Five years before college

Paying for College
1

<p>I’m a little bit afraid to post after reading the “snob” thread. I have been reading this forum for a few weeks and admire the level of writing performed here. English is my second language; please do not take my mistakes and awkward choice of words as a sign of carelessness or disrespect, I’m trying my best, but sometimes it’s not enough.</p>

<p>We are first generation immigrants’ family. Our kids will graduate HS 2014 and 2015. We have been in country for awhile, but this April is the first time we fill out tax forms based on two incomes (after we finally got permanent residency). After paying out some debts and fulfilling deferred needs, an issue of best allocation of “extra “money is on the table.
Our ultimate goals (very common, I guess) are saving for modest but comfortable retirement and provide kids with funds for good education.</p>

<p>I calculated our EFC and numbers are about 35K when one child is at college and a few of thousands higher for two. I know we can do it with some sacrifices (we used to live without this amount not long time ago), but we definitely do not want the number to grow.
Some data:
The income is about 150K;
The oldest parent will be 48 by the time first child go to college;
Mortgage on the house is under water and I do not expect much (if any) equity there in 5 years;
Under 70K in retirement plan;
We live in MA, small town, average school;
I do not expect my children to earn significant money while in high school (unless they develop some passion) so for now I assume there will be no funds on their names.</p>

<p>I have no prediction for college level at this point; they are capable for big league of needs-only-aid colleges, so I want to be prepared as much as I can, if they choose that path (they are constantly encouraged to do so). No big passion so far besides sports. Athletic abilities are possibly good enough to earn an admission tip, but I do not foresee any full-ride from D1 colleges. If I understand correctly, significant merit scholarship (over 15K) would be helpful for the first and last years, but not for three years in the middle, unless it would be two full-rides or close to that. Everything smaller will simply reduce finaid. Postgraduate education, including PhD, is likely to be a part of the picture, but I do not feel that we are responsible for that part, although we will help if we can. </p>

<p>My thoughts so far (not much):
- All money we can put aside should go to retirement funds. We will be better off not contributing toward retirement for 5 years while kids are in college, than doing half and half for the next five years.
- All major expenses (like buying new car or updating the house) should be planned for 2012 (oldest kid sophomore year) with expectation of total freeze for the next 6 years.
Any other advices?</p>

<p>We are also thinking about changing the school. The options are moving to better school district or good private catholic (we are not catholics and not religious at all for that matter, but as far as I know it’s not a requirement). Any of those options will cost us significant amount of money so I guess from financial point of view it does not have any advantage. Or does it? If we move to different town our current house will become a rental (still under water) on which we will lose money. How will it effect on our EFC?</p>

<p>It turned out long. Thanks reading my post to the end.</p>

2

<p>College EFC is only one small part of your financial planning. Be aware that a low EFC does not ensure you anything other than the government PELL grant and subsidized FAFSA, neither of which are for a whole lot of money. You are truly better off saving as much money as you can, either in your pensions or elsewhere so that your children will have as much choice and flexibility as possible. Also inform yourself about the college process and what options are out there. Look for good safety school that are financial safeties as well for admissions. It’s very easy to roll out the big name schools. Anyone can do that. It’s finding the hidden gems and deals that is difficult.</p>

3

<p>cptofthehouse, I do not think EFC is the only part of financial planning. I use this number as guideline to estimate minimum amount we will be expected to pay. What I am trying to find out is will it make a difference if I have next five years saving in retirement plan, cash or 529 plan. I believe it is.</p>

<p>I’m familiar with reach/match/safety (academic and financial) strategy and will encourage kids to follow it as well as an idea of picking safety first. I only mentioned big name school because I think they are most difficult choices financially for middle income families (no merit aid on one hand and hard to write off the list, if admitted, on another).</p>

4

<p>Talya,
As you’ve found out, the financial end of college is pretty complex, and particularly so for families in your income range. </p>

<p>Some schools like HYPS have excellent FA for people in your income range. But be aware that assets also count and those are often not addressed when colleges give FA guidelines based on income. And at schools just a step down in selectivity (and size of endowment), you may qualify for very little FA, as your calculations have already shown.</p>

<p>I think that your evaluation of merit aid is a little simplistic. For instance, while merit scholarships do often reduce FA, they usually first start with WS and loans, before they reduce grants. And as far as your statement about the years that merit aid would be helpful, I don’t understand your conclusion, could you explain it in more detail? </p>

<p>As far as saving in a retirement, vs 529 or cash, it depends on your goal. Putting the money in retirement will mean it is not counted as assets by FAFSA (this information is asked for by Profile, and schools likely vary in how the information is used), but this money is also subject to penalty if withdrawn early. And as it looks like you’ve found out, pretax dollars going to retirement accounts are added back into your income for FA purposes. Cash and money invested in a 529 will count as assets for both FAFSA and Profile. You should be sure to keep any cash in your accounts, not your college age kids. 529s are customarily for the child’s use but in the name of the parent, and so are assessed at a lower rate.</p>

5

<p>Merit grants vs loans is a good point. Thanks, entomom. It still would not make college affordable if it was out of reach financially although.</p>

<p>My kids are one year apart, so we will have 3 overlapped years. Assuming cost of attendance about 50K per year each (just an example) and EFC 35K, Finaid would be 15K for the first and the last year, when one kid is in college and 65K (probably 50K, more realistically) when two of them are there (I know, I oversimplified again, but it’s to early for actual numbers for me, I believe). Meaning that merit scholarship will start make real difference if it over 15K for the first and the last years and should be over 25K per kid for two years in the middle.
BTW, if one of kids gets full-ride, will EFC for another stay the same (about a half of total) or will it effect his Finaid?</p>

6

<p>Talya,</p>

<p>Back when Happykid was in elementary school and Happydad finally became a wage earner after years as a post-doc, I picked up a copy of “Personal Finance for Dummies” at a used book store. I think I paid $5. Best $5 I ever spent. The author has very clear discussions about ways of evaluating your family financial goals, and suggestions for options for saving for retirement and for college. While his basic advice is to maximize your retirement funds (IRA, 401(k), 403(b), SEP-IRA, Keough, etc.) first, and then to save for the kids’ educations, he also discusses situations where this might not be the best solution for a family. Your public library should have a copy of the latest edition of this book so you could read it for free.</p>

<p>Good luck with the financial planning! It’s a nightmare, but worth the effort.</p>