Author Topic: Paying for Childrens' College When You Have No Savings  (Read 28027 times)

prof61820

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Re: Paying for Childrens' College When You Have No Savings
« Reply #100 on: October 26, 2014, 08:29:50 AM »

I agree that the FAFSA folks are not particularly good at figuring our who really needs aid and whose family could help . . . but won't.  But I don't think pensions are the issue that you're making them out to be.  Note that people who have pensions tend to be in low paying jobs.  A pension is typically a deal that says, You work for a low salary for X number of years, and we'll provide you with retirement income.  People who are pension-jealous tend to overlook the "low salary for X number of years" portion of the equation. 

That's relevant when a person who does some job expresses jealousy for the pension attached to the closest corresponding government job, or similar complaints, but it has nothing to do with making a comparison of the ability to pay for school between, for example, one family of 4 that makes $X/year and gets no pension benefit and another family of 4 that makes these same amount and does get a pension benefit.



No pension envy here.  Just pointing out that we have two different and distinct retirement systems in the United States.  If pension income and retirement age is not taken into account when determining "need," that's fine.  However, if this is the case, then those with 401K's should be able to shield a similar amount from the FAFSA eyes when determining need - for the sake of their retirement security.  The reality is that most middle class Americans will need a very big stash to achieve the same kind of retirement security that someone with a pension has and it looks like our financial aid system doesn't take that fully into account.  FAFSA needs to modernize or update the way they determine "need" because it looks like they don't take into account the real amount a family of 4 needs to "stash" before they can even contemplate paying for education.
« Last Edit: October 26, 2014, 09:07:54 AM by prof61820 »

Cyanne

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Re: Paying for Childrens' College When You Have No Savings
« Reply #101 on: October 26, 2014, 08:32:07 AM »
Your comments about pension assume the person will stay in that job until retirement. My pension does not pay full retirement benefits until I am 66. I could very well leave this job anytime and I only have 5 years in. If I quit or get fired now my pension would then be $180 per month when I retire at 66. Should the FAFSA I fill out for my son next year reflect the $180 I would receive based on my current numbers or the $2600 I would receive if I go to full retirement? What if I leave or get fired?

prof61820

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Re: Paying for Childrens' College When You Have No Savings
« Reply #102 on: October 26, 2014, 08:42:38 AM »
Your comments about pension assume the person will stay in that job until retirement. My pension does not pay full retirement benefits until I am 66. I could very well leave this job anytime and I only have 5 years in. If I quit or get fired now my pension would then be $180 per month when I retire at 66. Should the FAFSA I fill out for my son next year reflect the $180 I would receive based on my current numbers or the $2600 I would receive if I go to full retirement? What if I leave or get fired?

No, I am not advocating for adding pension benefits "in" to a "need" determination.   I think, however, we need to also allow those without pensions to take "out" a  certain amount of savings (for retirement security sake) when determining "need" for those without a pension.  Maybe we could figure out a fixed dollar amount - based on what it would cost to purchase an annuity that pays $30-40,000 annually in retirement - that can be shielded for those that do not have pensions when conducting a "need" analysis?  This might not be the best way, but "the number" should be a realistic FI type number for the parents based on income, total savings, debt and age.
« Last Edit: October 26, 2014, 09:06:18 AM by prof61820 »

Cyanne

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Re: Paying for Childrens' College When You Have No Savings
« Reply #103 on: October 26, 2014, 08:51:51 AM »
It would be very expensive to create a way to  check and verify pensions. They are not just offered by governments. My husband will receive a small  ($100) pension check when he retires. This is from a former non-goverment employer. What about companies who had pensions but no longer do? Some employees may get pensions but newer employees do not. I think the amount of money that would have to be spent on tracking pension assets would be better off going to student aid directly.

