<p>Nothing. We could not save while they were young due to low income for many years and our own student debt.
We have 7 kids and are paying out of current income. 4 in or out of college so far. Two have full ride merit scholarships. Other two cost 20-30K/year each. We do not want them to take out any loans. We live very frugally so we can pay for what they need. We are also paying for grad school for one kid now.</p>
<p>Interesting experiences, everyone. Thanks!</p>
Giving this thread a bump because it’s helpful for parents to share experiences.
My wife and I had high enough incomes that getting FA was not much of possibility. But we also have generous grandparents to turn to. My parents essentially promised $200,000 per grandchild paid out over 10 years for education, so the first thing I did was set up a UTMA with Fidelity in each child’s name (I have two Ds) while they were still young. Each $20k check was put in the UTMA and invested in stocks or stock mutual funds. I averaged around 10-12% annual return on this money so it was more than enough to pay for four years of college and some of graduate school. (Apple stock was very good over the years to my D’s accounts!) I took some risk with the investments, knowing that there was a 10 year time horizon before they went to college and I had the financial wherewithal in a pinch to cover costs out my own income if it came to that. Some investment gains were used for private high school tuition, but I always kept to my parents’ desire to have the money spent on education and I never touched the principal. My Ds were generally aware that they had college accounts and that their grandparents funded them but they didn’t know how much. I wanted them to know of my parents’ generosity but not know so much that they would get lazy or complacent. Plus, there is the possibility of my children getting legal control over the UTMA when they turned 18 (as I think the law in my state provided) so keeping them in the dark just in case they turned out to be bad seeds was in the back of my mind.
When my children were 12 or so, my wife and I began ramping up our college-specific savings. I opened 529 accounts in the name of each child and seeded them with $2000 each. Then I started having auto-payments of $250 per month moved into those accounts, and over the years have increased them to where it is now $500 per month for each D’s 529 account. I kept those funds also invested in the most aggressive all-equity funds. As most people know, the last five years have seen astounding investment returns, so my monthly investments which added up to around $30,000 per account over the last 6 years are now worth about $50,000 which will cover about one single year of private college tuition. That tells me that had I not had my parent’s funding college accounts, I would have had to quadruple my saving plan to actually achieve enough savings on my own to pay for my D’s education myself (and that’s assuming I would have had the same 5-year period of outstanding investment returns). In other words, I would have had to save around $40,000 per year to pay for my two D’s colleges ($30,000 x 4 x 2 Ds divided by six years). For all except the 1%ers, I don’t know how anyone can be expected to save to pay for full tuition at these institutions.
Another lesson is, start early. Assuming that 4 years of college cost $200,000 today, and you have an 18 year investment horizon, then you could put away $1000 per month for your child born today and be pretty much assured that you will have enough saved for college by the time they are ready to enter (assuming that your investment return can keep up with the college’s tuition rises). That’s a lot of money for most people, but for the well-off two-income parent (as opposed to the ultra wealthy), that’s a credible, do-able college savings plan.
We had three years saved and our daughter is currently a sophmore at Penn so I have two more years to save for her senior year. I must admit I’ll be glad when we’re done paying that tuition.
We had enough to pay tuition, room and board at in state publics for each of our kids before they went to college. Two go to privates, so we do have some coming from current earnings also. Any time I meet someone just having kids, I remind them they need to start saving NOW for college 
we have a blended family, and got started saving late, but we made college savings a big priority.
We told D. that if she just does her homework, then she will have all As. She did that. then, she said that since she is planning to do well anywhere, then it made sense to apply only to the places that would give her substantial Merit award. We saved nothing specifically for the college, zero. We were planning to pay from our paychecks. But it was not needed as she attended on full tuition Merit. I like this stragedy better than saving money. Others may prefer saving money. We are payin gfor the Med. School though, one payment is left to make. We are paying from the pension funds. Accumulating maximum possible pension funds made more sense to us than saving for college or any other saving for that matter. Again, others may prefer different. So, it is all depend on personal preferences.
We had about $110,000 for each kid (2 kids). We also started around the time they were born. All the pre-tax day care money we got back in lump sums went straight to the 529s.
Suddenly I feel very poor…
Families with $150,000-$250,000 household incomes are in the danger zone if they don’t save early for college, because your child won’t qualify for much if any FA, and you don’t make enough to pay a $50,000 a year tuition bill out of your current income. The schools have gotten much more generous in aid, but that generosity does not extend up to this level of income. I offer this warning because many people at this income level may not think their financial situation may alter their childrens’ college decisions, but it certainly does.
@MiamiDAP, paying for college or med school tuition from your pension funds sounds like a recipe for disaster. Did you borrow against your pension or can you withdraw it tax free?
To be fair, we also made a GREAT stock investment when D1 was about 2 years old. At the suggestion of my dad (thanks, Dad!) we scraped together a few thousand dollars to buy 100 shares of a stock (you had to buy in even lots back then). That darned thing split, and rose, and split, and rose and on and one until it was worth over $40K by the time D1 went to college. Only stock suggestion he ever gave me that I took (he has given a few others I didn’t take, and have been glad I didn’t… but this one paid off).
I bought 100 shares of Apple at $18 when D1 was two for her college account. It’s up 20,000% since then and the modest investment will easily pay for two years of D’s college. If we had kept all of the shares we originally bought, it would have paid for all four years. At the same time, I bought it for my own account but sold it a year later after it had merely doubled. 
