Fund college tuition through 529 plan or Indexed Universal Life (IUL)

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phrelo
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Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by phrelo » Wed Jun 13, 2018 3:18 pm

Recently, a financial adviser recommended to use indexed universal life (IUL) instead of 529 plan to fund college tuition at a seminar. Her argument is that 1) IUL is qualified tax free (7702 cash value insurance) investment that can be used for multiple purposes including college funding. 2.a) balance in 529 plan will be counted as asset in Financial aid application form, thus reduce the chance to get financial aid. 2.b given the increasing college tuition each year and inflation rate, parents need to save a lot to fully cover 4-year tuition ( her number is ~550K for a 4-year private university for a child with 12 years to go to college).

Since there are going to be 10+ years for my oldest child to apply for college, I do not have any experience about college financial aid application. I would like to ask your opinions about college funding.

Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?

Is IUL a good investment option to fund college tuition?

Thanks,
Patrick H.

delamer
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by delamer » Wed Jun 13, 2018 4:03 pm

An IUL makes money for the “financial adviser.” High fees and restrictions on withdrawals are what it makes for you.

Did she make it clear that 529 earnings are not taxed as they accumulate in the account and that withdrawals also are tax-free when used for college expenses?

Families with incomes above $200K aren’t going to get much in non-merit, non-loans financial aid, regardless of where their savings are located.

https://www.forbes.com/sites/barbaramar ... 64e2027e23

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BL
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by BL » Wed Jun 13, 2018 4:16 pm

3. She needs the commission from selling you the IUL to fund her kid's college.

It is a very costly way of "investing". Money in a 529, Roth IRA, or a regular brokerage account might make more sense.

NotWhoYouThink
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by NotWhoYouThink » Wed Jun 13, 2018 4:19 pm

Run. Run fast. Keep running until you can't hear this person any more.

No, it is not a good argument. If your income is that high, you won't qualify for need-based aid no matter how much you have in what kind of account.
If you plan to pay for college, and you don't want to cash flow it, then you'll need to start saving. A 529 plan would be a good place for some of that savings.

As mentioned above, even though you don't get a federal tax deduction for 529 contributions, earnings on the account are not taxed (state or federal) as long as the money is used for college, or now private grade or high school. And you may get a state tax deduction for contributions.

Money in the IUL is not taxed until you take it out, but then earnings may be subject to tax no matter what you spend it on. The bad news is that you may not have much in the way of earnings in only 10 years because so much goes to fees. And in 10 years you'll be in your peak earning years, so in a high tax brackets. Anything that does get taxed will be taxed at your very high ordinary income rates.

IUL is something that people sell because commissions on it are shockingly high. The sales person makes money. Maybe they don't understand how unsuitable the product is, maybe they are so gullible they actually believe their sales pitch makes sense, You don't need to determine whether this person is stupid or slimy, you just need to vow never to do business with her.

So the IUL will have higher fees and worse financial performance, and does not have all the tax advantages of the 529. What was her sales pitch again?

BogleMelon
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by BogleMelon » Wed Jun 13, 2018 4:27 pm

#1 was debunked here:
Myth # 6 Whole Life Is A Great Way To Save On Taxes
Whole life isn’t the best way to lower your investment tax bill, retirement accounts are. Many agents like to tout the tax benefits of whole life insurance, often comparing it to a 401K or a Roth IRA. The cash value does grow in a tax-protected manner, the cash value can be borrowed tax-free, and proceeds from the policy at your death are income (although not estate) tax-free. So some whole life advocates suggest you use whole life insurance instead of a retirement account like a 401K or a Roth IRA. However, a 401K or Roth IRA not only provides MORE tax savings and allows you to invest in riskier investments that are likely to provide you a higher return, but you also don’t have to borrow your own money, nor pay interest for the privilege of doing so.
https://www.whitecoatinvestor.com/debun ... ce-part-2/
#2, if you can afford IUL premiums then you probably won't be qualified to financial aid anyways.. also was debunked here:
Myth # 9 Whole Life Is A Great Way To Pay For College

