<p>Are there suggested guidelines or percentages of income or assets that a family can afford to spend on college tuition without jeopardizing any future possible retirement? For example, it used to be said that you could afford a house 2 ½ times income. (I know in many markets that became impossibly low). In evaluating financial aid packages, is it just a personal decision or are there any suggestions as to how to stay out of trouble by not taking on too much debt using certain formulas?</p>
<p>That’s an interesting question- … I think the general theory is that college education is another discretionary expense unlike retirement, housing or food. And discretion is advised…</p>
<p>That said, Harvard believes any family earning $180,000 or less (the upper limit to “middle class”) is limited to 10% of their income on college costs. Well, plug 180,000 into the FAFSA estimator-- you don’t get $18,000! More like 2.5 times that amount…</p>
<p>Before our kids were going to college I sort of anticipated 10% was about “right”…since after all, that is the recommended amount a family should be spending on retirement savings- so how could a family spend more on college than retirement? I was rudely awakened to how things work…
In theory - if 5% is set aside for 18 years-- there should be a financial pot ready to go upon high school graduation…but most families do not get to that point and so the EFC becomes an annual cash flow for four years. In this regard == discretionary expenses 10-20% seem on target— yet the EFC is often 30-40% of income…and that is why we have all these threads in CC…we are all sticker shocked and confused where it will come from.</p>
<p>Reality-- EFCs are a significant part of most families budgets – and there is not an equal amount of discretionary expenses to eliminate in a family budget to gather up the needed EFC.</p>
<p>That is an interesting question. We saved for each kid since they were young with no real end result in mind just a wild ass guess at what state school tuition might be in twenty years and figured some could come our today’s income. Interestingly our EFC was just about what we could afford/planned for. So about 45% comes from savings and about 15% comes from current income about 40% comes from merit, Stafford, work study, kids summer savings, etc. That will change this fall for one year with 2 in college to a higher savings number and probably a slightly higher current income number for two…haven’t seen all the packages yet but so far there are gaps. I love the merit because it just is a discount right off the top. Love those. If everything remains constant for the next two kids, we’ll survive. Interestingly, our financial planner told us 20 years ago that the vast majority of his customers could not put their finger on 10% of their income when asked to account for every penny they spent…I never forgot that so I knew that at all costs we could trim living at least 10% and probably not feel it too much. So yes, we found the 10% eating out, stopping for drinks after work, buying more food than needed at lunch, buying clothes we don’t really need all those things that are quickly forgotten, delaying car purchases and the other five percent isn’t too bad. I grocery shop twice a month instead of every week, walk or ride a bike if I really don’t need to drive, wash the car instead of running through the car wash, gang up my errands…normal frugal things that don’t impact all that much on quality of life and probably improve quality of life if you can take the long view.</p>
<p>Suze Orman has often spoken about paying for college, not jeopardizing retirement, etc, but I don’t know if she’s given a % or not. You might check out her website.</p>
<p>mom2012and14 thank you for your insightful reply. I think your analysis is spot on and has given me much food for thought. I too view tuition as discretionary spending. I think I will take a look at what might be a modest retirement requirement and then back into an amount that could be available for discretionary spending. Thank you, again! </p>
<p>momofthreeboys thank you for sharing the sources and percentages used to fund tuition as well as the savings tips. Congratulations for substantial merit money too. I will use your valuable feedback in evaluating the financial aid packages!</p>
<p>mom2collegekids, thank you for the terrific suggestion!</p>
<p>Thank you to each of you for your thoughtful and valuable input!</p>
<p>It’s interesting because “we” never talk in percents on the forums, always hard dollars. I literally had to grab a calculator when I responeded because I did not know the percents. Looking at it as a pecentage it does make some sense. If you absolutely don’t have to think about money or where the cash to back up the check it, then it doesn’t matter, but for the vast majority it matters much. And it is patently obvious when you think about percents that the assumption that people save something for their children’s college education pervails…both from the federal govenment and from the college and your “best bet” is to find schools that are willing to discount for your kids through merit awards. After that it’s balancing how willing the “kid” is to chase merit and be happy where planted.</p>
