Ponderings on college costs

We have saved $74,000 for DC1’s college so far.  That’s $500/mo for 8 years in a Utah Vanguard 529 account.

Is it enough?

I don’t know.

This basic calculator says we need to increase our contributions another $470/month if we want to pay full tuition for both kids at a four-year private school.

Will we need to pay the full amount for school, or will we be eligible for financial aid in 9 years (give or take)?

I don’t know.

Whether or not we have to save more for say, Harvard (easy-to-use calculator) depends a lot on assumptions– (using this year’s numbers and pretending inflation cancels out) DH loses his job, we’re eligible for mondo financial aid.  We get a combined raise of 40K (not that that’s going to happen given my salary hasn’t been matching inflation, but DH does work in tech!), we lose any eligibility.  I haven’t figured out how they treat retirement funds– if we include them as savings, we’re not eligible, if we exclude them we’re quite eligible.  Oh, and don’t leave 50K in your savings account when it can be hidden away elsewhere.

MIT (ironically painful to use calculator) says no financial aid at all unless DH loses his job.  Financial aid is pretty good on just my income alone.

I want to throw in an elite SLAC or two there, but I think it’s safe to assume they’re probably between Harvard (known for being giving at relatively high levels of income/savings) and MIT (known for its stinginess) in generosity and costs.  (Actually, I checked Wellesley from a Phil Levine link and it says we get no aid based on annual income alone, similar to MIT.)

74K is already more than ze would need to go to the state school I teach at.  But I know what it’s like here, and ze won’t be going.

Btw, in terms of the cost of education inflation, my underlying assumption is that tuition costs will rise about the same rate as the stock market, but more than inflation.  So if I had my eye on a local state college for DC1, I should stop now.  If I have my eye on private school, then we should probably increase our contributions each year along with our salary increases (if any…) to match inflation.  But who knows.

I guess we’re just going to keep on doing what we’ve been doing.  Even if it’s not enough.  Even if it might be too much.  Because I don’t know what else to do.  And it’s not that painful, really,  because we’ve been doing it for so long and it’s automated so we don’t even notice it.

Update:  related:  Another blogger looks at Stanford costs.  Almost everyone we know who went to Stanford is now a multi-millionaire (the one exception being our classmate who is now an international bum after getting an engineering PhD at an absurdly young age and burning out).  Oh, and one of us knows a guy who decided to get an English PhD after Stanford.  He’s also not a millionaire, to our knowledge.

[tiny rant warning]

I also have a serious problem feeling sorry for people like us [in the over 100K/under obviously-rich range] who complain about not getting financial aid at elite schools, as in this Tenured Radical post.  If your family makes a lot of money, even if it’s not Obama definitions of rich, you can still start early and save.  And there’s still plenty of places to hide money in order to keep eligibility at most private schools at those income levels (ex. retirement and your mortgage, also you may time your car replacement to decrease your cash savings).  This acting like you shouldn’t have to pay large amounts of money as if you didn’t know college was coming and so it’s all coming out of your annual paycheck is ridiculous.  And even if it *is* coming out of your annual paycheck, you’re still doing better than well over 75% of Americans.

In other words, I have trouble feeling sorry for the top 10% even if I’m one of them.  Even if things aren’t anywhere near as nice for us as they are for the top 1% or top 0.01%.  Even if I think that the government should subsidize public education more.  I still don’t see that as something that people like me need (except, of course, as a state university employee where I worry about the long-term viability of my employer, but you know, as a parent I’m doing fine).  It’s the other 90% that I care about.

[/end rant]

How do you decide how much to save for your kids’ college?  Do you feel sorry for the upper-middle class who might have to pay full-freight for their kids’ school, even though their ability to spend will still be pretty darn high?

83 Responses to “Ponderings on college costs”

  1. taylorqlee Says:

    I remember being struck by the fact that at my university, which had a sticker cost of ~40-50K/year, only about 54% of students qualified for financial aid. Note this university had an AMAZING financial aid program, as in your parents made up to $200-250K and you still qualify for *some* money. Which meant many of my class came from families wealthy enough to cashflow their collegiate aspirations.

    I don’t feel terribly for the top 10% (of which I am likely to be a part) because, frankly, the benefit they receive is the choice, i.e. the ability for their children to go to any school and be able to just afford it without being at whim to that particular institutions financial aid policies.

  2. Leah Says:

    We just started a 529. Like, literally yesterday. $500/month is more than we can afford these days, but I figure something is better than nothing. My parents paid for my college out of cashflow (!!), and I think it’s reasonable that you could likely use some of your cashflow to pay for college when you get to that point. I’m hoping we can pay for all of our kids’ college, but that cost is such an unknown entity. For example, is college tuition a bubble waiting to burst? Who knows.

    Also, in 8 years, you’ve saved enough for state school. Will another 8 or so really not give you enough for private school? Ouch. Hopefully, DC will be able to earn some merit aid that will help out. That helped tremendously with my tuition.

  3. Leah Says:

    I wouldn’t feel bad about what you’re doing. Again, something is better than nothing, and you certainly have way more than nothing. You’ve almost got half of a four year SLAC degree there! There is a question, tho: at what point do you stop? What happens if you have *too much* money in a 529 account?

    • nicoleandmaggie Says:

      If you have too much because of merit aid, then you can take the merit aid part out without any penalty except paying taxes on it. If you have too much because you over-saved, then you can either take it out with a penalty or transfer it to another relative or use it for higher education. One of my former undergrads in that situation paid for a good portion of law school with the 529 money her parents had saved for her to go to a private school instead of public.

      • Steph Says:

        My sister was in a similar situation – went to our state flagship, and is now paying for med school (partially) off college savings from my parents/grandparents. She’ll come out with some loans, but not as much as she might have.

        I went to a private SLAC, but had merit aid, so even at the end I had a little bit of money left in an UGMA that got transferred to me after graduation. Once it transferred to me I can do what I want, so I have a mutual fund with a small balance that’s growing ok now. So you could try something like that (caveat that I only know the pros/cons from the wikipedia page, and I don’t actually know where the money that started that UGMA came from)

      • nicoleandmaggie Says:

        My sister and I actually had UGMA pay for part of our college (which did get transferred to us to pay our outstanding no-interest/low-interest loans after graduation, which turned out to be a bit of a paperwork nightmare for me)– until the mid 1980s they were a tax dodge. We also had small Coverdell accounts. But that was back before the 529 existed. I don’t think there really are benefits to UGMA now. I dunno though.

