Author Topic: College savings  (Read 3979 times)

Jill the Pill

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College savings
« on: January 03, 2013, 07:59:27 PM »
http://www.theatlantic.com/business/archive/2011/09/how-colleges-punish-families-who-choose-to-save/245901/

Can you guys comment on this article?  Are you saving for college?  How will college payments derail your retirement goals?  I have 3 kids (13,11,9) and -- in case you have any helpful thoughts on the subject -- an ex-husband with a high income and no savings. 


Kenoryn

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Re: College savings
« Reply #1 on: January 03, 2013, 08:57:25 PM »
It does seem bizarre. I'm in Canada, and when applying for financial aid, only ever remember putting in info about my parents' income, not savings (This was a little bizarre in itself since I had a number of friends whose parents had high incomes, but who weren't helping them with university at all.) My university (Trent) offers significant scholarships for marks compared to what they offer for financial need, anyway, and now anyone with a 90% or higher graduating average gets free tuition there. While that (alas) wasn't the case when I attended, I still got almost-free tuition - just through an extensive process with interviews, essays etc. demonstrating my leadership, community volunteering experience, blah blah, instead of automatic free tuition. But if you plan to have your kids pay part of their college education, maybe you could be encouraging them in the direction of pursuing scholarships for that part - make them aware that lots of volunteer & extracurricular activities, as well as keeping your marks up, can pay off monetarily, not just in character-building, resume and skills. I personally think it's a good thing for people to be responsible for at least part of their education costs, but there are a lot of different schools of thought on that (no pun intended).

DoubleDown

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Re: College savings
« Reply #2 on: January 04, 2013, 09:01:38 AM »
Yes it is true that living a frugal lifestyle and carefully saving will generally work against you in terms of qualifying for financial aid. Of course there are many other variables in place, such as income levels when applying, but all other things being equal, a family that has saved will get less (or nothing) while a family that blew all their money on cars, expensive vacations, newest iWhatevers, and expensive coffee every day with no savings to show for it all could rake it in with financial aid. I used to work as a financial aid counselor at a major U.S. university and I saw this play out many times. It really does seem a travesty in terms of public policy, but what can we do. The same things happen all the time with loan bailouts, welfare cheats, etc.

Anyway, it still doesn't make me change my approach on saving for retirement or for children's college educations. If you intentionally saved nothing in an attempt to qualify for aid, you would be much worse off in life. It would be akin, I think, to purposely being unemployed to qualify for unemployment insurance and food stamps. The tradeoff is not worth it by a long shot. You will be far better positioned by saving everything you can and becoming rich. And even if you do qualify for financial "aid", keep in mind that many times this just means qualifying for loans, not necessarily grants. As far as government assistance goes, there is pretty much no such thing as a 100%-grant package. It will always include substantial loans, although a private college MIGHT make up the difference in grants or merit scholarships in extreme hardship cases.

I just think of paying for kids' college as an added amount I want to have enough saved up for.

One thing that can work substantially in our favor is if you can time your early retirement to coincide with kids applying for financial aid, then your income will drop dramatically (or to 0) and far outweigh the savings part in the financial need determination. Meaning, you could stand to do very well in the need determination if your earned income is next to nothing, even with some savings or home equity.

Also, qualified retirement plans are generally exempted from the need determination calculations (i.e., you are not expected to cash out your 401ks, IRA's, pensions, or other qualified retirement plans to fund college costs). So if you have a bunch saved up in your 401k/etc, it won't show up in the calculation.

If you are on decent terms with your ex-husband, I think it is definitely a worthwhile conversation to have with him about starting a college savings plan for your kids. You could agree to set up a 529 for them that he could contribute towards each year.

Good luck!

meadow lark

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Re: College savings
« Reply #3 on: January 04, 2013, 10:58:38 AM »
The FAFSA website wasn't working when I tried to play with it just now.  The article is really poorly done, in that it leaves a lot of questions open.  For instance, what savings are they talking about?  529 plans?  IRAs?  529 plans should be considered when deciding financial aid.  My IRA, not so much, but the article just talks about "savings."  And the little blurb from the college that says all assets should be used - I see that not as a comment on how they calculate FA but more as a PR tool that is meant to tell parents, "Look, we know you're successful.  Think about that nice house you own.  See, you can afford this.  Stop asking for hand-outs and give us your money."
  I have heard multiple times that 529 plans reduce how much FA you'll get.  Seems reasonable.  In your position I would run the calculator with you having different asset #'s.  See if this is something you need to worry about. 
  I have a 17 yo.  I should be so lucky as to have to worry about paying for college!  We'll see what happens.  If he does go to the university I will be able to pay the bills, plus he should qualify for scholarships (growing up in foster care, Native American, the usual lottery scholarship.)  If he goes to community college I can pay.  If he joins the navy I won't have to pay, if he becomes a plumber's apprentice I won't pay, etc.  If he sits in his room playing video games and smoking pot, well then I haven't figured that one out yet.  Probably get the internet, cable, and electricity shut off, and not pay for his phone.  I suspect that would make uncomfortable enough to leave.
« Last Edit: January 04, 2013, 11:09:51 AM by Meadow Lark »

Jill the Pill

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Re: College savings
« Reply #4 on: January 04, 2013, 06:26:12 PM »
"If you are on decent terms with your ex-husband, I think it is definitely a worthwhile conversation to have with him about starting a college savings plan for your kids."

Ha ha.  Tried that today.  :)  It started a two-hour fight, so no . . . not decent terms.  He says I should earn more; I say he should save more. 

Thanks for all your thoughts.  One thing to keep in mind is that FAFSA is only the federal government and it has more gentle requirements than the individual college's forms.  While FAFSA excludes things like retirement funds, some colleges include it. 

Kenoryn, scholarships here often tend to be one-year sums.  We are actually extremely lucky.  My kids are in a magnet school where, if they keep up high marks, they can attend a local engineering college for free.  The school is medium-decent, but there is a part of me that feels they should be able to go wherever suits them best.  Though free is the best option, I want to plan financially as if they -- or one of them -- might go elsewhere. 

My current plan (today) is to set a modest goal, save for it, and just tell each child that is how much I will contribute.  Then they can make their own decisions based on dad's input (or lack thereof) and their own saving/debt/career plans. 

DoubleDown

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Re: College savings
« Reply #5 on: January 07, 2013, 08:20:14 AM »
My current plan (today) is to set a modest goal, save for it, and just tell each child that is how much I will contribute.  Then they can make their own decisions based on dad's input (or lack thereof) and their own saving/debt/career plans.

Perfect!