How are you paying for your child's (expensive private) college?

Parents Forum
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<p>Oldest graduated from LAC in 2007 and youngest is a h.s. senior. We weren't in a position to save money for college. We sank all our savings into a down payment on the house, and 20 years later are still living in it - although it started out at 1,000 square feet, we added an additional 400 sq. ft. - and have 10 years left on the 5% fixed mortgage. We used the 10 month tuition payment plan (costs around $50 in administrative fees; no interest charged); if we were short of cash, we'd use the HELOC. We managed to fund the addition and son's college that way, and paid it all off shortly after he graduated. He does have the maximum Stafford loan, but we were left with no other debt. He received a small grant from his LAC. </p>

<p>I went back to full time work, and our EFC exceeds any school d will attend. We'll do the same things - spread payments over 10 months, maximum Stafford loan, HELOC to tide us over the lean months. We have the mortgage and one car loan, no other debt. Economy is shakier, but having done this once I feel we can do it again and be in the clear within a year after d. graduates. If either of us loses a job, we'll just have to spread those HELOC payments out over the 10 year term. </p>

<p>On the one hand, I can't believe we managed to get s. through (or that we have to do it AGAIN), on the other - we really know how to scrimp and save, doing all our own yard work, cleaning, painting, seldom eat out, use the library for books, videos, classes, get bargains on tickets, have taken only a couple really special trips, etc.</p>

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<p>So interesting to hear all the different financing scenarios.</p>

<p>Lefthandofdog (great screen name) -- what is a HELOC? Encouraging that you were able to/will send 2 kids to college w/out a huge savings.</p>

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<p>HELOC = Home Equity Line of Credit HELOC</a> - Wikipedia, the free encyclopedia</p>

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<p>Thanks, HImom. Husband said he would absolutely not go for that (home equity). So will have to find another source of private loans (um...hoping they exist!).</p>

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<p>The rate on the HELOC was lower than PLUS loans; it just seemed to make sense to take the loan with lower rate since either way it was a parental obligation and not the student's.</p>

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<p>Thanks, lefthandofdog for that insight. Husband just doesn't want to put the house at risk. I can see that.</p>

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<p>How does FAFSA and the other FA determining things like CSS, Profile, factor in parental savings, specifically for college? For example:</p>

<p>Family A: Makes $130,000 combined, been saving for college since kids birth. Kid is now 17 and has nearly $80,000 for college. </p>

<p>Family B: Makes $130,000 combined, hasn't really been saving for college as much, kid has $20,000 when he is going into college.</p>

<p>So family A would have a higher EFC, but by how much?
I've heard FAFSA expects parents to be saving, or something like that, but I'm not sure if this is true. If it was, Both families should have similar EFCs, right? </p>

<p>I don't really know too much about the FA process. The reason I ask is that my parents have been saving for college for me for a very long time. They haven't told me how much, just that it is a lot.
But I don't want them to be expected to pay an astronomically high cost because of their savings. I'd like to go to schools like Notre Dame, USC, Georgetown, etc... where COA is 50k, but give out decent need based aid.</p>

<p>Thanks</p>

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<p>If you do as well as possible academically & apply to some schools that give good merit aid as well as need-based aid, you have the greatest chances of getting a nice package. USC is known for giving good merit aid, especially for NMFs and others they are trying to woo. They have a lot of HI students, so competition is more intense because like other Us, they want kids from all over & a diverse student body.</p>

<p>Your parents can use one of the free on-line calculators to try to get an estimate of what FAFSA might expect as their EFC. Notre Dame is a need-based only school. I believe Georgetown gives some merit & some need-based.</p>

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<p>Yeah, I'm not sure if I'll be a NMF, I'm working on my standardized testing skills, but I'm not expecting to become an NMF. </p>

<p>I'm still a sophomore so I've got time and a heck of a lot can change in 1.5 years.</p>

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<p>We did not save--except for our retirement; we do not borrow. We receive some FA but in general we just don't spend money on ourselves. Together we forgo the sorts of activities/purchases that we will be able to afford once the kids are out. Don't seem to miss it too much.</p>

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<p>We saved most of it during our marriage simply by spending less than we earned. We are cheapskates who live well within our means. I think that the trips we took for college visits were the most expensive "vacations" we ever had. We also had the good fortune to inherit money when both my parents and my husband's parents died, some of which is being used to pay college expenses.</p>

<p>This sounds horribly old fashioned, doesn't it?</p>

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<p>hawaiiboy15- EFC is higher for family A if those are the only two variables considered. BUT that might only matter if A and B kids are both going to a school that meets full need using FAFSA only with only grants, not loans. That's not typical.</p>

<p>The percentage of assets in a parents name expected to go towards college is pretty low, anyway, and there is an asset protection allowance, so the EFC wouldn't be hugely different. Families are always wise to save as much as possible; if you don't qualify for need based aid, that saves you from taking out huge loans.</p>

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<p>DS got in a top 10 College not private though... He got a full tuition scholarship. So, we only have to pay for room and board. But come 2011 Fall, his total Med school expense will be nearly $45,000/year for an In-State Med school.</p>

<p>We plan to pay 100% of his Undergrad expense. For his Med school, we plan to pay 50% and will have him take a student loan for the other half.</p>

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<p>Like others, we started saving when our kids were born. One thing that helped immensely is that older D decided to attend the honors program at StateU. With some merit scholarships (although they weren't big ones) her entire 4 years cost us way less than one year of younger D's top 12 private school. Different kids, different needs, different dreams. </p>

