Frustrated at the Cost of College v Saving - Never Ending Cycle

Paying for College
1

So I went to FAFSA and ran my EFC. Wow. Umm. Really? I need to contribute how much? OK, I better get on it then. Thant was me 6 years ago when I was thinking about my 6th grader and 3rd graders’ future costs of college. The cost was high and I knew we had to save. So we did. We buckled down and saved, scrimped, fought over how long to keep the cars (8 and 10 years old now), paint the house-don’t paint the house, private vs. public high schools, on and on.

In the end we managed to make a dent in this monster. I’m an engineer so I took the next step and recently started to look at the cost of individual universities using their NPCs (eventually ran multiple asset scenarios for top 30 colleges my daughter may want to attend). I attended Vandy in the 90’s, so I started there with their Net Price Calculator. WTH? That’s not what the latest FAFSA EFC says. It’s worse. I couldn’t quite figure out what was going on. After playing with the numbers I figured out what was happening. The money I was saving to be ready for the FAFSA EFC was making the price of EFC go up. Save more pay more, a never ending cycle.

My thoughts were, wait, are you telling me that I have to pay more because I am saving for school? If I borrow and go into debt ($0 savings) you’ll charge me less? If I live less frugal and get all loans for my kids to go to school, then Vandy will reward my foolishness with lower costs?

This is not a Vandy issue. This is an issue with every school that looks at a family’s assets when calculating “need”.

I have no fundamental issue with the concept of considering a family’s assets to determine need. However, why don’t schools rope off the cost of 4 years of attendance as not touchable, thereby making the cost of attendance the same whether the money is borrowed or paid from savings?

By my calculation, for every $100k saved to attend the school, which is $250k ish for 4 years by their own data, my family must pay $5600 more per year. So if I saved the $250k in advance, every year my child is at Vandy I’ll pay $13,000 more? I’ll pay an extra $52,000 for what? Don’t you want your students and future alumni families to be financially secure? Charging more so they can not be in debt is the opposite. (Again, not a Vandy thing but come on Commodores!)

So, yes, just for having the money to pay for the price they are asking, our cost goes up.

When I go to a car dealership to replace my well-driven vehicle, do I have to pay more because I can pay for it in cash vs getting a loan? No.

This is blatantly unfair and makes me want to pull all my money out of any accountable source, stash it somewhere and pay what is fair.

This goes for all those schools that assess assets. It’s high time someone addresses this. I’m not talking about equity in multiple homes, businesses, etc. This isn’t the rich trying to hide their fortune in the Cayman Islands. I’m talking about the money you save for college. This is ridiculous.

And no, as a single income family that doesn’t have a company, we don’t have $250k saved, but when we do (if we can just keep scraping, skimping and saving) I don’t think we should pay more than if we spent like our neighbors with their Range Rovers, 4,000 sqft McMansions, and ridiculous spending habits who have no money saved.

I’m sure I’ll get the obligatory, well you need to discuss viable options with your daughter and son. Umm, I will, but those costs should be fixed, not moving on a sliding scale upward as we save more. These are PER YEAR increases. The extra costs above no assets loans cost will be devastating since this will cover a 7 year span. I’m just frustrated because this seems so unfair.

2

Agreed; we went through this whole realization last year. It’s incredibly frustrating.

3

I stopped reading halfway through your post because the same thought was running around my mind: the money you saved gives your child a hell of a lot more options. If giving your kid options wasn’t one of your goals, then fine; saving all that money was a wasted exercise. Carry on with your rant.

4

It is a rare situation where the family has $250k in savings for college but has such low salaries that they’d qualify for full FA at any school, or at any of the schools that meet full need. Yes, it will cost you $13k per year if you have the savings, but how likely is it you would have received that $13k anyway?

Run the NPCs with all your current income info but exclude the 529 plans. See if you would have been paying that anyway, and that your child couldn’t go to that college if you hadn’t saved. There are many more kids in the college market whose families are expected to pay that $13k and can’t because they haven’t saved. Your kids can pay the $13k because you’ve saved.

5

There is a reason why the US is the richest large country in the world with the lowest savings rate.

This was also a big issue for us because we have our children when we were in our 40’s, which means that we will both reach retirement age before the youngest graduates university. It is tough to pay back an education loan when you are already retired with no pension.

However, it is also true that having savings for university will increase your children’s options. There are many universities that do not meet full need. There are also quite a few that will give at least some merit aid. We were able to find very good schools that with merit aid met our budget, allowing us to pay entirely from savings. The full price private schools just were off the table.

