Any good books or advice on saving for college?

FabulousMrs.P · October 2016

Are there any suggestions on books or articles to read on saving for college?
I have about 8k saved for my daughter so far. Right now it is just sitting in a savings account making very little interest. I want to educate myself more before I do an ESA or other college saving programs as I heard depending on what I choose it might limit her choices later (state vs private colleges) .

smerka · October 2016

I like Clark Howard. His website has a whole section on saving for college including which 529s he recommends.

cbee817 · October 2016

We have 529 plans with our state for our girls. We auto withdrawal monthly and get a tax break on our state taxes up to $10,000/year. Right now our plan is to cover a local public university. If they want private or to dorm, they need to come up with the difference (through their own loans, scholarships, etc).

als1982 · October 2016

I have a colleague who recently told me that they recently stopped contributing to their daughters' 529 plan as it is treated like income on their individual taxes and FAFSA, and could impact their ability to seek financial aid. Instead they'll just pay the capital gains on the monies invested traditionally to pay for college costs after scholarships.

AprilZ81 · October 2016

als1982 said:

I have a colleague who recently told me that they recently stopped contributing to their daughters' 529 plan as it is treated like income on their individual taxes and FAFSA, and could impact their ability to seek financial aid. Instead they'll just pay the capital gains on the monies invested traditionally to pay for college costs after scholarships.

Our financial advisor mentioned setting up the 529 in a name other than the student's to help maximize the chances of financial aid. I forget how he said it works, but if the grandparents set up the 529 in their name (for example) then it doesn't show up as money in the kids name.

I'm probably not explaining it well and possibly not even remotely correct, but there is a way to avoid declaring it on the FAFSA legally.

hoffse · October 2016

I think I saw an alert stating that grandparent 529's are going to start counting in the 2017-2018 school year (but I might be misremembering it).

Most accounts in the kid's name counts and an account held in your own name also usually counts (with certain exceptions). The money that's just sitting in your bank account would count if your kid was filling out the FAFSA tomorrow.

Things that do not count: retirement account balances, home equity, life insurance policies... in other words, all things that you would not necessarily want to tap into, unless this was a long-term strategy. For instance, you could pay money into your home mortgage instead of a college savings account with the intention of leveraging that equity in the future specifically FOR college - but then you are taking out a loan instead of cash when it comes time to pay. And if sh*t hit the fan, that loan would be secured by your home. It's really not the best strategy unless you can cover that loan some other way.

But you really need to consider whether worrying about the FAFSA is going to make sense for you.

Keep in mind the rules change from year to year, but for some perspective... my parents made less than 6 figures when I went to college, and based on their assets and income I received 0 need-based aid for Vanderbilt, which at the time had just crossed the $40K/year mark. I did receive an academic scholarship, but it was not related to the FAFSA. The FAFSA formula cuts out a lot of middle-income families, so H and I are just not going to worry about FAFSA eligibility. Our kids won't qualify, and I'm not willing to perform financial gymnastics to try.

529's are pretty great because money invested in them grows tax-free if used for a qualified educational expenses. It's basically like a Roth IRA for education. That being said, you want to make sure you don't go overboard with them and wind up with a ton of money you can't spend. You can use it for trade school and grad school, and if your kid gets a scholarship you can take that money out without penalty. However, if you save for full-freight private college tuition and your kid goes to state school, then you are kind of SOL unless you transfer that money to a different beneficiary. You can always take the money out for non-educational expenses, but you will pay a 10% penalty. So obviously that's not ideal.

H and I are planning on using a 529 to cover the expenses for in-state public school (Alabama & Auburn will be our benchmarks), and then we will use taxable investments to cover the difference in case our kid gets into an elite private school.

This is all hypothetical for us because we do not have kids yet, but it's something we are considering as part of our "baby budget" while TTC.

EDIT: It looks like under the new rule grandparent 529's can finance about 2 1/2 years of college without it counting toward FAFSA. You just have to be really careful how you set it up. Here is a good article:

https://personal.vanguard.com/us/insights/article/529-fafsa-rules-032016

And you also have to decide if chasing FAFSA status is worth it. You might get bumped based on your income or other assets you hold that are not related to college.

brij2006 · October 2016

We are in the same boat as @hoffse .
Yes it would be nice for our children to get some assistance through the FAFSA, but I'm not going to jump through hoops just to hide money so they get assistance.
We have DD's college fund in a 529. There's enough in there for 4 years at a state school. We figure that if she doesn't use all of it then we'll use the remainder for #2. Once that is depleted then we'll cash flow the remaining.