Some agents even go so far as to suggest you use a whole life policy to pay for your children’s college. Can you do this? Of course. You simply take out policy loans and send that money to the university to pay tuition. But you’re better off saving up for college using a good 529 for multiple reasons. First, you often get a state tax break by using a 529 that isn’t available for whole life insurance. Second, you don’t have to borrow money from your 529, you just withdraw it. No interest payments required. Last, but certainly not least, consider the time frame of college savings. Parents generally save for college over a period of 5-20 years. By investing that money aggressively, they can expect a return of 7-10%. Whole life insurance has very poor returns for time periods of less than 20 years. In fact, many times the cash value return on your “investment” in whole life is negative for at least a decade. It’s important to make sure your money works as hard as you do, and your money is on vacation for the first decade in a whole life policy. Whole life advocates will point out that if you died, the death benefit could still pay for Junior’s college, but it is far cheaper to cover that risk with term life insurance.
https://www.whitecoatinvestor.com/debun ... ce-part-3/
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Grt2bOutdoors
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Grt2bOutdoors » Wed Jun 13, 2018 4:29 pm

Of course, IUL makes perfect sense - for the financial adviser waiting to pay for her own kid's college education. Those FAT commission checks are gonna pay for juniors - freshman, sophomore, junior and senior year. Your kid, eh, sorry you're on your own. :twisted: Good Luck though, you are going to have to SAVE ALOT!!! no matter which vehicle you use, you do have 13 years to do it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dogagility
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by dogagility » Wed Jun 13, 2018 4:33 pm

Agree with all the other posters but wanted to respond to the comment that college will cost "$550,000" in 12 years. This depends upon where your buttercup attends college. Current costs are about this: low end of ~20K (tuition only; live at home; community college first), ~100K for a four-year state flagship, and ~300K for an Ivy-like college (full-pay). Add about 4% inflation/year to these numbers.

She's pulling your leg on many fronts... run and don't look back!
Last edited by dogagility on Wed Jun 13, 2018 4:36 pm, edited 1 time in total.

dknightd
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by dknightd » Wed Jun 13, 2018 4:34 pm

I don't know much about IUL. I've never bought anything except term life insurance.

To find about about 529 and FAFSA you might start here
https://www.savingforcollege.com/articl ... ancial-aid

It will be counted as a parental asset, just like your savings or brokerage account. Part of that will be considered out of bounds (I assume to allow for a reasonable sized emergency fund).

With 200k income you might not qualify for much aid at a state school. You might at a private school

Grt2bOutdoors
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Grt2bOutdoors » Wed Jun 13, 2018 4:35 pm

phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Recently, a financial adviser recommended to use indexed universal life (IUL) instead of 529 plan to fund college tuition at a seminar. Her argument is that 1) IUL is qualified tax free (7702 cash value insurance) investment that can be used for multiple purposes including college funding. 2.a) balance in 529 plan will be counted as asset in Financial aid application form, thus reduce the chance to get financial aid. 2.b given the increasing college tuition each year and inflation rate, parents need to save a lot to fully cover 4-year tuition ( her number is ~550K for a 4-year private university for a child with 12 years to go to college).
Private colleges look at FAFSA, they also use something called CSS Profile, where they ask about value of insurance policies and what the value of your watch is. You will not be escaping financial disclosure even if you do use this worthless product.
Since there are going to be 10+ years for my oldest child to apply for college, I do not have any experience about college financial aid application. I would like to ask your opinions about college funding.

Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?
No - financial aid are loans. Scholarships/grants do not need to be paid back, unfortunately, the competition for these is very stiff.
Merit aid from top private schools for those making $200K, virtually non-existent, you may get it if you apply to schools.

Is IUL a good investment option to fund college tuition?
No!!! Read the posts above, all of them are spot on - ignore the financial salesperson. They are not advisers, they are salespeople.
They eat by selling. Buy a directly sold 529 plan offered by your state, if you aren't sure which plan to use, ask here.

