I have a cousin with two elementary-school-age children. He and his wife are doing very well financially. Not investment-banker well, but well enough to own a home and take several nice vacations a year comfortably.
I raised the subject of college saving with him, hoping to impart lessons learned. I encouraged him to open 529s. He said they are saving, but not in 529s because he expects his children to get “scholarships,” and if the funds are in 529s then the funds won’t be fungible. Okay dokey.
His logic is wrong. If kids get scholarships that leave unused funds in 529s, there’s an exception to the qualified educational expense rule. You pay taxes on the earnings, but no penalty. So, no different from saving in other financial vehicles. That’s why I was encouraging him to save in a 529 – if they get “scholarships,” no harm, no foul.
Wouldn’t that “sweet spot” be simple situations like:
Most income is W-2 income, plus possibly small amounts of investment income (interest, dividends, capital gain/loss).
For colleges that want both parents' finances, parents are married, or single parent is widowed.
Family is not spendthrift.
Of course, even in these situations, each college may define “need” differently, may not meet “need” even as it defines “need”, and have a different notion of student self-help (student loan and student work).
Well, @brantly most of the time. I live in a state where my 529 contributions were tax deductible for the state. So, while no penalty, I would end up paying state taxes on the earnings and the contributions were I to withdraw the money left over. My state’s income tax rate is pretty high (we make a lot of top 10 lists - woo hoo!).
We are “full pay” but quite frankly, EFC is a joke. It is a ridiculous number for my family. Yes we’ve saved some in 529s, but we are still hoping for a few $ in merit scholarships to help fill what we consider to be a small gap. Really glad we planned ahead and that this is doable for us. I can’t imagine the alternative.
And to add to UCB’s fine post- not living in metro NY, Boston, LA or SF. If you are in a region with very high real estate and property taxes, your actual COL is significantly higher than the formula will kick out. If you own a three bedroom house in Cincinnati or Tulsa with the other UCB situations… your results will likely be in a sweet spot.
That 3 bedroom in Belmont MA or White Plains NY is going to make you look like an oligarch if home equity is filtered in… even though it can be the same modest, unimproved house as your “cousin” in Ohio or Oklahoma.
This has me scratching my head. Are you saying that you are full pay, and yet you don’t think that you should be? Are you able to pay the full costs? If full pay is doable for you, then I would say that your EFC is not a ridiculous number.
“I’ve tried to give my friends a “head’s up,” but honestly, most would rather listen to other friends who tell them what they want to hear.”
This.
I just had a conversation with a long-time friend whose son in a HS junior. She was telling me that since her son has a job (about 30 hours a week while in school and 40 in the summer), he will be able to declare himself independent for financial aid purposes. She “knows” this because a friend told her their son had done that and he got great financial aid as a result. She is so relieved because, according to her, they have no money to help pay college expenses. I tried to explain why her son would not qualify as an independent at 18, but she wouldn’t hear it. The other friend had “lived it” so I must be wrong.
Belle- you are a good friend for trying. The last time I asked someone (who was describing the process by which her 17 year old daughter was going to get a judge to emancipate her) “Well, is she claiming that you are abusive parents or just neglectful ones?” she almost choked on her coffee. There is some website/financial adviser out there claiming that if you put all your money into an annuity AND have your kid emancipated in family court you won’t pay a dime for college (you will pay plenty to the salesperson who sells you the annuity however). And you will be spending all your free time with social workers, case workers, and the Guardian ad litem that the judge appoints to protect your kid.
The truth is a lot less interesting than the scam du jour…
Back to “In the Heights”, the lyric is “Next up to bat, the Rosarios
They run the cab company
They struggle in the barrio
See, their daughter Nina’s off at college, tuition is mad steep
So they can’t sleep
Everything they get is mad cheap” sooo Stanford must not have been meeting their full need!
If only schools could go out back & pick dollars off the money tree.
I understand that college is really expensive, and people really don’t want to part with that much money even when they “can.” But it is important to understand that there is a limited amount of financial assistance a school can award, and they are not going to be able to award it to everyone. So the aid has to go to those who need it the most That is not to say that everyone who needs it gets it … because again, there is a limited amount of money. Schools have to determine a way to distribute limited funds in the most equitable way.
all the silly “techniques” to get full FA!! Just scammers…why not just give junior up to the state?? Ward of the court: FA galore KA-Ching!!
Oh wait, on second thought…might be some unintended consequences there! Maybe just shred all your money and quit your job when they are sophomores? Sounds bulletproof to me.
It would be great if it was easier to understand it all and it was consistent. But finances are something many people just stick their head in the sand rather than deal with it.
@Belle315 I have a friend who believes the same thing. She stopped declaring her 19 year old daughter as a dependent on taxes last year; she thinks that it will make her daughter be independent for financial aid. She looked at me like I was crazy when I told her that her daughter would have to wait until 24 to be considered independent. I’m curious what the fallout will be when her daughter gets her financial aid award letter this spring from her college; I’m sure she will still be considered dependent and will be awarded a federal student loan, at the most. And my friend will be confused and probably livid.
Yep,@vineyardview, I think we’re both going to have some pretty upset friends in the near future.
The frustrating thing is that I have watched this family (who are really great people otherwise) make poor financial choices for over 20 years. No savings for college, but several vacations a year, tons of sports camps and other entertainment for their kids, eating out 5 days a week, a new car for junior at 16, and the list goes on. It’s hard to be sympathetic that now they have no money to pay for their kids’ educations.
As I said above, some people are much more comfortable with debt than others. I’m not and I was willing to put in the time making the FA work and learn about the tax benefits. My friends own 3 time shares, their kids all had cars (and plenty of accidents and tickets) they went on vacations, had job losses. They are okay with debt.
They are happy, their kids are happy and I don’t think they regret any choices they’ve made.
