Kids' College Costs

[boarder42]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

[ImCheap]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

Going out on a limb here but I would guess little_brown_dog may have the option to slide some of that cash to the retirement pile if they choose in 17 years. On the other hand $170k/kid could mean 3 new docs in the family, they may blow through all of it!

[LiveLean]

Now, a kid starting off and mowing yards in 9th grade could make $100 a week for 30 weeks.  That's $12,000 saved up for college by the time they start.
A kid working two 8 hour shifts at minimum wage each week could easily make the same amount, but they would probably have to wait until they were 16, so that's only about $6,000 instead of $12,000.

That assumes that they pay no taxes and never spend a penny.  Not many students will remain motivated to work with NO immediate reward.

Not true.

For mowing yards, it assumes they mow additional yards and spend that money.   The going professional rate in my low cost of living city is $50 to $60 for a yard.   A kid can easily mow 4 yards a day, so if they can only get 1/2 the going rate, they can cover their $100 a week on Saturday morning.   That leaves them Saturday afternoon, all day Sunday, or afternoons after school to mow additional yards.

For a minimum wage job, note that the minimum wage is $7.25 and I only assumed that $6.25 was going towards college.   Any additional spending could come from working additional hours after school or during the summer.

Really, I didn't set the bar very high for the kids.

Realistically, if a kid has been paying attention in school all along and doing their work all along, most new classes won't be that hard for most kids.  There is a lot of repetition in the US K-12 curricula.   Someone who was really motivated could handle 30 hours a week.   That would be a chunk more money. 

And there are more ways to make money than just minimum wage service jobs or mowing yards.     

I think that parents steal something important from their children by not requiring them learn to work while they are in school.

$50 to $60 per yard in a LCOL area? I have a one-acre yard in Florida and I pay $150 A MONTH. A 7-man crew shows up and knocks it out in 15 minutes while doing the next-door neighbor's, too. It's impressive.

As a kid in the '80s, I mowed 4-5 lawns a week for years until I got pushed out by the pro companies. I bemoan the fact that my boys don't mow lawns for any number of reasons, but I don't see a business model where it would work today.

[Much Fishing to Do]

Why are people prepaying. Invest the money even in taxable that's better

I pre-paid because it seemed to cut down on the variables (I know how many years tuition is covered no matter the changes to the costs) and the investment time horizon is not really that great except for money put in at their birth or when they are extremely young.  This seemed like a somewhat guaranteed decent return rate given it effectively increases at the rate of tuition, which has been quite high over the past 10 years that i've been doing it at least.

so youre also betting they will want to go to college etc. i cant see the rise in tuition outperforming VTSAX over 18 years either but to each their own i guess.

Yes, I'm betting at least a couple of them will, and the plans are flexible enough to move the money around.  And in 4 years one will already be in college, VTSAX was cut in half from 2005 to 2009 so I guess I'm just not looking to take the kind of short term risk others are at something like that happening.  Even looking over the long term, both VTSAX and college tuition have each basically doubled since 2000.  I already have 90% of my retirement in equities, which given how long term that plan is I'm comfortable with.

[shawndoggy]

We are FIREd and have a 12yo son.  He has a dream of attending Alabama and studying engineering.  We currently have enough in his 529 to fully fund 2 yrs at Bama.  Hopefully, interest on the 529 will at least keep pace in the rising cost of his future tuition.  He will attend a local community college, which has a great pre-engineering program, for his first two years.  We will cash flow that and he will be required to cover half of that funding.  I want him to have the experience of having to work pay for some part of his education.  It will be more precious to him.

Alabama has very very very good merit based scholarships at the moment, with an extra kicker supplemental scholarship for engineering.  If your kid already has his sights set on bama it'd be well worth it to spend some $$$ on test prep courses and get on him to keep his grades up / take APs / etc.  Gonna have to do that for engineering anyway.

[I'm a red panda]

$50 to $60 per yard in a LCOL area? I have a one-acre yard in Florida and I pay $150 A MONTH. A 7-man crew shows up and knocks it out in 15 minutes while doing the next-door neighbor's, too. It's impressive.

As a kid in the '80s, I mowed 4-5 lawns a week for years until I got pushed out by the pro companies. I bemoan the fact that my boys don't mow lawns for any number of reasons, but I don't see a business model where it would work today.

We have a neighbor kid who undercuts the pros, lots of our neighborhood use him.  I'm waiting for him to be at least 13 though... I feel like if something happens insurance wouldn't cover us for letting such a young child mow the lawn, especially because we all have hills.  He got a riding mower for his 7th birthday. He's 9 now.

[nancyjnelson]

I put a very small amount into a USAA 529 fund for her ten years ago, and it is now worth only 10% of the original amount.  I'm glad I went the pre-paid route.)

Woah- can you talk a bit more about this fund? I haven't ever heard anyone say they've lost 90% of their principle in a 529- that's insanely bad... I know 529s aren't guaranteed, but it seems most grow a bit over time.

