How stupid is the brute force "just pay" strategy? (NYTimes Ethicist)

Parents Forum Parent Cafe
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@blossom

Thanks. If I were to rephrase your answers as direct answers to my exact question as I phrased it, without making any further assumptions about me:

“I don’t think your brute force method is stupid. I think the alternatives that people are posing online are either illegal, or financially self-defeating. They are bragging because they are too stupid to see that. You are doing what most people are doing.”

Would that be a fair interpretation of your answer?

I’m a normal person trying to navigate life just like anyone else. I’m a first-generation college graduate, one of just a few in my family. My family is not particularly financially savvy. I was stunned to learn about the Roth IRA and other tax advantages in my 40s and I figured, maybe I’ve been just as stupid about college savings. Maybe, like retirement savings, rich people do it smarter, better than us working class dummies who just sock it away in a Sisyphean race against inflation.

I’m happy to see that most people here seem to think that’s not the case.

I’m happy because I like the idea of a fair system. I like the idea that I wasn’t stupid to pay cash back then. I like the idea that I am not making my kids miss out.

But I genuinely don’t know how things work until I ask.

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Look up 529 savings plans for your state.

Some people qualify for federal education tax breaks (like AOTC) see the IRS Publication 970. https://www.irs.gov/pub/irs-pdf/p970.pdf

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“The interest, dividends and capital gains your savings earn, however, are not taxed. That’s a significant benefit, sparing these accounts from taxes that would drag down their growth, although the value of the benefit increases as you climb into higher tax brackets.”

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@MmeZeeZee you clearly edited your first post.

What exactly are you asking?

Are you asking if financial aid fraud is OK. Well…it’s not.

Are you asking if some people just pay the costs for college? If so…yes, they do.

Are you asking if the formulas colleges use to determine need based aid are fair? Well…these are the college decisions.

Are you asking if college is too expensive? For some it is too expensive. But there are ways for everyone who wants to to get a college education.

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That’s absolutely depressing and not the type of thing I was going for.

With that said I am sorry this came off as asking for cheating advice.

I have tried to explain in multiple comments that a lot of the tax code is unintuitive and you’d never know how it works unless you looked into it. Not like, hiding assets, but putting them in fully visible, tax-advantaged accounts in a legal and transparent way that you report to the IRS dutifully every year and the IRS is like “yeah, sure, we’re cool with that.”

Not to mention, we also already have nearly unlimited tax-free savings in 529 which seems ridiculous. Not because it encourages savings, but just because the amounts can be obscene and ultimately provide an unfair advantage for the rich more than they already have.

Even so, it was only because of the article in the Ethicist that I posted here. Like “hold on a minute, is this really going on?”

If people are going so far as to literally disown their kids, something which would have massive implications for their estates down the line, I’m guessing that’s not the case.

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OP- if you are employed and get a paycheck and a W2 (i.e. not a contract worker with a 1099) I would encourage you to reach out to your human resources department to get some clarity on the financial planning vehicles which you might not know about. I agree that there is a lack of transparency for certain types of financial products or tax planning strategies- but frankly, none of them are so complicated that a person with reasonable reading skills cannot figure out.

I’ll give you a dumb example- I’ve worked for companies that participate in the Transitchek program. This is typically state and locally funded with corporate subsidies, to encourage employees to take mass transit instead of driving. In many cases-- you sign up on your first day of work, and then as long as you stay at the company and your salary doesn’t exceed some cap, you will get a check every month to subsidize your bus/train ticket.

There is a form to fill out. Maybe takes five minutes.

There is a lot of wonderment among benefits professionals as to why so few employees sign up for what is essentially free money every month. We’ve used fun video games, contests, brutal honesty- “come get free $95 check every month” but still- people buying bus passes, train monthly tickets out of their salaries instead of taking the subsidy.

