The top 1% of households have at least $10M in assets. They can afford to put several kids through privates at full pay without hurting at all.
There are roughly 4M births in the US each year so 1% of that is 40K.
Go down the wealth/income spectrum, and it starts hurting more. But the 90th percentile still has a little over $1M in assets. If they don’t qualify for fin aid, their income would be over $200K/year. Probably over $250K/year. At that level, full-pay would hurt, but if they only have one kid, I can see how they can and do make it work.
Finally, a small percentage of Ivy/equivalent student bodies are from overseas. Most of these privates do not guarantee fin aid for Internationals, yet the US has the majority of the most prestigious universities in the world, so many from outside the US are willing to pay full price.
So in short, there are a lot of rich people in this country and even more outside this country.
Pretty sure we’re going to be full pay at a lot of the schools that DD is targeting. Hoping for some relief, but we’d rather plan for the worst case scenario. Then again, we’ll have had 18 years notice and savingforcollege.com was (so far) pretty accurate in giving us a target number. $320K is arguably eye-popping. I see the reason for the debate as to whether it is worth it. However, having planned since DD was in the womb, and with periodic progress checks on our savings status through the years, I can’t say $320K comes as a surprise.
One big factor: Inheritance. We’re in the midst of the biggest transfer of generational wealth in history. In many areas of the country, people who bought houses in the 1960s for $20k have sold them for $800k. Anyone who bought real estate in NYC in the 1970s, when you could barely give away a Manhattan apartment, are now looking at multimillion dollar profits. But it doesn’t even have to be that much. My friend inherited her mom’s mortgage-free house, sold it for $425k. Bingo. College.
People are living longer these days. It’s never a good idea to count on inheritance or any “OPM”, (Other People’s Money) for anything, anyways. I’ve seen many an inheritance assumption go awry.
What I have seen with many families is loans. PLUS and the co-signed ones. Many of my peers are very much in debt because they took out large loans to pay for college. Many of them assumed that some scholarship or aid was forthcoming and/or that they would stick to their guns in insisting their kids go to a less expensive school.
In my state, there is always the commuting to a reasonably priced school option, and nearly all of the kids I ve known also had options to go to schools that cost far less than $200-300k+. It was very much choice to go the expensive route. All of my kids had free or nearly free college options, firmly in hand, and it was a family decision not to take those options.
Went back to work when kids were three and saved nearly 100% of take home toward college for some years. Put in 529 and still didn’t have enough. Have enough for half of that $80k per year and that includes funds from grandparents. Not particularly great scholarships so far. We keep plugging away. No need based aid. Still kids are in good places and we can pay for the choices. But it did rule out the more expensive universities.
When my kids were young,I calculated that at the then present tuition increase rate, tuition might be 80K by the time they were 18. It was. For those with younger kids, I think it will top 100k in the not distant future, so adjust accordingly. Outstanding public options are available at a fraction of that cost and yield the same grad school and employment outcomes. The experiences themselves may be different, but each family has to assess whether that is worth it. I know people who drive Ferrarri cars and those who drive Honda’s. Everyone gets to work.
Like life there are many different paths. I know people paying for full price colleges out of current income (one family has paid for 2 full pay degrees in 6 years and will pay for 3 in 9 years out of current income). Others who have saved over life of kids (last 10 years have been very good to investment portfolios). Still others who were able to sell company stock. And a few who received inheritances. I agree you can’t count on that (though when I look at my friend group, I am the only one with all 4 parents (mine and in-laws) still alive when my first kid started college. And about 1/3rd of that group had no living parents when their first kid started college. Again, can’t count on it but it definitely happens (its pretty common here for people to note that an inheritance helped). Some people also used home equity to pay for college (and I don’t live in a high growth/price area so it can be more common for equity growth in other areas of the country). And in many cases it was a mix of two or more of the above.
Not sure that looking at top 1% household net worth makes sense though. People tend to have highest net worth at retirement. At that point for most people, you kids are out of college at that point. Having the net worth to pay for college at that point doesn’t really help. Though no doubt there are a lot of people with the net worth/income with college aged kids who can pay full fare.
For better of worse, we have one child (the oldest passed away). It is definitely easier planning for college with only one. Honestly I don’t know how people with big families do it without chasing some serious merit $.
