How Should We Think About College Savings?

D

David.

Confused about dryer sheets
Joined
Mar 19, 2011
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Phoenix
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.
 
A few thoughts (DD#1 graduated last year):

1. Don't assume you need to have the entire amount saved by the start of freshman year. During college, continuing the "savings" rate of $10,000 per year as a contribution out of current income will be relatively painless.

2. Same goes for some additional support, equivalent to the expenses you spent on the boys when they were at home (food, transportation, school and activity expenses).

3. You don't need to assume $0 contribution from the boys. They can get summer and part-time jobs to help cover their expenses.

4. Saving for the most expensive case x2 is certainly conservative, but is it necessary? Looking at the distribution of kids going to 4-year colleges would suggest that one of the kids might end up at a lower-cost school.

Others will probably be around with links or advice about not short-changing your own retirement savings. ("You can't borrow for your retirement", etc.). Balance is important.

HH
 
Contributing to the 529 plans is fine as long as it happens after funding retirement plans and then emergency savings. You and your children will have more options for their education than you will for your retirement.
 
I am of the opinion that you save for public in-state school costs and if they desire private school or out of state college by the time they get there, then they can hustle up the scholarship or loans that would be required for that jump. And ditto on this is the last place for savings--your own retirement security comes first.
 
David,

While I am a youngin' around here, I find contributing to our newly arrived daughter to be a priority for us. But, after, what MichaelB suggests, we fund our retirement goals. and before we go on a big vacation. We may not save as much as we can for retirement, but we still max our 401k, IRA's and save $10-20k in cash every year on top of DD's 529. I can't tell you what tuition will be like in the future, but the chips will fall where they may. We have made a concerted effort to save for her future and hopefully she will appreciate us saving for a single credit hour at a private school or perhaps 2 years at a public school.
 
I plan on setting aside enough for my 3 to have their full tuition and fees paid at any of our in state schools (a few of which are top notch Top 25 or Top 50 schools). This works out to $91,200 in today's dollars. I figure my college savings will grow roughly at the rate of tuition cost growth (7%-ish). I will be FIREing before my oldest starts college, so I will need to have that $91,200 (or whatever it is in the future) saved before I FIRE.

As others have mentioned, there are alternative funding sources for college - loans, work study, grants, stipends, research assistance, scholarships, selling plasma, cheaper community college for 2 years, summer work, etc.

Between those sources of funds and what I already spend on their upbringing I think we can all fund the other non-tuition costs of college (room and board, books, entertainment, beer money, etc).

Note that I don't plan on putting aside enough money for a full ride for 4 years at a private university - doesn't seem like a good return on investment for me. I suppose I could work a few more years so that my kids could one day go to a school similar in most respects to our local state schools. But that is not something I think I would enjoy doing. :)
 
Personally I would just keep doing what you're doing. College is pretty far off for your little ones and who knows how higher education could change by then (they could be getting their masters using only a "u(niversity)Pad" in their bedroom--Apple can send me a royalty check right now for that concept :)). We sent two through undergraduate and honestly it felt like jumping off a cliff financially when it happened. But we all survived and they have always been most appreciative of DH and my efforts.

I also suggest down the road that you be open with the kiddles about your general plans to pay, whether all, nothing, or in between.
 
I think it is very helpful to pick a target amount, like FUEGO did, and use that target to decide if you're on track, behind, or ahead of the game.

Personally, I'm targeting 4 years of public university tuition room board and fees for each of my three kids, and I assume a college inflation rate of 6%. So I'm planning on about $19,250 for the first year of my oldest, and $34,500 for the last year of my youngest.

With all of the variables, who knows what it will actually be, but I feel prepared enough that between everything (529s, ESAs, cash flowing it, work study, cooping, scholarships, grandparents, loans, etc.) we'll make it.

2Cor521
 
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.
 
They may well had changed things since I was ~40s but I found the constraints of 529 plans to be too confining and just included my college savings in my taxable accounts.

As it turned out, DD got some good scholarships and I found that I could pay for her college costs out of my cash flow at the time so I never needed to tap into those funds. DS has decided not to go to college at this time, but my financial plan includes a provision for 4 years of college if he changes his mind.

