submit ?s: how to pay for college [Bogleheads® Live]

[Jon Luskin]

'Bogleheads® Live' is where the do-it-yourself investor community asks questions to financial experts – live on Twitter.

For the next episode, Ann Garcia - author of "How to Pay for College: A complete financial plan for funding your child's education" answers your questions about <dramatic pause> how to pay for college.

Her book

https://www.amazon.com/How-Pay-College- ... 0857199293

We'll go live on Thursday, March 30th, at 12:00 p.m. Pacific / 3:00 p.m. Eastern.

You can submit your questions below. (I may include your question in the episode. No guarantees.) Or, you can ask your questions live by joining us on Twitter Spaces.

https://twitter.com/i/spaces/1OyKAVroWVbGb?s=20

While anyone can listen to a live Twitter Space event on desktop, you'll need to use the Twitter app from a mobile device to ask questions (if you’d like to participate in the Q&A).

If you're not already signed up for Twitter, you can do so here: https://twitter.com/. You can sign up with your Google or Apple account, or via phone, or by email.

Looking forward to seeing you there.

Thank you,

Jon Luskin

Host

Bogleheads® Live

P.S. Listen to past episodes of Bogleheads® Live via the podcast: https://boglecenter.net/category/bogleheads-live/

The Bogleheads® Live series is hosted by me, Jon Luskin, CFP®, a long-time Boglehead®. This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012.

[9-5 Suited]

College choice usually comes out to be the biggest driver of overall expenses and affordability. What factors should parents weigh when considering the potential ROI of less expensive in-state universities vs. more expensive private universities? This will likely influence a lot of downstream college saving decisions especially amount of funding required.

[Jon Luskin]

College choice usually comes out to be the biggest driver of overall expenses and affordability. What factors should parents weigh when considering the potential ROI of less expensive in-state universities vs. more expensive private universities? This will likely influence a lot of downstream college saving decisions especially amount of funding required.

Thanks for your question.

It's going on the list.

[FlamePoint]

Several states have programs that allow high school Juniors and Seniors to take their last 1-2 years classes at a local community college. They receive high school and college credit for these classes, at minimal cost (i.e. tuition is free, student may need to pay for books and a few fees). Some students are able to finish with an associates degree, and only need to complete 2 additional years at a 4 year institution for a bachelor’s degrees. It’s a great way to reduce the cost of a 4 year degree.

In my experience, not a lot of students/parents are aware of this option, and few take advantage of it. While not a viable option for some based on their college major, it can be a significant cost saving for many. High schools tend to do a poor job of advertising this option. Are there other ways to get the word out to students/parents early on so they can factor this into their decision making process?

[Jon Luskin]

Super!

It's going on the list.

Best,
Jon

[Bogle64Pilot]

Jon, it seems as if the population most interested in this would likely be at work during this time slot of 3pm EST and not able to participate. For retiree topics that is likely a good time. Maybe in the future if you wanted greater live participation a different time should be considered.

[Jon Luskin]

That's great feedback. Thank you!

[wolf359]

What is her opinion on the Family Dynasty 529 plan?
https://www.kitces.com/blog/using-a-fam ... -planning/

What is her opinion about new 529 options like the Virginia Tuition Track program?
If you buy 100 units, you've essentially pre-paid for one year of college at an average Virginia state college. You may have to buy more units to pay for the more expensive Virginia colleges, but the benefit of the program is that once purchased, the value tracks the relative cost of tuition in Virginia. You no longer have to worry if tuitions are rising faster than your investments. You do have to worry about the relative tuition between Virginia and wherever you actually go to college. (There are obvious benefits to Virginia residents, particularly those who go to Virginia state schools. However, the value still applies equally when used for non-Virginia colleges or even private schools.) The value is now tracking a benchmark that is closer to the tuition inflation rate, and doesn't have market risk.

Because of the penalties for over-investing in 529 plans, should we conduct most of our college savings outside the plans?
We can still qualify for state tax deductions in our state by investing in the 529 each year only up to the state 529 deduction limit. Funds saved outside the 529 can be deposited into the fund just prior to spending, once a college is selected and the actual spend amount is known.

Since student debt can't be discharged, what about creatively using other forms of debt to fund college?

For example, if I use a home equity loan when my child is born, I can raise enough funds for 4 years of state college using the aforementioned VA Tuition Track program. This will be paid back long prior to the child reaching college age. In event of bankruptcy, it is addressed as a home equity loan.

