NYT: Today's Lesson: Rethink College Funds

<p>Excerpt from the article:</p>

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[quote]
Financial planners offer pretty frank advice. If you don't have enough money to put your childen through college, they can always--gasp--finance it themselves with part-time jobs and loans.</p>

<p>You, on the other hand, cannot obtain a loan to pay for retirement.
[...]</p>

<p>There is another reason it makes little sense to sock away all that money for college. When you do, you usually end up paying full price for a college education. As a practical matter, you shouldn't pay full price for anything. "People should not be scared off by the posted price at most colleges," Mr. Ehrenberg said. "Tuition discounts are very, very large in most places."

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<a href="http://www.nytimes.com/2005/09/24/business/24save.ready.html%5B/url%5D"&gt;http://www.nytimes.com/2005/09/24/business/24save.ready.html&lt;/a&gt;&lt;/p>

<p>
[quote]
they can always--gasp--finance it themselves with part-time jobs and loans.

[/quote]
What stone did this financial advisor crawl out from under? The suggested strategy does not work for many people, myself included. As two successful professionals (who are nevertheless quite a bit shy of Bill and Melinda Gates status), our incomes and assets put us in the position of paying full freight with respect to any financial need formula. Discounts were available to us, fortunately, due to a nice match between S' preferred college and its generous merit aid policies. Had he, however, not chosen such a school, we would have been - had we followed the "frank" advice above - without any financial aid, without any "discount" from any HYPSM type school, and without any savings to pay the COA. Our S should incur $40K+ per annum for four years and then on to possible grad school?</p>

<p>I don't think so.</p>

<p>IMO, folks who find themselves in the category of Need-based-aid-Unlikelies do, in fact, need to plan -gasp - for retirement AND college costs. Some folks can do it all with no pain (see B&M Gates above), some of us can do it all by - gasp-squared - planning, saving, prioritizing and - gasp-to-the-third-power - sacrificing. Some do fit the profile for which the above advice will work; save only in retirement accounts and incomes/other assets low enough that financial aid/kid earnings/kid loans can fill the gap. An awfully lot has to fall into place for that strategy to be successful.</p>

<p>marite - great food for discussion.</p>

<p>More quotes:

[quote]
It boils down to this: If you expect that you will qualify for financial aid either because your income will be modest or because you will have several children in college at the same time, save as much as you can for yourself in a 401(k) and IRA. Money saved in retirement accounts is invisible to the college financial aid officer.</p>

<p>If, however, you are wealthy or you anticipate being wealthy enough that your family will never qualify for financial aid, take advantage of the 529 tax shelters, Prepay the tuition and stash money for room and board in a 529 savings account.</p>

<p>Never feel guilty for exploiting a savings plan set up to aid the poor and the middle class. After all, you will be paying for the children sitting in the discounted seats.

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</p>

<p>Upon further reflection, if - of course - college is a a priority for a given family, but the choice of WHICH college is not a concern, the strategy of not saving can probably work quite well. There is probably always a state U, community college, junior college option for which the student working and borrowing is a workable financial plan.</p>

<p>Of course, not many of those parents are here on cc.</p>

<p>The author of this article didn't seem to consider a couple of factors:</p>

<ol>
<li><p>No job is considered "permanent" in this day and age; therefore, families need to sock money away for that kind of rainy day (prior to Sept. 1, H was unemployed for 14 months, and I know others with younger kids who have been unemployed even longer).</p></li>
<li><p>Given the natural disasters that have struck the US recently, one needs to consider saving for that kind of thing as well.</p></li>
</ol>

<p>Just a thought.</p>

<p>What about the situation that jmmom describes where the parents income is too high to qualify for aid at one of the we-don't-have-merit aid schools. Imagine if you will that the older child is already attending one of these schools. The second child is getting ready to apply and has expressed an interest in the same college. Is that college more likely to move the family into the need based category than other school, now that the family has the additional burden? In other words should we encourage that interest?</p>

<p>This sort of gamesmanship reminds me of the ads I hear on the radio constantly about how to conceal your assets so that someone else will pay for your nursing home, so that you can pass the assets on to your kids. It's legal, I suppose, but it sure seems to discourage the notion of responsible planning for one's own needs.</p>

<p>I am sure the quoted financial advise was well intended, but one size does not fit all.</p>

<p>If the student will qualify for need based aid, then the family can qualify for more aid if most of their assets are in retirement accounts (or home ownership). Before you decide you are in this category, you need to complete a Fafsa worksheet. Most of us find that our expected family contribution is unbelieveably high. </p>

<p>"If you don't have enough money to put your childen through college, they can always--gasp--finance it themselves with part-time jobs and loans." Fat chance. That may apply to tuition for a state univeristy, but certainly not for most private colleges. Regardless of the family's financial status, I do agree the student should contribute, but that amount might be only a very small fraction of the total costs.</p>

<p>"Tuition discounts are very, very large in most places." Don't count on it. Certainly there are a lot of second rate institutions which handle admissions and financial considerations as if they were a disreputable used car salesmen. It is often possible for a well-qualified student to drop down a few notches and get substantial merit aid (discounts). Whether or not that is worth it, is not a decision a financial advisor can make. This is a personal decision and depends on how much you value education and what you think it is worth - not just in terms of future jobs and financial returns - but how much you value a quest for knowledge.</p>

<p>When we decided to raise kids, we knew that their was a financial commitment and that commitment does mean we will need to work longer and have less when we retire.</p>

<p>Middle class family who figured they wouldn't get fin aid here. We saved the $$. Saving money for your kid's college gives you great flexibility when it comes to choice in the spring of senior year. If we had not saved $$, would we have been able to send D to college? Yes.</p>