6

If you have $250,000 savings under your child’s name vs. under your (parent’s) name, the difference in EFC can be remarkable. I started contributing to 529 plans under both my sons’ name when they were very young, then I stopped contributing around when they were in the middle school. Good thing I stopped when I did. I moved all the fund in my younger son’s 529 over to my older son’s account and that took care of my older son’s in-state public university cost for four years, so having enough in the 529 did help for in-state public. Attending a private institution is another matter.

7

This might not make you feel much better, but should your children get into meets full need schools, you won’t actually be paying $13,000 more each year than someone with the same income, family size, number in college, etc., but zero savings. Your assets will decline each year as you deplete your savings for tuition, room and board, so your “extra” contribution will drop accordingly.

Agree with other posters that the peace of mind you get from having options is worth the frustration of feeling like someone else is getting a “better” deal.

8

Money is money. Just because you have decided in your head that it is for education, doesn’t make it any different then if you are saving for a boat. Most schools exclude illiquid asset like retirement accounts and possibly home equity. If you really want an issue, go talk to a farmer where the NPC thinks they should be able to liquidate part of their farm.

9

The bottom line is save early and save often. If you s et up a 529 plan it grows tax free and withdrawal are free and some state plans allow you to even deduct your contributions off of state income.

If the student happens to get a scholarship, attends a state school, or even goes to a community college first you will have plenty of money to roll over for a second child or even withdraw the 529 money and only pay tax on the gains (not the principle). Save, save, save and don’t complain; 18-22 years later, it will all be worth it.

10

Income is a bigger determining factor than savings at full need met schools, like Vandy. One pays approx 40% of salary but savings are assessed at 5.6% only. So, no, you will not pay any more than your neighbors assuming similar income. Of course, to get into one of the full-needs met schools is the key.

11

@LookAtMyShoes the FAFSA EFC uses 5.6% of your assets as part of your EFC each year, not the WHOLE amount you have saved.

So…if you have $100,000 saved, it would add a rousing $5600 to your family contribution. If you have $200,000 it would be $11,200.

The family contribution is based largely on your INCOME. As an engineer, you probably earn a decent income, right? Just adding, my husband is an engineer so I have an idea of your possible earnings.

It makes me nuts when folks with decent incomes bemoan the fact that their savings might actually affect their college contributions. And their incomes. Why can’t you consider how fortunate you are? Your kids have far more advantages and have lived a far better life than if you had none of this.

You have a house. You have cars. There are people with neither…and not a dime in the bank…and they don’t have a high paying job either.

You can easily solve this problem. Donate every penny of your savings to a charitable organization…or just give it away. Sell your house. Quit your job. Apply for free lunch. Live in subsidized housing.

But wait…if your kid is a HS senior this year…she will need to take a gap year…or two…because 2017 income is used for 2019-2020, and 2018 will be used for 2020-2021.

I’m sure that’s not what you want to do.

So…what can you do?

  1. Have your kiddo look for colleges where she might garner merit aid because she is a top applicant. That will help ease the financial blow, and is not income dependent.
  2. Look at the public universities in your state. Many have excellent honors colleges. In addition, if your kid is a high stats kid, they might get a merit award there too. Your taxes subsidize these colleges....so your costs are less.
  3. Your spouse can get a job and help contribute to college costs.
  4. Your student should also have a job to help pay for her own personal expenses. She can also take a $5500 Direct Loan in her name. The Thumper kid’s did that...and our graduation gift to them was repayment of these loans.

You have what I would call a first world problem. Please start looking at the glass as half full instead of half empty.

You are very very lucky to be in the financial position you are in.

12

@LookAtMyShoes Just in case you are unaware, I wanted to point out that the EFC often has little to do with the aid package offered. In most cases (aside from the very highly-ranked, highly-competitive schools that have healthy endowments), “meets full need,” often means “meets full need by offering student and parent loans.” So it’s not as though a lower EFC necessarily would have translated into more money, unless you’re talking about that relatively small number of schools that define need-based aid generously without significant loans. Should your child gain admission, such schools will end up costing more for the responsible saver and, yes, that reality can sting.

We were in a similar situation and had to face the reality that some schools simply weren’t going to work financially for us. We got creative and researched schools that offered enough merit aid to be affordable. Vandy is one such school - it still offers full tuition merit scholarships, albeit highly competitive ones. There are others - Wash U, Rice, Duke, Case Western, and many midwestern and southern LACs. Was my kid disappointed? Momentarily, yes, and so were we. However, she adapted and successfully pursued a merit aid strategy that yielded many fine options.

