Cost of college and 529

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vrr106
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Cost of college and 529

Post by vrr106 » Thu Jan 31, 2019 10:27 am

I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?

stoptothink
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Re: Cost of college and 529

Post by stoptothink » Thu Jan 31, 2019 10:44 am

The current all-in (tuition+books+fees+estimated living) cost of the two universities within biking distance of my front-door is ~$12.5kyr, with half of that being room & board. We are currently maxing the state deduction amount for both of them ($3920 per year), but we'll probably stop in a few years (they are currently 6 and 3). If my children are insistent on not taking advantage of the very economical (and pretty good) education options in their own backyard, then I wish them the best of luck in figuring out how to cover the rest.

livesoft
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Re: Cost of college and 529

Post by livesoft » Thu Jan 31, 2019 10:48 am

I divided the estimates in half based on actual experience for my children's first years at a private elite university and a state university. I found all the estimates completely exaggerated. I think they assume your child will travel between the university and home 10 times via first class air fare each year.

For most states, there is absolutely no point in going to an out-of-state public university.
Last edited by livesoft on Thu Jan 31, 2019 10:49 am, edited 1 time in total.
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delamer
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Re: Cost of college and 529

Post by delamer » Thu Jan 31, 2019 10:49 am

It isn’t easy.

We took the middle ground and prepared for 2 out-of-state publics and ended up paying for 2 in-state publics.

But we did not put all college money into a 529, in order to maintain some flexibility. We also cut back on savings when Kid#1 went in-state, because that meant we had more for Kid#2 already saved than we’d expected (since Kid#1’s expenses were lower than anticipated).

Topic Author
vrr106
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Re: Cost of college and 529

Post by vrr106 » Thu Jan 31, 2019 10:57 am

livesoft wrote:
Thu Jan 31, 2019 10:48 am
I divided the estimates in half based on actual experience for my children's first years at a private elite university and a state university. I found all the estimates completely exaggerated. I think they assume your child will travel between the university and home 10 times via first class air fare each year.

For most states, there is absolutely no point in going to an out-of-state public university.
That's interesting. I figured non-tuition is usually exaggerated but divided in half? That's great news for me if true:)

bloom2708
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Re: Cost of college and 529

Post by bloom2708 » Thu Jan 31, 2019 10:57 am

We have 2 local state schools within 10 miles. Good schools.

~$18k will get you tuition, room, board, books and a meal plan. We saved 4x $20k for first kid (in college). 4 x $21k for second kid (high school). Working on 4 x $22k for 3rd kid (5th grade).

50% in 529, 50% in taxable/brokerage. Save enough to get you "within" some reasonable/cash-flowable number. $150k seems high for Florida state school, but nobody knows what 10 years will bring.

Save via drip (monthly), save when you get a bonus, save when you get a tax return, save on their birthday, save when they get a gift. Keep your retirement a priority, but do the best you can.
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GoldStar
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Re: Cost of college and 529

Post by GoldStar » Thu Jan 31, 2019 11:00 am

We simply planned for two 4-year in-state public university tuitions+room/board at current prices (and assumed growth in the 529 accounts would match increases in tuition). We purposely underfunded slightly so we wouldn't have excess in the 529s.
One is in a private university but with scholarships it roughly matches my state flagship university cost-wise.
I have to tell you - with all the taxes I pay - it feels great to be paying for colleges with money that has grown tax-free for 20 years - it has saved us thousands in taxes - I am a big believer in 529s.

jrbdmb
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Re: Cost of college and 529

Post by jrbdmb » Thu Jan 31, 2019 11:54 am

vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
I am curious how you came up with these numbers. I could see how you could get there by simply extrapolating the inflation in college education costs in recent history - but at some point we will find that annual increases of 10%+ is not sustainable.

GCD
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Re: Cost of college and 529

Post by GCD » Thu Jan 31, 2019 11:58 am

It's really hard to predict where tuition will be decades from now. We just put in as much as we felt we could and didn't worry too much about hitting a particular point. We ended up saving an amount that will be overkill at in-state rates, but insufficient to pay for 4 years at an expensive private school (absent significant aid). If there is money left over it can go to the yet unborn grandkids.

Grt2bOutdoors
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Re: Cost of college and 529

Post by Grt2bOutdoors » Thu Jan 31, 2019 12:14 pm

In-state public universities within 15 miles of home are roughly $13K a year for tuition, toss in another $2K more or less for books. Call it $15K a year.
If you stay on campus, the cost is $27K a year.

Out of state public colleges could cost as much as $40-45K a year.

Private schools - anywhere from $40K and as high as $70K per year.

All costs are as of today. What they will be in 10, 20 or 30 years is anyone's guess. Paying $500K for school? Okay, first year wage income (not equity, not bonus unless they are guaranteed) immediately following graduation at a four year school better be $150-200K a year, otherwise you are just wasting your resources. Those who are making that kind of coin are very far and few between.
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mattshwink
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Re: Cost of college and 529

Post by mattshwink » Thu Jan 31, 2019 12:15 pm

I am currently planning on 60k per year (240k total). My wife went to an expensive private university and wants the munchkin to go there too (roughly 50k per year, at current rates). I want her to go to in state public (we have several good schools), which would be less. Of course, she starts in about 11 years (she is 7 now) so where we(and she) end up is anybody's guess. But 240k is a good goal. If we get there I will re-evaluate (currently we are at 91k).