Goldielocks

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Re: Paying for Childrens' College When You Have No Savings
« Reply #104 on: October 26, 2014, 09:56:03 AM »

However, let's be realistic: 

The choice isn't "Save 10K per year for 15 years -- or nothing".  Realistically, any amount will be helpful.  Most of us include items in our budget that could be cut out for the sake of educating our children.  Tuition only is still massively helpful (and more than I had).  Housing and half tuition is still massively helpful (and more than I had).
+1

As MMM's we often look at the total per year we spend on our kids - after school, sports, clothing, food, education savings, etc.. all in.    Non MMM's tend to not think about the total spend, looking at monthly costs or individual categories only, as if they are separate entities.

Still,  it is amazing the one or two negative comments I received when I suggested that spending  $25k per child for after school and sports activities (the typical $200/month x 10+ yr) was a lot of money, and should be evaluated against education savings and other items to the kids' (and family's) benefit.

MrsPete

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Re: Paying for Childrens' College When You Have No Savings
« Reply #105 on: October 27, 2014, 07:43:29 AM »
However, if this is the case, then those with 401K's should be able to shield a similar amount from the FAFSA eyes when determining need - for the sake of their retirement security. 
Worded that way, I can see the point -- but, still, I think people outside the "pension world" imagine a level of security that isn't really a promise. 
Your comments about pension assume the person will stay in that job until retirement. My pension does not pay full retirement benefits until I am 66. I could very well leave this job anytime and I only have 5 years in. If I quit or get fired now my pension would then be $180 per month when I retire at 66. Should the FAFSA I fill out for my son next year reflect the $180 I would receive based on my current numbers or the $2600 I would receive if I go to full retirement? What if I leave or get fired?
Exactly.  As a teacher, I'm on my way to earning a pension; however, what isn't necessarily obvious "on the outside" is that of all people who begin working as teachers, something like 20% end up putting in the 30 years to collect a pension that'll actually support them in retirement. 

As you mentioned, you could quit or be fired before you reach that milestone.  You could also die or become disabled.  You could, like 3 out of every 5 new teachers, discover that the job just isn't for you, and you could go to another job -- likely for a larger paycheck that would allow you to put aside more for retirement. 

Another possibility is that your pension could suddenly disappear.  Yeah, I know, that's not supposed to happen - but it happened in Detroit.  After putting in years of work, those city workers are collecting pennies on the dollar.  My good friend's father's company "went under" and he lost his pension.  It could happen. 

People also tend to think of a pension as "a gift" on top of the earned paycheck -- in actuality, a percentage of my paycheck is deducted each month and invested on my behalf.  I don't have a say in where or how it's invested (I'm not complaining because mine's actually doing pretty well -- but not everyone in every pension job would be able to say that).  But the money that will eventually be my pension paycheck will come from my current paychecks.  If I live to be 120, I'll "win" and will collect more than I put in; however, if I die at 60, I may never even get back what I put in. 

So how should FAFSA consider this?  I don't see a fair way.  A pension that isn't yet fully earned is only a promise. 


firelight

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Re: Paying for Childrens' College When You Have No Savings
« Reply #106 on: October 27, 2014, 09:54:32 AM »
In that case, remove pensions totally and let everyone invest in 401ks? It would make the playing field level and people won't have to worry if they are getting back enough from pension funds or if the pension would disappear. Then the fafsa can raise limits to allow for more retirement savings.

firelight

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Re: Paying for Childrens' College When You Have No Savings
« Reply #107 on: October 27, 2014, 09:57:08 AM »
I don't see companies moving back to pension scheme. So the only easy way to make it fair for everyone would be to let everyone have only 401ks. We can also remove the 403bs etc while we are at it so people are not confused by the different plans and limits

frugalnacho

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Re: Paying for Childrens' College When You Have No Savings
« Reply #108 on: October 27, 2014, 01:15:34 PM »
My chemical engineering degree was less that $50k TOTAL, and you can still go to the same university and get the same degree for under $50k total.  Either pick a cheaper university or forgo the degree altogether.  Their ridiculous university expenses are entirely optional.
Yeah, my oldest is currently pursuing a nursing degree.  Total, when all is said and done, a person walking in with no aid and no scholarships of any type -- a person paying straight from his own pocket -- would pay around 45K.  That's total:  Tuition, books, room and board.  I think that's a fair price for a degree that will allow her to support herself and her future family for the rest of her life.