Prepaid isn't an option in our state, so I'm wondering if we should just skip "college fund" and just go with general investments.

It was a 529 fund administered by USAA (I was overseas at the time so I took the easy way).  I put in $250 in 2008 and decided to wait a few months before I deposited more to see how it went.  I'm glad I waited.  As of yesterday it was worth about $21. 

[moof]

We are maxing out  the state deduction here in Oregon, which avoids 9% State tax going in.  Since the penalty is on the earnings, I am only risking a couple percent taking the 10% penalty depending on how accumulated LTCG compare to withdrawal as regular income after penalties.  So it looks like a wash at worst case from my POV.

Pro's:
- Kid will likely avoid having huge college debt if the highly likely scenario plays out.
- Avoids 9% State tax now for sure.  Avoid paying 15% capital gains on dividends now as it grows vs. taxable.
- Kid has a known bucket that we can dole out, no blurry lines about how much of our taxable account is set aside for him.
- Withdrawal for intended purpose does not show up as higher income for federal aid calculations (viewed as an asset however)

Worst Case Con's (i.e. kid doesn't go):
- The taxes as normal income will be worse than if it was in a taxable (i.e. likely 15% vs. 0% at LTCG in taxable, potentially).
- Pay 10% penalty that wipes out the 9% State deduction, and a bit more.

Other Concern:  Kid might feel overly entitled by seeing $100k with his name sitting there.  Need to chat with the wife as to how we discuss this to minimize the chance of issues.

College has gotten expensive, and I don't expect it to get cheaper anytime soon.  I got off with modest student loans with only room/board being provided by my parents after the first couple summer classes.  We will also encourage the kid to use mass transit and go to the local university.  I don't think with today's college cost explosion that is a reasonable expectation anymore.

[Pigeon]

Our kids, including the one over 18 and in college, have no idea how much is in their 529s.  We, as the owner, get statements.  They don't.

[I'm a red panda]

I put a very small amount into a USAA 529 fund for her ten years ago, and it is now worth only 10% of the original amount.  I'm glad I went the pre-paid route.)

Woah- can you talk a bit more about this fund? I haven't ever heard anyone say they've lost 90% of their principle in a 529- that's insanely bad... I know 529s aren't guaranteed, but it seems most grow a bit over time.

Prepaid isn't an option in our state, so I'm wondering if we should just skip "college fund" and just go with general investments.

It was a 529 fund administered by USAA (I was overseas at the time so I took the easy way).  I put in $250 in 2008 and decided to wait a few months before I deposited more to see how it went.  I'm glad I waited.  As of yesterday it was worth about $21.

Were there annual maintenance fees that ate the balance? (Especially since it was a low balance with no other deposits...a lot of funds charges fees in that situation.) Or was that all in market losses?  Do you know what funds it was invested in?

[Goldielocks]

That said, both kids will pay a significant proportion of their tuition and costs.  Tuition isn't ridiculously insane here in Canada, though it is growing.  (My undergrad tuition was about $2500/year, though it has about tripled since then).  There are two of the top universities in the country within commuting distance, and several colleges as well.

Ignoring the ever fluctuating currency exchange rate and COL, our Canadian schooling cost isn't much better than our neighbours. Last I looked up our numbers, the average student loan borrower in Canada owes 25K and in the USA it wasn't yet over 30K.

As an anecdote, in my last three years I had 25K in scholarships, worked, got thousands of dollars in bursaries, and still had 34K in student loans. In Canada.

Seems like a lot if you are the typical single student. UBC this year was $15k in tuition, books, room and board for a freshman FT Arts student, which does not include any bursaries nor the govt tax rebates that you can deduct. Ontario is about $1500 more.

Does not include air travel or Starbucks.

4 years cost $60 k.  Minus tax rebates, scholarships, bursaries and employment income? 
The big increase is adding a masters program or more years...

For that 24k that was quoted, I think that study is... For students with loans, the average is $24k.  However over 25 % of student have no loans. Maybe a lot more as they are hard to get before you are 22 for many.  I don't know what the us number is based on, but anecdotally it seems that more us student get loans.

[kayvent]

That said, both kids will pay a significant proportion of their tuition and costs.  Tuition isn't ridiculously insane here in Canada, though it is growing.  (My undergrad tuition was about $2500/year, though it has about tripled since then).  There are two of the top universities in the country within commuting distance, and several colleges as well.

Ignoring the ever fluctuating currency exchange rate and COL, our Canadian schooling cost isn't much better than our neighbours. Last I looked up our numbers, the average student loan borrower in Canada owes 25K and in the USA it wasn't yet over 30K.

As an anecdote, in my last three years I had 25K in scholarships, worked, got thousands of dollars in bursaries, and still had 34K in student loans. In Canada.

Seems like a lot if you are the typical single student. UBC this year was $15k in tuition, books, room and board for a freshman FT Arts student, which does not include any bursaries nor the govt tax rebates that you can deduct. Ontario is about $1500 more.

