<p>In your case, Omgmom, depending on how many other kids you have, it may not be a bad route to take, borrowing. The way I look at it, paying for college is based on past, current and future income with the past reflecting ones savings and future being loans. Both kid and parent should be in partnership with this unless it is a situation where money is no object or if kid or parent for some reason is dried out financially and it is not possible. I regard this is a typical middle class (and I define that in terms of a family having college bound kids, a whole different group than the national average) .</p>
<p>So what happens when the kid and parent have no savings, the kid has never worked, so the prospects there are lean (still could probably get about $2K there ) and the parent has current income pledged to the hilt, leaving only loan as the main option? That’s the scenario that usually causes the heavy loan problem. But in your case, with your relatively young age, an already decent pension and stable home situation, no other kids to pay and relatively secure job, if college is the thing that is most important, go for it an borrow. But do the numbers and see where it is best to borrow, from HELOC, PLUS, credit union, 401K, or to withdraw 401 K monies.</p>
<p>The thing is, if you take your money out of the 401K, it is not only income for that year for tax purposes and there could also be an early withdrawal, it also is added onto your income for FAFSA and could and probably will reduce whatever financial aid you are getting from the college. You only have what’s left of this year, 2011, and 2012, 2013 to worry about this. 2011 transactionz go on your D’s sophomore year FAFSA. 2012 transactions go on your D’s junior year FAFSA and 2013 is the last year you have to worry about this unless you have another child going to college in 2014. If you can just hold off a bit on that 401K, you an avoid reduction of financial aid which for you and your D is really current income you are getting towards college costs. If you take the PLUS money, maybe even more than you really need as a buffer to pay down your 401K and PLUS loan itself, you can look forward to being able to break into that 401K in 2 1/2 years without as many penalties in terms of loss of financial aid. You gotta do the numbers to see if this is the case.</p>
<p>OP - Have you considered that 60K is not the cost for the next four years, only this year? What if that figure climbs by 7% per year (average rate of increase)? Senior year is then over 73K, Junior year around 68K and Sophomore year 64K.</p>
<p>You seem to be approaching this emotionally - as in, “how will I finance this” and not really facing the true question “can I afford to pay for this”. The difference between financing and paying is huge - and everything in the senior year, college search, admissions cycle, off to college experience encourages you to ignore the concept of paying and concentrate only on finding a way to finance.</p>
<p>You didn’t say whether you have younger children or what your daughter’s educational plans are. Those answers make a huge impact on the practicality of your proposed borrowing.</p>
<p>When my oldest was in college, he went to a top priced school and $45K covered it all. Then same college is now $55K+ and that isn’t even 10 years ago. I kept saying the prices could not go up any more and, I was ever so wrong. But we could not up the payments, and have had to reduce what we contribute for each kid’s college costs. The thing is, my kids seem just as happy with their choices and are doing just fine. I’m the one that feels disappointed as I truly wanted them to choose where to go without thought of cost.</p>
<p>@cptofthehouse - Thanks for the detailed information and candid response. I think it’s easy for some parents to say “Are you crazy” or of course take the cheaper school, but in these situations a) There kid isn’t a top student so a non top 20 school is there only option or b) They have all the money needed for college. Someone asked if I have other kids, the answer is yes. One is 13 and the other is 7, but you know your kids and the other two, although super smart, do not have the drive and determination as my oldest daughter and would be just fine at the state school. My oldest has worked her “you know what” off to get accepted to a top 20 school and I just don’t have the heart to not let her go, especially when I know she will do well there. Someone also asked about her education plans. She was to study neuroscience and biology for undergrad then go to medical school (yes I know, more money!) I look at it like this, no matter what I have to borrow from plus and 401k no matter where she goes, it will just be about 5,000 less. My income is 100,000 + and I’m in a secure job so I don’t see any problems financially down the line. I contacted the financial aid advisor today and ask about how the extra income from withdrawal will affect my EFC/grant money. He said to explain it when filling out the CSS profile next year, but like cptofthehouse was saying I think I can hold off on the withdrawal until after the 1st of the year if I qualify for the plus loan. I’m just worried that I won’t qualify then that will cause even more problems!</p>
<p>You can find out if you qualify for PLUS very quickly and very privately. If you don’t, your D would get an additional $4K in Stafford, which can help. But if you are determined to do this, I would not take out that 401K money. You can explain all you want, you’ll still likely be at the bottom of the exceptions list because fin aid gets every sad story under the sun and you are showing them you have a 401K plan and you are willing to tap it. Better you take out extra PLUS money each year and repay it with the 401 K when it doesn’t matter any more. I don’t see anything but trouble in tapping that 401K while she is getting financial aid.</p>
<p>Yes, that is the kind of neutral response that a financial aid office gives over the phone. I’m not trying to be critical. The written financial aid guidelines are clear. Aid is reevaluated each year, there will be no change in aid if there is not a change in financial circumstances. I would read that to mean that if there is a change in financial circumstances then your aid might change.</p>