A more complex example would be to buy a townhouse, if one could be found where the rent is sufficient to cover paying for a 15 year mortgage, taxes, maintenance, insurance, and property management. The primary cost is the down payment and the effort to find the appropriate property. Money can be raised from the townhouse by selling it, or by using the rents, or by re-financing and using the proceeds to pay for college. The loan is never considered a student loan, and only the rental income is considered in the FAFSA for expected parental contributions.

Or are these alternate strategies overkill or overly complex? We definitely want to avoid private student loans and only prefer federal student loans, if we have to take them.

[Jon Luskin]

What is her opinion on the Family Dynasty 529 plan?
https://www.kitces.com/blog/using-a-fam ... -planning/

What is her opinion about new 529 options like the Virginia Tuition Track program?
If you buy 100 units, you've essentially pre-paid for one year of college at an average Virginia state college. You may have to buy more units to pay for the more expensive Virginia colleges, but the benefit of the program is that once purchased, the value tracks the relative cost of tuition in Virginia. You no longer have to worry if tuitions are rising faster than your investments. You do have to worry about the relative tuition between Virginia and wherever you actually go to college. (There are obvious benefits to Virginia residents, particularly those who go to Virginia state schools. However, the value still applies equally when used for non-Virginia colleges or even private schools.) The value is now tracking a benchmark that is closer to the tuition inflation rate, and doesn't have market risk.

Because of the penalties for over-investing in 529 plans, should we conduct most of our college savings outside the plans?
We can still qualify for state tax deductions in our state by investing in the 529 each year only up to the state 529 deduction limit. Funds saved outside the 529 can be deposited into the fund just prior to spending, once a college is selected and the actual spend amount is known.

Since student debt can't be discharged, what about creatively using other forms of debt to fund college?

For example, if I use a home equity loan when my child is born, I can raise enough funds for 4 years of state college using the aforementioned VA Tuition Track program. This will be paid back long prior to the child reaching college age. In event of bankruptcy, it is addressed as a home equity loan.

A more complex example would be to buy a townhouse, if one could be found where the rent is sufficient to cover paying for a 15 year mortgage, taxes, maintenance, insurance, and property management. The primary cost is the down payment and the effort to find the appropriate property. Money can be raised from the townhouse by selling it, or by using the rents, or by re-financing and using the proceeds to pay for college. The loan is never considered a student loan, and only the rental income is considered in the FAFSA for expected parental contributions.

Or are these alternate strategies overkill or overly complex? We definitely want to avoid private student loans and only prefer federal student loans, if we have to take them.

Wonderful!

It's going on the list!

Best,
Jon

[Garco]

Just an observation from my family's history. Because I entered college so many years ago -- in 1961 -- but only exited college in 1972 after earning BA, MA, and PhD degrees I had variety of methods of paying for college. At the BA level, my parents were the main source of payment (tuition, room and board, books and tools, travel). This money came from my father's salary earnings plus savings that my parents had accumulated. I graduated with no debt. Then I decided to earn an MS and PhD, and those programs were paid for via scholarships and fellowships, plus some earnings in summers and during the school year (assistantships). So I was fortunate to come out of ~10 years of college with no debt. But also no savings. My first post-PhD job as an assistant professor paid me $12,100 the first academic year, then $13,400, $14,300, and $15,500. Modest increases but when I moved to a new employer and higher academic rank the salary jumped a lot.

Obviously the scale of cost of living and cost of college needs to be taken ino account in any plan to pay for college. But I think what may be the most important goal is to come out of college with no debt at all. That is how we treated our own children. The first graduated with a BS in 4 years, with zero debt but also zero savings. But he's had a great and remunerative career. The second graduated with a BFA but then went on some years later to earn an MS and an MBA. We parents paid most of the college costs (including housing and food costs) in both cases, though the kids also had some scholarships and assistantships that paid part of the total cost. They emerged with very little money owed. And subsequent to that have had excellent careers and were self-supporting.

[Jon Luskin]

Just an observation from my family's history. Because I entered college so many years ago -- in 1961 -- but only exited college in 1972 after earning BA, MA, and PhD degrees I had variety of methods of paying for college. At the BA level, my parents were the main source of payment (tuition, room and board, books and tools, travel). This money came from my father's salary earnings plus savings that my parents had accumulated. I graduated with no debt. Then I decided to earn an MS and PhD, and those programs were paid for via scholarships and fellowships, plus some earnings in summers and during the school year (assistantships). So I was fortunate to come out of ~10 years of college with no debt. But also no savings. My first post-PhD job as an assistant professor paid me $12,100 the first academic year, then $13,400, $14,300, and $15,500. Modest increases but when I moved to a new employer and higher academic rank the salary jumped a lot.

