College savings for kids?

[Colleen27]

Is there anyway to defer compensation until college is done?

Maybe, and that's something I'm going to have to consider. I thought I was being smart, going back to school myself in time to finish before the tuition bills for the kids start rolling in. I wasn't thinking about what it would do to their financial aid situation for me to be re-entering the workforce just as they're applying for aid. My first position out of school may very well end up being part time or freelance anyway because of geographical limitations on my job search (not wanting to uproot the kids while they're in high school), and that might be for the best in terms of college planning too.

 

[lurkernj]

We have a son going into his junior year in a pricey private school.

The money we had saved definitely worked against us when we applied to schools. This school in particular, reassesses your need every year and the amount given fluctuates. So for the first year, he didn't get all that much. We decided ot send him anyway (after much angst), due to it being a very good school and a perfect fit for him and what he wants to do with his education.

Since we spent so much of our college savings that first year, they gave us an extra 5k for sophomore year, and by junior year all of the college savings was gone, so they gave us another 5k on top of the previous two years amounts.

Also because we are reassessed each year, the entire amount my son makes working every summer is added to what they think we(he) should pay towards his education. It's all broken out based on "parent contribution", "student contribution", "school contribution" etc. So if your child has a large amount saved, it will be expected to be used for education.

Had I known more about this before he applied to schools, I might have liquidated some of our cash assets and put them in a safety deposit box.

 

[Halle]

My 2 cents.

If you save for college & apply for financial aide, it gets held against you.

You cannot take a loan out for retirement.

My suggestion is to fund your retirement.

That is the advice DD's accountant gave her. They are no longer funding DGD's 529.

 

[DVCcurious]

Those who said you are "punished" if you save for college are correct. And, while it's difficult to make predictions, especially about the future, I will predict that this "punishment" will only get worse as our state budgets get squeezed over the next 15 years.

With the state of our state's budgets throughout the country I'd imagine that "aid" will be harder to come by. And if you have money set aside for college I wouldn't expect to get much aid at all. The government will want every last penny from you before they give you any aid. Look at it this way: who is going to get the aid, someone with no money saved or someone with $200,000 saved?

In my opinion your best bet is to be as poor as possible (on the FAFSA) when your kids go to college so you to can get on the government gravy train.

That is our plan. We are saving for college via Roth IRAs. Home Equity, IRAs, 401ks and Life Insurance cash value don't "count" as assets available for college on the FAFSA. If you have $10 million in an IRA or 0 in an IRA the government looks at you the same. Because of our retirement crisis I expect this rule to remain the same in the future.

So somebody with $500,000 saved in 529s will have that held against them and get reduced aid. Somebody with $500,000 saved in Roth IRAs won't have that held against them. You can put $11,000 for a couple (5500 per person) into Roth IRAs each year. If you have more than $11,000 available to save then go ahead with 529s.

Our plan is to look as poor as possible and take out every subsidized loan and get every scholarship available during the college years. Then as soon as both kids are finished we'll cash out our Roth contributions (the earnings will stay in the Roth) and sell our house, and use that money to pay off the loans. We'll use 401ks for our retirement. In all of my research on this topic this is the strategy that maximizes the payoff for the parents.

Saving for college is a sucker's game. The government will be there to "help" those who couldn't/didn't save money for college. If you saved and were responsible you won't get any "help". I plan on using that reality to my benefit.

 

[csmommy]

Those who said you are "punished" if you save for college are correct. And, while it's difficult to make predictions, especially about the future, I will predict that this "punishment" will only get worse as our state budgets get squeezed over the next 15 years.

With the state of our state's budgets throughout the country I'd imagine that "aid" will be harder to come by. And if you have money set aside for college I wouldn't expect to get much aid at all. The government will want every last penny from you before they give you any aid. Look at it this way: who is going to get the aid, someone with no money saved or someone with $200,000 saved?

In my opinion your best bet is to be as poor as possible (on the FAFSA) when your kids go to college so you to can get on the government gravy train.

That is our plan. We are saving for college via Roth IRAs. Home Equity, IRAs, 401ks and Life Insurance cash value don't "count" as assets available for college on the FAFSA. If you have $10 million in an IRA or 0 in an IRA the government looks at you the same. Because of our retirement crisis I expect this rule to remain the same in the future.

