Saving for college

[MarkBarbieri]

Last month, I hosted a roundtable discussion for parents in our neighborhood to discuss college savings. I put together some summary notes for those parents not able to attend. I'm posting them here for two reasons. First, I'm sure that some of you can improve on what I've written. Second, some of you might be able to benefit from it as well.

College Savings Notes

Disclaimer: I am not a financial professional. I’m an IT geek that learned about college savings to help me better prepare for my children’s future. It is entirely possible that some or all of what I write below is completely incorrect. Caveat emptor.
How Much Will College Cost

The first question you need to answer is “How much will college cost for my children?” Predicting college costs in the future is difficult. The best way to predict it is to start with an estimate of how much college costs today. The National Center for Education Statistics (part of the US Department of Education) has put together a College Navigator website. This site has a tremendous amount of information about every significant college in the US. In particular, it includes a rough breakdown of what it costs to attend.
Below are the total attendance costs for several major Texas Universities. Those costs include $10 to $12 thousand dollars per year in living expenses.
Texas A&M
$ 17,131
University of Texas
$ 20,286
Rice
$ 41,775
University of Houston
$ 18,600
Sam Houston State
$ 15,868

Once you know how much it costs, you have to decide how quickly the costs will grow. Accord to FinAid.org, tuition inflation tends to run anywhere from 1.5 to 2 times general inflation. I would assume that living expenses will rise at the rate of general inflation. I have no idea how to predict future inflation, so I just use a rough estimate of 6% annual inflation. Once you have the initial cost and an estimate of the inflation rate, you have everything you need for a working estimate of how much college will cost you.
Financial Aid

I know almost nothing about financial aid. I do my planning assuming no aid. If you think you might be eligible, it might be worth reading up on the subject as part of your planning. I do know that financial aid is typically calculated by determining what college will cost and subtracting the “expected family contribution”. Colleges will try to help you with the difference through grants, loans, or work study programs.
How Much Should I Pay?

One college saving component that varies significantly from family to family is the amount of college costs paid by the parents. In some households, the parents pay for all of the costs. In others, they pay nothing. Some studies show that students perform better in school if they directly contribute to the funding. How much you pay for your children’s schooling is a value judgment and I can’t really offer advice on the subject. I do recommend that you put it into perspective with other things that you might be saving for. Before you save a penny for college, you should be saving enough for retirement, have adequate life, disability, and health insurance, and have a reasonable emergency fund. Once you have your fundamental financial concerns met, you can decide whether you want to pay all, some, or none of your children’s college costs.
Our personal savings goal is to have enough money to pay for a bachelor’s degree at a top in-state public university. If the kids want to go to someplace more expensive, they’ll have to fund the difference. In order to give them a sense of ownership of the funding, we will give them any money they have left over if the graduate early or get funding from scholarships.
How Much Should I Save?

Now that you know the current cost of college, have an estimate of the inflation rate, and understand how much you want to pay, you should be able to calculate how much you need to save. To help with this, I recommend the SavingForCollege.com College Cost Calculator. If will ask you the following questions:
How old is your child?
Current cost of your chosen college?
Years until your child enters college?
Years that your child will attend college?
What percentage of college costs will you pay?
Do you wish to finish saving when your child starts or ends college?
How much do you already have saved?
Do you wish to save monthly or annually?
At what rate do you expect college costs to increase?
How much do you expect to earn on your college savings?
Once you fill all of that in, it will return back an answer for how much you need to save.
Example

Let’s take the example of a newborn destined to attend a $20,000 / year university for four years starting when they are 18. You want to pay 100% of the costs, save monthly, and keep saving until they graduate. You expect college costs to increase at 6% and you expect to earn 7% on your savings. According to the calculator, you will need to save $482/month to meet this goal.
How Should I Save?