    • Matt Healy Says:

      “In other words, I have trouble feeling sorry for the top 10% even if I’m one of them”

      Me too!

  4. bogart Says:

    I have no sympathy for the top 10% on this, or many other matters.

    As for us, you could say we have $0 saved for DS’s college. OTOH he has one grandparent who has stashed/earned about $20K (or is it $30K? I honestly don’t remember) in a 529 for him. If I stay at my current employer and the benefits structure stays the same or gets grandfathered, he will have access to a great tuition benefit (that is good for close to any US school — not quite all nationwide, but almost). DH is already retired, and I hope to have the option of being out of the workforce (to be FI) myself by the time DS starts college — this hope anticipates a somewhat, but not wildly, frugal lifestyle (this does not contradict the bit about tuition benefit above; again, assuming constant benefit structure I can both retire and retain that benefit before DS starts school). And we will both be able fully to access our retirement savings accounts without penalty (DH already can…) if I have left this employer (the 55 rule), and/or I have a fair amount of my savings in Roths contributions/conversions, anyway (and while I won’t hit 59.5 before he starts college, I will by the time DS graduates). For this reason, we are focusing on saving in retirement accounts, not separately for DS’s college.

    Tuition costs have gone up a noticeable amount since we did this (as has our income, by a lot), but we put both my stepkids through our state university system on cash flow, with $0 saved; their mom paid half, but still. Our state legislature is doing everything it can to destroy our university system and may yet succeed, but so far, it’s a good system. While I don’t want DS to be constrained to attending it, neither would I be sad to see him do so (i.e. I’d want it to be a choice not a constraint, but it could be a fine choice depending on his interests/goals).

    I don’t anticipate that we will pay for graduate/professional school (though we might help if we are able) — that’s something I see as the student’s responsibility.

    • nicoleandmaggie Says:

      If we ever move someplace where I get a good tuition benefit, I don’t know what will happen with that 529 money! Right now I’m assuming we’ll stay here for the next 10 years, but who knows.

  5. Amanda Says:

    We are in almost the same situation re:529 savings. We make too much money for any aid. I just spent a lot of time deciding to stop contributing further. Two additional things that went into my decision were that we are in CA, which has pretty good top tier state schools, and that my partner is old enough that we will be able to access his 401k during college. It made me nervous to stop saving specifically for college but putting it in the 401k is so much more flexible that I decided it was the right thing to do.

    • nicoleandmaggie Says:

      People should definitely take care of retirement (particularly Roth IRAs if applicable, because you can withdraw the contribution but not earnings without penalty) before worrying (too much at least) about 529s.

      We were in kind of a weird situation because when we were both employed at the university, maxing out our retirement options meant saving over 50% of our combined income in retirement accounts. So we would have been retirement account rich and college account poor (other than the Roth IRAs). Now DH has less retirement savings room but a higher income, so we’re not Roth IRA eligible anymore (and don’t want to do the back-door conversion), and maxing out our retirement isn’t such a huge % of our income, so we can do both. But for people who generally can only save ~20% of their income in retirement accounts, it makes much more sense to max out retirement before 529s.

  6. Kellen Says:

    Couple of thoughts:
    1. If your child is going to go to a really good school like Harvard/MIT/Stanford then the tuition may be worth it. If they’re going to one of the billion private liberal arts schools that aren’t top-tier, then it’s just not good consumerism to spend the money there when the child can probably launch similarly successful career from a state university, for much less tuition cost.
    2. Just because people have high income doesn’t mean that their child will be needing/getting Harvard education. (Not aimed at you, I think in your case it’s clear your kids will be going to good schools. But plenty of wealthy people around who are not concerned with academics.) There are plenty of rich people whose kids will want/only be able to get into, a less-good school, so those rich parents don’t need to complain about the high cost of college either, because again, they’re probably paying for their kid to go to a second-rate private college, when kid would get same benefit from state university.
    3. A smart kid who had the advantaged background of upper-middle class, and who picks a reasonable major for career money-making should be able to earn plenty of money graduating from a state university anyway, so it’s not like their life will be ruined if they go to one.
    4. If child is likely going to go to grad school, parents could consider kid going to cheaper, public university for undergrad, and getting into top-tier school for grad school.

    I went to state university for free (tuition waiver if GPA is over a certain amount), so obviously I’m a bit biased. I think that the benefit of a smaller university for me would have been better social experience, and stronger network, which is important for success later in life. There are other factors that could have improved my college social experience too–i.e. my parents making more of an effort for us to be social when I was a kid, or having applied to my university earlier to be able to get into a smaller housing community of honors-college kids (applied last-minute due to last-minute move for parent’s job).

    Okay, done with mini-essay :)

    • nicoleandmaggie Says:

      All good points, though with a caveat for #4. You can probably get into a top 10 grad program from a second tier public school, but it is very unlikely you’ll be able to get into a top 5 grad program. Someone with a 4.0 and perfect GREs from a top tier undergrad is always going to get preference over someone with a 4.0 and perfect GREs from a second tier school. Unless the undergrad has a publication record (something more likely at schools with undergrad research programs), there’s just no way to show higher quality.

      Still, that really only matters for the very ambitious.

      • Kellen Says:

        I know my sister got into Harvard Law without a 4.0. She went to public state school. She had done an interesting study abroad (on a merit scholarship) which seemed to help, at least in interviews. That’s only one example, I know.
        But my other example I know is a friend who went to Harvard for undergrad, and then didn’t know what to do with herself after, and worked in a bakery and other random jobs. So it seems like the individual person’s motivation and drive is very very important to later “success,” possibly more so than their undergraduate institution.

      • nicoleandmaggie Says:

        It’s not public state school that’s the problem. People from state flagships get into top 5 programs all the time. It’s the directional schools that might keep you getting into a top 5 program unless you’ve done something else extraordinary or have worked with someone important in their own right. Also caveat: I don’t know much about professional school admissions (where, presumably, work matters and test scores may not cap out so quickly), I was talking mainly about PhD.

        And yes, measured success doesn’t necessarily have anything to do with being in a top 5 program vs a top 10 program and ambition and motivation are extremely important. But if you’re very ambitious, there’s a much smoother path coming out of Harvard with a PhD than out of, say, Minnesota.

