We're Getting Zero Financial Aid for Our Kids

Vanguard details the true costs of college and highlights how the expected family contribution (EFC) is determined (total education costs less EFC is the "additional amount owed" -- the amount you'll have to come up with in some fashion.) Anyway, the EFC is determined by a family's:

• Income
• Savings (not counting retirement)
• Ability to borrow for education
• Family size
• Number of family members already in college

We're dead meat. Our income, savings, and ability to borrow are very high and our family size and members already in college are low -- the worst possible combination I can imagine. As such, I'm counting on zero financial aid from any college our kids might go to and we're saving accordingly. Yep, we're socking away funds in 529s, Coverdells, and regular, taxable accounts to save what we think we'll need to fund college for our kids. (And, in case you're wondering, we're also saving a healthy amount for retirement at the same time.)

We're expecting our kids to contribute half of the cost with their most likely method of doing this being getting scholarship aid. That said, it's going to be a hefty amount they'll have to come up with, so we may have to adjust our plans to only pay 50% of the costs. I don't want our kids leaving school with a bazillion dollars in debt. Time will tell where this all settles out.

Of course, not every kid needs to go to school where tuition is $30,000 a year. We'll take all the steps we can to save on college costs. Here are some for review in case you'd like to do the same:

• A Great College Money Saving Tip

• College for Half-Price

• How to Save on College Textbooks

• Save 50% on Education Expenses

• Save Big Money by Getting Good Grades in College

• Save on College Courses

• Save on College by Studying Abroad

Comments

[Sam]

An important thing to remember is that it's also about how the loans will be paid back. There are a lot of factors in that, like how respected the degree is and field of study.

Since you're in Michigan. I say that you can't go wrong sending your kids up to Michigan Tech.

[MasterPo]

If you put some assets into an irrevocable trust would that take the assets "off the table" in terms of being counted as available for your kids? Maybe you can try that as both a college and estate planing approach.

[Lolita]

Don't forget to go after scholarships with your kids early on. There are tons of great scholarships out there for smaller children and the numbers greatly increase when they turn 13. The weekend after next, I will be entertained while my 12, 10 and two 9 year olds create sandwiches for a chance at a scholarship.

They might not get the money, but they'll have fun doing it and they can use up all of my leftovers and hidden goodies that sit on my shelves. Hopefully, the most it will cost is a couple loaves of bread, a sheet of picture paper and postage. And the best part....I won't have to cook lunch that day!!!!

[P]

I think this is an important point, especially for all those people saying kids should always pay for their college education. If they can't get the low-cost loans from the government they are going to be in trouble.

MasterPro's suggestion might work. I am not sure about the irrevocable trusts, but I do know that the cash value of a whole life insurance policy isn't counted in determining aid. It is unlikely that you are going to be able to suddenly get tons of cheap money just by having money stashed in life insurance, but it is interesting.

[MasterPo]

I have heard about buying cash value life insurance too. I tended to think it isn't such a great move because of the current low interest rates, surrender charges, other fees and seems to me you need to put a lot in to make it worth while as an investment vehicle.

There is one other idea. I don't say this flippently and I don't mean to ruffle any feathers by it. So, with disclaimer said here it is:

You and your spouse can file for a seperation and you take custody of the kids. That doesn't mean you and your spouse will divorce just a legal seperation.

Being the child of a single mother they will suddenly qualify for a whole new level of financial aid.

I know it's rather extreme but it is more commonly done than you think. People just don't talk about it much.

[NickFadz]

You should consider putting your 529 in the name of a trusted third party such as a grandparent or godparent. Your child can still be the named beneficiary but you then do not have to declare the 529's as assets when you fill out your FAFSA.

If you are contributing a significant amount of money, you probably want to make sure the third party is a family member so you can "gift" the money. Tax code states that you can gift up to $10,000 from one family member to another. If your parents were the third party for example, you could gift $10,000 to your mother and your father and your spouse could do the same. That's a total of $40,000 per year and if you're contributing more than that, consider your inlaws for a similar setup for another $40,000.

The #1 thing to remember is to NEVER put savings in the name of your child. Make them the beneficiary if necessary (such as with a 529) but do not make them the custodian of the account. The financial aid calculations take a HUGE hit if the person applying for aid actually has assets.