Grt2bOutdoors
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Re: Cost of college and 529

Post by Grt2bOutdoors » Thu Jan 31, 2019 12:21 pm

mattshwink wrote:
Thu Jan 31, 2019 12:15 pm
I am currently planning on 60k per year (240k total). My wife went to an expensive private university and wants the munchkin to go there too (roughly 50k per year, at current rates). I want her to go to in state public (we have several good schools), which would be less. Of course, she starts in about 11 years (she is 7 now) so where we(and she) end up is anybody's guess. But 240k is a good goal. If we get there I will re-evaluate (currently we are at 91k).
Age 7 now, begins at age 18, ends at age 21-22. Of course, current prices will go up as well, but assume your savings grows at same rate of tuition inflation, you just need to accumulate the difference. You have 14 years to do so. Don't bank it all in the 529 plan, just in case child decides to go to a less expensive school.
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BogBod
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Re: Cost of college and 529

Post by BogBod » Thu Jan 31, 2019 12:21 pm

Having just done the college thing this past year, with a son who applied to in-state public colleges, out-of-state public colleges, out-of-state private colleges, we found:

1) The elite of the elite colleges do cost $65-$75K per year now, and have little need to provide merit based aid. The 1400 SAT and up crowd, while less numerous, are still in greater supply than there are spots in elite colleges.

2) To our surprise, everything else leveled out in our son's case. Out of state public ($40K/yr) and private colleges ($50-55K/yr) all contributed merit monies to bring down their costs to within a few thousand of in state college costs ($25K/yr here in NY).

YMMV, but I have heard many similar stories. My son had both some positives and some negatives in his college application, and each and every college came to the same bottom line.

Which just goes to show, it is REALLY hard to know what the actual situation will be for 2020, nevermind 2029! Good luck.

daheld
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Re: Cost of college and 529

Post by daheld » Thu Jan 31, 2019 12:43 pm

vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
We just had a baby (6 weeks ago), but we're planning to target 50% of the projected cost (using the Vanguard college cost estimator) of a major state school saved in a 529. We figure we can either cash flow or pull the other 50% from taxable investments.

PatrickA5
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Re: Cost of college and 529

Post by PatrickA5 » Thu Jan 31, 2019 12:51 pm

If I had to do it over, I would underestimate. DS will finish college with probably $50K left in the 529. What I didn't account for was that he would have 24 hours of college credit before even leaving high school. Also, middle child went to the local community college which was totally free for the first 60 hours.

So, I guess we can either fund a masters degree, or save it for grandkids, or cash it in and pay back the state deduction plus penalty and tax on the earnings (amounting to $4K total).

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vrr106
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Re: Cost of college and 529

Post by vrr106 » Thu Jan 31, 2019 3:15 pm

jrbdmb wrote:
Thu Jan 31, 2019 11:54 am
vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
I am curious how you came up with these numbers. I could see how you could get there by simply extrapolating the inflation in college education costs in recent history - but at some point we will find that annual increases of 10%+ is not sustainable.
I actually used the Vanguard college cost projector with a 5% rate of annual increase

Topic Author
vrr106
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Re: Cost of college and 529

Post by vrr106 » Thu Jan 31, 2019 3:19 pm

BogBod wrote:
Thu Jan 31, 2019 12:21 pm
Having just done the college thing this past year, with a son who applied to in-state public colleges, out-of-state public colleges, out-of-state private colleges, we found:

1) The elite of the elite colleges do cost $65-$75K per year now, and have little need to provide merit based aid. The 1400 SAT and up crowd, while less numerous, are still in greater supply than there are spots in elite colleges.

2) To our surprise, everything else leveled out in our son's case. Out of state public ($40K/yr) and private colleges ($50-55K/yr) all contributed merit monies to bring down their costs to within a few thousand of in state college costs ($25K/yr here in NY).

YMMV, but I have heard many similar stories. My son had both some positives and some negatives in his college application, and each and every college came to the same bottom line.

Which just goes to show, it is REALLY hard to know what the actual situation will be for 2020, nevermind 2029! Good luck.
Thanks, that's helpful. I wish there was good data on average cost of education (as opposed to estimated) after factoring in merit monies, etc.

livesoft
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Re: Cost of college and 529

Post by livesoft » Thu Jan 31, 2019 3:25 pm

If you are wealthy, then 529 plans are the way to go. But if you are not wealthy (defined by me as eligible for the AOTC), then you should take advantage of the education benefits given to you by the IRS. See IRS Publication 970.

