College Savings

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2. Schools will finally be forced to face reality and stop raising their fees by 2-3 times the inflation rate year after year. They will have to stop building up their campuses just for the sake of doing it.

I'm a bit short on time right now, but I remember reading something about this -- that the reason the rates go up is due to some federal mandate of how they receive funding, or something like that. I'll look into it and find the reason.

[thefrugaltoad]

Grandparents can setup a 529 account for each grandchild and can contribute up to $12,000 a year, per beneficiary, to 529 plans without filing a gift-tax return with the IRS. A 529 can also be “frontloaded” by contributing five years’ worth of annual contributions in one year. That means a Grandparent can contribute up to $60,000 to a grandchild’s 529 plan — or $120,000 if you’re married — without filing a gift-tax return. Beneficiaries can also be changed as long as the accounts are in your name.

[Like2Plan]

I have wondered about the "college bubble", too. College costs are rising much faster than wages.
DS's college (tuition and fees room and board) will cost close to 21k this year. He is attending a state school.
We contributed to a 529 plan which takes a lot of the sting out of it. The prepaid tuition plan covers about half of the costs. We have another 529 plan to cover room and board and books and fees. The prepaid plan turned out to be a great investment for us as the amount we invested was less than half of the payout amount.

[Frugal]

My parents did not save for my college and I ended up paying for it myself. I personally find it hard to believe Americans who have children have an extra 11 k per year on average to save up for college. At least if they do, I don't hear a lot of people talking about having that much extra money. I think the average person (and this is a GUESS!) probably is able to save at most a few thousand a year, as you said you are doing.

[LivingAlmostLarge]

No we are not spending a ton, we live on $4k/month with $2400 going to our mortgage. The rest of the money is saved or taxes. We're living on about a 1/3 of what we make.

I think we're saving a lot for college, and I can't bring myself to direct more to college. Do other parents than MM feel that retirement should be saved for? I feel so behind in retirement because we started late, are on one income, and we really should have more money saved.

No we do not get gifts of cash from our parents. Also redraider how much are you saving for college? Realize we live in a HCOLA and our mortgage bought us a townhouse, not SFH. So we are are trying to be frugal.

That's our other cash savings, trying to save cash to buy a SFH. I feel like we should be able to afford college, but I wonder how do you balance saving for college with not jeopardizing your retirement?

I don't want to reach college and realize that our retirement is not nearly enough and we have college funded. Rather I'd prefer to have loans and borrow but realize we have retirement well in hand and can afford in 17 years to cash flow college.

But I'm really stuck.

[snafu]

We have two sons in university, they have grants, small scholarships and contribute the sum equal to tuition so as to have 'skin in the game.' They've worked hard every summer and PT during the school yr. to come up with lifestyle funds. The younger got a break with his apt. buddies, free room & board in exchange for cook/shop and 9 PM tidy. These guys understood from early teens that we expected them to have good educations and pay for it, same story we got from our parents.

Since 1st year university is General Studies, they went to a local[2 yr.] college which is linked to the U and accepts their courses on par. That allows live at home, w-aaay cheaper tuition and lately books bought on-line [we print hard copy]. They spent two years hunting for grants and scholarships + a stipend from PT jobs. A councilor told them only 50% of grants and even less scholarships are filled.

Please consider that more and more post secondary education will be offered on-line for motivated learners. Caution and research is required as some are for-profit and others are programs from Brick & Mortar state schools. I can't explain why these courses are more expensive than classroom as the current $$$ is unconscionable but I feel confident that will change. I know the on-line instructors are those with the best teaching skills and the highest, up-to-date credentials. Those lazy profs who use TAs to mark papers and deliver lectures aren't considered. Feedback from students keep the standards exceptionally high.

[LivingAlmostLarge]

So even a lot of state universities are around $20k/year. Here I think they said tuition alone is $15k/year and $10k in room and board, so $25k/year at the public university. Very nice.

Feh, I am not sure if we can direct more towards college without cutting retirement or other savings. We started out late in retirement savings.

DS, I knew that tuition had gone way above inflation. The prices are ridiculous. I have no idea how people are paying for it. I have a friend who does scholarships/grants and she said parents making over $100k (very common where we live) don't get scholarship and grants. Sorry you make too much.

But then it's really not enough to afford honestly $25k/year while saving for retirement I think, especially if you are starting late and worried about paying off the home, etc.

[disneysteve]

she said parents making over $100k (very common where we live) don't get scholarship and grants. Sorry you make too much.

But then it's really not enough to afford honestly $25k/year while saving for retirement

I think the 100K income limit has changed. A school charging 25K or more per year is well aware of the fact that the parents can't possibly spend at least 25% of their income on school (and that doesn't count books, supplies, computer, clothing, travel, etc.). So I think everyone should apply for aid regardless of income. We'll certainly apply when our DD starts the process.

As I said, the state schools here in NJ will be 25K or more by the time she starts in 2014.

[elessar78]

For a slightly different perspective . . .

I'm a soccer coach and the amount of money that parents spend for training is astounding. Take one club for example, the annual tuition is $1250. Not including uniforms which for some reason need to be new (latest and greatest) every year, practice uniforms, travel and hotel costs for the 5 or 6 "away" tournaments per year. Wouldn't surprise me if the out of pocket is $4,500 for one child. Most of these people have at least two kids in the sport.

Oh, btw, this started when the kids were 9YO! So that's about 12,500 conservatively on tuition alone plus it can be as high as 45K by the time they head off to college.

