Sending twins to college - To pay or not to pay off mortgages

Paying for College
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Hello!
I need some help from this experienced community, since this is our first rodeo to college…

We have twins who are college bound and we are a $250k income household with 3 modest rental properties. We still can’t afford college at list price (at $70-80k), so do need some aid, as kids are looking at near Ivy grade schools - John Hopkins, NW, UPenn, Emroy etc

The original plan was to pay off the home mortgage and a rental to increase cash flow - But looking at the CSS profile , where they ask about mortgage balances, it doesn’t sound like a good idea to pay them off. The rentals are to fund our retirement, so selling them is not an option. Pulling equity from rentals used to be an option when rates were low, but not any more.

I would greatly appreciate ideas on how best to navigate this scenario…
Thank you!

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Are the twins seniors right now?

Have you run the net price calculators at the schools you mention?

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First, you need to run the Net Price Calculator (start with Penn or Hopkins) with your current financial situation; see what pops out. Then, run them with your alternative scenario- paying off the mortgages.

Compare.

You need to see if paying off the mortgages is going to get you more, less, or no aid before you do anything.

Then- your twins need to start lining up some merit aid schools in addition to their current list. Those colleges will use merit scholarships to "lure’ them away from the non-merit places like U Penn (if in fact, they are in the “Penn zone” for admissions.) Those colleges don’t care about your rental properties, your cash flow, your mortgages- it will be a straight up decision as to how desirable the kids are to them and what they offer kids like that for merit aid.

Then come back and we can help with specifics.

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Keep in mind…some net price calculators will not be accurate for those who own rental properties.

I agree with @blossom . If finances are an issue, and your income, plus equity in rental properties, plus rents from those properties make you not eligible for need based aid, your best friend is merit aid which doesn’t take your finances into consideration.

Especially with two in college at the same time, this is something to consider. Is there some reason why your kids are considering these more elite schools that give only need based aid?

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I would look at your mortgage rate. If it’s say 3%, etc you can invest in very safe muni bonds and profit on the spread.

Assuming you have no need, then you have to get out of the arms race as schools like Penn and JHU won’t get you $$. A JHU, Vandy, Emory, WUSTL could get you money but you can’t count on it. And college costs more than they say. So $350k on 4 years is now $700k .

So you can apply to an Emory and it won’t be $70-80k (think higher) but you need to add like schools where merit is likely - a Denver or Miami. Or your state flagship or other flagships that give big $$.

Depending on their stats you’ll have great schools to choose from. There’s even lower cost great publics.

But get the Ivies, Tufts, the top LACs out of their minds now b4 their expectations set.

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Maybe I am missing something or misunderstanding, but although you feel that you “need some aid,” it sounds unlikely that you will get any. Do your twins have colleges you can afford on their lists? If Penn isn’t giving your kids any merit, it doesn’t makes sense for then to apply there if you can’t pay.

There was a similar post last spring/summer from parents of twins in a similar situation. They didn’t properly research colleges from a financial standpoint, allowed their twins to apply anywhere, and after all acceptances were in, had no packages that they could afford.

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Many colleges including all the Ivies, most of the top LACs and even some that aren’t top like F&M offer need aid only.

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I would add some schools where they are likely to receive merit, and I would add some instate schools as well.

I would allow them to apply to schools on the current list, but I would make it very clear that they need to come in at an affordable price (that price should be defined).

It does not sound like you will get enough aid, if any. You can adjust if the NPC shows more.

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Also, while some colleges will disregard the equity in your primary residence, I don’t think any will disregard the equity in your investment properties, even if your plan was that they would be for retirement.

I think that most (perhaps all) colleges will disregard the amount of assets in retirement accounts, but they have to be retirement accounts as defined by the government – 401k, IRA, Roth IRA. Again, not the assets in accounts or property that you have designated for retirement but that aren’t in a 401k, IRA, etc. A lot of people get tripped up by this, so just putting it out there as background information.