<p>She could have gone in-state to a UC and we and she could have taken out loans and taken jobs to finance it. She could have gone to a college that would have given her scholarship money to attend. She could have gone to a church-affiliated school that is a pretty good bargain. But given the choice, she didn't want to do any of that. And because we had saved $$, she did have the choice.</p>

<p>If you want to be the one to choose your situation and not to let the financial aspects choose for you, then you should save the $$, no matter how "foolish" you look having to pay full price.</p>

<p>I think most families would simply be better off if they just figured out how much they can actually afford to spend on college, and then TELL THEIR KIDS THAT FIGURE. And, yes, assume you'd like to retire someday!</p>

<p>Kids can then "shop" accordingly. Whether they end up at a private school on a merit scholarship, or at a good state school, whatever. Live within your means for cryin' out loud.</p>

<p>I don't see "just pick a college and we'll figure out a way to pay for it" as a very good option for most families. It certainly wasn't an option for us. </p>

<p>And, having saved money for the kids, it sure has helped increase their options somewhat. I think all families should try to do that, in spite of the financial aid pitfalls.</p>

<p>And, bottom line: I think the majority of kids at private schools probably don't get any better education/connections/prestige/job offers than the majority of kids at good state schools. (Obviously, there are exceptions.) I know that is always an ongoing argument on here, but we aren't the most objective audience.</p>

<p>I am on my second child in college. The first did not have a lot of intellectual drive. She went to a good state U. My second has always been self motivated and has always pushed herself to excel in academics and other endeavors. She is now in an expensive, private U. Paying the tuition is a major effort, but we reluctantly decided it would be worth the cost and sacrifices. I was wrong. The contrast between the activities and opportunities at the private U is much greater than I would have thought.</p>

<p>I am in total agreement with jmmom and ellemenope: we sacrificed and saved, just so that we could tell the kids, pick your college and we will pay. BAsically, we are borrowing from the past. At one point, one third of our income paid for D's school, one third went into bank for S's, and we lived on the third. We only had that level of income for a few years, and we don't again now, but since we're used to living so far below our means, we don't feel deprived, but rather, freed.</p>

<p>I really despise the attitude that you should hide your money to get others to pay for you, and excuse that by "lamenting" that your tuition is paying for others. I personally feel blessed that our few higher income years occurred when we needed it most, to give my kids a choice in their education. </p>

<p>Now that H is in the middle of a drastic career (and income)change, we are racheting back even farther, with an eye to working it out so we can each work less than full time, have time for what we really want to do, and not feel stressed for money. And still have sent our kids to school worry free.</p>

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[Quote]
Paying the tuition is a major effort, but we reluctantly decided it would be worth the cost and sacrifices. I was wrong. The contrast between the activities and opportunities at the private U is much greater than I would have thought.

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</p>

<p>Your statement seems to be contradictory. I think I know what you mean, but not sure. Would greatly appreciate some specifics, since we are faced with the same choices. Thanks!</p>

<p>Garland,</p>

<p>I sent you a PM. Have to say I admire your saving and spending plan!</p>

<p>Just returned from a weekend visit (my first and am so glad I finally got to see it...great place; please don't take the comments that follow as in any way negative about this school--I loved it) to the "cheap" college option my S did not choose...great school, super academics, about 20% of the cost of the school he did choose.</p>

<p>While he certainly would have gotten an excellent education there, it wasn't even a shadow of what he's getting where he is. The "fit" between my S and the (expensive) school he attends is just about perfect; he'd have been happy at this very good State U, but the "fit" he's got just wasn't there at the State U...</p>

<p>Just over one month into it (and having written one of the 8 monster checks), I'm feeling "validated"...the experiences, options, support system, resources available to S at his expensive elite school are worth every penny over the undeniably very, very good state school he did not attend.</p>

<p>I'm VERY glad I saved so I could pay his tuition...Im glad he doesn't have to borrow in order to attend his school of choice, and that I don't have to choose between my retirement money and his college money...</p>

<p>I concede, it's hard to save up four years' worth of elite private school tuition...and given how hard it was for me, I can't imagine being able to do it for two (or more) kids...but I'm profoundly grateful I was able to save enough to give my S (my only child) four years at his school of choice, and I judge it worth every skipped expenditure that allowed me to do the saving that makes this possible ...</p>

<p>Audiophile, I think overanxious came pretty close to how I feel. My D was admitted to her highest reach school. Based on grades, class rank and SAT's, she is near the bottom 25% of students. Although she has been at college for less than 1 month, it seems clear she is doing well. She has a very heavy course load (23 semester hours), somehow managed to talk her way into an honors calculus class, and is participating in many EC's. She claims she is doing well and is talking about adding another course next semester because she heard it was fantastic. Could she have done this at State U? In theory, I suppose but not anywhere near the same level. I know she would have been unhappy. She would not have been stimulated and she would not be making the effort to excel. How much is it worth to see your daughter on fire with a desire to learn and achieve?</p>

<p>momofthree--just got it and sent you back a really long and rambling answer!:)</p>

<p>edad,</p>

<p>Thanks for the reply and glad to hear your daughter is doing so well. My daughter is probably going to ED to a school with no merit aid and we won't qualify for need. I'll be extremely happy if she gets in, but I guess there's still a nagging feeling whether it's worth it over the free ride state U. Good thing I enjoy my profession, because there's a good chance I won't be retiring any time soon. ;)</p>

<p>Me too. I think this will add at least 5 years to the time when I can retire. With the scholarships, my daughter would have been paid about $4K/year above expenses to go to the state U.</p>

<p>The spread between our 3 daughters are 4 and 3 school years. I thought that with D1 out of college by the time D2 started would be perfect...D1, who is in her 2nd yr at a private LAC, mentioned professional school...we're holding our breaths! LOL</p>