Cost of college and 529

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markcoop
Posts: 871
Joined: Fri Mar 02, 2007 8:36 am

Re: Cost of college and 529

Post by markcoop » Sun Feb 10, 2019 11:07 am

bryansmile wrote:
Sun Feb 10, 2019 10:58 am
markcoop wrote:
Sun Feb 10, 2019 10:45 am
marcopolo wrote:
Sun Feb 10, 2019 10:26 am
The taxable will count just as much in the finaid calculations as a 529.
Although this is generally true, there are some strategies where money in a 529 will count less than taxable. For example, depending on who is the owner of the 529 could determine how it affects financial aid. If you have 2 kids, by taking some 529 money and having it in a 529 owned by the younger child, that money will not affect the financial aid of the older child. Of course, there may be some other considerations in making the child the owner. So I would not recommending making the child the owner till just before the older child starts college and you have as clear a picture of college costs as you can.
Quoted from savingforcollege.com:
"If a 529 college savings plan is owned by a dependent student or by a dependent student's custodial parent, it is reported as a parent asset on the FAFSA.....
If a 529 plan is owned by an independent student, it is reported as a student asset on the FAFSA."

A 529 owned by a younger child is still parents' asset, unless the younger child is independent (he's married, working to fully support himself, independent determined by the court, etc)
If a child is the owner of the 529 account, then the question answered in your quote is whether to report it as a parent asset or a child asset for that child's financial aid forms. It is not answering the question of whether it is considered a parent asset of another child's 529 owned account. It is not really a parent asset, it is just considered a parent asset for financial aid purposes. There is no place on the FAFSA or CSS Profile that asks for other children owned 529 accounts.
Mark

bryansmile
Posts: 118
Joined: Wed Feb 12, 2014 10:14 am

Re: Cost of college and 529

Post by bryansmile » Sun Feb 10, 2019 11:19 am

markcoop wrote:
Sun Feb 10, 2019 11:07 am
bryansmile wrote:
Sun Feb 10, 2019 10:58 am
markcoop wrote:
Sun Feb 10, 2019 10:45 am
marcopolo wrote:
Sun Feb 10, 2019 10:26 am
The taxable will count just as much in the finaid calculations as a 529.
Although this is generally true, there are some strategies where money in a 529 will count less than taxable. For example, depending on who is the owner of the 529 could determine how it affects financial aid. If you have 2 kids, by taking some 529 money and having it in a 529 owned by the younger child, that money will not affect the financial aid of the older child. Of course, there may be some other considerations in making the child the owner. So I would not recommending making the child the owner till just before the older child starts college and you have as clear a picture of college costs as you can.
Quoted from savingforcollege.com:
"If a 529 college savings plan is owned by a dependent student or by a dependent student's custodial parent, it is reported as a parent asset on the FAFSA.....
If a 529 plan is owned by an independent student, it is reported as a student asset on the FAFSA."

A 529 owned by a younger child is still parents' asset, unless the younger child is independent (he's married, working to fully support himself, independent determined by the court, etc)
If a child is the owner of the 529 account, then the question answered in your quote is whether to report it as a parent asset or a child asset for that child's financial aid forms. It is not answering the question of whether it is considered a parent asset of another child's 529 owned account. It is not really a parent asset, it is just considered a parent asset for financial aid purposes. There is no place on the FAFSA or CSS Profile that asks for other children owned 529 accounts.
If child #2 is not independent, the 529 is considered your asset (it doesn't matter if it's "owned" by child #2), and you have to report it on FAFSA or CSS Profile for child #1's college application, this is the rule.

986racer
Posts: 81
Joined: Thu Aug 11, 2016 10:09 am

Re: Cost of college and 529

Post by 986racer » Sun Feb 10, 2019 12:15 pm

FYI, there is also a good article about 529 and who benefits most (spoiler alert - it's the super rich who can afford to superfund the account at age 0) at Brookings.edu

Here has been my plan. FWIW, I got a late start because I was suffering from the following illusions (or delusions)
  • College was not that expensive (I still had memories of elite schools costing an all-in price of 20K per year). I also thought that non-elite colleges charge less than the elite ones.
  • The prices shown are sticker prices (and similar to new car pricing in that nobody pays the sticker price)
  • That financial aid was available for everyone. (I got tons of financial aid, but my family was extremely poor)
About 7 years ago, I finally did some research and learned the following
  • All-in cost at most private schools runs about 65K-70K (7 years ago, now it is closer to 70-75k). Out of state publics will run 50K-60K. My in-state public schools are about 30K (these are all per-year costs)
  • If you look up the Common Data Set (google it - if you don't know about this report, it is a treasure trove of information) for your preferred schools, you'll find that in many cases (I'd say majority), students pay full sticker price
  • Financial aid is complicated. Most elite schools give need based aid only and I knew that I wasn't going to get that. As you get into schools with lower endowments, most non-loan aid disappears and is replaced by loans (usually with terrible interest rates)
After learning that failing to plan was not actually a plan, I decided to get serious about saving for college. With 3 children (closely spaced together - I'll have all 3 in college for 1 year), I realized that combined college costs could range from a total low of 225K - 1MM
  • 225K : 2 years of community college (about 6K each year) plus 2 years of in-state public (about 30K each year). Roughly 72K per child plus inflation gets to about 225k total
  • 1MM: 4 years of elite private school (currently about 75K per year). Roughly 300K per child plus inflation gets to about 1MM total.
As many have pointed out, there are many ways to save for college but I was determined not to raid my IRA account to pay for college. While you may think money is fungible, that is extremely misleading. Sure, I could pull from a IRA account, but then how do I get money back in there? There are limits on what can be contributed in a given year. The IRA money is meant for FI (or retirement) and raiding that account for a non-FI purpose is not going to happen.

So... I decided to do two things...
  1. Put money into 529 plans. As people have noted, there are real risks of overfunding accounts and being in a worse financial situation due to using a 529. With 3 children and the cheapest cost being at 225K and the more likely cost being near 600K, overfunding seemed like an unlikely problem. Roughly 15K per year per child.
  2. (I know I'm going to get flak for this - I was stupid) Put money into a cash value life insurance with lots of PUA. The idea was that this would be similar to a fixed income investment. 30K per year
So, roughly 75K per year being saved (plus gains on the investments) has gotten me to about 500K saved for college funding so far. I haven't contributed yet this year, which is why it isn't higher...

However, since I started, I've learned another way to provide money for college. I have stock that I bought in 2000 that has roughly tripled that is now worth about 200K and has gains of about 125K. My plan is to gift about 25K of this stock each year to each child who is college (obviously, I can only do this 8 times) and then have them sell it and pay for part of the tuition. This will allow them to take the AOTC credit and that credit will almost exactly offset the capital gains kiddie tax that they would have to pay on the stock sell. Then, rather than replenish the 529, I will replenish my stock account at a higher basis.

Using the AOTC strategy, it now brings my funds available for college up to 700K with only 300K of that being in 529 plans.

With the age of my children and the investment choice in the 529 plan (age targeted funds), I've decided that putting more into the 529 directly would only increase the risk of overfunding with very little chance of gain for that risk. As such, I'm moving away from putting more into the 529.

marcopolo
Posts: 1612
Joined: Sat Dec 03, 2016 10:22 am

Re: Cost of college and 529

Post by marcopolo » Sun Feb 10, 2019 12:40 pm

986racer wrote:
Sun Feb 10, 2019 12:15 pm
This will allow them to take the AOTC credit and that credit will almost exactly offset the capital gains kiddie tax that they would have to pay on the stock sell. Then, rather than replenish the 529, I will replenish my stock account at a higher basis.
I don't this will work. I believe they would have to be independent to take the AOTC. If they are claimed on your taxes, since you mention kiddie tax, i would assume that was your plan, then they would not be eligible for the AOTC, and with your stated savings, i suspect you would be above the income threshold for AOTC.

From IRS website:

Who cannot claim a credit.
You cannot claim an education credit on a 2018 tax return if any of the following apply.
1. You're claimed as a dependent on another person's tax return, such as your parent's return.
...
Once in a while you get shown the light, in the strangest of places if you look at it right.

986racer
Posts: 81
Joined: Thu Aug 11, 2016 10:09 am

Re: Cost of college and 529

Post by 986racer » Sun Feb 10, 2019 12:45 pm

marcopolo wrote:
Sun Feb 10, 2019 12:40 pm
986racer wrote:
Sun Feb 10, 2019 12:15 pm
This will allow them to take the AOTC credit and that credit will almost exactly offset the capital gains kiddie tax that they would have to pay on the stock sell. Then, rather than replenish the 529, I will replenish my stock account at a higher basis.
I don't this will work. I believe they would have to be independent to take the AOTC. If they are claimed on your taxes, since you mention kiddie tax, i would assume that was your plan, then they would not be eligible for the AOTC, and with your stated savings, i suspect you would be above the income threshold for AOTC.

