@thumper1 I’m talking about contributions to 401Ks during the financial aid base year and the years the kids are in college. For a person with two kids, once you factor in prior prior years, that’s about a decade of prime earning years that their 401K contributions will be counted as income. Again, I’m not for a second saying that someone who can’t afford any savings is better off. I would never, never say that. I work with homeless and extremely poor students every single day. But I don’t see it as overall good financial policy to discourage middle class and upper middle class people from saving for retirement in order to fund college educations. It just shoves the social burden on the next generation. We should incentivize saving for retirement, not the opposite.
I don’t agree. Your contributions to tax deferred retirement accounts are a choice…a choice. You could use some of that money to fund college costs. Note…not all…SOME.
I am NOT a financial advisor, but very early on, we were told to fully find our retirement accounts…so we did. The idea was that there would be a nice nest egg there to continue to earn interest. IF needed, we could have reduced those contributions while our kids were in college. The retirement principal would have continued to grow.
And as I’ve said numerous times…there isn’t any student who MUST attend a college their parents can’t afford.
@thumper1 - It’s about no longer being able to pay for college like you thought you would. Let me try to explain it this way. You calculate college costs to be $X, so you work hard to save so that you can afford to pay for college. Only when you are able to afford to pay $X, the assets you have saved to reach that goal actually raise the cost to be $X+Y and you still fall short.
@thumper1 We will have to agree to disagree on that idea of choice. Technically, of course, you’re right. It’s a choice…but burdening my kids by having to live with them when I’m 65 is just not a choice I’m willing to make (or think I should have to make) at the end of a long career in public service. If both my H and I max out our contributions for the next two decades, we still won’t have what we’re “supposed to have” in terms of retirement. And, yes, you are completely right that if I had to do it all over again, I would definitely NOT make the mistake of becoming a professor. While the work is rewarding and meaningful, it was definitely the wrong choice of career for this “game” of life. The scary thing is I’m one of the “successful” ones. I hate to see what will happen to the vast majority of our adjuncts who are not paying into social security, will get an incredibly meager pension that might just pay the electricity bill, and will have to forego the “choice” of paying into a 403b for ten years when they are in their 40s and 50s. Sorry for the rant, but there are a lot of assumptions in this rhetoric of “choice.”
trying to figure this all out in my mind. I don’t quite get the rant.
you save money. Your kid is admitted into one of the few meets needs schools. Lets say $200,000 was saved. That gives your EFC an extra $13K boost from assets. Yet, you’ve made interest on this pot - let’s say 3% - so that’s really only a difference of $7K if you had spent that money. Now, this $7k is part of your EFC, and you have in savings the money to pay it.
If you didn’t save that $200K, and your EFC was $13K less at a full meets schools, you’d see a benefit. But chances are, if you could have saved $200K but didn’t, you had a decent income to begin with; so you still have a moderately high EFC to meet anyways, and now no savings to pay your EFC. I’m sorry; i just don’t get the complaint. I think it all boils down to: College Prices Are WAY TOO HIGH to begin with. Think about the root of what makes you mad. Is it really that margin between interest/Assets on the EFC or is it just that college costs are soaring high at elite schools?
Do your kids have a tuition benefit related to your job? Either reduced tuition where you work, or tuition exchange?
Adjuncts get really screwed in terms of salary…but they DO pay into social security when they file their taxes and pay self employment tax…which includes both their SS contribution and the employer contribution.
My son is an adjunct. Believe me…he is paying into SS at tax time…every year!
The vast majority if kids do not have college savings. They also attend instate public universities that are closer to home. I know…that is also not a choice some folks desire, but if that had been our budget, that would have been the choice here too.
I do not expect my kids to support me in my golden years. I hope they will help in other ways…but not financial
Support.
@bgbg4us I’m not being rude, but I genuinely don’t understand what you’re asking. Schools that give no aid at all? Are you meaning for profit colleges? I don’t know of a single public institution that doesn’t give aid. I don’t know much about private non-profit institutions, but my understanding from CC is that they tend to be quite generous with aid. I don’t see what you’re getting at by your question, or if it was even directed at my post.
@thumper Nope, no tuition benefit. And good for your son, but at my community college, no faculty pay into social security. I think that’s true of the entire state of CA, but I could be wrong. I pay no social security tax, so won’t get that–and the pension I will get (which will pay about half of what I need) means a windfall elimination provision kicks in to eliminate the benefits from all the years that I did pay into the system. Didn’t get maternity benefits either, and had to spend 12 years buying back the unpaid time off (5 weeks for each kid), which costs a few hundred a month. Typically get a raise every 5-7 years. It’s usually about 2-3%. Doesn’t cover COLA. Pay for my own xeroxing half the time, buy my own copies of books and classroom materials. And I’m a “successful” tenured prof. My point is that we need to change the discourse away from the moralizing about how people should have made different choices, and take a good hard look at higher education funding, because it really, really stinks.
Perhaps if OP came back with more information on his situation, some more specific recommendations could be offered.