We very well might try to cash flow as much as we can anyways and take the penalty and roll it into our retirement. It really all depends on how we are financially at that time and if cash flowing it is a possibility.

smerka · October 2016

I found this. https://fafsa.ed.gov/FAFSA/app/f4cForm?execution=e2s1

AprilZ81 · October 2016

I'm not sure what my parents made when I was in college but they made just enough for me to not get anything other than approval for government loans and a small work study.

Part of it had to do with Dad owning a small business (which I think was incorporated at the time but I could be wrong) and the FAFSA counted his business as an asset even though the assests were in land, buildings and heavy machinery.

So yeah, I don't know how much it is worth it to avoid a 529 because it will count towards FASFA.

jtmh2012 · October 2016

AprilZ81 said:

I'm not sure what my parents made when I was in college but they made just enough for me to not get anything other than approval for government loans and a small work study.

Part of it had to do with Dad owning a small business (which I think was incorporated at the time but I could be wrong) and the FAFSA counted his business as an asset even though the assests were in land, buildings and heavy machinery.

So yeah, I don't know how much it is worth it to avoid a 529 because it will count towards FASFA.

My dad was career navy raising two boys and a stay at home mom. We were told we made too much and qualified for the same. Loans and work study.

I'm not sure how much it's worth trying to avoid a 529 either. My wife and I combined make a lot more than my poor old dad is. So even gaming the 529 some how wouldn't get our son any free aid. We started one for my son. Not sure how much we'll put in, but right now, we're funding to the state tax deduction.

brij2006 · October 2016

AprilZ81 said:

I'm not sure what my parents made when I was in college but they made just enough for me to not get anything other than approval for government loans and a small work study.

Part of it had to do with Dad owning a small business (which I think was incorporated at the time but I could be wrong) and the FAFSA counted his business as an asset even though the assests were in land, buildings and heavy machinery.

So yeah, I don't know how much it is worth it to avoid a 529 because it will count towards FASFA.

This was exactly my parents. Farmers, but during the worst years of farming. Their net income every year I was in college was zero. Yet I still didn't qualify for any assistance because they had assets in farm land, buildings, and equipment.

The part that made me the most mad was that they didn't help me with a single penny of school and my dad was so anti-college that my mom co-signed my student loans without telling him. Yet I had to take their income into consideration when it came to whether or not I received any help.

short+sassy · October 2016

brij2006 said:

AprilZ81 said:

I'm not sure what my parents made when I was in college but they made just enough for me to not get anything other than approval for government loans and a small work study.

Part of it had to do with Dad owning a small business (which I think was incorporated at the time but I could be wrong) and the FAFSA counted his business as an asset even though the assests were in land, buildings and heavy machinery.

So yeah, I don't know how much it is worth it to avoid a 529 because it will count towards FASFA.

This was exactly my parents. Farmers, but during the worst years of farming. Their net income every year I was in college was zero. Yet I still didn't qualify for any assistance because they had assets in farm land, buildings, and equipment.

The part that made me the most mad was that they didn't help me with a single penny of school and my dad was so anti-college that my mom co-signed my student loans without telling him. Yet I had to take their income into consideration when it came to whether or not I received any help.

That is something I've always found strange about the whole "needs based" scholarships and such.

Plus, as we all know, incomes are "worth" widely different amounts for different parts of the country. Huge differences. For example, I grew up in one of the highest COL areas in the country (Orange County, CA). And fru-fru beach resort town San Clemente, at that. My parents made much less than the average income for the county. But they still made too much for even a few "middle income" need scholarships I came across.

LMAO, Random memory. My HS b/f complained about needs based scholarships also. His parents were involved in a class action lawsuit against their developer. The foundation for their house and the other houses on the street were failing. So, according to him, the lost value of their home should have been "taken into account".

