FIRE and college financial aid

[StashDaddy]

Playing around with FIRECALC, i could FIRE in 3-7 years, depending on how much 'Stash I want to save for my kid(s) college expenses.  The kids are very young yet, so I could easily FIRE by the time they get to high school.  Do colleges look at net worth in determining financial aid?  Or is it by income?  Will bothering to stash money in a 529 plan hurt us come college time?

If they only look at income, we can live off of a small amount of investment income in retirement (like MMM), and look pretty "poor" for college financial aid purposes....

[EscapeVelocity2020]

I've written a couple posts on this subject (most recently about how pissed off I am at my state's 529 plan), and there are plenty of online calculators.  It's an awfully complicated subject.  If you want my full answer, I do a reasonable job discussing it here, and I'd love to see what you think after you read it:

http://escapevelocity2020.com/2014/02/saving-childrens-college-education/

Cutting to the chase, a 529 counts toward assets expected to be used for college, but (parent and student) income is the biggest factor in determining the 'expected contribution' which you are liable for.  If there is a large discrepancy vs. actual tuition cost, colleges may offer financial aid.  It will be up to you if you feel comfortable applying for needs-based scholarships being FIRE'd,  I am saving money in a 529 to help cover some costs, but it is just too difficult to know what the costs will be, what market returns will be, what my children's college options will be, changes to tax rules could be, etc. etc...  I hope to not need to resort to needs based aid, but also do not intend to saddle my kiddos with student loans or compromise my retirement paying for college.  Plenty of options, good luck with the guesswork!

[StashDaddy]

Interesting.  I, too, live in Houston, and started a Texas 529b plan for my child.  But I just got a note in the mail that they are changing the managing company for the plan, and the expense fees are going up!  (of course)  Now, I think I will switch to the Vanguard 529 plan, which I think is based in nevada, and has a $3,000 minimum. 

I am just stashing $100/mo into the account, and by the time my daughter is in college, it should grow to around $45k or so.  Unfortunately, I project 4-year college tuition will be $150k by then (would need to save $400/mo from birth).  But I'm not sure I want to stash away more $$$ than this into her account.  After all, my daughter's future higher education desires are an unknown at this point, and I can always pay for her additional expenditures with money from another source.  From what I can discern from MMM, he doesn't use a 529 plan, but will get his son's back as far as seeing that he doesn't graduate from college with soul-crushing debt. 

As for appearing "poorer" in ER to get more financial aid--you are right, it is a moral dilemna.

[StashDaddy]

Oh, I just poked around on your blog, and I see you already have a post covering the increasing expense fees!  haha, I share your frustration!  Moving mine to Vanguard...

[EscapeVelocity2020]

In order to speed up the process, I had to do an indirect rollover - having a check mailed to me and signing it over to Vanguard.  Basically, the Oppenheimer rep said he had no clue about the new Gemini / NorthStar people who are taking over the fund.  I have had nothing but pleasant, professional experiences with Vanguard (and Oppenheimer), so I have no clue as to why the State of Texas doesn't switch to Vanguard if they are going to the trouble to switch.  The only justification given was "NorthStar's unbundled fee structure will enhance transparency and enlarge the world of investments available to the plan".  Uh, did I just step in BS, the unbundled fees just shows that they've add new layers of fees (plan management, state administrative, and distribution fees) and the world of investments took a turn from ones I recognized to some shady, higher fee funds (as I documented in my post)... 

I am tempted to use the 'Comments and complaints may be forwarded to the Prepaid Higher Education Tuition program ... 1.512.936.2064' given in the small print of the brochure, but I needed to vote with my feet first.

Anyway, we are veering off-course on this thread, I'll be glad to help you through the rollover process if you have any questions.  Feel free to PM me.

[MissPeach]

I had googled this question myself and found many sites claiming that retirement plans are not included in the FAFSA calculation.