Once you know how much you need to save for college, you have to figure out how you will save. There are lots of different ways to save, each with different advantages and disadvantages. One big difference between different savings methods is the tax treatment. In some cases, you have to pay taxes each year on the money you earn. That decreases the amount of money you have available grow. Some methods are tax deferred. With tax deferred investments, you keep all of money, including the earnings until the end. Then you pay the taxes. There are also some that offer tax free growth. Tax free savings is just that – you don’t ever pay any taxes on the money that is earned.
Some of the different ways to save for college include US Savings Bonds (secure, slow growth, some tax advantages for families making less than $130,000), IRAs (better to use for retirement, but they can also be used for some college savings), UGMA/UTMA (putting the money in your children’s name for tax reasons, but it hurts financial aid and it risks letting the children use the money for something other than school), and 529 College Savings Plans. Of all of these, I think that the 529 plans work the best for almost everyone. There are also Coverdell Education Savings Accounts, but they offer few advantages over a 529 plan and have more limitations.
529 Plans

There are different types of 529 plans. The biggest difference is that some work like savings and with other you pay tuition today and today’s prices. They also differ between those that are broker sold and those that are sold directly to consumers. I prefer direct sold plans because they are cheaper. With a broker sold plan, you are paying a broker a commission, but you are presumably getting useful advice and guidance from the broker that is worth that commission.
529 plans are offered by states. You can pick a 529 plan in any state, not just where you live or where you plan to attend college. In states with state income taxes, using that state’s plan can help you with your state income taxes. Here in Texas, there is no tax benefit to using Texas’ 529 plans.
Prepaid Tuition

When Texas first got into the 529 business, they offered a pre-paid tuition plan called the Texas Tomorrow fund. Public university tuition rates were deregulated, rose much faster than inflation, and caused the plan to lose money. People who bought into the plan got a great deal, but the state lost so much money on it that they quit offering it to new customers. They have recently started a new pre-paid tuition plan called the Texas PrePaid Tuition Plan. This is a really good option for locking in college costs, but with one huge caveat. It is only good if your child goes to a Texas public university and uses all of the credits you bought. You can pull your money out for other purposes, but you will not do nearly as well as you would have with other savings options. If you are certain that junior is going to be another Longhorn or Aggie, this program makes a lot of sense. If you think that there is a chance that junior might go to Rice, Baylor, Harvard, or not attend college, you may deeply regret this option. Despite many attempts, I have not been able to find a formula that tells me how much money I can take out if I buy pre-paid tuition and my kids decide to go to a private university. That worries me.
If your child is destined for a private university and you want the advantage of a pre-paid tuition fund, look into the Independent 529. It’s a prepaid tuition plan created for private universities. Just be aware that if junior doesn’t get accepted into Rice and falls back on Sam Houston, you could lose a lot of money.
529 Savings Plans

On any given day, my kids do things so brilliant and inspired that I think they are destined for our nation’s most elite private universities. They immediately follow that with actions so breathtakingly stupid that I wonder if they will even survive long enough to graduate high school. I’m not willing to commit to any particular university at this time, so we are using a 529 college savings plan rather than a pre-paid tuition plan. It doesn’t lock in today’s tuition, but it gives us much more flexibility in how the money is spent.
A 529 College Savings Plan is an investment account on which you pay no taxes if you use the money for college. It’s very similar to a Roth IRA, for those of you familiar with those. You pick a plan, pick a type of savings, let the money grow (or shrink lately), and when you take the money out, you pay no taxes. There are no income limits on contributors and the limit on account size is huge (usually more than $250,000 per kid). The minimum investment required to set one up is pretty small.
There are many, many 529 plans. To choose one, you can talk to your investment advisor or you can use a site like the SavingForCollege.com website to help you pick the right one. Pay close attention to the costs of the plan and of the underlying investments. It doesn’t help you much if the commission is really low but the annual fees on the underlying funds are really high.
Even after you’ve picked your 529 plan, your choices aren’t finished. You still have to decide what your investments will be. You could invest in stocks, bonds, money markets, etc. My preference is to pick an age adjusted fund. These funds start off invested in riskier, growth oriented investments like stock funds. As your child ages, they shift your money into more stable investments. Even assuming that you want an age adjusted plan, you still have to chose one that matches your level of risk taking.
Summary

1)[FONT=&quot] [/FONT]Decide how much of your child’s college costs you want to pay.
2)[FONT=&quot] [/FONT]Guess what school they might attend and look up how much it will cost. (College Navigator website)
3)[FONT=&quot] [/FONT]Determine how much you need to save to pay for that college. (College Cost Calculator)
4)[FONT=&quot] [/FONT]Decide whether you want to gamble on a pre-paid tuition plan or just save.
5)[FONT=&quot] [/FONT]Find a 529 plan, open an account, and start saving. (SavingForCollege.com)
The sooner you start saving, the less money you’ll need to save each month.