Me, to the "love of my life" at the time, "No offense. But your dad drives a Rolls and your mom drives a 2-year-old BMW. I wouldn't give you a needs based scholarship either."

hoffse · October 2016

Yeah I think need-based aid is really intended for kids who come from very poor and desperate backgrounds. The problem is college costs are rising so quickly that people who do not meet the FAFSA definition of "need" still can't afford college without taking out loans.

I think the reason FAFSA looks at nonliquid assets like real estate, etc. is because parents could pretty easily take out a loan against those assets in order to pay for college if they had to. I'm not saying that's a great idea, but I think this is the underlying logic.

In any event, the chances of my future, hypothetical kids qualifying for need-based aid is less than 0. So this is something I'm not going to consider when arranging college savings.

brij2006 · October 2016

hoffse said:

Yeah I think need-based aid is really intended for kids who come from very poor and desperate backgrounds. The problem is college costs are rising so quickly that people who do not meet the FAFSA definition of "need" still can't afford college without taking out loans.

I think the reason FAFSA looks at nonliquid assets like real estate, etc. is because parents could pretty easily take out a loan against those assets in order to pay for college if they had to. I'm not saying that's a great idea, but I think this is the underlying logic.

In any event, the chances of my future, hypothetical kids qualifying for need-based aid is less than 0. So this is something I'm not going to consider when arranging college savings.

Yup. My H has made the comment that if our children qualify for government assistance then we aren't working hard enough. (he's a pretty blue collar type of guy)

AprilZ81 · October 2016

The fact that governments and schools expect parents to take out loans against their homes and/or small businesses to fund a college education should be the number one argument that the "business" of education has gotten out of control.

You can get a quality education without multimillion dollar workout facilities, gourmet dining and luxury dorm rooms. As soon as the government made student loans easy prices started creeping up and to justify the cost they have to give the students an "experience" that is better than a cheaper school.

Then the schools start competing with each other, not to gain the "best and brightest" but to get the highest revenue.

School administrators are overpaid, professors are underpaid and so much money is put towards campus perks that have zero to do with actually TEACHING kids.

smerka · October 2016

They specifically do not count home equity when calculating net worth. This is what they say about calculating net worth. I'm not really sure what makes a farm an investment farm. Are there non-investment farms? Maybe farms where all the food grown is for the family? But then isn't that just a really big garden?

Asset net worth means current value of the assets minus what is owed on those assets.

Assets include:

Money in cash, savings, and checking accounts
Businesses
Investment farms
Other investments, such as real estate (other than the home in which you live), UGMA and UTMA accounts for which you are the owner, stocks, bonds, certificates of deposit, etc.

Assets do not include:

The home in which you live
UGMA and UTMA accounts for which you are the custodian, but not the owner
The value of life insurance
Retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.)

smerka · October 2016

There are a lot of free market principles at play here. Shouldn't schools be allowed to provide incentives to attract students. I mean if the incentives didn't work, the schools wouldn't use them. Yes the 'free' money in the form of student loans is the problem, but it is kind un-American to not let the marketplace decide.

AprilZ81 · October 2016

smerka said:

There are a lot of free market principles at play here. Shouldn't schools be allowed to provide incentives to attract students. I mean if the incentives didn't work, the schools wouldn't use them. Yes the 'free' money in the form of student loans is the problem, but it is kind un-American to not let the marketplace decide.

If it was really the free market that would be one thing, but it is the government's involvement (student loans) that started the tuition hikes/competition games because the colleges knew that the students would have access to more loans to pay the increased tuition, room and board, and fees.

Then you add in the brainwashing that everyone has to have a Bachelor's degree to earn a good living and that the best schools have the best job offers then you have a recipe for disaster. Parents and kids feel like they have no choice, everyone still things that college is the only way so everyone ends up in debt up to their eyeballs.

I'm not saying education is NOT important, but if I knew what I know now back then I would probably make some different decisions.

Xstatic3333 · October 2016

I'm so with you @AprilZ81. This is a big reason why it's hard for me to fathom giving to my undergrad alma mater. They are spending SO much money on fancy dorms, gyms, etc. Meanwhile the buildings where actual classes occur are in rough shape and most undergrad science majors will never meet an actual professor. Tuition is now $45,000 a year before room and board, which varies by dorm fanciness.