<p>The financial plan I did about 15 years ago got thrown out, but it would have been interesting to review the cost of college assumptions made at the time my sons were young. I’m pretty sure I assumed college costs would be very high, and that financial aid would be forthcoming. The first assumption proved correct, the second not so much.</p>
<p>What I did 15 years ago was to open brokerage accounts for each son and deposit every gift from the grandparents into their accounts. The grandparents (my parents) are big on estate planning and at the time were giving the maximum gift possible to their grandkids while still avoiding gift taxes. When there was extra cash - as there was when I lived in a low-cost area with a high-paying job - that money got stuck away into the UGMAs. This was also during the days when there was a tax advantage to having money in the kids’ names. I haven’t added anything to these accounts in perhaps 10 years, but instead let the investments continue to grow with compounding interest and reinvesting dividends. The accounts have a mix of mutual funds and individual stocks. In the past couple of years I’ve been selling covered calls on the individual stocks as part of a strategy to increase income.</p>
<p>Somehow S1 ended up with more than S2, by a lot. The intention was to have equal amounts in both accounts. S1 now has enough in his account to pay for 4 years of college at a very good state U, where he’s currently a freshman. If he requires 5 years to graduate, the extra will come from other (parent) savings. S2 (high school senior) doesn’t have nearly enough in his account to pay for 4 years at his first choice school, a private. He got significant merit aid, and his college savings will pay for approximately half of the total remaining. The difference will be made up from other savings/parent assets. </p>
<p>I have no discretionary income; I’m starting up a business and am dipping into savings to cover living expenses. S1 has worked during the summer and pays for his “fun” on campus. S2 has focused on his sport during the summers so has no summer income - he’s going to find campus “fun” somewhat limited 
</p>
<p>So the answer to your question regarding percentages for me is:</p>
<p>0% of current parent income goes to college costs
0% - 50% of kids’ income goes to discretionary spending on campus
100% of kids’ college funds go to college costs
5-10% of total parent non-retirement assets will go to college costs</p>
<p>Peace, I don’t know how close you are to the time when tuition payments would begin, but I think a “trial” period is a very good way to find out. I did this when my D was a junior to determine how much I could actually free up from current income…and whether it was a sustainable amount! My feeling is that percentages don’t work well since families have different levels of income and expense - a lower income family won’t have as much leeway and a higher income family may be supporting an elderly relative, etc. I focused on my monthly bills and looked for ways to save there - switching to lower cost cell, cable, insurance, and trading for a fuel efficient car were easy and painless ways to save. Joining a fuel buying and food co-op were also good moves…clipping coupons that I would usually forget to bring to the store didn’t work out for me but I found a lower priced grocer only a mile from my workplace. Anyway, the whole exercise was an eye-opener and quickly became a habit.</p>
<p>S1 will soon graduate with a Masters degree and a job in the field. We managed to recently pay off the remaining loans for his undergraduate degree. Yea! We used savings, current income and bonuses, loans, money from in-laws and lived fugally. Income dropped significantly (as did the contributions from the in-laws) over those undergraduate years and S1 was asked to cover his expenses, other than tuition and college room and board. He was able to do so and gained valuable experience with internships, both during the summer and part time during the school year. We applied for financial aid, which we had not done previously, and received both loans and scholarship money. </p>
<p>I have been able to put some money away this year for college for S2 because S1 continues to pay for his own expenses, now lives at home and commutes to state U and is financing grad school himself with loans. We continue to live fugally and have refinanced our home for a lower monthly payment. I wish we could sell the house and downsize but the market is not cooperating.</p>
