Big Increase in Income - now what?

Paying for College
1

<p>I have a strange situation and I am looking for some general advice. I am a parent of a HS junior, with other kids at 14, 11 and 7 (all boys). I have always made a good living, and was making 80-90k up until 6 or 7 years ago. I had 529 plans for each kid, but they were not flush with cash. For various reasons, my actual after-tax pay was always getting slammed: medical expenses for each birth ran me $10,000+, I moved a few times to stay employed and lost money on my houses, and the like. Anyway, I never had enough left over to fund my 529's like I would have liked. Nevertheless, I ran the college cost calculations at my income and tried to keep pace with my contributions and in general tried to be responsible. </p>

<p>My income circumstances changed though when I went to work at a consulting firm. My income changed substantially, rising about 20K a year for the last several years. Some years it fell a bit, but it has bounced between $180k and 120k for 6 years now, averaging 140k or so. Much of that "extra" money went into income taxes, funding my 401k and stupidly-high property taxes but I was able to put some away in the 529s. Sadly, it is not enough. </p>

<p>I recently filled out a FASAF (or whatever) and learned my EFC is $40k based on my last three years wages. Basically, my rapid jump in income meant that my plan of 529 + loans + cash out of pocket was blown out of the water and I had to pay of college completely out of pocket. An ECF like that is...completely impossible. The home I have owned for 11 years (paid about $250k a few years before my income took off) is $50k underwater thanks to the housing bubble. If I had to pay $40k/year, I would have to sell my home and move my wife and 3 kids into a 2-room apartment - if I <em>could</em> sell it. I don't have car payments, I do not live extravagantly, it just takes a ton of cash to keep a 6-member family fed and the lights on if you want to live without credit card debt (which I do). My wife does not work outside the home and does not have appreciable working skills; in this job market, it would be very hard for her to be able to contribute anything to our income anyway.</p>

<p>So, what next? My oldest is a great student (in top 10 of his class, maybe top 15 out of 320 kids) and wants to go engineering/premed. He would go to a state school (in Ohio) but tuition, room and board will run me around 20k a year at a minimum, and even that would be very, very difficult to pay out of pocket. Will we be able to get loans? Will the loans be his or ours? My credit is good (for now) but I have no idea how much banks will loan in this environment when my only real asset is an upside down house. Is Merit or ROTC his only hope? What happens when kids 2-4 want to go to school? </p>

<p>All advice is welcome!</p>

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<p>*My oldest is a great student (in top 10 of his class, maybe top 15 out of 320 kids) and wants to go engineering/premed. He would go to a state school (in Ohio) but tuition, room and board will run me around 20k a year at a minimum, and even that would be very, very difficult to pay out of pocket. Will we be able to get loans? Will the loans be his or ours? My credit is good (for now) but I have no idea how much banks will loan in this environment when my only real asset is an upside down house. Is Merit or ROTC his only hope? What happens when kids 2-4 want to go to school?</p>

<p>HS junior, with other kids at 14, 11 and 7 *</p>

<p>There are only a few ways to reduce your EFC…</p>

<p>1) commute to a state school where costs are below EFC</p>

<p>2) Get big merit the reduces costs to below EFC</p>

<p>3) ROTC</p>

<p>4) Get accepted to HYPS which are extra, extra generous with aid. But, you’d still probably be expected more than you can afford.</p>

<p>you say that paying even $20 per year at your state school is impossible. Well, with your income, you’re not going to pay less than that unless you employ one of the above methods.</p>

<p>how much CAN you pay each year? Whatever that number is, you’ll have to work with that number.</p>

<p>If you can only afford $5k per year, then huge merit, ROTC, or local state schools may be your only options.</p>

<p>Your kids are spaced far enough apart that you’re going to have one in school for many years. For that reason, you can’t really depend on any EFC reductions for 2 in college. Besides, you say that you can’t even afford half your EFC.</p>

<p>Each child can borrow the following amounts…</p>

<p>frosh year $5500
soph year $6500
Jr year $7500
Sr year $7500</p>

<p>These would be THEIR loans.
*
What happens when kids 2-4 want to go to school? *</p>

<p>I would NOT recommend that YOU borrow any money. The debts would accumulate each year and with each additional kid. At some point, you would not be able to borrow any more, yet you’d still have a kid or two to still put thru school and you’d have big debt.</p>

<p>The loans that parents take out are Plus loans. They aren’t hard to get if you have good credit, but they can be a nightmare to pay back…especially if you are also putting younger kids thru college.</p>

<p>There have been parents here on CC that borrowed for child #1 (and maybe child #2), but then while paying those loans back, they had no means to pay for younger child (and couldn’t qualify for more loans either.) Who wants to tell younger kids that they have to go to a CC because you’re in debt from #1 and #2 pricey schools? </p>

