had an average bill of $36k a year for five years. And that was just the basics: tuition, books,fees room and food. The cost averaged a 3% increase each year.

Just food for thought.

 

[Brdofpray]

During the years of 1999 to 2003, DS and DD were in college (for three of those years they overlapped). We budgeted $15K per year each, for their total expenses. Total for both 120K. We let them know what the budget was and they searched for colleges and universities that would work for their interests. We were fortunate in that both obtained academic and athletic scholarships during this process. The result, our total expense for both ended up just under 60K.

We did not have any college funding plans, we put the monthly college fees on a credit card. We paid it off each month, and collected the points. This was enough to fund our yearly travel to the national swim meets where both DD, and DS qualified.

DS went on to dental school, and is now part owner of his own practice. He managed this part of his education on his on. DD went on to nursing school. She is employed as an RN on the cardiac telemetry floor. She also handled this part of her education on her own.

Once they both graduated,we refocused our savings plan and retired in 2009. We feel good in that we gave both our kids a good start, and then let them finish the job.

I know our situation is unique, but college does not have to cost an arm and a leg. There are options.

 

[Katsmeow]

This may be a bit off topic but the potential decision is driving me crazy. Our middle son has his college selection down to two choices. He has been accepted into the business school of both colleges. Option 1. Indiana University. Total annual cost (out of state tuition, room & board, misc. books, etc. less scholarships) = $36,186. Option 2. Purdue University (out of state tuition, room & board, misc. books, etc. less scholarships) = $17,130.
He wants to go to Indiana because its business school is ranked higher but is it worth an extra $20,000 per year? We (the parents) are paying for everything. We also have a 10th grader and a sophomore at another college. We have money saved up but I am hesitant to pay for the higher cost needlessly. My husband is 68 and still working and I am 10 years younger. Retirement is in the future and outside of our house purchase this will be the biggest spending decision we will make.

I would probably encourage him strongly to go to Purdue. I might even offer him some additional spending money if he agreed to go there. When my son argued at one point to live in the dorm at the university that we live within driving distance from, I pointed out that if he lived at home we would have more money available for extras for him and he found that persuasive.

How much did you tell him you would be willing to pay for school. If you have told him for years that you would be pay, say, $40k a year and your circumstances haven't changed and you now insist he go somewhere cheaper than I could understand him feeling you changed the rules. In our case, we never gave a specific number but talked about type of school (in state, public university). If a child of mine wanted to go somewhere that was not within what I had said then I would tell the child that we would pay for what would be the cost of what we offered and the child would have to come up with the rest. In our situation, I feel sure I would likely be telling my son that I would pay for Purdue since I know I would never have agreed to pay $36k a year. And,no, for a bachelor's degree the fact it might be a better business school (and I don't know if it is) would cut no ice with me at all.

 

[Aiming_4_55]

Thanks for all the responses and sharing. Work and MN snow (yes it's snowing now) has limited my free time on the forum.

Seems like $75k per kid is a reasonable amount (with potential appreciation over 10+ years in the market) in my mind. Taking a conservative number, let's hope each account has $100k by 2014. This would be for tuition, room, board, incidentals, etc. I will always have extra if truly needed.

I do except to teach them along the way about cost, budgeting, funding, majors, careers, etc. in the decision making process, but they might stop listening to me when they are teenagers.

I will not give them the funds straight away, depending on their maturity and ability, course loads, work, extra activities, etc will determine if tuition is paid with others funded by them via work, loans, grants, scholarship, etc. They will have skin in the game.

I left home for fulltime university with $100 (no K here) from someone other than my parents. They didn't have anything to offer but love. I worked full time through my undergraduate studies and graduated in 3 years without any loans.... ROTC, work, and scholoarships were my friends. ;-) but so were Miller Lite, Coors, Bud... whatever was the special.

 

[Aiming_4_55]

Aiming_4_5 ..... Keller @ Edina worth a look.

My grad degree is from Keller - Chicago Downtown and Oakbrook, IL campus. The only Saturday program available back then. It's a reasonable education. I took advantage of my employer's tuition reimbursement program. I guess I gamed the system! ;-)

Thanks for the comment.

 

[Bestwifeever]

....He has been accepted into the business school of both colleges. Option 1. Indiana University. Total annual cost (out of state tuition, room & board, misc. books, etc. less scholarships) = $36,186. Option 2. Purdue University (out of state tuition, room & board, misc. books, etc. less scholarships) = $17,130.
He wants to go to Indiana because its business school is ranked higher but is it worth an extra $20,000 per year? ....

Maybe. Congrats to your son! Call the admissions/financial aid people at Indiana and tell them about Purdue and see if they will also grant in-state tuition to your son.

 

[FinanceDude]

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.

Perhaps the undergrad business school is higher at Indiana, but Purdue's MBA program is top notch...........

 

[FinanceDude]

Not true. The American Opportunity credit is a straight forward $2,500 tax credit on the first $4,000 in eligible expenses per child for four years of school. Parents of college age children have the choice of writing a total of $10,000 in checks to the IRS over the four years or retaining said $10,000 in their own bank accounts. For me, with two children to provide educations for, the total is $20,000. If you classify $20,000 as "minimal at best", well all I can say is that you're a lot richer than I am to be volutarily handing over this much money to the Feds.

Neither of my kids is in college yet, and the AOTC was renewed for the next 4 years, not sure if the tax credit will be there when he starts college.

We don't qualify under the income limits.

Of course, I could relate an equal number of stories where UGMA worked out perfectly as both a tax shelter and a source of non-529 funds to qualify for very generous tax credits, my own personal experience included. But I digress.

Please relate some of these many stories. I have only been advising on education funding for 16 years so what do I know??

It turns out that, even with all my kids education funds sheltered in 529 plans, my expected family contribution is almost exactly twice my kids' college expenses. So there's no advantage in over-funding my 529 plans and a big tax hit for using them to the exclusion of other investments. I have a mixture of 529 money, UGMA money and other investments that will enable to me to both minimize taxes and qualify for the maximum tax credits that I'm eligible for.

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?