    • LLL Says:

      disagree with point 1 – it’s easy to get lost in the multitude of students at state university vs. non-top tier liberal arts school, that there are benefits to the later. also, top state university (“public ivies”) vs. non-top tier libreral arts usually end up costing the same. it’s the mediocre state universities where you get the savings.

      • nicoleandmaggie Says:

        There are non-top tier liberal arts schools that cost quite a bit more than flagship universities (my SIL went to one, and it wasn’t a good choice for her) — they tend not to have good endowments and so both cost a lot and don’t give much aid. I don’t think Kellen is talking about endowed places with good regional reputations and small national reputations like Earlham or Macalester, but more like places that don’t even really have regional reputations. I read some news articles or maybe even research about such schools, so it’s not just my SIL.

        (I am all pro-SLAC over large state uni! Though there are also benefits to state unis depending on what you want to do and your personality type.)

      • Kellen Says:

        Sorry for the long response, but HERE GOES:

        I am not comparing mediocre state schools to non-top private. I am comparing the best state school available in the state to non-top-tier privates. I disagree that they end up costing the same. A quick example is UC Berkeley, where in-state tuition is $13,844. I’m thinking that any private colleges cheaper than that in CA are very low-tier indeed. Assuming your child has the grades to get into a top school, I would think that you either want top private school or top state school–chances are that the non-top-tier liberal arts schools A) aren’t as good as the best state school for the same price and B) don’t have name recognition because they are just too small and not famous.

        I wonder if, when people complain about the cost of college, they are people sending their kids to schools such as Wheaton College, in MA, which is 46k in tuition each year, but only ranked 69th nationally among liberal arts colleges by US News. In this case either A) Berkeley’s out of state tuition of $25k is much lower, plus they are ranked 20th by US News or B) the student can’t get into a “public ivy” Berkeley, so why not send them to whatever the home state school is for more like 12k a year anyway?

        I pick on Wheaton because it is a quintessential tiny liberal arts school, more expensive than Harvard’s tuition ($44k), and my friend went there, but when she finally decided what she wanted to study (chemistry), she had to switch schools because Wheaton didn’t offer a chemistry degree. Which is ANOTHER drawback to schools like this–they are not large enough to offer a wide range of degree programs, so the student should be pretty sure they want to study one of the subjects that IS offered.

        In terms of getting lost in the multitude of students at a state university–there are programs students can leverage to make the school “smaller” such as honors programs. My university had over 30k students, but I was able to take all of my social sciences, statistics, and major classes in course sizes of 30 students or less, thanks to the major limiting class sizes, and the honors classes being size limited (to 25 or less). The honors college also had a separate dorm, which would have really been great, but I applied too late to get placed for housing there.

        I also know that we had a program where undergraduate honors students could work as research assistants alongside graduate students, which seems like it would be a good way for them to build up relationships with professors and also see if they wanted to commit to doing a PhD in that field. We were a research 1 university, so I would assume that the professors could provide good connections, at least to wherever they did their PhD.

        So again, if money is an obstacle, extra leg work to learn about and apply for their many special programs can really get you a lot from the school without the high sticker price. PLUS learning to stand out and make connections in a large university will help the student learn the skills they need to do the same once they are working for a multinational Fortune 500 company, where it is likely also easy to get lost in the shuffle.

        I am totally on-board with paying for a top-notch private school if that’s what your kid can get into and it ties into specific goals for their future (i.e. academic career, working for a top global company that only hires from ivies), but I am just annoyed by the articles suggesting that if a family doesn’t have the $50k a year for tuition, then college is “unaffordable.” Graduating from a school that didn’t cost 50k a year does NOT prohibit anyone from becoming very successful if they have the drive. Not having the drive WILL prevent them, regardless of the college they attend.

      • nicoleandmaggie Says:

        Oddly, some of the classes I teach at my huge flagship state school are smaller than many that I took at my elite SLAC. Part of that is that we have more sections because we’re bigger and have more flexibility with who can teach the course. Part of that is that we have a lot more options for upper-level electives so everybody isn’t trying to cram into the courses taught by the good non-sketchy profs and avoid the creepy ones. But that’s a benefit of being at a flagship. My mom is at a directional state school and they don’t have enough resources to not stuff things. Of course, we also have classes scheduled at 7am and at night, which was never an issue at my SLAC (except for one film class which had section one night a week to watch the weekly movie– that wasn’t exactly a hardship). There’s a lot of stuff going on.

        From what I’ve seen on those charts showing where top companies hire, it looks like places that draw from Stanford and Harvard and MIT also draw quite a bit from the big state flagships too. I don’t know what that means if you’re at Montana or Louisana or VT.

  7. Kellen Says:

    Also, I really get annoyed about this paragraph from the article:
    “Well here’s the news: people also take a lot of money out of their homes to pay for college, because otherwise their kids aren’t going. And if you no longer have equity in your home, you turn your kid loose on the commercial student loan market, a way of passing on your own debt to the next generation.”

    You’re not just passing your debt on to your children by having them borrow for college–if parents have college age kids, high incomes (since no financial aid available), no home equity, no savings, then their own personal finances are so poorly managed that the kid probably didn’t have a chance to avoid consumer debt anyway, because they will have learned such terrible personal finance from their parents.

    • nicoleandmaggie Says:

      Yeah, I don’t get either of those articles– like the one PF blogger talking about Stanford was saying that ze’d have to start eating cat food or canned soup or something, when in reality, according to the numbers ze provides ze’d still have take-home pay of at least 74K. Like, cry me a river. Very tiny violins. (Similarly Tenured Radical, feeling soooo sorry for her wealthy friends with kids who have to actually pay something in exchange for prestige and future earning potential.)

  8. Anon 2 Says:

    The main thing is what does a high salary get you. The cost of living is so high in some places that the salaries look high compared to the rest of the country but are actually not high. Such people are really quite poor but don’t qualify for financial aid.

    You will need between 150,000 to 200,000 for a four year college education at roughly $35,000 – $50,000 a year for most private colleges and state ones too.

    • nicoleandmaggie Says:

      Yeah, we call Bullshit on that. One can live quite comfortably on a combined salary of say, 120K, in an easy commute to Google (or a slightly less easy commute to Manhattan) and still be eligible for mondo financial aid from top schools.