<p>As we wait to learn what financial aid may be available for S2, I am trying to crunch the numbers to see how much I can prudently afford without bankrupting the future and yet fulfill the commitment to the kids to fund 4 years of undergraduate education for each one. Consequently, I definitely appreciate the input from each of you and will continue to evaluate my situation as I learn more.</p>
<p>mom2collegekids suggested a website which linked to [FinAid</a>! Financial Aid, College Scholarships and Student Loans](<a href=“http://www.finaid.org/]FinAid”>http://www.finaid.org/) The loan calculator was a real eye opener for me and I found quite helpful, quoted from that site, The debt-to-income ratio is a standard tool for assessing whether a borrower will have difficulty meeting his or her repayment obligations. For example, most banks will refuse to issue a loan if the total of your monthly debt payments (i.e., mortgages, credit cards, auto loans, educational loans, etc.) exceeds 37% of your income. It is recommended that your educational loan payments represent no more than 10% to 15% of your income</p>
<p>sk8rmom, I agree percentages may not be universally applicable and I am definitely going to try your trial period concept. Thank you!</p>
<p>vballmom, I have traded individual stocks but have no experience with options. I should learn more about this. You have done a great job funding the kids education and I appreciate your guidance and suggestions. Best of luck with your new venture!</p>
<p>Our goal was to have 2.5 years of state university cost saved. We came up a little short but not too bad. We then thought we could spread the 1.5 years of cost over the four years of college. It took about $200 a month when our son started school to reach that goal, not easy but a sacrifice we were willing to make. We estimated that the annual cost would be about 7-8% of our income. Things changed and he isn’t going to a state school but that was the plan anyways.</p>
<p>I think we could comfortably pay 10% of our income for college costs. Unfortunately, COA is a lot higher. If we did not have the money put away, I am not sure we could afford anything more than state school with child living at home (assuming no merit aid).</p>
<p>I think it’s too hard to say. Depends on how much you were able to save while they were young, what kind of retirement savings you have, and how much discretionary income you have. I think a family making $50,000 a year can’t afford any percentage of current income to pay for college, but a family making $500,000 should be able to pay out of pocket completely.</p>
<p>We saved for the kids and by the time they started college, we paid about 20% of current income for college. But little of that actually came out of current income. We had it all saved. Only the last child needed more than we had.</p>
<p>3bm103 I agree and disagree. My H took an early retirement…not old enough to collect social security or draw from IRAs so we are at one income and have been for a five years now. If you are frugal you can live on one income. I would not have said that 10 or 15 years ago at all. All his working expenses are gone, the housecleaner is gone and he does most of the repairs and maintenance we would have typically hired out. We’re smarter about groceries, energy efficiency and a multitude of little things that don’t really impact anything except “convenience.” And we’re still paying percentage of college out of the now lower income level. That said, we took a 15 year mortgage instead of 30 and paid that off before S1 left for college and lowered our debt load substantially to make it all work before he left for college. </p>
<p>Mortgages are the big elephant in the room. Many people bought/sold/bought/sold and we sold our starter home, bought another and haven’t left it despite a generous 2-incomes at the time. True, there were years the house felt too small for 5 adult sized people and our friends were upscaling into more space and the 2-car garage didn’t hold all the cars and junk, but the house is getting empty quickly and the cars are leaving with the kids and we still took family vacations. If we had a mortgage no way could we pay for college on one income today even with our savings. </p>
<p>Our wise-wise financial guy would tell us every year of our 30s and 40s when we had 2 incomes to save until it hurt so bad we were bleeding. I sadden when I think about the two market drops and what that means and meant but all in all I’m grateful that we can send all three kids to college and so happy we didn’t “super-size” our lifestyle and I’m overjoyed that we won’t need to try to sell a McMansion in a few years.</p>
<p>My own mother commented recently about how much H and I spend on our daughters’ education. My answer was “you’re going to spend your money on something”. We are fortunate to have a good income and for us education is where we want to spend it. We could certainly afford a fancier house, clothes, etc. but that’s just not our thing. I know that it’s easier for us than most. I really admire the parents with tighter finances who find a way to get it done.</p>