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Hi all, I'm new on the boards, and if there's a better one for me please direct me to it.

I have three kids - a junior in high school, 7th grader, and 4 year old. We have done pretty well saving for our retirement. We were doing pretty well saving for college for the oldest when the economy went south when she was in 7th grade (the advice we had was become conservative in 9th grade) and we haven't recovered it very well.

Just had a "free consultation" with a financial advisor specializing in financing education. Of course, he thinks we have really screwed up our priorities by paying ahead on our house and funding our retirement funds but not saving enough to fully pay for college for all 3 kids. He suggested converting our home loan to interest-only so we can quick stuff more money in her college account before she graduates and avoid (gasp) student loans. His philosophy was so different from mine, I decided to skip the paid help and join the Motley Fool boards instead.

What do you experienced student loan folks think? If it matters, our daughter is also very academically talented and will probably get merit money from private schools she applies to.

My instinct is to keep doing what we're doing, and borrow against the house IF we need to during college, and supplement with loans, too.

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I have three kids - a junior in high school, 7th grader, and 4 year old. We have done pretty well saving for our retirement. We were doing pretty well saving for college for the oldest when the economy went south when she was in 7th grade (the advice we had was become conservative in 9th grade) and we haven't recovered it very well.

Just had a "free consultation" with a financial advisor specializing in financing education. Of course, he thinks we have really screwed up our priorities by paying ahead on our house and funding our retirement funds but not saving enough to fully pay for college for all 3 kids. He suggested converting our home loan to interest-only so we can quick stuff more money in her college account before she graduates and avoid (gasp) student loans. His philosophy was so different from mine, I decided to skip the paid help and join the Motley Fool boards instead.

What do you experienced student loan folks think? If it matters, our daughter is also very academically talented and will probably get merit money from private schools she applies to.

My instinct is to keep doing what we're doing, and borrow against the house IF we need to during college, and supplement with loans, too.


The problem as I see it is that the law will probably change between now and when your kids start going to school. There's been a push to make the terms on which student loans are given (or, in particular, consolidated) much less borrower-friendly. Right now, you can consolidate outstanding student loans and lock in a low fixed rate for the duration; this will almost certainly go away by the time you need to do it. So anything we tell you to do now may not be the right thing by the time it matters...

Also, not knowing what your mortgage rates are like etc. it's hard to know how to tell you to proceed. It may even be the case that the thing to do is to borrow against your house NOW, while the rates are still pretty low, on the assumption that they may not stay that way, and then just stash that money somewhere comparatively safe (or even absolutely safe, like the bank) as a way of "undoing" the accelerated paydown on your house.

It may not be a bad idea to go the interest-only route on the house, but I wouldn't know about that. My thinking: depending on your income, and depending on the future law, interest on student loans may not be deductible, whereas interest paid on debt on your house should be (I have a feeling that deductions associated with interest on home loans are not going to be repealed any time soon-- the real estate market would collapse if suddenly people really had to cover the whole cost of their mortgages, without that deduction...).

Another observation: If your daughter is THAT academically talented, is the Ivy League a realistic option? Princeton, at least, has a policy of no longer making undergrads take student loans-- at a minimum, assuming you don't win some special scholarship/fellowship, they calculate your expected contribution by the same formula as other schools, but anything above that contribution, the university pays on your behalf. They realized that kids were coming out of college with $60K in loans over their heads already and not being able to go on to law school, med school etc. because of fear of the debt burden. I think Princeton isn't the only one doing this, either. So look at the private schools with large endowments as you get closer to the decision, and see whether these kinds of options materialize for you.

Last thing: make sure she does well on standardized tests! A good PSAT score, in and of itself, won me a scholarship that paid for a healthy chunk of my undergrad education... not sure how National Merit scholarships etc. are decided now but they ran purely off test scores in my day. A little extra money on coaching and time on drilling can mean a big win later.

Anyway-- good luck to you.
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Its been awhile since I've filled out a FAFSA, and as Caromero 1965 noted, rules and regs are subject to change between now and then.

