Pay for College All At Once

[TromboneAl]

My daughter starts college this September -- $42,106/year.

The college has an option:

"Freeze up to 4 years of charges at the entering-year rate by prepaying total cost."

Please confirm that prepaying would be monumentally stupid.

 

[Nords]

My daughter starts college this September -- $42,106/year.

I sure hope that's the entire year's package, not just the tuition. Maybe I just don't want to know.

As for the prepayment, the whole question-- like every other money question with multiple-choice answers-- has to be reduced to dollar terms before considering the customer's behavior. Are there refunds and/or penalties? Is it transferable to another school (or even to another kid)? Does it affect scholarships, grants, or other financial aid like student loans? Would it make a difference on tax credit/deductions?

You gotta know your own kid, but that's a heckuva commitment to ask of a teenager. OTOH some kids need to know that there's a penalty for changing their minds in order to find the internal motivation to stick with a project. Unless the prepayment is totally refundable with minimal penalty (or one that can be paid by your kid), then I'd pass. But if your kid has always preferred marathons to the 100-yard dash, then maybe pre-payment will work for you. Is your kid apt to stick with the school no matter what, or more likely to "shop around"?

 

[TromboneAl]

Yes, that includes tuition, fees, room, and board (but not books).

They would give you a refund if the student left the school.

But I wouldn't prepay since

1. I'd miss out on tax deductions/credits for years 2-4
2. I might get more fin aid in years 2-4 after we use up funds saved in my daughter's name
3. If college costs rise at 5%/year, my own investments will probably do as well or better
4. I couldn't really trust any university to hold $160,000 of my money

--------------------

I just brought this up in case there was something I was missing.

 

[cute fuzzy bunny]

If I were your kid, I'd just take the money and invest it...be ready to ER at 45-48 from the proceeds.

Are you adopting by the way?

 

[kz]

The only thing I can tell you is that our youngest son's tution increased 17% his junior yr and 17% his senior yr.
Of course now that he's graduating (in May) the university he attends is keeping increases in the 6-7% range.
Sorry about that!

 

[TromboneAl]

are you a DITSY

I'm a FDINDWRMSOK

(Formerly double income now dear wife retired me semi one kid)

FWIW, the college projects 5% tuition increase per year.

 

[Mr._johngalt]

Hey TromboneAl! Just tell her she can't go there.
The cost is nuts! You are the parent. It will be a cold
day in hell when someone else decides how to spend my money. That includes my kids. OTOH, if you think
you are getting your money's worth..........................
I'll tell you though; if I was Donald Trump I would not pay that kind of money. The extra cost (over a state
school) is not worth it. You might as well burn the money in your yard.

JG

 

[BUM]

can i call you AL?

Its your deal guy, and it sounds like you've got the numbers crunched, but I'd say that its tough love time. That kind of cabbage is waaaaaaay out of line unless:
we are talking law, MD, etc. Then I'd say lets go to the lawyer since student aid probably wont work. I'll pay interest free but you become my partner and when you become the professional (if ever) dear old dad gets 10% impertuity (read forever).


BUM

 

[Spanky]

Do remember to be nice to your kids, they may be choosing your Nursing Home...

Yes, we should be nice to everyone, including your kids and wife. However, paying exorbitant college fee is simply not a very wise investment unless you are attending medical, law, business school (or any other professional programs) at a highly regarded university (e.g., Harvard, Columbia) since it may enhance you r chance of landing a high paying position after graduation.

I rather choose a local state university that is also highly regarded. I went a university that was 5 miles away from my parent's house and commuted there - Cal Berkeley. The tuition was $300 per quarter back in 1971. Yes, that was the good old days. The tuition is now over $6,800 per year.

 

[Mr._johngalt]

We've covered this before. IMHO, except under very
limited circumstances, the value of a degree from a
"prestige" school is way overrated. Most people
who go (assuming they pay most of the tab) are just
throwing their money away.

All of my kids are (or will be soon) college grads.
The youngest is finishing up her junior year at a
very expensive school. The family dynamic has been
severely damaged over the battle to determine who will pay..................for what? My daughter is smart but not a great student nor especially talented or motivated.
Her choice of a college could be a metaphor for my
marriage to her mother.

Disclaimer: No whining here - just facts.