45k sounds a lot more reasonable than some of the numbers being thrown around in this thread.   Add in the fact that whoever is earning that degree will take at least 4 years, so they have plenty of time to work a part time job to pay more than half of that off, and you are left with a pretty small amount of student loans or financial help from parents. 

damize

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Re: Paying for Childrens' College When You Have No Savings
« Reply #109 on: October 27, 2014, 02:51:36 PM »
When my kids went to college, my poor credit wouldn't let me cosign their loans, however I easily qualified for Parent Plus loans.  I don't regret taking that option, despite the worse interest rate, as I'm in a better position to pay than my kids are. 

Ironically, the parent plus loans improved my credit to the point where my ex wife and I managed to dig a nice deep hole of consumer debt that I'll be working out of for the next 7 years. On the other hand, without the debt I wouldn't have looked up debt strategies and ultimately found MMM, so I got that going for me.

MrsPete

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Re: Paying for Childrens' College When You Have No Savings
« Reply #110 on: October 29, 2014, 11:58:53 AM »
In that case, remove pensions totally and let everyone invest in 401ks? It would make the playing field level and people won't have to worry if they are getting back enough from pension funds or if the pension would disappear. Then the fafsa can raise limits to allow for more retirement savings.
Who would "remove pensions totally"?  Are you saying make them illegal?  You're suggesting that you tie the hands of businesses and disallow pensions as a business practice? 

For the sake of the relatively small percentage of people who fill out a FAFSA form in any given year? 

Keep in mind, too, that almost every American HAS a pension plan.  It's called Social Security.  You're paying in now, you'll be able to collect somewhere 62-70. 




firelight

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Re: Paying for Childrens' College When You Have No Savings
« Reply #111 on: October 30, 2014, 04:38:29 AM »
Yup! Disallow pensions as a business practice. Let everyone use 401ks. Since people who are in the pension scheme already put in money, what difference does it make if it goes to a pension fund vs going to a 401k? Also increase the salaries accordingly. This would make the field level for all when it comes to retirement savings.

fartface

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Re: Paying for Childrens' College When You Have No Savings
« Reply #112 on: October 30, 2014, 06:43:07 AM »
With one kid in college, we went through the FAFSA process.  At first I refused to fill it out because I knew my income was way too high for any support, and I had set money aside to pay for my kids entire education out of pocket.  As it turns out, we qualified for nothing other than the small unsubsidized Stafford loan, in other words we got nothing.

I find it interesting that the child is supposedly a full adult, so parents don't hear anything from the school about anything.  Except when we are talking money.... then the parents are the parents again.  I find the double standard bizarre.  The child is an adult ecept when we're talking money.

I am glad that I saved all the money my kids need for college, but I am perturbed that they are taking it easy.  No worries about scholarships and any working income gets spent on hobbies and the like.  I think I may have been too generous.

Don't feel so bad. My grandfather - before his death - set money aside in a trust fund for all my college expenses (in-state university). Now the first sentence may make me sound like a spoiled brat -- but I'm not. Tuition, books, room and board were paid for. I had to maintain at least a 3.0 GPA (graduated cum laude) and pay for all my 'hobbies' which included beer, clothes, gas and insurance.

Even having to pay for these 'little' things helped me become mustachian.

My grandfather had 6 grandchildren. All of us had access to the trust so long as it was used for educational expenses. My three siblings and I all got bachelor's degrees with this money. My brother and I went on to earn our master's which we paid for ourselves. Two of my cousins ended up in juvy hall. They never attended college. In the end, my aunt had to use their 'college' funds for lawyers to fight all their felonies --- very sad.

I guess the point is, if your kids are given money for college -- they won't be ruined by your generosity IF you've taught them savings habits and followed a frugal lifestyle all along. My parents never 'put on the dog', neither did my well heeled grandfather. I always remember him walking around in bib overalls splattered with paint! Very unassuming guy. 

prof61820

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Re: Paying for Childrens' College When You Have No Savings
« Reply #113 on: October 31, 2014, 09:20:46 AM »
Another possibility is that your pension could suddenly disappear.  Yeah, I know, that's not supposed to happen - but it happened in Detroit.  After putting in years of work, those city workers are collecting pennies on the dollar.  My good friend's father's company "went under" and he lost his pension.  It could happen. 

