OT: Looking at College Financial Aid Calculations. How close are they?

[MinnieForMe]

Original poster here!

Thank you everyone! I'm over the sticker shock and am now working on the best route to pay for his college in 18 months. We have always lived below our means. Our mortgage will be paid off this December. When we planned paying our mortgage off in December of his senior year 10 year's ago, we assumed handing him our monthly mortgage payment would be enough to cover college. We were wrong! Not taking into consideration a tax deduction from a mortgage, I'm thinking the best option is to write a check from our savings and keep the equity in the house to pay for our other two to go to college. I'm sure our EFC is high because of our savings as well as our income.

We have saved for college since the kids were born but obviously not enough as we can pay for the 1st child but the other two will be more of a struggle. Is there any reason if they don't count your mortgage (besides tax consideration) to take out a mortgage again instead of just using our savings?

Thanks again for letting me vent!

 

[Marionnette]

I want to offer another suggestion, which is to look into Tuition Management Systems (or a similar company). All of my kids attended schools where this was an option for paying tuition. You pay a small fee and they pay the amount that you designate to the school while you pay them a monthly amount to cover that "loan". The payment terms differ depending on the school your child attends. Our boys attended state universities and the "loan" had to be paid off by the time that the semester started. We would begin making monthly payments in March for the fall semester. Our daughter attended a private university and the payments for her tuition extended into the fall semester with the last payment coming due in November.

Make no mistake, those monthly payments are not small if you are paying the full amount of tuition room and board. The system is better for parents whose kids only need to bridge a small gap in financial aid and who have the wherewithal to cover that monthly payment. It's an alternative to having your child take out a private loan for the full amount that they are short.

 

[HeatherC]

You wouldn't have had to save $1400/month to reach that savings goal....your figures assume no interest or compounding. Even using simple math and straight annual interest of only 3% you could save almost $60,000 in 18 years by putting away $200/month. Now granted, that may still be tough for a young family, but the value grows much larger than most think thanks to compounding."

True...compounding interest does come into play. However, we were diligent about saving every month...but the stock market went south a bit and we didn't end up with nearly what we thought we would after 18 years. My point with those numbers was basically that the price is ridiculously expensive for the average family. And if you have more than one kid, the amount you need is even higher.

We are lucky in that we live in a state that has some great schools all within commuting distance. I feel for families who do not have that option.

 

[HeatherC]

Sorry...messed up that lost post with the quotes.

 

[teller80]

You're talking about Federal Stafford student loans (both subsidized and unsubsidized), which do not require a parents' signature.

I'm talking about private student loans and PLUS loans, which many families resort to in order to fill the financial gap. And yes, there are some private loans which can be gotten without a cosigner but they have stricter repayment terms and higher interest rates.

Oh, I didn't know lenders would give that kind of money to an 18 year old. What kind of higher interest are we talking about? I imagine it's significant.

 

[teller80]

Is there any reason if they don't count your mortgage (besides tax consideration) to take out a mortgage again instead of just using our savings?

I think it's a security thing. If anything were to happen with your income and you couldn't make the payments, you could lose your house.

 

[Marionnette]

Original poster here!

Thank you everyone! I'm over the sticker shock and am now working on the best route to pay for his college in 18 months. We have always lived below our means. Our mortgage will be paid off this December. When we planned paying our mortgage off in December of his senior year 10 year's ago, we assumed handing him our monthly mortgage payment would be enough to cover college. We were wrong! Not taking into consideration a tax deduction from a mortgage, I'm thinking the best option is to write a check from our savings and keep the equity in the house to pay for our other two to go to college. I'm sure our EFC is high because of our savings as well as our income.

We have saved for college since the kids were born but obviously not enough as we can pay for the 1st child but the other two will be more of a struggle. Is there any reason if they don't count your mortgage (besides tax consideration) to take out a mortgage again instead of just using our savings?

Thanks again for letting me vent!

IMO, there is no reason that you should re-mortgage your home in order to pay for college for the kids. This puts the onus on you to pay for the loan, takes away from your personal net worth and will impact your own retirement plans. I'm unsure what your savings is earmarked for, but definitely do not use your 401k or other retirement savings for your child's college costs, either. If the savings is your emergency fund, then don't touch it for this. If the savings is for new cars, furniture, travel and other luxuries then I say go for it.

 

[Marionnette]

Oh, I didn't know lenders would give that kind of money to an 18 year old. What kind of higher interest are we talking about? I imagine it's significant.

The interest rate will vary. You can get fixed-rate loans or variable rate loans. You can choose to pay on the loan while in school or you can choose to defer the payments until after graduation.