  9. oilandgarlic Says:

    I feel that college has gotten too expensive in general but I can’t feel “sorry” for the top 10%. Yes, it is partly for selfish reasons that I feel that aid should go to families who are NOT in the 10 % because my household income is not to be considered in the top 10%. However, we also earn too much to get a lot of aid but we would qualify to get more $ than higher-income households. As “tough” as it is to afford college and home, imagine life in the lower to solid middle-class! Financially, we are choosing to save for retirement and afford having kids, but don’t expect to ever own a home or be able to help pay for college.

    • Rented life Says:

      We can afford put one kid and then it’s either save for retirement or save for school. I pick retirement. My grandma gives me $10/mo for our son and we are saving all of that kind of money but I cant out away anything decent for quite some time.

      My parents didn’t get aid for me (well I could get $250/sem and when I learned mom had turned that down every year I filled out on her.) but they took out loans in my name do I have student loan debt. But they did 529 for brother and that covered all his schooling and living expenses. I am still paying loans all this time later. All I ask is people either do it for both kids or find some other way to help.

  10. oilandgarlic Says:

    Oops..sorry for some missing words in my comment. Meant to say”Yes, it is partly for selfish reasons that I feel that aid should go to families who are NOT in the 10 % because my household income is not in the top 10%.” I’ll go get coffee now…

  11. delagar Says:

    I can’t feel sorry for the 10% either, also for selfish reasons. My kid would have zero savings for college if her grandparents had not started her an account. As it is, she has a relatively tiny account. We have no house — will never have a house — and an income that means we’ll be able to do no more than contribute to her living expenses while she’s at college. I can’t help feeling financial aid should go to those in the lower 90%, who truly need it.

    • nicoleandmaggie Says:

      She’ll get financial aid if she keeps up with her schoolwork– my undergrad was literally free my senior year (including room and board) and cost less than the state school would have the other three years (as did DH’s). She should keep in mind endowments when she applies to private schools. (And, as someone from Arkansas, she’ll be a diversity point for coastal schools.)

  12. Calee Says:

    Do remember that in some parts of the country (ours) a salary of 120k qualifies you for affordable housing…

    • nicoleandmaggie Says:

      We have both lived (and one of us currently lives) in extremely expensive parts of the country on far less than 120K/year and have done just fine. Even with daycare expenses (and retirement savings and other saving). Yes, you may have to rent a smaller apartment rather than buying a fancy house for longer (and when you do buy, it will not be as nice a house). Yes, you may have to do public instead of private school for your kids. Yes, transportation isn’t always as easy, and you may have to have one car instead of two, but there’s also public transport (even in LA, if you’re willing to take a bus). Yes, you may not be able to take vacations to exotic places (but you LIVE in an exotic place, though we know plenty of people who prioritize vacations to Hawaii over their children’s tuition, boo hoo). Plenty of people are living in these ultra-expensive parts of the country on far less than a 6 figure income. I have a hell of a lot more sympathy for them than I do for people like us.

      Not to mention, if you’re talking about NY or CA, the public university system is as good as any private school. (And if CA tuition is too pricey, there’s partnerships with Nevada for their cheaper schools.) So there’s less of a need to get the heck out of say, Arkansas.

  13. becca Says:

    I think Harvard should be considered an outlier for Financial Aid purposes. They’re an endowment with a university attached, not the other way around. Thus, they will charge your kid exactly what they think you should pay. Other institutions have to have *some* connection between tuition and expenses, and their expenses are going up much faster than inflation.

    Stanford has ambitions (which may eventually be realized) of being an intellectual-property firm with a university attached. I know less about how they run their financial aid, but I suspect they are kind of a weird institution as well.

    My kid said to me yesterday ze wants to start college at 11. We are totes screwed in terms of having enough time to save no matter how much we try. ;-) Oh well.

    The only people in the top 10% who say they have trouble paying for college that I feel sorry for are those with huge elder care costs. Education trumps consumption as a priority for me, but I can’t fault people whose family priorities tear them in two different directions (even though on a societal level, I think we should prioritize preschool before Medicare, I still think on a personal level it can be admirable to have a Confucian type attitude toward elders on this count).

    We started a 529 for my kid some time ago, but I’ve never set up an automatic contribution for it. My Mom did for a little while, but our finances are so unstable. I did contribute the max for the state tax deduction this year, because we could. Right now we’re looking at moving again and I’m torn between better-schools now and less money to save for college, and worse-schools now more money to save for college.

    • nicoleandmaggie Says:

      Medicaid should pick up elder-care costs once the elder has spent down hir estate– that shouldn’t be coming from the kids. Except in cases where the kid/parent can’t work because ze is directly taking care of the elder in question, but then they’re not high income anymore.

      • bogart Says:

        My dad is relying on Medicaid to cover nursing-home care as he declines into dementia, and it’s pretty horrific. Assuming I could avoid it, there’s no way I’d let my mother be subjected to what he’s enduring, were roles reversed (yes, she is a much nicer person than he is and a much better parent. Also, his lifelong coping strategy has been denial, which on the one hand led him down the road to ruin, as it were, but on the other, turns out to be pretty valuable if you are on Medicaid in a nursing home with dementia. That is to say, my mother would probably find exactly the same experience my father is having subjectively much worse than he does, so in that sense equal would not be equivalent. Of course, as her coping strategy isn’t denial, she has LTCI and other things in place to reduce the likelihood of her needing Medicaid).

      • becca Says:

        thanks bogart, for that personal perspective.
        I wrote a couple of unhappy replies and thought better of them. I know you mean well, and on a macro scale, yes, Medicaid *should* pick this up. But on a personal scale, the holes in Medicare and Medicaid safety nets are gaping.
        And the actual choices some families face are heartbreaking. We were comparatively lucky in purely financial terms, but the lack of accessible appropriate care options was still ghastly. I probably am in urgent need of a lot more therapy than I’m getting.

    • Kellen Says:

      Better schools now might = more merit aid for college later, plus better ability to perform well in college and go on to grad school/top company after college thanks to better college prep.

  14. Leigh Says:

    My answer was going to be that they’ll go to our alma mater, so I checked the tuition and holy cow tuition inflation. My last semester five years ago was $5k for tuition and fees (not including textbooks, rent and food). It’s now $7k. Rent seems to also be going up, so instead of my $60k for everything degree, $60k will only cover tuition and fees and probably books.

