Socioeconomic class and college success

Parents Forum
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<p>“segregated accounts for participants”! They dont even segregate the money from the operating budget! In fact it is the operating budget. MF Global ring a bell?</p>

<p>Everything about the setup would be illegal if a private company did it. Usually those pension are just underfunded. And those companies go bankrupt. See Motors, General and Steel, Bethlehem. </p>

<p>No matter, when the current system blows up, today’s pols will already won their last elections and had their names inscribed on community centers, law schools chairs and waste water treatment facilities. And thats all that matters.</p>

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<p>Not penalized to a great extent. Past an exempted amount, only about 5.5% of parent non-retirement savings is expected to be used for college per year.</p>

<p>High *income *is what really “kills” you on FAFSA.</p>

<p>See for yourself: [FinAid</a> | Calculators | QuickEFC](<a href=“http://www.finaid.org/calculators/quickefc.phtml]FinAid”>http://www.finaid.org/calculators/quickefc.phtml)</p>

<p>Family of 3, 1 kid in college, older parent age 50, income $50K (student $0). EFC is the same with 0 savings or $50K savings. Make it a $100K savings, EFC goes up about $1500. Make a million, then you see almost full pay numbers. Though not with a low income - if you earn $20K a year and somehow managed to put aside a million in non-retirement savings, your EFC is still 0.</p>

<p>Having a strong savings habit really doesn’t raise EFC much unless it’s in the student’s name.</p>

<p>[posted before I saw skrlvr’s post. I think people keep repeating this because it is a theme that matches the worldview of “savers get screwed for being responsible”. ]</p>

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<p>Who was asking for a government program, huge or otherwise? I suggested EMory - and perhaps all Us - should have a way to see who hasn’t logged into their brand new campus email account and address it somehow, with a phone call or an email to the account the student was getting communication from the U with before enrolling. This is hardly a government program…you are arguing with yourself.</p>

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<p>This isnt the story of the little girl who didnt open her email or it wouldnt be 7 pages long. Not opening the emails only meant that she had to incur debt for her education- the same as a lot of other kids. Opening the email wouldnt have fixed her grades or her choice of major or cutting classes. And Angelica opening a email has nothing to do with the other two girls in the story. </p>

<p>From the graphic that goes with the story and the quotes from random professors, they are clearly positioning this as a problem faced by the lower quartile SES.</p>

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<p>If you have two children who will be going to college for a total of 8 years, the cumulative “tax rate” on savings is </p>

<p>1 - (1 - 0.055)^8 = 36.4%</p>

<p>which is substantial. Income taxes should also be considered. Suppose a married mother goes back to work to save for college for her children, and her husband’s income of at least $71K puts her in a 25% tax bracket. Then for every dollar she earns and tries to save, the cumulative tax rate on earning and saving</p>

<p>is </p>

<p>1 - (1 - 0.25)*(1 - 0.055)^8 = 52.3% .</p>

<p>She gets to keep less than half of her earnings. The incentives are even stronger for high school students not to work and save, because the expected annual contribution rate from student savings is 20%, so the cumulative tax rate on savings over 4 years is</p>

<p>1 - (1 - 0.2)^4 = 59.0%</p>

<p>None of these calculations include payroll taxes, which further penalize working.</p>

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<p>Are you assuming that the difference with respect to savings will always be met by grants? At many colleges, not all ‘need’, as figured by FAFSA, is met by grants but by loans. It could be that the non savers are simply asked to take out a loan, and so you will need to figure in the interest on that loan, etc.</p>

<p>And for some colleges, the income threshold for grant money is much lower than you expect. At some institutions, for families at 100K, there is no grant money at all. </p>

<p>And what about interest on that savings? I’m not very good at all when it comes to finances, but shouldn’t that also be figured in?</p>

<p>Also, if you are really interested in this stuff, you need to go on Net Price Calculators to see how savings is really affected. I’ve been on a few, and it’s surprising at what you will get.</p>