@spayurpets …that is very good advice about a families income and starting a 529 savings. There were many years that we were at that level, and every month put back. Didn’t start until first DS was about 3, and we fell short a year for public education… All was in aggressive stock. 2nd DS, we will have enough except for about 10k.
Having that money is wonderful, and I’m so glad we did it. The first year we paid out of pocket, and it wasn’t fun!
Managed 529 plans, as opposed to just picking stock(s), may be a better selection for people, especially if you are conservative in investments.
The primary difference is that each 529 has a fixed horizon. For example, our S will start this Fall 2015. So he will be UG for 2015-2019, with last tuition due Fall 2018. We put his monies in a 529 based off of 2016, the mid-point.
This means that years ago, when our S was young, the portfolio was managed aggressively. Now that payouts will be starting soon, it is managed more conservatively, so that a market correction (which we may finally be experiencing now) will not, effectively, impact your ability to pay for college tuition.
Me, I am conservative, and I don’t have time in my life to pick stocks or sweat the ups and downs of the equity market. So I don’t want any surprises. I know we have salted enough money away, and that if the market drops 20%, we are not in a position to be concerned.
Borrowing against 401k’s is not smart, per se. You are taking money out of your retirement account, so it is no longer having a chance to grow, and then you are repaying that loan with AFTER tax monies. If you ask your accountant or investment advisor, they will crunch the numbers and show that this is a poor decision.
If possible, and necessary, borrowing against a home equity line of credit may be wiser. In most cases, the interest is a deductible expense, too. But, again, your should consult with an expert to run the numbers.
Good luck!
@coldinminny, my state does not offer managed 529 accounts, but my concern would be that managed accounts are too conservative for me. Also they might have higher fees. What sort of returns did the managed account have? I agree however that I might be more aggressive than the average parent, so take my approach with a grain of salt.
“Families with $150,000-$250,000 household incomes are in the danger zone if they don’t save early for college, because your child won’t qualify for much if any FA”
- Will qualify for the same Merit awards as low income family. But investigation is needed as UGs are widely differ in how much they offer to the same student, even public UG in the same state offer very different amounts.
"paying for college or med school tuition from your pension funds sounds like a recipe for disaster. Did you borrow against your pension or can you withdraw it tax free? " - No disaster happened, I do not see how it is disaster in comparison to withdrawal fro savings. We have only 1 payment left to do and will be done! I do not see how you can withdraw tax free, unless you withdraw from funds that you have paid taxes before. Nope, we withdraw from normal, regular pre-tax 401k (they will tell what to do, might be different from case to case, in my case, I had to roll over to IRA first, but this is just technicality), paid both federal and state taxes and we are at age when we are not fined for 401k withdrawals… Done it for several years, not sure what kind of disaster you are talking about. You are dealing with proffessional people at the accounts, they are there to serve you, whatever you need to do. They will be fired if they create disastrous situation for customers.
@ColdinMinny, good points. We have done the same thing with age-based 529s. You can actually get very low-cost indexed options from some of the 529 plans and potentially state tax benefits too. If you are conservative, keepng costs down is important.
…in our specific case (may not be applicable to everybody), it made much more sense to put MAX into 401k’s instead of in any kind of savings. I am very happy that we did it this way. Whatever fiancial disaster will happen on the market in general, ALL accounts will be affected, any savings, any 401k, everything, no exception. So, cannot plan for some world wide blow up, if it happen, it will not make any difference if you $$ are in 401k or any other saving.
However, for FASFA consideration, I believe that it is an advantage to show very low savings (or none) and most $$$ in 401k instead of the other way around. Believe it or not, some colleges still prefer to have FASFA for MERIT awards considerations even when family is nowhere near to be considered for need based. At least, it was the case when D. was in UG;
@miamiDap, it’s still riskier to use your 401k funds because if you lose your job, you have to repay the loan immediately. This can happen at a time when you have the least ability to do so (because you just lost your job). 529 accounts give a comparably good tax situation, if not better, so putting it all away into 401k is higher risk with little to no tax benefit. You’re also assuming big merit awards; my D1 was applying almost entirely to schools (e.g. Ivies) that don’t provide merit awards. That’s exactly why I said that the financial issues will start impacting your child’s college decision, which is what I wanted to avoid. Actually saving for college will do that.
Maybe we should all list a few disclaimers so that the financially less literate don’t get misled by some of the ideas here.
Disclaimer number 1- Parental age is an important factor in deciding whether or not to borrow against a retirement account.
Disclaimer 2- Having two working parents gives a different risk profile than one working parent.
Disclaimer 3- A family supporting a disabled family member (whether parent, spouse, or child) has an entirely different set of parameters to consider.
Disclaimer 4- Someone with adequate life insurance (probably a term plan via an employer plus a paid up whole life policy) has an entirely different risk profile than someone with minor children (in addition the the child heading off to college).
Disclaimer 5- If you have zero home equity (under water or don’t own a home) your considerations are likely quite different from someone with a fully paid up or close to it home.
Etc.
It is so unkind to post what you did and how fabulously your managed without citing some of the particular considerations that made it work for you. If you own a small business and have to make a payroll every month even when your cash flow slows down, you read about how someone with a corporate job is borrowing against this and that and you wonder “hey, why not me?”