So somebody with $500,000 saved in 529s will have that held against them and get reduced aid. Somebody with $500,000 saved in Roth IRAs won't have that held against them. You can put $11,000 for a couple (5500 per person) into Roth IRAs each year. If you have more than $11,000 available to save then go ahead with 529s.

Our plan is to look as poor as possible and take out every subsidized loan and get every scholarship available during the college years. Then as soon as both kids are finished we'll cash out our Roth contributions (the earnings will stay in the Roth) and sell our house, and use that money to pay off the loans. We'll use 401ks for our retirement. In all of my research on this topic this is the strategy that maximizes the payoff for the parents.

Saving for college is a sucker's game. The government will be there to "help" those who couldn't/didn't save money for college. If you saved and were responsible you won't get any "help". I plan on using that reality to my benefit.

I totally agree with you. Here is a helpful article in Forbes. http://onforb.es/1lMTYg7

 

[teller80]

Those who said you are "punished" if you save for college are correct. And, while it's difficult to make predictions, especially about the future, I will predict that this "punishment" will only get worse as our state budgets get squeezed over the next 15 years.

With the state of our state's budgets throughout the country I'd imagine that "aid" will be harder to come by. And if you have money set aside for college I wouldn't expect to get much aid at all. The government will want every last penny from you before they give you any aid. Look at it this way: who is going to get the aid, someone with no money saved or someone with $200,000 saved?

In my opinion your best bet is to be as poor as possible (on the FAFSA) when your kids go to college so you to can get on the government gravy train.

That is our plan. We are saving for college via Roth IRAs. Home Equity, IRAs, 401ks and Life Insurance cash value don't "count" as assets available for college on the FAFSA. If you have $10 million in an IRA or 0 in an IRA the government looks at you the same. Because of our retirement crisis I expect this rule to remain the same in the future.

So somebody with $500,000 saved in 529s will have that held against them and get reduced aid. Somebody with $500,000 saved in Roth IRAs won't have that held against them. You can put $11,000 for a couple (5500 per person) into Roth IRAs each year. If you have more than $11,000 available to save then go ahead with 529s.

Our plan is to look as poor as possible and take out every subsidized loan and get every scholarship available during the college years. Then as soon as both kids are finished we'll cash out our Roth contributions (the earnings will stay in the Roth) and sell our house, and use that money to pay off the loans. We'll use 401ks for our retirement. In all of my research on this topic this is the strategy that maximizes the payoff for the parents.

Saving for college is a sucker's game. The government will be there to "help" those who couldn't/didn't save money for college. If you saved and were responsible you won't get any "help". I plan on using that reality to my benefit.

So.... kinda like welfare? No wonder our country is in bad shape. Will you then hide your assets so you qualify for free nursing home coverage as well? Why not hide them now so you can get food stamps and your kids can get free lunches? Are those of us who buy our own groceries 'suckers'?

I remember when you could claim "independent student" status at age 18 in order to be eligible for financial aid, but that loophole is now closed. It's sad that our country tries to help the less fortunate ends up spending resources to close loopholes.

 

[crisi]

Had I known more about this before he applied to schools, I might have liquidated some of our cash assets and put them in a safety deposit box.

Good thing you didn't, since that would have been felony fraud against the federal government.

You probably wouldn't want to get caught, but who wants to commit felonies?

 

[DVCcurious]

Will you then hide your assets so you qualify for free nursing home coverage as well?

It's sad that our country tries to help the less fortunate ends up spending resources to close loopholes.

I didn't make the rules. I'm not a congressman.

 

[Colleen27]

So.... kinda like welfare? No wonder our country is in bad shape. Will you then hide your assets so you qualify for free nursing home coverage as well? Why not hide them now so you can get food stamps and your kids can get free lunches? Are those of us who buy our own groceries 'suckers'?

Considering most Americans don't have adequate retirement savings, I don't think that's a good analogy. It is choosing to fund one need over another, not choosing to waste/hide money in order to qualify for assistance. If we're talking about a couple that has fully funded retirement (whatever that means - the bar seems to raise every time I blink!) your comparison may have some merit, but for the average family that should be concentrating on retirement savings anyway it is simply good advice. As someone upthread has already said, financial aid is available for college but for retirement you're on your own.