This is what happened with pensions in Detroit: "Under the deal, past and present city workers have accepted 4.5 percent base pension cuts and the elimination of annual cost-of-living increases. Police and firefighter pensioners would see their 2.25 percent annual COLA reduced to about 1 percent."

http://www.detroitnews.com/story/news/local/wayne-county/2014/10/27/detroit-bankruptcy-trial/17992123/

I agree that pension income should not counted (at least an amount that provides basic retirement security).  Pensions are a great way for folks to achieve financial independence in retirement and I wish more companies offered them and the bankruptcy rules protected them better.  I think your concerns about losing a pension are overblown.  I wish unions would promote a universal pension system for all Americans rather than trying to safeguard what they have and ignoring retirement security for the rest of the middle class.  This is a part of the "pension envy" that does exist today and is eroding support for paying higher and higher taxes to pay benefits that the vast majority do not have access to at all. 

That said, FAFSA should also not count retirement and other savings - in an amount equivalent to a pension - when calculating need for a 401K family so they can also achieve the same type of financial independence that a person with a pensions has in the United States.  For the sake of argument, let's say $45K annualy in retirement income is "the number" for retirement FI.  If we assume that the value of a $45K a year pension is $1.5 million (I'm guessing because I don't have the time to find the correct annuity calculator now), then a 401K family should be able to shield $1.5 million from FAFSA when determining need.
« Last Edit: October 31, 2014, 10:33:00 AM by prof61820 »

teen persuasion

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Re: Paying for Childrens' College When You Have No Savings
« Reply #114 on: October 31, 2014, 10:56:27 AM »
Have any of you looked at the paper FAFSA form (for what you actually have to report), and the FAFSA calculations booklet (for how they figure the EFC)?

Retirement account balances are NOT included in assets.  They are invisible to the FAFSA.  Current year retirement contributions and pension contributions are added back to AGI, as well as nontaxed pension income. 

The only imbalance I see is the scenario of parent A has a pension fully funded by the employer (no out of pocket) vs parent B contributes to a 401k with no employer match at all (saves everything themself).  Are fully funded pensions common?  I only know of teacher pensions, and they have to contribute.

prof61820

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Re: Paying for Childrens' College When You Have No Savings
« Reply #115 on: October 31, 2014, 12:49:21 PM »
Have any of you looked at the paper FAFSA form (for what you actually have to report), and the FAFSA calculations booklet (for how they figure the EFC)?

Retirement account balances are NOT included in assets.  They are invisible to the FAFSA.  Current year retirement contributions and pension contributions are added back to AGI, as well as nontaxed pension income. 

The only imbalance I see is the scenario of parent A has a pension fully funded by the employer (no out of pocket) vs parent B contributes to a 401k with no employer match at all (saves everything themself).  Are fully funded pensions common?  I only know of teacher pensions, and they have to contribute.

It's a bit murky for me.  I can't find a .pdf on the FAFSA website (https://fafsa.ed.gov/index.htm) that would let you see how they use retirement savings and other assets to calculate need.

Here is what I pulled from simpletuition.com's website (http://www.simpletuition.com/fafsa/the-calculations-behind-the-fafsa/)

"The first step in the EFC calculation is to determine what portion of the parents’ income is available to contribute to the costs of college. It includes total income but then subtracts taxes paid, child support and basic living expenses, and an employment allowance (basically a percentage of the income of the parent who earns less, or of the single parent’s income). This number is the available income.  Then, parental assets are analyzed. The value of cash, savings, checking accounts, the net worth of a business or farm, and investment and real estate net worth (excluding the family’s primary residence) are added together. From that total, specific savings for education and an asset protection allowance (a portion of assets dependent on structure of the family and the value of assets) are subtracted. A part of this total is used to determine the available contribution from assets.

