We saved enough to be somewhere North of full price for two kids at most LAC’s through the 529 plan. But it is important to remember that those entering college now would be the “survivors” of the 2008 “Crash.” The Dow dropped down to below 8000 back then… At the same time a lot of us also saw our retirement portfolio’s cut in half. If you kept maxing out the IRS contribution (12k) for one parent back then, and did so for 3 years, you contributed 36k. The Dow is now at around 17000. So just for your contributions during those 3 years, you now have 72K. A windfall of the great recession. It took a lot of faith in the US economy to keep dumping money into both 529 and retirement accounts back then. A lot of faith.
I’m just wondering what people will do 10 years from now if the costs will continue to rise like they have? Even with all the money we saved, I still don’t think it was enough.
@Rdtsmith that’s what makes saving for college such a big problem. The colleges have been raising tuition more than the rate of inflation and more than interest rates, so if you leave your savings in the bank, you’ll be losing ground. The only way to win at the game is to invest in riskier assets like the stock market, which can appreciate at 6% or more long term. If you do that though, you may be at risk to terrible downturns, like the 40-50% losses experienced in 2008-2009. You’re between a rock and and a hard place.
I just wondered, because at the rate it’s going on college will only be affordable for the very rich and very poor and what does that say about our society? Perhaps the community colleges will at some point become more desirable. Will be interesting to see how Obamas plan pans out.
I don’t think college is often other than rarely affordable for the very poor. Where can you go to a four-year college for $5780 per year?
I’ve just been reading reviews that students with heavy financial aid have written who are at Harvard and checked Harvards stats…high numbers for those needing financial aid…and we’ve attended so many college visits where colleges bragged that those admitted whose parents make less than $50k, $80k, etc (each college different), they guarantee financial aid for admittance.
Tippy top kids who are very poor are probably rare.
I don’t think as rare as we may think…sure less than the upper income folks but if you look at the common data sets someone is getting that aid, and it’s not the wealthy.
Rdtsmith…getting accepted at Harvard and similar schools is no slam dunk. The schools accept 5% or so of applicants some years. In the 95% who are rejected are many very well qualified applicants. Fiancial aid only is offered to those who are accepted. 95% never get over that hurdle.
Back to the discussion…no one HAS to go to a $60,000 a year or more college. That is a choice. There are many Mir affordable options out there. If one can’t pay with current income, savings, and loans for a $60,000 education, then they need to look at less costly options. Period.
Our financial advisor said “no matter how much you save, it probably won’t be enough for college” so we chose to maximize our retirement.
And in this family BOTH parents had jobs…all the way through the kids’ college educations. The second income totally went to college costs.
In some states, there are affordable options. Not all. In PA, other than community colleges, the cheapest options are the “true” state schools, which cost about $20,000 a year for tuition, room and board. So we pay the same for Kutztown or Clarion or Shippensburg as in-state residents in other states pay for University of Florida or UNC Chapel Hill or Univ of Virginia. Of course, our better state schools (the ones our state has all but abandoned in terms of funding - PSU, Pitt, Temple) are much more expensive. And PA gives lousy aid.
There are plenty of families who can’t come up with $80,000 for college. There are also plenty of families where both parents work and use that money for living - and can’t afford to have one income go totally to college costs.
I think the average family SHOULD be able to afford a state school. And once upon a time, they could. Even a student could work their way through. Not anymore.
-“I’m just wondering what people will do 10 years from now if the costs will continue to rise like they have?”
-“that’s what makes saving for college such a big problem.”
This is one of the advantages of the prepaid tuition plans that offer certificates for tuition valued at the time that you make your contribution. If you put, say, $2500 in on 1/1/2015 but your child doesn’t go to school until 2025, you have bought at the 2015 price.
There are a few downsides. If your child ends up going to a school outside the plan, you won’t necessarily get all of the benefits, though you will get your money back (perhaps with some interest). And if the stock market goes up dramatically, you miss out on those gains. OTOH, if there is a precipitous drop in the market, you are protected.
I have two nephews taking advantage of such a plan in Florida. Especially when they first bought into it they are getting more out of it than they put in to it…not sure how states can afford that…but lucky for them, they bought into it at the right time:-) I didn’t realize other states still had prepaid tuition plans.
@Miles Perrara - That is a smart way to use the Roth IRA. As long as you know that you set it up for that purpose and you aren’t sabotaging your retirement. Also, with the Roth, you can take the CONTRIBUTIONS to it before age 59.5 with no penalty.