    Saving for college will apparently be crazy. We’ve agreed we’ll pay in full, but we haven’t talked about what that means (private vs state, etc.) I didn’t get any financial aid because my parents made too much money. I had friends in similar situations whose parents made the kid pay for school. I won’t do that to my kids. That calculator said that to afford my alma mater in 18 years, I would need to save ~$625/month per kid. That seems like a lot, but that’s less than what I save for retirement, so probably not that bad. I also wonder if my parents would contribute towards their grandchildren’s education like their friends have been.

    (No, I’m not pregnant. I just like to what if about unnecessary future things and try to understand how they work.)

    • nicoleandmaggie Says:

      14K/year is pretty cheap for tuition these days! Especially for a school that gave you the earnings potential that you have. That’s a huge bargain. Somehow I think you guys will be able to handle it (even if you cash flow it).

      • Leigh Says:

        Yup, that’s why I want to send our kids there! I think it’ll be fine. If we were still working when kids went to college, we could also cash flow it, which is what my parents did. I remember reading a blog post once about how you should frontload retirement and then instead of saving the 2x18k/year into 401(k)s, you can pay for college for two kids at state schools since the 401(k) limit keeps up with inflation.

      • nicoleandmaggie Says:

        That also makes a lot of sense given that the FAFSA doesn’t take into account 401k balances, and most CSS schools also don’t take them into account. (529 accounts count as parental savings for financial aid purposes, so they’re counted as a fraction.)

  15. Cloud Says:

    We assume we’ll get zero need-based financial aid, and think that is absolutely the way it should be. We’re saving into 529 accounts and have been since the kids were born. Will it be enough? Who knows. If it isn’t, we will either be making a lot of money like we do now or we’ll have other assets we can borrow against or we’ll qualify for need-based financial aid. As someone who grew up in a family that made A LOT less than we do now, I cannot see how my kids should get money before kids like I was should. And my family was still middle class! (I won a merit-based scholarship, my sister mostly had subsidized loans. We both went to quite elite colleges, although mine is technically about 10 spots lower on the rankings than hers was. But I came along 2 years later, and after watching her experience w/financial aid, I decided to look for places that offered merit based scholarships and I ended up getting to choose between 3 full scholarship offers.)

    Have you seen Tressie McMillan Cottom’s op eds on how financial aid is now viewed as a middle class entitlement at the expense of poor people? Here is her Slate piece, which links to her original NYT op-ed (I don’t want to link both for fear of getting caught in your spam filter!)

    If we want college subsidies for all, then we should make a program that provides subsidies for all. If we want need-based subsidies, then people like me should not complain because we’re too rich to qualify. By any objective standard, my need is low.

    • nicoleandmaggie Says:

      I think I did see that slate article, and as per her usual, she’s absolutely right.

      I think 10 spots lower on the rankings when you’re talking top universities doesn’t actually mean that much. (Though my sister, who got into an ivy and a top engineering school but chose a school like yours instead, did have friends in college who never did get over not getting into any of the ivies to which they applied. They’re probably doing just fine, however.)

      • Cloud Says:

        Yeah, in terms of what we each ended up doing with our lives, our choices worked out great- since I ended up majoring in science, it was a boon to be at a research university. She was at one of the “Potted Ivies” and has never expressed regret for that choice. I think for kids like we were- smart, with good emotional support from our family, but not a background in which a wide range of careers were modeled for us as options- leaving our state and going to smaller private colleges was a really good choice. It definitely broadened our horizons, and based on what my friends who went to our nearby state school did, I think that was a good thing for me. But I always say that it would have been possible to get an equally good education at that school, I’m just not sure I would have had the vision or self-confidence to do it. (One of my friends did, though, and she’s a tenured professor at an R1 school now.)

        There were certainly a lot of people bitter about not getting into an Ivy in my class at Chicago. They wasted a lot of time and energy complaining about that, but I think they mostly went on to do just fine. I was thrilled to be there, and once I learned how to study properly, thrived.

      • nicoleandmaggie Says:

        I’ve never thought of UChicago as particularly small! (Of course, I went to a SLAC…)

      • Cloud Says:

        The college is. My college class was smaller than my high school one.

      • nicoleandmaggie Says:

        I see it’s about 5,600, which is 2-3x mine and 5x Caltech’s, but a lot smaller than a state school. It looks like it’s smaller than my sister’s undergrad (8,500), which I always thought of as about the same size. It’s also 1000 bigger than MIT, which I always thought of as bigger than UChicago. I guess a lot of those graduate students at MIT just look like undergrads (and I bet a bunch of the undergrads at Chicago look like adults!).

      • Cloud Says:

        I think those numbers are up significantly since I went there, but I’d have to go back to my old freshman year pic book to be certain!

  16. Ana Says:

    I opened the 529 plans last week and put in the max tax deductible amount for the year (missed the deadline for 2014, but in there for 2015) out of savings accounts I’d created for the kids. Almost all that money, however, was put there by my father, who continues to fund their accounts for birthdays and whims (I think he’s trying to get HIS tax benefits). We really don’t have enough money right now to maximize retirement AND the 529s, so I’m going for retirement. Once we stop paying daycare tuition, that money (minus whatever we pay for aftercare, which is quite variable from my research!) can potentially go to the 529 but I’m not sure if that’s the best place for all that money to go—I’ll have to look into that.
    I don’t think my parents (who saved a LOT and may put your dad’s frugality to shame) saved for our college specifically and it worked out ok (and I guess they have enough now for retirement and want to fund the grandkids). I got a full tuition merit scholarship + National merit scholarship that covered books to a private university, and my sister went to a (really good, high ranked) state school also free tuition (with B average or higher, that state offered free tuition to state schools—this benefit came after I started college, yay lottery). \I took out a small loan that I paid back during my first year of residency for my first year of med school tuition (I got money monthly from my parents for living expenses) the other 3 years my parents paid cash for tuition after I established residency in that state (my parents bought a condo—with cash, for me, and I sold it 8 years later at the height of the housing bubble for 200%—they made money on my med school!)
    Where I work right now has an AMAZING tuition benefit. But the chances I’ll still be here when my kids start college are pretty small.
    No I don’t feel sorry for people like me even though I’m having trouble finding the cash to fund my kids’ college plans. If we’d actually thought this through we might not have bought this house, which is a HUGE portion of our fixed costs. And reading back over what I wrote I see the glaring obvious privilege of having my parent’s be well off and savvy enough to leave me debt-free after my schooling and help with my own kids!

