I do agree that putting some burden on the kid is good. My kids had to pay for spending money, books, and any expenses related to internships if they weren’t living at home for them. That knocks a couple thousands year off your expenses and gives some ownership to the kid. Some families have the kids take out some or all of their federal loans, too.
Because we have been saving all along we are in a position to pay the full fee.
The IRS created ton of provisions so that people can take advantage of them and that’s what i am doing along with other millions of people and corporations.
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didn’t read the full thread, but I have one tip. as a full pay family, once my D started with jobs/internships , she was able to file her tax return ( we had to remove her as a dependent ) and was able to use credit for the tuition and get a sizable refund as a result( basically it would appear on paper she paid part of the tuition out of her earnings for that year - not to exceed her income of course ) . If you want more details, send me a PM.
OP- yes, the IRS creates tons of provisions. I worked for someone a long time ago who incorporated his company (it had been an LLC- since he was the only principal) and he put his kids, wife, and dog on the payroll to maximize his write-off’s, minimize his income, and maximize his kids chances of getting financial aid.
To me- the early education they got (even a kid can understand that a dog is NOT a legitimate employee of a small business, especially since the paycheck written to the dog got cashed by their mother) was pretty substantial.
If you can find workarounds-- fantastic and more power to you. But the common ones- transferring property back and forth among family members; plowing your cash into consumer goods you don’t want or need just to wipe your accounts bare when you file your FAFSA; tripling up on premiums for your whole or universal life insurance, etc. always come with a cost. It’s up to you to run the numbers to see if the benefits outweigh the costs.
I have solid financial planning and investment skills. I am not an expert in financial aid, but I’ve tried to help enough families who seek out my advice to realize that any successful strategy takes a lot of time (like when your kid is in elementary school) to properly execute. The short term stuff may come with a short term payoff but a long term loss.
Get hit with a fee for paying tuition with a credit card for the sake of some airline miles? Most analyses show that careful shopping for tickets is a bigger savings than cashing in miles- which often can’t be used for where you want to go, when you need to go. Put your kid on your payroll? That just bumps up the kids earnings AND assets- assuming the wages go into a savings vehicle of some kind and don’t get spent on bubble tea and lattes every week.
If you find a payment vehicle which works for you- hooray!!! I tip my hat.
We found that direct deposit from our account to the kids account at college was neither sexy nor had any financial advantage, but sure helped simplify our lives- and that’s worth something too.
Good luck.
Both my kids’ schools allowed paying by credit card the first year, and there was no extra fee or % for doing it. Worked great and I got the points and the convenience of doing it all online.
Second year one of the schools changed and didn’t tell me! I went to pay and saw that I would be charged 2.5% extra. Luckily, I had the money in the bank so just paid by check.
Both schools had a payment plan (one was 10 payments over a year, the other was 3 payments per semester) but there was a fee to sign up for that of $100, so better to pay if you have the funds.
To answer your orginal questions: read IRS Publication 970 Tax Benefits for Education. That should answer any questions about tax breaks.
Congratulations to your son for getting some great college acceptances and congrats to you, his parents, for being in the privileged position of being able to pay for even the top price schools! That is certainly an enviable position to have.
Even if you did not, do not, qualify for financial aid, which is what you have indicated, you should understand how the college financial aid scene works, and, in particular, how it works for the particular school your student is going to attend.
There are plenty of resources on this board that you can use, giving extensive information on FAFSA, PROFILE and how parent and student assets are considered in the process. Most schools require a FAFSA, which gives you what is called an Expected Family Contribution, which is comprised of an amount that your student is expected to contribute as well as the parents. If you look at the two formulas, it’s pretty clear that you are better off keeping assets in the parental arena. Parents are hit up about 6% on assets, after a base exclusion, and the primary residence is not counted. The kids are expected to pay a lot more on any savings or assets.
FAFSA EFC is usually primarily driven by the parental income. In that sense, those who get W2s cannot write off as much of their income as a business owner who often can. However, only a handful of schools guarantee to meet full need as defined by the FAFSA EFC. I know of 2.
The schools that tend to guarantee to meet full need, have their own definitions of need, often using the CSS PROFILE or their own information forms to determine need. Most of the time primary residence values are taken into account as part of the assets and a lot of other things that FAFSA does not. Schools vary on what they count as assets. Most all of the ones I"ve seen ask for extensive information from those who have their own businesses, and they often add back deductions taken.
There are some college tax credits brought up in this thread as well as the idea of using 529s as pass throughs to pay college costs. Not everyone is eligible. There are income limitations for the college tax credit and not all states offer deductions for 529 contributions. If you are in a state that does, you can donate to a 529, getting a tax deduction and then pay the college from the 529. THat is if the fees and the terms of the 529 program are not onerous.
There are loans. Your student can take out Direct Loans starting at $5500 a year. You can take PLUS loans as a parent. They can help you with cash flow–we did that. We started repayment immediately on them. You need to compare the interest rates available with what else you can get on the market. We stretched out our kids’ 4 year tuition payments over 14 years with loans. If you are below a certain income level, you deduct some of the interest you pay. Your student most likely will be under that level so he can deduct interest he pays on his loans, even if you pay for him.
There are colleges that have an active student “ghetto” nearby with cheap, plentiful housing where most of the upperclassmen live. A budget conscious student can save money that way. Also, some schools have resident advisor or other positions that give free room and board for those students who get that position. Also, schools do tend to have part time jobs for kids where they can work just a few hour a week, Every bit can help if everyone watches the expenses . It’s been a long draught for us, as we were not able to live up to our income level for many many years with so many kids going through college. Our kids paid 10-20% of their college costs.
@cptofthehouse - appreciate the info.
