NYT: Today's Lesson: Rethink College Funds

<p>I bet there are a lot more students with scenario C that both A and B combined. It's sort of like high school revisited. The very high achieving students and the very low achieving students have special laws and programs in place to protect their interests, while the majority of students in the middle are sort of lost in the shuffle. (just MHO...my kids were high achieving and I still feel this way.)</p>

<p>We have two kids- one is a natural academic- at least her learning style fits in with writing and reading to high standard easily.
She is attending a school that only gives need based aid but covers that to 100%. While we do have some need- the aid package is weighted more toward grants than loans- I expect that is because of her talent.
Our next daughter is also bright- but has different learning style and it is uncertain what sorts of SATs and GPA she will bring. Certainly she is not as strong of a writer as her sister, and will probably not be attending a school that meets 100% of need.
That is where it is difficult IMO.
While the top schools meet 100% or virtually all do, many other school that are just slightly less competitive are practically as expensive but offer little merit aid, and not much need based aid.
It is disconcerting to consider that for a good enough education we will be paying a lot more money ( unless she just decides to attend a state school- then she wouldn't be getting any aid at all- but the price would be almost reasonable)</p>

<p>EK: the profile of a low income kid in the city, where you are, may be very different from small town rural kids with low income. I know some very low income kids with some full packages at Ivies. They all received heavy duty financial aid to an amazing private high school and they can compete with the best of them- maybe single mom, maybe low income, but generally well-educated families living a more rural, "escape from the city" type of life. You would not have a clue that they were "poor" in talking with them. Of course, they are all the perfect candidates for a full ride, and no one would begrudge them at all, it is the people who've had a bit more, but not enough more, for whom it is tough- nothing wrong with helping the low income brilliant kids, just sad for the student C</p>

<p>I guess I didn't make my point completely understandable; my fault.</p>

<p>I think the system as it stands discourages people from saving for their childrens' education. I understand need based aid, I support it in principle (and also in fact, since S1 is in school with no aid). When I went to college, I also received some financial aid, mostly merit aid but also some "work-study" money and loans.</p>

<p>But EK4, there are very few inner city minority students with absolutely no support who qualify for Harvard. There just aren't. When you have a student body with more than half of the kids getting some financial aid, somebody is gaming the system. You can bet on that.</p>

<p>I think everyone should pay something, and immediately, not in loans. At least families should pay a nominal amount towards room and board; after all they aren't feeding that child anymore. And when the tuition goes up 3 or 4000 a year for the rest of us, would it be too much to ask the family to kick in an extra $100? An extra $500 over a year?</p>

<p>There's another thing that hasn't been mentioned. The majority of us here pay high taxes to support state schools, some of them world-class. All my University of Maryland taxes support local kids who can't afford sky-high tuition at the Ivies & other 30+K tuition schools. Why shouldn't my son get at least what I pay in, because he's not taking advantage of the subsidized tuition?</p>

<p>And before it comes up, let me deflect the "but tuition doesn't cover the cost" argument. That might be true at the very small LAC's, but I work at a major research university, and I know for a fact that in those statistics, the part that isn't covered is the 38% overhead that's added on to government research grants. It's just "assumed" that such a cost is real. They don't really have any evidence whatsoever that those costs are necessary to provide instruction. No evidence. None.</p>

<p>Why else do you think that Caltech can announce a $1 BILLION grant/gift to the school, and on the SAME DAY announce a $3500 tuition increase for 950 students?</p>

<p>
[quote]
There's another thing that hasn't been mentioned. The majority of us here pay high taxes to support state schools, some of them world-class. All my University of Maryland taxes support local kids who can't afford sky-high tuition at the Ivies & other 30+K tuition schools.

[/quote]
A point that's all too often overlooked.</p>

<p>I disagree very much with the author of the article's condescending attitude towards parents who plan on helping their children pay for college. All need-base financial aid (which is where all of my aid is coming from) is based on my parents' income. It seems very unfair that your need depends on how much your parents make, and then your parents say that they aren't going to help you pay for college. If you parents do very well, and you are in that position, you get the raw end of the deal for sure.</p>

<p>Frankly, this whole problem is based on our country's stupid financial policies. If we save and scrimp all of our lives in order to put away a nest egg for our kids education, we get rewarded with no need based aid! If we are spendthrifts, we can get lots of aid. </p>

<p>At the least, the tax laws should give credit for those that pay full tuition above what is provided by need based aid. ( sigh)</p>

<p>However, just for the record, for those of you who resent this situation and have saved up a lot for your kids education, you should be aware that the FASFA only measures a point in time. Thus, if you don't have an assets that are included in the FASFA, you are considered needy.</p>

<p>Retirement plan assets do not count as an asset for FASFA. Most importantly, life insurance and insurance cash values and ( I think) insurance annuities does NOT count as assets. Thus, if you have saved up a lot of money in your kid's name, you can transfer these funds to a single premium cash value policy and have nothing in your kids name for FASFA purposes. Is this legal? Yes, Is it morally correct? I will leave that answer to you. As a tax advisor, I can only present you with the options. I don't make moral choices.</p>

<p>Actually, I read that savings play a relatively small role in the determination of need-based aid. It may have been in my college's viewbook or the website, but they believe that you shouldn't be punished for saving for college. You either make the sacrifices before your child goes to college by saving, or you make the sacrifices afterwards with loans.</p>

