How am I doing on saving for college?

Parents Forum
1

I don’t have kids that are high school or college age yet, but they are part way there (still in preschool years). I decided to set aside some money in 529s to pay for college. I’m planning on having the parents (me and my wife) pay 75% of the cost and the remaining 25% my kids will be on the hook for, through scholarships, summer jobs, or potentially loans if they don’t want to work or get scholarships.

Back when each kid was born, I invested a sum of money that was equal to about 45% of the total 4 year cost of college for 4 random in state colleges near the state that I live in. I have not contributed to it since. Today the 529 for my oldest kid is worth about 75% of the current 4 year cost and the 529 for my youngest is worth about 55% of the current 4 year cost. They investments have done well because the stock marked has risen handsomely as we came out of the 2007 recession while the cost of college has been relatively flat in my neck of the woods.

They still have around 15 years to go, and if my investments go up at the historical average (8%) and the cost of college rises as historical average, I think there will be enough to pay for 75% of each child’s college education. I might have to move some money from dd #1 to dd #2’s account but the 529 rules allow for transfers relatively easily.

My goal is to not drop another penny into the accounts in the next 15 years and be able to pay for our parent share.

Parents of current high school students, how does this plan sound to you?

2

Awesome!

Where did this windfall come from?!

3

You are asking people who thought $50k would be plenty for our kids born in the 90’s. Surprise! Not enough.

You do what you can and hope it is enough. Never is.

4

Our financial advisor told us that no matter how much we saved for college…it wouldn’t be enough.

You seem to have a good head start.

Now…invest in your retirement.

5

You’re ahead of the vast majority of parents! Well done!

Without knowing what “in state college” you are referring to, it’s difficult to give you a good answer. In my state, “in state” directional college cost of attendance (room, board, tuition, books, living expenses) is about 15K/year, whereas the flagship colleges are about 27K/year.

If in 15 years, the decision is made that a private college is the best for your Ds, then you are looking at a larger financial unknown. Cost of attendance will depend upon how the college distributes aid, your family’s ability to pay at that time (savings and more importantly current income), and your two D’s GPA and test scores. You might be full pay at some colleges but receive generous merit aid at others that bring the cost of attendance below your flagship state college.

Not sure what you mean by “scholarships”. Scholarships (merit aid) at most state colleges are extremely difficult to receive… most of the aid is need-based. Private scholarships on the other hand are typically small, not renewable each year, difficult to receive for most people, and shouldn’t be relied upon to pay for college.

If you haven’t saved for retirement yet, I agree with thumper1 that this should now be your priority.

If you can also continue contributing to a 529, then I would also do so. Your Ds will have more college options that are less influenced by the final cost of attendance. Plus, not having student loans to pay will be a big boon to your Ds after graduation, or they may attend graduate/professional school. When your Ds are late in middle school/early in high school, you will have a better sense of the type of college they might attend and their career aspirations.

As an example, I will give you my family’s situation. Two Ds (D1 a freshman in college and D2 a junior in HS). D1 had a 3.6 unweighted GPA and a 30 ACT. D2 will likely have a 3.7 GPA and around a 30 ACT. D1 attends a private LAC. D2 will also attend a private LAC. We would be full pay at our state colleges. D1 received merit aid at her LAC that brought the cost of attendance nearly down to the cost of our state flagship (about 28K/year including 5% inflation). Cost of attendance at colleges D2 is considering (based upon each college’s Net Price Calculator result) will be between 22 and 35K/year. Others colleges would be even more for D2, but we won’t allow D2 to apply to these colleges. In the end, we will have saved enough so that our D’s won’t have student loans upon graduation. That’s one of our financial priorities but perhaps not your priority.

Keep on saving… no matter what the purpose!

6

^One thing to add. If your employer has a company match for a retirement account, your first priority should be to invest sufficiently so that you receive the full match.

7

Good for you. We took all the reimbursements from our pre-tax daycare accounts for our kids in those early years and stuffed 'em in their 529 accounts. Smartest thing we ever did. Still – costs just keep going up. You should expect to supplement some from your income stream when they are in college. One of my kids picked a very expensive school, and she did take federal loans for a couple of years.

8

@LBowie I thought the same thing! A couple of threads actually.

  1. Make sure you are saving adequately (whatever that means to you) for your own retirement. You cannot borrow for retirement.

  2. I would not count on 8 percent between now and graduation. You’ll eventually want to move out of stocks to avoid volatility. Search either CC or Bogleheads and find all the threads in 2008/2009 of college funds decimated when there was no time to make it up. Less volatility means lower earnings the last couple of years.

  3. Not sure where you live that costs have stayed flat. Double check that. Doesn’t ring true in most places. I would not count on that to continue but some people think there is bubble and it might go down. Edited- looks like you are assuming inflation- sorry, read too fast. I am unclear if you are taking out of state tuition into account though.

  4. Check what that 25 percent works out to in real numbers. Is it realistic? Students are limited in what they can borrow without a cosigner. Less than 30,000. They are (physically) limited in what they can earn while going to school full time. You won’t qualify for need based scholarships I am assuming since you have the ability to save like this. You’ll have to evaluate the availability and ease of obtaining merit scholarships at these schools you have benchmarked.