I had a better experience at the state university where I took some grad school prerequisites. FT tuition back in 2010 would have been $10,000-$12,000 a year. All of my intro science classes were taught by PhD professors (labs too!) who were talented at both science and actual teaching. Lots of people from that program worked their way through school, perhaps with minimal loans, and went on to great grad programs.

jtmh2012 · October 2016

I went to a state school and still have no desire to give to them for the same reasons. Lots of fancy investments in areas having nothing to do with education. Don't get me wrong. Student experience is important, but something just isn't right.....

brij2006 · October 2016

AprilZ81 said:

smerka said:

There are a lot of free market principles at play here. Shouldn't schools be allowed to provide incentives to attract students. I mean if the incentives didn't work, the schools wouldn't use them. Yes the 'free' money in the form of student loans is the problem, but it is kind un-American to not let the marketplace decide.

If it was really the free market that would be one thing, but it is the government's involvement (student loans) that started the tuition hikes/competition games because the colleges knew that the students would have access to more loans to pay the increased tuition, room and board, and fees.

Then you add in the brainwashing that everyone has to have a Bachelor's degree to earn a good living and that the best schools have the best job offers then you have a recipe for disaster. Parents and kids feel like they have no choice, everyone still things that college is the only way so everyone ends up in debt up to their eyeballs.

I'm not saying education is NOT important, but if I knew what I know now back then I would probably make some different decisions.

Yes!
We were chatting with some friends about the way we would like to handle our children's' college. They think we're insane and depriving our children of a college experience because we will be telling them that their option is an in-state public school unless they can get scholarships to their desired school to make up the difference.
Our friends tried using the argument that if our child gets accepted to Harvard that there are many more opportunities there for them than the in-state school. At the end of the day a degree is a degree. Yes you may have an edge in to various law firms or businesses when going to one school over the other, but is that worth paying $150k for a college "experience" vs $30k?
We may be depriving our children of a college "experience" but I really don't care. If they want to study medical to become a doctor then we'll do some researching about the best financial option to receive that degree.
I'm not going to begin to allow my children to think that the societal norm is okay. That going hundreds of thousands into student loan debt because the campus is pretty, is okay. Yes, it will be very un-American of them, but as much as my hypothetical 18 year old may hate me for it then, they'll thank me when they're 28 and don't have that financial burden.

hoffse · October 2016

We are probably going to use a 529 to save for tuition costs and smaller qualified expenses only (books, laptop, etc.). Then we will save for housing in a separate taxable account.

Room and board expenses can come out of a 529, but I agree with @April that it's gotten absurd, and I would be inclined to look at off-campus options for my kid. Off-campus housing can come out of a 529 too, but there is a rental ceiling, and rent must be paid directly to a landlord. This would make it harder to legally split payments among roommates, etc.

H and I actually live close enough to UA to commute a few days per week. A lot of kids around here to do that to lower the cost of college. H and I can't really pay ourselves "rent" out of our kid's 529 if this is what our kid does.

Alternatively, some parents actually buy condos with the intention of having all of their kids live there during their educational years, and then they either turn the condo into a rental or sell when the kids are all through school. This model works pretty well in college towns with successful football teams. I know several people who have done this at UA, and they do so well with rent that these condos have become easy investment properties for them. However, we can't use the 529 to fund a condo purchase if we go this route.

We want to keep our options open, so we are going to use a 529 but keep it conservative in the early years. The nice thing is this plan can certainly change as it becomes clear what are kids are going to be doing. We can always add $$ to their account while in high school and lock in some additional years of growth that way.

cbee817 · October 2016

Also, I don't know if you tried this out, but Vanguard has a really nice college calculator. You can even enter a school (in state, out of state, tuition, room and board options) and see how much you need to save based on how old your child is.

https://vanguard.wealthmsi.com/csp.php

We used our largest public local university (where DH and I both went for undergrad and grad school) and we're actually over contributing for both girls. We'll keep as is for now so that the extra $ can be there for summer classes, grad school, or other expenses. It assumes 5% annual cost increase. I think as they get into middle school, we'll track that more closely to see if it really is about 5% per year.

Xstatic3333 · October 2016

I hate the argument that your friends are making, @brij2006. Most public colleges and universities offer amazing experiences! Study abroad, research, internships, you can get all of that at a public. In terms of job hunting later, it all just comes down to getting some good work experience and good recommendations, not name prestige.