Another example- with more money at stake- companies which subsidize tuition for employees. They vary tremendously- some will only pay for a course where you got a B or better (to discourage people from signing up and then not showing up for class), some will only pay for classes which help you professionally (so “Managerial Accounting” for a financial analyst gets covered; “Theology of Pacifism during WW II” would not). But many companies will pay- up to a certain cap-- for any college or similar course at an accredited institution.

I’ve asked employees who don’t take advantage of the program why not and the answers are astonishing- some don’t know if their college is accredited (that information is literally a two second google search away). Some don’t want their boss to know they are getting a BS or a Master’s “just in case” their name gets floated during a downsizing and it will make them seem disloyal. And some just cannot be bothered to download the form, fill it out, and then cash the check…

There are a lot of savvy financial folks on CC so feel free to post specific questions and you will likely get some good information.

And 529 contributions are capped by the way. Not that there aren’t people (in real life and on CC) who don’t complain endlessly that colleges expect them to “spend down” their assets (in an actual college savings account, presumably for college) and aren’t getting aid but are “penalized” for their thrift.

takes all kinds, right???

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I worked in financial aid at several colleges, public and private (no meets-need schools). I feel very comfortable saying that the vast majority of people don’t try to game the system. The vast majority just do their best to find schools that they can justify paying for, with whatever funds they have (and/or are willing to borrow). Yes, I came across a few people here and there that were trying to play the system, which rarely works (yes, sometimes people slip through the cracks & get away with things they shouldn’t). But please rest assured that almost everyone is playing by the same rules.

And those who are not can go … well, you know. What goes around comes around, and even if it doesn’t, I don’t stoop to their level.

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To attempt to answer the question in the original post:

I have always assumed that university admissions and university financial aid people are a great deal more experienced in all of this than us normal parents and/or students are. They have done this before. We haven’t. Thus IMHO there is nothing that we are likely to get away with. I would be surprised if a large number of people are able to get away with cheating.

This leads to two options: Be full pay (to the extent that your EFC says you should be), or find universities that are more affordable based on either being in-state, or merit aid, or some other legitimate reason.

It seems relatively common for people who post on CC (including me) to recommend that people take the cost of education into consideration when deciding which university to attend.

This looks exactly correct to me.

Personally I find it easier to justify the big bucks for a graduate program (DVM or MD or master’s, with the expectation that a PhD is likely to be funded) compared to a bachelor’s degree.

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Yes, because some people took it as me asking for how to cheat and that was not my intent.

So you know how some people save money under a mattress, because they don’t understand compound interest or inflation or tax-free savings?

The mattress saver might ask you, “I just read an article that some people invest their money and then they don’t have to pay income taxes on it. I’ve just seen so much stupid stuff on the Internet selling me investments that I don’t even read those any more. How stupid is the brute force method of putting my retirement savings into a mattress?”

And you’d say, “Well, it’s definitely not the smartest strategy. There are a lot of investment scams on the Internet. Here are some real, reliable financial strategies to help you save more.” And you’d point them to 401(k)s and so on. But you could see how they would be doing the best they could with the information they had.

My question is, am I the ding-dong saving under a mattress who has just realized that smart people don’t do that?

It’s not that I want to cheat, it’s that a lot of things that feel like cheating to a normal person, are not actually cheating at all. A lot of things which aren’t common sense, are how things actually are.

I appreciate all the advice on this thread. It makes me feel like less of an idiot for saving and planning to brute-force it. We have enough to cover in-state tuition and I’m working on out-of-state tuition or in-state with room and board. And so help me god maybe the smart one will get a super high score on a standardized test. She’s trying.

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There is a lot of help to be had on CC in terms of finding good fit and affordable colleges for students of all kinds. Of course, it is upsetting to read about the kind of people who will resort to cheating to get access to financial aid, but those people are in the minority.

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Superfunding…

Considering some of the big market losses, a mattress plan seems brilliant. Really, if saving under a mattress is what it takes to incentivize someone to save, that’s better than no savings. Starting to save is the hardest step.