 

[Pea-n-Me]

Good info, Mark. Thanks for posting it.

 

[lillygator]

thanks - we have fl prepaid and 529

 

[Traveliz]

>>On any given day, my kids do things so brilliant and inspired that I think they are destined for our nation’s most elite private universities. They immediately follow that with actions so breathtakingly stupid that I wonder if they will even survive long enough to graduate high school.<<

That was the best line ever - you are very realistic!

Liz

 

[Camicar]

You pick a plan, pick a type of savings, let the money grow (or shrink lately),

Which is why you have to be very careful with putting your money in any stock market-based investment if your kid is going to college in 5 years or less. Two of my coworkers who so carefully invested in 529s are now freaking out about their senior children's accounts and what it means for college next year.

Our personal savings goal is to have enough money to pay for a bachelor’s degree at a top in-state public university.

Make sure that it's possible to graduate from your top in state public university in 4 years. It is generally considered impossible to do so at our state's flagship campus due to over-admission. It typically takes 5 years or more to finish a 4 year degree because the students cannot get admitted to required classes on schedule. So that 'cheap' four year public university may end up not being so cheap --you need to check the real stats, versus what the admissions office's pr says. Also, if your child is hoping to enter a competitive program, find out what the actual admission rate into the program is.

My niece just got the shock of her life at UConn when at orientation they condescended to tell them the truth about admission to a highly-competitive program. She had previously asked, in writing, about the admission rates and they bold-faced lied to her and admitted doing so during orientation. They further admitted then that the difference between those admitted and not was often .001 AND that she'd end up having to retake an entire year of college to qualify for the next -most applicable program. She was able to withdraw and enter a private university with a guaranteed admission to her program of choice. More expensive? Sure. But it was worth it to get into her program.

It's a false savings if you don't get what you want out of your expenditure. Just something to keep in mind before making generalizations about public unversities.

 

[corndog]

I have no idea how to predict future inflation, so I just use a rough estimate of 6% annual inflation.

 

[MarkBarbieri]

Which is why you have to be very careful with putting your money in any stock market-based investment if your kid is going to college in 5 years or less. Two of my coworkers who so carefully invested in 529s are now freaking out about their senior children's accounts and what it means for college next year.

That's why I use an age adjusting plan. I was all stock when they were toddlers, I'm mixed stocks & bonds now. I'll be pretty much all money market by the time they start.

Make sure that it's possible to graduate from your top in state public university in 4 years. It is generally considered impossible to do so at our state's flagship campus due to over-admission. It typically takes 5 years or more to finish a 4 year degree because the students cannot get admitted to required classes on schedule. So that 'cheap' four year public university may end up not being so cheap --you need to check the real stats, versus what the admissions office's pr says. Also, if your child is hoping to enter a competitive program, find out what the actual admission rate into the program is.

My niece just got the shock of her life at UConn when at orientation they condescended to tell them the truth about admission to a highly-competitive program. She had previously asked, in writing, about the admission rates and they bold-faced lied to her and admitted doing so during orientation. They further admitted then that the difference between those admitted and not was often .001 AND that she'd end up having to retake an entire year of college to qualify for the next -most applicable program. She was able to withdraw and enter a private university with a guaranteed admission to her program of choice. More expensive? Sure. But it was worth it to get into her program.

It's a false savings if you don't get what you want out of your expenditure. Just something to keep in mind before making generalizations about public unversities.

I'm planning on 5 years per child. My experience is that engineering programs can take that long. Most of my interns have taken 4.5 years to finish. 5 years at $20K per year is cheaper than 4 years at $40K per year. Either way, if they want more than the $100K I set aside for 5 years at a public U, it's up to them to cover the overage. Currently, my 9 year old is fascinated with the notion of getting academic scholarships and getting out in four years with a big wad of cash. If that motivates him to do well in school, it's money well spent.