Does not include air travel or Starbucks.

4 years cost $60 k.  Minus tax rebates, scholarships, bursaries and employment income? 
The big increase is adding a masters program or more years...

For that 24k that was quoted, I think that study is... For students with loans, the average is $24k.  However over 25 % of student have no loans. Maybe a lot more as they are hard to get before you are 22 for many.  I don't know what the us number is based on, but anecdotally it seems that more us student get loans.

I was a single teenage parent. Expenses were irregular but I also went to a school with one of the highest tuitions and fees in Canada. It was my local university so-to-say. For the use case you are referring to, the number would be 25K for my alma mater.

For the USA versus Canada debt comparison, a large percent of them do not carry any debt out of post secondary too. I've seen numbers as high as 40% but I am on a tablet right now and can't easily query the bureau of statistics site.

[Gunny]

I put a very small amount into a USAA 529 fund for her ten years ago, and it is now worth only 10% of the original amount.  I'm glad I went the pre-paid route.)

Woah- can you talk a bit more about this fund? I haven't ever heard anyone say they've lost 90% of their principle in a 529- that's insanely bad... I know 529s aren't guaranteed, but it seems most grow a bit over time.

Prepaid isn't an option in our state, so I'm wondering if we should just skip "college fund" and just go with general investments.

It was a 529 fund administered by USAA (I was overseas at the time so I took the easy way).  I put in $250 in 2008 and decided to wait a few months before I deposited more to see how it went.  I'm glad I waited.  As of yesterday it was worth about $21.

I have both my son's and grandson's 529s with USAA.  Son has six years to college so his is in the moderate risk fund and Grandson's (age 3.5) is in the aggressive fund.  Both funds have done well for me.  About 40% of son's balance is from growth on the original lump sum investment.  USAA fees are not terrible and the funds inside the 529s are mostly USAA index funds in various allocations depending on investor risk tolerance. USAA funds are not the best, but not the worst.  One can choose aggressive (very stock heavy) if child is very young, all the way to safe (almost 100% bonds) while kid is in college.  I don't see how your fund could have lost 90% of its value in a USAA 529. 

[onlykelsey]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

I don't plan to save that much myself, but as someone not that far removed from college, it's not that crazy.  If I had paid sticker for my undergrad and grad (which now enable my six-figure earnings), I'd have paid about 380K (and four of those were at a state school).

[boarder42]

with no aid and a crazy 10k per year in living expenses my wife and I's great engineering school in our state is only 23k per year.  seeing as scholarships can be had and working an internship in the summer as i did is worth 8400 dollars pretax.  i dont get why people are pumping so much money into 529s.

and with a 27 ACT and a 3.5 GPA you qualify for a 4k freshman scholarship.  amongst other things that could be applied for.  so we take say 7k from the summer and our 4k freshman scholarship and its down to 12k per year.  assuming you can cut room and board in half after the first year.  thats only around 5-6k per year needed for college.  which could be made up by applying for other scholarships. or holding a job at school. 

 

[I'm a red panda]

I put a very small amount into a USAA 529 fund for her ten years ago, and it is now worth only 10% of the original amount.  I'm glad I went the pre-paid route.)

Woah- can you talk a bit more about this fund? I haven't ever heard anyone say they've lost 90% of their principle in a 529- that's insanely bad... I know 529s aren't guaranteed, but it seems most grow a bit over time.

Prepaid isn't an option in our state, so I'm wondering if we should just skip "college fund" and just go with general investments.

It was a 529 fund administered by USAA (I was overseas at the time so I took the easy way).  I put in $250 in 2008 and decided to wait a few months before I deposited more to see how it went.  I'm glad I waited.  As of yesterday it was worth about $21.

I have both my son's and grandson's 529s with USAA.  Son has six years to college so his is in the moderate risk fund and Grandson's (age 3.5) is in the aggressive fund.  Both funds have done well for me.  About 40% of son's balance is from growth on the original lump sum investment.  USAA fees are not terrible and the funds inside the 529s are mostly USAA index funds in various allocations depending on investor risk tolerance. USAA funds are not the best, but not the worst.  One can choose aggressive (very stock heavy) if child is very young, all the way to safe (almost 100% bonds) while kid is in college.  I don't see how your fund could have lost 90% of its value in a USAA 529.

I'm really thinking it was administration fees. USAA doesn't charge if you regularly contribute, but if you have a low balance, and no reoccuring transactions they do charge fees. They will eat away at the account.  That account will be worth nothing soon.