"The needs analysis is based on a few principles. First, the parents have the primary responsibility for the cost of higher education. Second, the student is responsible for some contribution to educational costs. Third, families should only be evaluated in their present financial situation. And lastly, the family’s contribution should be determined consistently and equally for all families with children attending institutions of higher education."

Here's an interesting .pdf on the need calculation process: http://r.search.yahoo.com/_ylt=A0LEVxPA1FNU8yoAz1xXNyoA;_ylu=X3oDMTByZDBpbXI5BHNlYwNzcgRwb3MDNQRjb2xvA2JmMQR2dGlkAw--/RV=2/RE=1414808897/RO=10/RU=http%3a%2f%2fwww.fafsaonline.com%2fprintable-fafsa-form%2fFAFSA-Help-Guide-ebook.pdf/RK=0/RS=zEF0X7S4Oxt.4eQYonWz5ucKlYw-

P. 94:  "Certain types of untaxed income are counted by the federal need-analysis formula
despite not being included in adjusted gross income.
These types of untaxed income include:
• Pre-tax contributions made by the taxpayer to qualified retirement plans,
including deductions for pension plans, 401(k) plans, 403(b) plans, SEP,
SIMPLE and deductible contributions to tax-deferred IRAs and Keogh plans
• Tax-free contributions to a Health Savings Account (HSA)23"

Here's a doozy on p. 96 "Contributions to a 401(k), 403(b) or IRA, on the other hand, are
voluntary and must be reported as untaxed income on the FAFSA....Note that employer contributions to retirement
plans, health benefits and pension plans are not counted in untaxed income."

pp 102-103: "Reportable and Non-Reportable Assets
Assets include any property that is owned and which can be bought and sold (i.e., an
asset has exchange value).
Examples of assets that are reported on the FAFSA include:
• Cash29
• Bank accounts, such as checking and savings accounts
• Certificates of Deposit (CDs)
• Brokerage accounts
• Stocks, bonds, mutual funds, money market accounts, stock options, restricted
stock units (vested portion only), ETFs, hedge funds, REITs, private equity and
other investments
• Commodities and precious metals
• Businesses and investment farms (including the value of land, buildings,
machinery, equipment and inventory)
• Real estate
_ Filing the FAFSA 104
TABLE OF CONTENTS
• Installment and land sale contracts (including mortgages held)
• Custodial accounts, including Uniform Gift to Minors Act (UGMA) and
Uniform Transfer to Minors Act (UTMA) accounts (if owner, not custodian)
• Trust funds
• College savings plans, including 529 College Savings Plans, Prepaid Tuition
Plans (value is the refund value of the plan) and Coverdell Education Savings
Accounts
The following assets are not reported on the FAFSA:
• The family’s principal place of residence (the family home)
• A family farm, if it is the family’s principal place of residence and the student
and/or parents materially participate in the farming operation
• Any small businesses owned and controlled by the family. Small business have
less than 100 full-time or full-time equivalent employees. To be controlled by
the family, the family must own more than 50 percent of the business. Note that
family members are not limited to just those counted in household size on the
FAFSA, but may include relatives by birth or marriage.
• Qualified retirement plans, such as 401(k) plans, 403(b) plans, pension plans,
annuities, traditional IRAs, Roth IRAs, Keogh, SEP and SIMPLE plans
• Life insurance policies, including cash value and whole life insurance policies
• Personal possessions, such as clothing, furniture, a car, computer equipment
and software, television and stereo equipment
• Property received by Native American students under the Per Capita Act, the
Distribution of Judgment Funds Act, the Alaska Native Claims Settlement Act
or the Maine Indian Claims Settlement Act
Note that while qualified retirement plans do not count as assets, distributions
from a retirement plan (including tax-free distributions) do count as income to
the beneficiary on the FAFSA. (The only exception is for amounts rolled over into
another retirement plan in the same tax year.) Tax-free contributions to a retirement
plan by the taxpayer (not the employer) also count as income. Note that retirement
plan contributions from the employer, such as an employer match of 401(k)
contributions, do not count as income. Likewise, insurance settlements from a life
insurance policy do count as income."