And here's the thing: Even if you do not cosign for your child's loan, that does not prevent you from making payments on it if you feel so inclined. The difference here is that YOU are not on the hook for the loan amount if your grown child defaults on the payments. You definitely do not want the bank coming after you for their loan payments when you're living on Social Security and your retirement savings!

ETA: For an idea of what you might expect in the way of interest rates right now, take a look at this link. I'm not endorsing Discover as a loan provider. It was simply the first link when I Googled "private student loan interest rates".
https://www.discover.com/student-loans/interest-rates.html

 

[crisi]

I don't think it would be fair to take your rent/mortgage into consideration. Family A buys a home well below what they can afford in order to save money for education, while family B buys a McMansion. Should family B get financial aid because of that?

And that is where my eye rolling really starts to look like a slot machine. Family B lives in a McMansion, drive two nice late model cars, have their kids in expensive activities, take a vacation every year - "but couldn't possibly have saved that much money!" Family A made sacrifices and did save. Family C on the other hand, faced illness and layoffs, never made a lot of money even when everyone worked, never could afford a vacation and lived on a bare bones budget - there weren't any sacrifices that could be made - and they raised kids who have real college potential and a desire to go - those are the students we should try and get aid for.

A tale of three friends of my daughter - all very bright girls....

Addy lives in a McMansion. Her parents drive his and her's matching Mercedes. Mom has stayed at home raising kids despite having a MBA. Addy is well traveled. She participates in expensive sports, like skiing. Its been obvious for the length of their friendship (since second grade) that Addy's parents are overextended, the repeated little clues "can I pay you next week for the Girl Scout trip?" And now the FAFSA is on the horizon and Addy's Mom's whine about how expensive college is rings in my ears.

Hannah has a Dad who is an electrician and a Mom who is an aid for Alzheimers patients. They have several kids, not a ton of money - but they stretch what they have and according to Hannah's mom, have set aside "enough" for college (with the Staffords) and Hannah has the expectation of a State school. She'll come out with some loans, but they won't be crushing. Cars are used, vacations are rare, house is small.

Lily's mom died and her Dad is an alcoholic with a spotty employment history. There is no money. At times they've lived in shelters. Despite her disadvantages in her upbringing, Lily is almost a straight A student. Lily will need aid to get through college, and she'll probably end up with loans. And Lily SHOULD get aid through college.

 

[tzolkin]

Or it may be once the mortgage and bills were paid, there was nothing left. Not everyone who can't afford the outrageous cost of college was living beyond their means.

I apologize. My post was not clear. I agree with you.

For some people, their income is not enough to cover the basics, so even without extravagant or irresponsible spending they are unable to "live within their means". I should have used a different phrase. In the context of this thread I meant that to include paying all their expenses without incurring debt as well as saving for both retirement and college. You are correct, doing all three is not possible for some families.

I am not coming from a position like many others here where I have been planning and saving since before my children were born. I do not have a fraction of the money saved for college that I need for my kids. I probably have enough for my oldest (who is a HS junior), but I have two younger children as well. I had my oldest when I was in high school, DH and I both went to college (our parents did not pay a penny), and even after that our income was not enough to have anything left to put away for our children. DH and I are both extremely practical and conscientious about spending, so this is all that was mathematically possible to save during the limited time we had. (DD was also moved ahead in school-- didn't really consider the financial implications of that giving us even less time to save for college when we made the decision). Sure, it would probably have been easier financially if we weren't facing paying for our children's education in our early 30s, but that's where we are.

 

[MrsPete]

I don't think it would be fair to take your rent/mortgage into consideration. Family A buys a home well below what they can afford in order to save money for education, while family B buys a McMansion. Should family B get financial aid because of that?

Yes, choices in things like housing often make the difference between whether a family can pay for college or not. We live in a 2400 sf all brick ranch in an old, established neighborhood. It's a large house, but it's not a trendy, fashionable house like most of my friends have. The best thing about our house, though, is that it was CHEAP and it's been paid for for years. Most of my co-workers are still paying for their houses, and when I hear of mortgages over 2K/month, I just don't know how people do it.

 

[MrsPete]

Those limits are only for Federal Stafford Loans. Every student can go out into the private market and apply for private loans which may need cosigners. THAT is how students end up with six figured debt loads.

Yes, I can assure you that once you fill out the FAFSA form, EVERYONE will want to loan you money. The FAFSA people offered my daughter loans, but so did multiple private loan companies and credit card companies. One company even sent a breakdown of things she'd need -- like clothes, toiletries, plane tickets home, textbooks. We've been paying for her clothes, toiletries, etc. for 18 years -- why would we suddenly need to borrow for a bottle of shampoo? And why would we fly her home instead of driving 2 1/2 hours? The kicker, though, was the textbooks: Her college includes them in tuition.