Obviously the scale of cost of living and cost of college needs to be taken ino account in any plan to pay for college. But I think what may be the most important goal is to come out of college with no debt at all. That is how we treated our own children. The first graduated with a BS in 4 years, with zero debt but also zero savings. But he's had a great and remunerative career. The second graduated with a BFA but then went on some years later to earn an MS and an MBA. We parents paid most of the college costs (including housing and food costs) in both cases, though the kids also had some scholarships and assistantships that paid part of the total cost. They emerged with very little money owed. And subsequent to that have had excellent careers and were self-supporting.

Thanks for sharing!

[HeavyChevy]

I put two children through school at full retail due to 25 years of regular savings beforehand. Some of my peers saved little, and their children seemed to qualify for more aid. Can this happen, or is this just a delusion: can more savings decrease awarded aid?

[er999]

A related question to HeavyChevy: What income cutoff are you virtually guaranteed to be full pay? Greater than $200k, > $250k? I understand the federal government no longer discounts for multiple children in college simultaneously; do some private schools still discount in this situation?

[er999]

What does she think about the Washington state GET 529 program in my situation?

I will be a new Washington state resident and am thinking about buying 4 years of tuition credits for each of my children now ages 10 and 12. One year of tuition costs $11,600 through this program and covers in state tuition at the time of college. If you don’t go to an instate school you can withdrawal the dollar equivalent of whatever rate tuition has gone up at in the meantime when kids are in college. I currently have $90k for one child and $50k for another child in 529s and am contributing $400 / month to each child’s account ($800 total). I expect to be full self pay and would like the option of out of state private but don’t know if I can afford it. Should I spend some of the 529 money to buy 4 years if GET credits?

The instate flagship University of Washington is a great option and it would be a relief to know at least kids could go there. I am not sure if I should leave that money in stocks instead.

[ray.james]

I put two children through school at full retail due to 25 years of regular savings beforehand. Some of my peers saved little, and their children seemed to qualify for more aid. Can this happen, or is this just a delusion: can more savings decrease awarded aid?

+1 and to er999 question. Essentially are there better ways/areas to save to keep retirement options flexible but also get aid if some part of plan fails?
For ex: save in mega back door roth for college before 529 since it is considered as retirement money?

[Jon Luskin]

I put two children through school at full retail due to 25 years of regular savings beforehand. Some of my peers saved little, and their children seemed to qualify for more aid. Can this happen, or is this just a delusion: can more savings decrease awarded aid?

Thanks for a great question!

This one is going on the list.

[Jon Luskin]

A related question to HeavyChevy: What income cutoff are you virtually guaranteed to be full pay? Greater than $200k, > $250k? I understand the federal government no longer discounts for multiple children in college simultaneously; do some private schools still discount in this situation?

Yet another great question from er999.

Onto the list it goes!

Thank you,
Jon

[RadAudit]

I know one individual who is banking big time on her parents paying for her kids' college educations. I wouldn't bet that way; but, some do.

[Grt2bOutdoors]

Hi Jon,

Question: To what extent should a family count on grants/merit to defray the cost of attending a school? There is only so much money available across a seemingly greater number of applicants. Is there a reliable source that can be used prior to applying to any particular school that provides a guide as to amounts tied to a certain GPA or ACT/SAT score? It’s such a black box as how these are determined.

In a similar vein, if an applicant is a high performing individual but their parents have assets and/or income, are the assets/income considered a “negating factor” in the award of merit aid?

How much should a family target for saving to pay for the cost of college? It seems colleges are continuing a path of above inflation increases while the returns in savings vehicles and income growth have faltered in past years. How much is “enough”?

Thank you.

[Jon Luskin]

What does she think about the Washington state GET 529 program in my situation?

I will be a new Washington state resident and am thinking about buying 4 years of tuition credits for each of my children now ages 10 and 12. One year of tuition costs $11,600 through this program and covers in state tuition at the time of college. If you don’t go to an instate school you can withdrawal the dollar equivalent of whatever rate tuition has gone up at in the meantime when kids are in college. I currently have $90k for one child and $50k for another child in 529s and am contributing $400 / month to each child’s account ($800 total). I expect to be full self pay and would like the option of out of state private but don’t know if I can afford it. Should I spend some of the 529 money to buy 4 years if GET credits?

The instate flagship University of Washington is a great option and it would be a relief to know at least kids could go there. I am not sure if I should leave that money in stocks instead.