Thanks,
Patrick H.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dogagility
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by dogagility » Wed Jun 13, 2018 4:37 pm

dogagility wrote:
Wed Jun 13, 2018 4:33 pm
Agree with all the other posters but wanted to respond to the comment that college will cost "$550,000" in 12 years. This depends upon where your buttercup attends college. Current costs are about this: low end of ~20K (tuition only; live at home; community college first), ~100K for a state flagship, and ~300K for an Ivy-like college (full-pay). Add about 4% inflation/year to these numbers.

She's pulling your leg on many fronts... run and don't look back!

Grt2bOutdoors
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Grt2bOutdoors » Wed Jun 13, 2018 4:40 pm

dogagility wrote:
Wed Jun 13, 2018 4:33 pm
Agree with all the other posters but wanted to respond to the comment that college will cost "$550,000" in 12 years. This depends upon where your buttercup attends college. Current costs are about this: low end of ~20K (tuition only; live at home; community college first), ~100K for a four-year state flagship, and ~300K for an Ivy-like college (full-pay). Add about 4% inflation/year to these numbers.

She's pulling your leg on many fronts... run and don't look back!
Agree. Here is a valid and useful calculator to do some advance planning now: https://vanguard.wealthmsi.com/csp.php
Plug in some numbers and you can do your own estimate.

Here are some plans to consider: Vanguard 529 Plan aka Nevada Plan; www.vanguard.com or NYS 529Direct Plan - www.nysaves.org or Utah 529 Plan; www.my529.org Low fees, low minimum entry points, low contribution amounts - ZERO sales commissions. That means more money stays in your pocket as opposed to any other self-interested party.

More reading: https://investor.vanguard.com/college-s ... or-college
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Nate79
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Nate79 » Wed Jun 13, 2018 5:32 pm

Fire your salesman. They are an idiot. I surely hope you are not taking any financial advice from this salesman. That they recommended this ridiculous idea you should question every word they ever told you.

Jack FFR1846
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Jack FFR1846 » Wed Jun 13, 2018 6:03 pm

I came to Bogleheads about 5 years ago asking the same question after working with a "college financial planner". (is this person in Medway, MA by any chance?). I was at the brink and had already sold off $50k in US savings bonds, wife had the nurse evaluation and we had an appointment date to sign the papers. I learned from the very first comment here (and every one afterwards) that it was a mistake. I called the planner and cancelled the meeting and dumped the whole bad idea.

Some things have already been mentioned. The planner gets a huge % commission upon sale. You won't have access to your money for many years. The expected gains will never be met. Private colleges may ask you what cash value insurance you hold (my son's did). Withdrawal may trigger taxes. If they don't, it probably means that the investment was horrible.

529's are fine. US Savings bonds are fine. Putting your money into a Roth is better. My son has 1 more year to go. We pay just over $65,000 per year with a bit of help from high interest Stafford loans to the tune of $7500 for his final year. State colleges in my state go for $30k a year. Community colleges are near $6000.
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jaj2276
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by jaj2276 » Wed Jun 13, 2018 6:35 pm

These threads ("Can I use <some form of non-term> life insurance to pay for XXX?") are like car wrecks to me. I can't look away. I know the board's response but each thread unfolds slightly different to keep them interesting.

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GoldStar
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by GoldStar » Thu Jun 14, 2018 4:54 pm

You could also bury cash in your back yard - similar to the IUL you were pitched it won't be counted against you for financial aid and any growth will be tax free. Unlike the IUL you will at least get your money back (minus some loss to inflation) :)
529 is the way to go - at your income you won't be eligible for financial aid anyway.

fujiters
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by fujiters » Fri Jun 15, 2018 12:32 am

The IUL distributions are only "tax free" because they're loans against the value of your policy. If the policy lapses (you don't keep it all the way to your death), taxes are due. The ongoing fees for such products tend to be non trivial, so it's a big commitment to take on to keep paying those fees for the rest of your life to avoid a taxable event.