JG

JG

 

[laurence]

GD-ER, I'm betting that's a problem you were proud to have!

 

[Mr._johngalt]

Well, I've posted this before also. What I did before
my first went off to college was to tell my kids that we
would pay for half of the "net" cost. If they could reduce that to the approx. cost of an in-state state
school and still go private, okay with me. I did this as much to give the child a monetary stake in the outcome as I did to save myself money. Worked for us. I paid for
100% of the college I got. So did my wife.

JG

 

[Spanky]

I paid for
100% of the college I got. So did my wife.
JG

I did the same thing except I also received GI bill assistance for my undergraduate education and tuition reimbursements from employers for three graduate degrees.

My parents did not have to pay a dime!

Spanky

 

[TromboneAl]

Yes, you have good points about the cost of the college. Especially since her safety school, IIT, would be cheaper and include a $16,000 scholarship! However, I feel good about the decision to let her go to Washington University at St. Louis, because:

1. She's going into biomedical engineering, possible pre-doc. Wash U has one of the top BioMed programs.

2. She already has $3100 in scholarships for the first year, and I'm expecting she'll get at least a few thousand more.

3. She'll borrow about $16,000 in fed subsidized loans.

4. I'll lend her another $9,000 in Dad-subsidized loans (this way she'll end with a $25,000 debt which, adjusted for inflation, is what I had when I finished college).

5. We'll save at least $5,000 per year in tax deductions, driving costs, food costs, sports costs, etc.

6. Going to a prestige school really paid off for me.

7. She's a really smart kid, and works very hard. This school will let her live up to her potential.

8. We only have to put one kid through college.

9. She's the one who will bail us out if our retirement money runs out.

 

[laurence]

One benefit of living in California is the UC system. There is at least one UC school in the top ten for every major (sometimes way more than one) and as a resident, it's much cheaper than a private school (although cost is creeping up).

 

[BUM]

equivalent of SAC's back-up plan,

My uncle used to talk to about his hitch at SAC. All I remember as a kid was his sour expression and saying that "if they ever ran out of grease pencils, the whole thing would collapse". That was 40 years ago. Not really sure what he meant, but I remember it like it was only yesterday.

 

[bongo2]

I want to offer a dissenting opinion on the original question. Taxes and financial aid may make pre-paying a terrible decision, but that is too individual for me to really comment on.

If the decision is only pay now v pay later I would pay now. As many have pointed out college costs have been rising far faster than short term rates -- even faster than the stock market in many cases, and you have the added benefit of hedging your expenses. I think you have a higher expected return AND lower risk. That's a modern portfolio theory slam-dunk.

There was a weird piece that I read on the internet a while back that actually suggested pre-paid college plans as a viable asset class even for people not saving for college. The basic point was that it was an uncorrelated "asset" that had been historically gaining competitively with other investments.

 

[yelnad]

Re: Pay for College All At Once8%5%

The school I work at has increased like crazy the last 5 years.

2000 - 6.2%
2001 - 7.8%
2002 - 13.5%
2003 - 9.8%
2004 - 6.6%
2005 - predicted between 6-10%

Granted, we're pricing ourselves out of competition and we're now one of the most expensive public schools in the nation. I will only pay 25% of my childrens' tuition here, but I'm going to lock in as much of that 25% as I can at today's rates. They're not going to go down any.

 

[Mr._johngalt]

Those increases are crazy, but not atypical I know.
If you have some kids going to college and intend to ER,
you better be piling up the money somehow. Either that
or tell your kids it's the community college for them and after that they are on their own.

BTW, post divorce I got whacked for a big chunk of my
youngest daughter's very expensive tuition. I've bored y'all with that story. Anyway, we filed a motion for reconsideration by the court. I didn't get it reduced but I did get my share
frozen for the 4 years. Knowing how the costs were
likely to skyrocket, I viewed this as a significant victory.

JG

 

[yelnad]

If they decide to go elsewhere, then I'll give them the 25% I would have paid here and whatever else I can afford to help with. Luckily, my system is large enough that there are only a few select careers that you can't be well prepared for here.

As for the 25% I'm trying to pay ahead -- it's in PA's 529 plan. Not the best plan, but it freezes tuition at today's dollars and be used anywhere.