First, I'd contact the financial aid department at the school of your choice. The phone will likely be answered by a work-study student or a secretary. Ask to speak to a higher up: Find out how retirement savings of parents might be counted as an assest, or whether this is free and clear. Find out how debt is also counted. My recollection is that any savings is "held againist you" in terms of student financial aid, while debt isn't that great of consideration. E.G. too families with net income of $75000 net income are treated the same, regardless of debt load. How will potential academic scholarships be counted? Will they reduce your eligbility for need based aid (most likely) If the school is private, as previously noted, do they provide some type of leveling to make up the difference for your lower income student?

Savings in the students name, in particular, are also held againist you. Buy the computer and the used car BEFORE filling out the FAFSA in a few years, such that money saved for that purpose doesn't count againist you.

Paying down mortgage: Helps the financial security of the whole family, potential tax benefits, may allow flexibility in direct aid to student later

Saving for college, not tax free or deferred: Helps the short term financial security of a single family memeber, not tax advantage

Saving for college via 529 or Coverdale type plans: Helps a few members of the family, with some tax benefit, and some restrictions, not a good option for the Junior (IMHO), or the seventh grader for that matter

Also, be aware of tax benefits for paying qualified tuition and fees. Also, even if you have to float tuition and education expenses on a credit card for a few months, the interest is tax deductiblt (restrictions apply, check IRS 970 for more details).

Finally, IMHO, not knowing your whole situation or current state of FAFSA rules: Pay down the mortgage, money you don't have they can't hold againist your student, which maximizes potential aid, and likelihood of qualifying for loans and or grants. Obviously, if your student doesn't need the loan, he doesn't have to take it.
If loans are needed, get them from different lenders.
If saving for college, concentrate on the 7th and 4th grader. As their siblings graduate, they achieve independence from a financial aid stand point. Your need will go down progressively, and they will be less likely to qualify for finacial aid.

Danbobtx




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First, I'd contact the financial aid department at the school of your choice. The phone will likely be answered by a work-study student or a secretary. Ask to speak to a higher up: Find out how retirement savings of parents might be counted as an assest, or whether this is free and clear. Find out how debt is also counted. My recollection is that any savings is "held againist you" in terms of student financial aid, while debt isn't that great of consideration. E.G. too families with net income of $75000 net income are treated the same, regardless of debt load. How will potential academic scholarships be counted? Will they reduce your eligbility for need based aid (most likely) If the school is private, as previously noted, do they provide some type of leveling to make up the difference for your lower income student?

Currently RETIREMENT savings are excluded from financial aid considerations -- both funds the parents have & any the student has.

Most financial planning info I've read says "Save for your own retirement. Your kids can always get student loans."

Though, as mentioned, student loan rules are subject to change.

jmc

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I think it really comes down to an issue of interest rates between what you are paying on the house, what you would expect to make in the 529 or whatever educational plan you have, and what you expect the student loan rates to be in the future. IMHO interest rates are only going to go up in the next few years so if your mortgage is fixed it will be much less then student loans.

Also, if you are using a 529, the withdrawls are tax free for educational expenses and any money not used by the oldest can easily be transfered to the younger two if she does get scholarships. You can then reevaluate your educational savings amounts when the oldest is in college and you'll have a better idea how much she needs. I'm not sure what the rules are on other kinds of savings accounts but I think they are probably similar.

I also don't think it's unreasonable to pay for college for your kids and then ask them to pay you back a certain amount each month. It may even help build financial discipline.
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I also don't think it's unreasonable to pay for college for your kids and then ask them to pay you back a certain amount each month. It may even help build financial discipline.

Probably not unreasonable but there's a reason why many financial planners recommend that you don't lend to family and/or friends. At least not if you want them to remain family and/or friends on good terms.

jmc
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Sorry for the additional reply:

Obviously, if you can afford to pay for your children's education, do so. If you expect to take out loans, try to take out federal student loans first, and private loans a distant second. The repayment rules on the fed loans have generally been more favorable, and resolving payment difficulties is generally easier on guaranteed student loans.