For high income families, I think a combined 529 and taxable account makes more sense. Contribute to the 529 to take advantage of any state tax deduction. That money grows tax free for qualified education expenses. Then, put additional money into a brokerage account. There are tax incentives for paying qualified higher education expenses (they may change in the future, but some version of them have been available for decades). AOTC is a notably nice one if you're able to get your income below its cutoff by funding traditional 401ks and HSA. Assuming tax rates don't change, you'll only pay 15% on long term capital gains when you take the money out (keep in mind this is only the money above what you put in). This also gives you flexibility in having the money available for paying other unexpected expenses without penalty.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

investmentlife
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by investmentlife » Fri Jun 15, 2018 4:01 pm

I disagree with most of the posts here. I certainly would not recommend utilizing an IUL over a 529 plan, but IULs can be an excellent investment vehicle when structured properly. IUL is not for everyone, but for the right person there are many advantages. Stick with the 529 plan.

Grt2bOutdoors
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Grt2bOutdoors » Fri Jun 15, 2018 4:09 pm

investmentlife wrote:
Fri Jun 15, 2018 4:01 pm
I disagree with most of the posts here. I certainly would not recommend utilizing an IUL over a 529 plan, but IULs can be an excellent investment vehicle when structured properly. IUL is not for everyone, but for the right person there are many advantages. Stick with the 529 plan.
Are you an insurance agent? or sell financial services?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Nate79
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Nate79 » Fri Jun 15, 2018 5:02 pm

investmentlife wrote:
Fri Jun 15, 2018 4:01 pm
I disagree with most of the posts here. I certainly would not recommend utilizing an IUL over a 529 plan, but IULs can be an excellent investment vehicle when structured properly. IUL is not for everyone, but for the right person there are many advantages. Stick with the 529 plan.
Um, nope.

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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by HomerJ » Fri Jun 15, 2018 5:05 pm

phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?
You are never going to get financial aid if your annual income is above $200,000.
Is IUL a good investment option to fund college tuition?
Absolutely not. Maybe it will fund the "financial advisor's" kids college tuition.
The J stands for Jay

delamer
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by delamer » Fri Jun 15, 2018 5:21 pm

HomerJ wrote:
Fri Jun 15, 2018 5:05 pm
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?
You are never going to get financial aid if your annual income is above $200,000.
Not true.

Both of my kids were offered scholarships.

Grt2bOutdoors
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Grt2bOutdoors » Fri Jun 15, 2018 7:22 pm

delamer wrote:
Fri Jun 15, 2018 5:21 pm
HomerJ wrote:
Fri Jun 15, 2018 5:05 pm
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?
You are never going to get financial aid if your annual income is above $200,000.
Not true.

Both of my kids were offered scholarships.
A scholarship is different than “need based aid”. You make $200k, your need is likely zero.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

delamer
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by delamer » Fri Jun 15, 2018 7:27 pm

Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:22 pm
delamer wrote:
Fri Jun 15, 2018 5:21 pm
HomerJ wrote:
Fri Jun 15, 2018 5:05 pm
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?
You are never going to get financial aid if your annual income is above $200,000.
Not true.

Both of my kids were offered scholarships.
A scholarship is different than “need based aid”. You make $200k, your need is likely zero.

The discussion has been about financial aid, not need-based aid. They aren’t the same thing.

I agree with you about need-based aid (possible exception would be if you have multiple kids at expensive schools simultaneously.)

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David Jay
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by David Jay » Fri Jun 15, 2018 7:37 pm

delamer wrote:
Fri Jun 15, 2018 7:27 pm
Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:22 pm
delamer wrote:
Fri Jun 15, 2018 5:21 pm
HomerJ wrote:
Fri Jun 15, 2018 5:05 pm
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Is it a good argument not to fund 529 plan because it will reduce the chance to get financial aid for a family with annual income above $200,000?
You are never going to get financial aid if your annual income is above $200,000.
Not true.

Both of my kids were offered scholarships.
A scholarship is different than “need based aid”. You make $200k, your need is likely zero.

The discussion has been about financial aid, not need-based aid. They aren’t the same thing.

I agree with you about need-based aid (possible exception would be if you have multiple kids at expensive schools simultaneously.)
There is this item in the head post as a reason for an IUL:
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
...balance in 529 plan will be counted as asset in Financial aid application form, thus reduce the chance to get financial aid.