From IRS website:

Who cannot claim a credit.
You cannot claim an education credit on a 2018 tax return if any of the following apply.
1. You're claimed as a dependent on another person's tax return, such as your parent's return.
...
Yes, they cannot claim it if I claim them as a dependent, which I don't plan to do. Just because I can claim a person as a dependent doesn't mean that I have to. There is different language in other parts of the tax code for "being able to claim the person as a dependent", which would be the case. The main place you see that type of language is to get them out of the kiddie tax altogether.

With the new tax law changes, I don't think there is any reason to claim any college student as a dependent if you are above the AOTC limits.

KlangFool
Posts: 11600
Joined: Sat Oct 11, 2008 12:35 pm

Re: Cost of college and 529

Post by KlangFool » Sun Feb 10, 2019 12:47 pm

bryansmile wrote:
Sun Feb 10, 2019 10:44 am
I mostly agree with Klang, but I've also funded 529 accounts for my kids since I've had extra income and state tax breaks.

Don't forget that when you try to catch up on 401k contributions in your later years (when kids go to college), those contributions get added back to your income by college financial aid office when calculating your EFC. It would have been better if you had made those contributions in your early working years.

Also, you can use ROTH money (5+ years old) for college without penalty, whereas it is not true with using 529 money for retirement.
bryansmile,

That statement is not true. You could use Roth IRA contribution for any reason at any time. The 5+ years old rule only apply to Roth conversion money.

KlangFool

snowman
Posts: 803
Joined: Thu Jan 31, 2013 12:59 pm

Re: Cost of college and 529

Post by snowman » Sun Feb 10, 2019 12:52 pm

marcopolo wrote:
Sun Feb 10, 2019 10:46 am
livesoft wrote:
Sun Feb 10, 2019 10:35 am
marcopolo wrote:
Sun Feb 10, 2019 10:32 am
Yes, if you qualify for it, AOTC should be used first. Not clear if Vulcan would qualify based on income close to $200k
If that is gross income before reductions for health insurance and retirement contributions, then after those it should be no problem.
I would also point out that the scope of expenses allowed for 529 plans is much broader than for AOTC. This can be pretty significant factor, especially in light of expected financial aid.

Let's say a student gets a scholarship to cover tuition, but has to pay room and board (i think not an uncommon scenario). The AOTC would be of little help, as room and board are not qualified expense for AOTC. But, the 529 could be used tax-free to cover room and board because they are qualified for 529s.
Just a correction. You (the parent) can still take AOTC in your example. The appropriate amount (up to $4K) will have to be added to student's income on their tax return, under taxable scholarships. Sometimes it makes sense, sometimes it doesn't, you just need to prepare both tax returns (yours and student's) and play with numbers.

Also, under new tax law, taxable scholarships are now following estate tax tables, not kiddie tax. For some families, that means tax reduction, and for others tax increase. It just depends where you were overall as a family under old tax law. But the option of claiming AOTC even with all qualified education expenses covered by scholarships is still there.

User avatar
Vulcan
Posts: 526
Joined: Sat Apr 05, 2014 11:43 pm

Re: Cost of college and 529

Post by Vulcan » Sun Feb 10, 2019 1:00 pm

986racer wrote:
Sun Feb 10, 2019 12:15 pm
FYI, there is also a good article about 529 and who benefits most (spoiler alert - it's the super rich who can afford to superfund the account at age 0)
No surprise here. To have a good chance of meaningfully benefitting from tax-free gains in the stock market, you need to have large amounts riding for a long period of time. Contributing most of the money a few years prior to college, when you are going to be mostly in bonds anyway, will have marginal benefits at best.
If you look up the Common Data Set (google it - if you don't know about this report, it is a treasure trove of information) for your preferred schools, you'll find that in many cases (I'd say majority), students pay full sticker price
+1 on Common Data Set
Googling it for each of the schools and digging thru raw submissions can be bundersome (they come in slightly different formats and often aren't easy to find), but collegedata.com aggregates them all in an easily searchable form.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

marcopolo
Posts: 1612
Joined: Sat Dec 03, 2016 10:22 am

Re: Cost of college and 529

Post by marcopolo » Sun Feb 10, 2019 1:06 pm

snowman wrote:
Sun Feb 10, 2019 12:52 pm
marcopolo wrote:
Sun Feb 10, 2019 10:46 am
livesoft wrote:
Sun Feb 10, 2019 10:35 am
marcopolo wrote:
Sun Feb 10, 2019 10:32 am
Yes, if you qualify for it, AOTC should be used first. Not clear if Vulcan would qualify based on income close to $200k
If that is gross income before reductions for health insurance and retirement contributions, then after those it should be no problem.
I would also point out that the scope of expenses allowed for 529 plans is much broader than for AOTC. This can be pretty significant factor, especially in light of expected financial aid.

Let's say a student gets a scholarship to cover tuition, but has to pay room and board (i think not an uncommon scenario). The AOTC would be of little help, as room and board are not qualified expense for AOTC. But, the 529 could be used tax-free to cover room and board because they are qualified for 529s.
Just a correction. You (the parent) can still take AOTC in your example. The appropriate amount (up to $4K) will have to be added to student's income on their tax return, under taxable scholarships. Sometimes it makes sense, sometimes it doesn't, you just need to prepare both tax returns (yours and student's) and play with numbers.

Also, under new tax law, taxable scholarships are now following estate tax tables, not kiddie tax. For some families, that means tax reduction, and for others tax increase. It just depends where you were overall as a family under old tax law. But the option of claiming AOTC even with all qualified education expenses covered by scholarships is still there.
Thanks for the correction. I did not realize one could do this. No scholarships here, so did not investigate to this level of detail.
Once in a while you get shown the light, in the strangest of places if you look at it right.

miamivice
Posts: 1065
Joined: Tue Jun 11, 2013 11:46 am

Re: Cost of college and 529

Post by miamivice » Sun Feb 10, 2019 1:16 pm

986racer wrote:
Sun Feb 10, 2019 12:15 pm
Here has been my plan. FWIW, I got a late start because I was suffering from the following illusions (or delusions)
  • College was not that expensive (I still had memories of elite schools costing an all-in price of 20K per year). I also thought that non-elite colleges charge less than the elite ones.
  • The prices shown are sticker prices (and similar to new car pricing in that nobody pays the sticker price)
  • That financial aid was available for everyone. (I got tons of financial aid, but my family was extremely poor)
About 7 years ago, I finally did some research and learned the following
  • All-in cost at most private schools runs about 65K-70K (7 years ago, now it is closer to 70-75k). Out of state publics will run 50K-60K. My in-state public schools are about 30K (these are all per-year costs)
  • If you look up the Common Data Set (google it - if you don't know about this report, it is a treasure trove of information) for your preferred schools, you'll find that in many cases (I'd say majority), students pay full sticker price
  • Financial aid is complicated. Most elite schools give need based aid only and I knew that I wasn't going to get that. As you get into schools with lower endowments, most non-loan aid disappears and is replaced by loans (usually with terrible interest rates)
This is a very interesting observation.

Minty
Posts: 200
Joined: Sun Mar 24, 2013 3:19 pm
Location: NorCal

Re: Cost of college and 529

Post by Minty » Sun Feb 10, 2019 1:24 pm

986racer wrote:
Sun Feb 10, 2019 12:45 pm
marcopolo wrote:
Sun Feb 10, 2019 12:40 pm
986racer wrote:
Sun Feb 10, 2019 12:15 pm
This will allow them to take the AOTC credit and that credit will almost exactly offset the capital gains kiddie tax that they would have to pay on the stock sell. Then, rather than replenish the 529, I will replenish my stock account at a higher basis.
I don't this will work. I believe they would have to be independent to take the AOTC. If they are claimed on your taxes, since you mention kiddie tax, i would assume that was your plan, then they would not be eligible for the AOTC, and with your stated savings, i suspect you would be above the income threshold for AOTC.

From IRS website:

Who cannot claim a credit.
You cannot claim an education credit on a 2018 tax return if any of the following apply.
1. You're claimed as a dependent on another person's tax return, such as your parent's return.
...
Yes, they cannot claim it if I claim them as a dependent, which I don't plan to do. Just because I can claim a person as a dependent doesn't mean that I have to. There is different language in other parts of the tax code for "being able to claim the person as a dependent", which would be the case. The main place you see that type of language is to get them out of the kiddie tax altogether.

With the new tax law changes, I don't think there is any reason to claim any college student as a dependent if you are above the AOTC limits.
I wonder if any tax nerds could weigh in on the question of electing not to claim a dependent that you could. I ask not because I doubt 986racer; I had already thought of this and hoped to do this, but thought that there must be a catch somewhere. The AOTC is partially refundable, so this could be a move even without a gift.
Core Four with nominal bonds and TIPS.

marcopolo
Posts: 1612
Joined: Sat Dec 03, 2016 10:22 am

Re: Cost of college and 529

Post by marcopolo » Sun Feb 10, 2019 1:46 pm

Minty wrote:
Sun Feb 10, 2019 1:24 pm
986racer wrote:
Sun Feb 10, 2019 12:45 pm
marcopolo wrote:
Sun Feb 10, 2019 12:40 pm
986racer wrote:
Sun Feb 10, 2019 12:15 pm
This will allow them to take the AOTC credit and that credit will almost exactly offset the capital gains kiddie tax that they would have to pay on the stock sell. Then, rather than replenish the 529, I will replenish my stock account at a higher basis.
I don't this will work. I believe they would have to be independent to take the AOTC. If they are claimed on your taxes, since you mention kiddie tax, i would assume that was your plan, then they would not be eligible for the AOTC, and with your stated savings, i suspect you would be above the income threshold for AOTC.