Of course, one can use all the possible combinations of benefits:

Return of capital is tax-free
529 plans have tax-free gains
Roth IRAs are tax-free
Borrowing from a 401(k) is not taxed if one make the loan payments
AOTC
LLC
Grandparents (OPM)
Students can work
Scholarships
AP credits
FAFSA
...
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Topic Author
vrr106
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Re: Cost of college and 529

Post by vrr106 » Thu Jan 31, 2019 3:30 pm

mattshwink wrote:
Thu Jan 31, 2019 12:15 pm
I am currently planning on 60k per year (240k total). My wife went to an expensive private university and wants the munchkin to go there too (roughly 50k per year, at current rates). I want her to go to in state public (we have several good schools), which would be less. Of course, she starts in about 11 years (she is 7 now) so where we(and she) end up is anybody's guess. But 240k is a good goal. If we get there I will re-evaluate (currently we are at 91k).
Similar situation for me, I'm at $100K for my 7 year old. If you project a 6% growth rate, you end up around $170K which is 70% of your $240K goal. I am considering stopping contributions and redirecting to after tax accounts to hedge for the potential in-state or scholarship situations

BogBod
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Re: Cost of college and 529

Post by BogBod » Thu Jan 31, 2019 3:36 pm

vrr106 wrote:
Thu Jan 31, 2019 3:30 pm
mattshwink wrote:
Thu Jan 31, 2019 12:15 pm
I am currently planning on 60k per year (240k total). My wife went to an expensive private university and wants the munchkin to go there too (roughly 50k per year, at current rates). I want her to go to in state public (we have several good schools), which would be less. Of course, she starts in about 11 years (she is 7 now) so where we(and she) end up is anybody's guess. But 240k is a good goal. If we get there I will re-evaluate (currently we are at 91k).
Similar situation for me, I'm at $100K for my 7 year old. If you project a 6% growth rate, you end up around $170K which is 70% of your $240K goal. I am considering stopping contributions and redirecting to after tax accounts to hedge for the potential in-state or scholarship situations
Vrr106–

I am glad that I did just that. It looks like we may not need most (or possibly any) of the money that we did direct to taxable accounts. The 529 and some liquid assets look like they will cover college costs. So if I had put more into the 529s, we’d have money left over in those accounts. Instead, that money can be allocated to other needs without penalty.

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emlowe
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Re: Cost of college and 529

Post by emlowe » Thu Jan 31, 2019 3:59 pm

You could supplement the 529 with I Bonds (or EE Bonds, but I Bonds probably make more sense) instead of a taxable account. The interest may be tax-free when used for higher education, but there are a number of restrictions (tuition, but not books or room and board) including married AGI of ~150

But if not used on education, there isn't any penalty

RetiredCSProf
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Re: Cost of college and 529

Post by RetiredCSProf » Thu Jan 31, 2019 4:58 pm

Although my son is already in college, I cannot predict the cost of his undergraduate college education, because he may change schools this fall and he may move out (has been commuting from home). What I can predict is that it will take him six years to finish a BA.

Before he started kindergarten, I invested $1500 in a (Coverdell) Education Savings Account (ESA) at Janus-Henderson in 100% equities and $55K (gift from Grandma) in a Vanguard 529 age-based glide fund.

When he started college, at age 18, he had about $100K in the Vanguard 529 and $4K in the ESA.The ESA paid for 3 years (including summer sessions) at a local community college. He has $1500 remaining in the ESA. A portion of the 529 fund has paid for his 4th year of college tuition & fees at a local private, liberal arts college. He has $68K remaining in the 529 fund.

He had planned to transfer from the CC to a state school but messed up the paperwork (missed a deadline) and his offer was rescinded. He had already turned down offers from other state schools (including UC Berkeley), leaving only the LAC as an option. Unfortunately, the LAC gives transfers very low priority in registering for classes, so he cannot easily get into the required classes.

If he continues at the private college for the next two years, he will exhaust all remaining funds, even if he continues to commute from home. He has re-applied to transfer to the state school for the next two years. If that works out, he will likely have money left over, even if he rents an apartment.

Regattamom
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Re: Cost of college and 529

Post by Regattamom » Thu Jan 31, 2019 5:09 pm

stoptothink wrote:
Thu Jan 31, 2019 10:44 am
The current all-in (tuition+books+fees+estimated living) cost of the two universities within biking distance of my front-door is ~$12.5kyr, with half of that being room & board. We are currently maxing the state deduction amount for both of them ($3920 per year), but we'll probably stop in a few years (they are currently 6 and 3). If my children are insistent on not taking advantage of the very economical (and pretty good) education options in their own backyard, then I wish them the best of luck in figuring out how to cover the rest.
You are very lucky. The cheapest in state cost for a four year university where I live is just over $20,000.

stoptothink
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Re: Cost of college and 529