I know that it is frightening, but college expenses have run at or near 6% inflation for a while. I think it is better to be conservative and over-invest early than it is to under-invest and play catch up later. Sadly, every time college costs go up, more federal aid is given. With more money available for education, colleges are able to raise rates. It's a vicious cycle.

 

[ntsammy5]

Thank God the youngest graduated in 2003 with her DPT - I'm still paying for 3 bachelors,2 masters and one doctorate (DPT). It's only getting worse.

 

[corndog]

Sadly, every time college costs go up, more federal aid is given. With more money available for education, colleges are able to raise rates. It's a vicious cycle.

It started with government aid. After WWII, there was an influx of former military into the job market. Because there were too many applicants to sort through, employers began requiring college degrees. This resulted in large numbers of unemployed veterans who turned to the government for assistance. The government gave them college money. The number of seats available in college is not infinitely/instantly expandable, so the colleges had to respond to the influx of applicatoins by raising the prices. And on and on it went and still goes today.

 

[themarquis]

it's very thorough, but I have to admit I'm shocked you don't even bother talking about financial aid.

Financial aid is not just for "poor kids" -- the majority of families qualify, and you can earn a very high income and still qualify. It can provide anywhere from a little "help" with tuition to the entirety of it, plus room/board/books/etc. Often, much of it will be in the form of "free" money -- grants and scholarships provided by the school -- that won't have to be paid back. Many kids will get **everything* paid for by financial aid.

The big danger with financial aid is that low/middle income families may NOT benefit by aggressively saving money for their child's college education. The reason is that it gets factored into the financial aid decision, and the child will get less. Obviously, people should save what they can, but you'd be shocked at the number of lower income families who have never heard of financial aid, bust their butts to save a small sum of money, and then basically get it taken away from them for their child's college education.

If you don't want to say anything about it, the very least you could do is point them toward good resources (like say the government's page on financial aid/fafsa) and note that most people will qualify even if they are not low income. This is important for people to know.

 

[arminnie]

Make sure that it's possible to graduate from your top in state public university in 4 years. It is generally considered impossible to do so at our state's flagship campus due to over-admission. It typically takes 5 years or more to finish a 4 year degree because the students cannot get admitted to required classes on schedule.

I know it is true in today's world - but I am still shocked by this. I graduated from college in 3 years (only taking 9 hours in summer school) as did MOST of my friends from high school.

I know a bunch of kids who graduated from Harvard this year. They all finished in 4 years - and none of them have any debt because of Harvard's liberal financial aid.

And many of them are making BIG starting salaries. It was definitely more cost effective for them to attend a VERY expensive college.

 

[MarkBarbieri]

it's very thorough, but I have to admit I'm shocked you don't even bother talking about financial aid.

Financial aid is not just for "poor kids" -- the majority of families qualify, and you can earn a very high income and still qualify. It can provide anywhere from a little "help" with tuition to the entirety of it, plus room/board/books/etc. Often, much of it will be in the form of "free" money -- grants and scholarships provided by the school -- that won't have to be paid back. Many kids will get **everything* paid for by financial aid.

The big danger with financial aid is that low/middle income families may NOT benefit by aggressively saving money for their child's college education. The reason is that it gets factored into the financial aid decision, and the child will get less. Obviously, people should save what they can, but you'd be shocked at the number of lower income families who have never heard of financial aid, bust their butts to save a small sum of money, and then basically get it taken away from them for their child's college education.

If you don't want to say anything about it, the very least you could do is point them toward good resources (like say the government's page on financial aid/fafsa) and note that most people will qualify even if they are not low income. This is important for people to know.

Well, I don't know enough about financial aid to speak meaningfully about it. My target audience was my neighbors with similarly aged (elementary and pre-school) children. We're a long way off and financial aid is something hard to predict over that time frame. My focus was on determining how much to save, not how to pay for someone currently going to school.

As for the notion that saving for college will count against them, I don't think that is the case. Money in a 529 plan is considered an asset of the plan owner (the parent) and not the child. As such, it is no different than regular savings the parent might have. I suppose that you could get more financial aid by not saving any money at all, but that hardly seems prudent.