Is the 250k income inclusive of the rental income? Otherwise you will need to add the rental income (after expenses) to whatever other income you have.

It is possible that one or more of the Ivies might give you a small amount of aid, depending on how much income you have from the rentals and what your income from them is, but I agree with the others that you definitely need to run the Net Price Calculators on all schools of interest and your kids should definitely look for merit aid as well. There are a number of colleges (University of Arizona is one) that give extremely good merit packages to high-stats kids – they publish a chart, so you know even before you apply what the package will be, based on GPA and SAT/ACT scores.

Good luck!

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Yeah, that’s my point. It doesn’t sound like they are likely to get need-based aid so I am concerned that they have no financial safeties.

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If your actual income is $250,000…and you have two in college at the same time, it’s very possible there will be some need based aid at the more generous (and competitive for admissions) elite schools.

In 2024-2025, the FAFSA will no longer adjust when there are two kids in college at the same time. No one knows if the Profile schools will follow suit. But it’s something to keep in mind.

I think your key is to set an annual budget per twin. They need to understand this annual budget limit.

Then apply and see which schools come in at or under that budget. This will likely necessitate broadening their list of colleges.

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got it !! Thanks

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Thank you for the great responses! Let me answer a few questions to clarify.

@Mwfan1921 and @blossom - so twins will go in 2024. I am doing a dry run of the process this year, since next October its time to fill the CSS/FASFA.
I did fill the net-price-calculator for all the schools and we did get some aid. EFC around 45-50k per kid (total $100k/year) - but I also heard rentals make the EFC unreliable as some others had mentioned.

@MMRose - For a clearer picture. Income/w2: 250k and rental income: 35k (after mortgage/tax & minor expenses). So overall $285k. The Net Price calculator’s did show aid even after adding all the rental assets, since its 2 kids at the same time.
The calculator treats rentals just like a cash account by asking the for the remaining mortgage and value of the property.

I appreciate the suggestion to look outside the “arms-race” and make a list of “good” schools that consider merit. I appreciate any suggestions based on the following profile.
The twins profile is as follows. SAT low 1500’s (after first try), GPA 4, lots of AP classes to push themselves, inter-school level track stars, some published research.

Regarding the budget, thinking of $50k/kid including housing, meals, etc - that runs a yearly total of $100k plus may be 5k for misc.
$420k for 4yrs, that’s still a good penny. We are quite determined to get them to graduate without any loans.

Thank you all!

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That is helpful info. It is true that some NPCs may not be accurate with the rental properties….the more details the NPC asks about them, the more likely the numbers are accurate. The rental properties also have to be reported on FAFSA.

Next year FAFSA will not take the number of students in college into account when calculating the EFCs (next year EFC will be called SAI). As thumper mentioned above, we don’t know whether CSS profile schools will still consider multiple students in college when calculating EFC, it’s up to each school how to handle that.

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You can go that route and there’s tons of great schools.

Or you can go to - many a fine public (with or without Honors and depends on what they want to study) - but an Alabama, Florida State, Ole Miss, Ms State, Miami Ohio, Mizzou, UTK, U of SC - and really so many more - and even some privates including fine mid size or LACs.

With the list I mentioned (and others), you can go much cheaper than $200K a kid…I’m less than half that for two kids and my kids schools both have incredible programs…one is a part and one isn’t…but would have had opportunity should he wanted.

I guess it’s the bummer of twins (four years of simultaneous expense). But $285K and great assets (that will be your downfall) is a nice problem to have too :slight_smile:

In all seriousness, if grad school is in their future, you might want to plan further out than just four years.

Good luck.

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So you are going to need about $35,000 of aid per daughter per year. You can calculate how much you will need in a university grant. A one-year package would include:

$2000 work study (you don’t get it up front, so cannot use it to pay bills the college sends)
$5500 total in direct student loan first year
That means you will need $27,500 in a university grant from each college.

The loans would be higher in subsequent years.