Things can and will change that far down the road so the important thing at this point it so LBYM and save and invest any excess cash flow. You can decide how it will be used later.
 
Pesonally I think that private university educations are extremely overated and overpriced. A very sufficieint liberal arts education at a state university or college will suffice just fine....at a fraction of the price.

Attending college does not make you educated...only educatable!
 
There are several alternatives:

- 4 years at state school.
- 1 or 2 years community college followed by state school. 2 years at a CC followed by 3 years at college is cheaper than 4 years straight at college, plus you have more time to save money.
- Service Academy or ROTC.

Although I attended a private University for my MBA, I don't think I really had an edge (when hired) over state school grads.

You can borrow for school, you can't borrow for retirement.
 
I wish they had 529 plans when my 3 children were young. I dumped money into 401k instead which has worked out "ok", but not nearly as well as 529. I always figured I needed to save about 1/3, borrow 1/3 and children would contribute 1/3 (loans and scholarships). Our budget was based on the best local state schools. I told them at an early age (15 or so) that they would have loans in thier name by the time they finished college. We paid tuition for elementary and high school too which limited ability to save for college. This has worked out ok so far. 3rd child graduates in 2013.
 
David. said:
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.
Click to expand...
I think you save for your retirement and let the college funds take care of themselves with whatever you have left over.

Your sons can get more scholarships and work-study and loans and other sources of funding for college. You can get... Social Security and Medicaid for retirement. Keep the priorities in perspective.

I think $100K/year is a retail price projection. I think it's also about as likely as Dow 36,000. There'll be cheaper alternatives starting at community/public schools with plenty of student aid.

We saved in 100% stock funds until our daughter was 15 years old, and then we went to CDs. In retrospect we could've started the shift a bit earlier and spaced it out a bit more.

Our daughter had no problem obtaining a Navy ROTC scholarship, which pays a year's tuition before any obligation kicks in. Lots of private scholarships go begging also. In the last three semesters she's also been awarded $1250 cash, mainly because a lieutenant pushed a scholarship application at her and said "Fill this out with an essay by Friday".
 
I intended on going to a public university or college, basically whoever would accept me. Surprisingly, I ended up going to a private university, not that I had the financial means or family help. I was told the state schools would fund up to 75% and stressed work/loans for the rest. The private school didn't stress the work part much, they offered me multiple grants and loans. I really only took the loans just so I could have "fun" money. Thinking back, I got fed/state grants but I believe some of the grants I got were alumni donations given out at the discretion of the school.

For our son, we decided to front load 5 years into 1 for a 529 plan, maxing out 110k back in 2002. We couldn't pass up the tax deduction from the state of IL. Now his 529 is at 174k (Grandparents gifted him 13k last yr) and it should be enough to fund most in state schools. Also looked into prepaid tuition plans for IL, decided against it due to funding rumors and now they reported today that plan is $560 million in the hole! If he decides to go out of state, we're prepared to relocate to keep the costs down. If he doesn't want us to move close, we'll still look into relocating somewhere warmer.
 
I have a 17yr old and 13yr old, so the college issue is coming up quickly. I will have about $100k saved for each (in 529) by the time they start their first year. We live in CT, and the state school options are few - UCONN is decent and that is about it. Thus, my kids will likely go out of state to either private or (some other) state school. I don't feel confident that the $100k each will prove sufficient, but it is a start.
 
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).
 
NeverBored said:
<snip>And she'll graduate in four years (many students at her school graduate in 3-1/2 years).
Click to expand...

Degree dependent. My degree required 150 credit hours, and heaven forbid you go over b/c the math doesn't work out just right. That's 18-19 credit hours per semester. Plus working ~15 hours/week. The most I took in one semester was 21 (and gained about 30 lbs). About half the kids I graduated with did it in 4, the other in 4+.