[Polish_Hammer]

My wife and I are both 49 and want/need to fire within 2 years.   The deal we made with our three kids (non-negotiable) is that we would pay 10k per kid + books for four years as long as they pursued a STEM degree and they could live home for free including car insurance and a used car (they cover gas, clothes, etc) and we would not co-sign any loans. My daughter 23 is in grad school on her dime, number one son is a senior in college, number two son is off to college next year.  That puts us with @52000 in tuition and book costs left so we will need to bank that before FIRE and  get at least two on there own or paying rent.  Probably a little generous but.... No 529's for me either just cash

[ImCheap]

with no aid and a crazy 10k per year in living expenses my wife and I's great engineering school in our state is only 23k per year.  seeing as scholarships can be had and working an internship in the summer as i did is worth 8400 dollars pretax.  i dont get why people are pumping so much money into 529s.

and with a 27 ACT and a 3.5 GPA you qualify for a 4k freshman scholarship.  amongst other things that could be applied for.  so we take say 7k from the summer and our 4k freshman scholarship and its down to 12k per year.  assuming you can cut room and board in half after the first year.  thats only around 5-6k per year needed for college.  which could be made up by applying for other scholarships. or holding a job at school.

I would say this more of the norm. Ours took advantage of HS credits, living at home and community college, that cuts the above a good chunk. We take the American opportunity tax credit and hand it over to the kid, that's another $2,500.

[charis]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

[I'm a red panda]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

There are a lot of expenses beyond tuition that a 529 can cover: books, housing, food. So there is that.
And I'm assuming "free tuition" won't go to the graduate level.

[charis]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

There are a lot of expenses beyond tuition that a 529 can cover: books, housing, food. So there is that.
And I'm assuming "free tuition" won't go to the graduate level.

True to all of that, but I think it takes a big bite out of the urgency to fill a 529 in NY.  In a good way, I guess.

[dogboyslim]

We are saving $100k per kid.  We don't know how much we will actually end up paying.  We'll find out in 5 years I guess.

[Poundwise]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

As a NYS resident, this is very interesting to me.  But my husband would have to ask for a slight pay drop to make the cut. Which is ethically odious to me... I don't feel like we are the demographic they are trying to help.

[mm1970]

with no aid and a crazy 10k per year in living expenses my wife and I's great engineering school in our state is only 23k per year.  seeing as scholarships can be had and working an internship in the summer as i did is worth 8400 dollars pretax.  i dont get why people are pumping so much money into 529s.

and with a 27 ACT and a 3.5 GPA you qualify for a 4k freshman scholarship.  amongst other things that could be applied for.  so we take say 7k from the summer and our 4k freshman scholarship and its down to 12k per year.  assuming you can cut room and board in half after the first year.  thats only around 5-6k per year needed for college.  which could be made up by applying for other scholarships. or holding a job at school.

There are advantages to 529s if that's the route people are planning for their children.

If your child gets a scholarship, you can pull the 529 money out for that amount without penalty (though you do have to pay tax).   But it he or she doesn't, then you've got the money to cover it.

We are hedging our bets and putting *some* money into a 529.   Maybe enough to cover a year or two at a state school.

[little_brown_dog]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

I know it seems like a lot, but in truth, it is very possible (likely?) that instate tuition for our state university could be north of 150k for a 4 year bachelors in 17 years. Sure there are scholarships and need based aid, but those are far from guaranteed for upper middle class kids, and many merit scholarships are small and won’t make a substantial dent in tuition costs that large. It is also very possible the govt or states will cap public tuition in the next couple decades (or even implement more drastic measures such as low cost or “free” college) but those remedies are also far from guaranteed, especially for people with higher incomes. It is also very plausible that they will enact these policies only to specifically exclude people like FIRED mustachians (lower earned income but high net-worth and taxable investments). There are so many unknowns, so for us we’d rather abide by the adage “better to have and not need, than need and not have.”

[FINate]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

As a NYS resident, this is very interesting to me.  But my husband would have to ask for a slight pay drop to make the cut. Which is ethically odious to me... I don't feel like we are the demographic they are trying to help.

I'm curious, what's unethical about this? Rule of law is a good thing - the alternative is capricious application of law. It doesn't matter what they're trying to do, only what the law actually does. I don't see anything wrong with taking a pay cut (or preferably, reducing hours) to fit under that threshold.

Besides, they should know better than to have a hard cutoff like this. Economists have recommended for a very long time that benefits be gradually phased out as income increases. It's their problem, not yours.

[boarder42]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

I know it seems like a lot, but in truth, it is very possible (likely?) that instate tuition for our state university could be north of 150k for a 4 year bachelors in 17 years. Sure there are scholarships and need based aid, but those are far from guaranteed for upper middle class kids, and many merit scholarships are small and won’t make a substantial dent in tuition costs that large. It is also very possible the govt or states will cap public tuition in the next couple decades (or even implement more drastic measures such as low cost or “free” college) but those remedies are also far from guaranteed, especially for people with higher incomes. It is also very plausible that they will enact these policies only to specifically exclude people like FIRED mustachians (lower earned income but high net-worth and taxable investments). There are so many unknowns, so for us we’d rather abide by the adage “better to have and not need, than need and not have.”

so your arguement is instate college cost will be 150k in today dollars in 17 years.  so you're projecting the costs of college to go up over 50% ahead of inflation.  haha. wow. this is like working longer to get to a 3% SWR IMO but if you enjoy your job that much and want to keep working for this ... wow.