<p>So, for example, at Harvard, with 100K in income and 100K, 50K and 0 in parental savings, there is no difference in EFC. Go up to 150K in savings, and then the EFC is increased by $2500, 200K in savings and it’s increased by $5000.</p>

<p>And at Transylvania University, a small liberal arts college with about 120 million in endowment, they have a mix of merit and need based aid. They have ‘automatic’ merit aid for certain SAT/ACT scores and GPA, the highest being 16K a year. So a family making 100K and getting it’s second highest merit award of 14K, gets no grant money, beyond that 14K. A family making 60K is going to get an 8K need based, at 0, 30K in savings, and then they lose the Pell Grant and get an institutional grant of 7700 at 60K in savings. At 100K in savings, the grant is reduced by $1000.</p>

<p>So a family making 60K and getting the second highest grant, with one kid in college at TU with no savings must contribute 19,720, while the same family with 60K in savings must contribute 20, 020.</p>

<p>I can imagine that the non saver family would want to take out some loan money to maintain the same lifestyle. So factor in the interest on loan there to see what the ‘savers’ penalty would be. The saver family can spread that 60K over 4 years to reduce yearly expenses to about 5K.</p>

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<p>Yes, I was. Thanks for your illustrations.</p>

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<p>Let me also add this. At many schools, there is a combination of merit and need based grants. Merit grants are determined, in part, by high school GPA and SAT/ACT scores. </p>

<p>Now, a lot of schools want to attract more ‘high stats’ kids for all sorts of reasons, so it’s not surprising that a significant portion of their grant money will go towards merit aid.</p>

<p>We also know that stats like SAT/ACT scores correlate with income level. So even if you might get less need based aid because of high income, it’s likely that you will get more merit aid than a low income family, simply because students from high income families tend to have higher stats.</p>

<p>I’ve played around with this some, using that TU example, plugging in the average SAT scores for students from families making around 200K and those from families making 40-60K, and depending on GPA, the student from the 160-200K family will get about $5000 more in merit than the student from the 40-60K family. The merit based grant for that 160-200K family is about as much as the institutional need based grant for the 40-60K family (the 40-60K family will also get a Pell Grant by the NPC, plus a small merit grant).</p>

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<p>Beliavsky, out of curiosity, do you have a problem with schools offering merit aid?</p>

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<p>Not if its based on SAT scores :D</p>

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<p>Or ACT, SAT subject, or AP test scores, or grades, or even other (non-racial) criteria.</p>

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<p>Personally, only if it doesn’t use income/SES as a factor which could allow someone from wealthy backgrounds to get benefits which IMHO, should go to those who need it most…those from lower SES backgrounds.</p>

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<p>In my view, merit scholarship has its place in higher education, even among the top institutions. The rationales are 1) to encourage excellence (however it is defined by individual institution) among students, and 2) to spread the top students around, not just HYPSM. However, merit aid should be the icing on the cake, while not replacing the cake (need-based aid).</p>

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<p>Unless you believe that a parent’s decision to increase his income by working longer or harder increases his child’s scores, the consideration above does not reduce the effective “marginal tax rate” entailed by need-based financial aid. I have explained a few times what I think is the primary cause of the positive. income/SAT correlation.</p>

<p>Some people are quick to label children from high-income families are “privileged”. Parents’ decisions to work more can make their children’s lives more difficult and reduce their level of accomplishment. Because my wife and I both work, our kids spend more time in day care and do not participate in as many activities as those we know with SAHMs. In [Why</a> Women Still Can?t Have It All - The Atlantic](<a href=“Why Women Still Can’t Have It All - The Atlantic”>Why Women Still Can’t Have It All - The Atlantic) , Anne-Marie Slaughter wrote about the many women who scale back their career ambitions to help their children in school. Some would counter that women who can afford to stop working are “privileged”. I’d say their “privilege” results from choosing to marry well before having children. I don’t like labeling children privileged based on family income, but if it is done, there should be an adjustment for how many parents are working. I don’t think a kid with a father earning $100K and a mother at home is disadvantaged compared to one with both parents earning $75K.</p>

