Kid's College Fund

[Kat]

Some of the threads around her have gotten me thinking about college for Winter. My parents didn't help me with college at all. I had a 4.0 GPA going in and all the way through but couldn't seem to get an academic scholarship--all the scholarships seemed to go to athletes. I worked my way through, two or three jobs at a time. I went to community college first and had a great experience. I took out some student loans for my undergraduate degree but managed to earn my master's debt-free.

I would like the road to be a little easier for my daughter if possible. I think about all the stress I was under, not to mention the horrible burden of debt (not that it is that much, but it's enough) that we are bearing. I just don't want to see her go through that if she doesn't have to. We'd like to help her with college and have been putting $100 a month in the bank as well as putting all financial gifts she receives from relatives, etc. in there (at least for now, until she is older). Our contribution will only add up to $21, 600 by the time she is 18, and I know that won't be nearly enough (it wouldn't be now, and the cost of education is only going to go up). We'll encourage all her to go to community college and live at home the first two years, maybe. But after that...university costs a lot! I'd like to think she'd get a scholarship of some kind, but we can't count on that.

Just wondering if anyone has any advice or experiences to share. Were you able to help put your kids through school? How did you do it? (we are not willing to go into debt over it).

Oh, and I know not everyone agrees with helping kids through college. I respect that point of view and am asking that my point of view is respected also. I am looking for help, here, not a fight! ;-)

[catherine]

I came to the same opinion that you have while taking the opposite path to get there, Kat. My grandfather made it clear when we were young that he was going to foot the bill for all of his grandchildren, so I knew I had carte blanche going in, and I took advantage by choosing a small, private liberal arts college.

As a result, I wanted to be able to do the same for my four children. Problem was, we certainly didn't have the money my grandfather did. So here's what happened:

Child #1: Had a really bumpy road through school as a child; dropped out at 16, became a golf pro, subsequently got his GED and went to college and now, at 33 is in his 3rd year of law school. He started out with two years of community college and then transferred to a state university. I paid about $5k a semester total, and was able to cash flow it.

Child #2: Also started out in the local community college and transferred to a state university. Same thing: about $5k a semester, cash-flowed.

Child #3: She was my high-achiever: great marks in high school, National Honor Society, yadayada. She chose, like I had, a private 4 year school away from home. The first two years I could actually manage with cash, because the two boys were in college so our EFC (Expected Family Contribution) was really low, and so she got grants, and scholarships.

Then the boys graduated and yikes! All of a sudden her tuition/room/board skyrocketed. Silly me, I hadn't anticipated that, so I was in a situation where I had to get a loan. I financed two years of college for her.

AFTER that I wound up taking Dave Ramsey's Total Money Makeover, so if I had to do it again I'd:

--Have the boys do exactly what they did: the two years of community college transferring to a state university. As you know from experience, it's a great value. Great deal. The only thing that is missing is the traditional "college experience" living away from home. But if the kids don't care, you get off easy.

--I would have been more proactive about assessing the total cost I would have to pay for a 4 year liberal arts college BEFORE telling my daughter what I would be able to pay. Once I had made the pledge to her that I would pay, I didn't think it fair to reneg. As a result, I will paying that debt off for about 2-3 more years (I'm paying it off as fast as I can).

--I would get it out of my head that the kids should get carte blanche. I could have offered (and it would have been more fair to my sons) to pay for just the tuition and she has to pay room or board; or the best thing probably would have been to sit down together and talk about a realistic budget that we could afford, and she could take that information and decide what she wants to do with it.

She has even mentioned that she feels guilty about getting so much. I've told her that the deal is I'll pay the loans as long as I can, but if my financial situation changes, I'll have to pass them along. I was actually thinking of doing that (at least halving the debt with her) as I'm starting to realize how little money I have at this stage of my life. I don't worry about money. I take things as they come. But I still have to be realistic.

Plus, I still have Child #4, who has opted not to go to college. I really have no cash at the moment to give him, but I feel I'll have to do something if one day he tells me he's ready to go. So that's another reason to broach the topic with my daughter. Any money she can take off my plate can go directly towards her brothers fund.

That's my experience, anyway. I back your decision to encourage the community college route. If not, I'm sure your daughter will appreciate the budget you have to offer her. Be proactive about grants and scholarships. You may get more than you expect.

[flowerseverywhere]

we took a little different approach

We listened to advice by all the "experts" like Dave Ramsey, Suze Orman et all and every single one of them suggesting financing your retirement first then start worrying about college. That is exactly what we did. As the kids approached college we knew we were well on the track to be able to retire comfortably, even early if things went well. We both put money into 401K's and both got matches as we worked, and DH stayed in a job that had a pension attached, not enough to support us but something just the same.
When #1 went to state University, I picked up extra call on the weekends and DH took overtime when offered and he graduated with no loans. He worked in the summer and part time during the school year. He is a successful artist.
#2 was one year behind and wanted to go to a private engineering school. We said OK, but gave him the exact amount as the other, and he got some scholarships and took a small loan. He ended up with less than $13,000 in loans and now works as an engineer making a good wage.