If you can't afford to pay for some or all of your childrens education, make sure to maximize their ability to recieve financial aid and scholarships. FYI, your college of choice, or high school conselor is probably your best bet for finding scholarships. Services that offer to find you student scholarships are often ineffective/and or over priced for what they deliver. Deadlines will certainly matter, so get started soon for that highschool junior.

Working during school may be another option for your child/children. Obviously, fewer hours away from books a week, the better, and flexibility would be a must. Night exams can really be a problem if employeer isn't flexible. Most semesters, I found working to be a relief from school, and it gave greater continuity to my schedule during breaks. It gives more experience to show potential employeers when done. Finally, it really helped me understand what kind of money I was spending on school, when that $1000 for tuition and fees had to come from somewhere. That's a lot of weeks at $200/week.

Next up, are loans debilitating? Not to me, but my wife and I are making plently right now, and I've got a small debt compared to many here. Currently, I've got about $35k+ in student loan debt, but wife type and I expect to make 50-80k next year. Students considering lower paying professions, or where employement is infrequent should limit their exposure to loans, even if it means taking longer to finish school :)

Final thought: spend some time with your college bound kids to teach them about credit cards and debit. They will get bombarded with offers for credit, many of them predatory. I know of several folks with little student loan debt, but 20k run up on cards while in school, predominantly on "recreation" type stuff: spring break, lots o CD's, eating out, etc.

FWIW

Danbobtx
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I also don't think it's unreasonable to pay for college for your kids and then ask them to pay you back a certain amount each month. It may even help build financial discipline.

Probably not unreasonable but there's a reason why many financial planners recommend that you don't lend to family and/or friends. At least not if you want them to remain family and/or friends on good terms.

True, loaning to family and friends has it's risks, but I think it depends on the family. There is nothing I wouldn't give to anyone in my family, even if it meant that I would have to dip into savings and/or credit.

This is only because I know that my family would never ask for anything unless they were in worse shape then me. Otherwise, I would be a lot more careful with the money I lend.
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True, loaning to family and friends has it's risks, but I think it depends on the family. There is nothing I wouldn't give to anyone in my family, even if it meant that I would have to dip into savings and/or credit.

This is only because I know that my family would never ask for anything unless they were in worse shape then me. Otherwise, I would be a lot more careful with the money I lend.


Yet you still should be prepared for the family member defaulting on the loan. Sure the family member might be a member of your family, but that person is still human.

The advice financial planners give is to assume that the "loan" is really a gift.

jmc
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Most of these points have been mentioned in previous posts but I thought I would clarify some and provide a brief plan of action on how to plan for college costs.

1. retirement accounts: I am not sure why you were advised to put your retirment savings aside. If anything I would accelerate retirement savings as much as your cash flow need will allow the year before she goes to school. lowering your income as much as possible will increase your chances of getting stafford loans, see below.


2. If your child/ren is/are elligble for stafford loans take them, the interest rates on these loans will be below any private loan you could get elsewhere. The current rate is around 2.875%, I believe it is based on the 90 Day TBILL and is set every may to be applied in July. These subsidized stafford loans are based on need, yet I believe the unsubsidized verions are not (check me on this). The maximum amount you can borrow is fairly low your first year and goes up each subsequent year in college.

3. Next to consider is the PLUS loan which is a loan the parents take out, as opposed to the stafford loans which are the student's responsibility. The plus loans is at a higher rate and is not subsidized. The Plus loan is a loan based on credit history and thus can be denied. One thing to note though if the parents are turned down, the student can take out the plus loan as a stafford unsubsidized.

4. Your next consideration would probably be a home equity loan as its very likely that its rates will be lower than a private student loan, not to mention the tax deductible intrest that you may qualify for.

Those are your basic options for borrowing to pay for college ordered by how I would consider them. You also have Coverdale's 529's etc to consider just remember that these accounts will be considered as assets when you fill out the FAFSA and will raise your EFC, expected family contribution.