    • nicoleandmaggie Says:

      Definitely retirement comes first, and 529s are a great place for monetary presents for the kids from family.

      We also bought too big a house in retrospect, though we have the advantage that it was still only 265K. Occasionally we think about down-sizing, but it doesn’t ever seem worth the hassle.

  17. Ana Says:

    oh no, its not too big by any means (3 bedrooms, 1800 square feet), its just expensive because of where we live. Not sure TBH what the best options would’ve been—rents would be only marginally cheaper, though we would have been spared the major home improvement costs we’ve put in over the past few years. If we moved further out, house prices aren’t much cheaper PLUS we’d pay more taxes AND have to buy 2 cars and all that goes into that. So it may be that the only cheaper option would’ve been to move to a whole different area of the country and find new jobs.

  18. MutantSupermodel Says:

    This one is really weird for me. My parents didn’t save a dime for us to go to college. They were too busy paying for our private educations. The thing is they were super pessimistic about financial aid so they discouraged us from applying anywhere outside of Florida since we all qualified for scholarships for the public state universities.

    I don’t really have much of a college savings for my kids. I started a 529 years ago and nothing has gone into it. I do work for a private university and I would like to either stay working here OR get a job that would make paying for college somewhat feasible if they need assistance. I do tend to be optimistic about my kids getting financial aid though. It just seems pretty likely given our situations even if it’s only for state universities.

  19. Sue Says:

    My husband makes a good income and we started saving from birth but like you I have no idea if it will be enough and I have to say it annoys me. I can save for retirement and I can control most of my costs (maybe not healthcare if we get a serious illness) but this whole college cost issue is frustrating. Can tuition continue to increase at this pace? Will the bubble eventually burst? Who knows? I do know that I feel if I have a pile of money in a 529 it may be used against us but at the same time I’m a natural saver and we save. Anyone else feel that a large 529 may hamper financial aid? I’m all for paying my share but in our society it seems like the savers have to pick up the slack for others. I know not politically correct.

    • nicoleandmaggie Says:

      Yeah, it is a good reason to max out retirement saving first, and to consider doing things like pre-paying the mortgage and so on.

      On the other hand, I am extremely grateful for the huge amount of funding I got as an undergrad and I don’t really mind subsidizing schools and people like that now that I can. It just kind of sucks with the people who had income but were spendthrifts all their lives, but in our experience they tend to send their kids to state schools anyway (with brand new cars!). What can you do, you know?

  20. Sandyl FirstgenAmerican Says:

    I was chatting with a work colleague and we were talking about being able to afford college. Without question, she said, yes, I absolutely can afford to pay for college. If I can afford to pay for a nanny now, then I certainly can afford to pay for a year’s tuition later. My nanny costs more than college tuition. Good point, and I haven’t stressed about saving for college since that day.

    So one thing I don’t see factored in your calculations is that your kids go to private school now and have daycare costs on top of that. At some point, that money can be diverted to college savings and/or college expenses. So if you’re paying $20K/year on tuition and daycare, that should factor into your cash flow calculations because once they don’t need daycare anymore as teens, you’ll be able to funnel that dough into the 529, and once they are done with private school, that cash can also get diverted into a 529 or tuition itself once the time comes.

    So, the real formula is:
    Tuition/room/board-($74k/4)-current daycare/schooling expenses = what you still have to save (gap)

    • nicoleandmaggie Says:

      Absolutely, but private school is only 8K/year, and DC1 will be stopping that I guess next year, so we won’t still be feeling that in 8 years. Similarly, daycare is about 10K/year (though next year it will be more like 17K/year, but just for the one year). I don’t know if DC2 will be going to private school or not, but if ze does, ze will still stop that around middle school.

      In terms of diverting that into 529 plans, we could actually save more in 529 plans than we are now, but instead we’re pre-paying the mortgage (and doing things like faculty development leave and charity). Money saved from tuition etc. will probably not be going into 529 plans. We’ll see. (And who knows what will happen to our joint employment situation, given that DH’s job is heavily grant funded and as such subject to the whims of government.) So the calculation is a lot more complicated.

      One of these days we will renovate that kitchen!

  21. Holly@ClubThrifty Says:

    It’s too early to tell, but I’m guessing my kids won’t receive financial aid. We have been saving since they were babies and have made some great progress. And no, I’m not resentful about it. We can afford to save, so I feel like we should.

    With that being said, I hope to guide my kids toward affordable college options and help them apply for as many scholarships and grants as possible. I also don’t really care if my kids go to an ivy league school. Neither of us did, and we turned out okay. Our goal is just to get them through college and help them find a career choice that makes them happy and allows them to earn a living.

    • nicoleandmaggie Says:

      I actually don’t think all that highly of many of the ivies (they’re pretty similar to most state flagships in terms of courses taught by grad students etc.), but I would like my kids to be able to go wherever they want without having to worry about money. I was able to do that and for me it made not having a microwave or vcr (or a/c except on really hot days… well, maybe not that last one) etc. totally worth it.

  22. Flavia Says:

    Yeah, I don’t feel sorry, either. My folks saved nothing for my college education, but they were generally thrifty and responsible people with no debt other than their mortgage. I don’t know how much they were making in 1993 when I started college, but I’d guess maybe the equivalent of $80-90,000 in today’s dollars. Sending me to an expensive private school was hard, and I didn’t qualify for that much in loans and awards — but they made a lot of lifestyle changes, lived crazy frugal for four years, and expected me earn all my spending money.

    (And I know many Stanford grads who aren’t multi-millionaires — but they were fuzzies, not techies!)

  23. zenmoo Says:

    Saving for university fees is completely outside the current frame of cultural reference in Australia – almost all universities are ‘state’ universities and undergraduate tuition fees are paid through government funded loans with income contingent repayments but very little financial aid is available. Fees vary according to the course but not university at present (so nursing is cheaper than engineering is cheaper than law but you can be at a ‘name’ or 2nd tier place and pay the same) however the current government is looking to deregulate fees and I’d expect fees to go up significantly. So in that I can see the writing on the wall that the system is changing- we’re saving.