After they graduated we also had to deal with marriages. We gave them a set amount each. They could elope, put it towards a simple or elaborate wedding, it was their choice, we were going to contribute the same.

After they graduated we both contributed max to 401K and each got a match, it didn't take long for the money to grow and we were able to leave the full time workforce by age 55. We both still work part time, but much more on our terms.

As an aside story, after they graduated DH fell on the ice and badly hurt his back. He ended up with three back surgeries, and during the recovery period was diagnosed with cancer. He was lucky. He not only recovered from his back surgery and was able to return to work, he also has been in remission for 6 years. Can you imagine if we didn't fund our retirement and he was unable to return to work? His had long term disability insurance but it would have been much less than actually working, and he would have been required to get social security disability. It would have been a tremendously stressful nightmare.

If I had to do it all over again, I would do it the same way. I would be smarter of course and save more money, and spend much less as I know through the years we wasted a lot of money, but still the sequence of saving would have been the same. You can always help them pay school loans if you are healthy, but with so many people laid off right now or underemployed, putting your kids education in front of your retirement could be very tricky advice indeed.

[Mighty Frugal]

Honestly? I'm hoping their rich, childless uncle helps pay for it. He is very much into academia (he is a Professor) so here's hoping he is willing to help them out;););)

If THAT doesn't pan out (like, say, he wants to keep the money for himself!) then I will help if I can. Here in Canada we have an RESP which is a tax free fund to save for your children's education-and the gov't adds some $$ too. We have one but it is very small and I don't contribute. Like all the financial gurus say, I am more concerned about taking care of the needs of my dh and me.

My parents helped as much as they could, and I borrowed the rest. I also lived at home because there was no way I could afford not to. It took me 10 years to pay it back, but it was worth it:)

Financing my children's education is totally something I am burying my head in the sand about-which is strange because I am such a planner and gatherer.....I think I truly am banking on the rich uncle!:~)

[Kat]

Thanks, everyone, for sharing your stories. I agree that we do need to think about retirement also. We do invest in a 401 k and have been trying to get out of debt. As much as I want to help our daughter through school, I don't want us to be a burden on her because we did not prepare well enough to care for ourselves!

[Float On]

Thankfully my MIL invested $5000 for each boy when they were born. Thru ups and downs in the market those accounts each have around $22,000 each. We haven't been able to do more than about $1000 in a cd for each kid.

We still have a couple of years but there are some really neat colleges with reduced/no tuition programs.

[Rosemary]

Here's what I did: I found an online estimator for college costs and calculated the cost of 4 years' tuition at a state college when my DD is of college age. Then I found another online calculator that estimated investment returns on money saved every year (usually you can adjust the interest rate; I think I went with something really low like 2%). I used the results of these two estimations to determine how much we should save each year to pay for most of tuition.

I paid my way through college entirely, including living expenses, with no loans, by working several jobs. I do think this made me a far more conscious student, as well as a far more frugal one, than some of my peers. However college costs are so out of control now that I don't see any way that a kid could pay all expenses now, given the pay of jobs that are available to them. My intention for college costs when we get there is to pay most of it, but leave DD responsible for enough that she realizes the costs and importance of using her time well.

[cattledog]

Well, my DD is only two, but college is a concern of mine too. I have a 529 plan set up for her. I've been steadily adding money to it since she was born. She has about $8K in it now and I contribute about 300/month, sometimes more depending on what's going on that month. We have some more money set aside in a taxable account also. I don't want to load up the 529 plan, just in case she isn't college-bound (it is still 15 years away after all).

I was a good student in high school, but I only received a few local scholarships. I'm old enough that college wasn't as expensive as it is these days. I had help from my parents too and only had a moderate amount of student loans that were paid off in a couple of years. Things are different today though. I'd like her to contribute something (i.e. scholarship or work), but I hope to send her to a state school without taking on any debt.

[Fawn]

Myself: put myself through 4 years at state school with toddler in tow using grants, scholarships and loans. I had about $12,000 in loans that took me 10 years to pay off. It helped that toddler's father was somewhat reliable for child support, which paid for day cay in those years. I do not recommend doing it this way.

DS#1: When his dad won a Pulitzer prize and his income quintupled, I took him to court to increase child support. For 7 years, I put $824/month in a fund for DS#1 and when he went to college there was $23,000. I told him that it would pay for 4 years at a state school (which was true at the time) and if he wanted to go somewhere else, he would have to fund it as I three other kids in day care at the time. He went to a private liberal arts school where he could play Division 3 baseball and borrowed money and his dad contributed many thousand dollars as well.

DD, DS#2 & 3: About 2 years ago, their father and I mediated an agreement which requires he and I to pay for 1/3 of the cost of 4 years a state school. Each kids also pays 1/3. If the kid want to go someplace more expensive, they are responsible for coming up with the money through scholarships, grants, loans, etc. I am estimating my contribution to be $10,000-$12,000 per child per year. ($100,000-$120,000 total) To pay for this, I am saving $1,000/month now for 10 years.(Already have 1..5 years under my belt)

I am saving this in a regular savings account, not at 529 plan. If they do not maintain an adequate GPA their father's and my support drops. Also, if they are fortunate enough to get scholarships (this is possible--DS#1 got 40% of his tuition in scholarship) then the money goes to the next child. If it is not needed for college it goes right into my retirement.

