Good move @IxnayBob, congrats.
@oldfort this is very interesting. Are you saying we should buy a bigger and bigger house? Seems like I need Investment 101.
I see parents in this thread have done savings for their kids education really well and wonder where my money went. I want to be a parent of full-pay private college student.
We’re actually going to gap fund our kids education with a home equity line. My husband gets bonuses twice a year we’ll put toward education, but we may run into cash flow crunches with two in college overlapping for 3 years, then two more kids coming up behind. Mortgage interest is literally the only write off we get, so it makes sense to tap into our considerable equity.
When you withdraw from your IRA you would be taxed at your current rate, there are also dividend and such. Depending on where you live, there could be large property tax for deduction. etc.
Its funny sometimes the best plans can easily go awry. We are fortunate to have a relatively high income though we live in a high cost of living city. We live below our means, drive old cars. We are well funded for retirement through pensions and 401K and our home has increased in value quite a bit. We do spend money on things like music lessons, camps, tutors etc. We saved some in a 529 and have income and some inheritance to fund the rest for D1 or so we thought. Our second child will not likely be able to live independently as an adult despite our best efforts so we have had to shift our savings and mindset to accommodate for that reality. We had thought our high stat D1 would be able to get scholarships at top schools until we figured out how the systems works. Fortunately she is on board with the merit aid hunt and now won’t even look at a school unless there is a good chance of a merit award. We will not try very very hard not to be full pay and not have any regrets.
@eiholi - all I am saying is real estate investment has done well for some of us. I was a full pay parent for 2 kids, not out of investment, but from current income.
My father used his equity from his home to pay for some of our college costs because the interest rates were a lot lower than student loans.
Perhaps I’m naive but I figured if this happened, we would qualify for need based aid the following year. So if my income took a drastic turn down in 2017, we would qualify for '18-19 school year. Yes we would be on the hook for '17-18 but potentially borrowing for one year would not be considered catastrophic in my book. Yes, DD attends ‘meets full need’ school.
^Exactly. Our income did in fact more than halve while kid two was in school, and it did trigger aid (also, even though we didn’t need to use savings previously,) we had some. The drastic income loss was voluntary, but we knew we could weather it and keep kid in school.
Edit: when I called the school to inquire about applying for FA the following year owing to income change, FA officer ask if we needed to refile for the present year, because it could be revisited if necessary.
For every $1 paid in mortgage interest, you get a .25 cent discount on your taxes. (Assume 25% tax rate and that is if AMT and phase outs don’t get you). Yes, by not paying off the mortgage you can invest that money elsewhere, but with bank rates so low, you’d have to invest it in more risky alternatives. So my thought us, if you can pay off your mortgage, you are not “missing out” on a tax discount of .25c, you are saving a net .75c
@ihs76 but they do warn parents that aid may not always be available in those situations.
Considering the relatively small number of kids who apply to/attend private schools with large percentages of full pay kids to the total number of kids attending college (and thats before taking into account reality that most kids applying to that small number of private colleges are applying to multiple of such colleges and overall are more likely to apply to more colleges than your average bear/college applicant and fact that many kids applying to such colleges are expecting some type of aid and thus will not be full pay), I don’t think the number of kids applying to that small number of private colleges says anything about the statement that most Americans don’t think it makes sense to be full pay at one college when less expensive options are available. I would go even a step further than that statement and say that the majority of people with an EFC which indicates that can be full pay do not think it makes sense to be full pay when less expensive options are available.
With respect to comments about real estate investments, large portions of the country do not see large appreciation on real estate prices. So appreciation won’t allow for upscaling from house to house and will not provide significant sums in wealth at retirement.
I apologise if this will comes a little bit of “self congratulation”.
Like somebody said before on earlier post, it was easier than we thought. When she started college we anticipated to pay the cost out of current income, savings and 529 (she has 60K when she started) without touching or reducing retirement contribution. We tought that our savings will come down from 250K to about 150K when she graduates. Well, I just paid her Spring 2017 tuition and it looks like that when she graduates, our savings balance will be the same as when she started, if not more. I think because , I was fortunate that I had nice bonus the last 2 years.
We also reduced the cost by:
The surprising thing about all of this is if friends find out that we are full pay, they can’t believe that we can afford it. We are responsible with our finances but not completely frugal. Kid’s (we have 2 kids, younger is 11) are not into designer clothes, but the one in college are starting to and now very “preppy”. I have a thing with nice cars and my wife likes designer purses (not Hermes level though). But we don’t eat out a lot and didn’t/don’t spend too much money on our kid’s EC (just piano and voice lessons). We vacation almost every year but nothing fancy. We’re also fortunate that we are showered with good health.
As for my younger kid? Not sure if we will be able to afford to pay full pay private, since by then cost will probably be about 100K. Not even sure if she’s an elite school/Ivy league caliber, so we’ll see. But then again, that’s what we said to our first-born before and jokingly said to her that if she will be accepted to an Ivy League school, I will sell my soul for her to attend.
Back a few years ago, there were some schools that said on their FA site, that if you had not applied for aid for freshman year, you would not be considered for the remainder of the college years. Therefore, even though we knew we would not get any, we applied for FA for DS and went through all the paperwork (extensive due to multiple businesses etc) just so we could be on the ‘books’ for following years should it become necessary. DDs school has no such disclaimer and I have not heard anyone saying this recently. Therefore, we did not bother going through the motions.
