<p>I read in Roger Dooley's article, "Are savers penalized?" (Financial</a> Aid - Is Saving Penalized? - financial-aid - College Confidential), the following:
"Parental savings are 'available' to pay college expenses at a rate of 6%," whereas income is 'available' at a higher rate. Can anyone tell me the approximate rates for the following?</p>
<p>money in a 529 educational plan in the student's name
money in a 529 educational plan in a younger sibling's name
Roth IRA
equity in house
improvements to house, e.g. solar panels</p>
<p>For ball-park figures for the CSS Profile, run the Net Price Calculator at each institution’s website. These are new this year, so no one knows for certain which ones are reliable predictors, and which aren’t.</p>
<p>For most, not all, 529s, even though the money is for the child, the parent is the owner of the account and these are included as parental assets and assessed accordingly.</p>
<p>Parental retirement funds are not counted for FAFSA. They are asked for in Profile; how they are used will depend on the school and I’ve never seen any college publish how they deal with these numbers.</p>
<p>NOTE: Pretax dollars put into retirement accounts for the FA year are added back into income on both FAFSA and Profile.</p>
<p>It’s a double edge sword. Savers’ children will have many more college costs. But yes, they’ll get less aid. I would much rather have saved to give choice than to take free money from lesser schools.</p>
<p>I agree that retirement funds are not counted if in 401k, pension, or other qualified account, but if you have your own savings in an investment account I think they do count.</p>
<p>Very few schools meet your full need, by whatever formula is used.</p>
<p>So even though savings are assessed at a small amount (5.6%) you will be in much better shape to pay for college without a ton of loans.</p>
<p>For example, $100,000 in a 529 would raise your expected contribution by $5600, but you have $25,000 per year that you can use.</p>
<p>Families without that 529 will have a lower EFC, but chance are all they will get offered is loans to cover that $5600. And, they don’t have the $25,000/year.</p>
<p>I talked to a friend who was upset that the 529 they set up for their D kept them from getting aid. However, I know how much the dad makes (he is a public school employee), and I know that the mom has a good job … the D goes to a state school. The cold, hard truth is that the D would only have received Direct Loans with or without the 529. So the 529 allowed the family to pay for the D. Without it, they would not have received any more money than they received with it.</p>
<p>It is amazing to me that anyone could think that having savings is a bad thing. You have college savings for a reason. The amount that is added to the EFC is virtually nothing. If you have savings that high that it’s going to significantly affect the EFC then you’re probably not going to get much aid with our without that savings (as it is <em>usually</em> accompanied by a high income as well and most colleges don’t give very good need-based aid).</p>
<p>I re-read Roger’s article for the first time in a couple years. The mindset of the saver is the key, more so than the actual savings. “[T]he family whose budget isn’t already stretched to the breaking point will be able to meet college expenses with much less pain than the spendthrifts.” The family that has low expenses finds it easier to meet their EFC, even when their 529 money or other college savings has been exhausted.</p>
<p>We’ve been saving pretty steadily for many years and will be making a withdrawal for the first time in a month or so. We will still pay a lot of money for D’s school, but we can make it work without a loans. D is working and saving $5k this summer. She knows that what she earns will be her spending money, after kicking in some towards tuition. We will not send her spending money as we are paying her billable costs all year.
