Hi everyone. I am hoping I can get some answers here. Some of you might think we are thinking well ahead but at this time we are told to worry about paying for our kids’ college education more than anything else.
We are trying to understand if our kids will have any chance of getting any Need Based Scholarship when they apply college.
My wife and I are in our late 30’s. We have twins attending 6th grade right now and they are in public school.
My wife and I are making over $250K a year. We will have over 1 million USD in 401K in 7 years when our twins apply to college. Our mortgage will also be paid off.
Since we have 2 kids, it will be difficult for us to pay for 2 kids as full pay. But not sure if we will qualify for any need based scholarship at private colleges. Am I thinking wrong or am I right to think we will be full pay?
I suspect things might change — either for a specific college, for colleges in general or for your personal situation. However, if you really want to get a feel you could run some Net Price Calculators with different scenarios to see where you stand. If I had to guess, I would imagine you won’t be getting much, if any, financial aid but I think running the NPC on various schools will give you a better idea.
With $250,000 in income NOW…what would you porjict your income will be in four or five years?
At this point, it’s very hard to say what your kids would or wouldn’t qualify for in terms of need based aid. A $250,000 a year income would likely mean a family EFC of about $80,000 a year…or $40,000 each for your twins…but that is for FAFSA purposes.
The private schools that use the Profile use a 60/60 split…so that would be about $48,000 per twin…and that doesn’t include any assets you may have.
A couple of things.
Yes...it's good to plan ahead financially. I would suggest you start 529 accounts for these twins.
Once they are finishing 10th grade, you will have a better idea of their academic standing...and GPA. They will take the SAT or ACT at or near the end of 11th grade. These two things...GPA and SAT or ACT score will give you an indication of whether they have merit aid potential...and where. With your incomes, it would be good to look for merit aid...as that does not usually consider family finances. BUT....it's a little early to,look now...as po,Ivies change.
Is there some reason why your twins must attend an expensive private university? Start looking at your instate public options. Many have excellent programs and much more modest prices for instate students. Some have honors colleges, and merit aid for excellent instate students.
Many private universities also consider primary home equity to some degree when determining need based aid.
The money IN your 401k won't be counted as an asset...but the money put INTO that account for the year of your FAFSA and Profile WILL be added back in as income. So...if your income is $250,000 and you each contribute $20,000 that year...your income for financial aid purposes will be $290,000.
Right now...let your middle school twins be middle school kids. Encourage them to do their best. Encourage them to find ECs that THEY like. And let college decisions wait for a while.
And yes…for most colleges, I do think you will be full pay…so when the time comes…looking for merit aid to ease the financial burden will likely be the way to go.
Your income annually is in a very top %age of wage earners in this country for a family…and is about 4 times the average income.
@thumper1 has it about nailed. Two at exactly the same time takes some serious planning. A 529 is the way to go right now if you really want to have a shot at sending them both to privates at the same time (assuming you have no funds saved for college) which means contributing at least $40k a year until they graduate (from college). The rest you’ll just have to make up out of your yearly income which would still go thru the 529. Personally I would only look at the top privates (if they can get admitted) for the connections they will make, otherwise state university will get them a solid education. 60% of the total you need is what you should be shooting for by the time they start.
Princeton (and probably Harvard) will give you over 30K in fin aid because they split 50/50 and do not count home equity. At all others, the fin aid will be largely symbolic if any.
If you are able to save a million bucks for yourselves, why not put some money away for your kids?
Under today’s system (obviously subject to change), your kids might get some assistance, but parents are first in line for paying until at least the expected family contribution is covered and your contribution would not be zero.
@thumper1 - Thank you very much for eye opening post. It doesn’t have to be private. I just wanted to see for the worst case situation.
@TomSrOfBoston - What is CSS schools? Please forgive my ignorance. Pretty new to this college financial things.
@AroundHere - We use 401K not only for our own retirement. We also consider withdrawing money from 401K for college if necessary. Plus pay from our own income if we have to.
@ArdenNJ - You should have a chunk of college savings in an account such as a 529 with no penalties for withdrawal before age 59 1/2. Using a 401(k) for college is considered a hardship withdrawal, and is allowed but subject to penalties.
Princeton does not use the Profile…but has instead its own form in addition to the fafsa.
@Tanbiko Harvard splits 60/60. Where did you hear 50/50?
Also…to @ArdenNJ Harvard and Princeton accept about 5% of applicants. Their generous need based aid only applies to those 5%. And even with $30,000 in aid, your balance PER KID piled be $40,000 a year. Can you pay that (oh…and that is now…it will likely be MUCH more expensive to attend these colleges in six years).
IIRC! There are a small number of colleges who give a discount when siblings are concurrently enrolled. Maybe someone else here knows those schools.
Another thought…you will have quite the retirement 401k nest egg when your kids enter college. That money will continue to earn interest and grow. You could reduce significantly your 401k contributions while your kids are in college…just those years…and use that money instead towards their college costs. Then…resume your contributions when they are done with college. You will still be about ten or more years away from retirement…so plenty of time to add more into those accounts.
I am NOT a financial planner…but this is what we had planned to do if needed. We fully funded our retirement accounts…thinking we would reduce those contributions during the college years…if needed. We didn’t end up doing that.
Instead, we used ONE parent full income to fund college…and the second income to pay our other bills.
Don’t get me wrong. I don’t say they will get into Harvard. But I want to be financially ready if they do. We are Europen Union citizens. They can go to college for much cheaper in Europe and if they don’t snub European universities, that is our dream. But we want to be ready financially. Learning new things today. I will do some reading for sure. Thanks again to you and others for giving us a good starting point in our research.
@thumper1. Actually, you are right. In this income range, Harvard gives only 25% off for the second child in college. It seems their fin aid is now really inferior to Princeton’s. Not surprising, given the performance of their endowment.
Before stopping or reducing 401k contributions, consider the consequences. My employer matched 10%, so if I’d stopped contributing I would be giving up that free money. I’d also being paying taxes on a higher income. For me, that wasn’t a smart financial choice.
A friend just borrowed (a lot) against a 401k plan to fund college. I don’t agree with that, but for her family it was the right decision. They both have wealthy parents who are elderly, and there will be inheritance money to replace the retirement money. That’s not happening in my family so I have to make other choices.