Post by stoptothink » Thu Jan 31, 2019 5:14 pm

Regattamom wrote:
Thu Jan 31, 2019 5:09 pm
stoptothink wrote:
Thu Jan 31, 2019 10:44 am
The current all-in (tuition+books+fees+estimated living) cost of the two universities within biking distance of my front-door is ~$12.5kyr, with half of that being room & board. We are currently maxing the state deduction amount for both of them ($3920 per year), but we'll probably stop in a few years (they are currently 6 and 3). If my children are insistent on not taking advantage of the very economical (and pretty good) education options in their own backyard, then I wish them the best of luck in figuring out how to cover the rest.
You are very lucky. The cheapest in state cost for a four year university where I live is just over $20,000.
Look at some of the other responses. Yes, Utah has very affordable options, but many other states do also. Furthermore, in most cases these numbers thrown out are also taking into account the university's living expense estimations; there are generally a whole bunch of ways to cut down living expenses dramatically. Reality is, the $60k-$70k/yr institutions are not the norm, but you'd never guess that based on the college education discussions on this board. IMO, there are some posters here that will someday regret overfunding 529s.

alamo
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Re: Cost of college and 529

Post by alamo » Thu Jan 31, 2019 5:19 pm

vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
Might be a little high but in my experience budgeting for 5% increase in tuition per year has been pretty accurate.

The tuition rise at my former private university (not "elite") is planned go from $171,368 to $243,910 at a 4% increase over the next 10 years. That doesn't include annual fees of $4500 or so plus room, board and books.

This was recently sent from my former university:
"..The 4 percent tuition increase regents approved at this time last year, set to go into effect for the upcoming school year, was the lowest annual increase in more than 20 years, officials said at the time. It was also part of a plan to slow the pace of tuition hikes."

I have one kid in college and one still in HS. Basically, many years ago I ran calculators based on tuition rates then and for 2018 with increases and came up with $125k for in state publics (2018) and $250k for average privates. I think it has shown to be closer to $100k for in state public and $225 for private.

Regattamom
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Re: Cost of college and 529

Post by Regattamom » Thu Jan 31, 2019 5:25 pm

My first child was a recruited athlete and received a full ride to a Div 1, small private school. If you can ensure your kid gets a full ride, I would highly recommend it (just kidding.) But it did save us a lot of money.

For our second child, we expect to pay full price for a four year in state public university. If said child wants to go out of state or to a private school, they will need to fund the difference if there is one.

LiterallyIronic
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Re: Cost of college and 529

Post by LiterallyIronic » Thu Jan 31, 2019 5:28 pm

vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
vrr106 wrote:
Thu Jan 31, 2019 3:15 pm
I actually used the Vanguard college cost projector with a 5% rate of annual increase
When I started university at the local public university in 2001, the price was $1,400 per semester for tuition. When I graduated in 2016, we were up to $2,500 per semester. If it keeps doubling every fifteen years or so, then it will be about $5,000/semester by the time my toddler starts school. I just used simple data extrapolation.

However, I don't have enough money to direct any to a 529, and there's no guarantee my kid will want to go to university anyway. I figure we'll just give our kids $10,000 (or whatever we can scrounge up by then) when they turn 18 and tell them they can use it for school, or a car, or towards a house, or a wedding, or whatever else they want - no strings attached.

Regarding the "home state [having] limited choices," there's no rule that you have to go to school in your home state. I didn't grow up in the state where I went to school - in fact, I had no family in the state at all when I went off to school at 17. The WUE program (https://www.wiche.edu/wue) allows students from about a dozen states to attend school in any of those states for 150% of the in-state rate. There are other programs for other groups of states.

Or, alternatively, simply go meet the state residency requirements. I just had to live in the state of my university for a year (which I spent working), got an in-state drivers license, and registered to vote in the state, and I was able to get in-state tuition. Not only that, my university provides the in-state rate to all students during the Summer semester, so I was able to do one semester while waiting for state residency to kick in.

If you're wealthy enough, then, yes, a 529 can be super helpful. But there are ways to get around all your local universities being expensive.

KlangFool
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Re: Cost of college and 529

Post by KlangFool » Thu Jan 31, 2019 5:30 pm

OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool

siriusblack
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Re: Cost of college and 529

Post by siriusblack » Thu Jan 31, 2019 5:51 pm

Closest public university to me is ~$10,000 per year tuition/fees/books (which is currently inflating at 6-7% annually), and room/board/misc. expenses is ~$15,000 (which I assume grows at a more typical inflation rate annually, I use 3% in my model).

Our plan is to pay the tuition from 529 plans (one 529 account for each of my 3 kids), and pay the room/board/misc expenses from our main taxable investment account.

