^^^^^
Depends on the type of school and the level of income.
What do you mean by “net” income? Net of what?
about 20% after tax income
We never calculated it that way, because we contributed to savings over several years and the net savings – plus current income – were spent on college costs. We were a “one earner” family.
Here’s an approximation of the annual college costs divided by gross income for a year of college for each of our kids, at private institutions: 20%. An approximate adjustment to derive our net income (after taxes, FICA, AND mandatory contribution to 401k – we had already paid off our mortgage, or I’d have included this in the gross-to-net adjustment) would bring us to spending about 30% of our net disposable income for each child per college year. The kids did not quality for need-based aid.
We didn’t draw all the college payments from current income, however. We had planned this out so that the “cost of attendance” would be covered by a combination of savings/investments and current income. Roughly 35% of the cost of attendance came from savings/investments (“college funds” of one type or another, including savings bonds donated by the grandparents). The rest came out of our net current income, i.e., net income flow during the 4 years that each child was in college.
The kids overlapped one year in college, so if we had to pay totally from our current income, about 60% of our net income would have been spent on college during the overlap year.
By the time the second one graduated, we had totally spent out the college savings, but we had accumulated no additional debt for us or for the kids.
Two items that I would emphasize. 1) We “paid ourselves first” in always contributing the mandatory amount to our 401k, but we deferred contributing to IRA’s and other optional investments. So the kids’ college did not cut into our base retirement savings rate, but it kept us from supplementing it. 2) We stretched our own expenses in several ways, including sticking to one car and keeping the one car purchased when our son was in his first year in college for 12 years. Plus, 3) We told the kids they must graduate in 4 years, “or else.” (Or else what?)
This is not an exact calculation but I hope some of the points here will be useful to your calculations.
Am I the only person here who needs to look up what the term “net income” really means?
So roughly speaking, the gross income (as well as AGI) is before tax and the net income is after tax. Am I correct?
If this is correct, I do not think I could rely on the current year net income to cover the COA of (private) college, even for one kid. To cover it, it requires decades of savings before college in addition to the current year net income.
Blood and Sweat but no Tears.
We paid about 1/2 of our net income for college for seven years (two kids…private universities).
My net income went to pay college costs. It was direct deposit to my bank…and auto withdrawal to the cllege(s) for seven years. My husband’s income was used to pay all of our other expenses.
The reality was…I was working to pay college costs. And that was fine with me!
Thumper: that’s how we felt. This was the period for the kids to totally dominate our budget options!
Mcat: yes, Investopedia gives you a definition, but my point above was that you may have other obligations that are as unavoidable as taxes, such as a mandatory 401k payment, that effectively must be taken into account when calculating some kind of net income or net disposable income.
After taxes, 100% this year (2 kids in college), 75% next year (1 in college).
Checking for clarity. Your entire family income…100% of it…is paying for college? All of your net income?
So…how will you pay your living expenses? Rent or mortgage, utilities, insurance, food, clothing, etc?
Yes all of it. However, we have a lot of savings over the years, so really all of it is coming from savings.
If it’s coming from savings…it’s not coming from your net income.
I think what you are saying…the cost of your kid’s college is the same as your net income…right? But really none of your net income will be paying for the college costs.
In my case…none of the costs were paid via savings. My whole net income was used to lay for college. My husbands paid our living costs. So basically…half of our net income paid for college,
Yes, I absolutely believe that. Those of us who live frugally and saved for kids’ education are massively subsidizing those who replaced cars, went on vacations, and redid kitchens and baths. With the reduced use of loans in financial aid, those of us who spent 20 years saving up have in essence been paying the loans over 20 years, and end up paying a large fraction of income, if not all of it. I’m not sure why this should be so, nor why people with twins should pay half what people whose kids are 4 years apart to educate their two kids.
It’s just semantics, it’s all coming from the same bucket. She says her net income is going towards college while savings is paying for living expenses. You say her net income is going towards living expenses while her savings is paying for college.
It’s a poorly worded question to begin with, imho, because very few people can pay for college out of their current income (i.e. most save up in advance). The question should be: “What are you paying for college expressed as a percentage of your net income?”
I think of it roughly as my take home pay, ie what you get to deposit in the bank. But then you have things like 401(k), HSA, and ESPP which technically are part of your net income but don’t show up in your take home pay. So you’d have to add those back in to be accurate but then my head starts to hurt so I just go with take home pay.
I think I answered the question properly. It should be (college costs for the year / net income). Otherwise, a family that took out loans to finance 90% of the cost would answer 10% and it would be very misleading. In my case, if I answered 0% as suggested, it would lead one to believe that either I make 1,000,000,000 a year or my kids are on full scholarships. I wish either of those were true. 
@mathyone. Your choice.
You could also choose options where you aren’t subsidizing other kids at all (and likely even ones where yours are subsidized).
Take home pay really is a good way to reckon it. That’s basically what I estimated in my first post. But if I had other truly obligatory payments, such as a mortgage, I’d have subtracted that from the disposable or available cash to pay for college expenses. But for most people there are other essentially obligatory expenses that also cut into the cash available. Insurance (car, home, health) is another category of such unavoidable expenses that generally come out of your income.
To say you subsidize nonsavers is like saying full pay are subsidizing people who get aid. Is it true? Maybe, who knows for sure. There doesn’t seem to be much aid out there at affordable and no exclusive schools anyway. It’s best to just be happy you were able to plan well and let it go.
We are full pay and saved. It impacts just a small amount from current for room and board.