More fun on p. 103: "If retirement money is not held in a qualified retirement plan, it must be reported
as an asset on the FAFSA, even if the asset owner has already reached the normal
retirement age. The intent to use the money to pay for retirement is irrelevant, since
there are no legal restrictions on the use of the money.
If the parents sell their principal place of residence, the net proceeds of the sale
must be reported as an asset even if the parents intend to use the money to buy a
new home."

It seems as if the system is skewed to steer a 401K family's income away from retirement saving (and possibly deplete taxable investment assets that could be used for retirement security ) by forcing parents to pay for college tuition, fees, room and board, etc. while their ADULT children attend college without regard to the total amount they have saved for retirement and their (and their children's) "need" for parental retirement security.
« Last Edit: November 01, 2014, 08:10:50 AM by prof61820 »

Johnez

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Re: Paying for Childrens' College When You Have No Savings
« Reply #116 on: November 01, 2014, 03:58:55 PM »
Am I missing something here, or do pensions get the same exact treatment as 401ks?  The employee contributions to 401k and pensions are added back in as income (not employer contributions), but the plans themselves are not included as assets.  Is it because pensions are mostly funded by employers whereas 401ks are mostly funded by employees, skewing the income?

teen persuasion

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Re: Paying for Childrens' College When You Have No Savings
« Reply #117 on: November 01, 2014, 10:07:56 PM »
Here are the EFC formula calculations: http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf

Retirement account balances are not included in asset tests on the FAFSA (but may be looked at by the institution's formula), but current year contributions are added back to AGI on the income side of the FAFSA calculations.  However, it does seem that getting your AGI below the $24k threshold for Auto EFC=0 sidesteps the add-back.  Getting your AGI below $50k and you may qualify for the Simplified Needs Test, which ignores assets altogether.  To qualify for either of these, you must also meet at least one condition: qualify for free/reduced lunch/SNAP/WIC/SSI, qualify to file 1040A or EZ, etc.



The link is for the actual calculation of your EFC.  Start on page 9.

To find out what is on 'line 94', or wherever, Google "paper FAFSA".  Sorry, I can't post that link from my kindle, it just wants to download it so I can't capture the address.
« Last Edit: November 01, 2014, 10:15:01 PM by teen persuasion »

teen persuasion

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Re: Paying for Childrens' College When You Have No Savings
« Reply #118 on: November 01, 2014, 10:16:03 PM »
Am I missing something here, or do pensions get the same exact treatment as 401ks?  The employee contributions to 401k and pensions are added back in as income (not employer contributions), but the plans themselves are not included as assets.  Is it because pensions are mostly funded by employers whereas 401ks are mostly funded by employees, skewing the income?

That's the conclusion I came to, also.

prof61820

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Re: Paying for Childrens' College When You Have No Savings
« Reply #119 on: November 02, 2014, 07:39:48 AM »
Am I missing something here, or do pensions get the same exact treatment as 401ks?  The employee contributions to 401k and pensions are added back in as income (not employer contributions), but the plans themselves are not included as assets.  Is it because pensions are mostly funded by employers whereas 401ks are mostly funded by employees, skewing the income?

That's the conclusion I came to, also.

And that's a good thing and a bad thing because the pension and 401K systems are very different in the way they create retirement security.  Typically, in a government setting the union has negotiated that the employer will pay the employee's pension contribution so the employee is not making any contribution out of pocket and can contribute more of their income than a 401K family who will have their retirement account contributions still count as income while their children are in college. 

In addition, a pension is a lifetime benefit - often beginning when a person is 55 or younger and comes with a generous COLA that increases benefits annually so it's extremely valuable and the former employer (especially in the government sector) often pays out a lot more than either the employee or employer ever paid in - that's a big reason why state and local taxes continue to increase and government services remain the same or get cut.  Pensioners also usually receive free healthcare for life that often starts well before 67.  In a high deductible world, free healthcare is also an extremely valuable benefit to the pensioner's family. 