To model the above... I built a spreadsheet that models the tuition increases, expense inflation, contributions, growth, etc. ... resulting in a column for each 529 with the expected account balance starting from today to the time each kid graduates college (contributions plus growth minus expenses). I would be happy to share my spreadsheet model with anyone ... just PM me.

anil686
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Re: Cost of college and 529

Post by anil686 » Thu Jan 31, 2019 5:57 pm

KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Point C is probably the most forgotten point. There are less restrictions obviously with a taxable account and the tax drag on a TSM index fund is pretty low. If you are in a high tax bracket, sure the cap gain tax rate at the time of cashing out will be higher (not zero), but still not that high if you use techniques like TLH and specific ID. If you are in a lower tax bracket, the tax drag can be very low and cap gains rate could be 15% for long term cap gains. IOW, unless your state gives you specific tax benefits or you are in a high tax bracket, it probably does not matter much for 529 vs taxable account - again JMO...

delamer
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Re: Cost of college and 529

Post by delamer » Thu Jan 31, 2019 7:03 pm

anil686 wrote:
Thu Jan 31, 2019 5:57 pm
KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Point C is probably the most forgotten point. There are less restrictions obviously with a taxable account and the tax drag on a TSM index fund is pretty low. If you are in a high tax bracket, sure the cap gain tax rate at the time of cashing out will be higher (not zero), but still not that high if you use techniques like TLH and specific ID. If you are in a lower tax bracket, the tax drag can be very low and cap gains rate could be 15% for long term cap gains. IOW, unless your state gives you specific tax benefits or you are in a high tax bracket, it probably does not matter much for 529 vs taxable account - again JMO...
You need to not only look at state tax breaks for deposits, but also the state tax rates for earnings.

Between federal and state, our tax on qualified dividends and long-term gains is 23%. We didn’t put all our college-designated savings into 529s, but we put a big chunk. Tax-deferred was not an option because we would not have access to those dollars at college time. Unless we retire, those of us fortunate to have secure jobs (like government) can’t get to the dollars in our retirement accounts.

ENT Doc
Posts: 128
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Re: Cost of college and 529

Post by ENT Doc » Thu Jan 31, 2019 8:00 pm

KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Disagree with Point C. It’s not like those below a 32% bracket are living a life where their retirement isn’t or can’t be funded anyway. Spending is a bigger driver of 529 funding. We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. If your own goals are being met why turn down using a more tax efficient means of college savings, especially when it can be transferred or passed on to future generations without hurting your kids’ cash flow?

noco-hawkeye
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Re: Cost of college and 529

Post by noco-hawkeye » Thu Jan 31, 2019 8:06 pm

GoldStar wrote:
Thu Jan 31, 2019 11:00 am
We simply planned for two 4-year in-state public university tuitions+room/board at current prices (and assumed growth in the 529 accounts would match increases in tuition). We purposely underfunded slightly so we wouldn't have excess in the 529s.
One is in a private university but with scholarships it roughly matches my state flagship university cost-wise.
I have to tell you - with all the taxes I pay - it feels great to be paying for colleges with money that has grown tax-free for 20 years - it has saved us thousands in taxes - I am a big believer in 529s.
My kids are not quite as old, but my reasoning is the same. From what I've been hearing from other families, private schools usually have enough breaks to be competitive with an in state public school. Painting with a broad brush - saving about 90-95% of the cost for 4 years public in state will work in the majority of cases (from what I've seen).

KlangFool
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Re: Cost of college and 529

Post by KlangFool » Thu Jan 31, 2019 8:11 pm

ENT Doc wrote:
Thu Jan 31, 2019 8:00 pm
KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Disagree with Point C. It’s not like those below a 32% bracket are living a life where their retirement isn’t or can’t be funded anyway. Spending is a bigger driver of 529 funding. We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. If your own goals are being met why turn down using a more tax efficient means of college savings, especially when it can be transferred or passed on to future generations without hurting your kids’ cash flow?
ENT Doc,

A) You are assuming that you will be fully-employed continuously over the next 10 to 20 years. If that is not true, that your retirement goal will not be fully-funded. That assumption is not valid for many of us.

B) Do you fully fund all your tax-advantaged accounts?

<<We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. >>

C) The only kind of people that can say their retirement is fully funded 20 to 30 years ahead of time is someone with very good job security. You are a very lucky person.

KlangFool

SCV_Lawyer
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Re: Cost of college and 529

Post by SCV_Lawyer » Thu Jan 31, 2019 8:15 pm

We assume the cost to be $250k for 4 years, times two kids, 10 and 13, and assume 5% inflation. We currently have $200k saved, will add $26k this year to 529s, and will increase that a bit every year thereafter through graduation. We assume we will pay $750k total in tomorrow's dollars.

KlangFool
Posts: 11575
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Re: Cost of college and 529

Post by KlangFool » Thu Jan 31, 2019 8:24 pm

OP,

For some of the poorer folks like me, I would not pay 120K to 150K for a kid's college education until my net worth excluding the house is equal to a certain size. So, there is no point talking cost of college. I would only pay X amount if my net worth reaches a certain size. In my case, I would not pay 120K per kid or 240K for 2 kids unless my net worth is 1 million or more. So, what is your number?

Then, again. You may have a totally different philosophy. You may be willing to sell your house and be homeless in order to pay for the kid's college. But, please decide ahead of time.

