Reply to Is there a calculator or benchmark for how much college we can afford?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]My rule of thumb is that colleges expect you to pay roughly 25% of your income each year.  At $175k that would be at least 40k.  The poster above had good rough numbers on that split.

Another way to look at this is opportunity cost.  Plug in the cost of four years of college into a compound interest calculator at 7% for 10 and 20 years.  This gives you a sense of how much worth the education costs would be compared to future investment growth.  It really reinforces the goal of trying to keep college as cheap as possible.[/quote]

Trying to understand the college expectations. Are you saying that colleges expect you to pay 25% of your gross income?  If that's the case, no wonder higher education is broken. That's absurd. [/quote]

Yes. Not state colleges, but private colleges where the COA is around $60,000 to $70,000 a year. They may offer some aid, but they expect families earning above a certain threshhold to be able to spend roughly 25% of their income. However, the wouldn't expect that all comes from cashflow.  Rather, that about 1/3 of that (amount = to about 8% of your income) comes from savings (either a 529 or just your general savings), an amount = about 8% of your income comes from cash flow, and an amount = about 8% of your income comes from loans you take + loans your child takes.

So if your HHI is $200,000, and the COA is $65,000, they might expect you can contribute $50,000/yearly towards college costs and might offer a $15,000.   They would expect you could fund $16000 yearly from savings (maybe you have $60,000 in a 529?); pay about 1600 each month from cashflow (stop retirement savings if necessary); and take a loan for the remaining 16000 needed.  (Student borrows $5500, parent borrows $10,500 in parent plus loan, takes a HELOC, etc.). If you do not want to borrow money, you would need to contribute more from savings, have a student earn money in summer or during the school year, etc.  If you have more in your 529 then you have to borrow less. ETC.[/quote]

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