I suspect that this was Homer’s point of reference, the FAFSA application.
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munemaker
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by munemaker » Fri Jun 15, 2018 7:51 pm

Keep your investments separate from your insurance.

InsideTheBeltway
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by InsideTheBeltway » Fri Jun 15, 2018 9:54 pm

phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Recently, a financial adviser recommended to use indexed universal life (IUL) instead of 529 plan to fund college tuition at a seminar.
That isn't a financial adviser, you are talking with an insurance salesperson. RUN!!!
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
2.a) balance in 529 plan will be counted as asset in Financial aid application form, thus reduce the chance to get financial aid.
Hiding assets to get welfare / financial aid isn't the type of advise a quality financial adviser gives.
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
given the increasing college tuition each year and inflation rate, parents need to save a lot to fully cover 4-year tuition ( her number is ~550K for a 4-year private university for a child with 12 years to go to college).
Vanguard has a college cost calculator on their webpage. $550,000 for a Georgetown, Harvard, Northwestern, Yale, Notre Dame, Stanford type school could be reality in 12ish years. Now the cost of a Georgia, Michigan, Texas, Cal-Berkley, North Carolina, Florida should be about 2/3 that cost. Unless those private schools match the price of public school with scholarships or aid your child will likely come out ahead attending the flagship in-state public university.
phrelo wrote:
Wed Jun 13, 2018 3:18 pm
Is IUL a good investment option to fund college tuition?
No.

Nate79
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Nate79 » Fri Jun 15, 2018 11:33 pm

munemaker wrote:
Fri Jun 15, 2018 7:51 pm
Keep your investments separate from your insurance.
+1

bltn
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by bltn » Sat Jun 16, 2018 4:41 am

A lot of the flagship public state universities offer scholarship money to good high school students. I have a niece that went to a good state school with a 50% scholarship because of A/B grades in high school. The chances of getting a merit scholarship at Harvard or Duke are tiny. Families with 200,000 dollar incomes are how these schools support themselves.
In my opinion, a 529 plan is the best current way to prepare for college. I expect in 12 years, the costs for top tier private colleges will approach 550,000 for 4 years. That would be an increase of 6% a year which is less than the 8% a year my daughter s school increased in the 4 years she was there.

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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by Jack FFR1846 » Sat Jun 16, 2018 7:56 am

delamer wrote:
Fri Jun 15, 2018 7:27 pm


The discussion has been about financial aid, not need-based aid. They aren’t the same thing.

I agree with you about need-based aid (possible exception would be if you have multiple kids at expensive schools simultaneously.)
If the OP wasn't trying to get need based aid, they would have zero reason to "hide" their assets inside this expensive insurance product.

If there are multiple kids, the total expected family contribution number is considered for all kids in college. But that doesn't mean that the college will meet the "need" number. Sure.....if the kid is on crew (the easiest athletic scholarship to get), they don't care if you're dead broke or have elevendy bazillion dollars, so why even talk about FAFSA or some insurance scam? For many, even with demonstrated "need", the offer is loans. With over $200k in income, filling out FAFSA makes stafford loans available. These are student-only loans, so are not co-signed by the parents. Staffords are broken into subsidized (what us old people remember from our college days as the loans that don't accumulate interest until 6 months after graduation) and non-subsidized, which start interest the moment the college applies the funds. Both come with 1% origination fees and then interest rates that are relatively high. If one were to cosign for the student and get a private student loan from a bank, the interest rate would likely be much lower. I looked into bank loans when my son was interested in avoiding Staffords and taking private loans. Without the cosigning, that is either not possible or the student may be required to have a job during college and make payments during college, plus the rate goes through the roof.
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delamer
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Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by delamer » Sat Jun 16, 2018 10:07 am

Jack FFR1846 wrote:
Sat Jun 16, 2018 7:56 am
delamer wrote:
Fri Jun 15, 2018 7:27 pm


The discussion has been about financial aid, not need-based aid. They aren’t the same thing.

I agree with you about need-based aid (possible exception would be if you have multiple kids at expensive schools simultaneously.)
If the OP wasn't trying to get need based aid, they would have zero reason to "hide" their assets inside this expensive insurance product.