From IRS website:

Who cannot claim a credit.
You cannot claim an education credit on a 2018 tax return if any of the following apply.
1. You're claimed as a dependent on another person's tax return, such as your parent's return.
...
Yes, they cannot claim it if I claim them as a dependent, which I don't plan to do. Just because I can claim a person as a dependent doesn't mean that I have to. There is different language in other parts of the tax code for "being able to claim the person as a dependent", which would be the case. The main place you see that type of language is to get them out of the kiddie tax altogether.

With the new tax law changes, I don't think there is any reason to claim any college student as a dependent if you are above the AOTC limits.
I wonder if any tax nerds could weigh in on the question of electing not to claim a dependent that you could. I ask not because I doubt 986racer; I had already thought of this and hoped to do this, but thought that there must be a catch somewhere. The AOTC is partially refundable, so this could be a move even without a gift.

Interesting ideas.

I am no tax expert. I was curious how this works, so...

I just tried the IRS interactive application for education tax credits: https://www.irs.gov/help/ita/am-i-eligi ... ion-credit


It appears that there are separate criteria (and corresponding questions) regarding if student is claimed on another tax return, and whether student paid for 1/2 of support from earned income (eligible to be claimed by parent.

The results were that AOTC can be taken as long as the parents don't actually claim the student on their return, even if they are eligible to.
BUT, it only the non-refundable part that can be used in this case (i.e. offset taxes due). It appears that If the student did not provide 1/2 their support from their own earned income, then they can NOT get any refundable portion of the tax credit.

Once again, I will mention our tax code is way too complicated, IMHO :beer
Once in a while you get shown the light, in the strangest of places if you look at it right.

markcoop
Posts: 871
Joined: Fri Mar 02, 2007 8:36 am

Re: Cost of college and 529

Post by markcoop » Sun Feb 10, 2019 2:14 pm

bryansmile wrote:
Sun Feb 10, 2019 11:19 am
markcoop wrote:
Sun Feb 10, 2019 11:07 am
bryansmile wrote:
Sun Feb 10, 2019 10:58 am
markcoop wrote:
Sun Feb 10, 2019 10:45 am
marcopolo wrote:
Sun Feb 10, 2019 10:26 am
The taxable will count just as much in the finaid calculations as a 529.
Although this is generally true, there are some strategies where money in a 529 will count less than taxable. For example, depending on who is the owner of the 529 could determine how it affects financial aid. If you have 2 kids, by taking some 529 money and having it in a 529 owned by the younger child, that money will not affect the financial aid of the older child. Of course, there may be some other considerations in making the child the owner. So I would not recommending making the child the owner till just before the older child starts college and you have as clear a picture of college costs as you can.
Quoted from savingforcollege.com:
"If a 529 college savings plan is owned by a dependent student or by a dependent student's custodial parent, it is reported as a parent asset on the FAFSA.....
If a 529 plan is owned by an independent student, it is reported as a student asset on the FAFSA."

A 529 owned by a younger child is still parents' asset, unless the younger child is independent (he's married, working to fully support himself, independent determined by the court, etc)
If a child is the owner of the 529 account, then the question answered in your quote is whether to report it as a parent asset or a child asset for that child's financial aid forms. It is not answering the question of whether it is considered a parent asset of another child's 529 owned account. It is not really a parent asset, it is just considered a parent asset for financial aid purposes. There is no place on the FAFSA or CSS Profile that asks for other children owned 529 accounts.
If child #2 is not independent, the 529 is considered your asset (it doesn't matter if it's "owned" by child #2), and you have to report it on FAFSA or CSS Profile for child #1's college application, this is the rule.
With all due respect, that is not my understanding of the rule. Please provide a link with the actual rule.

I took a look at the FAFSA question and here is the wording used to explain the question for parent assets and education savings accounts:

"Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.

Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets."

Notice how it says the dependent student (singular). I was first alerted to this point on the collegeconfidential financial aid web board. I then looked it up and my reading of the explanation seems clear to me.

Now, this does not come without some risks. First, the child can do whatever they want with the money when they reach 18. This was a very small concern for me. In fact, I see no reason to even mention this to the child. Second, on the CSS Profile (not the FAFSA), the younger child who owns the 529 may need to report it as a child asset (assessed more than a parent asset). From my understanding, different CSS Profile schools treat it differently. I think the question on the Profile is to add it to student assets but some schools, if you bring it to their attention, will reclassify it as a parent asset.

Again, if you have an understanding of the rule different than my interpretation, I am all ears.
Mark

986racer
Posts: 81
Joined: Thu Aug 11, 2016 10:09 am

Re: Cost of college and 529

Post by 986racer » Sun Feb 10, 2019 2:52 pm

marcopolo wrote:
Sun Feb 10, 2019 1:46 pm
I am no tax expert. I was curious how this works, so...

I just tried the IRS interactive application for education tax credits: https://www.irs.gov/help/ita/am-i-eligi ... ion-credit


It appears that there are separate criteria (and corresponding questions) regarding if student is claimed on another tax return, and whether student paid for 1/2 of support from earned income (eligible to be claimed by parent.

The results were that AOTC can be taken as long as the parents don't actually claim the student on their return, even if they are eligible to.
BUT, it only the non-refundable part that can be used in this case (i.e. offset taxes due). It appears that If the student did not provide 1/2 their support from their own earned income, then they can NOT get any refundable portion of the tax credit.
That is my understanding as well (BTW, I got all of this info from some other thread on bogleheads - just trying to pay it forward)
  • To get the AOTC non-refundable part, the student just has to not actually be claimed as a dependent on someone else's return.
  • To get the refundable part and to also not be subject to kiddie tax, the student also has to not be able to be claimed as a dependent on another's return. If the student is under age 24, the rules are pretty strict and the prevailing opinion was that trying to say that a student is independent would likely fail in an audit. Some posters seemed more cavalier about whether or not they would be successful in that claim.
BTW, big thanks to bogleheads as the tax savings on the AOTC tip is far more than what I gained from the tax savings of the 529. :sharebeer

bryansmile
Posts: 118
Joined: Wed Feb 12, 2014 10:14 am

Re: Cost of college and 529

Post by bryansmile » Sun Feb 10, 2019 5:51 pm

markcoop wrote:
Sun Feb 10, 2019 2:14 pm
bryansmile wrote:
Sun Feb 10, 2019 11:19 am
markcoop wrote:
Sun Feb 10, 2019 11:07 am
bryansmile wrote:
Sun Feb 10, 2019 10:58 am
markcoop wrote:
Sun Feb 10, 2019 10:45 am


Although this is generally true, there are some strategies where money in a 529 will count less than taxable. For example, depending on who is the owner of the 529 could determine how it affects financial aid. If you have 2 kids, by taking some 529 money and having it in a 529 owned by the younger child, that money will not affect the financial aid of the older child. Of course, there may be some other considerations in making the child the owner. So I would not recommending making the child the owner till just before the older child starts college and you have as clear a picture of college costs as you can.
Quoted from savingforcollege.com:
"If a 529 college savings plan is owned by a dependent student or by a dependent student's custodial parent, it is reported as a parent asset on the FAFSA.....
If a 529 plan is owned by an independent student, it is reported as a student asset on the FAFSA."

A 529 owned by a younger child is still parents' asset, unless the younger child is independent (he's married, working to fully support himself, independent determined by the court, etc)
If a child is the owner of the 529 account, then the question answered in your quote is whether to report it as a parent asset or a child asset for that child's financial aid forms. It is not answering the question of whether it is considered a parent asset of another child's 529 owned account. It is not really a parent asset, it is just considered a parent asset for financial aid purposes. There is no place on the FAFSA or CSS Profile that asks for other children owned 529 accounts.
If child #2 is not independent, the 529 is considered your asset (it doesn't matter if it's "owned" by child #2), and you have to report it on FAFSA or CSS Profile for child #1's college application, this is the rule.
With all due respect, that is not my understanding of the rule. Please provide a link with the actual rule.

I took a look at the FAFSA question and here is the wording used to explain the question for parent assets and education savings accounts:

"Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.

Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets."

Notice how it says the dependent student (singular). I was first alerted to this point on the collegeconfidential financial aid web board. I then looked it up and my reading of the explanation seems clear to me.

Now, this does not come without some risks. First, the child can do whatever they want with the money when they reach 18. This was a very small concern for me. In fact, I see no reason to even mention this to the child. Second, on the CSS Profile (not the FAFSA), the younger child who owns the 529 may need to report it as a child asset (assessed more than a parent asset). From my understanding, different CSS Profile schools treat it differently. I think the question on the Profile is to add it to student assets but some schools, if you bring it to their attention, will reclassify it as a parent asset.