 

[georgina]

Those who said you are "punished" if you save for college are correct. And, while it's difficult to make predictions, especially about the future, I will predict that this "punishment" will only get worse as our state budgets get squeezed over the next 15 years.

With the state of our state's budgets throughout the country I'd imagine that "aid" will be harder to come by. And if you have money set aside for college I wouldn't expect to get much aid at all. The government will want every last penny from you before they give you any aid. Look at it this way: who is going to get the aid, someone with no money saved or someone with $200,000 saved?

In my opinion your best bet is to be as poor as possible (on the FAFSA) when your kids go to college so you to can get on the government gravy train.

That is our plan. We are saving for college via Roth IRAs. Home Equity, IRAs, 401ks and Life Insurance cash value don't "count" as assets available for college on the FAFSA. If you have $10 million in an IRA or 0 in an IRA the government looks at you the same. Because of our retirement crisis I expect this rule to remain the same in the future.

So somebody with $500,000 saved in 529s will have that held against them and get reduced aid. Somebody with $500,000 saved in Roth IRAs won't have that held against them. You can put $11,000 for a couple (5500 per person) into Roth IRAs each year. If you have more than $11,000 available to save then go ahead with 529s.

Our plan is to look as poor as possible and take out every subsidized loan and get every scholarship available during the college years. Then as soon as both kids are finished we'll cash out our Roth contributions (the earnings will stay in the Roth) and sell our house, and use that money to pay off the loans. We'll use 401ks for our retirement. In all of my research on this topic this is the strategy that maximizes the payoff for the parents.

Saving for college is a sucker's game. The government will be there to "help" those who couldn't/didn't save money for college. If you saved and were responsible you won't get any "help". I plan on using that reality to my benefit.

Good luck with that plan! I hope you intend to quit your job a few years before your kids hit college age because current income is the biggest contributor to your EFC. Your best bet is to hope your kids do well enough in school to get academic scholarships, the amount of Federal financial aid available is not very large. Many colleges don't give enough aid to meet your demonstrated need either.

 

[mjkacmom]

Good luck with that plan! I hope you intend to quit your job a few years before your kids hit college age because current income is the biggest contributor to your EFC. Your best bet is to hope your kids do well enough in school to get academic scholarships, the amount of Federal financial aid available is not very large. Many colleges don't give enough aid to meet your demonstrated need either.

I think you need to be poor enough to qualify for free school lunches in order to qualify for need based financial aid.

 

[DVCcurious]

We have a son going into his junior year in a pricey private school.

... by junior year all of the college savings was gone,

I need this post to help respond to the person below who was responding to my "do not save even $1 in a 529 plan and instead save it in a Roth IRA" idea.

Good luck with that plan! I hope you intend to quit your job a few years before your kids hit college age because current income is the biggest contributor to your EFC. Your best bet is to hope your kids do well enough in school to get academic scholarships, the amount of Federal financial aid available is not very large. Many colleges don't give enough aid to meet your demonstrated need either.

The first poster ran out of savings by junior year for one child. If you have multiple children it's IMPOSSIBLE to save enough to pay the entire cost of 4 years for each child. That is a fact of life. At some point you will have no more money saved and still have kid(s) in college.

Now, the next poster makes it sound like if you have no readily-available cash you will be hosed. But that's just not true as the poster above demonstrates. That poster ran out of their savings at Junior Year but their kid will still finish college and in fact their Aid package increased as their savings decreased.

So my belief is this: I can't save enough to fully fund college for two kids. At some point I will have NO money saved for college (probably around junior year for child #1 as the pp said). Even though I will have no money saved I will still be able to send the kids to college because there ARE reduced-rate loans available, there are grants/scholarships/etc available. If I'm going to run out of 529 money in year 3 and start getting all this aid why bother saving in a 529 at all? Why not "run out" of money at year 0 at get the aid as soon as possible?

 

[havaneselover]

I need this post to help respond to the person below who was responding to my "do not save even $1 in a 529 plan and instead save it in a Roth IRA" idea.



The first poster ran out of savings by junior year for one child. If you have multiple children it's IMPOSSIBLE to save enough to pay the entire cost of 4 years for each child. That is a fact of life. At some point you will have no more money saved and still have kid(s) in college.

