Thinkmwhat you want. For a,school like WPI, I am going to,repeat…you won’t see more than 20%'of,the cost,in grant aid…which is the %age you see now.
So…if the cost of WPI goes up,to $100,000 a year…you will,be paying $80,000.
But your retirement balance will,have NO ZERO NONE NADA impact on this. Have all your money in retirement is your choice.
But income is really the driver behind need based aid…not assets.
I ran the NPC for WPI. It does show $20k in estimated grants for an income of $99,999k and over. However, those grants are just a list of possible resources: Pell, state aid, merit aid, etc. I think you’re reading into the calculator what you wants to see. They aren’t saying your net cost will be $40k. They don’t ask for enough info. to determine an accurate net cost. It didn’t ask for stats or the age of the parents, just the # of kids in school and broad income ranges that lumps everyone making $100k or more together. I’d call and ask for an estimate before I believed their calculator.
I don’t think it matters where you stuff your yearly income. Unless you and your wife quit working 2 years before the eldest starts college, your income of $200k will be the driver in financial aid packages. I’d expect to be full pay at every school, less whatever your kids can earn in merit. Schools aren’t new to this. They aren’t going to help you fund a downpayment on a house for your kid. I wouldn’t burn through my money or put it anywhere that can’t be liquidated quickly and relatively inexpensively.
They don’t ask for enough info. to determine an accurate net cost.
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They used to. Apparently they took down their old calculator https://npc.collegeboard.org/student/app/wpi I used in January.
See what we mean! Even since January…the NPC has changed. Think about how many changes will be made in 7 years.
This poster’s oldest kid is about 10. I would suggest he look at how schools hand out financial aid, when his,kid is 15 or so.
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If stashing all the savings in retirement accounts IS the right course of action, that’s way too late. You aren’t allowed to dump four years salary in retirement accounts during sophomore year. To prevent the savings from being expected to pay for college, you have to dump 35% of your income into retirement accounts for a decade instead…
It’s not the right course of action. It’s just a course of action. Other people have already pointed out why it’ll make you extremely susceptible to emergencies without liquid savings, but if you wanna do it, you can. It’s not helping or hurting you (probably) college-wise. As explained by many, income is that factor.
then put your money in retirement accounts. We did just that.
But believe me…it didn’t increase our need bSed financial aid one bit…not one…because our income and other assets (like primary home equity…our kids went to Profile schools) counted too.
And please remember what I’ve said numerous times.
MOST colleges are like WPI and do not,guarantee to meet full need…at all…for all,accepted,students. When it comes time for,your kid to actually apply, they might not get any jeedmbased aid…at…all. Not, dime. Because WPI doesn’t make that guarantee.
OP- here’s the thing- that paid off house is going to be blinking like an emergency light on an ambulance once you are talking about Profile schools. You aren’t eligible for Federal aid at the 200k mark, and colleges get to consider each and every asset at their discretion once they are distributing their own money.
I have no problem with you stashing all your spare cash into your retirement accounts, as long as your kids understand that they may be looking at commuting, merit only schools, or living at home and getting an online degree if you are unwilling to pay more than X (and really- defining X ten years ahead of time is a little crazy) for college.
good luck.
I missed something, why is a college going to give you 55% of list price in 10 years, when their calculator says they’ll only give you 19% now? It’s more likely they make you a minimal offer and if you choose to go elsewhere they’ll live with it.
I see others talking about how much information is asked for when using the calculator. If this works, https://fafsa.ed.gov/fotw1718/pdf/PdfFafsa17-18.pdf, you will see how much more detailed the questions are that are actually used for calculating aid.
I went to Harvard’s calculator and put in $200,000 with absolutely 0 assets, and again with $1,000,000 (the money in cash,savings account,investments instead of retirement) he was surprised I was surprised to see that the EFC changed from 43000 - 67000. Way more but definitely not an excess of twice as much. I did it again with 500000 since I wonder how you’re going to be able to make every bit of that money hidden in retirement it was still 63,000. So while I do agree with you that where you choose to save your money can potentially make a difference in your EFC, am not sure that the real-world likelihood is your assets will be somewhere between 0 the potential savings thereby reducing the effect on your EFC.
why is a college going to give you 55% of list price in 10 years, when their calculator says they’ll only give you 19% now?
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Colleges didn’t use to give anyone aid if their HHI was over 150k. Then colleges got more expensive… and everyone but those above the new income cap or suckers that saved had their aid increase. Colleges are trying to extract the most amount of money the market will bear. Income/asset based pricing is the way they do that.