Hope this helps and isn't too much of a repeat of whats been posted previously.

Scott
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Thanks, everyone, I was mostly checking to make sure I wasn't too far off base and I don't think I am.

For any other readers of this thread, Ivy League schools have been considered and discarded. Here's why - suppose my Ivy League school wants to keep me out of loans. They still figure our estimated family contribution and estimated student contribution, and these are notoriously high. Then they make up the difference in grants. If my dear child gets merit scholarships, they first wipe out her student contribution, THEN they wipe out the school's grants, and LAST OF ALL they wipe out the family contribution. (We've looked at several schools, details vary but this is the end result time after time). If we aren't liquid enough to pay the family contribution they calculate, we are still ending up in loans.

We are instead looking at well-endowed local private schools which will in all likelihood come out cheaper out of pocket than the big state colleges with no endowments.

One other bit of info regarding what money colleges consider when calculating costs, for the FAFSA your retirement and home equity are not considered, but for the PROFILE (for private colleges) my understanding is that home equity is indeed considered. So, it will indeed do better for us to sock $$ into retirement as much as possible.

My teens are big fans of the Motley Fool kid books - something to do with having more money than your parents dreamed of - and the oldest has a credit card and checking account that I have access to viewing to make sure she is reasonable with them (credit card for gas, primarily, paid in full each month). They get their allowance monthly at this point to cover school lunches, entertainment, and gifts for friends, and yes, they have to do chores to get it (I don't get paid for doing nothing, right?) My 17 yo works and will continue to work through college. Her income goes right to summer mission trips so she doesn't have a lot of savings. My 13 yo, on the other hand, is admirably frugal and hates to travel, so she's saving up that babysitting money. Once she is older and gets a job with real records she'll probably start putting her own money into retirement funding - the glory of time compounding.
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For any other readers of this thread, Ivy League schools have been considered and discarded. Here's why - suppose my Ivy League school wants to keep me out of loans. They still figure our estimated family contribution and estimated student contribution, and these are notoriously high. Then they make up the difference in grants. If my dear child gets merit scholarships, they first wipe out her student contribution, THEN they wipe out the school's grants, and LAST OF ALL they wipe out the family contribution. (We've looked at several schools, details vary but this is the end result time after time). If we aren't liquid enough to pay the family contribution they calculate, we are still ending up in loans.

Sorry to hear the numbers work that way. I'd say, though, that you should consider a few other things, before you do the tradeoff between the Ivy vs. the local, endowed private college:

warning-- I'm getting on my soapbox about something I have strong feelings about

-- The quality of the educational experience really is hard to match elsewhere. I've done degrees at two Ivies, plus at least a year of classes at Berkeley, at a community college, and San Jose State, in a few different disciplines... I'd rank them in roughly that order, in terms of quality. In part, "quality" was a function of the faculty and the school's resources, and the expectations it placed on you as a student (whatever your discipline, even in the sciences, you were expected to work in a non-trivial amount of study well outside your field, in the arts and humanities, foreign languages. etc.). In part it was a function of the other students you cross paths with, who were just incredibly talented and versatile people... If I had been an engineer anywhere other than Princeton, I wouldn't have met the incredibly talented and intellectually diverse people I met (engineer-jazz musicians, physicist/playwrights, economist/drinkers, and, when I was there in the Reagan 80's, people of all political persusasions, from liberal to conservative to communist) and classes (from the son of an unemployed Pittsburgh steelworker or a kid from inner-city Trenton who commuted to save room and board, to others who were from South African families that made their money on diamond mines-- yes, plural, mines). I surely wouldn't have gone on for a graduate degree in the humanities, which opened whole other intellectual and ethical worlds for me. I'd probably have more wealth and a better job title, but I wouldn't be the person I am, which I wouldn't trade for any sum of money.