Now, the next poster makes it sound like if you have no readily-available cash you will be hosed. But that's just not true as the poster above demonstrates. That poster ran out of their savings at Junior Year but their kid will still finish college and in fact their Aid package increased as their savings decreased.

So my belief is this: I can't save enough to fully fund college for two kids. At some point I will have NO money saved for college (probably around junior year for child #1 as the pp said). Even though I will have no money saved I will still be able to send the kids to college because there ARE reduced-rate loans available, there are grants/scholarships/etc available. If I'm going to run out of 529 money in year 3 and start getting all this aid why bother saving in a 529 at all? Why not "run out" of money at year 0 at get the aid as soon as possible?

Well the way I look at this is I don't want my kids starting off life in the hole. So I want to avoid loans at all costs. My parents sent four of us to college in the 80s and 90s (two to private schools, two to out-of-state public schools) and paid for it. It was the best gift they gave me. And I'll do everything I can and should be in decent shape to do the same for my children.

 

[crisi]

I need this post to help respond to the person below who was responding to my "do not save even $1 in a 529 plan and instead save it in a Roth IRA" idea.



The first poster ran out of savings by junior year for one child. If you have multiple children it's IMPOSSIBLE to save enough to pay the entire cost of 4 years for each child. That is a fact of life. At some point you will have no more money saved and still have kid(s) in college.

Now, the next poster makes it sound like if you have no readily-available cash you will be hosed. But that's just not true as the poster above demonstrates. That poster ran out of their savings at Junior Year but their kid will still finish college and in fact their Aid package increased as their savings decreased.

So my belief is this: I can't save enough to fully fund college for two kids. At some point I will have NO money saved for college (probably around junior year for child #1 as the pp said). Even though I will have no money saved I will still be able to send the kids to college because there ARE reduced-rate loans available, there are grants/scholarships/etc available. If I'm going to run out of 529 money in year 3 and start getting all this aid why bother saving in a 529 at all? Why not "run out" of money at year 0 at get the aid as soon as possible?

Because if you are looking at federal aid, there are only four kinds of grants.

Pell grants are only given out to the neediest students - there are few of us on this board who are going to see a Pell grant. If we can afford Disney, our incomes tend to be too big - regardless of savings. They max at $5000 a year.
Supplemental Opportunity grants are given out to even more needy students to supplement the Pell. They max at $4000 a year.
There are also TEACH grants and grants for returning military.

Everything else the federal government hands out is in the form of loans or work study. Work study is great, but it isn't going to pay tuition. And loans - well, why pay the U.S. government interest because you didn't save. Besides, the limit on them is rather tight as well - you'll max out federal student loans for undergrad at $27,000 - that's total, not per year - that isn't a lot of money. That's the for the kid.

You, as the parent, can take out a PLUS loan. Its currently 7.21% interest. Me, I'd rather save now and make interest than take out a loan for college and pay it.

All other funding will be private or come out of your own pocket. Now there is a lot of private money out there. But there is far from plenty of private money out there. For every kid that got a free ride scholarship there are hundreds who didn't. For every kid that goes to a good school with a good aid package, there is a kid who has to turn it down because their parents can't make up the difference. Or one that takes out onerous private loans and graduates under a cloud of debt.

 

[Colleen27]

Well the way I look at this is I don't want my kids starting off life in the hole. So I want to avoid loans at all costs. My parents sent four of us to college in the 80s and 90s (two to private schools, two to out-of-state public schools) and paid for it. It was the best gift they gave me. And I'll do everything I can and should be in decent shape to do the same for my children.

Few people are able to do that these days, though, so strategies to maximize financial aid become part of the big picture.

Our thinking on loans has shifted some as we've gotten closer to the college years. Ideally we'd avoid them entirely but that isn't realistic given our income and ability to save unless we strictly limit our daughter's college choices (which I don't think is a good option - she's very driven and has a particular passion in mind, and it isn't something she can pursue locally), so instead we're thinking in terms of minimizing borrowing as much as possible and then helping with the payments on those loans after the fact. Since our daughter attends private school now and we expect to cash-flow at least the same amount when she gets to college, it would simply be a matter of redirecting money that's already budgeted for education. But to keep those loans at a manageable level we will have to think about institutional aid eligibility as we make career and savings decisions over the next few years.

