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June 01, 2011


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My oldest graduates high school in 2012, and have two more kids, graduating in 2014 and 2016. I know I will not have enough saved to fully fund all their college expenses, mostly because we have spent on private k-12 schooling.

I have told my oldest that I will cover most of an education at University of Michigan. Anything above that will be on him. I will not put our finances in peril just for a name on a diploma. U of M is an excellent school, but if they want Northwestern or something else, then they will have to figure out a way to finance it.

We live very close to a very good, very large university (many major choices), with moderately expensive tuition. My goal is to have 4 years tuition to that school saved for each of my 3 children's 529 when they reach college age. They will be free to live/eat at home, and there's a bus that can actually get them to campus and back, so a car is not even necessary. So when we say "there's our help (their 529), spend it wisely", they will have at least one no debt/no work/great school option. If they want to do something different, then they'll obviously need to figure out how to pay for it if that amount doesn't cover.

This 4 years tuition sum alone is so high in my opinion that even if I cold afford to do more (undetermined), I'd rather help on something else with a nice cash gift a few years later in life. I think our generation will also be prepared for the "be careful with student loans" talk that we never received.

Don't forget that students often have the option to apply to be an RA. This will get them at a minimum free room at most colleges and some include free board and some pay as well. This can save you tens of thousands of dollars in college costs if the student will be living in the dorms anyway.

Our finances are a little different. We'll probably have several thousand saved up by the time our twins get to college, but I doubt it will be enough for both of them to go for a full 4 years. We'll probably have enough to pay for half of each kid's 4 year expenses after which we'll need to get loans (or scholarships if they can).

However, my wife is of the opinion that the kids should not have to work or get loans and that it should all be on the parents. Her parents paid for most of her education while I paid all of mine (combination of working 30 hrs/wk + small loans + went to community college for 2 yrs). Any ideas on how to talk to her about this? Need some good salient points to bring up.

My wife and I are 27 years old. We both work and are planning to start having kids. Just to get an idea of how much we're going to need to start saving for college, I plugged in some numbers into an online calculator and was stunned at the results it spit out. If I want to save enough money to send my kid to Rutgers University (a public college) as an in-state student I will need to save $800 a month starting on the day the kid is born. By the time the kid is 18 years old, all 4 years will cost $325,000 compared to the $108,000 that it costs today.

If that is how much college is going to cost in 18 years, it makes me question if it will even be worth the investment at that point.

Brian, you have a point there. The increase in cost for colleges is getting nuts. At some point soon, given that private colleges are raising their prices on average 5% and public 10% or more, private school will end up being the better deal.

We have 2 children and our intention was save enough to cover all the essentials at a state school. In Texas, we have plenty of great options for them to choose from. The plan is unfolding as one will be a senior in college, and the other a sophomore.

The eldest attends a university out of state. By qualifying for academic & athletic scholarships and a national merit stipend, she actually makes money going to school, which she puts into savings. Many of her peers opted to attend pricy, private, “prestigious” schools. Cost out of the college fund: < $1000 per year for her phone & travel home.

Child number 2’s chosen degree plan limited his Texas college choices. He also wanted to go out of state. He looked at schools offering his degree that gave automatic academic scholarships. He received a 2/3 tuition scholarship at a great out-of-state university which brought the price down to much less than his in-state choice (which offered him no academic scholarship). Small local scholarships and a band scholarship also reduces his cost. Cost for 1st year college: < $10,000.

Our dilemma has been how to reconcile the remaining college fund between the 2, since they’ve both worked hard, but had different gifts and opportunities. They’ve always known that what is not spent on college will be theirs at some point. We decided to split any remaining funds equally between the 2 when they are finished. Due to their choices, the unspent funds will be significant. If child number 2 loses his scholarship, or makes unwise choices (unlikely), we’ll revisit the decision.

Our plans for our children's college funding are actually exactly the same. They'll have a college fund with which to get through college and if they want to spend more, they'll have to do it themselves. If they manage to get through college without spending it all, we'll present them with the options of making a non-qualified deduction for home or retirement savings or leaving the money alone and eventually transferring it to their future children.

Of course, no college, no money. My husband's fond of saying that if they choose not to go to school, then he's going to buy a boat!

My parents did in fact say, "You can go to whatever school you like and we'll pay for it". Both my sister and I went to first-tier, $40k-50k per year private colleges, even though we both could have gone to the State U flagship for approximately free. In one sense, I guess that proves FMF's point. However, I don't think my parents' gift was in any sense wasted: I've gotten tremendous intellectual, social, and financial value out of my college, and I'm skeptical that State U could have replicated it. My fiancee and I absolutely intend to pay this gift forward to any children we may have.

Incidentally, sticker price can be misleading; my alma mater has very generous need-based financial aid. As a result, I know a number of people who received little financial support from their parents, and graduated with little or no debt.

My daughter will start college this fall, my son in two years. Our goal as parents has always been to get our kids out of college debt free (they are starting to appreciate what a fabulous gift this is). We have saved (not nearly enough) and grandparents have been generous through the years.