I'll add your other question to the list.

[Jon Luskin]

I put two children through school at full retail due to 25 years of regular savings beforehand. Some of my peers saved little, and their children seemed to qualify for more aid. Can this happen, or is this just a delusion: can more savings decrease awarded aid?

+1 and to er999 question. Essentially are there better ways/areas to save to keep retirement options flexible but also get aid if some part of plan fails?
For ex: save in mega back door roth for college before 529 since it is considered as retirement money?

Noted!

Thank you,
Jon

[Jon Luskin]

I know one individual who is banking big time on her parents paying for her kids' college educations. I wouldn't bet that way; but, some do.

Agreed. I like to plan for that "just in case." And – for my comfort level, there's too much up in the air to rely on that approach alone.

[Jon Luskin]

Hi Jon,

Question: To what extent should a family count on grants/merit to defray the cost of attending a school? There is only so much money available across a seemingly greater number of applicants. Is there a reliable source that can be used prior to applying to any particular school that provides a guide as to amounts tied to a certain GPA or ACT/SAT score? It’s such a black box as how these are determined.

In a similar vein, if an applicant is a high performing individual but their parents have assets and/or income, are the assets/income considered a “negating factor” in the award of merit aid?

How much should a family target for saving to pay for the cost of college? It seems colleges are continuing a path of above inflation increases while the returns in savings vehicles and income growth have faltered in past years. How much is “enough”?

Thank you.

Great questions!

They're going on the list.

[986racer]

This is something that may work well for a Bogleheads audience as it requires a relatively high income for it to be of use...

This isn't a question but more of an opportunity for her to describe how to take advantage of a quirk in the tax laws. If you want to phrase it as a question it would be "how can high income families still benefit from AOTC and LLC?"

The AOTC normally starts phasing out at 160K for MFJ and is completely phased out at 180K. Most people see that they are no longer eligible for the tax credit at that point and then stop there. However... the rules around the AOTC (and also LLC) say that if you don't claim your child as a dependent, then the child can claim the AOTC. So, as a family unit the AOTC can still be used even though the parent is no longer eligible.

Note though that the child will likely not be eligible for the refundable portion of the AOTC, so that means that the child will need to have a tax liability of at least $2500 in order to take advantage of the whole AOTC benefit. I've found the easiest way to do that is transfer stock that has appreciated by about 100% to the child. The child then sells that stock (and being a child who is still in college, will be subject to "kiddie tax") and the selling of the stock will generate unearned income and tax liability. If the amount gifted and the amount of gains are chosen correctly, then the transaction should be tax free. For those who are squeamish about gifting stock to their teenager, in many states an UTMA account may work well.

Here are the amounts for MFJ (gift from the married couple can be up to 17K from each parent, so 34K total)

Code: Select all

LTCG Marginal Rate          Amount of Gains to Gift           Tax benefit for family
15%                          18966.67                                   2845
20%                          14800                                      2960
23.8% (includes NIIT)        14800                                      3522.4

This also works with LLC but the numbers above would be smaller. Also, something to keep in mind is that those who have high school students taking dual enrollment courses (i.e., they get both high school credit and college credit) can use this strategy to transfer gains to the student and have them sell. Putting those gains into the UTMA account then provides a nice way to start building up the college fund.

I've found this to be an excellent way of supplementing a 529 and still providing flexibility for those who are concerned about overfunding the 529.

[Jon Luskin]

Today @ 12 PM Pacific / 3 PM Eastern:

Ann Garcia answers your questions about how to pay for college - live on Twitter.

Join the conversation to ask Ann your question.

Use the link

https://buff.ly/3YPcz2J

[Jon Luskin]

We go live at the top of the hour!

Ann Garcia answers your questions about how to pay for college - live on Twitter.

Join the conversation to ask Ann your question.

Use the link

https://buff.ly/3YPcz2J

[Jon Luskin]

We go live at the top of the hour!

Ann Garcia answers your questions about how to pay for college - live on Twitter.

Join the conversation to ask Ann your question.

Use the link

https://buff.ly/3YPcz2J

We are live now!

Ann Garcia answers your questions about how to pay for college - live on Twitter.

Join the conversation to ask Ann your question.

Use the link

https://buff.ly/3YPcz2J

[ray.james]

Hi Jon, Thank you for the podcast and covering all the questions. Ann was great covering them in depth!
Podcast/ live has been great and very informational! Enlightened on some of the things I haven't considered/unknown to me even after dwelling on bogleheads a lot!