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ER Homestretch vs. Kids in College
Old 02-15-2004, 12:04 PM   #1
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ER Homestretch vs. Kids in College

My wife and I were feeling pretty good about accomplishing ER in six years when our two kids finish college, but we're now having second thoughts since we got the results back from our first childs FAFSA application for college.

I was surprised to find that the FAFSA application requires the amount of our tax-deferred 401k money be added back into our adjusted gross income for its calculation! * I guess FAFSA figures such money could be used for college expenses (which I guess technically it can).

Our 401k money added to our adjusted gross income *increases our EFC to 36927 which has us picking up the entire college tab and decreasing our future 401k contributions!

I suspect some may say that's how the numbers fall so deal with it, *but does anyone have any advice for our latest discouragement? *

On another note (if you don't mind), if you've sent kids to college, do you have any financing ideas? * Ideally my wife and I would like to limit our contributions to half the expenses.



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Re: ER Homestretch vs. Kids in College
Old 02-15-2004, 01:01 PM   #2
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Re: ER Homestretch vs. Kids in College

If your student is still in HS meet with his/her counselor and ask about strategies to obtain college funding. DON'T go to those fee counselors who advertise, whatever you do. Your student's HS college counselor may have a network you can utilize.

The school your child attends will impact your situation. Almost all scholarships are family income/asset driven. Good grades get you in, but rarely drive the $. Well-endowed private universities may be able to put together a combination of work-study, loans and grants that work for your family. If you have more than one child in college your score will be adjusted, and if they attend the same private school they may make major adjustments in tuition.

One of my gripes is that families who have scrimped and saved for their kid's college are given less assistance than those didn't.

The tuition charged by the college should not be the only factor in your selection process. A high tuition can be mitigated by financial aid, or multiple student discounts. School loans are investments if your student does well at a very good school in a field that pays well, and the school's student placement program does a good job.

School loans should be in the student's name. You can choose to help pay them off later.

I am one of those parents who would not send her kid to a priviate school if their goal was to teach 5th grade. OTOH, if they were a Business major and they were admitted to Wharton tuition would not be a factor.

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Re:  Don't sell your ER short.
Old 02-15-2004, 01:15 PM   #3
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Re:  Don't sell your ER short.

Sounds like you and your wife have already contributed at least half the work. Maybe the challenge isn't raising the money as much as it's lowering the expenses.

I'm presuming the college-bound are also looking at work-study (co-op) degrees, campus employment programs, academic & sports scholarships, community scholarships, ROTC scholarships, military academies, online programs, and attending cheaper junior/local colleges for the first couple years before transferring to a "finishing" college.

I'm reading too many discussion boards and I can't remember where I've read this before. Was it here a couple months ago that we had the college debate? The theme was that the college degree was much more meaningful (and educational!) when it was worked for instead of parentally-provided.

One final comment. My last job before ER was in a department of 50+ people where only about 10% had completed college before entering the workforce. Our employer strongly encouraged a college education and even paid for part of it. Suddenly the whole department was inspired to take night classes, form study groups, and work together. Office project productivity actually improved and the skills of my co-workers certainly soared. After a couple years the attitude changed from "Are you going to college?" to "When will you finish?" However, just about everyone of those motivated baccalaureates admitted that they wouldn't have been mature or disciplined enough to be "ready" for this program when they were 17-18 years old. The key was seeing life without a degree and then working in an office where you got a little management nudge.

You gotta know your kids, but if they're not ready to contribute to the program then perhaps they're not ready for you to make the financial sacrifice, either.

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Re: ER Homestretch vs. Kids in College
Old 02-15-2004, 05:00 PM   #4
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Re: ER Homestretch vs. Kids in College

Airstyle, I just went through the same FAFSA process after a 10 year hiatus. I noticed one thing that may be of interest:

You do not need to disclose your assets IF you do a 1040A, or you did a 1040 but could have done a 1040A. So if someone were actually in ER it may be possible to get some need based aid - I don't know for sure but I plan to try in 2005.

