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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8206  
Subject: Re: Paying for College and Aid Date: 2/25/2013 8:50 AM
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I want to refinance and take $70K out for each of them before the rates go up which i think they will by next year.

I've never been a fan of using my house to pay for other things, and would not be inclined to borrow from the house to pay for college. If you do decide to do that, however, I would not refinance now to have money sitting there for several years on which I am paying interest. I'd prefer doing a HELOC where I could take out the money as I needed it, and potentially need to borrow less and pay less interest. As this is needed in the short-term, I would not be inclined to be paying for it over the full course of the mortgage, and would prefer to be able to retire this borrowing as soon as possible.

Also, would your kids be borrowing as well? It seems to me that if loans are needed, then they should be paying at least part of that since it is for their education.

Should i put this money in a short term investment account or park it in a 529 for each of them locking in current tuition?

I vote neither. This is money you will have borrowed and that you cannot afford to lose as the need is very short-term. I would be keeping it in CDs or even money market funds. Even with the low interest rates of those accounts, it would still guarantee that you have the principal available when you need it. To me, it would be the worst situation where you have borrowed the money against the house, and then it loses value so you don't have what you were counting on having.

I actually moved my kids' college money to cash about 4 years prior to needing it, which was good as they graduated in 2009 when the market had tanked, but their college money was sitting in a money market account collecting interest. I just paid the last tuition payment, and it was very nice not to have to do the mad scramble because the college money had lost value.

As far as parking it in a 529 to lock in current tuition, I think you are confused unless you have a very different type of 529. I've never seen one that was attached to a particular college and locked in the tuition price. I've only seen them at brokerages, and as such, they are generally subject to market ups and downs. I might increase my contributions to the 529 for the youngest, but unless you get some tax savings on your 529 (I do not in my state), then I wouldn't bother. But I doubt this is locking in any sort of tuition rate, unless perhaps you are mixing up the terms here.

Will having liquid cash affect financial aid?

Yes, liquid assets are included when figuring financial aid, but I believe the house is not counted on the FAFSA, although it could be counted by private schools that go beyond the FAFSA. This again argues for leaving the money in the house, and using an HELOC if you insist on using your house to fund the kids' education.

Is it better for them money to be in my name or theirs?

For several reasons, the money is better in your name than in theirs. First, students are expected to use much more of their assets to pay for their education than parents, so their assets count more when determining financial aid, and you actually are better off in that case with the assets in your name.

Second, if the assets are in their names, then the money BELONGS to them and they get to spend it any way they want such as on a nice sports car instead of paying for college, regardless of your intent. You cannot tell them how to spend their money, and this is something you probably want to consider long and hard before putting significant money in their names.

And last, you will have gift tax issues if you give each of them all of that money all at once, although realistically you won't owe gift tax, but it will reduce your lifetime exemption and will effect them later when they might inherit assets from you. That said, you and your wife could each gift money to each child, and so that increases how much you can give them.

I'd think long and hard about this plan if I were you as it is not one that I would be doing, but at least you need to be aware of the various pitfalls and issues.
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