[AmberTheCat]

I'm so excited i've found this site! first timer here. found this site while reading about college finances on another forum; someone referenced this place. (thanks!) looking forward to inputting!

have lots of thoughts about college and kids; have 4 kids and 2 are in college now.  18 years ago as a young family with 2 incomes and a small mortgage, we didnt save money for college. why? we didnt like the yearly fees for 529s & We also figured our house would be paid off by college time. Dumb mistake #1!   Because life happened. More kids, one income, bigger mortgage. College costs now are all consuming.

anyway; i have lots of thoughts about college costs. *i think kids need to have skin in the game. **I hope young families and even those with kids in middle school will start saving. ***I think having your kid graduate with no or very low student debt is a gift. ****I think attending local colleges, or state U, if its financially the best option should be highly considered over the glamours out-of-state private or name-brand school. ****Get your kid as quickly out of school-sponsored housing dorms/meal plans. They are so so pricey and suck money. 

*****High grades, High Test Scores and AP/DE classes help a ton. That $250 we paid to a private tutor for test-prep in math resulted in a nice test-score, boosting the kid to full-tuition scholarships. Those 8 AP classes with passing scores resulted in 30 hours of college credit; giving latitude for graduating early or getting another minor. ******Not each kid needs to know what the other is doing in regards to costs; and its OK not to be equal with college expenses. It's family/parents money for the most part; make your best decisions. Things do not need to be 1:1 for each kid.

[nancyjnelson]

I put a very small amount into a USAA 529 fund for her ten years ago, and it is now worth only 10% of the original amount.  I'm glad I went the pre-paid route.)

Woah- can you talk a bit more about this fund? I haven't ever heard anyone say they've lost 90% of their principle in a 529- that's insanely bad... I know 529s aren't guaranteed, but it seems most grow a bit over time.

Prepaid isn't an option in our state, so I'm wondering if we should just skip "college fund" and just go with general investments.

It was a 529 fund administered by USAA (I was overseas at the time so I took the easy way).  I put in $250 in 2008 and decided to wait a few months before I deposited more to see how it went.  I'm glad I waited.  As of yesterday it was worth about $21.

I have both my son's and grandson's 529s with USAA.  Son has six years to college so his is in the moderate risk fund and Grandson's (age 3.5) is in the aggressive fund.  Both funds have done well for me.  About 40% of son's balance is from growth on the original lump sum investment.  USAA fees are not terrible and the funds inside the 529s are mostly USAA index funds in various allocations depending on investor risk tolerance. USAA funds are not the best, but not the worst.  One can choose aggressive (very stock heavy) if child is very young, all the way to safe (almost 100% bonds) while kid is in college.  I don't see how your fund could have lost 90% of its value in a USAA 529.

I'm really thinking it was administration fees. USAA doesn't charge if you regularly contribute, but if you have a low balance, and no reoccuring transactions they do charge fees. They will eat away at the account.  That account will be worth nothing soon.

It was a combination of market forces and admin fees.  The 529 I selected was in the aggressive fund, and it lost half its' value within the first six months (keep in mind I originally purchased it just prior to 2009).  Since I didn't invest any more, admin costs over the past 8 years ate up the remaining 40% of what I lost.

The thing is, at the same time I purchased the above 529, I also purchased a second 529 for my older child.  I put this one in a non-aggressive fund since she would be going to college two years later.  Her 529 dropped "only" 50%.

IMHO, USAA is wonderful for insurance; not so great for investment.

[little_brown_dog]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

I know it seems like a lot, but in truth, it is very possible (likely?) that instate tuition for our state university could be north of 150k for a 4 year bachelors in 17 years. Sure there are scholarships and need based aid, but those are far from guaranteed for upper middle class kids, and many merit scholarships are small and won’t make a substantial dent in tuition costs that large. It is also very possible the govt or states will cap public tuition in the next couple decades (or even implement more drastic measures such as low cost or “free” college) but those remedies are also far from guaranteed, especially for people with higher incomes. It is also very plausible that they will enact these policies only to specifically exclude people like FIRED mustachians (lower earned income but high net-worth and taxable investments). There are so many unknowns, so for us we’d rather abide by the adage “better to have and not need, than need and not have.”

so your arguement is instate college cost will be 150k in today dollars in 17 years.  so you're projecting the costs of college to go up over 50% ahead of inflation.  haha. wow. this is like working longer to get to a 3% SWR IMO but if you enjoy your job that much and want to keep working for this ... wow.