9

Best advice is to max all retirement plans before saving for college since you can borrow for college but not for retirement. I didn’t completely follow that advice, since we dropped a lump for each kid when born, out of an inheritance. It is nice if grandparents decide to gift in that direction.

10

My thoughts exactly @gettingschooled on your #4. 25% full pay at the most expensive schools now is around $70,000 for four years. I don’t even want to think about what it might be in 15 years!!! :-& Not saying OP should save for or will be choosing the most expensive schools, but s/he doesn’t know what the kids’ needs will be so far in the future. If s/he has the opportunity to save more after retirement savings, it might be a good idea. That extra money won’t go to waste. I realize there might be penalties for non-qualified withdrawals, but who can predict what the rules will be then?

11

@gettingschooled My comment was deleted because I mentioned a very similar thread in a popular investing forum. Links to other forums are not allowed here. I didn’t know that. But if you are followers of vanguard funds…

12

That forum has many posters who are big fans of the CC financial aid forum and refer people here quite frequently. A few of those posters are ones I trusted and that made me more comfortable with CC in the beginning but sounds like linking to it is a violation of the TOS.

13

We saved in multiple accounts 529’s, stocks, savings, and then the market went down significantly and affected our stocks.

So, save as much as you can, and don’t forget about your retirement matching plans.

14

I remember reading an article when my daughter was born in 1995 stating that the projected cost of a college education at a four-year private college would be about $250,000. She is a junior in college now and that is about what it costs. We were horrified at the time but now, unfortunately, it seems normal.

15

We opened a 529 when kiddo was in first grade. We had no idea where he would end up for college, so we looked at the three most expensive (at the time) out-of-state private colleges as worst-case scenarios. Our broker projected where those costs would be in his graduation year (2015) and told us we’d need about $275K if he got into a school like that. We divided that number by ten and saved that amount each year counting on growth to cover any shortfall if the price exceeded the original projection. The funds are there. Kid chose a military academy. So, DO plan, but you never know.

If you already have the 75% for your oldest and pretty close for your youngest, and you have 15 years to go, I’d say you’re in good shape. But don’t let your kids’ education ride on anything anyone says here. Sit down with a professional and make sure you’re on sound footing. I also second funding retirement first.

16

Make sure they are in age-based plans your 529 firm offers or that you manage the asset allocation when they get closer to college age and in college towards money market, etc. to not get caught by a market downturn.

17

I hate to sound like a broken record but college planning without holistic financial planning is a stool with one leg.

I am not in the financial planning field- but have seen a lot of families focus on one element of financial security and ignore everything else.

So before I say “yeah, you’re doing great” (which you know you are)- do both parents have life insurance, and have you made sure that you’ve got the right kind of insurance and the right coverage for your needs? Are you maxing out on your retirement contributions every year? Do you have disability coverage through work and you do you understand how your policy works? Do you have consumer debt? Do you get a large tax refund every year and do you understand that you are lending money to the Federal government with no interest?

Do you have a will and is your executor someone with financial savvy or just the closest brother-in-law? Who are your children’s guardians and do they know your wishes for educating your children?

I’m also curious why you don’t plan to fund your kids accounts going further… but if it’s because you are working on all of these other elements of financial security, then yes- you’ve got a good plan.

I will give you the caveat that some kids don’t need a loan to have “skin in the game” for college. They are diligent, they take advantage of every intellectual opportunity that comes their way in college; they are aggressive in seeking out opportunities for professional advancement once they are working even if that means no pay or low pay initially. So not every kid needs to be producing income in HS and college to be “worthy” of investing in with your own dollars.

And some kids never get it together. My own kids are all financially independent now, are doing better than I was at their age, inflation adjusted, and are solid earners, good savers and investors, and prudent risk takers. We were a full freight family when it came time for college and our only financial stipulation was that we would pay for 8 semesters- period.

I have friends who were advocates of the “skin in the game” theory and their kids are living at home, struggling to get on top of their debt, or have found that four years of working lots of hours while in college to contribute their share mean that they graduate with resumes which did not position them for professional employment in their field.

So don’t be penny wise and pound foolish. If your kid needs to work 20 hours a week at the college diner/food hall because that’s the only way to fund college than so be it. But if those are hours that could be spent volunteering, working in a lab, or other activity which is a meaningful contribution to your kids intellectual capital, you need to rethink the “they pay for 25%” model. If you can afford it, your money might be better invested in their tuition and give them four years to get launched intellectually/academically/professionally.

Plus a kid who graduates with a BA and gets a well paying job after 8 semesters is a kid who doesn’t need grad school (depending on the field of course). THAT saves a boatload- opportunity costs AND tuition!!!

18

My oldest’s 529 got whacked in the 2008 downturn, and she was in the age-based banding that was supposed to be the most conservative (17 years old at the time). But the good news is that you don’t have to take it all out at once – you have a four year period, and her 529 regained quite a bit of its value over that time.

19

Well, it all depends on the family. Our plan was drastically different. We aimed at full tuition Merit awards. Eventually, the plan worked! We could have paid from our payroll checks, but we did not have to…paid instead for Grad. school. Are you saving for Grad. school also?

20

Of course, high achieving students may have lower college costs. They may get better scholarships, get into colleges with better financial aid, and not need extra semesters of school to graduate.