I need a reality check. Our (only) D20 is applying to schools now. We’re not likely to see any need money, and her top schools are not likely to give her much merit money. She is looking at several private schools in the 70 K range. We’ve got about 2.5 M in assets, husband is scheduled to retire in about a year, and will bring in 120 K in pension, and continue to work a bit, part time. Are we crazy to be considering spending this kind of money on our only child education?
Do you have any college savings to offset the 70K a year? If you have to take out a loan for the full 280K I would not do it, as you will be paying 15K - 20K a year just in interest alone! Find some affordable colleges that fit within your budget.
Is your child genuinely excited about these schools? Did she do the research, and build this list based on real passion for the kinds of things these schools offer? Has she demonstrated some degree of awareness of what a gift this kind of education can be?
If yes, then I don’t think you’re crazy at all.
You are just thinking of this now?
Everyone will have different opinions, but mine is that it depends on the private school. Harvard, or Hobart?
If you drop down a couple of levels your daughter probably could get merit aid.
Where is the $2.5 million in assets? Even at $100,000 a year, if you fund your only kid’s college costs, you will still have $2 million in assets. And that doesn’t include any interest these assets accrue if that is a possibility.
Are these assets only your retirement accounts…or are they other assets like savings, 529 accounts, real estate?
$120,000 in pension is a large pension. Will he also collect SS? How about you? Do you work?
Does your daughter also have other colleges on her application list? Maybe some where she could garner merit aid?
280k at conventional rates is about 3k/mo, at its peak (when you’ve taken out 4 years of loans.) The total interest when done shows about 70k, over 10 years. (This used 4.5%.)
If you have 2.5 mil in assets, why look at loans?
Not just thinking of this now…more like second guessing. She’s incredibly passionate about the school. It’s not an ivy but a very solid T40 school. And yes, she would be likely to get merit money at a lower tier school. We do have about about 3 semesters in a 529, and would not need to take out any loans to pay the rest.
No loans? And you have the resources to pay the costs?
I don’t think you are crazy at all.
$70K per year at four years comes to $280K. Subtract three semesters from the 529 and that comes to $175K. Round that up to $200 K to account for tuition increases and other costs. So, you will need to come up with approximately $200K over four years either by taking out loans or liquidating assets. Is it worth it? Hard to say. She’s an only child, maybe think of it as an advance on her inheritance.
Is your daughter likely to choose a major where graduate school (or medical, veterinary, or law school) is likely? If so it might not be a bad idea to budget for 8 years.
We were in a similar situation, except with two daughters. We set a budget that was what we felt we could afford. We “lied” a bit, and told them the budget for four years assuming that it was possible that it might actually go five years. Things like late changes in majors (which we have not faced) or a double major (which we did face) can lengthen the time to graduation.
Your husband will retire with your daughter in university. This means that taking on any loans at all is a very bad idea. You need to figure out how much of your limited funds you are willing to spend for an education. Remember that there will be other needs. $2.5 million sounds like a lot, but is not really all that much to retire on. It may have to last for quite a few years, and unexpected expenses will occur (cars wear out, roofs can leak, some medical bills will not be fully covered by insurance). You at least will have some pension, which will help. You did not mention (unless I missed it) what medical insurance you will have once your husband retires, but medical insurance can be very expensive.
There are many very good universities that will cost quite a bit less than $70,000 per year. I don’t think that expensive private universities have a monopoly on anything that they are going to teach an undergraduate student. We are seeing our daughters get a great education with great professors and great research / coop opportunities at less expensive public schools.
Folks…this poster has already said…they will NOT be taking out loans to fund college. They don’t need to.
They wrote:
I think that can be left out of this discussion…as this doesn’t apply.
I’m with thumper on this. Sounds like you have the funds, it’s not going to require sacrifices elsewhere, and it’s an only child. Investing in her education sounds about as good a use of the money as anything else. As @TheBigChef implies - if it’s just going to end up being left to her later, may as well let her use it now, for somewhere she really wants to go to.
If I had the means to pay it without loans, I would do it. It’s a lot of money, but only you know the finances. It sounds like you can afford to pay that amount without impacting retirement, so I say why not? Everyone’s priorities are different.