<p>Older D ended up graduating with honors, top student in her department, Phi Beta Kappa and one of only 10 Chancellor Scholars (out of 3,700+ seniors graduating) - all for the bargain basement price of @ $35,000 for four years! She got a job immediately after graduating with plans to work one year. She has applied to four graduate schools with plans to start in the fall - was quickly accepted to two (still waiting to hear from the other two) with offers of full tuition and what I consider to be HUGE stipends for a graduate student.</p>

<p>Younger D longed for a different kind of college experience. She wanted smaller, private, and challenging. She wanted to be surrounded by the kind of students and professors that blow you away with their out of the box thinking. She got all of that and more. The school she attends is pricey, but perfect for her. It is allowing her to double major and minor, take premed prereqs at the same time (some schools said there was no way she could do that in 4 years), be involved in incredible community service projects, play in musical groups, club sports, etc. She was a NMF and walking away from those four year free ride offers did sting, but the schools just weren't what she was looking for. Here is how we are paying for it - </p>

<p>$20,000 - merit money - more than half from outside sources. Don't forget those smallish scholarships like Best Buy, Discover Card, etc. She got several of those.</p>

<p>$50,000 - Life insurance cash value - I didn't read all the posts but I didn't run across anyone else mentioning insurance. 20 years ago our insurance agent badgered us into putting a lump sum of $10,000 into an insurance policy. When our investment account lost 40% of its value this past year, we were hesitant to remove any money from it and started looking around for alternatives for this year. I dug out the insurance stuff - low and behold that money was sitting there. Insurance has a lot of tricks. We "borrowed" the money. We don't have to start "repaying" it for 6 years and then at only $1,000 a year (!?!?!). At retirement we can just say we want to cash in the policy and will then be taxed at our lower retirement income rate. We have several other life insurance policies that were not purchased specifically for college that we could use this way if the need arises. By borrowing the cash value, the death benefit stays intact (just decreased by the cash amount you borrowed). </p>

<p>The rest comes from our investment account. We do gift the stocks to her which she sells at her (nil) income rate. It saves us tax money ($2-3,000) on the gains every year. </p>

<p>Next comes medical school for younger D (if she continues down that path and if she is accepted)..............Hopefully our investments will have recovered some, may have to tap the other life insurance cash values, may have D take out some loans of her own, etc. We'll cross that bridge when we come to it!</p>

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<p>Ours is just about to finish at the same school. I am sure you will find that it was a great 4 years, as we have. The positive changes in our student will remain for the rest of their life. Could not have asked for a better 4 years.</p>

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<p>We had fully saved for both kids in a 529 plan ($250K each). But, we are expecting to pay as much as possible out of current income and to use the 529s as an estate planning device -- we're currently paying for one expensive private high school out of current income for child 2, so we'll just be adding for child 1. We have been saving a lot in defined benefit pension plan and may have to cut back on that to do both 100% our of current income. Alas, the 529 plans and the defined benefit plan have all declined substantially in value, but the former are there if we need them.</p>

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<p>Midwest parent - very interesting idea to gift some stocks to the college student and have them sell to help pay tuition to cut down on capital gains. I had not heard of that before. Can you explain more about how this works. I will definately check with our financial advisor on this as well.</p>

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<p>Be careful that the college student doesn't sell the stock to pay for a motorcycle (this happened to someone I know...).</p>

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<p>I'm curious about the stock sale too. I've filled out enough form 8615's to know kids' unearned income above a certain amount is taxed at the parent's rate. I'll be paying 0% on my negligible capital gains this year anyway.</p>

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<p>Regarding gifting stock and having your student sell it, thus having the gain taxed at their level - </p>

<p>This transaction is all done through our Edward Jones broker - he was the one who came up with the idea in the first place (and he also has a son who attended the same university our younger D attends). Our broker looks over our investments and recommends the stocks and the amounts he thinks we should transfer to our daughter. Obviously these should be stocks with big gains. He then transfers those stocks into her account and once they are in her account, he sells them and sends her the check. Since everything is electronic these days, this is all done in a matter of days. </p>

<p>It changes every year, but I believe last year we could each give her $12,000 (in stock or cash) for a total of $24,000. She pays no federal income tax on the gift or the gains (which we would, thus the savings). There is state tax, which we pay for her. Instead of paying for older D's wedding out of pocket, he also recommended we do this same sort of thing for that. In the end, what it essentially does is save us $2-3,000 in federal income tax we would have paid on the stock gains had we sold them ourselves to pay for her school. Unfortunately, $24,000 only covers about one semester, but it helps!</p>

<p>As someone said, you have to know your child and know they wouldn't go out and do something stupid with it. This child thanks us repeatedly for giving her this opportunity. She often voices her regret that she is costing us so much more than her sister. She knows it is a privilege to be attending the school she is and she doesn't take it lightly. We tell her that her sister could have made the same choice, but didn't. We also tell her that we can tell she values our "investment" by how hard she works to do well (Dean's List every semester so far!). When we receive a text, e-mail, or phone call where she tells us about some amazing student she has just had a conversation with, about a professor who is blowing her mind with their brilliance, or about another incredible enrichment opportunity she has taken advantage of, we know all those years of saving was worth it.</p>

<p><strong>ST2 - can't believe your girl is graduating! It goes by SO fast!</strong></p>