<p>Bing121086, actually about 35%, if I recollect, of fund in the kids name are deemed available for college tuition. I think the percentage for parents is 5% of assets due to their need for retirement.</p>

<p>It seems to be a trade off that many don't understand ( I know I don't)
If you set up an account in the childs name then it is taxed at their rate not parents- however when it comes time for college - it is considered to be available for college- incidentally if the child decides to use it to buy a trip to Cancun or a Jag, it is legally their money.
If you set up an account under parents soc # then it is taxed at parents rate- but parents have control and it is not considered to be available beyond 5% for college.</p>

<p>You're right, Taxguy. Annuities do not qualify as reportable assets on the FAFSA. But, I'd never recommend that anybody invest in annuities unless they are very careful and take advise provided by an independent financial advisor who is "fee only" and makes no commissions on sales of annuity type products.
I alos agree that there's a moral line to be drawn regarding how agressive parents "hide" their assests.
The rules regarding financial aid must be changed to eliminate the penalty many of us, including my family, face because we saved money under our childrens names. We've also tried to pay off the principal on our house faster and keep out mortgage debt low. We are penalized by paying off our mortgage and saving for college under our kids names.
This system has led to artificial inflationary influences on college costs.</p>

<p>At the current rate of appreciation, our childrens children could be facing tuition bills of over $500,000 for 4 years of college!</p>

<p>The FAFSA regulations must change.</p>

<p>The cash value insurance statement is true, but there is generally a surrender charge, so any one putting the money there, better be able to leave it in the policy for a long time. It's not like you can hide it in cash value life insurance and then take it back out right away, that's more of a long-term financial planning vehicle, which can work in certain circumstances only.</p>

<p>Somemom, there is no surrender charge if you leave it in for the required period, which is usually 5 years,but can be 10 depending on the policy. Also, you can usually borrow it out without penalty or surrender charge.</p>

<p>We are a family which does not live high on the hog(heck we drive Hyundais-great car BTW) but we had a nice college fund of $78,000 set aside for our son by the time he graduated from HS.</p>

<p>Did it hurt us as far as need based aid goes-sure. Did it bother us a whit? Nope.</p>

<p>What it did is provide us the FREEDOM to essentially eliminate financial matters from the admissions equation altogether. It took the stress out of the process too. We hear a lot of vapid talk about freedom these days, but too many think little about the financial future for themselves or their children. The authors' suggestions merely reinforces these short sighted attitudes at the risk of limiting our choices(freedom) in the future.</p>

<p>Some may call us schmucks for not gaming the system but we don't mind a bit. Our son will graduate from a great college with no debt and with probably about $40k-$50k in the bank at graduation! In order to do this he made and continues to makes choices too.</p>

<p>Now hopefully he won't "invest" that $45k on a Porsche at graduation!!!!</p>

<p>Are people knowledgeable and sophisticated enough to understand the inflation, interest, and market risks, surrender charges, upfront charges for cash value life insurance or annuities? Do people understand the volatility of CV ins and annuities or any savings/investment, when their time horizon is 1-2 years before freshman year. </p>

<p>In this political and economic climate, We are playing things close and increasing reserves. We may lose a little but not a lot or we may gain a little but not a lot. This is the last year for the kid, else he goes grad school. </p>

<p>Fee only advisors can be just as bad/good as free advisors on CC or more expensive than salaried/commission representatives. I saw many "advisors", read a lot, and ran the numbers. No right or wrong answers, just changing outputs.</p>

<p>It's too (#75), I'm with you. As the market was booming in the late 1990's and my son was in college and my daughter was about to enter, in no way was I going to throw the college savings (including savings bonds) over onto the investment side. When a broker called me and advised that I "put some of that money to work," I told him no. And I was sure glad I stuck with my financially conservative guns at that time.</p>

<p>This doesn't mean that I'm not heavily invested in the market in other ways, mainly in my retirement funds, but when the need for cash was more or less immediate I wasn't going to risk the financing of our kids' educations. (And as I've mentioned before on this board, they got through without any debt.)</p>

<p>We are the most financially scaredy folks you can imagine. S's future tuition is sitting in a savings account right now. </p>

<p>You can all stop laughing right now.</p>

<p>Frankly, the best investment that I ever made, other than obtaining my wife, was to invest in our state's prepaid tuition fund. This not only guarantees tuition for all 4 years regardless of rate increases, but if she attends a non state school, it will pay each year what the highest in state tuition rate would have been. Plus, I can use it for anyone else if the beneficiary doesn't use it for college. My only regret is that I didn't take it out for me personally and for my wife and use those fund for my kids too, especially with the way our in state rates are rising.</p>

<p>If I ever have grandkids, I am taking out one of these plans for each grandkid.</p>

<p>Garland, the only issue may be whether that savings is in your name or your son's name. If you are expecting to rely in part on need-based finaid, it will still be to your advantage to have those savings in your name. That's one thing that we weren't clued in on.</p>

<p>Taxguy, Maryland's tuition savings plan seems to be pretty optimal. Some others aren't as generous especially if you want to take that money to a private college or out of state. When they started this plan in our state, they left a lot of the i's undotted and t's uncrossed and I didn't want to buy a pig in a poke. Both kids ended up going to private college out of state. I think we still did pretty well by them.</p>

<p>Mackinaw. I wonder if anyone can contribute to the Maryland plan regardless of residence?</p>