With SO MANY OFFERS, I really do understand why people end up taking some of it, even if they'd set out not to do so.

 

[MrsPete]

I apologize. My post was not clear. I agree with you.

For some people, their income is not enough to cover the basics, so even without extravagant or irresponsible spending they are unable to "live within their means". I should have used a different phrase. In the context of this thread I meant that to include paying all their expenses without incurring debt as well as saving for both retirement and college. You are correct, doing all three is not possible for some families.

Certainly some people don't have enough to cover their basics. I came from such a family. More kids than our parents could afford, coupled with bad choices (alcoholism, divorce, throwing money at poor investments). Sadly, since education does tend to correlate with family income, many of these kids will not go to college. They ARE the kids who need the aid most, but they also tend to be the kids who didn't receive guidance and support from home during their high school years. I can tell you that I didn't; even though my parents both went to college, they were so focused on keeping food on the table that they pretty much ignored our educations.

But my kids are currently in their college years, and the majority of the parents whom I hear complaining about the high cost of college don't fit into that mold. Rather, they're people like me -- middle-middle America -- who've always carried some debt, who've splurged when they shouldn't have splurged, and who've lived above their means. This is so common that many people don't even realize it's what's holding them back.

 

[tarheel618]

We are about 1/2 way there for two kids- one will graduate in 5 years, the other one in 9. When they were born we did the states prepaid for university tuition only. We just couldn't afford the dormitory plans at the time. Now I wish we would have but hindsight is twenty-twenty. At the time it was what we could afford. The prepaid plan costs us 152 a month for both girls. We started it the year each of them were born (thats why the plans are so cheap) and each plan will end the year they go to college. So 17 years of saving. Our thought at the time was they could do the community college in our town (15 minute commute and live at home) and then transfer to a bigger university later for the last 2 years. Now as it is getting closer, I wonder how much we will still need to come up with in case they do want to do the university route for all 4 years. Both my husband and I have been strapped with student debt and it is something we didn't want to pass onto our kids. I am hoping over the next 5 years we can save enough to help oldest DD with some of the room and board cost if she does want to go to a 4 year university and not the community college first.

You know sometimes threads on Disboards are the wake up call you need. So today Im looking at what can we cut to save more for school. One cut back on my direct tv plan-there really isn't anything I need to see ( I could live without TV but the rest of my family can not so looking at a lower plan will be a start). When my phone contract is up- look at cutting some there. Is there a way that I can cut 50 dollars a month from my grocery bill or pass up eating out once in awhile. I figure it I can save 150 a month for the next 5 years that will pay for most of the first year of room and board. That doesn't take into account that I expect my DDs to work in the summer when they are old enough and help save for college as well.

Is there room for improvement yes? But I can't get those years back so I have to make the best of the next 5 years to get prepared for oldest DD and then focus on youngest DD. So thanks OP for waking me up from my fog and making me reevaluate our plan.

 

[Colleen27]

Many people simply don't have the means, I get that. There are programs that can help with that when your FAFSA EFC is low. However, when you are talking about people making enough money that FAFSA EFC expects them to cough up a bunch of money, that's not the demographic we're talking about. When I hear people making a lot more money than my family does talking about all the loans their kids are accumulating with college, I cringe.

But as we were talking about upthread a good income now doesn't mean a good income 2 or 5 or 10 years ago. It really feels like a huge disincentive to launch a second career. No less than a half-dozen of my mom-friends are back in school right now and we're all going to face shades of the same problem - going back to work at a higher wage than we were able to earn in our younger pre-kids days, just in time for the FAFSA to assume we've had that higher income and have been saving all along. I'm sure our EFC is going to be crazy when our kids get to college - it is manageable for me right now on DH's income alone, but from what I understand as you move up from that median income ballpark it increases very, very rapidly.

I'm middle-middle America and saved for college with minimal sacrifice. How? I live in a "good neighborhood" but in a house that isn't particularly cutting edge -- it's an all-brick ranch on a large lot. I bought my car new -- 8 years ago. A few choices like this can make the difference between being able to pay for college and taking out loans. I saw something recently about how much the average American spends on fast food breakfast and lunches -- I can't remember the exact number, but HALF of it X 18 years would pay for a kid's college education -- without the magic of compound interest.