Like I said, predicting college costs and then matching our contributions to the estimate wasn’t the primary way we decided on our annual number….I found it too stressful to try to plan around estimates with so many unknowns, so we looked at our current goals, income, values/preferences, and circumstances and decided we could comfortably and easily afford a max of 5k/yr moving forward. It's more of a year-by-year approach. My point about the 150k instate tuition was not to indicate that I am trying to match that number. I just wanted to demonstrate that the rates for even lower cost schools are expected to still grow rapidly, so it makes sense for people to save as aggressively as they are comfortable with for their income level/goals/preferences. 

At the end of the day, I’m not worried about over-saving for college 17yrs out, as I can always stop or reduce the contributions later on as the actual costs and circumstances become more predictable. It may very well be that 5-10 years before the kids start, we don’t need to earmark any more money for them. As for FIRE, I am already a SAHM and my husband is a high earner who loves his work and has no plans to actually stop working completely, let alone stop full time work within the next 10yrs. As a result, we don’t have the typical bee-line race to FIRE, we’re taking the scenic route :)

[Pigeon]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

As a NYS resident, this is very interesting to me.  But my husband would have to ask for a slight pay drop to make the cut. Which is ethically odious to me... I don't feel like we are the demographic they are trying to help.

I'm curious, what's unethical about this? Rule of law is a good thing - the alternative is capricious application of law. It doesn't matter what they're trying to do, only what the law actually does. I don't see anything wrong with taking a pay cut (or preferably, reducing hours) to fit under that threshold.

Besides, they should know better than to have a hard cutoff like this. Economists have recommended for a very long time that benefits be gradually phased out as income increases. It's their problem, not yours.

We're in NYS, but wouldn't qualify because of income.  But it's a long way from Cuomo making a proposal at a news conference and this actually becoming law.  If it does gain traction, there's a high probability it will be significantly modified by that point, so who knows what will actually happen?

[Unique User]

I'm in NC with one sophomore in high school.  We didn't save much for college, but I've got about 1 year in a Coverdell ESA.    I think App State is $19k, UNC is $24k and NC State is $22k.  She shows no interest in NC State, but that could change.  She is on the women's golf team and is focused on honors/AP coursework, that said, I'm not really expecting much out of either other than some AP college credits.  We plan having her take out the standard $5k in loans every year so she has skin in the game as well as pay any expenses beyond the basics.  We'll cash flow the rest which I have a plan for.  We do want to pay off her loans if she graduates on time with a job and if we can, but I also won't let her take more than $5k out a year which is what I did when I went many years ago.  She is also interested in the military, but with all the stats on sexual assault in the military, I'm very wary of my daughter joining the military.  I wish we had been more focused, but 15+ years with low income or working part time/not working and we're already playing catch up with retirement. 

[I'm a red panda]

For those with kids in college now or about to be, in addition to AP tests look if your college gives CLEP credit. I passed two tests without study at all, just from general reading. Other tests would be fairly simple to just get a guide and self teach the material.

[boarder42]

I put this on a similar thread in the mini m board but...

We decided on 5k/yr/child for 17yrs, provided our income stays at current levels or increases. We plan on having 3 kids (only one so far!), so that's a max total investment of 15k/yr. We have no plans to increase this amount even as our income rises - any excess money will continue to funnel towards retirement, paying off our mortgage, etc. Whatever they have in 17yrs is what they have...if it can pay for everything at a reasonable school, that is awesome. If not, loans and scholarships are an option, or we might consider filling the gap depending on our financial situation and preferences at the time.  This is less stressful to me than trying to anticipate college costs and education policy.

thats around 170k per kid assuming you invest it in VTSAX or something similar ... in today dollars.. thats insane!! IMO holy cow.

I know it seems like a lot, but in truth, it is very possible (likely?) that instate tuition for our state university could be north of 150k for a 4 year bachelors in 17 years. Sure there are scholarships and need based aid, but those are far from guaranteed for upper middle class kids, and many merit scholarships are small and won’t make a substantial dent in tuition costs that large. It is also very possible the govt or states will cap public tuition in the next couple decades (or even implement more drastic measures such as low cost or “free” college) but those remedies are also far from guaranteed, especially for people with higher incomes. It is also very plausible that they will enact these policies only to specifically exclude people like FIRED mustachians (lower earned income but high net-worth and taxable investments). There are so many unknowns, so for us we’d rather abide by the adage “better to have and not need, than need and not have.”

so your arguement is instate college cost will be 150k in today dollars in 17 years.  so you're projecting the costs of college to go up over 50% ahead of inflation.  haha. wow. this is like working longer to get to a 3% SWR IMO but if you enjoy your job that much and want to keep working for this ... wow.

Like I said, predicting college costs and then matching our contributions to the estimate wasn’t the primary way we decided on our annual number….I found it too stressful to try to plan around estimates with so many unknowns, so we looked at our current goals, income, values/preferences, and circumstances and decided we could comfortably and easily afford a max of 5k/yr moving forward. It's more of a year-by-year approach. My point about the 150k instate tuition was not to indicate that I am trying to match that number. I just wanted to demonstrate that the rates for even lower cost schools are expected to still grow rapidly, so it makes sense for people to save as aggressively as they are comfortable with for their income level/goals/preferences. 