These are very personal choices, but I am pleased with my ability to help the kids in this way. On the other hand, I have not paid for cars for the teenagers and I have told all of them that they are responsible for the costs of their weddings. I value paying for education, not big parties.

[cattledog]

I am saving this in a regular savings account, not at 529 plan. If they do not maintain an adequate GPA their father's and my support drops. Also, if they are fortunate enough to get scholarships (this is possible--DS#1 got 40% of his tuition in scholarship) then the money goes to the next child. If it is not needed for college it goes right into my retirement.

These are very personal choices, but I am pleased with my ability to help the kids in this way. On the other hand, I have not paid for cars for the teenagers and I have told all of them that they are responsible for the costs of their weddings. I value paying for education, not big parties.

I agree about the separate savings account. If my kid were older, I don't think the tax-free earnings would be worth the risk of a 10% penalty. We started her fund early, so I hope there are some earnings there. However, I think I will cap the money I put in there. Not sure how much though. I won't pay for college unless she is serious about her studies though.

I also agree with your other points. I have no plans to pay for a big wedding. I just don't think it's a wise use of money.

[dado potato]

I contribute to 529 college savings plans... at my stage of life the beneficiaries are grand-children rather than my children. If I had young children I probably would contribute to a 529 for each one, beginning at Age 1, (Vanguard minimum to open account is $3000), and adding an affordable amount monthly or bimonthly.

My portfolio selection is Total Stock Market Index (US) until the balance is greater than $6000, at which time I divide the allocation and account equally between that and the International Stock Index (non-US companies). When a beneficiary attains the age of 15 I would convert to an age-based allocation, which would cause a large proportion of the stock portfolio (appreciated hopefully over 1 to 14 years) to be exchanged for Fixed Income and Money-market portfolio... to be withdrawn by the beneficiary tax-free for college expenses.

I think that in assessing family resources for student aid, a 529 plan owned by parents would be included, but perhaps not included if the plan is owned by a grandparent. By the time a child is ready for college, these rules could change, so I would not "bank" on it. However, it seems like there is a very good reason to talk to grandparents about 529 plans for grandchildren, to see what they think of the idea of giving with the living hand.

Cattledog raised the possibility that a child would be unable or unwilling to pursue post-secondary education. In my case there are four (and counting... bring 'em on!) grandchildren. If one grand-child opts out, I would try to contact the kid, and ask her to think about it for 24 hours. If she tells me after a period of reflection that she is "sure about that", I would advise her that I will be distributing her 529 fund balance equally among the other grandchildren. Then I would do so.

If all the grandchildren opted out, I would be surprised and disappointed. There would be one remaining beneficiary who would have received account transfers from all the others. But I think I would treat her alike... give her 24 hours to reflect, and if she says she is sure she can't or won't be getting into a post-secondary program, I would take back the money. I would have to pay taxes on the income, plus a 10% tax penalty. And I'd probably mutter something about "what's the matter with kids today?".

It's a good idea to save for the needs of the future. However if it happens that there is no need after-all, one may as well un-save accordingly.

[flowerseverywhere]

I think that in assessing family resources for student aid, a 529 plan owned by parents would be included, but perhaps not included if the plan is owned by a grandparent. By the time a child is ready for college, these rules could change, so I would not "bank" on it. However, it seems like there is a very good reason to talk to grandparents about 529 plans for grandchildren, to see what they think of the idea of giving with the living hand.

Cattledog raised the possibility that a child would be unable or unwilling to pursue post-secondary education. In my case there are four (and counting... bring 'em on!) grandchildren. If one grand-child opts out, I would try to contact the kid, and ask her to think about it for 24 hours. If she tells me after a period of reflection that she is "sure about that", I would advise her that I will be distributing her 529 fund balance equally among the other grandchildren. Then I would do so.

If all the grandchildren opted out, I would be surprised and disappointed. There would be one remaining beneficiary who would have received account transfers from all the others. But I think I would treat her alike... give her 24 hours to reflect, and if she says she is sure she can't or won't be getting into a post-secondary program, I would take back the money. I would have to pay taxes on the income, plus a 10% tax penalty. And I'd probably mutter something about "what's the matter with kids today?".

It's a good idea to save for the needs of the future. However if it happens that there is no need after-all, one may as well un-save accordingly.

This post has given me a lot to think about. I like this approach, and also like your idea of taking the money back to redistribute or for yourself if none of them go to college. I have stood on the sidelines (only grandchild just over one) trying to figure out what to do but this could be the answer. I have to do some more research on the 529's and what it means on the fafsa.

[dado potato]

Flowerseverywhere:

If you learn about parents/grandparents as owners of 529 plans, in re fafsa, I hope you'll let us know.

[Kat]

Sorry it has taken me so long to respond to this. Thank you all for sharing your experiences and ideas. I really need to figure out a plan. I am realizing how fast kids grow up! ;-)