Author Topic: Tuition free college and the 529???  (Read 1686 times)

BooksAreNerdy

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Tuition free college and the 529???
« on: August 10, 2015, 07:05:13 AM »
All of the Democratic candidates are talking about free community college and free or low cost university education. If something actually does happen to move this direction, what happens to the money we have in 529 plans? Will it be able to be used for living expenses during university for our kids? What if we have saved too much?

DH thinks its unlikely we will save too much, but what if it did happen? Do you see them relaxing the rules on 529 withdrawals?

Yankuba

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Re: Tuition free college and the 529???
« Reply #1 on: August 10, 2015, 07:45:11 AM »
Worst case scenario you take the money out - plus the earnings - and pay a tax penalty.

Or, you can transfer the account to your kids, so they can use it for graduate school, or their kids.

I doubt we're ever going to have a free university system. Even if the community colleges are free I'm sure most Mustachians want their kids to go to a more rigorous school. You can't really do anything with a community college degree.


BooksAreNerdy

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Re: Tuition free college and the 529???
« Reply #2 on: August 10, 2015, 07:54:38 AM »
No, but community college is a great place to get the first year or two of credits taken for a much reduced cost. I took community college courses in my senior year of high school and entered university as a sophomore. We plan on having our kids get as many pre-reqs done at community college and then transferring to an instate university for their degree.

It may be unlikely that we will move to a free tuition model, but IF we did, I am just wondering if there would be a move to change the way the 529 functions?

Cathy

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Re: Tuition free college and the 529???
« Reply #3 on: August 10, 2015, 08:54:53 AM »
...what happens to the money we have in 529 plans? Will it be able to be used for living expenses during university for our kids?

Distributions from a plan commonly referred to as 529 plan can already potentially be used for certain living expenses without paying an additional tax, subject to various conditions and limitations. See 26 USC 529(e)(3)(B).

MrsPete

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Re: Tuition free college and the 529???
« Reply #4 on: August 10, 2015, 09:57:06 AM »
I teach high school seniors, and my own two children are in college right now, so this is a topic about which I know: 

First, the plan to make community colleges "free" isn't really a plan to make community colleges free -- it's largely smoke and mirrors.  It's a plan to make them tuition-free.  Even if students no longer pay tuition, they're still going to have to pay fees and books, which add up to as much as tuition.  My community college freshman's two math books are almost $300 at the bookstore; she already bought her two $80 English books from a fellow student for $20, but not every freshman knows to look for used books. 

Second, they aren't talking about making the community colleges free for all students:  If memory serves, to get the free community college tuition, the student must leave high school with a 2.5 (was it 2.5?) GPA.  LOTS of students who have lackluster high school careers head towards community college, yet they wouldn't qualify for the free-tuition deal.  As a taxpayer, I think this is a good thing:  We shouldn't fund people who aren't going to put in the effort and succeed ... and if you can't manage a 2.5 in high school, you're probably not college-ready.  The free tuition also requires the student to maintain a certain GPA in college (maybe it was something like 2.3?), to be registered with the Selective Service, and to remain free of trouble with the law.  In other words, a whole bunch of students will not qualify for this free tuition. 

Finally, students who are in genuine need are already able to apply for financial aid through FAFSA, so community college was already "free" for a whole lot of students. 

Smoke and mirrors.  It plays nicely in sound-bites:  College for all!  But the reality doesn't change things a whole lot. 

If your kids end up with free community college tuition, you'll still be able to use your savings to pay for their books and fees. 

My friend who also teaches high school seniors and who also has two children in college disagrees with me.  She says this concept -- if it comes to pass, which seems unlikely given that the proponents haven't said where the money's coming from -- is going to be a game changer.  She feels sure that pretty much all average high school students  are going to opt for two years of free community college first, and she feels sure that parents who've saved little will push them in this direction ... then they'll go on to the university.  However, when I asked if her own daughter would do this, if it were an option today, she said, "Of course not.  She's university material.  $1000 of free tuition wouldn't be enough to change our minds about her going straight to a top-notch school."  Because she is my friend, I didn't say, "Typical Democrat -- here's something for your kid, but my own kid is too good for it." 

As for saving too much: 

We did it, but I'm not sorry. We're just entering the school year I've feared for more than a decade.  This is the year I have a college freshman AND a college senior.  This is our expensive year.  However, both my kids are on full tuition scholarships (both academic), so my total outlay was something like $300 for fees not covered by scholarships.  I'm glad that we saved in our own names and we saved in generic accounts -- not the kids' names, not college-specific accounts.  Because we didn't spend so much on tuition, we simply have more money now.

And as for community college in general -- the jury's still out, but I'm not sure I'm a fan. 

Our oldest went straight to a university.  She was ready, and she has excelled.  When she was a freshman, she was required to attend an overnight orientation event, during which she met with counselors, registered for her first classes, and was "oriented" towards success as a freshman.  When she moved into the dorms, she and her roommate were each assigned an upperclassman in their majors, who walked them around to their classrooms, helped them buy books, took them to the cafeteria for the first time.  They had an RA to help them through problems in the dorms.  They had rather significant help in getting themselves "started" in college, and it was PUSHED on all the freshmen.

Our youngest is not ready emotionally to leave home, and we all agreed on community college.  Will she stay a year, will she stay two years and earn an associate's degree?  We don't know, but she will attend community college THIS YEAR.  They've done NOTHING to help her become a part of the school.  No orientation events.  No postcard saying, "Hey, time to register!"  We found out about registration by checking the school's website.  When she tried to register, she couldn't -- so we went over to the school.  The problem was math.  She couldn't register for ANY classes because they hadn't checked her high school transcript to see that she had the pre-reqs for math.  When I questioned how this could be, they commented that MANY high school students register for community college because they feel obligated to sign up for something ... but then they never enroll in classes ... so they just don't bother to actually look at their transcripts until they actually register for classes!  She has no "welcome week" events to attend.  She will receive no advisor.  Everything she has done has been a result of HER OWN EFFORTS and my guidance, and our only resource is the school's website!  Thusfar, I am not impressed with this community college, but I'm hiding that from my child. 

Incidentally, if you're interested in the cost difference, my oldest's tuition at the university is $3558/semester, and my youngest's community college tuition is $1050.  Of course, we're talking tuition only here.








« Last Edit: August 10, 2015, 10:00:36 AM by MrsPete »