    • nicoleandmaggie Says:

      I do wish the US would do a better job subsidizing state schools at least. I still think it’s ok for private schools to do whatever the heck they want (within legal and moral restrictions), so long as there’s still high quality affordable options for everybody.

  24. omdg Says:

    I complain that educating my child will be expensive (so tired of hearing that I shouldn’t complain because I’ve got it good — I KNOW I do, sheesh), but that doesn’t mean I feel like my family deserves a handout. Or that I don’t acknowledge that it’s harder for most families. Life is expensive. On the other hand, I do wonder whether “rich” peoples’ realization that they too could be screwed financially after a medical catastrophe led more of them to support health care reform, which ultimately may actually help poor people too. So maybe all the whining and complaining and expectation to be saved will end up spurring education /student debt reform as well.

    We socked away a good part of my husband’s bonus in a 529 after maxing out our IRAs last year and putting some of it towards the mortgage. No idea what the bonus will be this year but the plan is IRA first, 529 second. I hope not to have to pay for the kid’s education out of cash flow, but hopefully we’ll be able to if we have to.

    • nicoleandmaggie Says:

      I don’t know though, because most of the whining and complaining from these well-off people (as you see in the two linked articles) is about private schools (they can afford state schools with cash flow, but don’t feel their kids should have to go to them, I guess), and it’s not like Harvard couldn’t afford to give everybody free tuition (it can), but if it did give everyone free tuition then it would be even *less* likely to accept the people who actually benefit from a Harvard education (the people with lower SES who currently do get free tuition/room/board etc. at Harvard), because that just makes these expensive places even more attractive to the wealthy. I think it’s actually better for these prestige places to have high sticker prices and generous financial aid to the worse off than for everyplace to cost the same as a state school. The important thing is to make sure that Harvard eligible kids who are lower SES actually know that they can go to these places for free or close to free so they actually apply (Sarah Turner and Carolyn Hoxby have some really great work on this).

      In terms of state schools though, absolutely we need more support for public education. That’s been eroding and driving costs up tremendously. But most state schools still cost less than daycare (which should also be more subsidized).

      Your plan sounds like an excellent use of bonuses — retirement first, then college. My DH still needs to ask about his bonus… he earned it based on his contract but it hasn’t shown up and he’s not sure if/when it is going to show up. (Of course, the bonus is only 2K, so not enough to fully fund even one IRA, but still not nothing.)

  25. nicoleandmaggie Says:

    Interesting new working paper out on the importance of financial aid for college attendance and completion, particularly for students predicted to be on the margin:

    Leveling Up: Early Results from a Randomized Evaluation of
    Post-Secondary Aid
    by Joshua Angrist, David Autor, Sally Hudson, Amanda Pallais


    Does financial aid increase college attendance and completion?
    Selection bias and the high implicit tax rates imposed by overlapping
    aid programs make this question difficult to answer. This paper
    reports initial findings from a randomized evaluation of a large
    privately-funded scholarship program for applicants to Nebraska’s
    public colleges and universities. Our research design answers the
    challenges of aid evaluation with random assignment of aid offers and
    a strong first stage for aid received: randomly assigned aid offers
    increased aid received markedly. This in turn appears to have
    boosted enrollment and persistence, while also shifting many
    applicants from two- to four-year schools. Awards offered to
    nonwhite applicants, to those with relatively low academic
    achievement, and to applicants who targeted less-selective four-year
    programs (as measured by admissions rates) generated the largest
    gains in enrollment and persistence, while effects were much smaller
    for applicants predicted to have stronger post-secondary outcomes in
    the absence of treatment. Thus, awards enabled groups with
    historically-low college attendance to ʽlevel up,’ largely equalizing
    enrollment and persistence rates with traditionally college-bound
    peers, particularly at four-year programs. Awards offered to
    prospective community college students had little effect on college
    enrollment or the type of college attended.

    • Matt Healy Says:

      “… to applicants who targeted less-selective four-year programs (as measured by admissions rates) generated the largest gains in enrollment and persistence…”

      Which is EXACTLY why my wife and I have for many years made fairly substantial donations to the Scholarship Fund at the non-flagship State institution where my parents taught. Aside from the family connection, we also feel that our dollars (plus matching dollars from my company) have more impact at this non-flagship school than they would someplace with a big endowment. We do also give something each year to the more-famous places where we got our degrees, out of alumni loyalty. We don’t give anything to the really famous place where we did our postdocs, because what we could give would be lost in the noise of their huge endowment.

  26. hush Says:

    Late to this excellent post!

    There is now a very a high cost of attending the most prestigious private US universities (high even in relation to the income of upper-middle-class parents). Not sure this relative price increase(?) has always been the case historically (hence all the strangely “whiny” 10%ers you’re seeing? I dunno.)

    Piketty discusses this in the footnotes of “Capital in the 21st C.” — where he calls out the fact that admissions decisions clearly depend in significant ways on the parents’ financial capacity to make donations to the universities. For example, one study he cited “has shown that gifts by graduates to their former universities are strangely concentrated in the period when the children are of college age. By comparing various sources of data, it is possible to estimate that the average income of the parents of Harvard students is currently about $450,000, which corresponds to the average income of the top 2 percent of the US income hierarchy. Such a finding does not seem entirely compatible with the idea of selection based solely on merit. The contrast between the official meritocratic discourse and the reality seems particularly extreme in this case. The total absence of transparency regarding selection procedures should also be noted.”

    I mean, talk about a slam dunk case for Why We Need Financial Aid for the Neediest Students. Plus transparency about the way privilege operates.

  27. SP Says:

    I also have no sympathy for the “poor” top 10% / 1%. Just, no. I don’t even get these people. I wonder if they grew up more affluent and expect to be able to afford things that aren’t realistic? Or what?

    If/when the time comes, we’ll probably do 529s as much as possible. CA schools are unfortunately getting more and more expensive. I do like the strategy of front loading retirement and mortgage prepayment to balance out costs. (I don’t think it is cheating – those are real costs.)

    Aside from feeling financially out of reach, the Ivy’s and similar schools felt geographically and socially out of reach. I literally knew of no one that applied to anywhere like that, much less attended. Touring prospective colleges more than ~4 hours drive was not a thing that was done in my world. Most of my classmates went to the (in town) flagship state school (from a dinky state though). Others went to regional/local private religious colleges ($$). The rest went to other state schools (directional?). I went to a religious small high school – my public school friends did a bit better as far as applying/attending wider, probably due to better exposure, encouragement, and guidance resources.