<p>We ran into this when we couldn’t afford our EFC. I tried to come up with ideas for increasing our income and I realized that an increase in our income would likely increase our EFC for the coming year. It felt like a black hole and I think you are correct to be concerned about the effects of withdrawing from a 401K on your EFC the following year.</p>
<p>@cptofthehosue- How can you find out about PLUS? I tried to submit the on-line application but my daughter’s school isnt’ setup yet. I called them and they said they don’t do it until June or July. Do you know of another way to get prequalifed?</p>
<p>@Pea - They actually adjusted our financial aid this year based after I appealed. Not sure what will happen next year. I emailed him so I have it all in writing. Also, her school has an over 95% freshmen retention rate so I would imagine they would try and help us keep her there (maybe I’m dreaming again). Also, you mentioned your EFC black hole. So what happened. Did you borrow, did your kid have to stop going? Any info helps me decide : )</p>
<p>My situation won’t help you because we caught a break. My daughter’s first choice school of the ones she was accepted to offered her enough merit aid to make it feasible for us to send her there. If it was earlier in your daughter’s college application process I would have advised you to chase merit aid but it sounds like you daughter has already applied to and been accepted to schools.</p>
<p>I want more particulars. You said that your EFC is $20,000 and the COA of a school your daughter is considering is $60,000 and that school meets full demonstrated need. Does that mean they have offered you an aid package that is worth $40,000. Does the package include loans?</p>
<p>Don’t beat yourself up too much about not having planned better. There are so many things to pay for with a family. I didn’t really get plugged in to the whole college admissions process until my daughter was applying to schools. I had to bring tylenol to work because everyday I had a headache trying to figure out how we were going to pay for it.</p>
<p>OmgMom, ask Kelsmom who works with these things. I’ve always applied later. I got qualified for $40K and I don’t work amd did not use my husband’s dat–scary how quick and easy it is. I didn’t take it–just wanted to see if I could get it on my own. The credit check is not anywhere intensive. As long as you are not in BK or in house foreclosure or defaulting on another school loan, it looks pretty good, I was told, but again Kelsmom would know more about this. I am just a parent with no professional training or experience in this.</p>
<p>@Pea - That’s where I am now. My husband doesn’t understand my level of stress over this all!</p>
<p>My EFC at the other schools is roughly 20,000. Nothin on my aid award for the “top 20” school shows my EFC. I’m just assuming that its similar. The costs is 56,000 they offered about 27,000 in grants, 5500 (sub/unsub), and 2500 work study. That leaves about 20,000.</p>
<p>@cptofthehouse - The reason I am worried is because my sister was denied 2 years ago for a plus loan and needed a co-signor (her husband). She didn’t have a bankruptcy or a foreclosure. That’s why I’m worried. Especially with our govenment’s financial situation. I’m afraid they will get pickier… LOL</p>
<p>A friend of mine had a son in a private college at a time when her husband decided to leave his job, take payouts in a bunch of plans that the company had, and buy into a company and new position. He had to have those payouts to make this move, and if he didn’t make the move, he knew he would be out of a job in the near future. My friend discussed all of this with the son’s financial aid office since the young man was on financial aid at the college with an award of about $20K a year. With this leap that the Dad was taking, it was going to be very, very precarious that year, and my friend is the sort that tries to prepare for all financial contingencies. This is a family that just make 3 figures with 3 kids, one special needs.</p>
<p>Well, lo and behold, the young man didn’t get any aid when this happened. The counselor had told them to note it on their financial aid form and that it would be given special treatment and consideration. It was and it resulted in a big fat zero in aid, because the pay out effectively doubled Dad’s income. Never mind that all of this was explained up front. NEver mind any situation. No aid. </p>
<p>So, the young man took a year’s leave of absence, Dad took no pay that year in a loan situation, and they had two kids in college the following year, and got a ton of financial aid. You play the game and do the tricks and you get the treats.</p>
<p>I know, but you can maybe then borrow $16K from 401K or if you have to take it out of the 401K, you will have $4K less to withdraw (still a bad option but $4k less bad). You sell your car and drive a junker like I do–would reduce the insurance too. Look for every way under the sun to bring down expenses for the year–I did it for 4 years and it was miserable, terrible, painful, but we did do it. Have a garage sale. Work the soup kitchens and food pantries to get left over food. Do clean up for events at school and groups so you get the left over food and goods. Don’t buy anything you absolutely don’t need. Shop the house, your friends’ and familys’ too. Ask for outgrown clothes for the younger kids. Do it for a year, paying bills on time and the next year, or even in 6 months your credit will likely be good enough to get PLUS.</p>
<p>Very good advice again cptofthehouse ! I would have no probably skimping. I am probably the most frugal person I know. Problem is getting the hubby and kids on board, but I’m on a mission and it will happen! : )</p>
<p>Please talk to your financial adviser before you make any decisions! If you don’t have one, find one! There is certainly lots of good advice on CC, including this post, but TALK TO YOUR FINANCIAL ADVISER!!! Decisions like this are the reason you have one. They will be able to run the numbers for you and give you an accurate picture of what a withdraw from your 401k will mean in the long term. I suspect you will be very surprised by what the numbers show you!</p>