KlangFool

remomnyc
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Re: Cost of college and 529

Post by remomnyc » Thu Jan 31, 2019 8:42 pm

We targeted $250k per kid in 529 accounts. One is 2 yrs away; the other 4 yrs. We expect the kids to work during the summers for their fun money, but we want them to graduate without debt. We will cash flow costs in excess of $250k, but we will only pay top $ for top tier schools. Schools must be significantly better than in-state to warrant spending $$$. If there's money left, it can go toward post-grad or it will be paid out once they're off the payroll. Older may get merit offers from second tier schools. We shall see. I'm not concerned about having overfunded the 529 accounts even if kids choose in-state because then they will likely pursue post-grad work.

ENT Doc
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Re: Cost of college and 529

Post by ENT Doc » Fri Feb 01, 2019 4:17 am

KlangFool wrote:
Thu Jan 31, 2019 8:11 pm
ENT Doc wrote:
Thu Jan 31, 2019 8:00 pm
KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Disagree with Point C. It’s not like those below a 32% bracket are living a life where their retirement isn’t or can’t be funded anyway. Spending is a bigger driver of 529 funding. We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. If your own goals are being met why turn down using a more tax efficient means of college savings, especially when it can be transferred or passed on to future generations without hurting your kids’ cash flow?
ENT Doc,

A) You are assuming that you will be fully-employed continuously over the next 10 to 20 years. If that is not true, that your retirement goal will not be fully-funded. That assumption is not valid for many of us.

B) Do you fully fund all your tax-advantaged accounts?

<<We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. >>

C) The only kind of people that can say their retirement is fully funded 20 to 30 years ahead of time is someone with very good job security. You are a very lucky person.

KlangFool
That’s why there are life and disability insurance. Absent death or disability do you really think you wouldn’t find any (similar) work for 10-20 years if fired or if you lost your job? That’s a pretty wild assumption. And yes, retirement accounts were fully funded and residual in taxable.

Topic Author
vrr106
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Re: Cost of college and 529

Post by vrr106 » Fri Feb 01, 2019 6:57 am

SCV_Lawyer wrote:
Thu Jan 31, 2019 8:15 pm
We assume the cost to be $250k for 4 years, times two kids, 10 and 13, and assume 5% inflation. We currently have $200k saved, will add $26k this year to 529s, and will increase that a bit every year thereafter through graduation. We assume we will pay $750k total in tomorrow's dollars.
I think you are assuming private or high cost out-of-state. If you can afford to, would be better to put some of that in 529 (at least to cover cost for the best in state public school) and the rest in taxable? That's really the question I am trying to answer for myself given the wide variance in cost

augryphon
Posts: 50
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Re: Cost of college and 529

Post by augryphon » Fri Feb 01, 2019 7:31 am

First of all, its important to remember paying for all your kids college is not mandatory. If you want to do it, and can afford it, then go for it, but not at the expense of any of your retirement plans.

529s are the way to go, they are so flexible, tax-free growth and withdrawels, state tax deductible, etc. when our son decided he might attend law school, we began adding to one 529, taking that deduction, while we we withdrawing from another. Our plan worked and he graduated from undergrad and law debt-free.

We were clear upfront with our son, you’ve got a free-ride to a great school, but you must choose your school wisely, keeping costs in mind, i.e. pick public schools. Luckily, he found a good school, priced right.

The published expenses were close, but keep in mind only room, board, books, computers can be paid from the 529. The rest are out of pocket. We were surprised how much out of pocket we spent, gas, social, fraternity, travel, girlfriend in another state(wonderful lady who is now his wife-great investment, iyam), etc.

Finally, both my wife and I and my DIL parents had money left over in their 529s, so the kids began their marriage with 25k in 529 savings. Thats a nice head start.

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TomatoTomahto
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Re: Cost of college and 529

Post by TomatoTomahto » Fri Feb 01, 2019 7:52 am

vrr106 wrote:
Fri Feb 01, 2019 6:57 am
SCV_Lawyer wrote:
Thu Jan 31, 2019 8:15 pm
We assume the cost to be $250k for 4 years, times two kids, 10 and 13, and assume 5% inflation. We currently have $200k saved, will add $26k this year to 529s, and will increase that a bit every year thereafter through graduation. We assume we will pay $750k total in tomorrow's dollars.
I think you are assuming private or high cost out-of-state. If you can afford to, would be better to put some of that in 529 (at least to cover cost for the best in state public school) and the rest in taxable? That's really the question I am trying to answer for myself given the wide variance in cost
That’s what we did. We put a tiny fraction in a 529, in large part because the tax advantage was minimal by the time we had paid off our house, maxed out retirement accounts, etc. We were late to the party. We did make extensive use of UTMA accounts.

One of the kids earned a lot of money during college; we just looked at his junior year tax return, and he earned $45k; tip: encourage Computer Science if they have the aptitude :D The other kid earned a lot also, but his work schedule affected his grades, so we pulled the plug on work-for-pay.
Okay, I get it; I won't be political or controversial. The Earth is flat.

dbapaddy
Posts: 39
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Re: Cost of college and 529

Post by dbapaddy » Fri Feb 01, 2019 8:33 am

I decided earlier on, $100K per kid max. I am 50% of the way there.

There's a possibility even that will be too much , if the market is not too crazy over next 10 years. My kids will go to an out-of-state school, only if that school is much better in their particular discipline in the long term.