I don’t think you’re crazy if loans aren’t in the picture. I might check in with a financial adviser to make sure you’re well positioned for retirement though if that is coming up in a year. No one knows the ins and outs of your finances with this info.
ETA - also make sure you have a good emergency fund, back up for travel/incidentals, and also, is she considering grad school? Another nice thing to potential keeps some of that nest egg for.
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Really, it comes down to what you , as a family, decide in terms of priorities, risks, plans.
I can tell you that most parents who are not truly stringent and disciplined, and who do have the discretionary income to spend, are NOT going to get away with paying the COA as set out by the college. This is a very special time of your lives, parents and student alike, and of course you will want to enjoy every bit of it you can. You may visit more than the average, spend a bit more when you visit. Our last visit to our youngest’s school at graduation cost us a small fortune. We wanted it to be a celebratory time and we did spend then.
Your student is likely to get opportunities for experiences that cost money. One of the benefits of having money is that those opportunities are possible. But that also means spending the money. It doesn’t end with the decision to go to the college, trust me.
And it doesn’t end with college either. I don’t even want to add up costs in getting my kids set up with first job, move to another city, visits, etc etc
Things also happen that are not so pleasurable too My friends’ DD got deathly ill during her semester abroad and Mom flew to China at her own expense, and brought her back home. Dental work, accidents, mental health issues, all arise routinely and they cost money.
One of mine went to one of our state schools, and let me tell you, it really made a difference in terms of costs. When stuff happen, and stuff does happen, there was that leeway that wasn’t there when the college machine is shredding $6-7k a month of your money.
They don’t always finish in 4 years, they don’t always make the best decisions and a lot of that means more money.
It’s all up to you. There will be those who will think you are crazy. There are those who will applaud you. Just make sure you look at the financial picture for yourselves carefully so you know what you are getting into.
No guarantee that your DD will get into that first choice school, Is there? I’d look for options that have merit possibilities, that are less expensive, less selective in that mix of schools. She’s not in yet, and things can change a lot by spring.
Even at a somewhat lower school, she is not likely to get a huge amount of merit money. If she got $15K per year, that is only $60K. You can’t compare $70K to $0 but $70K to whatever you would pay with merit.
It certainly wouldn’t hurt to have her apply to a couple of schools likely to give her merit or that are less expensive. Kids change their minds a lot between October and April. With a pension that high and significant assets, you can likely afford this.
Good luck!
You got something better to do with the money? She’s passionate, you can afford it, so unless she’s likely to just go party it away you should be happy that your hard work is coming to fruition like this. Congrats to you.
I’d be doing a sit down ASAP before the train leaves the station. There are lots of variables in your financial future. Do you have a long term care policy, and if not, how would you fund something like dementia care for 10+ years? Is there life insurance if your H gets hit by a bus tomorrow (he should live and be well for decades, of course). Are you well diversified with those retirement funds? I have a friend who lost her job when Bear Stearns went under; H lost HIS job when Lehman went under; most of their retirement was stashed away in their company accounts (which was weighted heavily towards company stock- now worth pennies on the dollar). Oh- and their house lost 25% of its value overnight because it was November 2008 and they were not the only people in their town trying to dump their house to conserve cash.
Figure out a long term plan and make sure your bases are covered. Then you can figure out how much you can spend comfortably.
We had a job loss at one point with two in college. Boy that second income helped! Is there a second income here?
If she’s thinking med school or law school I would reconsider. Other than that go for it. Can husband work another year? Maybe consult for a year or two?
I’m in a similar situation, though already retired. One of the reasons I was successful was the education my mother invested in (divorced mother of 3, it was not easy). One of the reasons I worked as I did (150 nights on the road for 25 years) was to do the same for my kids. I’m paying full OOS for my oldest, and my D22 is looking at, and has the ability to be admitted to, Ivies and other T20. I won’t think twice about paying for that quality education.
(Of course, if she was looking at a $70K, USNews 50+ ranked regional school to study basket weaving, it may be a different story.)