401Ks are mostly financed by employees and are finite.    The 401K family bears all of the risk for bad investment decisions and market declines.  Pre-67 healthcare benefits rarely exist for 401K families.  Because a pension is a guaranteed, lifetime benefit, the pension recipient is in a much better position to tap current income and assets than a 401k family who has to constantly worry about the finite nature of their retirement assets and market risk. 

Like I said before, I don't think we need to change the system completely but simply recognize that if you have a 401K for your retirement - and no pension - you should be able to shield additional assets for retirement security when the  financial need determination is made.  And if you are in a "make up" situation i.e. don't have enough to retire securely before 67 (the government itself recognizes this problem by allowing larger contributions as a person ages) your 401K contributions should not count as income because  retirement security shouldn't be considered "voluntary" by the government when determining financial need for college.  Pension contributions - where an individual is not vested or their pension is an insufficient amount to provide retirement security - should also be able to have their contributions towards pensions  or other retirement accounts not count as income under the same theory that their retirement security is not "voluntary" either. 

Maybe the solution is as simple as paying off your home, starting a small business or loading up savings in retirement accounts?  Can an individual make "after tax" 401K contributions higher than $17,500 to move taxable investment account dollars into retirement account dollars?  Maybe the government should allow larger pre-tax contribution amounts to 401ks, IRA's and allowing other types of contributions - such as real estate - to be placed inside a retirement account? 

As I said before, there should be a dollar cap on assets shielded in retirement accounts as well but it should be high enough to provide real retirement security (assuming for argument's sake that a $40,000 a year pension (or annuity), with 3% compounded COLA, that starts at 55 will do just that).
« Last Edit: November 02, 2014, 01:03:00 PM by prof61820 »

BreakingtheCycle

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Re: Paying for Childrens' College When You Have No Savings
« Reply #120 on: November 02, 2014, 06:58:43 PM »
I'd like to add my story to this thread.  I'm an only child, parents were extremely frivolous with their spending when I was growing up (dad was actually a gambling addict).  They did not start paying into retirement until their early thirties, but they made about $90K combined annual income when I entered college.

I was required to pay my own way from the time I entered high school, in the sense that I paid for my own clothes, hygiene products, car, car insurance, gas, fun and entertainment, gifts for others, etc. etc.  I worked two jobs in high school while taking honors courses. 

I wanted to go to a state college, and they encouraged me instead to go to a private university!  Neither of them attended college, but they wanted me to go to a nice school because, according to them, the state school was in a bad neighborhood and the private school would get me a better job when I graduated.

I knew nothing about college before I started.  They did not take me on a tour of the state school, just drove around campus pointing out how run down and dangerous it looked.  They did take me on a tour of the private university, and of course I loved it with it's beautiful state-of-the-art campus and brand new gym in one of the most expensive parts of the city!

I was not even 17 years old yet when we started filling out all the application paperwork, what did I know about student loans or the true cost of the decision to go to a private university?  I ended up having $70,000 in student loan debt (and this was AFTER a $10K per year academic scholarship to the private college). 

My parents did qualify for the Parent PLUS loan, but I have been responsible for paying the entire thing with the exception of some nominal interest payments they made a couple of years while I was still in school.  My spouse went to the same school (we were high school sweethearts under my parents' influence), so we graduated at age 22 with a combined debt of $140,000! 

At age 30 now we have everything paid off except my Parent PLUS loan, which is still $37,000.  The only way we were able to do it with me being a stay-at-home mom since 2 years out of college was by cashing out my husband's 401K when he left his previous company to pay the remainder of our other student loans (long long explanation for why we did this...).

Anyways it has always bothered me that my parents were able to live it up while I worked two jobs in high school, and that they hardly contributed a dime to this horrible educational choice they convinced me to make.  Even now I can't get the tax benefits of paying interest on the Parent PLUS loan because it is in my father's name.

I'm new to Mr. Money Mustache, and my husband and I have decided to throw all of our efforts into paying off that parent loan so that we can just  be done with it already!  My parents buy new cars every couple of years, go on lavish vacations multiple times per year around the country and abroad, and it still sort of irks me that they never offered financial help with college - I dream of they day they say, "don't worry honey, we've decided to take over that $300 monthly payment you're making!"