Also, there's a high likelihood they will get aid of some sort and they will also work for their leisure money.

Grt2bOutdoors
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Re: Cost of college and 529

Post by Grt2bOutdoors » Fri Feb 01, 2019 8:55 am

ENT Doc wrote:
Fri Feb 01, 2019 4:17 am
KlangFool wrote:
Thu Jan 31, 2019 8:11 pm
ENT Doc wrote:
Thu Jan 31, 2019 8:00 pm
KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Disagree with Point C. It’s not like those below a 32% bracket are living a life where their retirement isn’t or can’t be funded anyway. Spending is a bigger driver of 529 funding. We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. If your own goals are being met why turn down using a more tax efficient means of college savings, especially when it can be transferred or passed on to future generations without hurting your kids’ cash flow?
ENT Doc,

A) You are assuming that you will be fully-employed continuously over the next 10 to 20 years. If that is not true, that your retirement goal will not be fully-funded. That assumption is not valid for many of us.

B) Do you fully fund all your tax-advantaged accounts?

<<We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. >>

C) The only kind of people that can say their retirement is fully funded 20 to 30 years ahead of time is someone with very good job security. You are a very lucky person.

KlangFool
That’s why there are life and disability insurance. Absent death or disability do you really think you wouldn’t find any (similar) work for 10-20 years if fired or if you lost your job? That’s a pretty wild assumption. And yes, retirement accounts were fully funded and residual in taxable.
It’s not wild, it’s reality for many older Americans - age discrimination is alive and well in corporate world. You should first be made to walk in someone’s shoes before making a statement claiming it’s a “wild assumption”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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vineviz
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Re: Cost of college and 529

Post by vineviz » Fri Feb 01, 2019 9:11 am

jrbdmb wrote:
Thu Jan 31, 2019 11:54 am
vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
I am curious how you came up with these numbers. I could see how you could get there by simply extrapolating the inflation in college education costs in recent history - but at some point we will find that annual increases of 10%+ is not sustainable.
Historically, college costs (tuition, fees, room, and board) have pretty reliably increased by about 2% more than CPI. It fluctuates a bit from year to year, and costs are a little sticky (they go up slowly during periods of high inflation and then catch up later), but this is as good an estimate as you can get in terms of long-range planning.

The current breakeven (expected) inflation rate for the next 20 years is 1.87%, so it'd be entirely reasonable to plan for college costs to grow at a rate of 3.5% to 4% over the next 15-20 years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

KlangFool
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Re: Cost of college and 529

Post by KlangFool » Fri Feb 01, 2019 9:35 am

ENT Doc wrote:
Fri Feb 01, 2019 4:17 am
KlangFool wrote:
Thu Jan 31, 2019 8:11 pm
ENT Doc wrote:
Thu Jan 31, 2019 8:00 pm
KlangFool wrote:
Thu Jan 31, 2019 5:30 pm
OP,

Why do these matters?

A) When your kid goes to college, you pay whatever amount that you can afford and make sense for you. Just make sure that your kids do not need to support you in retirement because you overpay for college.

B) Planning for college payment 10 to 20 years ahead of time only makes sense for folks that can guarantee their retirement funding and/or full-employment over the next 10 to 20 years. For many of us, feeding and sheltering our family is at a higher priority. College education funding is a luxury that we can only afford if we survive financially over the next 10 to 20 years.

C) 529 only makes sense if you are at a very high tax bracket. 32% and above. For the rest of us, why pay tax and put the money into the 529?

KlangFool
Disagree with Point C. It’s not like those below a 32% bracket are living a life where their retirement isn’t or can’t be funded anyway. Spending is a bigger driver of 529 funding. We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. If your own goals are being met why turn down using a more tax efficient means of college savings, especially when it can be transferred or passed on to future generations without hurting your kids’ cash flow?
ENT Doc,

A) You are assuming that you will be fully-employed continuously over the next 10 to 20 years. If that is not true, that your retirement goal will not be fully-funded. That assumption is not valid for many of us.

B) Do you fully fund all your tax-advantaged accounts?

<<We were in the low to mid 20’s tax bracket and able to save for more than 1 529 as well as our own retirement goals. >>

C) The only kind of people that can say their retirement is fully funded 20 to 30 years ahead of time is someone with very good job security. You are a very lucky person.

KlangFool
That’s why there are life and disability insurance. Absent death or disability do you really think you wouldn’t find any (similar) work for 10-20 years if fired or if you lost your job? That’s a pretty wild assumption. And yes, retirement accounts were fully funded and residual in taxable.
ENT Doc,

Thank you for stating your assumptions.

