We have a sophomore in HS who may have the grades to attend a highly selective college. However, I ran the EFC calculations for federal aid and the “demonstrated need” calculator for a selective college and it’s coming in at like $50-$55k. We are a family of five in a HCOL area and have a take-home income of about $60k after mortgage, taxes, insurance, our own student loans, etc.
We don’t have any business income, trusts, taxable investments, or massive savings (just a small-ish emergency fund and like $10k in a 529 between three kids).
How can it be reasonable to contribute almost 100% of our take home income to our child’s tuition? Am I missing something? It doesn’t even seem like student loans would be enough to cover the gap (never-mind the burden that would place on our child down the road.)
@15J1217 Yes, indeed. The federal formula that calculates EFC doesn’t take into account HCOL area, your personal debt and payments, etc. Most selective colleges use the CSS Profile application in addition to FAFSA for awarding their own institutional aid that is more detailed and asks info on housing costs, etc. But the reality is that the burden of paying for college is on the student and parents. While students cannot take more that combined $27K in loans for undergraduate in their own name, Parent Plus loans can fill the gap if you are willing to take them. If not, your options are applying to schools/programs where your student can get significant merit aid, or public instate schools with more reasonable costs. Community college with a transfer is also an option for some.
Thanks very much for the reply. I think our son may be a candidate for CC and a transfer, but our eldest will want to head to university right away. I guess having come through the system when it was more affordable left me unprepared for the reality today. Unfortunately, we have only one in-state flagship university (U-MD).
We also will need to investigate scholarship opportunities, but I don’t know how much hope to hold out for that.
Your “take home pay” includes any money you use to pay your living expenses. So add back in your mortgage, taxes, insurance, college loans, etc. those are BILLS you are paying with your actual “take home pay”.
What you have left after paying your bills is that $60,000…which is a lot to have left after bills have been paid.
Your FAFSA EFC is calculated based on your annual income…and doesn’t consider your living expenses or consumer debt.
So…what is your annual income? And please include any contributions you make to your tax deferred retirement plans.
With a net cost of $50,000 or so, your income has to be higher than $150,000 a year, maybe approaching $200,000 a year…before you pay all your bills.
If you have $60,000 a year left AFTER paying all your bills, you are doing great. I would say…immediately start putting some of that in a 529 or something towards college costs.
Colleges expect you to pay based on a combination of savings, current income and future income (debt). Students can only borrow $27k over 4 years ($5500 first year, 6500 second year and $7500 third and fourth).
Adding…you have $60,000 after paying all your bills. Half of that amount is likely sufficient to fund your instate public universities, leaving you with probably still $30,000 “left”.
No one has to attend a college that costs over $50,000 a year. If you feel that is not realistic for your family, then your kid should be getting the best grades and SAT or ACT possible to open the door to larger merit awards. And this might not be at your “highly selective” colleges, but there are plenty of outstanding colleges that aren’t in that category.
$60,000 is not your take home pay, it is your discretionary income after paying your major living expenses. 99% of Americans can only wish they were so well off.
The high EFC can be shocking. The EFC based on FAFSA might be lower than the EFC used by many elite schools.
I’m not sure what you mean by $60,000 income after bills. Are you saying you don’t have any money saved for college? In my family, we pay for college from a mix of sources: a prepaid tuition plan, savings and current income. We don’t have much saved in a 529. How much can you pay from current income?
The best plan is to pick out a range of schools:
A few that meet full need (run the NPC and see if they come close to your budget…improbable). HYP…check Rice
Look far and wide at privates that offer large merit scholarships. Tulane, Boston, Miami, GW-there are a lot that do
Try to find a few that offer guaranteed scholarships of full tuition.
In-state public. Make sure to carefully consider in-state options as these tend to be a good value. The honors programs can be excellent.
Come up with a budget that you are comfortable with and let your student know this number. Consider your other children’s budgets at this time.
Your student can take up to $27,000 TOTAL in student loans (anything beyond this requires your backing).
The good news is that your student has many options. Getting a 50% off scholarship on tuition so the COA comes in the $40-$45,000 range is doable. But that still leaves a lot of money to pay. Full tuition scholarships will take some work and possibly some compromise. There are large scholarships at some of the very prestigious schools, but these are hyper competitive.
Room and board will range from $12-$16,000 per year. Then there are other costs like books, travel, spending money, etc.
Have your student prep for the PSAT junior year. The National Merit Finalist program would give access to some large schaolarships.
For FAFSA and CSS profile the AGI on the tax return and federal gross wages from W2 are going to be considered for income. Pre-tax 401k contributions are added back in as well.
In Maryland there are more colleges than UMD. There are community colleges that have articulation agreements with MD publics, other schools like Towson, McDaniel, Salisbury.
Thanks for the “tough love” – the $60k is after mortgage and taxes but before things like food, utilities, my wife’s student loan payments, etc. We try to keep consumer debt down, have only one older car (a 2009 van), but do have a lot of deferred maintenance on the 1947 house we recently purchased.
I guess the better term would be $60k in “discretionary income” after fixed expenses, but it seems food and utilities are pretty high on the list of discretionary items.
Yes, we are making tax-deferred retirement contributions, but it seems to me that having children go to college in the wealthiest country in the world should not mean parents can’t also save for retirement (in an era without defined pensions and shaky, insufficient social security).
So, I don’t necessarily want to debate the group. We are certainly middle class but are by no means wealthy (in a 1% sense) and live modestly. We make ends meet and save a little for emergencies and retirement and are still paying down student loan and mortgage debt.
