Is college aid process biased against prudent savers?

[Anonymous]

OP, we feel just the way you do -- that we've been penalized for our responsible saving and frugal living. Once we have more than one in college at the same time, it will be interesting to see if our children qualify for any aid other than loans.

[Anonymous]

Anonymous wrote:It is important to plan for what might happen down the road. DH and I max out our retirement (35,000) a year and save nothing, not a penny, nada, for college for our two young kids. We make 160,000 a year. If we put that money into college saving we would be locking in that money when they might not go to college, get into a service academy, or get some merit or financial aid. There is no chance of aid if we have 200,000 in a 529 while we might if we have a million in retirement savings.

Brilliant strategy. Let those kids figure out to pay off those non-dischargeable student loans, I mean, "aid."

[Anonymous]

The worker bee middle class always gets screwed. Your function is to support the outliers.

[Anonymous]

So, let me see if I have your complaint straight, OP:

You had the good fortune/wisdom/whatever to accumulate the cost of tuition and you're pissed off that some hypothetical other people will receive financial aid and that somehow causes you injury?

Much of that aid will be in the form of loans that their children will repaying for decades. Otherwise, it will involve merit scholarships for which your own children would be eligible if they are talented/good enough students.

So, again, I'm really not sure what's making you so bitter. You have college paid for. Rejoice.

[Anonymous]

Anonymous wrote:The worker bee middle class always gets screwed. Your function is to support the outliers.

Yep! The rich know how to game the system.

[Anonymous]

The Princeton college publishing folks have a book on how to plan for college so you maximize financial aid. A lot of the info is useful facts for middle class families, like where to find your pre-tax contributions on your W2 so you can fill out the FAFSA. But they also have a whole chapter on how rich people can try to qualify for FA, like how to structure your kid's trust fund so it doesn't affect FA. The authors have a consulting business on the side and they claim to have helped a family that had a million dollar apartment in Manhattan get FA.

For most of us there are limits to these strategies. You can only sock away about $17000 a year in a retirement savings account (and that's if you're over age 50 or maybe it's age 55). If you buy a million dollar apartment, it would need to be fully paid for by the time your kid needs college, because you can't qualify for FA with high income.

This does beg the question of ethics. Like with the tax code, you're not doing anything illegal as long as you follow the law. But from an ethical standpoint, it seems like the family with the million dollar home should be required to take out a home equity loan to finance college. Just my two cents.

[Anonymous]

it seems like the family with the million dollar home should be required to take out a home equity loan to finance college.

Why shouldn't everyone?

[Anonymous]

Anonymous wrote:

Anonymous wrote:The worker bee middle class always gets screwed. Your function is to support the outliers.

Yep! The rich know how to game the system.

What are you talking about? Several pps have said there's zero FA aid for certain income levels (>$250k? I don't know the number). No game. We pay full freight.

[Anonymous]

Most college financial aid is in the form of loans, especially for middle-income families. Once your income is high enough not to qualify for need-based grants, saving more means that your kids won't have to take out giant loans.

[Anonymous]

Anonymous wrote:Most college financial aid is in the form of loans, especially for middle-income families. Once your income is high enough not to qualify for need-based grants, saving more means that your kids won't have to take out giant loans.

This is very true. There's no single cut-off for all colleges. Harvard, which has one of the best endowments in the country, provides full grant aid for household incomes up to $65,000, and lesser grant aid for household incomes up to $150,000 (http://www.admissions.college.harvard.edu/financial_aid/index.html). Of course, your kid would have to get accepted at Harvard because, to repeat, Harvard with its huge endowment can afford to be more generous with grant aid than most schools in the country. The rest of us will be looking at FA packages that consist of loans and work study, if we even qualify for FA.

Another thing to consider is that your kid can only borrow about $5,500 in federal student loans for freshmen year (this is the federal loan for non-FA recipients). This ceiling goes up by maybe $1,000 a year each of the next three years. So if your kid wants to attend an expensive private school, and you can't finance the tuition payment out of income (those 10-month installments), then you would be looking at borrowing the balance of tuition that will be upwards of $50,000 each year. You could do this through federal student loans to parents (PLUS) loans, or by getting a loan from your local bank. There is no cap to the PLUS loans, so you could borrow the whole thing. But do you really want to do this right before you retire?

So saving more now is a gift to your kid. It will give your kid more options in the future. And, given that some amount of borrowing is likely for most of us, you will at least hold the total borrowing down.

[Anonymous]

Harvard, Yale and Princeton are very, very generous. If you make up to about $200k a year -- you can get at least 2 or 3 thousand a year for your kid. That really surprised me. We didn't fill out the FA forms because we figured we would not qualify...but then were told that HYP requires you to fill out the forms anyway and has a more generous threshold. So, a few thousand a year was mana from heaven for us since we had no expectation whatsoever of even getting a dime. That with a few private (again not a ton of money) scholarships from writing contests on fastweb.com really helped us.

[Anonymous]

If you fall into a middle income category, a lot of need-based grants will be hard to qualify for. The kids will be taking out big loans, not getting big grants. And even if you do qualify for some need-based grant money, loans will be a big part of the package. The best strategies are:

1. Save for tuition.
2. Have DC study hard and apply for merit scholarships. Identify which schools are good matches for this--sometimes they are thousands per year. Colleges that are outside the top tier who want to boost their stats are often the most generous with this.
3. Apply to schools with lower sticker prices that nonetheless have strong programs in DCs area.
or
4. All of above.

If you do qualify for aid, but just barely, you do need to read the Princeton Review Guide and similar books to ensure your finances are structured in a way that doesn't shoot you in the foot. No money in child's name (100 percent of it is assumed available for college, but only a certain percentage of the parent's liquid assets are); be very careful with trust funds; put all funds you want for retirement in retirement accounts.

[Anonymous]

Is a 529 considered "in the child's name"?

[Anonymous]

If you have enough money to pay full freight you have enough money. That's the way we look at it. If our dollars help others receive a good education we are happy to contribute. And an educated electorate ensures stability.

[Anonymous]

Anonymous wrote:It is important to plan for what might happen down the road. DH and I max out our retirement (35,000) a year and save nothing, not a penny, nada, for college for our two young kids. We make 160,000 a year. If we put that money into college saving we would be locking in that money when they might not go to college, get into a service academy, or get some merit or financial aid. There is no chance of aid if we have 200,000 in a 529 while we might if we have a million in retirement savings.

There is no chance of aid with a HHI of 160k. I think people on this thread are unrealistic about the incomes needed to get aid. Part of the "200k is not rich" dcum mentality, no doubt.