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IMO this is “correct” and incomplete which makes it misleading. This analysis ignores gains on assets. If assets are “taxed” at 5.5% and the average gain is 5-6% per year than the assets are essentially flat while a student is in school. It is unreasonable to ask family to invest the gains from their assets in their kids educations while leaving the base assets untouched? </p>

<p>(PS - my 5-6% average gain is low by historical standards)</p>

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<p>“PS - my 5-6% average gain is low by historical standards”</p>

<p>FWIW, almost all investment professionals will advice to put the asset in cash/money market devices if you need it within the next 3-5 years, which means that your gain (currently) would be very very close to 0%.</p>

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<p>As inflation is now 1.8%, the average “gain” on investments may be negative. [Current</a> Inflation Rates | Monthly and Yearly Chart, Graph and Table: 2002-2012 Data - US Inflation Calculator](<a href=“http://www.usinflationcalculator.com/inflation/current-inflation-rates/]Current”>Current US Inflation Rates: 2000-2023)</p>

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<p>I not sure if I understand what you mean by this, I understand this to mean the additional tuition/money paid for by families receiving less to no need based grant money to the institution that offsets the need based money given to other familes. Is this what you mean by it? And if so, how does one calculate the marginal tax rate for a specific institution, because I assume it will vary depending on how much need based aid is given. What is Harvard’s specific marginal tax rate, for example?</p>

<p>Is there a “marginal tax rate” for merit based aid in your understanding, for those institutions that give such aid?</p>

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<p>Sure, but a two income family might be able to afford a better school system than a one income family with a SAHP. </p>

<p>There is this correlation between family income and SAT scores. I’m not making a claim as to why such a corrrelation exists. And there are some schools that do give out merit grants, the more aid for the higher SAT score. So based on these two facts, I concluded that families at higher income levels, in general, as a group, are more likely to get merit aid than lower income families. What’s problematic here with my reasoning? Certainly I can’t make a claim for a specific family.</p>

<p>What I’d really like to see for each institution that does gives both merit and need based aid, how much is set aside for merit and how much is set aside for need based aid.</p>

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<p>skrlvr’s 387 shows one reason why it is so dfficult for inexperienced families to understand the breadth and depth of what college entails- all the factors and analyses needed. Many of us on CC can do it- many cannot. </p>

<p>Who’s getting 5-6% gain? I’ve got a wiz financial guy, something of a miracle worker, but the average people out there have no financial guy and rely on banks.</p>

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<p>If you’re going to link Slaughter, may as well look at this: [How</a> to Land Your Kid in Therapy - Lori Gottlieb - The Atlantic](<a href=“How to Land Your Kid in Therapy - The Atlantic”>How to Land Your Kid in Therapy - The Atlantic)</p>

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<p>I am a mother with a graduate degree in international management. College applications today are nothing like what I remember (graduated in 1988). To assume that someone at a Lower socioeconomic status is not educated is specious. My son fits many of the categories of this thread. Lower SES, educated mother, gifted, never asking for anything because of our financial situation, hard worker, good grades, high ACT, URM. Having said that, I helped him navigate the college application process. I try to imagine a 17 year old filling out the CSS Profile. I do my own taxes and I had to stop and think about some of the questions. Not every child has a parent who can or is able to help him/her. Your children are blessed to have you. Why would you not want another child to have the help he or she needs to navigate this process? Would my son been able to do it by himself? Probably, but the point is that he didn’t have to. Why should disadvantaged kids have to navigate the process on their own? Just a little bit of help could mean the difference between success and failure. My son and I feel like he won the lottery and are thrilled that he will have the opportunity to be a student at one of the most prestigious universities in the U.S. next fall.</p>