lets say that a school is costing 40K/yr and currently i have 80K in a 529. I will having another child in college in 2 years, with their own 529 of 80K. What is the best way to pay for college for child A?
use all the 529 for freshman year, and maybe sophomore year, and then worry about using out of pocket money, and hope that “need” will increase with 2 in college and get financial aide/loans?
split the 529 to 20K per year for child 1, and either split or frontload for child 2?
use as much money as possible through refinance of house, savings, etc for first 2 years, using 529 as needed.
After the $80k is spent for child 1 in the first two years, are you going to be able to pay $80k for child 1 while child 2 is also in school, and $80k for child 2 when child 1 graduates?
Instead it might be better to find a school where the net price after merit is $20-25k (529 balance over 4 years plus student loan of $5k per year)?
This depends on where the other 80K you need is going to come from.
You might want to minimize taxable events (like selling assets for capital gains) until the second child’s first FAFSA is done, for example.
Or, if your income is low enough to claim a tuition tax benefit, you might want to pay some tuition out of income to take advantage of that.
I’m not sure why you would take any loan sooner than you needed to. 529 plans are considered parent savings for financial aid purposes already, so from a financial aid standpoint the assets are equivalent. Selling shares in a 529 plan for college does not incur capital gains tax, though, so these options are not exactly the same to the IRS.
Do not assume anything about future financial aid. Ask the financial aid office at child 1’s school what if anything changes when child 2 starts school. For example, if your package includes merit aid, the school might say you are already getting more than you “need” and there is no reason to increase your grant aid.
@GnocchiB , no, this is not the same question, which was where am i going to get the money to pay since EFC is high, but rather is it better to eat up the 529 first, and play with other assets (such as selling stocks, using savings, cutting back, home equity, loans, etc) later, or evenly distribute, or try to hold on to as much as the 529 until the later years and when 2nd child is also in school.
It would really depend on whether you will qualify for need based aid once the first $80k is spent. You may not if your income is high enough or if you have other assets. It will depend on the school and what its FA policy is. If it is an OOS public school, there might not be any need based aid from the school at all, even if your FAFSA EFC is zero (although you would get Pell and probably work study and SEOG). If its a generous school, once that $80k is spent and you have two in school, you might get more. $40k per year more? Unlikely. The $80k in #1 son’s 529 is raising your FAFSA EFC by about $4500 (if you exceed the protected amount for your age). Your income is probably doing a lot more damage to the number than the assets.
You can estimate whether the school will give you more by running the NPC with both ways, with one in college and $80k x 2 in assets (plus whatever else you have in assets), and then run it with 2 in school, $80k in 529 (as it will be if you spend the $80k in #1’s 529 and when #2 is also in school). Is the school giving extra? If not, it probably doesn’t matter how you use the 529 plans. You can run an NPC for your younger child too (you’ll have to guess on the school), with one in school and nothing in 529 plans to see if he’d get any significant need money for his final two years if you used up all the 529 plans in his first two years.
As @twoinanddone shows, your assets decrease one dollar, your EFC goes down somewhere between 5 and 5.6 cents (depending on the financial aid methodology the school uses).
However, the financial aid is very sensitive to increases in income. If you sell a stock and have to declare capital gains, that can have an effect on your EFC up to 47 cents on the dollar of additional income.
As I suggested in your other thread. I would not sell stocks, take out home equity loans or Parent Plus Loans, sell my assets, or any of the other things you are suggesting doing.
Find affordable colleges.
Your first kiddo has $20,000 a year in the 529. She can also take a $5500 loan in her own name for the first year. She can work summers, vacations and during school and likely earn about $3000 or so. So…now you here $28,000 or so on the budget. Add tomthat what you can pay out of current earnings…or what she gets on merit aid at schools,where she would qualify for merit aid.
And you would have affordable options for child 1.
Your first child,has made you believe that she cannot go to college unless it is OOS at the expensive schools of her choice. You, the parent, need to set your budget. If you have $20,000 a year…and your kid gets a full tuition scholarship someplace…she is golden.
Does she have the stats to do that at say…University to Alabama? And if so…did she apply there?
@thumper1 I dont mind making some sacrifices for my kids. My parents did for us. I do draw enough salary that tightening the belt will yield about 10K/yr. She is also currently working on additional scholarships. I did say no to ED at schools that were 60K since the outcome of merit would be unknown. Its possible that merit might bring her to affordable range, but we have determined as a family that around 40K is doable. She did not have high enough scores for Alabama for reduced tuition, and nor did she want to attend there. There are other factors in the schools she has chosen . @twoinanddone thanks for the info. that is what I was trying to figure out. This was not able what I am willing to pay, but how to use the 529 , assets, and salary to maximize the benefits.
“Winning” at college costs really does come down to building the right college list for your situation. The chances of outside scholarships making a major dent in costs over four years are pretty slim. If she didn’t have stats for a tuition discount at Alabama, she likely doesn’t have the kind of resume that nets big scholarships.