At the end of the day, I’m not worried about over-saving for college 17yrs out, as I can always stop or reduce the contributions later on as the actual costs and circumstances become more predictable. It may very well be that 5-10 years before the kids start, we don’t need to earmark any more money for them. As for FIRE, I am already a SAHM and my husband is a high earner who loves his work and has no plans to actually stop working completely, let alone stop full time work within the next 10yrs. As a result, we don’t have the typical bee-line race to FIRE, we’re taking the scenic route :)

You mean he's taking the scenic route.

This was rude. Please see the forum rules. -Moderators

[Poundwise]

This is timely in light of an article I read yesterday that NYS is proposing a free state college tuition program for students whose families make $125K or less per year (AGI? gross?).  Given that NYS has a generous deduction for 529 contributions, this creates a serious questions as to what extent NY 529 contributions make sense if you are a NYS resident who was already planning to cover the cost of state school tuition.

As a NYS resident, this is very interesting to me.  But my husband would have to ask for a slight pay drop to make the cut. Which is ethically odious to me... I don't feel like we are the demographic they are trying to help.

I'm curious, what's unethical about this? Rule of law is a good thing - the alternative is capricious application of law. It doesn't matter what they're trying to do, only what the law actually does. I don't see anything wrong with taking a pay cut (or preferably, reducing hours) to fit under that threshold.

Besides, they should know better than to have a hard cutoff like this. Economists have recommended for a very long time that benefits be gradually phased out as income increases. It's their problem, not yours.

We're in NYS, but wouldn't qualify because of income.  But it's a long way from Cuomo making a proposal at a news conference and this actually becoming law.  If it does gain traction, there's a high probability it will be significantly modified by that point, so who knows what will actually happen?

True that. I'm not going to worry about a benefit that doesn't even exist yet, although I would support the sliding scale suggested by FINate.  Speaking of why I would have an ethical problem with lowering our income to make a cut, I guess I usually want to follow the spirit of a law, rather than the letter of the law.  So if the scholarship is meant to help kids who otherwise never would go to college, I won't want to endanger the success of the program by sucking at the trough.  My kids will all go to college, no question... they have had and will have almost every advantage provided by nature and nurture. My family really is the opposite of people who need help to get higher education... we practically ARE higher education! Should we take $30K from the system (because if we lowered earnings, we'd pay less tax as well) just because we can and not because we need it? I suppose we could make an argument that the money in our hands would do more good than being applied, for instance, to future scholarships. 

Whether it is wrong or not, I am not sure, but it would feel wrong.  I'd probably make a poor lawyer though. :P

Anyway, I wanted to bring up another strategy available to Mustachians. Many colleges and universities offer free or reduced tuition to the family of employees, and some even have reciprocal programs with other schools. It's worth looking into. Usually there is some additional requirement such as full-time status or length of employment. The only downside is that I have heard that some sneaky universities discriminate against employee dependents in admissions, so they don't have to give them this benefit.  I don't know whether that is true, though.

[HeadedWest2029]

529 plan here.  Our state gives tax deductions on contributes, and earnings / withdrawals are also free of state taxes when spent on qualified expenses.  In retrospect, I'm not sure if that perk justifies a 529 over a ROTH, but I feel fairly confident our kid will go to college.  I'm a little skeptical college as we know it will be relevant by the time he starts, but hopefully 529 plans adjust for the changing environment in terms of qualified expenses.

Our rough plan is to pay for 2 years of in-state tuition at a public school, room & board.
If he goes to community college for 2 years, then 2 years of in-state public school he could graduate debt free with a moderate amount of work, but I want some skin in the game.  If he chooses 4 years at a public or private school, he'll cover the difference.  Or at least, that's what we'll convey with the caveat we could pay off this debt if he applies himself and our FI goals have been met

[BoonDogle]

Have 4 kids.  We have been saving $75 per month in a 529 plan for each since they were born.  When I retire, I plan to give them the money we saved.  I don't expect to pay all their education costs, but if they are wise with the money, work part time, go to community college first, etc. they should be able to graduate with little or no debt.  If they want to spend 7 years in college getting a 4 year degree, they will have to pay quite a bit out of their own pocket.

Having some skin in the game will make them accountable for their choices.  That is one thing I hope they learn in college.

[Nords]

She is also interested in the military, but with all the stats on sexual assault in the military, I'm very wary of my daughter joining the military. 

People are forming the opinion that there's more sexual assault in the military than in the civilian world, but it's difficult to quantify whether it's simply more frequently reported in the military than in the civilian world.

If your daughter's at all interested in the military then she should apply for a ROTC scholarship (with the colleges of her choice).  The first year of tuition & fees is paid by the military, and she can quit anytime during that first year with no obligation. 

Your daughter's also welcome to e-mail my daughter with questions.  (She answers them all the time.)  She did four years of Navy ROTC, completed two years of sea duty, and is heading back for more sea duty in a few months.