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@MmeZeeZee

Sorry…but it’s basically impossible to react to an article I can’t see or read.

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One piece of advice - have the budget talk with your kids up-front (if you haven’t already) so that you set expectations. Also, some colleges post auto merit stats on their web-site so you know what gpa/test scores are required to get the best merit. There are a lot of folks here who can help with that.

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You are not an idiot- and given that the most recent survey showed that a high percentage of American’s could not pay for a $600 emergency car repair, you are doing MUCH better than a high percentage of your fellow citizens! Who do not save AT ALL. Some of them indeed live paycheck to paycheck and cannot save; others are the ones upgrading their phones every year, spending money on consumer goods, and wondering why they “cannot ever get ahead”. I’ve got a neighbor like that- her pizza, sushi, uber-eats drivers park in my driveway while they deliver dinner to her and her family every night of the week.

When she whines about money and how they can’t save a penny I’m often tempted to tell her that I’ll teach her how to cook if she’ll stop complaining! (But I don’t. I nod and look sympathetic while I admire my daffodils).

But if you haven’t started thinking about your retirement- it’s not too soon. At the end of the day, there are many options for a kid to finance college but only two for financing retirement- either you’ve got a pension plus savings AND social security, or just social security. Try brute forcing that…

I don’t want you to reveal more information than you are comfortable with… but I do want to give you a warning that even financially savvy people don’t understand when it comes to college and financial aid- money in an ACTUAL retirement savings account (IRA, 401K etc.) will not be “counted” in your financial aid analysis; it is understood that those funds are for retirement even though some people use them to take the family to Disney and pay the penalty.

But a 50K account in a regular brokerage or bank account which you have mentally set aside as your “retirement” funds is NOT protected. Colleges will assume that those funds ARE available to pay for college, and the money would be part of their analysis as to what you can pay, how much aid you could get.

So before you get to close to college with your kids- make sure that any “retirement” assets are in fact, in a retirement account, and not in your mental ledger. This trips up a LOT of people…

Good luck to you and your kids!

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Here. This should work as a gift link:

The scenario described is puzzling since it doesn’t align with my understanding of the questions asked on the CSS. And even if the student is at a FAFSA only school then it seems like some weird tax fraud or lying going on about his residence and which parent pays for his support.

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Thank you. I read via work so I can’t send a gift link. I wasn’t as concerned about the initial issue which was clearly cheating, but about the myriad comments which suggested the problem was more prevalent than you’d think, and for some people, normal.

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Because everything in our society is done through backdoors in the tax code, rather than directly via programs (that would be socialism), the level of complexity forced on the average person is absolutely astounding. There is no reason to feel guilty about not “getting it”, and if you are managing complexity in your work life and/or family life, there may be little bandwidth for complexity in your financial life as well. This situation actively works against those who are not in the class that has financial advisors and estate planners on tap.

The first tier of financial advice that is available, if not actually scam-driven, is maddeningly generic. I will give just one example. I had been reading about college financial aid for a couple years in, but was pretty surprised to learn that “income” for college aid purposes is the adjusted gross income from line 11 of your 1040 when I started actually filling out forms for real. I don’t think AGI is the common sense understanding of “income”. Even Net Price Calculators don’t typically mention this. That was a game changer.

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Yes, people who just earn W-2 (labor) income do not have as many backdoors and loopholes in the tax code to try to take advantage of compared to those who have other kinds of income from capital.

But the linked page from the New York Times refers to what appears to be out-and-out lying about where the student lives and who financially supports the student, though the story is likely to be incomplete or inaccurate over a few retellings.

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Well…I’ll weigh in on fraud. It’s illegal. And if you get financial aid by providing fraudulent information, it’s a crime.

I think that can be the end of this discussion.

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My only options were to pay for full fare at a top tier school or have my kid go to the next tier down to get a full ride. I could have taken the second option and bragged to my friend about what a great deal I got, but I knew what the merit scholarship was intended for.

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