[James]

Children of separated parents are not handled by the financial aid office as being kids of a "single mom." Additionally, even in divorce scenarios, the vast majority/all financial aid offices collect FAFSA information on both parents.

I have heard many sad stories from students who wanted to attend a particular college, but because the school factors in "deadbeat dad's" financial situation, the student cannot afford to attend.

[MasterPo]

Clearly it's something that has to be looked into carefully and used as a final extreme measure.

[LotharBot]

Much like with health care, the free availability of government money drives up the prices...

[WiseMoneyMatters]

Personally, and this might sound odd, but I don't plan on providing any money for my children for college. I want them to learn to work for themselves. I'm personally no completely sold on college anyways. In some ways college reduces your creativity. It puts you into a cookie cutter position rather than challenging you to think outside the box.

We often hear of entrepreneurs making lots of money with no college degree. Bill Gates comes to mind. Even in the book The Millionaire Next Door, it talked about how many individuals had little or no college degree. They work so hard to put their children into college and their own children don't learn any of the basic principles that made their parents affluent.

I'd rather personally teach my children self discipline and hard work. If they decide to go into a field that requires a college degree, that hard work will get them through it just fine. Two of my friends who are married worked through college with no scholarships. He worked part-time and ran his own business full-time. His wife raised the baby (she got pregnant while they were still dating) while trying to take 20-30 college credit hours (that's INSANE!). They had no financial help from their parents either.

Now she has a PhD in some scientific field and is a stay at home mom. He sold his business for high 6 figures and now works for a company making somewhere in the ballpark of $300K-$500K (he hasn't told me what he makes but over the years, I put the clues together to figure an approximate).

And I can tell you that he got all of his income from hard work. Paying for a kids tuition (or anything else such as first car or down payment on a first house) only gives the message that mom and dad will help you through life if you get behind. When you teach your kids that they need to be self-sufficient if they are going to make it in this world, they will rise to the challenge. You can always help them get back up if they fall flat on their faces, but if you babysit them through life, they won't learn anything on their own.

That's my 2 cents anyways.

[Katharine]

$30,000? Try upwards of $50,000 and thats today, what I am paying right now. I think we hid all of my money in accounts in my little brothers name. My parents had no savings, very little income, and no ability to borrow from anywhere (we'd borrowed everything to buy a business), and I got no financial aid, because technically our house still had equity.

[Richard]

What if your kids don't want to go to college? Would you give them the money saved on their behalf or roll it into your savings?

[Rick]

What James said is wrong -- at least for the college that I attended. In teh case of separated parents, only the income of the parent with whom the child lives is taken into account. I know this firsthand, as I have personal experience in the matter.

[pink panther]

Don't forget state schools. Not every kid has to or can go to an expensive private university. Unless your kid aims for a career where pedigree is necessary (Wall St., politics, etc) then a state school can be a cheap alternative that gives just as good an education. Maybe even better. But you get out of it what you put into it. A motivated kid at a state school can get a better education than a siver-spoon kid at a fancy school. (Disclaimer: I went to a local state college and have been gainfully employed ever since I got out. If I could not have done this, I would not have had a college education.)

[pink panther]

PS: "We often hear of entrepreneurs making lots of money with no college degree. Bill Gates comes to mind." Don't ever forget that Gates' family is independently wealthy! He was an entrepreneur while getting a free all-expense-paid college education that he did not complete. The fact that he didn't have to support himself probably had as much to do with his success as anything. And he was 100% failure proof, since if his product had failed, he could just go back to college. Must be nice! Very, very few people would ever be in this situation. Gates is not a good example.

[Slinky]

Actually, EFC is the amount you're expected to come up with. Total costs - EFC is the amount of aid or government loans you're considered/eligible for.

I second NickFadz, put the 529 and any accounts you can in someone else's name. Aunts and uncles are great. And just remember, it could be worse. You're kids could have to come up with that EFC because the parents just don't have the money no matter what the government thinks.

[Virginia Ayers]

Another way to pay for college is to co-op - work a semester, go to school a semester. My son did this and graduated debt free. In addition, he started his business career with a wealth of real experience in his field. When he went on interviews, he know how to dress, how to relate to executives, what prospective employers were looking for, and much more. He paid for all his room, board, books, with little financial help from me.