Some of these parents spend this money in pursuit of a scholarship, but they fail to do the math. What can 45,000 do to defray the cost of college??

The figures I have up there are not for a major metropolitan area. My niece in DC was paying $5000/year for tuition alone for her soccer club.

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No we are not spending a ton, we live on $4k/month with $2400 going to our mortgage.

A rather large portion of your money is going towards housing.

That's our other cash savings, trying to save cash to buy a SFH. I feel like we should be able to afford college, but I wonder how do you balance saving for college with not jeopardizing your retirement?

You live frugally by living under your means with everything -- housing, included. Please understand that I'm not attacking your way of life, but many people do save for college by living in smaller homes, driving older cars, and simply getting by on less. You have to choose your own priorities, but your initial question was how people save for their children's educations, and that's how they do it.

[BMEPhDinCO]

It's very admirable that parents are worrying about how to pay for their children's college education. My parents paid for some of mine (~$10k per year for 4 years) and I paid for the rest with loans, working part time, and grants. I came out with just under $30k in loans (granted, this was in 2002-2006) and have paid off 2/3 of those by 28 (I also got my MS and am working on my PhD so they have been deferred quite a bit). I went to a private university that was very expensive, raising tuition 6-10% PER YEAR, not including fee raises, etc. Textbooks for my major (Engineering) were between $200-450 a semester...health insurance was covered by one of my parents so I admit that expense was probably another $50-100 a month and they also gave me $100 a month for "fun" stuff but regardless, it was less than $13k a year that they paid, so don't start worrying about $30k+ a year - that's why loans exist!

So yes, it's nice that you worry about this, but realize that in the end, you can't do it all and your children will have to grow up and take on the responsibility themselves. A PT job in college won't hurt them, and reasonable loans that take a few years to pay off won't hurt them either (in fact, good payment records will boost their otherwise scanty credit reports!).

Take advantage of 529 accounts if you can, CDs, i-bonds, etc also help but take care of yourself first! I'd rather have SL for a few years than have to live with my mother when she's 80 and out of retirement money because she gave it to me for school instead!!!

[LivingAlmostLarge]

photo out of that $2400 our mortgage is $1600 the rest is taxes,not a cheap place to place. I'm not living in luxury, it's not a SFH, it's a townhouse. I don't know how much lower we can go, we bought, put 20% down and our mortgage is about what friends pay to rent 1 bd in the city. We are under the PITI at 18%, so it would appear our mortgage is well within our means.

DS, I don't know about what they consider "enough" to afford college. I do realize that in 15 years it's possible we'll be making more money and that's how we'll afford it. We'll have to just count on making more money then and maybe saving less.

I'm really curious any parents out there making $120-$150k and kids in college? Did you get lots of aid? Did your kid go private or public? Did you pay for it all? Did you save a lot?

BME, that's it exactly. I feel so nervous that in 15 years if we aren't careful now and save a lot for retirement we could be in the position of looking at our portfolio and saying "gee college or retirement".

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I'm really curious any parents out there making $120-$150k and kids in college? Did you get lots of aid? Did your kid go private or public? Did you pay for it all? Did you save a lot?

Child 1 has received undergrad degree and is currently attending grad school (receiving stipend), child 2 and 3 are currently attending university, and child 4 is still in high school. No financial aid for any, although oldest 3 have received some merit aid scholarships; we paid the rest. We saved, on average, a little more than $10,000 per year, and no loans have been taken out. (Our mortgage, when we had one, was about $900 a month, but that was about 10 years or so ago, and we don't live in an expensive area, so that helped a lot.)

[MonkeyMama]

I'm really curious any parents out there making $120-$150k and kids in college? Did you get lots of aid? Did your kid go private or public? Did you pay for it all? Did you save a lot?

Living in a high cost area, too, I have to say I wouldn't expect much aid. Friends, family, clients are squarely middle class ($120k-$150 is very average income) and the only situation I have seen that has warranted any Federal aid is 2 kids in college at once. Of course, aid is a function of both income and cost. Most schools here are public, and so that is probably the kicker, for aid. BUT, I do have one client who earns $150,000 per year and pays $50k per year for private school (5-year program). They have not qualified for a penny of aid. (I am not 100% sure how assets play into that - but they seemed to be focused on *income* when griping to me how they didn't qualify - they were just on the cusp).

That said, there are plenty of other options. In college, I was in the catch 22 of parents had high income by federal standards, but didn't have big means to help with college. So, I kind of threw up my hands realizing I could never qualify for aid, even funding my own college on minimum wage. BUT, in later years I received several scholarships that I did not even apply for (was nominated by others).

Also, I have a couple of friends who found all-paid-for colleges (merit based scholarships that did not consider *need.*). So, you'll probably be focusing more on merit-based aid than need-based aid. & even if you strike out pre-college, keep trying in college. Lord knows what more I could have found if I was looking!

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Friends, family, clients are squarely middle class ($120k-$150 is very average income) and the only situation I have seen that has warranted any Federal aid is 2 kids in college at once.

If financial aid were based on income alone, our two at university right now might qualify. But here's the really nasty part for people who are responsible and save their money: federal financial aid (and probably the educational institutions, as well) is based not only on income but on assets, excluding primary residence. So, if you have a fair chunk of change in cash, the stock market, bonds, and so forth, it counts against you.

Therefore, a child of someone with a higher income but no assets, could actually receive more federal aid than you do, if you haven't been a spendthrift.

As far as financial aid, you're almost better to live paycheck-to-paycheck rather than save for college. Well, that isn't entirely true, of course, but it isn't so far-fetched, based on consideration for aid.