 

[DVCcurious]

I understand the other side of the coin. We'd all love to be able to save enough for the kids college and our retirement to make this entire discussion irrelevant.

If I KNEW I'd have enough money in my 401k for retirement...."KNEW" for a fact, not "hoped" or "planned to have enough" then, sure, I'd go whole hog 529 and dial back retirement accounts (like Roth IRA). But I don't know anything. I'm 39, my mid 60s are a long time away. Will stocks get a 10% return between 2015 and 2045? I don't know. If they do I'll be in great shape. If they don't....not so much. Will I ever get laid off? Again, I hope not but don't know for sure. In 2009 many people who were in the early 60s got laid off and were never re-hired. We can't know when it's our time to hang it up and live on our investments.

My idea is this: save in the Roth and use home equity and Roth to pay off student loans IF my 401k has performed as I hope it will. The advantage to this strategy is my money stays "uncommitted" an extra 7 years (first kid is 3 years ahead of second kid) and I will know a lot more when I'm 58 and kid #2 graduates than I will when I'm 51 when kid #1 becomes a freshman. If my 401k gets 10% per year than I could've saved in a 529 and paid as the college bills came in and not borrowed and not paid 7% interest on the loans. Oh well. But what if my 401k doesn't get 10%? Then I can use those Roth IRA funds to pay for my retirement and the home equity for my retirement. And, yes, my kids will be stuck with huge loans. But I'd rather they have huge loans than us parents be in a difficult situation because we busted our nest egg on their tuition. My employer just did a surprise restructuring two years ago. They'd never done one EVER before. No one thought they ever would. The people with 25 years in and in their later 50's were given their walking papers. The company saved a bundle on their future pensions (because they won't be able to accrue more years of service). I guess I'm afraid of that happening to me when I'm 59. You can never assume you'll work until your 66 or 67 and have that extra decade to build up your nest egg. I'd rather "put on my own oxygen mask before assisting others" than help my kids and end up hosed. When you consider what I wrote above about the "penalty" for saving outside of a retirement account....well it just makes too much sense to me to max my Roth IRA before I put one penny in a 529.

 

[runwad]

DVCcurious I think you have a good plan. I have one in college now and another that will start in 2016. We don't make a lot of money, less than 70k, and we only qualify for loans. Yes we do at least qualify for the subsidized loans but the people who are getting the gov't aid are people making under 50k and 40k. If your income is more than that you're not getting anything anyway. So there is no penalty for saving. We saved, not enough for 4 years for 3 kids but they will come out with minimal loans as long as they live at home and commute to the great state school nearby and do some co-oping. They also did post secondary in high school so started with some college credit under their belt.

So it really all depends on your income! Whether you actually save for college or not it doesn't matter, if you make over 50k the fafsa thinks that you should've been saving all along.

 

[disneypharm]

I think you need to be poor enough to qualify for free school lunches in order to qualify for need based financial aid.

I don't think this is true. For private schools with an average tuition + room + board/fees of $60K, an average middle class family can easily get need based financial aid. So, the cost for that family may end up being less than the local state schools.

 

[disneypharm]

We are saving for college via Roth IRAs. Home Equity, IRAs, 401ks and Life Insurance cash value don't "count" as assets available for college on the FAFSA. If you have $10 million in an IRA or 0 in an IRA the government looks at you the same. Because of our retirement crisis I expect this rule to remain the same in the future.Our plan is to look as poor as possible and take out every subsidized loan and get every scholarship available during the college years. Then as soon as both kids are finished we'll cash out our Roth contributions (the earnings will stay in the Roth) and sell our house, and use that money to pay off the loans. We'll use 401ks for our retirement. In all of my research on this topic this is the strategy that maximizes the payoff for the parents.

This is what we are doing.

 

[crisi]

Few people are able to do that these days, though, so strategies to maximize financial aid become part of the big picture.

On the other end, though, both you and I have seen the people who have come in here with no college savings, shocked at their EFC - who have a signature line full of cruises and Deluxe resort stays.

You should save enough for your retirement and prioritize that, and an emergency cushion. And you shouldn't save for college and retirement to the point where you eat beans and toast and never leave the house. But Poly concierge and no college savings? But there are plenty of people who are choosing to drive matching BMWs rather than saving for college (and often retirement) and crying poverty, shocked that someone else won't take responsibility for getting their kids educated.