[EscapeVelocity2020]

So, so happy to be with Vanguard now.  Got mailed some glossy brochures and lots of letters, but these shady companies are probably making shit-tons of money off of a federally-well-intentioned plan.  Like all of the Medicaid and Medicare scams, it's just sad that companies spring up to make money off of these things!  Oh well, I'm not going to waste my enthusiasm toward all of the great things the world is capable of to spend any more time fighting this crap.

[StashDaddy]

I agree whole-heartedly.  I did a direct rollover into vanguard as soon as the lockup period expired.  I feel like creating a website called "texascollegesavingsplansucks.com" or something...

I can only imagine the nefarious scenarios why the Texas powers that be would go with Northstar and double the plan expense fees.  Kickbacks/bribes, perhaps? 

Also, I learned that many states' 529  plans are open to residents of other states.  California was rated as the lowest-cost 529 plan, with passively managed 100% equity plans as low as 0.13% when I looked.  That is even better than vanguard's nevada plan (~0.20%).  Oh well, both are still much better than TCSP.

[cacaoheart]

For people discussing retiring around the time their kids are in college, note that at least in the US much of the eligibility for need-based grants/scholarships is based on the income of the parents in the year before kids go to college. Since my parents made very little their expected financial contribution was almost nothing ($42), even though they had no mortgage or car loans.

My parents always told my brother and I that we were expected to go to college, but that we'd have to do well in school in order to get scholarships as they couldn't afford to pay for it. They did a lot to foster our learning, and both of us ended up with good GPAs and SAT scores, which combined with financial need meant we ended up with very little debt coming out of undergrad. It was literally cheaper for us to be in college than not, given that living costs were also covered. Had I been more mustachian then I could have actually come out with substantial savings.

[retired?]

A few questions:

Anyone know what year is used for the calc?  e.g. if my daughter graduates from HS in May 2020, starting college in the fall of 2020, would calendar year 2019 be used for income? 

Are assets reported "as of" the time the form is completed?

Do students reapply for each year for aid?  I figure this is the case given how things can change.

Side question - we may choose to move to a cheaper area, even to another state once kids are in college.  Is in-state residency verified each year?  And, if so, when/how can you get the child's location to be considered the state of residency?  Is it basically, if I claim them as a dependent then my state is used.

On the moral issue, my stance would be if I am FIRE and I have a lowered stream of income, then A-ok.  But, it is a little less clear if I am able to move income around to be eligible.  In some sense, I feel it is like federal income taxes, i.e. I didn't make the rules, but I will make the most of them (tax avoidance rather than evasion).  If they want to keep high-asset families from qualifying for aid, it is possible to change the formula to reflect that.

[CowboyAndIndian]

...  Now, I think I will switch to the Vanguard 529 plan, which I think is based in nevada.... 

The Vanguard State 529 plan is from Utah.

uesp.org

I have been using it from about 2001.

[StashDaddy]

The Utah 529 plan offers Vanguard investment options, but the Vanguard plan on the Vanguard website is a Nevada plan.

"The Vanguard 529 College Savings Plan is a Nevada Trust administered by the Board of Trustees of the College Savings Plans of Nevada, chaired by the Nevada State Treasurer."

https://personal.vanguard.com/us/whatweoffer/college/vanguard529

[cacaoheart]

Anyone know what year is used for the calc?  e.g. if my daughter graduates from HS in May 2020, starting college in the fall of 2020, would calendar year 2019 be used for income? 

Yes. It's calculated based on the prior year's tax return.

Do students reapply for each year for aid? 

yes

Side question - we may choose to move to a cheaper area, even to another state once kids are in college.  Is in-state residency verified each year?  And, if so, when/how can you get the child's location to be considered the state of residency?  Is it basically, if I claim them as a dependent then my state is used.

Someone else may have a better answer to this, but this article may give you an idea. Basically, it seems to vary state to state: http://www.collegeconfidential.com/dean/can-student-keep-in-state-residency-once-parents-move-elsewhere/