Again, if you have an understanding of the rule different than my interpretation, I am all ears.
https://blog.ed.gov/2017/09/how-to-fill ... n-college/
scroll down to about 3/4 of the page and read under the heading "I have education savings accounts (529 plan, etc.) for my children. How do I report those on the FAFSA form?", notice how the total of 3 accounts gets reported.
My child applied for college last year and it is the answer I got from all sources, college FA officers, financial advisors giving FA seminar at the high school, etc.

User avatar
Michael Patrick
Posts: 26
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Location: Madison, WI

Re: Cost of college and 529

Post by Michael Patrick » Sun Feb 10, 2019 6:12 pm

A half hour of Google and I still haven't found the answer to this question...

Will a 529A ABLE account for a sibling count as an asset on the FAFSA? I'm guessing no, because the sibling is listed as the owner of the ABLE Account.

My younger daughter has autism, and we have a small amount (less than $10k) in and ABLE account for her.

markcoop
Posts: 871
Joined: Fri Mar 02, 2007 8:36 am

Re: Cost of college and 529

Post by markcoop » Sun Feb 10, 2019 8:34 pm

bryansmile wrote:
Sun Feb 10, 2019 5:51 pm
markcoop wrote:
Sun Feb 10, 2019 2:14 pm
bryansmile wrote:
Sun Feb 10, 2019 11:19 am
markcoop wrote:
Sun Feb 10, 2019 11:07 am
bryansmile wrote:
Sun Feb 10, 2019 10:58 am


Quoted from savingforcollege.com:
"If a 529 college savings plan is owned by a dependent student or by a dependent student's custodial parent, it is reported as a parent asset on the FAFSA.....
If a 529 plan is owned by an independent student, it is reported as a student asset on the FAFSA."

A 529 owned by a younger child is still parents' asset, unless the younger child is independent (he's married, working to fully support himself, independent determined by the court, etc)
If a child is the owner of the 529 account, then the question answered in your quote is whether to report it as a parent asset or a child asset for that child's financial aid forms. It is not answering the question of whether it is considered a parent asset of another child's 529 owned account. It is not really a parent asset, it is just considered a parent asset for financial aid purposes. There is no place on the FAFSA or CSS Profile that asks for other children owned 529 accounts.
If child #2 is not independent, the 529 is considered your asset (it doesn't matter if it's "owned" by child #2), and you have to report it on FAFSA or CSS Profile for child #1's college application, this is the rule.
With all due respect, that is not my understanding of the rule. Please provide a link with the actual rule.

I took a look at the FAFSA question and here is the wording used to explain the question for parent assets and education savings accounts:

"Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.

Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets."

Notice how it says the dependent student (singular). I was first alerted to this point on the collegeconfidential financial aid web board. I then looked it up and my reading of the explanation seems clear to me.

Now, this does not come without some risks. First, the child can do whatever they want with the money when they reach 18. This was a very small concern for me. In fact, I see no reason to even mention this to the child. Second, on the CSS Profile (not the FAFSA), the younger child who owns the 529 may need to report it as a child asset (assessed more than a parent asset). From my understanding, different CSS Profile schools treat it differently. I think the question on the Profile is to add it to student assets but some schools, if you bring it to their attention, will reclassify it as a parent asset.

Again, if you have an understanding of the rule different than my interpretation, I am all ears.
https://blog.ed.gov/2017/09/how-to-fill ... n-college/
scroll down to about 3/4 of the page and read under the heading "I have education savings accounts (529 plan, etc.) for my children. How do I report those on the FAFSA form?", notice how the total of 3 accounts gets reported.
My child applied for college last year and it is the answer I got from all sources, college FA officers, financial advisors giving FA seminar at the high school, etc.
So here's the text from your link:

"I have education savings accounts (529 plan, etc.) for my children. How do I report those on the FAFSA form?
You report the value of all education savings accounts owned by you, your child, or any other dependent children in your household as a parent investment. (Read “What is the net worth of your parents’ investments?” for more information.) If you have education savings accounts for multiple children, you must report the combined current value of those accounts, even if some of those children are not in college yet or are not completing a FAFSA form.

Example: Child 1 and 2 are filling out the FAFSA. Child 3 is in 8th grade. They each have 529 college savings plan accounts in their names.

Child 1 account balance: $20,000
Child 2 account balance: $13,000
Child 3 account balance: $8,000
You would add $41,000 to any other parent investments you’re required to report and input it when asked, “What is the net worth of your parents’ investments?” on each of your children’s FAFSAs."

Not exactly sure what this website is. It says it's the official blog of the U.S. Dept of Education. I honestly don't know what that means. Is this just one person's opinion or is it more than that? The link at this website is to the instructions that has the same line again:

"Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets."

The fact that the question does not seem to differentiate between an owner and a beneficiary makes me uncomfortable. In fact, that whole blog does not even mention the beneficiary of the account at all. This seems to me like very high level instructions.

I'm curious, in your case do your children each own their 529? It is typically not common unless you converted it from a UGMA type of account.

My gut has always been to follow the actual instructions. Do you think the instructions are vague in what they are asking? I can tell you there are some pretty smart people at collegeconfidential.com that think otherwise (however, I do understand that that website is an anonymous source on the web).
Mark

markcoop
Posts: 871
Joined: Fri Mar 02, 2007 8:36 am

Re: Cost of college and 529

Post by markcoop » Sun Feb 10, 2019 8:47 pm

Here is a link to one of a few threads on collegeconfidential talking about this subject (child-owned 529 accounts and siblings):
https://talk.collegeconfidential.com/fi ... child.html

Edit to add another link:
Here's one from savingsforcollge.com:
https://forum.savingforcollege.com/t/do ... -2/11880/4
Mark

bryansmile
Posts: 118
Joined: Wed Feb 12, 2014 10:14 am

Re: Cost of college and 529

Post by bryansmile » Sun Feb 10, 2019 9:09 pm

markcoop wrote:
Sun Feb 10, 2019 8:34 pm
bryansmile wrote:
Sun Feb 10, 2019 5:51 pm
markcoop wrote:
Sun Feb 10, 2019 2:14 pm
bryansmile wrote:
Sun Feb 10, 2019 11:19 am
markcoop wrote:
Sun Feb 10, 2019 11:07 am


If a child is the owner of the 529 account, then the question answered in your quote is whether to report it as a parent asset or a child asset for that child's financial aid forms. It is not answering the question of whether it is considered a parent asset of another child's 529 owned account. It is not really a parent asset, it is just considered a parent asset for financial aid purposes. There is no place on the FAFSA or CSS Profile that asks for other children owned 529 accounts.
If child #2 is not independent, the 529 is considered your asset (it doesn't matter if it's "owned" by child #2), and you have to report it on FAFSA or CSS Profile for child #1's college application, this is the rule.
With all due respect, that is not my understanding of the rule. Please provide a link with the actual rule.

I took a look at the FAFSA question and here is the wording used to explain the question for parent assets and education savings accounts:

"Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.

Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets."

Notice how it says the dependent student (singular). I was first alerted to this point on the collegeconfidential financial aid web board. I then looked it up and my reading of the explanation seems clear to me.

Now, this does not come without some risks. First, the child can do whatever they want with the money when they reach 18. This was a very small concern for me. In fact, I see no reason to even mention this to the child. Second, on the CSS Profile (not the FAFSA), the younger child who owns the 529 may need to report it as a child asset (assessed more than a parent asset). From my understanding, different CSS Profile schools treat it differently. I think the question on the Profile is to add it to student assets but some schools, if you bring it to their attention, will reclassify it as a parent asset.

Again, if you have an understanding of the rule different than my interpretation, I am all ears.
https://blog.ed.gov/2017/09/how-to-fill ... n-college/
scroll down to about 3/4 of the page and read under the heading "I have education savings accounts (529 plan, etc.) for my children. How do I report those on the FAFSA form?", notice how the total of 3 accounts gets reported.
My child applied for college last year and it is the answer I got from all sources, college FA officers, financial advisors giving FA seminar at the high school, etc.
So here's the text from your link:

"I have education savings accounts (529 plan, etc.) for my children. How do I report those on the FAFSA form?
You report the value of all education savings accounts owned by you, your child, or any other dependent children in your household as a parent investment. (Read “What is the net worth of your parents’ investments?” for more information.) If you have education savings accounts for multiple children, you must report the combined current value of those accounts, even if some of those children are not in college yet or are not completing a FAFSA form.

Example: Child 1 and 2 are filling out the FAFSA. Child 3 is in 8th grade. They each have 529 college savings plan accounts in their names.

Child 1 account balance: $20,000
Child 2 account balance: $13,000
Child 3 account balance: $8,000
You would add $41,000 to any other parent investments you’re required to report and input it when asked, “What is the net worth of your parents’ investments?” on each of your children’s FAFSAs."

Not exactly sure what this website is. It says it's the official blog of the U.S. Dept of Education. I honestly don't know what that means. Is this just one person's opinion or is it more than that? The link at this website is to the instructions that has the same line again:

"Note: Students who must report parental information on this form should report all qualified educational benefits or education savings accounts owned by the parents and / or the dependent student as part of the parental assets."

