<p>In other threads, there is lots of discussion about “doughnut hole” families who make too much money to get significant financial aid, but cannot afford the list price of college, in the context of elite colleges whose list prices are around $60,000 per year and whose financial aid tails off at around $200,000 per year incomes.</p>
<p>So the question is, what would prevent a family earning that much income from being able to save up for kids’ college costs, or pay a kid’s college costs out of current income? Let’s assume that there is not something like a money draining divorce, medical costs, or similar financial catastrophe affecting the family.</p>
<p>Some states have state income and/or payroll tax; for example, in California, the family would pay about $15,000, leaving about $138,000 after federal and state income and payroll taxes.</p>
<p>So how would you live and pay or save for a kid’s college costs with $138,000 to $153,000 income after federal and state income and payroll taxes?</p>
<p>Much depends on your OTHER fixed expenses and how reliable your income has been historically and for the future. Some folks have highly fluctuating incomes–practically nothing or loss one year and then huge income the next (especially if they are on commission basis like realtors). Some folks have had bouts of unemployment (had to take out loans and raid any retirement accounts) and some have high medical bills, support loved ones (including parents, disabled relatives), or other expenses. It is really tough to know other folks’ finances. In Hawaii, costs of housing are extremely high and consume 1/3 or more of many folks’ incomes.</p>
<p>For folks who have been earning $200K steadily for many years & don’t have these expenses, I agree that they should be able to manage their finances so they can handle full pay college – whether they choose public or private.</p>
<p>Hawaii’s median household income is $67,492, according to <a href=“http://quickfacts.census.gov/qfd/states/15000.html”>http://quickfacts.census.gov/qfd/states/15000.html</a> . Even if we assume that the median income of families with high school seniors or college students is somewhat higher, it is still likely far less than $200,000. How do such families live? Can a $200,000 income family live like a median income family and have the rest left over for college costs?</p>
<p>A lot of Hawaii’s families live with multiple generations to save on housing and childcare/eldercare costs. It has its own pluses and minuses. It is hard to know what other obligations some folks have–many are supporting disabled, unemployed or underemployed people, have medical bills to pay off, their own educational loans, etc.</p>
<p>Yes, it would seem that folks who earn north of $100K should be able to pay a significant part of their kids’ college expenses, and especially folks who earn $200K or more. We didn’t apply for FAid and our income was below $200K; we had 2 kids in expensive private college at the same time–one with some merit aid and one full pay. It was not easy or pretty but we managed.</p>
<p>Some states have very high costs of living - for example NJ - with very high housing costs. Your monthly mortgage payment on your home in NJ combined with the very high real estate taxes could eat up a nice percentage of your income. (Property taxes in NJ can be $10,000- $20,000 easy). </p>
<p>I think it is fair to say that the situation you describe is a “problem” many would be glad to have. While some say it isn’t fair that someone with a smaller income gets more help, would they like to step up and change places? I say this as a full pay for two private colleges. We saved and were not extravagant over many many years to be able to do this. And I live in a very high property tax area (2nd in the country if I’m not mistaken).</p>
<p>$200k families can afford to save/pay significant sums for college. But $200k families also don’t appreciate going to the market to pay 6 bucks for a bunch of bananas for which everyone else is being charged 2 bucks, in order to fund the grocery store owner’s crack addiction.</p>
<p>People who make 200K a year can’t afford to pay as you go. They would have to be saving for few years and that’s also assuming they have been 200K for many years. </p>
<p>I will use NY tri state area as an example. The same job would pay 1/3 (or 1/2) less if it is in NJ vs in NY. If you need to travel to NY to work, your commuting costs could be 300-400/month. If you are assuming both parents are working to make 200K then some of that money would need to go to childcare. </p>
<p>I did a quick calculation:
Housing 48000
Car 3600
Gas 4800
Insurance 2000
Utilities 4800
Food 13000
Entertainment 6000
Clothes 3600
401K 12000
Total spend 97800</p>
<p>My numbers are very conservative, not taking into consideration of house repairs, car repairs, kids’ ECs, or other unexpected spend. It would leave 40K for tuition.</p>
<p>Starting early to save, save, save with the benefit of investments and compound interest is the solution. Trying to save a lot when one is already raising a couple of kids is harder to do, though not impossible. Creating a budget, which includes funding retirement and college savings first is imperative, as is sticking to the budget. </p>
<p>We paid as we went (private universities) and we earned less than $200,000. But I don’t live in NYC.</p>
<p>But what would prevent someone from being able to do so? Maybe the parents are still paying off THEIR college loans…and have added a mortgage, car payment, etc to the mix.</p>
<p>What about health insurance? We pay over 25k per year for that and that doesn’t even include the dentist. A lot of people in this income bracket spent their first ten years or so paying back student loans. If there are other kids, there may also be daycare expenses. For us, on this list the cars, clothing, and housing lines would be quite high but all other line items are higher and our utilities are much, much higher (and that doesn’t even count cell phones). I don’t think you can ever assume no catastrophes. Life happens to everybody. </p>
<p>And only saving 12k per year for retirement may be foolish unless you also have a pension that is more or less guaranteed or the company is matching at least 4k of that. Anybody who thinks social security will be there for people with decent 401k accounts is kidding themselves. Means testing is coming to social security and it’s coming soon. I think to ensure a comfortable retirement (assuming your home is paid off) you need that 401k account around 2 million and it’s unlikely 12k each year will get you there.</p>
<p>I’m a compulsive budgeter. If we only had one kid, we would have plenty saved and could easily cash flow the rest. Whether we would have, I don’t know. I suspect we’d have bought a shore house instead. </p>
<p>We fall into that income category and the one thing that stops us from being full pay out of current income is “stubbornness” the husbands strict plan was save the targeted amount the first 18 years and not have to worry about out of pocket during college. He refused to ever stop paying into retirement and that includes the 6 years that we would have kids in college.
Our saving target was 80,000 for each kid and we made that.
That was the limit we would contribute and the oldest received scholarship for full tuition. </p>
<p>We both went to state schools on our own dime and had a few loans that we quickly paid off- my husband decided that no school was worth 240,000 a year. </p>
<p>Saving for retirement is necessary if you don’t want to be living in poverty or off the generosity of others. College savings is optional. Gifted students will always have a way to pay for college, even though they may have to take some loans and go to a less prestigious school. Less talented students will have less options and it may take more than four years and some loans, but college is still doable for kids who want it so long as the family is supportive, though not necessarily paying for it.</p>
<p>Agree. A state school with the student taking out a modest amount of loans should be doable for the family in this situation. Or, as you mention, if the kid is academically or otherwise talented, many schools offer merit aid to get the students they want most.</p>