We can only pay after cutting down costs and contribute to 401k minimally. Then the question we keep asking ourselves is whether it’s worth it. At times we feel instead of handing down some money down the road, maybe pay it now when it’s most needed and sometimes we go back to the value of education from T10 vs a very good public college. I guess what we are going through is something but tons of others faced before and facing now.
It would be good to hear from both camps on whether they would have done differently knowing what they know now and after experiencing it.
Our kid’s final two choices were a college that would have cost us $10,000 a year (because the kid got a HUGE scholarship), or one that cost us $45,000 a year. BUT we had the money talk before applications were sent out. We were fortunate, like you, that costs didn’t have to be a factor. So…once acceptances and aid were received, we let our kid choose the college.
She chose the more costly option.
Now…if we had wanted to do it differently…we would only have taken this kid to colleges that had a much lower net cost for us. OR we would have told the kid that they had to take the least costly option.
But we didn’t do that. So at the end…all acceptances were on the table…and we let the kid choose.
To do over again, even though we had savings, I would have made the kids consider more budget friendly options with scholarships. Now we are facing a transfer from a school that was really expensive to a cheaper school that would have been even cheaper as a freshman, but now with no scholarships as a transfer. Across even one kid that is a mid 5-figure lesson learned. And less $ available for specialized needs or wants or future MA programs for all of the kids.
@middleclassparent we are a ‘full pay family’. However, we decided early on (before our oldest was in highschool) that we didn’t want to pay $70k+ per year for multiple children. There were other things that we wanted to prioritize in our lives. We believed and (still) believe there are many, many fine schools that provide exemplary educations, and our children will be limited to those that are affordable to our family.
Spouse and I discussed what we were willing to spend and we set a budget for schools while our oldest was in middle school. That budget hasn’t significantly changed even as our oldest looks to their senior year in high school this fall. We communicated the budget number we gave for our children early and often. As we’ve gone on college visits this Spring, the budget numbers have been given again as a reminder.
My biggest piece of advice on this topic is always the same. Figure out what you (as a family) are willing to spend before starting a college list. Make sure you know where the money is coming from (a plan, not a wish). Communicate the budget to your child asap.
As a full pay family, we have so many options. We feel incredibly lucky to have those options, and I think one of the reasons we have this feeling of gratitude is our recognition that we made the choice of our budget. This isn’t something imposed upon us, we chose it.
Hopefully you are talking this over with your kid. It sounds clear to me that you don’t want to pay 70K a year for the top schools, has Purdue offered a lot of merit? Did you have any other options? Med school is a thing or not? A student that gets into BME at Duke and JHU should have some nice merit options at other less desirable schools.
Why is your child burdening you with $70k/year? Why are you even looking at colleges with that total cost whether private or OOS public?
We paid full price for our oldest who went to a very expensive private school. We took out loans to pay for it and to still have the cash flow to give our younger kids the opportunities we wanted them to have. We incorporated the loan repayments into our budget and started repaying those loans immediately, which gave us the reality check of how onerous and how painful those repayments are. It took us over 14 years to finish paying for our first child’s college costs.
Would we do this again? I don’t know. For us, it didn’t really work out, but we wanted to give each of our children the opportunity to pick the optimal school for themselves. Our financial indicators said that we could well afford full cost privates for our kids. We never were eligible for any financial aid. We chose to spend our money on college choice, and as a result, we did not have the amenities and lifestyles that our financial peers did. Yes, it’s affected our retirement situation too, and also what funds we have to help out the kids as they make their next steps in life.
It doesn’t end with college most of the time–the financial outflow for kids. There is the job search, apartment deposits, dental work, eye check ups and glasses, etc. Smart phones, tablets, lap tops with good wifi at the residence pretty much a necessity these days in the upwardly mobile type jobs. You want to pay for weddings, give a hand here and there. Then the next step with grandkids and downpayments for a house, a reliable car, etc, etc. As we head towards retirement. Most of us do not want to count on our kids supporting us in our old age. We want our freedom too.
Are JHU, Emory, Duke, Wash U etc worth 3 times the price of a Purdue or nearly $300K more than Alabama or other full ride opportunity? It’s not “just” the $300K either. THe opportunity costs lost in paying that much in terms of retirement and other savings, not to mention the cost of loans in the future if the college costs include borrowing are far, far more.
@middleclassparent Not sure if your income was too high for the AOTC. I recall that it is based on AGI, not income. So, if you are close to the limit, or just above, there may be ways to reduce your AGI. Maxing out 401K contributions, Health Savings Account if eligible.
Ok we were full pay at an Ivy for both kids. Used the 10 payment program, were fortunate enough to pay out of current income. Absolutely worth it … the kids had a great experience, got a solid education, made great connections and are now both gainfully employed with substantial and growing companies. We are so happy we were able to do this for them. (And we had options of merit and athletic scholarships for them at other schools – still very happy to have chosen the full pay school. )
xtremely low interest rate loans. Duke, like many of the other top schools, should have offers for these, <<<<<<<<<<
Define extremely low interest? Can you cite such a Duke deal?
“using that money to invest.”
Great plan, if money wasn’t an issue, but if money wasn’t an issue, this thread wouldn’t exist. And I dunno about you, but the market is a little wobbly as I see it. Again, not an issue for play money, but for money that pays a bill? Seems risky.
But the system is setup to punish those people that are saving more and earning more to pay their dues
And this is where you lose me. Huh??? I have a huge issue with this statement, and it is difficult to ignore the subtext. I have worked in college financial aid for years. I have reviewed tax returns and verification forms for thousands of students. I see how little so many jobs pay … and how difficult it is for people who earn what “most “ people earn to save because they don’t earn enough to be able to do so. They wish they were in a financial position to be the recipients of such “punishment”. There’s no money tree in the financial aid office. There is a limited amount of assistance to help those who need it most.