It would have made a huge difference not to have that debt when I became a stay-at-home mom and even now that I have 3 young children.  It has definitely harmed our future starting life with what was the equivalent of a mortgage payment in debt (we began with $1200/month in student loan debt!), and we borrowed against our future (by cashing out 401K) to pay off most of it. 

I do not want to repeat their mistakes, and have every intention of helping support my children's education, but the question now is HOW and HOW MUCH as the student loans have made all savings efforts extremely difficult for us until now.

Anyways, I wanted to share my perspective as I agree with the previous poster who said that attempting to retire early or spend money of Disneyland while planning to kick your kids out and offer no financial support once they are 18 and going to college HURTS the child and could negatively affect their financial situation for the rest of their lives.  I may receive criticism over not being smart enough to pick a cheaper school, but I was only 16 or 17 and had no parental support to tell me otherwise!  So yeah, maybe I'm more than a little irked by the situation!

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Re: Paying for Childrens' College When You Have No Savings
« Reply #121 on: November 03, 2014, 02:16:32 PM »
I'd like to add my story to this thread.  I'm an only child, parents were extremely frivolous with their spending when I was growing up (dad was actually a gambling addict).  They did not start paying into retirement until their early thirties, but they made about $90K combined annual income when I entered college.

I was required to pay my own way from the time I entered high school, in the sense that I paid for my own clothes, hygiene products, car, car insurance, gas, fun and entertainment, gifts for others, etc. etc.  I worked two jobs in high school while taking honors courses. 

I wanted to go to a state college, and they encouraged me instead to go to a private university!  Neither of them attended college, but they wanted me to go to a nice school because, according to them, the state school was in a bad neighborhood and the private school would get me a better job when I graduated.

I knew nothing about college before I started.  They did not take me on a tour of the state school, just drove around campus pointing out how run down and dangerous it looked.  They did take me on a tour of the private university, and of course I loved it with it's beautiful state-of-the-art campus and brand new gym in one of the most expensive parts of the city!

I was not even 17 years old yet when we started filling out all the application paperwork, what did I know about student loans or the true cost of the decision to go to a private university?  I ended up having $70,000 in student loan debt (and this was AFTER a $10K per year academic scholarship to the private college). 

My parents did qualify for the Parent PLUS loan, but I have been responsible for paying the entire thing with the exception of some nominal interest payments they made a couple of years while I was still in school.  ......
At age 30 now we have everything paid off except my Parent PLUS loan, which is still $37,000. .... me being a stay-at-home mom since 2 years out of college ......

Anyways it has always bothered me that my parents were able to live it up while I worked two jobs in high school, and that they hardly contributed a dime to this horrible educational choice they convinced me to make.  Even now I can't get the tax benefits of paying interest on the Parent PLUS loan because it is in my father's name.


I tried to review the requirements of a Parent Plus loan, and it appears to be fully in the parents name, which is why all the sites recommend parents also look for private loans where they can be removed as co-signor in future.

Does anyone know?

If so, you could just say to your parents,  Mom & Dad, with my being a stay at home Mom now, I can't afford to make these payments anymore.   Here is XXX which is all we can afford, and we won't be making any more payments, and I have addressed all the future loan mail directly to you...

Of course this is horribly irresponsible to your parents, but so was the situation you described, and it would split the costs between you and your parents, which is the outcome you would like to see, after all..

Would you be on the hook for a default of a Parent Plus Loan?

This is the best I could find trolling the net -- always take that with a drop of caution for wrong info..

A Federal Parent PLUS loan is a parent loan. Only the parent is obligated to repay this loan, even though the money was borrowed to pay for the educational expenses of a dependent child. A student cannot cosign his or her parent’s Parent PLUS loan. If a parent borrower is delinquent in repaying the Parent PLUS loan or defaults on the Parent PLUS loan, it affects only the parent’s credit history. The student’s credit history is not affected. A default on a Parent PLUS loan will preclude the parent from obtaining additional Parent PLUS loans, but it does not otherwise affect the student’s eligibility for student loans or other forms of financial aid.