<p>Instead, be upfront with your kids. Let them know now how much you can pay each year per child. Let them know that anything more than that will have to come from another source…merit for high stats, small student loans, part-time jobs and summer jobs, ROTC, etc. </p>

<p>*My oldest is a great student (in top 10 of his class, maybe top 15 out of 320 kids) and wants to go engineering/premed. He would go to a state school (in Ohio) but tuition, room and board will run me around 20k a year at a minimum, and even that would be very, very difficult to pay out of pocket. *</p>

<p>Well, then, he has a year to make sure he gets high test scores for big merit. (of course, only some schools give big merit, so look for those!)</p>

<p>He takes the PSAT this month, right? Hopefully he’ll do well on that. Did he take it as a soph? How’d he do?</p>

<p>Merit works like this…</p>

<p>There is a large pool of students with high GPAs.</p>

<p>There is a small pool of students with very high ACT/SAT scores.</p>

<p>There is an even smaller pool of students who have both high GPAs and high test scores. The ones with both have the best chances of getting into the schools with great FA and/or great merit scholarships.</p>

<p>If he ends up wanting pre-med, then he needs to avoid as much loans as possible since he’ll have to borrow BIG for med school. </p>

<p>Luckily, any good school can prepare a kid for med school.</p>

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<p>Adding to above…</p>

<p>For merit to reduce your EFC it has to be huge. Otherwise it will just reduce your aid and not reduce your EFC.</p>

<p>For instance…</p>

<p>$55,000 School Cost of Attendance of a private U
$40,000 EFC
$15,000 “determined need”</p>

<p>Aid package…
$5,000 merit per year
$5,000 in student loans</p>

<hr>

<p>$10,000 in FA package…and $5k gapped.</p>

<p>So…If a school gives you $5k per year merit scholarship, then that will just go towards “need” and your $40k EFC stays the same. And, worse, you still have a $5k gap in addition to the $40k EFC.</p>

<p>Here’s a better alternative…</p>

<p>$35,000 School Cost of Attendance of an out of state public or cheaper private
$40,000 EFC
$0 “determined need”</p>

<p>Aid package…
$20,000 merit per year (for instance, a free tuition scholarship)</p>

<h2>$5,500 in student loans</h2>

<p>$25,500 in FA package.</p>

<p>Since the school has a COA of $35k and your aid package is worth $25,500, then all you have to pay is $9500. You’ve cut your EFC in half and you have no gap. :)</p>

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<p>ROTC is not a way to pay for college. It is a path for young men and women whose goal above all else is to be an Officer in the military. The tuition benefit is just that - a benefit. </p>

<p>I’ve seen it time and time again when a student takes an ROTC scholarship just to pay for school. They wash out and then are faced with trying to pay for a school they cannot afford. </p>

<p>My DS’s clad started with 22 his Freshman year. As a Junior his class is down to 4. Those are the students who did ROTC to become officers. The rest? Gone.</p>

5

<p>Congratulations on your income increase. </p>

<p>College financial aid is based on the assumption that you will use income (current earnings), savings (past earnings) and loans (future earnings). It sounds like you have all three to a greater or lesser degree. Yes, your income is higher these last few years…but the year prior to entering college is the income year that will be used for financial aid purposes. I know you have had some expenses, but your recent years have been good ones. Many can’t say that (salaries not increasing, lost jobs, etc). </p>

<p>Mom2 has given you good advice. If finances are a consideration for you, please be up front with your kids about that. Help them find colleges that are affordable to your family.</p>

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<p>I don’t know where you live in Ohio, but it seems that a family of 6 should be able to live comfortably on $120K a year if they are committed to do so (and don’t have more unusual medical expenses!). It’s great that you don’t have consumer debt or car payments to worry about! What would you do if your income suddenly went to $100K a year or if there were another $10K hospital bill to pay? My guess is that everyone would make adjustments to accomodate that, so my suggestion is to take a hard look at your monthly expenses and have the family agree on a budget, starting now, that will allow you to save half of your expected contribution to a state school per year. Everything should be reviewed…grocery budget, clothing, cell phones, TV/internet packages, car insurance, entertainment with a view of “how low can we go” as money can always be added back if you exceed your goal. Everyone can probably give up something, or perform a service that you’d otherwise pay for, that will reduce expenses on a regular basis without seriously compromising their lifestyle and, if you make it a game and let them participate in seeing the results, the kids will likely grumble for only a very short time. It’s surprising what you find you can happily live without, do for yourself instead of paying for, and/or buy for less if you really try. The bonus is that getting rid of some extra distractions and working toward a common goal really brings a family together.</p>

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<p>I don’t know about this family, but many families spent a LOT of money on children’s extra-curriculars…private music lessons, instruments, band camps, sports fees, club sports equipment, off-season club sports, tournaments, private coaching/training, trips for club sports, uniforms, performance shoes/socks, summer academic, sports, and/or music camps, People to People trips, dance lessons, dance competitions, costumes, (this family is all boys, so the dance stuff probably is a no. lol). I’m sure there are other things that I’m not including. </p>