The fact that the question does not seem to differentiate between an owner and a beneficiary makes me uncomfortable. In fact, that whole blog does not even mention the beneficiary of the account at all. This seems to me like very high level instructions.

I'm curious, in your case do your children each own their 529? It is typically not common unless you converted it from a UGMA type of account.

My gut has always been to follow the actual instructions. Do you think the instructions are vague in what they are asking? I can tell you there are some pretty smart people at collegeconfidential.com that think otherwise (however, I do understand that that website is an anonymous source on the web).
My kids each have their own 529. The answers I got from multiple college FA offices and certified financial advisors are the same. So I would not question it just because some smart people on the web stated otherwise. If you still have doubts, ask a professional, which is what I did.
I wish the answers were different though so my EFC would be lower.

markcoop
Posts: 871
Joined: Fri Mar 02, 2007 8:36 am

Re: Cost of college and 529

Post by markcoop » Sun Feb 10, 2019 9:14 pm

Let me add one more point. Intuitively, I think my understanding makes sense. Let's say you have a senior and freshman in college and they both have 529 plans that they own. Being that they are both 18, they both can take that money and do whatever they want with it. They can buy a car or whatever. Should the senior's 529 affect the freshman's aid even though the freshman or parent can't touch the senior's 529 plan?

In the case where the parent owns multiple 529 plans with different beneficiaries, the parent as the owner can move that money around because he's the owner. In that case it makes sense to count the assets of all parent-owned 529 plans, regardless of the beneficiary or even the intent of the parent.

When you say "each have their own 529 plan", I ask again - does that mean each kid is the owner of the plan or you own multiple 529 plans where each kid is the beneficiary?
Mark

bryansmile
Posts: 118
Joined: Wed Feb 12, 2014 10:14 am

Re: Cost of college and 529

Post by bryansmile » Sun Feb 10, 2019 9:21 pm

markcoop wrote:
Sun Feb 10, 2019 9:14 pm
Let me add one more point. Intuitively, I think my understanding makes sense. Let's say you have a senior and freshman in college and they both have 529 plans that they own. Being that they are both 18, they both can take that money and do whatever they want with it. They can buy a car or whatever. Should the senior's 529 affect the freshman's aid even though the freshman or parent can't touch the senior's 529 plan?

In the case where the parent owns multiple 529 plans with different beneficiaries, the parent as the owner can move that money around because he's the owner. In that case it makes sense to count the assets of all parent-owned 529 plans, regardless of the beneficiary or even the intent of the parent.

When you say "each have their own 529 plan", I ask again - does that mean each kid is the owner of the plan or you own multiple 529 plans where each kid is the beneficiary?
I do not think this is worth debating, the answer has been clearly provided to me by professionals. You are welcome to call up your kids' target colleges' FA offices, state your logic and debate with them.

EddyB
Posts: 633
Joined: Fri May 24, 2013 3:43 pm

Re: Cost of college and 529

Post by EddyB » Sun Feb 10, 2019 9:53 pm

bryansmile wrote:
Sun Feb 10, 2019 9:21 pm
markcoop wrote:
Sun Feb 10, 2019 9:14 pm
Let me add one more point. Intuitively, I think my understanding makes sense. Let's say you have a senior and freshman in college and they both have 529 plans that they own. Being that they are both 18, they both can take that money and do whatever they want with it. They can buy a car or whatever. Should the senior's 529 affect the freshman's aid even though the freshman or parent can't touch the senior's 529 plan?

In the case where the parent owns multiple 529 plans with different beneficiaries, the parent as the owner can move that money around because he's the owner. In that case it makes sense to count the assets of all parent-owned 529 plans, regardless of the beneficiary or even the intent of the parent.

When you say "each have their own 529 plan", I ask again - does that mean each kid is the owner of the plan or you own multiple 529 plans where each kid is the beneficiary?
I do not think this is worth debating, the answer has been clearly provided to me by professionals. You are welcome to call up your kids' target colleges' FA offices, state your logic and debate with them.
The answer was clear, but what was the question? Did you ask how a 529 owned by child #2 in an UTMA account (that is, not owned by the parent) would be treated when child #1 is applying for financial aid? Or did you ask how a 529 owned by the parent for the benefit of child #2 would be treated?

Minty
Posts: 200
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Location: NorCal

Re: Cost of college and 529

Post by Minty » Sun Feb 10, 2019 11:58 pm

Interestingly enough, there is an elaborate law review article relevant to this discussion which concludes "Section 529 Plans are optimal only when capital can be exclusively committed to education funding, which may not be the most desirable savings tactic for a wide swath of American families who need to plan for other financial needs (e.g., retirement and unforeseen medical needs)." F. Philip Manns Jr. & Timothy M. Todd, Higher Education Savings and Planning: Tax and Nontax Considerations, 5 Tex. A&M L. Rev. 343 (2018). Those law profs are as smart as Bogleheads! :happy

The article contends that "If the Section 529 Plan is owned by someone other than the parent or student, its value is not included in the assets of either the parent or child." 20 U.S. Code § 1087vv is the statute governing this issue. I would say from the context that "the student" who is discussed is the one applying for financial aid from a particular institution. The structure of the law as reflected in 20 U.S. Code § 1087nn clearly distinguishes between "the student" whose assets are counted, and other "dependents" of "the parents" whose assets are not included in the financial aid calculation. So without meaning to disparage other views, I vote that the best answer is that a 529 actually owned by anyone other than a custodial parent or the particular student who is filling out a FAFSA is not included as a parental or student asset.
Core Four with nominal bonds and TIPS.

alfaspider
Posts: 1750
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Re: Cost of college and 529

Post by alfaspider » Mon Feb 11, 2019 9:09 am

stoptothink wrote:
Fri Feb 08, 2019 1:53 pm
alfaspider wrote:
Fri Feb 08, 2019 1:04 pm
DrGoogle2017 wrote:
Fri Feb 08, 2019 12:50 pm
alfaspider wrote:
Fri Feb 08, 2019 12:41 pm
stoptothink wrote:
Fri Feb 08, 2019 12:02 pm


Yes, finance seems to pretty much be the outlier.
I wouldn't say it's THE outlier. Consulting and tech are often similar in that they tend to hire straight out of undergrad but only at elite schools. An elite school may also help with certain phd programs, as admissions at such programs are often based on networking- you don't simply mail off an application if you actually want to be admitted- a call from a professor who is known in their field can make all the difference.
My kid got interview with Jane Street, this is from a decent UC school. Even some kids from Harvard didn’t get the interview there. She got 3 day scholarships in NYC one summer with Jane Street and maybe that’s why they were interested in her. She was crazy about NYC and would apply to anything in NYC.
We are talking probabilities here. Can you get into these sorts of places without going to Harvard? Of course. Are your chances higher from Harvard than from a directional state school? Of course. And of course going to Harvard hardly guarantees you will gain entry at a given employer. I'd also point out that Jane Street is a Quant firm and tech-heavy UC schools may play well there.
Question becomes, how much are you willing to pay for that probability?
Absolutely. The risk/benefit calculus is going to require specific analysis to each individual. Desires may be different, costs may be different, as well as the specific options presented.

bryansmile
Posts: 118
Joined: Wed Feb 12, 2014 10:14 am

Re: Cost of college and 529

Post by bryansmile » Mon Feb 11, 2019 9:12 am

EddyB wrote:
Sun Feb 10, 2019 9:53 pm
bryansmile wrote:
Sun Feb 10, 2019 9:21 pm
markcoop wrote:
Sun Feb 10, 2019 9:14 pm
Let me add one more point. Intuitively, I think my understanding makes sense. Let's say you have a senior and freshman in college and they both have 529 plans that they own. Being that they are both 18, they both can take that money and do whatever they want with it. They can buy a car or whatever. Should the senior's 529 affect the freshman's aid even though the freshman or parent can't touch the senior's 529 plan?

In the case where the parent owns multiple 529 plans with different beneficiaries, the parent as the owner can move that money around because he's the owner. In that case it makes sense to count the assets of all parent-owned 529 plans, regardless of the beneficiary or even the intent of the parent.

When you say "each have their own 529 plan", I ask again - does that mean each kid is the owner of the plan or you own multiple 529 plans where each kid is the beneficiary?
I do not think this is worth debating, the answer has been clearly provided to me by professionals. You are welcome to call up your kids' target colleges' FA offices, state your logic and debate with them.
The answer was clear, but what was the question? Did you ask how a 529 owned by child #2 in an UTMA account (that is, not owned by the parent) would be treated when child #1 is applying for financial aid? Or did you ask how a 529 owned by the parent for the benefit of child #2 would be treated?
UTMA is the student's asset, not the parent's, everyone knows that. There should be no question on whether to report it on which child's FAFSA.

markcoop
Posts: 871
Joined: Fri Mar 02, 2007 8:36 am

Re: Cost of college and 529

Post by markcoop » Mon Feb 11, 2019 9:39 am

bryansmile wrote:
Mon Feb 11, 2019 9:12 am
EddyB wrote:
Sun Feb 10, 2019 9:53 pm
bryansmile wrote:
Sun Feb 10, 2019 9:21 pm
markcoop wrote:
Sun Feb 10, 2019 9:14 pm
Let me add one more point. Intuitively, I think my understanding makes sense. Let's say you have a senior and freshman in college and they both have 529 plans that they own. Being that they are both 18, they both can take that money and do whatever they want with it. They can buy a car or whatever. Should the senior's 529 affect the freshman's aid even though the freshman or parent can't touch the senior's 529 plan?