KlangFool

SCV_Lawyer
Posts: 62
Joined: Sun Nov 20, 2016 3:24 pm

Re: Cost of college and 529

Post by SCV_Lawyer » Fri Feb 01, 2019 9:43 am

vrr106 wrote:
Fri Feb 01, 2019 6:57 am
SCV_Lawyer wrote:
Thu Jan 31, 2019 8:15 pm
We assume the cost to be $250k for 4 years, times two kids, 10 and 13, and assume 5% inflation. We currently have $200k saved, will add $26k this year to 529s, and will increase that a bit every year thereafter through graduation. We assume we will pay $750k total in tomorrow's dollars.
I think you are assuming private or high cost out-of-state. If you can afford to, would be better to put some of that in 529 (at least to cover cost for the best in state public school) and the rest in taxable? That's really the question I am trying to answer for myself given the wide variance in cost
Yes, we are assuming private or out of state public as worst case. Since the plan is to continue funding these accounts through graduation, we'll be able to adjust downward if it looks like the actual costs will be less. We don't get any deduction in our state, so the main advantage of 529s is tax free growth. That benefit decreases for funds contributed later. So we could use taxable for later contributions if we were unsure of costs and didn't want to overfund the 529s.

EnjoyIt
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Re: Cost of college and 529

Post by EnjoyIt » Fri Feb 01, 2019 9:53 am

BogBod wrote:
Thu Jan 31, 2019 12:21 pm
Having just done the college thing this past year, with a son who applied to in-state public colleges, out-of-state public colleges, out-of-state private colleges, we found:

1) The elite of the elite colleges do cost $65-$75K per year now, and have little need to provide merit based aid. The 1400 SAT and up crowd, while less numerous, are still in greater supply than there are spots in elite colleges.

2) To our surprise, everything else leveled out in our son's case. Out of state public ($40K/yr) and private colleges ($50-55K/yr) all contributed merit monies to bring down their costs to within a few thousand of in state college costs ($25K/yr here in NY).

YMMV, but I have heard many similar stories. My son had both some positives and some negatives in his college application, and each and every college came to the same bottom line.

Which just goes to show, it is REALLY hard to know what the actual situation will be for 2020, nevermind 2029! Good luck.
Thank you for sharing your experience it was very inciteful.

To answer OP question. Out plan is to fund $25K in a 529 as soon the child is born and then let it grow for the next 18 years. We plan to cash flow the rest.

jrbdmb
Posts: 295
Joined: Tue Oct 06, 2015 4:27 pm

Re: Cost of college and 529

Post by jrbdmb » Fri Feb 01, 2019 10:19 am

PatrickA5 wrote:
Thu Jan 31, 2019 12:51 pm
If I had to do it over, I would underestimate. DS will finish college with probably $50K left in the 529. What I didn't account for was that he would have 24 hours of college credit before even leaving high school. Also, middle child went to the local community college which was totally free for the first 60 hours.

So, I guess we can either fund a masters degree, or save it for grandkids, or cash it in and pay back the state deduction plus penalty and tax on the earnings (amounting to $4K total).
Believe me, that is a good problem as opposed to a child (and/or parents) leaving school with tens of thousands of dollars of debt. Congratulations on your planning.

alfaspider
Posts: 1747
Joined: Wed Sep 09, 2015 4:44 pm

Re: Cost of college and 529

Post by alfaspider » Fri Feb 01, 2019 10:22 am

vineviz wrote:
Fri Feb 01, 2019 9:11 am
jrbdmb wrote:
Thu Jan 31, 2019 11:54 am
vrr106 wrote:
Thu Jan 31, 2019 10:27 am
I'm curious to hear how others on this forum are estimating future cost of college when it comes to their 529s.

From my research:
- 4 year cost for elite Private college in 2029 will be ~$500K
- 4 year cost for good Public school (out of state) such as a Big Ten school will be ~$300K
- 4 year in-state cost for University of Florida ~$150K

Given the very wide variance here, how are others planning, especially when your home state has limited choices for quality higher education?
I am curious how you came up with these numbers. I could see how you could get there by simply extrapolating the inflation in college education costs in recent history - but at some point we will find that annual increases of 10%+ is not sustainable.
Historically, college costs (tuition, fees, room, and board) have pretty reliably increased by about 2% more than CPI. It fluctuates a bit from year to year, and costs are a little sticky (they go up slowly during periods of high inflation and then catch up later), but this is as good an estimate as you can get in terms of long-range planning.

The current breakeven (expected) inflation rate for the next 20 years is 1.87%, so it'd be entirely reasonable to plan for college costs to grow at a rate of 3.5% to 4% over the next 15-20 years.
An increase outpacing inflation cannot continue indefinitely. The question is when it's going to stop. One thing that will put price pressure on universities is declining enrollment due to a declining birthrate. There will likely be fewer college age kids in 18 years than today, or at the very least, the enrollment growth will be nothing like we've seen over prior decades.

KlangFool
Posts: 11575
Joined: Sat Oct 11, 2008 12:35 pm

Re: Cost of college and 529

Post by KlangFool » Fri Feb 01, 2019 10:23 am

OP,

529 is a tax break for rich folks. There are plenty of lawyers and doctors that use 529. Please make sure that you are rich enough before you start putting money into 529. If not, besides not helping your kids, it will hurt their chances in getting financial aid.

KlangFool

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