One thing to keep in mind is that you can borrow money from your 401K to help pay for some college costs and you pay yourself back with interest. It’s another option of making up some of the short fall in your college savings plans.
My apologies to all for derailing the thread. Mea culpa.
I am not following the “+Y”. It sounds like the original calculation of what you will need assumed some financial aid, which you are learning you may not qet. Otherwise why weren’t you simply saving for the predicted cost of the college? You still have that. Nothing is taken away other than (perhaps) what you expected to get in financial aid. But how did you figure what your financial aid might be without looking into the very college-specific details?
@ccprofandmomof2 – no, i hope i didn’t sound rude either; not directing anything your way. It’s just that very few schools give grant aid. The public schools in our midwest state don’t give any institutional grant aid. There are no grants around here if your EFC is lower because you have spent more rather than saved. People on this forum sometimes say they’d be better off spending their money and not having their EFCs go up 5.6% because of assets. But it makes no difference to the majority of schools if your EFC is $20k or $33K - because most aren’t giving grants to cover that difference. You have to cover the difference yourself. I’d much rather have the cash in savings to pay the EFC than to have had a high salary, spent the majority, and borrow money to pay a slightly lower EFC. I hope that makes sense; I’m still trying to completely figure it out myself.
The cost of college is the LIST price. Many people at private colleges are full pay and that is what they are paying. Any reduction of that is AID. It is meant to go to people who don’t have funds, not meant to help people who have significant funds and choose to spend it on something else. You may argue that the list price is far too high and I would agree with you. That is why many of us in that situation search for colleges that give merit aid instead of needs based aid. But that doesn’t mean that these private institutions owe you or me any special discount. You are, in effect, suggesting that money you chose to save for college should not be counted as money available to pay for college.
Right! Not to mention the fact that money saved in 529 plans are taxed advantaged which is another great benefit that you forgo if you simply choose to spend that money and take on debt later.
@bgbg4us Wow. Well then you have it even worse than us. I find it interesting how different the regions of this country are in how they handle higher education. I remember sitting down when the kids were born and reading on the 529 plan info materials that we should plan for 1/3 of the cost to come from savings (the 529), 1/3 to come from grants/aid, and 1/3 to come from cashflow and student earnings. So that’s what we planned and saved for, but unfortunately, that’s a terrible formula that has nothing to do with reality. I guess they just want not to make the process less intimidating so people will start saving something. I wish we had had better guidance.
That sounds like an error in your calculations. If we earn more and have more assets, why would we still expect to pay $X? If we earned/saved less than we expected, we’d expect the costs to be $X-Y, so why wouldn’t the reverse be true? Higher income/assets means a higher net cost.
CCprof- real estate agents also distribute pamphlets (now online) that show you how much mortgage you can afford- which is TERRIBLE advice, regardless of what part of the country you live in.
These formulas are not crafted to help YOU, based on YOUR situation and your needs. They are generic, based on statistical averages.
I’m not being critical of you- but every time a self-interested “expert” (someone who makes a fee off of your decision) shows you a formula, run the other way.
But the real “next step” for you is not to grind your teeth-- it’s to calculate exactly what you CAN afford, right now, and guide your kids accordingly. There are likely to be some terrific options that are affordable but it will take some time and research to uncover them.
@blossom, No offense taken. Yes, I definitely know that about real estate agents and mortgage brokers, which is why we bought a house that was 1/3 the cost of the mortgage for which we qualified. But I expect that from people who have a financial interest in the game. I don’t expect that sort of deceptive advertising from a non-profit (in this case, TIAA) 529 plan administrator. I ran the calculators then, and then I did just sort of put it on autopilot for awhile because I thought that I was doing the right thing by saving nearly 1/3 of my take-home pay in the 529 plan. It seemed like a heck of lot, especially in comparison to a TON of people I know who weren’t saving anything, I was doing the right thing. Shame on me.
And I’m not even trying to make this personal–it’s just that sometimes you do need a face behind the reality to make people understand. Of course I’ve calculated what we can afford, and the kids will be alright, and it’ll toughen them up that they are already hearing snotty comments from peers and their teachers who say, “Oh, you can do better than that” because they, indeed, are smart enough to get into far more selective schools than what we can afford. Again, I’m just trying to post about this because I think that I’m pretty typical of a whole lot of people, which is why I have empathy for OP. Everyone was just jumping all over OP with “well, you should have done this” and “you should have known better” and “how dare you assume your kid can go to the same school as you” sorts of rhetoric. I don’t know, I’m rambling, but I just wish people would have more empathy.
@thumper1 thanks and that makes sense. To date we’ve been full pay so I guess they determined there was nothing to examine. I only go through the process so S gets the non-subsidized federal (which everyone can get).
I own my own business. So if we have a bad yr, my income will decrease. I guess then they would need to verify certain things in addition to tax returns.
The one thing that I have learned from this site is that everyone thinks that they are getting the short end of the stick. Rich, poor, middle class. Big/little school, competitive/underperform school, urban/rural, coastal/flyover, STEM/humanities, etc.