If you have any links to good (and comprehensible) information on financial aid, I'd love to see them. The ones I encountered basically said that the formula was beyond mortal comprehension and didn't bother to explain it. I did find a calculator at FinAid.com. It basically told me that for someone with my family income and assets, I was on my own unless I sent my children to an expensive private university.

 

[themarquis]

It's true that it wouldn't be a good idea not to save at all to reduce your expected contribution! But I know there are smarter and dumber ways of saving money in the context of getting financial aid.

I think probably the resource you could point your audience to is the government's student aid site that has a TON of info for people who are trying to look ahead even if their kids are not near college age yet -- http://studentaid.ed.gov/PORTALSWebApp/students/english/index.jsp I do see a financial aid wizard that will calculate how much your child would be expected to get in aid -- a great step for anyone, even if they have young kids. They cold try to look ahead and estimate their general future level of income and see whether they would be in the running for any aid at all. That could be factored into their college savings plan for their child.

You'd be absolutely shocked at the number of people who assume their children can't get financial aid because they make a good income. It turns out that people often just have no clue what the federal government thinks is a "good income" or not! That's why it's important to at least have a ballpark idea of whether your kids may qualify for aid or not. There is money out there that does not have to be repaid that the governments and various agencies WANT kids to get. Our government, for good reason, wants kids to get college educations for the future of our nation -- so everyone should check and see whether they can get help!

 

[bluesaturn]

it's very thorough, but I have to admit I'm shocked you don't even bother talking about financial aid.

Financial aid is not just for "poor kids" -- the majority of families qualify, and you can earn a very high income and still qualify. It can provide anywhere from a little "help" with tuition to the entirety of it, plus room/board/books/etc. Often, much of it will be in the form of "free" money -- grants and scholarships provided by the school -- that won't have to be paid back. Many kids will get **everything* paid for by financial aid.

The big danger with financial aid is that low/middle income families may NOT benefit by aggressively saving money for their child's college education. The reason is that it gets factored into the financial aid decision, and the child will get less. Obviously, people should save what they can, but you'd be shocked at the number of lower income families who have never heard of financial aid, bust their butts to save a small sum of money, and then basically get it taken away from them for their child's college education.

If you don't want to say anything about it, the very least you could do is point them toward good resources (like say the government's page on financial aid/fafsa) and note that most people will qualify even if they are not low income. This is important for people to know.

I have to say that I started college 4 years ago, and found this wasn't true. I was offered little to no financial aid. My parents are middle income, and though they had money saved it wasn't nearly enough for a private school. The prestigious private schools offered me almost nothing ($1000/yr doesn't even pay for a meal plan). Middle ground private schools offered me about half tuition in scholarships, but this still made the state school cheaper. I received a scholarship to the state school I attend, but I doubt I would have received much financial aid. Most of my friends received very little financial aid from their state schools.

I don't claim to know it all, this is just from my experience. But I know that for all of high school we were always told that financial aid will be useful. However when it came time to pay up, I didn't find this to be true.

On the other hand, I think scholarships and grants were more regularly available that I expected. For many of them I didn't even specifically apply, but was approached by the school or qualified by the state because of my GPA and test scores. Of course I would encourage anyone to apply for as many as possible.

 

[bluesaturn]

You'd be absolutely shocked at the number of people who assume their children can't get financial aid because they make a good income. It turns out that people often just have no clue what the federal government thinks is a "good income" or not! That's why it's important to at least have a ballpark idea of whether your kids may qualify for aid or not. There is money out there that does not have to be repaid that the governments and various agencies WANT kids to get. Our government, for good reason, wants kids to get college educations for the future of our nation -- so everyone should check and see whether they can get help!

As I said, we found that the expected contribution calculated for my parents income was ridiculous. As in, yes we could pay that, or we could continue to feed and clothe your little sister. Perhaps it is because we live in a high cost of living area? I know this is just one opinion, not at all fact. I just wanted to through it out there. It is a wonderful idea to use these calculators ahead of time, because when we received the results from the FAFSA we were shocked and unprepared.

Though I agree with you, there are many state funded scholarships and grants available which are wonderful. Many people have no idea these exist.