But the bottom line is this: if you're close to ER, you are probably making too much money (or have too much money) to qualify for need based aid. I tried it, just to see what would happen and it was a waste of time.

If your child is a good student there are scholarships out there that are not based on need. My daughter has received several offers. Pitt, for example offered $32,000 over four years (and she's in the running for more there). But they're very pricey to start with. State schools we've applied to have offered:
---Zero (two schools)
---$1,000 per year (two schools)
---$1,500 per year (one school)
---$4,000 per year (one school)
And don't forget the tax credits which will knock off about $3,000 in the first two years and a lesser amount thereafter.

She's leaning toward one of the two schools that offered $1,000 per year. Their costs are reasonable relative to other schools ($9,818 total per year for room, board, books, tuition, and fees for the 2003-2004 school year). Add maybe another $700 per year for spending money. So the total cost is ~$42,000 plus annual increases. I plan to pay $17,000. My daughter will earn roughly $3,000 per year and be able to pay $15,000, at least. Tax credits will knock off another ~$4,000 which we'll pass on to her. There's a $4,000 scholarship due to her class rank and ACT/SAT scores. Locally she'll get ~$2,000 in scholarships. So that covers everything except annual price hikes without borrowing. To cover the increases she'll either borrow or work more hours. Then she plans to go on to get an advanced degree and she's on her own for that. So I guess we take kind of a moderate approach - no full ride, but enough so she'll have the option of going on to an advanced degree without a mountain of debt starting out. It works for us.
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Re: ER Homestretch vs. Kids in College
Old 02-15-2004, 05:41 PM   #5
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Re: ER Homestretch vs. Kids in College

I think it's good you are planning for your daughter to get out of college debt free. As I plan toward retirement, hopefully at the end of next year, I have gone through the same excercise as you have even though my oldest daughter is still 6 years away from college. However, I forgot about the tax credits/deductions that are available now. I'm glad you mentioned it so I can rerun the numbers. I just finished putting my wife through college and I should have remembered this as it is fresh on my mind.
The costs for a 4-year public college degree in Florida is the same as you mention. I plan for us to pay for tuition, room, board, and books, and leave the rest (car, insurance, clothes, spending money) to my kids. I currently have $40,000 set aside for each of my 2 kids for this. If college costs outrun the investment experience of this sum, they will be responsible for the difference. If they decides to go to a private college we will give her the amount for a public school education and they are on her own for the rest. My degree was from a state college and I have done better than most my peers so I do not feel at all guilty about this decision.
When I went to college my parents paid half, I earned all incidental money, and I took out school loans for the rest. Interest rates were very low (comaparatively) at that time, and I did not have to make my first payment until after I got a job (which for me turned out to be 1 1/2 years after I graduated). Without a doubt this was the best investment of my life.
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Re: ER Homestretch vs. Kids in College
Old 02-16-2004, 10:52 AM   #6
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Re: ER Homestretch vs. Kids in College

Almost all scholarships are family income/asset driven. Good grades get you in, but rarely drive the $.
Not 100% true. My stepdaughter is in the top 10% of her class and has applied to a state and a private school in CO. The private school offered $10k/yr when they accepted her, before any aid applications. The semipublic one offerred $1k/yr before any aid applications. She is taking the semipublic one, because the curriculum matches her interests better. The aid made the costs close.

We are doing the aid applications now, but I expect little to come of them, given that about 12% of assets are deemed income for the purpose of income based aid. I believe that 401k/IRA retirement assets are exempt from that though.

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Re: ER Homestretch vs. Kids in College
Old 02-16-2004, 12:11 PM   #7
Confused about dryer sheets
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Re: ER Homestretch vs. Kids in College

You are correct about 401k/IRA assets being exempt. However, they do want to know the AMOUNT of last years 401k/IRA contributions because they count that as regular income (versus earmarked for retirement) which is then calculated into their EFC formula.

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