College Tuition Benefit

[wonderfuffin]

My employer just began offering a new benefit through collegetuitionbenefit.com. If you haven't heard of this before, here is a quick rundown

- They match 5% of your total 401(k) balance per year with college tuition points.
- Each point is worth $1.
- This can be used for a maximum of 1 year tuition for your child or grandchild at participating colleges (about 40% of non-state schools are on the list).
- This is provided free of charge to the employee

This seems like a no brainier, but here is my dilemma. I have $98,000 in my former employees 401(k) in an S&P 500 fund with an awesome .02 ER. I only have $8,000 in my current 401(k) and haven't transferred the money over because the Vanguard total market fund has double the ER of .04 (still excellent, but double non-the-less).

My daughter is one, so (if I transferred the balance) I would easily have enough credits to pay for one year of her schooling assuming this benefit remains in place until she is 18 (or I retire). I need some advice, because I don't know for sure that she'll want to go to college, if she does I don't know if it will be one of these schools and non-state schools tend to be much pricier for the remainder of her time.

[Gin1984]

My employer just began offering a new benefit through collegetuitionbenefit.com. If you haven't heard of this before, here is a quick rundown

- They match 5% of your total 401(k) balance per year with college tuition points.
- Each point is worth $1.
- This can be used for a maximum of 1 year tuition for your child or grandchild at participating colleges (about 40% of non-state schools are on the list).
- This is provided free of charge to the employee

This seems like a no brainier, but here is my dilemma. I have $98,000 in my former employees 401(k) in an S&P 500 fund with an awesome .02 ER. I only have $8,000 in my current 401(k) and haven't transferred the money over because the Vanguard total market fund has double the ER of .04 (still excellent, but double non-the-less).

My daughter is one, so (if I transferred the balance) I would easily have enough credits to pay for one year of her schooling assuming this benefit remains in place until she is 18 (or I retire). I need some advice, because I don't know for sure that she'll want to go to college, if she does I don't know if it will be one of these schools and non-state schools tend to be much pricier for the remainder of her time.

You can always do it later, if the benefit remains, right?  Also, I assume you'll be putting a lot more in your 401k in the next seventeen years?  So you might not even need that rollover money.

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[hoping2retire35]

umm, who is your employer?

[dandarc]

I personally would heavily discount the value on this benefit.  Maybe if you're an alumnus and your kid is definitely going to a school on the list it might be worth what it sort of looks like it is.  The list of participating colleges is here https://secure.tuitionrewards.com/index.cfm?p=colleges.  Maybe the school your child gets in to / wants to attend is on the list in the future, maybe not.  Also read the specifics on this.

It is a "guarantee" of a minimum amount of financial aid at these schools.  These are private schools, which often run more expensive than their public counterparts.  At least they are limiting this to non-profit private schools - won't find Trump University on the list.  Many students get some form of financial aid already, so you have to ask, what is the incremental benefit of this, even if your child winds up going to one of these schools.

Then not all schools will accept all of the points - some have a cap on how much of these points they will accept.  You can't get all of the details about any particular school's policies until you've signed up.

Also note this under "Other benefits for Employers:"

Cost-Effective Employee Benefit - Participating firms pay only a relatively small administrative fee, not the cost of the scholarships. Colleges simply agree to accept less than full tuition.

I suspect the marketing value to these schools far outweighs the actual benefits to the participants.  Actually I don't have to just suspect that - right on the website's "for colleges" section:

The Tuition Rewards consortium, from SAGE Scholars, is a unique private college enrollment marketing tool to fill a "traditional" freshman class.

Tuition rewards pockets the fees, the universities "pay" the cost by giving scholarships they largely would have given anyway.  But your kid is more likely to choose one of these schools - you are, after all, agreeing to have them bombarded by marketing materials from SAGE and its member schools, not to mention a parent who has accrued a lot of these points is going to likely feel compelled to steer their kid to one of these schools, lest their hard-earned "benefits / investments" be "wasted."

[Righty]

What is the reason you wouldn't do it? Is there a cost to this program on your end?

[reeshau]

All of the questions about whether you would choose a private college are valid.  But, if you pass that hurdle, then you are essentially saying:

"I don't want to take a 5% benefit, because it will cost me an extra .02%"

While that's not entirely apples-to-apples, as I expect the 5% designation does not appreciate in any way, it will take a long time for .02% to compound to 5%, and offset the gain.  (about 8,050 years)

[dandarc]

All of the questions about whether you would choose a private college are valid.  But, if you pass that hurdle, then you are essentially saying:

"I don't want to take a 5% benefit, because it will cost me an extra .02%"

While that's not entirely apples-to-apples, as I expect the 5% designation does not appreciate in any way, it will take a long time for .02% to compound to 5%, and offset the gain.  (about 8,050 years)

But if you could accrue the maximum benefit in 16 years without doing the rollover, then you're better off standing pat.  $18K / year adds up quick, and the maximum benefit is under 55K "points".  So that first year's 401K contribution, ignoring growth or loss, would get you 18K * .05 * 16 = 14.4K points.  But you might not be with a participating employer the whole time.

The other thing is - take the example on the website.  The "guaranteed minimum" benefit that a college will accept is 25% of tuition.  The example on the FAQ page says "Many of these colleges charge $40K per year for tuition - so that's $10,0000 per year!".  There are a hell of a lot of ways to get an undergraduate degree for less than $30K per year for tuition.  Yet another reason I think the value being provided here is not at all what it seems.