<p>And…typically, families that are “on the go” with ECs tend to spend more on fast food and other convenience foods. Also, add in all the gasoline and wear and tear on cars driving kids to all these things on a daily basis.</p>

<p>Seriously, my best friend spends over $12k a year on this stuff for two kids. She didn’t realize it (and was in denial about it) because the expenses were spread out over a year’s time. One day we added it all up and she was shocked.</p>

<p>Anyway…with a family of four boys, there could be a lot of these expenses. Maybe, maybe not. Maybe there are, but the H has no idea of the total because these expenses don’t usually get paid all at one time.</p>

<p>Another expense to look at is food and beverage expenses. How many convenience items are being purchased? Are meals being made from scratch? How many individual beverages are purchased each week? How often do you eat at restaurants (a family of 6 at a moderately-priced restaurant can easily run up a bill plus tip of over $100.) How about fast food purchases? Do the kids buy school lunches or are they handmade at home with few pricey convenience items? Do the parents have any expensive habits or hobbies? Do they have expensive tastes in clothing/shoes/accessories? </p>

<p>How about holidays? Do the kids have expensive birthday celebrations? Does the Christmas tree overflow with tons of gifts?</p>

<p>another cost to look at is utility usage…does the AC and heat run 24/7 during the warm and cold months. Can the thermostat be set up or down a few degrees? Can everyone wear a sweater in the house during the winter so the thermostat can get turned down.</p>

<p>These are just some ideas thrown out because my inlaws were very guilty of many of the above expenses.</p>

<p>I come from a family of 7 kids, my H comes from a family of 8 kids. My dad only earned a modest salary. My FIL had a business that earned a LOT more. My parents were thrifty and saved, saved, saved. My in-laws lived paycheck to paycheck because they “nickle and dimed” themselves to death. The heat was always full blast so everyone ran around in short sleeves in the house in the winter. My MIL was the queen of convenience foods. Holiday times were gift extravaganzas…everything on a child’s list was purchased. The word “no” didn’t exist in that household. All repairs/home improvements were done by a paid professional. They just blamed their money situation on their large family, when in reality it was their daily choices that were at fault.</p>

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<p>Yes, take a look at all those things! We have made changes as we are putting 4 children through college for a period of 11 consecutive years. </p>

<p>H takes lunch to work every day.
NO take out pizzas etc. (Only rarely)
Evaluate your cable/satellite TV plan. Do you really watch all those Movie Channels?
Car Insurance, Life Insurance, Home Insurance, check around are you overpaying?
Cut coupons & use at grocery store (sometimes I visit 3 grocery stores, they are all close together, so I get the good deals at all 3. Takes longer, but we save!)
Menu planning helps with the grocery shopping! Challenge your spouse to do better with the meal planning & grocery shopping!
Clothing for a family of six? Shop around, take advantage of sales on those expensive sneakers, jeans etc. that the kids all crave. </p>

<p>Cell phone plans? We cut back on the Minutes! Everybody was texting, not talking! God forbid we all talk to each other right? </p>

<p>Remember, most colleges let you pay 10 months out of the year! Most offer Tuition Management Systems or similiar system. We have always done this! Paying college tuition just like paying oil heat budget payments! We have never made “Two Lump Sum”
payments, one for each semester. That would be very difficult!</p>

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<p>OP, You have a GREAT engineering school known for merit right in your state-- Case Western. Since your son is at the top of his class, maybe he will score some merit there? If it is somehow within commuting distance, even better. </p>

<p>Another idea you can instill for the younger boys is to start earning some money in their early teens. It may not sound like much but that could be their college spending money (and kids who earn their own money are often a bit more conservative about spending it).</p>

<p>My next idea might not work as well for an engineering major but if your children can maximize AP or IB scores-- or take summer classes at the community college in high school-- they may shave off a semester or even a year from college. I think this tactic is used less and less-- partly because some colleges have become quite stingy about giving testing credits and partly because if students change their majors midstream, they may need the extra time to accumulate credit-- but cutting a year at the end of the degree is significant savings. (It’s really more than 25% of costs because expenses rise every year.) Where I am, the state universities are more generous than the top privates about testing. </p>

<p>Also, if your son is good at testing, have him prep for the PSAT. It could be worth money in your pocket and his.</p>

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<p>There are other good options in OH for top performers. Wright State offers a full ride to NMFs, full tuition to NMSFs/Commended. The other state schools probably have similar scholarships.</p>

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<p>I agree that many students make the poor choice of looking at ROTC purely as a college financing mechanism. </p>

<p>That being said, if your son has consistently expressed an interest in serving his country, applying for an ROTC scholarship next year wouldn’t be a bad thing. There is nothing wrong in being paid for something he might do otherwise. </p>

<p>Beyond that though, it is not a sound strategy.</p>