I was surprised to see that the EFC changed from 43000 - 67000. Way more but definitely not an excess of twice as much.
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That is because list price is only $67k today. That is the cap. If list price was $167k you’d see a ~$25k annual increase at $500k in assets and ~$50k increase at $1M in assets. Price increases by 5% of assets annually under CSS and 5.64% under FAFSA. That adds up to big $ multiplied by eight years of college. It is basically a 45% wealth tax in my case. No wealth because retirement accounts do not count, and there is no additional “tax”.
If you dump 35% of your income into retirement for a decade, you can pause contributions during the college years and use that cash flow towards education. We kind of stumbled on that strategy by accident, but we do have to supplement the cash flow part with 529 savings.
I don’t think it’s wise to put all your eggs in one basket. Having some amount of money outside retirement for emergencies and for the part of college expenses that can’t be covered via cash flow will not hurt you that much. As others have pointed out, you aren’t a candidate for lots of need-based aid anyway. The flip side of all your non retirement assets being assessed at 5 or 6 percent (range of current formulas) is that 94 or 95 percent of your assets will not be assessed as available for college expenses even if they are not in restricted accounts.
I would never trust that at some point, some of the generous schools (CSS Profile) may start looking at what monies are in IRAs, 401ks, etc.
I’m not saying that they would expect most/all of the funds to be spent on college, but I could see that if a person was - say 55 years old with $2M in retirement accts maybe expecting 1-2 hundred thou being spent on college (perhaps borrowed against) …with the idea that a 55 year old parent has time.
If you dump 35% of your income into retirement for a decade, you can pause contributions during the college years and use that cash flow towards education.
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Absolutely. That is my plan.
There is sometimes a thin line between what is legal and what is moral.
There are very VERY few colleges that give any grant aid to families that make over $100k and only 1 kid in college. Good for you if your child gets into Stanford or Harvard because those schools WILL give you full COA (but not at $200k). Not very many get into Harvard. That’s why you’ll see people on CC suggesting chasing merit if you are in even the $80k and up range. For a family of 4 after about $60k you’d get little in federal aid (Pell grant, SEOG, even subsidized loans are unlikely). You are then relying on any state programs like Bright Futures, Hope (for merit) or Cal grants for need based aid, or low tuition in the first place (Wyo, SD, NM). You can hope for a smart kid who can get some merit aid, or a talented kid who can bounce a basketball or spike a volleyball.
My kids qualified for no need based money the first year. None. My income was a lot lower than $200k, I had two starting at the same time, and I’m single. Our total federal EFC was $40k, cut down to $20k each. Tuition was the same $30k or $50k or $72k that it was for all the other applicants, and the schools didn’t offer to close the gap between our $20k EFC and the $72k bill with grants. Second year, huge drop in income so we qualified for some federal aid, but a $5k Pell grant doesn’t get the big tuition bill paid The schools expected my kids to borrow or earn the funds needed for the gap, or go to a cheaper school.
You are right that it will be too late to put the money into 401k accounts when your child is 15. It will also be too late to put it in a 529 account. If your child gets accepted to a school like WPI and the amount you are expected to pay is the full COA of (guessing) $90k per year by then and you don’t have it and are unwilling to borrow it, the child will have to pick another school (UMass, SUNY, Rutgers). There is nothing wrong with that. Thousands of students attend less expensive schools because their parents don’t have the savings, but it is a choice you may be making NOW for your child.
I think the OP’s plan is legal AND moral but is filled with risk and uncertainty and the laws of unexpected consequences. And no- in 7 or ten years i don’t believe that that the aid formulas for private college will distribute money to a family with a paid off house and millions in retirement and a 200k income. Not going to happen.
OP- you keep characterizing this as some sort of penalty or wealth tax. You do know that the decision to send your kid to a private college is a decision- right? As in “completely optional”. You don’t want to pay- it’s your money, it’s your kid. But there is no confiscatory scenario here. You don’t want to pay- don’t send your kid there. It’s pretty simple.
It seems smarmy to me. Reminds me of the families that try every way, even if “legal”, to spend down/distribute/shelter their parents’ money so the parent qualifies for nursing home care paid for by Medicaid.
Agreed. Charging kids an extra $200k+ for a bachelors degree simply because their parents decided not to spend 100% of their income while they grew up does seem slightly immoral, but will likely remain legal. Glad there is the retirement account loophole. Hope it doesn’t go away.