I think it’s a toss-up whether you’d get anything like that with your income and assets. Especially since nobody knows whether CSS schools will account for two in college.

The colleges do not care that you don’t want to sell the rental properties to pay for college. That’s viewed as a choice. The best thing you can do (probably too late) to improve chance for FA is to use qualified accounts for retirement instead of real estate. If your retirement assets were in qualified retirement accounts, those funds would not be considered in the FA determination.

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Nice break-down for year 1 package - thank you!

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@tsbna44 -I appreciate the list of suggested schools - and all the best for your two kiddos in school.
After this run with almost $400k, unfortunately they’ll be on their own for grad school… I am hoping they will need to find a good employer to fund that bill or get a school to fund the Phd.
If not, I’ll never be able to retire! :slight_smile:

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There’s many more - small, medium, large - it just depends on not what you can spend but what you want to spend, where you’re from, where you want to end up.

I do agree that you have to figure out what you will get aid wise. Every situation is different of course. But I think given your income and likely assets, aid is unlikely.

But hopefully I’m wrong.

The important thing to know is - that likely every state flagship has tons of brilliant kids. That’s why there’s more NMFs at public schools (ones you’d never think of with the most being at Bama) - which btw - you’d be out at Bama for under $200K for both kids combined and they have the Blount Scholars, Randall Research Scholars - in addition to the Honors college. That’s just one example of many - that would keep a few hundy more thousand in your bank!!

Hope you keep us posted on your journey.

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Some people find themselves in a situation where private schools that only give need based aid are just not affordable. The way that the schools compute “need” does not always match what a family might find realistic for a wide range of reasons. Families that own rental properties or small businesses are often in this category. We found ourselves in this same “calculated need does not match reality” category for different reasons.

The choice that a lot of families make is to attend universities that are affordable.

In some cases this means in-state pubic schools. In some cases this means schools that give very good merit based aid. For those of us who live in the northern part of the US (northeast for us) sometimes this means universities in Canada. We had a somewhat unusual situation where universities in Canada were significantly less expensive than in-state pubic schools due to our having dual citizenship. However, there are some relatively affordable very good universities up there even without dual citizenship (they are not usually the most famous ones).

We found quite a few good universities that got down to about $40,000 per year per student with just merit based aid. I have heard that there are some schools that will go lower than this with just merit based aid, but we did not look for them. For us going lower than $40,000 per year required either in-state public universities, or universities in Canada, or looking at schools that we would not otherwise have looked at (such as some in the south).

One daughter wanted a small school (such as a liberal arts college) and had the stats for the top LACs in the northeast (she was #1 in her high school). They were not affordable. She went to a small university in Canada, did very well, and found a very good job back here in the US. She was doing very interesting research at a small university that you have probably never heard of, personally applied for and won a government grant to continue the research over the summer, and is currently doing somewhat similar research down here in the US. Going to a university that was not a famous American school did not stop her from doing very well (but it did stop us from running up any debt for her education).

The first step is to figure out what your budget is. The second step is to figure out which schools fit this budget. This might not include Johns Hopkins or U.Penn or Northwestern. Another very important step is to make it very clear to your twins what the budget limit is.

I would be very wary of debt. Both daughters have for example found very good opportunities after graduation that were only feasible because they did not have education debt to pay off. I also would be very wary of selling your investment properties.

I would also be wary of trusting the NPCs if you own rental properties.

We tried to be careful to avoid any financial problem if a bachelor’s degree took more than 4 years. It is not unusual for things to take an extra semester or an extra year. This did not happen for us until one daughter went into a graduate program, but it is a good idea to be ready just in case.

I might add that when I was in graduate school (at Stanford) the various students in the same program had come from a very, very wide range of universities. Many had attended their in-state public university for their bachelor’s degree. Sometimes it is a good idea to save money for the bachelor’s, and then attend the famous private school for a master’s or PhD (with the master’s being shorter in time period and PhD’s at top schools generally funded by the school).

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