I am currently helping a young low-income friend and her budget is essentially Pell plus student loan plus whatever financial and merit aid she can scrape together. Parents have not committed to contributing anything. She has good grades, medium test scores, and no hooks. Numerous NPCs offer the same results, both instate publics and privates where she has a decent chance of admission - a sizable gap between her EFC and the costs of attendance. I’d much rather “overpay” due to savings than to be in her position.

13

The FAFSA EFC only tells you if you qualify for a Pell Grant. If your EFC is over $6k, you don’t. That EFC isn’t good for much else.

If you have significant assets you have less need, so colleges won’t give you as much need based aid as they would if you had more need. But your daughter can pursue merit aid and colleges and not limit her list to schools in US News top 30.

I think income is the main driver of EFC. If your neighbors have a high income and no savings, they likely won’t be able to afford schools like Vandy.

14

We’ve been through this as well. My husband is not happy that we are full pay. We have saved in 529s for our two kids and have maxed our retirement funds and have saved over and above those accounts. He considers the money outside the 529s to be for retirement. Of course, FAFSA doesn’t see if that way and our EFC is 158K. So…as was stated above, we either pay full price or have the kids go to schools that cost less or look for schools that give merit.

I figured out that, even if we lost 90% of our non-retirement savings, we STILL wouldn’t get any need based aid for our S19 at private schools. So, we’ve thought long and hard about this. The difference between our 529 savings and what we would need to pay for private school isn’t huge but, over four years and then for two kids, it’s still in the six digits. We’ve decided to have S19 apply to some schools where merit would come fairly easily, some where merit is competitive, and some where there’s no merit. We only let him apply to schools with no merit if my husband was comfortable paying the difference. There were schools on the initial list that gave no merit but we just felt like they may not be worth the price versus some schools that did.

I’m thankful that we saved. I agree that many families with a lot less than ours are still expected to pay full price and need to take loans or make choices based on cost of tuition. We’ve given our kids the gift of choice. Every time we sit in an info session and the admissions people go on and on about the great financial aid, my husband still gets a little pissy. But I think he knows deep down that we made the right choice to save when we could.

15

I may be misunderstanding, but isn’t the question whether the greater amount you will have to pay because of your savings is more or less then the interest on the loans you would have to pay if you hadn’t saved? It seems to me that the difference is much less.

More then that, how else could it work? The list price for the college is what it is. Colleges decide to give some people a discount because of their economic situation. The money that a family puts away for college is certainly part of that families economic situation.

What bothers me more is that some colleges don’t look at home equity when deciding financial aid. Harvard, for example doesn’t. So it seems like it would make sense to take all the savings and put it into a larger house.

16

“So it seems like it would make sense to take all the savings and put it into a larger house.”

Yes, if you know in advance that your child will be admitted to those few elites that don’t look at home equity.

17

@gallentjill is right… the extra tuition you pay when you have the savings to pay is a whole lot less than interest from loans would cost. I share OPs pain (we’ve managed to save a lot for DD’s college too), but knowing she can attend whatever college she gets accepted at, that she can lighten her coursework and spend an extra semester if she finds her STEM classes extremely difficult, and her life won’t be on hold because of education loans makes it worth it.

18

Yup. Instead of saving, you should’ve enjoyed spending and two years before your student starts college, was the best time for you to quit job and take few years off to pursue your hobbies.

19

@lookatmyshoes If you are that upset by those policies at those schools, you could have your child apply to the vast majority of schools that just don’t care and don’t offer need-based aid. Your anger is directed toward a small percentage of total number of schools out there. Most schools don’t offer aid based on parental ability to pay.

Conversely, you have provided your children the gift of options bc the more $$ you have to offer them, the more options they have. We have not lived a life of extravagance, but equally, we didn’t lower our standard of living or life choices by focusing our decisions on future college options. Our kids have very limited college options bc of it. No regrets on our part bc we were cognizant of our decisions. They match what we value (our children and our family life more than elite college education).

You obviously value elite education. Your children will be blessed by the gift you are able to provide them without debt.

20

Running the NPC on schools that require the CSS profile I’m surprised that many seem to count primary home equity . It seems that most schools count it as an available asset. I can understand contributing a percentage of cash savings, but I’m reluctant of selling the home or taking out a second mortgage in order to cover tuition.