If there are multiple kids, the total expected family contribution number is considered for all kids in college. But that doesn't mean that the college will meet the "need" number. Sure.....if the kid is on crew (the easiest athletic scholarship to get), they don't care if you're dead broke or have elevendy bazillion dollars, so why even talk about FAFSA or some insurance scam? For many, even with demonstrated "need", the offer is loans. With over $200k in income, filling out FAFSA makes stafford loans available. These are student-only loans, so are not co-signed by the parents. Staffords are broken into subsidized (what us old people remember from our college days as the loans that don't accumulate interest until 6 months after graduation) and non-subsidized, which start interest the moment the college applies the funds. Both come with 1% origination fees and then interest rates that are relatively high. If one were to cosign for the student and get a private student loan from a bank, the interest rate would likely be much lower. I looked into bank loans when my son was interested in avoiding Staffords and taking private loans. Without the cosigning, that is either not possible or the student may be required to have a job during college and make payments during college, plus the rate goes through the roof.
The OP asked a question about financial aid and how eligibility for it might be affected by various savings methods. It is inportant that the OP understand that financial aid is available in multiple forms, not all of which are affected by parental income.

Some people in their responses were confusing/mislabeling “financial aid” versus “need-based aid.”

I was pointing out that some financial aid consists of scholarships, which are not need based. So kids from higher income families, like my kids, do receive scholarships. I know other higher income families whose kids have received scholarships.

There are 3 types of undergraduate financial aid that I am aware of:

1. Loans, that have to be paid back by either the student/parent/other signer

2. Scholarships or grants, that do not have to be paid back

3. Work study

Can you provide a reference showing that crew scholarships are the easiest athletic scholarships to get? I was not aware of that.

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teen persuasion
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Joined: Sun Oct 25, 2015 1:43 pm

Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by teen persuasion » Sat Jun 16, 2018 10:40 am

delamer wrote:
Sat Jun 16, 2018 10:07 am
Jack FFR1846 wrote:
Sat Jun 16, 2018 7:56 am
delamer wrote:
Fri Jun 15, 2018 7:27 pm


The discussion has been about financial aid, not need-based aid. They aren’t the same thing.

I agree with you about need-based aid (possible exception would be if you have multiple kids at expensive schools simultaneously.)
If the OP wasn't trying to get need based aid, they would have zero reason to "hide" their assets inside this expensive insurance product.

If there are multiple kids, the total expected family contribution number is considered for all kids in college. But that doesn't mean that the college will meet the "need" number. Sure.....if the kid is on crew (the easiest athletic scholarship to get), they don't care if you're dead broke or have elevendy bazillion dollars, so why even talk about FAFSA or some insurance scam? For many, even with demonstrated "need", the offer is loans. With over $200k in income, filling out FAFSA makes stafford loans available. These are student-only loans, so are not co-signed by the parents. Staffords are broken into subsidized (what us old people remember from our college days as the loans that don't accumulate interest until 6 months after graduation) and non-subsidized, which start interest the moment the college applies the funds. Both come with 1% origination fees and then interest rates that are relatively high. If one were to cosign for the student and get a private student loan from a bank, the interest rate would likely be much lower. I looked into bank loans when my son was interested in avoiding Staffords and taking private loans. Without the cosigning, that is either not possible or the student may be required to have a job during college and make payments during college, plus the rate goes through the roof.
The OP asked a question about financial aid and how eligibility for it might be affected by various savings methods. It is inportant that the OP understand that financial aid is available in multiple forms, not all of which are affected by parental income.

Some people in their responses were confusing/mislabeling “financial aid” versus “need-based aid.”

I was pointing out that some financial aid consists of scholarships, which are not need based. So kids from higher income families, like my kids, do receive scholarships. I know other higher income families whose kids have received scholarships.