[COEE]

I would just fully fund your Roth IRA.   Contributions can be withdrawn at any time tax and penalty free for education expenses for the owner, children, and grandchildren.

https://www.irs.gov/publications/p970/ch09.html

Added a bit to clarify... This is my plan - right now anyway.  If my kid doesn't go to college - it's still in my fund.

As far as my daughter (6yo) is concerned... We haven't decided for sure how we will work with her to fund her schooling.  Here is my initial thoughts:
Encourage her to go to community college for the basics - all expenses paid.  I just looked up tuition at the local community college - it's 20% of the local state school - no shit!  I may even pay for a reasonable apartment for her to do this because it would still put me far ahead financially than the local state school.
Fund her books and tuition at the nearest state school (currently about 20 minutes from my home).  We will provided housing at our home, food, transportation, etc.
Fund her books and tuition anywhere else she wants to go up to what the costs would have been at the nearest state school.  She will need to fund any additional expenses (room & board, food, transportation, etc).

This plan helps reduce my liability, doesn't take a huge hit to my retirement plans, and forces her to make adult decisions about how to fund her schooling.  It hopefully forces her to think long an hard about taking out school debt and/or working while in school.


An aside:
I've also considered going and getting my own masters degree after my first retirement, which will also be about the time of my daughter's HS graduation.  This will also stretch out my early retirement funds a couple years while I start my Roth conversion ladder as well.  Now that I think of it - this strategy could be a great way to stretch my emergency fund if I ever lose my job - and make me more marketable for the future.

[boarder42]

Local community colleges in my state have a program where if you complete certain things in HS including community service you go for free

[Goldielocks]

That said, both kids will pay a significant proportion of their tuition and costs.  Tuition isn't ridiculously insane here in Canada, though it is growing.  (My undergrad tuition was about $2500/year, though it has about tripled since then).  There are two of the top universities in the country within commuting distance, and several colleges as well.

Ignoring the ever fluctuating currency exchange rate and COL, our Canadian schooling cost isn't much better than our neighbours. Last I looked up our numbers, the average student loan borrower in Canada owes 25K and in the USA it wasn't yet over 30K.

As an anecdote, in my last three years I had 25K in scholarships, worked, got thousands of dollars in bursaries, and still had 34K in student loans. In Canada.

Seems like a lot if you are the typical single student. UBC this year was $15k in tuition, books, room and board for a freshman FT Arts student, which does not include any bursaries nor the govt tax rebates that you can deduct. Ontario is about $1500 more.

Does not include air travel or Starbucks.

4 years cost $60 k.  Minus tax rebates, scholarships, bursaries and employment income? 
The big increase is adding a masters program or more years...

For that 24k that was quoted, I think that study is... For students with loans, the average is $24k.  However over 25 % of student have no loans. Maybe a lot more as they are hard to get before you are 22 for many.  I don't know what the us number is based on, but anecdotally it seems that more us student get loans.

I was a single teenage parent. Expenses were irregular but I also went to a school with one of the highest tuitions and fees in Canada. It was my local university so-to-say. For the use case you are referring to, the number would be 25K for my alma mater.

For the USA versus Canada debt comparison, a large percent of them do not carry any debt out of post secondary too. I've seen numbers as high as 40% but I am on a tablet right now and can't easily query the bureau of statistics site.

Yeah, having expenses beyond single student with meal plan, cell phone and books only will definitely add up fast!

[Secretly Saving]

Two kids here - elementary school aged.  We have a decent chunk saved that has some time to grow.
We now put in just the amount that gets the state tax deduction and figure we can always pass the excess on for international (think study abroad), grad school (we both have higher degrees), grandkids etc.

[Cgbg]

We've always told our kids that we will pay their way through at the in-state college rate but they'd have to make up the difference with merit not loans.

I took nearly a decade off work when they were younger. We prioritized retirement over college savings for, well, ever. We figured when I went back to work we'd be able to cash flow the difference between that and the 529 balance, or the kids would get awesome scholarships.

That plan actually worked. So far, anyway. I probably wish we'd put more in the 529 - but we weren't terribly into rice and beans when we had really young kids. It's a choice we made.

Both kids either earned or will have earned 30+ college credits before entering college (oldest is a freshman in college, youngest is a senior in high school. Yeah, we didn't do much in terms of family planning either.) Both kids are advanced in math and completed/will complete all the required math for an engineering degree prior to college, minus a statistics course.

Oldest got a full ride. We pay travel costs - he's on the opposite coast. It includes room and board and a meal plan so there will be some taxable cost for us. He narrowed down his field of study and found schools that had scholarships that met our cost requirements. Two of the acceptances fit that criteria and we left the choice to him. He chose the full ride.

Youngest will either cost us $18k or $5k per year (depending on whether he gets he next level of scholarship), and in both cases (and for both kids) we are choosing not to touch the 529s.

Both kids are choosing engineering.