In the case where the parent owns multiple 529 plans with different beneficiaries, the parent as the owner can move that money around because he's the owner. In that case it makes sense to count the assets of all parent-owned 529 plans, regardless of the beneficiary or even the intent of the parent.

When you say "each have their own 529 plan", I ask again - does that mean each kid is the owner of the plan or you own multiple 529 plans where each kid is the beneficiary?
I do not think this is worth debating, the answer has been clearly provided to me by professionals. You are welcome to call up your kids' target colleges' FA offices, state your logic and debate with them.
The answer was clear, but what was the question? Did you ask how a 529 owned by child #2 in an UTMA account (that is, not owned by the parent) would be treated when child #1 is applying for financial aid? Or did you ask how a 529 owned by the parent for the benefit of child #2 would be treated?
UTMA is the student's asset, not the parent's, everyone knows that. There should be no question on whether to report it on which child's FAFSA.
You have Minty's answer above that seems pretty convincing. Let me rephrase EddyB's question a bit:

Did you ask how a 529 owned by child #2 would be treated when child #1 is applying for financial aid? Or did you ask how a 529 owned by the parent where child #2 is listed as the beneficiary is treated when child #1 is applying for financial aid? Or, maybe even more likely, was the question more generic where you said you had multiple 529 plans for multiple kids and how would I report them when applying for financial aid?

The first question I mention is not the most common and therefore would not be answered unless you were very specific as to who is listed as the owner on the 529 account.
Mark

EddyB
Posts: 633
Joined: Fri May 24, 2013 3:43 pm

Re: Cost of college and 529

Post by EddyB » Mon Feb 11, 2019 11:31 am

bryansmile wrote:
Mon Feb 11, 2019 9:12 am
EddyB wrote:
Sun Feb 10, 2019 9:53 pm
bryansmile wrote:
Sun Feb 10, 2019 9:21 pm
markcoop wrote:
Sun Feb 10, 2019 9:14 pm
Let me add one more point. Intuitively, I think my understanding makes sense. Let's say you have a senior and freshman in college and they both have 529 plans that they own. Being that they are both 18, they both can take that money and do whatever they want with it. They can buy a car or whatever. Should the senior's 529 affect the freshman's aid even though the freshman or parent can't touch the senior's 529 plan?

In the case where the parent owns multiple 529 plans with different beneficiaries, the parent as the owner can move that money around because he's the owner. In that case it makes sense to count the assets of all parent-owned 529 plans, regardless of the beneficiary or even the intent of the parent.

When you say "each have their own 529 plan", I ask again - does that mean each kid is the owner of the plan or you own multiple 529 plans where each kid is the beneficiary?
I do not think this is worth debating, the answer has been clearly provided to me by professionals. You are welcome to call up your kids' target colleges' FA offices, state your logic and debate with them.
The answer was clear, but what was the question? Did you ask how a 529 owned by child #2 in an UTMA account (that is, not owned by the parent) would be treated when child #1 is applying for financial aid? Or did you ask how a 529 owned by the parent for the benefit of child #2 would be treated?
UTMA is the student's asset, not the parent's, everyone knows that. There should be no question on whether to report it on which child's FAFSA.
So when you wrote above that each of your kids “has their own 529,” and that it worked against your EFC, what did you mean? In typical usage, I’d expect most people take “have their own 529” to mean you have separate 529 for each of them as beneficiary.

TXGator
Posts: 20
Joined: Mon Sep 26, 2016 1:38 pm

Re: Cost of college and 529

Post by TXGator » Tue Feb 12, 2019 10:35 am

Now that a year has passed - has anyone used the 529 for private K-12? To confirm was it only 10,000 for the year and did the school issue a 1098? We're starting private Kindergarten this August and rethinking our 529 strategy.

KingRiggs
Posts: 82
Joined: Wed Dec 12, 2018 12:19 pm
Location: Indiana

Re: Cost of college and 529

Post by KingRiggs » Tue Feb 12, 2019 10:43 am

TXGator wrote:
Tue Feb 12, 2019 10:35 am
Now that a year has passed - has anyone used the 529 for private K-12? To confirm was it only 10,000 for the year and did the school issue a 1098? We're starting private Kindergarten this August and rethinking our 529 strategy.
I used it to pay for son’s senior year of HS. I paid the bills, then reimbursed myself from the 529, So school did not send a form.

Tuition was about $1300/month, but accountant feels that the $10k/year cap is calendar year, not school year.

Hope that helps.

TXGator
Posts: 20
Joined: Mon Sep 26, 2016 1:38 pm

Re: Cost of college and 529

Post by TXGator » Tue Feb 12, 2019 11:38 am

Very helpful; did you also make contributions as well for upcoming college last year as well?

User avatar
Ketawa
Posts: 2009
Joined: Mon Aug 22, 2011 1:11 am
Location: DC

Re: Cost of college and 529

Post by Ketawa » Tue Feb 12, 2019 4:35 pm

This thread was fun. I read the whole thing.

After considering all the arguments, I believe that for most people, maxing retirement accounts and throwing extra cash at a mortgage is likely to be better than putting extra funds towards a 529 or taxable savings.

When it comes time for college, cash flow expenses. The mortgage should be pretty close to paid off after 15+ years of extra payments towards it instead of a 529. If you still have a mortgage and would have to reduce retirement savings to cash flow expenses, then consider a no-cost refinance to an ARM with 30 years of amortization. Not a big deal if you know you're going to pay it off when college is done. Then reduce retirement savings next. If college will be too expensive to cash flow after eliminating a mortgage or refinancing to a longer term, and stopping retirement savings, then it might make sense to use a 529.

Above guidelines don't apply to people who do not prepay a mortgage because they want to leverage their portfolios beyond 100% equities or some other reason, or if the state income tax deduction from a 529 is enough to offset the reduction in financial aid. I don't know how much financial aid can be, but it seems like it tips the scales towards prepaying the mortgage vs investing in bonds, which is something often left out of the threads asking about prepaying mortgages.

Personally, none of this is particularly relevant to me as a single renter who doesn't pay state income tax. I'll probably be opening a taxable account this year after maxing all my retirement accounts and finishing repayment of a TSP loan ahead of schedule.

KingRiggs
Posts: 82
Joined: Wed Dec 12, 2018 12:19 pm
Location: Indiana

Re: Cost of college and 529

Post by KingRiggs » Tue Feb 12, 2019 4:58 pm

TXGator wrote:
Tue Feb 12, 2019 11:38 am
Very helpful; did you also make contributions as well for upcoming college last year as well?
I put in $5k, simply to capture the $1k state tax credit.

986racer
Posts: 81
Joined: Thu Aug 11, 2016 10:09 am

Re: Cost of college and 529

Post by 986racer » Tue Feb 12, 2019 7:15 pm

Ketawa wrote:
Tue Feb 12, 2019 4:35 pm
This thread was fun. I read the whole thing.

After considering all the arguments, I believe that for most people, maxing retirement accounts and throwing extra cash at a mortgage is likely to be better than putting extra funds towards a 529 or taxable savings.

When it comes time for college, cash flow expenses. The mortgage should be pretty close to paid off after 15+ years of extra payments towards it instead of a 529. If you still have a mortgage and would have to reduce retirement savings to cash flow expenses, then consider a no-cost refinance to an ARM with 30 years of amortization. Not a big deal if you know you're going to pay it off when college is done. Then reduce retirement savings next. If college will be too expensive to cash flow after eliminating a mortgage or refinancing to a longer term, and stopping retirement savings, then it might make sense to use a 529.

Above guidelines don't apply to people who do not prepay a mortgage because they want to leverage their portfolios beyond 100% equities or some other reason, or if the state income tax deduction from a 529 is enough to offset the reduction in financial aid. I don't know how much financial aid can be, but it seems like it tips the scales towards prepaying the mortgage vs investing in bonds, which is something often left out of the threads asking about prepaying mortgages.

Personally, none of this is particularly relevant to me as a single renter who doesn't pay state income tax. I'll probably be opening a taxable account this year after maxing all my retirement accounts and finishing repayment of a TSP loan ahead of schedule.
If you haven’t done a financial aid calculation yet, I’d recommend doing it. Go to the FAFSA site and you can put in your income and assets and get a good ballpark figure of what you are expected to pay. Keep in mind that that is generally a best case scenario as some schools use CSS and may expect you to pay more and other schools might not have the endowment necessary to meet your needs. Also, financial aid may also come in the form of high interest loans.

Also, figure a ballpark of around 40% of your gross salary will be expected of you. So, if you make enough money, it doesn’t matter how you to try to hide assets.

I had planned to cash flow college and then looked up the costs.