And don't assume that college HAS TO cost so very much! At sticker price, my daughter's state school would be less than 50K for four years. So a middle class family who'd managed to put away 40K over 18 years would be able to pull 10K/year from savings and manage the rest through current income. Not impossible at all.

I think this is one of those situations where it helps to define middle. The median income in this country is about 50K/year. To save for a child born today to attend a state school, with an assumed 6% rate of return on investments, the calculator I use recommended saving $465 a month. Using that number families should be saving more than 10% of the national median income per child from the time each child is born. I think it is unusual for people in the statistical middle to be able to save 10% of their income, on top of basic costs of living and hopefully saving for retirement as well, much less to do so without significant sacrifice.

Looking into the cheaper state schools is a great tip, though. I think a lot of people, myself included, get in the habit of thinking about the local colleges and giving too much weight to things like transportation costs when it is possible to get better tuition deals elsewhere.

 

[runwad]

Just to throw in another perspective. I have a niece that just had a baby. I wanted to open a 529 plan for her baby, but my sister was all against it. Said there is no way the price of college can keep going up. People don't have the money to pay for it. The government is going to step in and make college free for all. Or companies are going to have to go back to training their workers like they did in the old days because people can't afford college.

I was a little disappointed on their opinion but it is their opinion. I wished someone would've told me about 529 plans! But we didn't start having kids till '95 and they weren't even created until 96. They were too new for people to be talking about them like they are now. Honestly I really wouldn't of been able to afford to contribute too much to them then, but I think I would've done a small amount like maybe $25 a month per kid. As it was I didn't really get educated about 529's until 2005 when my oldest was 10. We've saved what we could from then on.

My kids have been able to take post secondary classes in high school so that's really helped for our shortcomings in savings. My DD19 in college now is studying engineering and is going the co-op route, so I'm hopeful that the little bit of Stafford loans she accumulates can be paid off from her co-op jobs.

 

[tarheel618]

Just to throw in another perspective. I have a niece that just had a baby. I wanted to open a 529 plan for her baby, but my sister was all against it. Said there is no way the price of college can keep going up. People don't have the money to pay for it. The government is going to step in and make college free for all. Or companies are going to have to go back to training their workers like they did in the old days because people can't afford college.

I was a little disappointed on their opinion but it is their opinion. I wished someone would've told me about 529 plans! But we didn't start having kids till '95 and they weren't even created until 96. They were too new for people to be talking about them like they are now. Honestly I really wouldn't of been able to afford to contribute too much to them then, but I think I would've done a small amount like maybe $25 a month per kid. As it was I didn't really get educated about 529's until 2005 when my oldest was 10. We've saved what we could from then on.

My kids have been able to take post secondary classes in high school so that's really helped for our shortcomings in savings. My DD19 in college now is studying engineering and is going the co-op route, so I'm hopeful that the little bit of Stafford loans she accumulates can be paid off from her co-op jobs.

Well I hope your sister's belief happens when my kids are entering college but I don't think it will happen. It would be nice if there was a cap on what the university could charge and make it more affordable for all who want to attend but I think many future generations will be strapped with college debt.

Also how does your niece feel about the 529. I think it would be a great gift for the child.

 

[runwad]

Well I hope your sister's belief happens when my kids are entering college but I don't think it will happen. It would be nice if there was a cap on what the university could charge and make it more affordable for all who want to attend but I think many future generations will be strapped with college debt.

Also how does your niece feel about the 529. I think it would be a great gift for the child.

My niece just takes on her mom's opinion. I didn't feel comfortable trying to sway since they were so strong in their opinions. They'll see, unfortunately, it will be too late to do anything about it, if we stay on this same path. I hope she at least opens a savings account for the baby. They don't realize how fast these next 18 years go.

 

[Colleen27]

Well I hope your sister's belief happens when my kids are entering college but I don't think it will happen. It would be nice if there was a cap on what the university could charge and make it more affordable for all who want to attend but I think many future generations will be strapped with college debt.

Yeah, I'd like to think that will happen too but I just don't see it. The harsh reality is that our primary/secondary educational system is increasingly about getting all kids to college regardless of their ability, means, or interest, and that practically guarantees sky-high demand for higher education that will continue to push prices upward. Meanwhile schools are competing for good students not on price but on prestige because the ability to finance a college education insulates families from concerns about affordability, and that means more money going into "brag worthy" things like athletics and facilities which only drive costs up even further.

It is unfortunately true that a bachelors is becoming what a high school diploma was 30 years ago, and most of our kids are going to have to make that big investment (and potentially incur big debt) even to get lower-middle-class jobs with some opportunity for stability or advancement.

 

[tarheel618]

So here is another question. How hard is it to become an RA on campus?