There are 3 types of undergraduate financial aid that I am aware of:

1. Loans, that have to be paid back by either the student/parent/other signer

2. Scholarships or grants, that do not have to be paid back

3. Work study

Can you provide a reference showing that crew scholarships are the easiest athletic scholarships to get? I was not aware of that.
It used to be that scholarships and grants didn't need to be paid back, but it's getting murkier lately. NY's Excelsior Scholarship converts to loans retroactively if you lose eligibility at any point. TEACH grants also retroactively convert to loans if you lose eligibility. DS4 recently had his TAP grant retroactively rescinded 2 weeks before the end of the semester; his courseload was fine by school standards, but the state apparently counts differently and he was 1 credit hour short, and waaay too late in the semester to remedy it.

Work study is very limited, perhaps an opportunity to earn up to $1200 per academic year. Some schools make an effort to place you in a job, but many leave the job search up to the student. And the student must obviously first earn the $ before it can be used for college expenses.

delamer
Posts: 5813
Joined: Tue Feb 08, 2011 6:13 pm

Re: Fund college tuition through 529 plan or Indexed Universal Life (IUL)

Post by delamer » Sat Jun 16, 2018 10:54 am

teen persuasion wrote:
Sat Jun 16, 2018 10:40 am
delamer wrote:
Sat Jun 16, 2018 10:07 am
Jack FFR1846 wrote:
Sat Jun 16, 2018 7:56 am
delamer wrote:
Fri Jun 15, 2018 7:27 pm


The discussion has been about financial aid, not need-based aid. They aren’t the same thing.

I agree with you about need-based aid (possible exception would be if you have multiple kids at expensive schools simultaneously.)
If the OP wasn't trying to get need based aid, they would have zero reason to "hide" their assets inside this expensive insurance product.

If there are multiple kids, the total expected family contribution number is considered for all kids in college. But that doesn't mean that the college will meet the "need" number. Sure.....if the kid is on crew (the easiest athletic scholarship to get), they don't care if you're dead broke or have elevendy bazillion dollars, so why even talk about FAFSA or some insurance scam? For many, even with demonstrated "need", the offer is loans. With over $200k in income, filling out FAFSA makes stafford loans available. These are student-only loans, so are not co-signed by the parents. Staffords are broken into subsidized (what us old people remember from our college days as the loans that don't accumulate interest until 6 months after graduation) and non-subsidized, which start interest the moment the college applies the funds. Both come with 1% origination fees and then interest rates that are relatively high. If one were to cosign for the student and get a private student loan from a bank, the interest rate would likely be much lower. I looked into bank loans when my son was interested in avoiding Staffords and taking private loans. Without the cosigning, that is either not possible or the student may be required to have a job during college and make payments during college, plus the rate goes through the roof.
The OP asked a question about financial aid and how eligibility for it might be affected by various savings methods. It is inportant that the OP understand that financial aid is available in multiple forms, not all of which are affected by parental income.

Some people in their responses were confusing/mislabeling “financial aid” versus “need-based aid.”

I was pointing out that some financial aid consists of scholarships, which are not need based. So kids from higher income families, like my kids, do receive scholarships. I know other higher income families whose kids have received scholarships.

There are 3 types of undergraduate financial aid that I am aware of:

1. Loans, that have to be paid back by either the student/parent/other signer

2. Scholarships or grants, that do not have to be paid back

3. Work study

Can you provide a reference showing that crew scholarships are the easiest athletic scholarships to get? I was not aware of that.
It used to be that scholarships and grants didn't need to be paid back, but it's getting murkier lately. NY's Excelsior Scholarship converts to loans retroactively if you lose eligibility at any point. TEACH grants also retroactively convert to loans if you lose eligibility. DS4 recently had his TAP grant retroactively rescinded 2 weeks before the end of the semester; his courseload was fine by school standards, but the state apparently counts differently and he was 1 credit hour short, and waaay too late in the semester to remedy it.

Work study is very limited, perhaps an opportunity to earn up to $1200 per academic year. Some schools make an effort to place you in a job, but many leave the job search up to the student. And the student must obviously first earn the $ before it can be used for college expenses.
Very interesting about retroactively having a grant rescinded; I am sorry that your son got caught up in that.

The scholarships that I am aware of require a certain GPA to maintain eligibility going forward for future semesters, but I never heard of what you noted above.


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