If you know that you will definitely need to pay out for college, it’s hard to beat the 529 plan. If you think there is a chance that you won’t need to pay (e,g., scholarships or less expensive schools) then other savings vehicles may be more appropriate

NotWhoYouThink
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Re: Cost of college and 529

Post by NotWhoYouThink » Tue Feb 12, 2019 7:24 pm

Better to use the Net Price Calculators on the individual college websites than the FAFSA EFC calculations. FAFSA will tell you what your Expected Family Contribution is, which, combined with the total Cost of Attendance at a college will tell you the maximum financial aid you are eligible for. But for the vast majority of students and colleges, there will be little to no aid actually available. Your EFC can be $5K, the CoA can be $70K, and you could still get no aid (in the form of grants) if the college has no aid to give. NYU is one of the high priced schools notorious for providing little aid.

There are plenty of schools which offer merit aid for students whose qualifications would make them attractive. Maybe you got accepted to High Prestige U but couldn't afford it, but with a scholarship you can go to Darn Good U.

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Re: Cost of college and 529

Post by Grt2bOutdoors » Tue Feb 12, 2019 10:31 pm

NotWhoYouThink wrote:
Tue Feb 12, 2019 7:24 pm
NYU is one of the high priced schools notorious for providing little aid.

There are plenty of schools which offer merit aid for students whose qualifications would make them attractive. Maybe you got accepted to High Prestige U but couldn't afford it, but with a scholarship you can go to Darn Good U.
Tell me about it, NYU is ridiculously expensive, my sibling attended and it was super expensive years ago. Meanwhile they have a sizable endowment and own plenty of NYC real estate. The school is cheap with their money.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Minty
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Re: Cost of college and 529

Post by Minty » Tue Feb 12, 2019 11:58 pm

Grt2bOutdoors wrote:
Tue Feb 12, 2019 10:31 pm
NotWhoYouThink wrote:
Tue Feb 12, 2019 7:24 pm
NYU is one of the high priced schools notorious for providing little aid.

There are plenty of schools which offer merit aid for students whose qualifications would make them attractive. Maybe you got accepted to High Prestige U but couldn't afford it, but with a scholarship you can go to Darn Good U.
Tell me about it, NYU is ridiculously expensive, my sibling attended and it was super expensive years ago. Meanwhile they have a sizable endowment and own plenty of NYC real estate. The school is cheap with their money.
NYU is not a wealthy school, according to this very useful chart of colleges ranked by endowment-per-student, which gives a good idea of how much discretionary cash above tuition an institution might enjoy.
Core Four with nominal bonds and TIPS.

chipperd
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Re: Cost of college and 529

Post by chipperd » Wed Feb 13, 2019 5:25 am

This has been a great discussion and very timely for me and my kids' college and family financial situation. As I may have noted, with one a freshman in college and one who will be going this fall and got her financial aid package and a third going in two years I have learned a lot about this game. We have some funds in 529 and the kids' grandparent has some funds in a 529. Looking back on it, given the first two are going to CSS profile schools, for our situation, the 529 funds and paid down mortgage have/will become a detriment to their financial aid packages. If I could do it over again, I would have saved more for retirement so that I could retire or semi-retire two years before the first applied to school, saved nothing in the 529 and would have been able to cash flow college at the much lower rate my kids' would be charged. YMVM, but in retrospect, knowing where my kids wound up and knowing how this game is played by the CSS school's, that would have worked out better for us as a family financially.

mancich
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Re: Cost of college and 529

Post by mancich » Wed Feb 13, 2019 5:52 am

Lot of great viewpoints in this thread. For DW and I, we are assuming paying in full for 2 years of community college and then transfer to SUNY 4-year school for remaining 2 years. If our daughters want to go to a private school and get scholarships to make it relatively affordable, with hopefully minimal student loan debt, that is fine, but we're not the type of couple that is going to drain retirement accounts, take out home equity, etc just to send them to an elite school. We fund 529's to the best of our ability for the NY State tax deduction, and have money on taxable accounts. You do the best you can, within reason, as parents. :beer

chipperd
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Re: Cost of college and 529

Post by chipperd » Wed Feb 13, 2019 6:21 am

Agreed and that was our approach as well until....we realized that for both our first two, the net cost of attending private, fairly prestigious small NE universities was cheaper (by quite a bit) than attending our flagship state school honors program (IMHO, similar to SUNY in quality and I have great respect for that system). I guess you don't know the real net cost until your kids apply, but the Net Price Calculators really woke me up to this possibility and got me playing with our numbers, which lead to me telling my kids to apply and see what happens. Based upon our experience, those NPC's turned out to be fairly accurate, which leads me to my conclusion above that there is an income/asset sweet spot in some of these calculators and schools' formulas to figure out the net cost per kid to attend. It turned out to be worth the few hours I played around with possible income levels to plug into those NPC's. Our asset levels were harder to control, but I am fortunate in that I was able to negotiate a lesser work level to have a large impact on my kids' college costs. The rules of thumb that I hear most often around the percentage of parental income that will go to college costs turned out to really not all that accurate in our situation. With having 3 kids close in age, I know that's a factor and not all that common, so that may have thrown off some of the results, but I recommend trying out various senarios in those NPC's.
mancich wrote:
Wed Feb 13, 2019 5:52 am
Lot of great viewpoints in this thread. For DW and I, we are assuming paying in full for 2 years of community college and then transfer to SUNY 4-year school for remaining 2 years. If our daughters want to go to a private school and get scholarships to make it relatively affordable, with hopefully minimal student loan debt, that is fine, but we're not the type of couple that is going to drain retirement accounts, take out home equity, etc just to send them to an elite school. We fund 529's to the best of our ability for the NY State tax deduction, and have money on taxable accounts. You do the best you can, within reason, as parents. :beer

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Re: Cost of college and 529

Post by Grt2bOutdoors » Wed Feb 13, 2019 8:44 am

Minty wrote:
Tue Feb 12, 2019 11:58 pm
Grt2bOutdoors wrote:
Tue Feb 12, 2019 10:31 pm
NotWhoYouThink wrote:
Tue Feb 12, 2019 7:24 pm
NYU is one of the high priced schools notorious for providing little aid.

There are plenty of schools which offer merit aid for students whose qualifications would make them attractive. Maybe you got accepted to High Prestige U but couldn't afford it, but with a scholarship you can go to Darn Good U.
Tell me about it, NYU is ridiculously expensive, my sibling attended and it was super expensive years ago. Meanwhile they have a sizable endowment and own plenty of NYC real estate. The school is cheap with their money.
NYU is not a wealthy school, according to this very useful chart of colleges ranked by endowment-per-student, which gives a good idea of how much discretionary cash above tuition an institution might enjoy.
Note that neither Columbia's nor NYU substantial real estate holdings in New York City, which they rent out to faculty at reduced rates, figure in their endowment numbers.

If you've ever been downtown/East Village area, you'll know that NYU practically owns the area surrounding the school and around 14th Street (major hub). Don't kid yourself, that school is loaded. NYU's endowment is $4.2 Billion. That's not wealthy? Holy Great Gatsby!
https://www.nyu.edu/content/dam/nyu/inv ... 0Sheet.pdf
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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TomatoTomahto
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Re: Cost of college and 529

Post by TomatoTomahto » Wed Feb 13, 2019 8:50 am

Fwiw, NYU made an apartment available for son to use during a summer internship. He wound up sharing with a friend instead, but it was a pretty fair rent for the area.
Okay, I get it; I won't be political or controversial. The Earth is flat.

markcoop
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Re: Cost of college and 529

Post by markcoop » Wed Feb 13, 2019 9:39 am

chipperd wrote:
Wed Feb 13, 2019 5:25 am
This has been a great discussion and very timely for me and my kids' college and family financial situation. As I may have noted, with one a freshman in college and one who will be going this fall and got her financial aid package and a third going in two years I have learned a lot about this game. We have some funds in 529 and the kids' grandparent has some funds in a 529. Looking back on it, given the first two are going to CSS profile schools, for our situation, the 529 funds and paid down mortgage have/will become a detriment to their financial aid packages. If I could do it over again, I would have saved more for retirement so that I could retire or semi-retire two years before the first applied to school, saved nothing in the 529 and would have been able to cash flow college at the much lower rate my kids' would be charged. YMVM, but in retrospect, knowing where my kids wound up and knowing how this game is played by the CSS school's, that would have worked out better for us as a family financially.
Of course, decisions are never made in retrospect. You made the best decision with knowledge you had at the time. In fact, I can argue that it's one thing to position oneself to receive as much aid as possible, but it's another thing to retire early to get more aid. Not exactly sure why I feel there's a difference between the two, but my gut would be uncomfortable doing the latter.
Mark

KlangFool
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Re: Cost of college and 529

Post by KlangFool » Wed Feb 13, 2019 9:42 am

markcoop wrote:
Wed Feb 13, 2019 9:39 am

Of course, decisions are never made in retrospect. You made the best decision with knowledge you had at the time. In fact, I can argue that it's one thing to position oneself to receive as much aid as possible, but it's another thing to retire early to get more aid. Not exactly sure why I feel there's a difference between the two, but my gut would be uncomfortable doing the latter.
markcoop,

Would you feel differently if the college education's cost is the reason that stops someone to retire early?