@Luckyiscool - The Dow got down even lower than that – to about 6400 in in March 2009. Crazy how far we’ve come since then.
I posted on the first page of this thread that we started saving before our son was born, and the 529 will now cover the price of any public or private school he chooses to attend. Ironically, he’s choosing a service academy (couldn’t have seen that coming in a million years) and will not need the 529. Our financial planner informed us that the Military Family Tax Relief Act says that attendance at a U.S. military academy will be treated as a scholarship for purposes of the 10% penalty on nonqualified withdrawals from a 529 plan or Coverdell ESA. The value of the no-cost education (as determined under the U.S. military code) can be withdrawn penalty-free from a 529 or CESA, although the earnings portion will continue to be taxable. We plan to leave the 529 intact until he graduates in case he decides to withdraw and attend a civilian school. If he makes the military his career, the government will also pay for grad school, so we may be rolling the 529 into our retirement funds a few years down the road. Kids. Can’t control them.
"I don’t think college is often other than rarely affordable for the very poor. Where can you go to a four-year college for $5780 per year? "
There are a few states where instate tuition is less than $5780 - Wyoming, Alaska; Florida comes close at just over $6000. It wouldn’t include room and board, but the student would have to eat and live somewhere anyway, right? Also, most students getting the full Pell migt also be getting state aid, the SEOG, subsidized loans. Some might also get merit aid.
I think some students need to be realistic and go to the cheaper option, even if it isn’t the glam school with the big name. People go to Disneyland and stay at the Super 8 and not the Disneyland hotel. They still have a good time, see Mickey, ride the rides. It’s better than not going at all and IMO, better than borrowing to go.
SUNY 4-year colleges come close too. Tuition starts at about $5800. With assorted fees it might push the total up to ~$7k, but a student living at home who receives full Pell {about $5k} will also likely qualify for the state Tuition Assistance Program {up to another $5100}. Those students might graduate with a small loan if they have to borrow for books or transportation, but I don’t think it would be much.
I do believe the parents on CC have been thinking and planning much better than most when it comes to paying for college, saving for retirement, and having core family values in a world that sometimes is not easy to navigate.
Don’t mean to write a book, but here goes on how our ‘plan’ was executed.
H and I had our two children later in life, after we had moved across states and resettled - now in our fourth purchased home which we built 22 years ago.Little did we know that our in-state school options would be so terrific and with scholarships. So that is a bit of luck.
As with many, we worked hard and paid off H’s student loan (government backed low interest) in 1st year of marriage (small in comparison to some now, $13,000, but absolutely necessary for him to finish school) - using the plan many have, live on one paycheck and build up money with the other - for house, for 2nd car. H had retirement plan at work and 401k; company sold to another and employees lost retirement plan benefit which was a financial hit for us with him continuing with the firm over years that he would have had the automatic build up. At least staying employed and 401k continuing. We did put in maximum contribution many years - only in recent years have we pulled back. We had some IRA and some Roth IRA, and we have been converting IRA to Roth. We had not taken full advantage of Roth, but one can only do so much.
Life style has generally been pretty frugal.
I do have empathy for those in states that do not have great lower cost in-state choices (as mentions up-thread).
The reason FL’s pre-paid college tuition plan works is because the legislature controls/contains college tuition.
As soon as we learned about AL’s pre-paid college tuition plan, we were in - I knew how college costs were escalating.The AL Pre-paid College Tuition froze future tuition payments to 2010 rates after the 2012-2013 school year; the state also kicked in I believe $250 million to keep it afloat because college tuition rates far exceeded the investment returns. Many parents of young children got out. Those before 2013 got ‘fuller value’ but we did well - did a lump sum pay in for both children in 1995 and 1996 (total about $13,500 - it pays for 135 hours instate tuition and some fees, has a averaging scheme for OOS or private). By the time UG is finished, it will have paid out about $70,000.
Always planned to have two incomes, but my job ended when kids were young. Some of our decisions would have been different had we had more than two children - spreading the money would have meant different choices and less extra opportunities. Did cash out equity from the house in 2008 and secured a low home interest rate; instead of paid off house and less educational benefits for kids. With a medical situation in 2009 stretched payments out a longer period to reduce monthly mortgage payments. Recent years had a low cost closing with credit union for 2.5% interest for last 10 years of mortgage.
Had almost $100,000 in my 401k by the time my job ended - I put in max personal contribution, had 3% match, and every year got an extra 3% of my year’s salary from company contribution because it was ‘top heavy’ plan so that was a help. Did have money go up and down over the stock market roller coaster years.