    My husband had a similar experience. He was able to get into top 10ish grad school, but no love from the top 5. Of course, we both turned out just fine. We are outliers from our HS and college groups in some ways, but our college peers mostly have good jobs in the regions we are from.

    • nicoleandmaggie Says:

      I am very lucky that I had a high school counselor who said, “you’re looking at these SLACs in the Midwest, have you considered these other (higher-rated) SLACs on the coasts?” I hadn’t! And man were they generous with aid. But most high schools don’t have that quality of guidance.

      I didn’t tour colleges either, which is probably at least part of why I was only wait-listed at my top choice SLAC. (The SLAC I got into is far less hoity-toity and has alumni do interviews for people who can’t afford to visit.) That was probably a good thing though, as I probably wouldn’t have been as happy at that SLAC as I was where I attended. Who knows though!

      • SP Says:

        Yeah, that’s very awesome that you had a good guidance counselor. It is absolutely amazing how much impact they can have at that point in life.

        I basically choose engineering based on one brief conversation with my high school science teacher. I mean, I would have pursued math/science in some way, but it still surprises me.

      • nicoleandmaggie Says:

        It obviously worked out!

        I think if I’d been able to take electronics in high school instead of having a class conflict, I might have gone for EE, based on what I know now, but I don’t really regret my current career path. (The other alternative path I would have done if it had been made easy for me would have been traffic control– like the dynamic systems stuff. That stuff just fascinates me.)

    • nicoleandmaggie Says:

      Also, yes, that’s probably one of the things going on with the top 10%, and maybe like hush said, it has to do with the rapid increase among the top costs of the prestigious schools.

      And like that Tressie McMillan Cotton article that Cloud linked to notes, there seems to be a belief that by dint of being in the top 10% that people are entitled to things without ever having to save or make sacrifices that aren’t even sacrifices to the bottom 90% because they’re so far out of that price set. It is crazy what people think they’re entitled to! Especially when these folks can still cash-flow most flagship state schools and it’s just prestige places that are out of reach without making cut-backs or having savings.

  28. Rosa Says:

    We are the upper middle class* who will be just fine, I think. And both of us come from sort of professional-working-class (our child’s degreed grandparents are a chemist, a nurse, and a public school teacher) who paid our tuitions, in the ’90s, through savings & general frugal living – my husband and his brother went to state colleges simultaneously, and their parents paid.

    That said, we save what seemed like a good idea when we started in the 529, plus grandparents have contributed. It’s less than what you have done! But if it’s not enough, child will figure it out, or we will. We’ll be out from under the mortgage before he graduates high school, so there’s wiggle room.

    *husband is allergic to this idea and has just gone to great lengths to prove to me that, unless I get a full time job, we are not in the top 10%. But it’s pretty freakin’ close and we don’t live in one of the high-cost places.

  29. KT Says:

    I’ll present a slightly different point of view. I guess I considered my family on the higher side of middle class growing up, although my friend-group in high school did not have any parents who rented us a limo to go see the Christmas lights, unlike the slightly richer kids. My friend-group was mainly, like me, kids with at least one immigrant parent or Jewish. Lots of small-business owners: one friend’s parents started a Chinese restaurant after working at another relative’s restaurant for a long time, there were private-practice psychologists among the parents, etc. My dad had a small store (recently up to 2 full time employees and some seasonal part-timers).

    College aid, though, was really tough. I was one of the few among my friends to go to a private school (Caltech) instead of a state school, probably because financial aid considered those small businesses as liquid assets. My parents helped me make it though, somehow, but we had to sit down sophomore year and have the discussion as to whether I’d drop out. The property the store sat on and the inventory all made us look far richer than the cash flow picture. With the variability in sales — a weather-dependent business — I think my parents were bringing home 60 to 100k between them per year. Maybe that’s not top 10% yet. And because the business was only a few years old when I was born and my dad was working four part-time jobs and renting out half the house to make ends meet, they did not start saving early for college.

    I talked with a financial aid person at some point, and their point of view did seem to be that parents should be willing to… liquidate parts of a business in order to pay for college. I don’t agree with that. Business are not just a personal property. They provide jobs for other, people depend on them. They’re like plants — you can’t over-harvest or you’ll kill them.

    • nicoleandmaggie Says:

      Caltech is one of the less generous schools, or at least it was when we were going to college. (MIT, also not so generous. Harvey Mudd, otoh, pretty generous.)

      I don’t know what percentile 60-100K/year was at the time you were applying to schools, but currently 100K puts a family at the 67th percentile. Nowhere near top 10%.

      I don’t know enough about your or your parents’ situation to make any sort of judgment about whether they could have taken out a loan or if they should have saved more or anything etc. Different schools do factor in businesses and farmland differently. My father was never employed long enough to get protected retirement savings or a pension, so his taxable stocks were his retirement funds– but financial aid offices took that into account when he talked with them. Not all places do.

      Was Caltech worth it? Have you paid back your student loans?

      • KT Says:

        I think Caltech was worth it. It gives me an instant street cred in math and sci that is pretty useful. Now I’m though the PhD and earning more than my mom in my alt-ac job. Tech opened up some worlds to me that I don’t think I would otherwise have known, as there were no PhDs or scientists in my family to learn from.

        I have paid back my loans, but it helped to marry a doctor who makes some $$, hates debt, and found it useful to help with my loans :) We live fairly frugally right now (in relative terms, though perhaps not absolute) and because he lived at home through med school and also got some state scholarship he was able to pay off his med school loans at a fairly quick rate too.

        It is just so weird what fin aid counts as assets and what not.

  30. College Savings are hard to plan | Grumpy Rumblings (of the formerly untenured) Says:

    […] not qualify for financial aid at most schools.  (IIRC, we’ll be in the phase-out range for Harvard and Princeton and may be able to move money around to get some aid there.)  If one of us loses a […]

  31. Ask the grumpies: Retirement vs. college savings | Grumpy Rumblings (of the formerly untenured) Says:

    […] make a big difference at Harvard (which is generous up the income distribution).  (Here’s us doing those exercises and contemplating how much we would need to save for a set of private schools .  I just spun […]

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