 

[MrsPete]

>>On any given day, my kids do things so brilliant and inspired that I think they are destined for our nation’s most elite private universities. They immediately follow that with actions so breathtakingly stupid that I wonder if they will even survive long enough to graduate high school.<<

That was the best line ever - you are very realistic!

Liz

That IS a great line! Anyone who has kids knows that it's 100% true.

Make sure that it's possible to graduate from your top in state public university in 4 years. It is generally considered impossible to do so at our state's flagship campus due to over-admission. It typically takes 5 years or more to finish a 4 year degree because the students cannot get admitted to required classes on schedule.

A couple ways to hedge your bets against this issue:

Encourage your high school junior / senior to take advantage of all the programs that allow him to earn college credit during high school. My 9th grade daughter already has a little bit of college credit earned; of course, it's just elective credit, and it isn't much. Her high school offers THREE WAYS to earn college credits during high school. Having some "easy classes" out of the way clears the schedule so that the student can sign up for what's necessary as soon as it's available.

Encourage your student to find out when certain classes are offered. For example, it might be imperative that he takes Chemistry 101 freshman year so that he's qualified to take Chemistry 201 sophomore year, which then leads to whatever else. Okay, Chemistry 101's a bad example because it's going to be offered every semester, but pretend it was a rather rare class that's only offered in the fall semester; if the student figures he'll wait 'til spring, he may be surprised to find that it's not offered then.

And then there are students like my husband, who in his first year of college thought he could live like the guys in the movie Animal House. He flunked an Intro to Engineering class his first semseter, and it wasn't offered again 'til the next fall . . . but, of course, he couldn't enter the more advanced classes 'til that one rolled around again. It set him back a whole year.

Ideally faculty advisors warn students about these "rare" classes, but some advisors aren't all that good. Talking to slightly older students is often a more reliable way of making sure that one's 4-year plan is realistic. And it's suprising how many students don't really sit down and make a 4-year plan, but rather just drift through taking what looks fun each semester, figuring it'll all lead to a degree. MOST of my high school students (and a number of the education majors who come to our school to observe) enter college with little idea of what's actually expected; they don't start off with solid plans. I wonder how many of these students TELL THEIR PARENTS that they "couldn't get into ____ class" when they really just didn't plan ahead properly.

it's very thorough, but I have to admit I'm shocked you don't even bother talking about financial aid.

My husband and I don't earn a specially high income, but we've saved -- and we own our house outright -- so I don't think our kids'll get anything in financial aid. Still, I intend to go through the process at least for the oldest child's first year in college (and then again once we have two in college at the same time). If we get something, wonderful! If they laugh and say that we're never going to get a penny, then we won't bother again. But there are so many factors to consider; we'll give it a try once.

Though I agree with you, there are many state funded scholarships and grants available which are wonderful. Many people have no idea these exist.

Be sure to apply EARLY for these. When I was in college our state provided a small amount towards EVERY IN-STATE STUDENT, no requriements except that you were progressing towards graduation at an in-state public school. Here was the catch: Though anyone of any income could claim a bite of that pie, the pie wasn't endless. Once they'd awarded all the money, there was no more 'til the next year -- no matter how needy you were. I was VERY needy, and my parents always dragged their feet on doing their taxes, which meant that a couple years I couldn't get that grant. The application for this particular grant had to be done with the financial aid forms, and I couldn't do them 'til my parents had done their taxes. After it happened my sophomore year, I explained and explained and explained why it was so important to me that they go ahead and do their taxes . . . but they just didn't care.

One last thought: It'll be interesting to see what the economy does to college admission, financial aid, and tuition prices. I see several possibilities:
1. People will borrow more.
2. Money will be more difficult to borrow.
3. People will need to work more hours to put food on the table, and fewer people will enroll in college.
4. Unable to find jobs in a difficult economy, more people will enroll in college (on borrowed money), thinking that they'll become qualified for a better job.
5. If colleges have fewer students, they'll raise tuition because many of their expenses (i.e., running the football program) are still the same regardless of how many students attend the university.
6. If colleges have fewer students, competition for the best students will rise, and more small (perhaps tuition-only) scholarships will be available.
7. More students will attend school part-time.
8. Less desirable colleges -- the ones who currently admit the students who sort of "couldn't" get in anywhere else may end up closing their doors as those students forego college.
9. Less money may force students to choose less expensive schools, and the more expensive schools could find themselves in trouble.
10. The more expensive schools may have greater reserves and may be able to offer greater scholarships, which will lure students away from the moderately priced colleges.