For example, if the person has to choose

A) Work longer and the money goes towards a college education.

B) Stop working and can retire early because he has to pay less for a college education

Why should the person choose (A)?

KlangFool

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GoldStar
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Re: Cost of college and 529

Post by GoldStar » Wed Feb 13, 2019 10:12 am

KlangFool wrote:
Wed Feb 13, 2019 9:42 am
markcoop wrote:
Wed Feb 13, 2019 9:39 am

Of course, decisions are never made in retrospect. You made the best decision with knowledge you had at the time. In fact, I can argue that it's one thing to position oneself to receive as much aid as possible, but it's another thing to retire early to get more aid. Not exactly sure why I feel there's a difference between the two, but my gut would be uncomfortable doing the latter.
markcoop,

Would you feel differently if the college education's cost is the reason that stops someone to retire early?

For example, if the person has to choose

A) Work longer and the money goes towards a college education.

B) Stop working and can retire early because he has to pay less for a college education

Why should the person choose (A)?

KlangFool
Because the person doesn't want to straddle their kids with debt and the person enjoys being a productive member of society.

KingRiggs
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Re: Cost of college and 529

Post by KingRiggs » Wed Feb 13, 2019 10:17 am

KlangFool wrote:
Wed Feb 13, 2019 9:42 am
markcoop wrote:
Wed Feb 13, 2019 9:39 am

Of course, decisions are never made in retrospect. You made the best decision with knowledge you had at the time. In fact, I can argue that it's one thing to position oneself to receive as much aid as possible, but it's another thing to retire early to get more aid. Not exactly sure why I feel there's a difference between the two, but my gut would be uncomfortable doing the latter.
markcoop,

Would you feel differently if the college education's cost is the reason that stops someone to retire early?

For example, if the person has to choose

A) Work longer and the money goes towards a college education.

B) Stop working and can retire early because he has to pay less for a college education

Why should the person choose (A)?

KlangFool
Because my primary function in life is raising my children and launching them into the adult world in the best possible shape I can (economically, educationally, spiritually). My happiness is secondary to that of my loved ones. YMMV.

KlangFool
Posts: 11600
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Re: Cost of college and 529

Post by KlangFool » Wed Feb 13, 2019 10:37 am

GoldStar wrote:
Wed Feb 13, 2019 10:12 am
KlangFool wrote:
Wed Feb 13, 2019 9:42 am
markcoop wrote:
Wed Feb 13, 2019 9:39 am

Of course, decisions are never made in retrospect. You made the best decision with knowledge you had at the time. In fact, I can argue that it's one thing to position oneself to receive as much aid as possible, but it's another thing to retire early to get more aid. Not exactly sure why I feel there's a difference between the two, but my gut would be uncomfortable doing the latter.
markcoop,

Would you feel differently if the college education's cost is the reason that stops someone to retire early?

For example, if the person has to choose

A) Work longer and the money goes towards a college education.

B) Stop working and can retire early because he has to pay less for a college education

Why should the person choose (A)?

KlangFool
Because the person doesn't want to straddle their kids with debt and the person enjoys being a productive member of society.
You did not answer the question. In both cases, the kid will not be straddled with debts. So, what would be your answer?

KlangFool

KlangFool
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Re: Cost of college and 529

Post by KlangFool » Wed Feb 13, 2019 10:38 am

KingRiggs wrote:
Wed Feb 13, 2019 10:17 am
KlangFool wrote:
Wed Feb 13, 2019 9:42 am
markcoop wrote:
Wed Feb 13, 2019 9:39 am

Of course, decisions are never made in retrospect. You made the best decision with knowledge you had at the time. In fact, I can argue that it's one thing to position oneself to receive as much aid as possible, but it's another thing to retire early to get more aid. Not exactly sure why I feel there's a difference between the two, but my gut would be uncomfortable doing the latter.
markcoop,

Would you feel differently if the college education's cost is the reason that stops someone to retire early?

For example, if the person has to choose

A) Work longer and the money goes towards a college education.

B) Stop working and can retire early because he has to pay less for a college education

Why should the person choose (A)?

KlangFool
Because my primary function in life is raising my children and launching them into the adult world in the best possible shape I can (economically, educationally, spiritually). My happiness is secondary to that of my loved ones. YMMV.
Both answer (A) and (B) does not change your primary function. So, what would be your answer?

KlangFool

markcoop
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Re: Cost of college and 529

Post by markcoop » Wed Feb 13, 2019 11:01 am

KlangFool - I do understand your point. Part of me believes what Goldstar and KingRiggs wrote. Part of me believes it is fine to make the best financial decisions within the rules. At some point, I feel a line is crossed that makes me uncomfortable. Our financial system is like a game. However, there is only so much I'm willing to play it as a game. Real people get financial aid and the needs of society as a whole should be a consideration. Exactly where that line is is very hard to tell.
Mark

KlangFool
Posts: 11600
Joined: Sat Oct 11, 2008 12:35 pm

Re: Cost of college and 529

Post by KlangFool » Wed Feb 13, 2019 11:30 am

markcoop wrote:
Wed Feb 13, 2019 11:01 am
KlangFool - I do understand your point. Part of me believes what Goldstar and KingRiggs wrote. Part of me believes it is fine to make the best financial decisions within the rules. At some point, I feel a line is crossed that makes me uncomfortable. Our financial system is like a game. However, there is only so much I'm willing to play it as a game. Real people get financial aid and the needs of society as a whole should be a consideration. Exactly where that line is is very hard to tell.
markcoop,

You have the luxury to fund 529 and pay 300K for your kids' college education. This is a great thing. But there is another side of the coin.

<<Our financial system is like a game. However, there is only so much I'm willing to play it as a game. Real people get financial aid and the needs of society as a whole should be a consideration. Exactly where that line is is very hard to tell.>>

I am a real person. The society does not protect me and folks in my profession from age discrimination. I do the best that I could to be productive and effective. I am a team player. I won multiple employee excellence awards. But, I was laid off in favor of younger persons.

I worked hard and I saved like crazy. But, it was a stretch for me to pay 240K for my kids' college education. And, I could only do it because I was only unemployed for more than 1 year and not much longer.

Now, if I did not gamble on Telecom stock, I could early retire at 49 years old before my kids go to college, are you saying that I should not retire? Should I work longer to pay full price for my kids' college education instead?

KlangFool

Minty
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Re: Cost of college and 529

Post by Minty » Wed Feb 13, 2019 11:35 am

Grt2bOutdoors wrote:
Wed Feb 13, 2019 8:44 am
Minty wrote:
Tue Feb 12, 2019 11:58 pm
Grt2bOutdoors wrote:
Tue Feb 12, 2019 10:31 pm
NotWhoYouThink wrote:
Tue Feb 12, 2019 7:24 pm
NYU is one of the high priced schools notorious for providing little aid.

There are plenty of schools which offer merit aid for students whose qualifications would make them attractive. Maybe you got accepted to High Prestige U but couldn't afford it, but with a scholarship you can go to Darn Good U.
Tell me about it, NYU is ridiculously expensive, my sibling attended and it was super expensive years ago. Meanwhile they have a sizable endowment and own plenty of NYC real estate. The school is cheap with their money.
NYU is not a wealthy school, according to this very useful chart of colleges ranked by endowment-per-student, which gives a good idea of how much discretionary cash above tuition an institution might enjoy.
Note that neither Columbia's nor NYU substantial real estate holdings in New York City, which they rent out to faculty at reduced rates, figure in their endowment numbers.

If you've ever been downtown/East Village area, you'll know that NYU practically owns the area surrounding the school and around 14th Street (major hub). Don't kid yourself, that school is loaded. NYU's endowment is $4.2 Billion. That's not wealthy? Holy Great Gatsby!
https://www.nyu.edu/content/dam/nyu/inv ... 0Sheet.pdf
NYU owns a lot of spectacular real estate; that held in its investment portfolio is part of its endowment, but that used for classrooms, offices, labs, or housing cannot readily be monetized. (This reminds me of the debate about whether home equity is part of net worth; of course all the property is part of NYU's net worth, yet much more than an individual household, NYU is not in a great position to sell its real estate and rent.) As I've said in other posts, my main employer is an educational institution; we have an endowment (and land) worth more than twice that of NYU, but we have way, way more than twice as many students. NYU is in that sense in a better position. I would say that Grinnell and Carleton are in a better position than NYU because their endowment per student is much higher; in any event, they pull in classes with higher stats. Endowment per student is a relevant signal about the quality of a program particularly for private schools because it offers a sense of the total funds available for education. It also drives financial aid policies; most of the schools which are rich on a per student basis offer need-blind admission and meet the full need. Put another way, every school would love to provide full financial aid if it could, because among other things it helps with college rankings; if they don't, it is because they feel they can't afford it without impairing the quality of the program. Not providing full financial aid means taking less preferred students who can pay in favor of better students who cannot (or who would come if they received a merit-based scholarship). I will grant that total budget and total endowment are more reliable hints about things like research output.
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