@sunnyschool who is this ‘they’ you are referring to? The FA office? I would be surprised if the top schools, esp those that are fairly generous with their FA and who appear quite vested in seeing their students through graduation, are stating this.
@garland good to know that we may be covered (at least partially) for even the upcoming year in the unhoped for event that we have a significant change in our financial situation.
@ihs76 I may be mixing up with boarding schools, since we are immersed in that now. Also probably heard it in past, but perhaps it’s different now. Hope so!
This is a good discussion. There is and should be great pride among those who are able or willing to pay the full price of any college their child is admitted to and wants to attend (congratulations by the way). At the same time, there is tremendous guilt among some who can’t or won’t do the same thing for their equally capable children. It is a gratifying position for some, and a painful one for others.
@NorthernMom61, I can’t say much to reduce the “tremendous guilt” among some who can’t do the same thing for their equally capable children, other than to point out that, in the bigger picture, they have given their kids significant gifts already: the genetics to be that capable, a home to become capable in, values, etc., – gifts much more durable than money.
For those who won’t do the same thing for their equally capable children, I don’t have much to say. I encounter them often on Bogleheads, people who have sufficient means and rationalize their cruel frugality into some kind of virtue. I exclude those who have other needs for the money (retirement, medical, etc), but I have difficulty being charitable in my estimation of those who say, for example, “my parents didn’t pay for my college, it was good enough for me.”
@ihs76 --I can’t say that all schools will do this; S was at a very generous one. We did NOT apply for aid when he was applying for the school, and that was also not an issue when we did apply. But again, not true across the board.
In my experience this is a gross oversimplification of an involved process that many families who don’t full pay (line between can’t and won’t is often incredibly unclear) go through. In addition, seems doubtful the “my parents didn’t pay for my college, it was good enough for me” folks feel guilty about the decision. Thus pointing to them is not relevant in terms of the statement about families feeling guilty.
That being said, I agree with your statement that full pay parents do not have to justify their decision to be full pay to anyone other than their child. But the same is true of parents who decide not to be full pay. Your judgmental mean cheapskate comment notwithstanding.
It is an oversimplification, agreed, but I’m not sure that it’s any grosser than usual for an internet forum. I thought I made the point that, far from feeling guilty, the “good enough for me” folks have rationalized it into a virtue. I hope you don’t think that I don’t know that it is an involved process and that the line between “can’t” and “won’t” can be unclear, I was pointing to the ones for whom it is not a close call financially, and whose children are earnest and hardworking.
We don’t encounter it as often here, on CC, where I think the odds are against finding many of the Bogleheads I’m referring to. Go visit, you’ll find at least 3 camps there:1) the anything I can do for my child is worth it, 2) the kids have to fend for themselves because it is the way of the world, and3) the majority in between who are trying to navigate the difficult waters of saving for retirement, having an emergency fund for medical care, trying to get value for their money in education, dealing with spendthrift offspring (ie., ones who have not yet learned the value of a dollar), etc., with insufficient income to do everything to the maximum.
I am sorry that you found my comment mean. I’m usually considered quite the opposite.
I’ll add an anecdote about #2: I have an acquaintance who expects her sons to pay their own way through school. She is not rich, and her husband is a disabled vet. The parents did not let either son claim the father’s GI Bill benefits (which father is never going to use), because the sons “need to learn to work hard and that nothing is ever handed to you in life.” Both sons are going to Troy University, with merit aid, so at least this is not keeping them from getting an education. But, I just shake my head. Keeping them from claiming GI Bill money and restricting their choices that way doesn’t make any sense to me at all.
As to our own family, we could full-pay, but it’s not clear to me we can afford to do so long term. We are shy because of a couple of long periods of unemployment where our nest egg was a life-saver. We are shy because our older relatives (parents, aunts and uncles) did not work until they wanted to retire: They worked until the first recession near age 60 and then were laid off never able to be fully employed again. It’s still a long time that we’re on the hook for our healthcare until we qualify for medicare. I don’t trust that affordable healthcare is safe. One parent and one D have “pre-existing medical conditions” which have cost us 5 figures in the past, even with insurance. A significant portion of our assets are appreciated windfall from almost 20 years ago - at our income level, we can’t regrow our assets once we spend them.
One D is a freshman at a merit-aid LAC where it seems to be a good fit, one is graduating high school next year. Both with solid-but-not-elite stats. Neither D is majoring in a field where they make a lot of money after graduation, so we need to reserve some money to help them “launch.” (One D is on her way to being a starving artist, and the other one is probably going to be a starving grad student in the sciences after undergrad.)
So, yeah, a million dollars in assets but living on ~120K in regular income in a high CoL area, with a lot of hesitancy about being full-pay private, regardless of what the formulas say. D1 got a budget a bit higher than full-pay in-state. D2 will probably get the same. But not full-pay private.
But yeah, since we do have the assets to be full-pay, trying to figure out the line between being “conservative with our money” and “being stingy with our kids’ futures” is complicated. Put us down in category #3.
Sorry for not being more clear: I did not find your comment mean. I found it judgmental for saying certain other people are mean (cruel).