She decided against her Financial Safety in favor of a pricier school. But I think she does like having her feet to the fire to go to where she wants to go. I believe she will appreciate the experience more. As she’s been talking to HS classmates, she’s become keenly aware that we’re in a good situation because of the savings we have. Many of her classmates have found out that their parents have no college savings and these kids have few options.</p>
<p>Many people forget that savings can mean the difference between a choice or no choice.</p>
<p>In some cases, yes, it can cost you aid money. If your child gets accepted to a school that meets 100% of need, but uses a very exhaustive CSS PROFILE vetting in order to define the need, yes, it can cost you the financial aid. Boston College is an example of that. They do count retirement assets in a 401K or similar plans. They told me so themselves. How much? Don’t know. But if you have a large nest egg there, and a goodly amount of savings and some home equity, yes, you can be out of the ball park from aid there, or like schools. And you can cast green eyed glares at your peers who have zilch in such assets and earn what you do, as their EFC might be low enough to get some aid.</p>
<p>But most colleges don’t meet full need. So most of the time, you are in much better shape because if you save, have retirement assets, home equity, etc, you have more options than someone at your income level who does not. The whole thing is one big lottery anyways. One person gets into a school that does meet full need, another doesn’t, with the same stats. It is not a fair process all the way through.</p>
<p>If your kid wants to go to a school with name recognition, on sleep away terms, that costs lots of money, the chances are that it is going to cost the parent some money for that to happen. There are many kids whose parents have little in assets or income, and their kids do get accepted to college but not enough aid is given despite the lack of ability to pay by any measure. So if they have the credit they borrow and hopefully can pay it back better than they were able to save for it, or the kid doesn’t get to go those such schools. If you have the money, your kid has more choices.</p>
<p>I think of saving should be more a way of life, rather than a financial goal to be met. In Japan, in China, in Asia, families save a good portion on their income as a cultural norm than some flavor of the day approach. Some of the posters above amplify this philosophy.</p>
<p>Yes if you save and save wisely (i.e. diversify between education, retirement, home, contingencies etc), you may have short term negative consequence, i.e. less financial aid, but in the long term the saver always wins out. The saver is not as concerned about the status of social security as the non saver. The saver is not as concerned about gaming the system as the non saver. The saver hopefully inculcates the value of depending on yourself as compared to a non saver. </p>
<p>Unfortunately, we live in entitlement society, where some people feel that they are entitled to to other people paying for their child’s education. Again, I am sure there are parents who have done their best and still need all the loans and grants to get their child a good education and I have no problem with that. On the other hand, there are parents who believe that vacation in Hawaii is more important than $1000 in a 529 plan.</p>
Yup. We timed paying off our mortgage for the month before FirstToGo started college … so we had our mortgage payment to apply to paying for college. For us between continuing the “mortgage payments” and withdrawals from 529 accounts (starting making monthly deposits when the kids were infants) we have been able to pay for college without killing our lifestyle. (PS - that lifestyle is not extravagant … saving the money in the 529 plan and paying off the mortgage early started the habit of living well below our means).</p>
<p>I don’t think that we are trying to compare families with substantial income differences. Rather, we are comparing aid difference as a result of life style choices. As previous posters indicated, some families are willing to spend money on expensive vacation while others would rather save the money in 401K. Some families would like to buy expensive cars while other buy used ones. At the end, the savers have to pay more to go to a school of choice while the spenders can enjoy the life and go to the same school with more aid. If the 6% rule applies to the 401K/IRA, this could be a comparison:</p>
<p>Family A - 300K in 401K/IRA</p>
<p>Family B: 100K in 401K/IRA</p>
<p>The difference in family contribution is $200K x 6% x 4 year or $50K. </p>
<p>If you have multiple kids, the $50K may grow to $100K. This is just a rough calculation. However, I think that savers are discouraged.</p>
<p>The 6% ** doesn’t **apply to dedicated retirement accounts as per earlier explanation, in virtually all schools.
Income is weighted heavier than savings.
In general though, savings go up when your income increases so I can see why many make the assumption that it’s about savings and not income.</p>
<p>I hope that you are right about the 6% rule for the next 4 years since DS3 will apply this Fall. The fact that CSS asks about the retirement fund makes me believe that college are setting something up. In fact, they even ask about pension. Some posters cautioned about “unsually large retirement fund” in NPC calculation. I do not know its definition. But, I think that it is just a matter of time for colleges to count retirement fund as regular investment under this economic condition.</p>
<p>Each CSS school makes its own decisions about how it uses the information provided, and they’re generally secretive about the details (to keep people from gaming the process, I would guess). So if some were to consider retirement accounts, others might not.</p>
<p>To add to this some. Your analysis ignores the gains those accounts will likely in earn during those years … on average over time something like 5-8% for year. So even after being docked to pay for school investment assets will, on average, be relatively flat … there will not be a huge decrease in value. So overall … </p>
<ul>
<li>The saver family absolutely will pay more for college</li>
<li>They also will also have substantial more assets than the non-saver family after paying for school</li>
</ul>
<p>As a saver family there is no way I’d want to switch positions with a non-saver family. IMO, the “sacrifices” we’ve made over the years pale in comparison to the financial freedom the trade-offs bought us … and, in our opinions, we did not deny our family anything essential to a rich life (we’ve traveled, supported their ECs, etc).</p>