For us, we’ve always lived on one salary. I worked for the first 7 years of our marriage and my entire salary went into savings/investments. We both also maxed out our retirement accounts. When I stopped working to be a SAHM, H moved to a job that had a bonus. We never included the bonus payouts in our budget so all of that money went into savings, 529, etc… I worked again for a bit, and again, that money went into savings. Basically, we lived below our means, never got the mortgage we “qualified for”, etc… We were also fortunate that we lived in lower cost of living areas (until now) which allowed a nice life style without the need for a crazy budget.
None of this is helpful for people who are facing college costs now, but for those reading who may be starting a new family…hopefully this can help. Save. Save. Save! ; )
We are also planning that once D has a family of her own, we will open a 529 for her kids and contribute every year as we can.
Yes, net worth tends to max out near retirement, but that means that those folks who have more than enough to retire on can also help out their grandkids.
In any case, yes, in-state public is an option for nearly everyone (and depending on the state you’re in and your interests, some of those in-state options can be pretty darn good). There are also other options available. Merit money, highly-ranked unis in the UK/Canada/Germany/elsewhere that are measurably cheaper, etc.
I’ve heard that USC can be pretty generous with their merit scholarships - they also have scholarships that are available if you apply by December 1 (Not Early Decision - just a scholarship deadline). My daughter was going to apply and had drafts of her 4 or 5 main supplemental essays done, or mostly done, when she opened up the supplental section for her intended major and that had another 5 really long essays specific for that major. Since it was already late in the game, she dropped USC from her list and just applied to another UC school instead.
I believe USC also recently announced that they will no longer consider home equity when calculating need-based financial aid.
Not saying anyone should count on it. The question was, how can people afford it? Inheritance is one big factor.
[/quote]
It is a huge factor. 7 years ago our oldest was finishing HS, we were looking at an EFC of around $25,000. A year ago my parents died and I inherited a house outside Boston, a decent sized IRS (meaning mimimum distributions for me), and a stock account with almost zero basis (just like the house). Net worth rose significantly, and so did EFC for our youngest(more than doubled). Anything I take out of the IRA will be taxed as ordinary income on top of our regular income, and anything we liquidate (house or stocks) will be pure capital gains. Yes, I can afford to spend the money, but it still stings.
We knew it was coming, so we did our homework. We were pleasantly surprised by the scholarship Missouri S&T offered - almost full tuition with a 3.3 GPA out of state. The next closest school will cost at least $15,000 more.
Incidentally, don’t assume that a family with a net worth over $1 Million has annual earnings of $200,000. We’re not even close, but we saved our entire lives, and have chosen to live well within our means. I don’t feel particularly bad for others with our income who can’t afford a more expensive school, because most of them didn’t save for something that is entirely expected. They’ve spent the last 20 years enjoying bigger houses, fancier cars, and exiting vacations. And their EFC is still lower than ours was before the inheritance, because they chose not to save.
It comes down to a question of priorities. Those that can afford NU and other expensive schools without loans can do so because they already had the money, or they made education a priority.
I have been reading on CC for a number of years and see a variation of this question all the time. How do people afford expensive things? They’re wealthy is generally the answer. There are parents at my child’s HS that would love to be full pay at Northwestern but their kid can’t get in.
Use the NPC to estimate cost for your specific situation. Using the NPC with some typical family assumptions, I get significant FA with incomes as high as $250k/year, suggesting that the bulk of sticker price domestic families have incomes of >$250k/year. $80k/year is far more affordable for a wealthy >$250k/year income family than a typical middle class family.
The page you linked to lists some specific numbers about cost by income level and shows substantial FA for all the listed income ranges below the maximum. For example, it suggests 87% of $120k to $150k/year income families receive FA, and those families have an average cost of ~$26k/years, which would yield a similar cost to some in state publics (assuming living on campus).
Yes to the savings and not having fancy things/vacations. People in our town who complain about increased taxes/cost of college are also the ones who go someplace amazing EVERY SINGLE school vacation and drive nice cars or 5 of them. So yeah, their kids may need to go to state schools. We’ve saved since before we got married because we were pretty sure that we’d be in the middle of fa - have too much to qualify but not enough to make it easy.
Also many families are paying for private HS to the tune of 25K - 30+K a year per child. This is already built into their budget. So when their child graduates HS, they only have to come up with 40-45K a year for college. If they have saved some, get some merit aid +/or a little financial aid, it is much more doable.
I believe the basis for an inherited house is the value of the house upon inheritance. So the capital gains would be minimal, if any, if you were to sell immediately.