I’ve read a few other threads on the board and it seems this a common conundrum. College is way more expensive than folks expected and it puts a real damper on the process. (I think this recent college admissions bribery scandal kind of rubs salt in the wound.)
You’re misunderstanding your net income. Your gross is the total that you earn. The net is the total after taxes (federal, state, FICA, etc) have been taken out. The calculators are essentially telling you that you’ll be full pay pretty much everywhere. That means you need to Target colleges that offer merit aid (for GPA/test scores). Figure out how much you can afford to pay and make sure your children know what their yearly budget is. Don’t let them apply to colleges you can’t afford.
Good for you for looking now- and taking the time to figure out the financial options before your student gets too set on what they are hoping for. Seriously, every year there is a new crop of students whose parents haven’t done this and it is heartbreaking.
An EFC of $50-55K suggests an income over $200K (median UK household income = $55K). The fact that it comes with an expensive lifestyle (even though it seems very ordinary relative to your neighbors) doesn’t change that. Even super-generous Harvard gives little to parents whose income is over $150K.
Agree with @NYDreammom: aside from the $27K (total over 4 years) that your student can take in their own name, all other debt will be co-signed by you. So, merit aid or affordable in-state options are likely to be the reality for your student. .
I guess I’m not sure how college is a lot more expensive than people expected. Things haven’t changed that much in the last 15 years or so. If you have 60k per year left after paying your mortgage and insurance you’re doing ok. UMD is a a great school and pretty reasonable in-state.
A financial aid consultant at our high school advised that colleges expect parents to stop making retirement contributions during the college years. It is certainly shocking when one realizes how crazy expensive this has become. It was a constant worry I lived with for the past few years when I first researched it. I have been expecting taking on Parent Plus loans (no mortgage here so that would have been my biggest investment) but we got lucky and my D was accepted with a huge (for us) talent scholarship covering more than half tuition that at this time I believe will allow me to pay the remaining tuition out of current income (they have a great 12-month payment plan). She will also live at home to save on housing.
So plan for the worst and know what you would be comfortable with but know it can work out by working with your student’s strengths and some luck.
-Your state flagship
-Universities that offer merit aid
-Canadian universities, many of which are significantly cheaper even with international tuition. Some offer merit aid.
We have AGI of ~$200k but we are not living a luxurious lifestyle in a very HCOL area. No sports car (or even second car) for us. When our van needs replacing it will be a hit. 1600 sqft fixer upper house cost $780,000. Trust me, it goes fast.
If we lived on the same salary in Des Moines we’d be in high cotton!
Look at your instate public options. They aren’t going to cost $50,000 a year.
Your kiddo is young…and needs to do the very best on the PSAT, SAT or ACT as is possible…and have the best possible GPA. This will open up merit aid options…as well as admissions options.
Start putting a little more per month in the 529 accounts. If you think you can contribute $1000 a month from current income…start saving that amount…now. If more…then fine.
Re: college savings vs retirement savings. You need to understand that the very vast majority of college applicants have no college savings at all…not a dime. Sure, you read about folks who have significant college savings, but those kids are in the minority. Unfortunately the same is true for retirement savings (aside from mandatory FICA contributions). Many folks are underfunded for that too.
Here is what the Thumper family did.
First...both parents worked full time.
We fully funded our retirement accounts first and foremost because we figured if we did so, we could cut back during the college years, and there would be a nice nest egg to earn interest. As it happens, we didn’t need to cut back our retirement contributions. We figured IF we needed to take loans, we would have sufficient retirement income to pay them back. We didn’t take loans either.
One parent income paid our household and everyday expenses. The other parent income paid for college...all out of current earnings. One of our kids got a decent merit award. The other got a smaller one. That helped too.but one income funded college. I was very prepared to take on some additional part time work to fund college if needed. That wasn’t necessary either.
We had no consumer debt. No college loans for the parents, no car payments, no credit card bills...none of that. And this was planned. We also paid off our mortgage part of the way through these college years. For us that was a good plan. This meant out annual incomes were sufficient for our expenses...and college bills.
We did have our kids take the Direct Loans...just because it improved our cash flow. We paid them off as a graduation gift.
Both kids had jobs, and their incomes were used to fund discretionary spending and books. Yes, we still gave them money from time to time. But we expected them to have jobs.
Our colleges had a monthly payment plan. We used this because it worked for us. Since we were paying out of current earnings, it helped to be able to pay a portion each month as opposed to a lump sum per term.
In our case, this worked…but certainly YMMV, and I would not suggest you do my plan unless you feel it will work for you.
The most important thing you can do is figure out your annual college contribution costs. When the time comes, please let your student know that budget amount. Sure, they can apply anywhere, but they need to understand your price point.
There are so many wonderful colleges in this country. Many fly under the radar screen. Yes, aim for the best affordable school your kid can find. But keep an open mind…and if you are concerned about finances…then cast a wide net…
You have to decide what is the most important to your family. There are schools in Maryland that would be very inexpensive, but you may not want that education experience. Community college, the historically black colleges (Morgan state, UMES), Frostburg are cheaper than College Park. Towson is cheaper too.
Start going to the college information nights. You might find a school that is cheaper or gives better merit awards. My daughter found her school at one. Delaware has a few good merit awards. Many on college confidential find that going to Alabama is better than their state flagships. If your children become National Merit Finalists, they can go to the Florida schools for free.