I know we're all on the same page, it just really gets me going.

brij2006 · October 2016

Me too @Xstatic3333 But at this point I think it's just been crammed down so many peoples' throats that it's societal norm to go into a lot of student loan debt to go to school.

If my kids receive enough scholarships for an Ivy league school to make up the difference or a full ride to one, then heck yeah, go for it kid! But I'm not going to purposely deplete all of the 529 and have them take out student loans in order for it to happen for a prestige experience.

jtmh2012 · October 2016

Aside from some business, law, and maybe medical jobs, I don't think you need the elite private school.

However, depending on your intended a career path, a bachelors is sadly "required" for a lot of jobs these days. I'm not saying you actually use said degree, but like the position I'm in "bachelors degree required". Don't have it? No job.

I have a friend who is of the opinion that college degrees are an unnecessary waste. He's in a similar field to mine, but I make way more than he does. So while I don't think a degree is "required", I do think not having one limits your career choices. I also don't think a lot of debt is required to make it happen either.

short+sassy · October 2016

Xstatic3333 said:

I hate the argument that your friends are making, @brij2006. Most public colleges and universities offer amazing experiences! Study abroad, research, internships, you can get all of that at a public. In terms of job hunting later, it all just comes down to getting some good work experience and good recommendations, not name prestige.

I know we're all on the same page, it just really gets me going.

I went to a state college, though went to a community college first and lived at home for that portion. Worked p/t all through HS and college to save for it. My parents gave some money and my employer paid for most of my community college tuition.

Not only did I graduate with zero student loan debt, I put $9K in mutual funds one year before I graduated. Because I wouldn't need it for my last year.

The "lowly" state school that made this possible? Every single class, except one, had 25 or fewer students. The majority only had 15-20 students. I was never taught by a TA. Not once. Every class was taught by the professor and all of them had at least a master's in their field of study, most had PhDs. This was also true for my community college, though their class sizes were a bit bigger.

There were aspects of the college experience I missed out on. My frosh/soph years I was stuck at home and went to a community college. Even at my four-year school, there were no dorms or meal plans. Maybe that wasn't such a bad thing, lol. We also didn't have any sports, but then a lot of state schools do.

I'm mildly disappointed I missed out on some aspects of the stereotypical college experience. But I prefer, by 100x, graduating with no debt and watching my $9K mutual fund balloon to $23K in three short years. On that last one, I just got super lucky and invested right when the tech boom was starting. It did set me up for mutual fund disappointment later because "what do you mean it is not normally a 20+% return every year", lol.

als1982 · October 2016

brij2006 said:

AprilZ81 said:

smerka said:

There are a lot of free market principles at play here. Shouldn't schools be allowed to provide incentives to attract students. I mean if the incentives didn't work, the schools wouldn't use them. Yes the 'free' money in the form of student loans is the problem, but it is kind un-American to not let the marketplace decide.

If it was really the free market that would be one thing, but it is the government's involvement (student loans) that started the tuition hikes/competition games because the colleges knew that the students would have access to more loans to pay the increased tuition, room and board, and fees.

Then you add in the brainwashing that everyone has to have a Bachelor's degree to earn a good living and that the best schools have the best job offers then you have a recipe for disaster. Parents and kids feel like they have no choice, everyone still things that college is the only way so everyone ends up in debt up to their eyeballs.

I'm not saying education is NOT important, but if I knew what I know now back then I would probably make some different decisions.

Yes!
We were chatting with some friends about the way we would like to handle our children's' college. They think we're insane and depriving our children of a college experience because we will be telling them that their option is an in-state public school unless they can get scholarships to their desired school to make up the difference.
Our friends tried using the argument that if our child gets accepted to Harvard that there are many more opportunities there for them than the in-state school. At the end of the day a degree is a degree. Yes you may have an edge in to various law firms or businesses when going to one school over the other, but is that worth paying $150k for a college "experience" vs $30k?
We may be depriving our children of a college "experience" but I really don't care. If they want to study medical to become a doctor then we'll do some researching about the best financial option to receive that degree.
I'm not going to begin to allow my children to think that the societal norm is okay. That going hundreds of thousands into student loan debt because the campus is pretty, is okay. Yes, it will be very un-American of them, but as much as my hypothetical 18 year old may hate me for it then, they'll thank me when they're 28 and don't have that financial burden.