One of the great dilemas is how to save for you child's college when you are young, just starting out and don't have any money. Still, I would say, save what you can. Ask Aunt Susie to skip the birthday savings bond and just write a check to the 529.

Understand your income will increase as well. We are at the point that we can cash flow my daughter for two years, rely on the 529's and some cash for the next two years (when both are in school) and then cash flow the final two years. That is the plan anyway.

I also agree on setting some expectations as to school choice. My children were told that I would not pay out of state tuition somewhere if the in state school had a better academic reputation for the major. While that seems like common sense, it did cause some mild disagreements in my house.

This is a great article. I agree that it is important to save for retirement, but I also agree that it is important to save for your children to go to college. I was not given any money for school, and had to scrimp and scrape to get by. My child wants to receive a master of business administration, and I fully intend to help him out. I like the comment about "paying it forward", and I too intend to do that.

My hubby and I plan to save for retirement first and college education second. There are no scholarship or loans for retirement! We do not plan to pay for our children's college education, but rather take care of certain expenses (ie. rent and possibly car). We don't have children yet, but plan to in the next year or 2. We recently started contributing $200/month to an account for our future children (we will increase our contribution as our salary increases allow. We both work, but currently live on only 1 income- our monthly expenses do not exceed the lower monthly income.)

We are more than capable of helping our children identify and apply for scholarships, fellowships, TAs, RAs, etc. to help with the cost of college or training. We will also help our children to study a trade or start a business (provided they have a clear business plan and the skills/maturity to execute their plan). We are planning to have only 1 or 2 children (1 or 2 years apart). We hope they will stay close to home for their education or training, or at very least choose schools in the same city so that they can live together to reduce their expenses- who knows we can only hope! We plan to spend cautiously and use whatever remains to help towards down payments on homes.


Also, lately on FMF we've discussed starting at a community college then transferring to a 4 year degree quite a bit. I wanted to point out an alternate strategy. I went to a 4 year private university for undergrad. Many of my classmates would take departmental classes and a few other required courses throughout the school year at the 4 year university, but take full loads of electives during the summer. Of course you have to plan carefully to make sure the credits transfer and that courses with pre-requisties are taken in order. People who did this managed to shave off a year or two. Of course this meant they were not available for internships or other opportunities during the summers. Just wanted to point it out as an option as well.

I think it is important to talk to children about college at a young age. My parents weren't rich, just teachers, but they told me my entire life that I could go to any school I wanted (they hadn't been given that privilege) as long as I worked hard to earn it. I graduated the top of my class and went to an ivy league. My ivy league degree ended up being less expensive than a state university due to the generous financial aid policies and scholarships available. Through my university, I made connections that allowed me to get my first job, who sponsored me for a masters degree right after undergrad graduation and is now sponsoring me for an MBA at a top tier university. What I want to emphasize is that college should be discussed from a very early age. I got into the schools I did because of a lot of hard work and diligence throughout my whole life, not just the high school years.

@KT That's a great point. The primary barrier to attending a top school is getting accepted, and developing the skills to get in starts long before ninth grade.

Once you're in, though, the real price the school offers you will be one it believes you can afford. The buzzwords for this process are "need-blind admissions" and "full-need aid". Here's a list of colleges, including mine, that are need-blind and full-need for US applicants.

I don't want to give too glib an endorsement of this process. Certainly people sometimes get snarled in bureaucratic fin-aid nightmares I never had to deal with. In general, though, it really does seem to work in the way KT attests.

On a related note... please let your kid pick their own major. It does no good if you force your child to go into engineering/ medicine or some other major because 'it will pay well' if your offspring hates the subject in question. They will get horrible grades and either drop out or switch to an English major that they wanted in the first place, where they won't need therapy for a horrible career choice. and your tuition payments to the first major will have been wasted.

Not pertinent to your questions, but some advice for parents/kids (at least this is true in Canada) - get involved in school activities and volunteer work in the community - it really helps with scholarship applications.

As unsual, FMF brings up some excellent ideas for how to handle this financial scenario. I especially like his idea of having a cost basis of an affordable, good school. One of the aspects I'd like to touch on is the role of work in this whole equation. I'd like my (not yet arrived) kids to have some work experience, even a paper route or burger flipping, because they can learn really valuable career skills in performing even these low-level jobs. I think that it'd be very useful for them to have a balance of experiences, not just school and school related. How important is it for a kid to have jobs in high school and college in order to pay for part of his/her education?

My daughter is starting college in the fall. I can afford for her to go anywhere, and she knows it. Our deal works like this:
1. I will pay for 50% of the first two years.
2. I will lend her the money for the other 50%. Contract signed.
3. I will match any scholarship or other income she brings in over the 4 years, by reducing the debt.

She selected an expensive college after carefully considering her options, and I think she has good incentives to graduate in 4 years and to find money to knock off that debt during college.

For me that was the right balance.

Also, I am paying 4 years tuition up front to beat the likely tuition inflation over the next 4 years.

Great article FMF. Too many parents give their kids a blank check for college, when they can't afford to. Parents wind up in debt, and so do the kids.

Oops - menat to say I will pay 50% of the first FOUR years (i.e. for two years)

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