I don't know. These are all guesses, but I'd be willing to bet that our current economy WILL impact college attendance in some way.

 

[themarquis]

As I said, we found that the expected contribution calculated for my parents income was ridiculous. As in, yes we could pay that, or we could continue to feed and clothe your little sister. Perhaps it is because we live in a high cost of living area? I know this is just one opinion, not at all fact. I just wanted to through it out there. It is a wonderful idea to use these calculators ahead of time, because when we received the results from the FAFSA we were shocked and unprepared.

Though I agree with you, there are many state funded scholarships and grants available which are wonderful. Many people have no idea these exist.

It's true that financial aid is a weird, weird thing. They don't calculate it completely on parental income. There are a ton of other factors that come into play. Most middle-income people will get relatively generous help; some people get screwed. I know the situation is particularly problematic for kids of divorced parents (both parent household incomes count) and kids whose parents have assets such as an expensive home (even though they might not really have a lot of money otherwise and just live in an expensive area).

I think it's also worth pointing out that almost everyone in this country calls themselves "middle class" but there is such a huge variation in what this might mean! For example, I know people who make a 30-40 k income call themselves "middle class" and people who make a 200+ k income call themselves "middle class". It's just one of the peculiarities of the class system in America. I think this is one of the factors at play that leads a lot of people to not realize their kids might qualify for aid -- and that leads some people (your situation, for example, perhaps) to be shocked at how little they get. The reason is that nobody really has a clue what "middle income" or "high income" might be according to the federal government.

The point is that everyone with kids who is not absurdly wealthy should be looking into information about financial aid so that they can make the best, most informed decisions possible when it comes time. No one should ever assume they won't qualify and just not bother looking into it or filling out a FAFSA. When it comes down to it, filling out a FAFSA might take an hour but end up saving thousands of dollars and helping your child get the best opportunities possible.

 

[IndyBride]

I have to say that I started college 4 years ago, and found this wasn't true. I was offered little to no financial aid. My parents are middle income, and though they had money saved it wasn't nearly enough for a private school. The prestigious private schools offered me almost nothing ($1000/yr doesn't even pay for a meal plan). Middle ground private schools offered me about half tuition in scholarships, but this still made the state school cheaper. I received a scholarship to the state school I attend, but I doubt I would have received much financial aid. Most of my friends received very little financial aid from their state schools.

I was always told that until a certain age it was very hard to get a large amount of financial aid. Luckily, I had most of my school paid for by my mother but, the last two years I did have to get aid. I was able to get enough for tuition, books, and other fees such as parking. I think after a certain age the gov't. assumes you won't be getting help from parents. It's unfortunate because parents can't always pay the difference! Good for you for getting through it all though!

 

[allison443]

My understanding is that basically if your combined income is over 100K your kid will not get need-based financial aid. I'm sure people will say that sounds like a high income, but around here that is a police officer married to a teacher, or a nurse married to a firefighter. We live in a high cost of living area.
If I am wrong, please correct me!

As for the EFC (estimated family contribution), it is expected that families can pay their share from three sources: savings, current income, and future income (like taking a home equity loan). If someone has no savings, it could be difficult to meet the efc on just current income.

I also want to point out that some schools guarantee to meet demonstrated financial need (as determined by the financial aid forms) while others are known for "gapping" or not meeting the full amount of need. Another point is that loans are considered financial aid by many/most schools; financial aid is not always "free money" that never has to be paid back.

OP great post. It's never too soon to start thinking about these issues!

 

[allison443]

One last thought: It'll be interesting to see what the economy does to college admission, financial aid, and tuition prices.

My dd is a senior currently applying to colleges. All indications are that applications to state schools are up due to the lower price.

Also a number of schools have advised students and parents that they have sustained big losses in their investments. This will have to have an effect on everything from staffing to financial aid.