Also, the amount of aid our DD will receive from us is dependent on what she wants to do. Art history (which I love, btw), she's going to a state school and getting 4 years of help (and much prodding to at least bump it up to a business degree with AH minor). A highly specialized discipline of engineering like her father, depending on market and starting salaries, I'd probably help her meet the out of state tuition even if I had to delay retirement by a year or two.
 
ronocnikral said:
Degree dependent. My degree required 150 credit hours, and heaven forbid you go over b/c the math doesn't work out just right. That's 18-19 credit hours per semester. Plus working ~15 hours/week. The most I took in one semester was 21 (and gained about 30 lbs). About half the kids I graduated with did it in 4, the other in 4+.
Click to expand...

Absolutely true. Her school is liberal arts, four-year only, no grad programs. What they do, they do extremely well. Most engineering degrees in our state take 5-6 years at least.

My point is just that a lot of parents don't look beyond sticker prices, and also don't consider the cost of staying in school a few years longer.
 
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, but I do know that the state flagship university would have been an outstanding choice as well. There is quite a lot of emotional hype about all this with not much factual info floating around. It is probably right up there with
(a) pay off mortgage or invest
(b) stay-at-home-parent or daycare
(c) index funds or actively-managed funds
(d) Mac or Windows
(e) Canon or Nikon
and so on.

I think our second kid will go to a public university.

What we did was save/invest enough for early retirement, then keep working to pay for college from paychecks with little to nothing coming from savings. Consider this: a two-income couple can put $22,500 each into 401(k)s plus $6K each into Roth IRAs. That's $57,000 a year. If you do that for 18 years, then stop, you will have quite a nice retirement package. So you stop and then divert that $57,000 (it will go up due to inflation anyways) to college expenses. In 2012, $57K almost pays for a year at the most expensive universities.
 
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I attended a seminar at church a year ago about covering college costs, but it was a thinly-veiled sales pitch to buy Cash Value Life Insurance and Master Limited Partnerships.

After talking to some other parents (where I learned about community college option) and regularly reading Lynn O'Shaunessy's college finance blog, I backed myself away from the ledge. I'm convinced 4-year colleges are about to price themselves out of the market, and that market forces (the JuCo option) are going to push them back in line.

One of the dirty secrets not spoken about very often is that JuCo/Community College for the first 2 years is like getting 50% off the cost of college.

... evidently the secret is out. According to the just-released 2011 Sallie Mae report, 22% of families earning greater than $100K are sending their kids to community college (up from 12% in previous years).

Also note that one in seven college students in the ENTIRE COUNTRY goes to a California JuCo(!). You can do a web search for 'feeder community colleges' and figure out which JuCo 'feeds' your favorite 4-year school. For example, Diablo Valley College is a feeder for UC Berkeley.
 
bltkmt said:
I have a 17yr old and 13yr old, . . . We live in CT, and the state school options are few - UCONN is decent and that is about it.
Click to expand...

Depending on what your kids might want to do, it might be advantageous to look into one of the CT State Universities. For example, if they want to teach in state, it will be significantly easier to get certified if they graduated from Southern than if they go out of state. It's also substantially cheaper.
 
ejw93 said:
One of the dirty secrets not spoken about very often is that JuCo/Community College for the first 2 years is like getting 50% off the cost of college.

... evidently the secret is out. According to the just-released 2011 Sallie Mae report, 22% of families earning greater than $100K are sending their kids to community college (up from 12% in previous years).

Also note that one in seven college students in the ENTIRE COUNTRY goes to a California JuCo(!). You can do a web search for 'feeder community colleges' and figure out which JuCo 'feeds' your favorite 4-year school. For example, Diablo Valley College is a feeder for UC Berkeley.
Click to expand...

Community college can be a fantastic option, and has been a financial bargain for many years. But it's not always such a deal now in California. Many of my kids' friends took that route, and then struggled each semester to "find" 12-15 units of classes that actually counted toward their general ed requirements or their major. Some of them attend two or three local colleges, just trying to get the classes they need. This has added one to three years to their undergrad education, and some are just now transferring to a university after three or four years at the community college.

The problem of course, is public funding of higher education. I retired from the state university system last year and dealt with this for 35 years.

Sorry to hit the soapbox, I just get frustrated when people think the community college option is the only smart way to go. In our state, in this economy, it's not as easy as it used to be.

(I did the community college/state university route myself; it was a great deal then. Hardly a secret.)
 
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