Had a ‘college fund’ for both students which did receive a boost with life insurance money from their grandmother in 2011. That stock has grown and provided dividends and share value increases of about $15,000 for each. Whatever money is left after UG goes to each student. They know they are fortunate to have that resource. They will finish UG debt free and with some money left as long as they keep their four year scholarships.
We did pay for Catholic schools, for almost all years until grade 12, total cost about $90,000. The faith formation, slightly to some better pool of students, and less distractions and college prep focus with better schedule for learning in HS were key. Knew how to work hard with classes in HS so made the transition to college smoothly.
I was fortunate to have survived stage III cancer (very aggressive and bad pathology) when kids were in 8th and 10th grades. Max co-pays and deductibles for 4 years but with good health insurance and now cancer free.
Received a stream of some inheritance money which helped replace old/unreliable vehicles with very reliable Toyotas (bought one new and one used; had ‘cash for clunkers’ benefit with the new car purchase and getting rid of old truck) that are running well. Kids both had some overseas educational travel. That money helped through expensive HS tuition years and medical expenses. Have a last $4000 inheritance check coming in a few months and a small land piece to sell.
Did have option of local CC and local university.for students. Due to scholarships and the rest of the planning and money available, they are enjoying being away, being at schools that are better for their majors, somewhat independent, and having a fuller college experience and YA maturing. We pay for basic cell phone plan, car insurance (for one), and provided car for one (the other one doesn’t need a vehicle). They appreciate any time we ‘treat’ them to something extra. One has a small part-time job, the other has a good paying summer job. I do hope they keep up good personal budgeting once they get out of college;
H and I had the same meager lifestyle after college as during for a number of years. Limited expensive vacations, but good family times with relatives. Much calmer living w/o strain of financial issues.
I agree with another poster that the escalating college costs, and health care costs, will be squeezing families downstream. Starting very early with saving for college, house, retirement, etc and trying to be smart with financial decisions. Best of luck to those with younger kids yet to enter college.
We started a Virginia prepaid tuition 529 for both kids when we lived in Virginia and assumed we would stay there, and there are wonderful state scholols there with just about every porgram a student could want, including UVA, Va Tech, William and Mary, and James Madison. But in 2004 I got a tremendous job offer in Pennsylvania so we moved. It ook a long time for DH to find a job, so we were not able to save much more for college. Then I lost the dream job in 2008 and was out of work, couldn’t sell the house, and had to spend that meager additional savings and even cash in some 401k just to stay afloat. I didn’t get back to work until the fall of 2011, just as our oldest S was starting college. We were able to find him a relatively affordable private college that offeered his major and a small academic scholarship, did get a pretty nice grant from the college, a small grant from Pennsylvania, and got $6k a year from the Virginia 529. But we had to take out a Parent PLUS loan for the rest. The second year our EFC went way up because I was employed again, so we lost the college grant. Had to take out a bigger loan that year. The third year, S moved off campus, we dropped the meal plan, he got a job to pay his rent and living expenses, and I started getting bonuses from my work that were enough to pay the remaining tuition without more loans. At the end of it all, we will end up with about 1/3 of his college paid for by us in cash, 1/3 in loans for him and us, and 1/3 from the Virginia acciunt plus the insititutional aid. Not ideal but not terrible. And S has learned a TON about budgeting, paying bills, dealing with landlords and utilities, managing a bank account, etc.
Our D will start next fall and all we have is the Virginia 529 money for her. She is a much better student, though, and has already been accepted at an excellent state-supported college with substantial merit aid, so we think we will be able to get her through without any debt for her or any more for us. If she does not get enough aid to attend her private college dream school, she knows she will have to decide whether to take out loans for it.
We actually considered moving back to Virginia so D could go to UVA or VCU for free. But my DH has a great job here now that comes with an eventual pension, which will also help us make up for the 401k money we had to take out when I was unemployed. He just got a promotion with a nice raise. So we decided it was worth it to stay put. We are going to sell our big house this year and downsize so we can manage D’s college expenses better without loans or having to use my entire bonus every year.
Our financial planner seriously suggested leaving a child’s 529 intact FOR THE NEXT GENERATION. In other words, if your kid does well enough with scholarships that you don’t have to tap the whole 529, then maybe if you let the money sit for another 25 or so years it will increase enough to pay for, I don’t know, a week or two of your grandchild’s college. Interesting idea – but somehow or other, I’m thinking that ‘college’ may look very different by the time our kids get around to sending their kids!