I have mixed feelings about this. My college "experience" had as much if not more impact on my resume and ability to get a good job as my education. That said, many of my colleagues and professional peers attended pricy private schools, while I did two years at community college (free) and then attended a D2 state school ($1,400 a semester for undergrad and free grad school thanks to an assistantship).

julieanne912 · October 2016

One thing my mom did, which I think was pretty smart, was help me buy a house while I was in school. I was 19 and attending a 4 year state school, and also selling real estate. She used a bit of my dad's life insurance money to put a down payment on a sub-100k house. We were both on the loan. The house needed a lot of work, and wasn't super close to campus, but was in a nice neighborhood and had 3 bedrooms and was 1600sq ft. But, the mortgage was only around $600. Before that, I had been renting a 2 bedroom apartment with a roommate near campus for $650. And, before the apartment I lived in the dorms for $900/month. I did a lot of the fix up work myself, and had 1 roommate here and there, paying $250-300/month, so my cost to live there was minimal compared to housing near campus. We could have bought a house near campus in the $130-140k range, but I would have needed 2 roommates instead of just 1 or none.

When it came time to sell a couple years later, we were able to sell it for $140,000, so she recouped her money, and then some, even after taxes. Now, I know this wouldn't work in some areas because of the housing costs, but it sure made sense for her to do it. And, it solved the housing cost issue.

hoffse · October 2016

One thing that I would like to point out is that private school really does not have to break the bank, and the value of those schools is going to vary by family and by student.

There are a handful of schools that really do not give scholarships, but the vast majority do.

At the end of the day it cost about the same to send me to Vandy as it would have cost to pay in-state tuition for one of the big state schools. For my family this was an obvious choice, even though it involved giving up a full ride to state school. I am susceptible to social distraction, and even at 18 I doubted that I would thrive at a huge state school. Vandy is tiny by comparison, and it didn't overwhelm me like UGA did. My parents had been saving my entire life for this, and they decided that I had done my part through scholarships to make private school very affordable.

We actually doubted whether the "name" would carry any real benefit, but I have decided that it really does. I was literally offered millions in scholarship money for law school (I wish I could have taken all of it!). Now as an adult I am discovering my undergrad contracts are a great source of legal work while building my book of business.

For other families, giving up a full ride would never be an option for their kids. I am grateful my parents we were able and willing to let me do it.

mmabe · October 2016

brij2006 said:

AprilZ81 said:

smerka said:

There are a lot of free market principles at play here. Shouldn't schools be allowed to provide incentives to attract students. I mean if the incentives didn't work, the schools wouldn't use them. Yes the 'free' money in the form of student loans is the problem, but it is kind un-American to not let the marketplace decide.

If it was really the free market that would be one thing, but it is the government's involvement (student loans) that started the tuition hikes/competition games because the colleges knew that the students would have access to more loans to pay the increased tuition, room and board, and fees.

Then you add in the brainwashing that everyone has to have a Bachelor's degree to earn a good living and that the best schools have the best job offers then you have a recipe for disaster. Parents and kids feel like they have no choice, everyone still things that college is the only way so everyone ends up in debt up to their eyeballs.

I'm not saying education is NOT important, but if I knew what I know now back then I would probably make some different decisions.

Our friends tried using the argument that if our child gets accepted to Harvard that there are many more opportunities there for them than the in-state school. At the end of the day a degree is a degree. Yes you may have an edge in to various law firms or businesses when going to one school over the other, but is that worth paying $150k for a college "experience" vs $30k?

I believe that Harvard and certain schools of the same ilk do provide a lot more opportunities for its graduates than many state schools or lesser private schools. I went to a private school in the midwest that definitely afforded me opportunities that I would not have at other schools due to the alumnae base. However, at the current cost, I am not sure that I would be willing to pay for my children to attend. However, to me, Harvard is in an entirely different league and provides far greater opportunities. I don't know that I could fully pay for my children to attend Harvard, but if they had the opportunity, I certainly would not discourage them from trying to make it work.

Any good books or advice on saving for college?

Re: Any good books or advice on saving for college?

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