-- The doors the degree can open would surprise you. Some say people don't really care much about where you went to school, after your first job or two. It's not true. I've had a number of situations where I was a good candidate on the merits for a job, but the Ivy League degrees were the attention-getter that got me the interview-- in at least two cases, I landed really interesting and lucrative consulting contracts because the hiring manager was himself a product of an Ivy and believed in me on the strength of that.

More recently, a very senior manager at the company I'm at now thought the credentials, plus those two jobs I got through the Ivy connection, were intriguing enough that he interviewed me in spite of my not looking (or being) remotely qualified for the job he wanted to fill. (I didn't get that job, and if I had, I would have failed in it. But he introduced me to several other teams, one of which wants to hire me for something similar that is a much better fit. If all goes right in the next month or two, I'll get to have a really interesting new career, without having to go for an MBA or law degree to do it or start on the ground floor.)

I'm not saying that an Ivy League degree is the most certain or simplest path to "success" in conventional terms-- it's surely no guarantee that you move up some hierarchy. But it's an almost certain ticket to a more interesting life than one would otherwise have. I've never seen anything really comparable to the Ivies in the US (except Stanford, which is basically an Ivy, and Berkeley, which is a great school with serious resource problems).

If your daughter is doing mission trips (I assume you mean some kind of religious missionary work) during the summers, especially outside the US, she's having a wider range of experiences already than many American teens. And that's a great, good thing. There are, of course, other ways to enrich yourself besides getting to go to a certain school. But the right college experience can present unique challenges and opportunities for growth as well, and at Princeton, at least, you had to work pretty hard to stay out of the way of experiences that would push your limits and stretch your mind.

I'd say have her visit a few and apply to one or two (you shouldn't need to apply to more than two if you've done your homework), do the applications and interviews, run the real math rather than just the worksheets/estimates. The cost of a few more college applications and essays is negligible in the face of a choice that will shape her whole lifetime. Worst case, if she gets in, and really wants to go Ivy, maybe make a deal with her that she has to share the burden of the "parent's contribution" with you, either in school or after she graduates.

Some things just aren't about money. This is one of them.

One more comment, though, on something I was just really impressed by:

Once she is older and gets a job with real records she'll probably start putting her own money into retirement funding - the glory of time compounding.


Sounds like you're raising them right... :-) This would be an incredible leg up. When I have kids, I intend to find some way to get them started really early on retirement saving, esp. if I can figure out a way to do it so they can't even see or feel it happening... I think I was 16 when I had my first job that paid something "official" with withholding etc.. That was in 1981. If I'd been able to start that early, even with only small contributions I'd be in much, much better shape now...

-A
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Our daughter was offered a $15,000 per year merit scholarship at a liberal arts college. She made an overnight visit to check out the college. When we picked her up, we knew something was wrong. She reported that the classes she attended were being taught at a level below that to which she was accustomed in her high school honors/AP classes. The kids were partying (it was a Monday night), and she also found out that it was a suitcase school. Upon closer inspection, the facilities were not up to par. She ultimately chose a different liberal arts college at a cost of $36,000 per year.
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Just curious-- you want to name names on these schools? (I'd never heard the term suitcase school before... and I'm wondering what school she thought was up to her standards.)

The visit is key to making a meaningful decision. One of my few regrets is not visiting Stanford when I was an undergrad. I'd have loved the Bay Area at that point in my life. Princeton, I visited twice-- spent a weekend, got grilled by my guidance counselor, told him I hated it, he made me go for another weekend-- at the end of which I was convinced to give up on my #1 school choice all through high school, which was MIT...

Scholarships are tremendous, but sometimes no amount of free money is worth the compromises you make. Columbia-- an excellent school, of course-- was free for me because my mother was on the administrative staff and that was one of the perks at her level. But it didn't seem to be as good of a fit. I walked away from that without any regrets (though it helped that I had significant aid for other schools).

The money ain't everything.
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I'd never heard the term suitcase school before...

Suitcase school refers to a school where the majority of students leave on the weekends, usually for home. Hence, they live out of a suitcase.

Agent
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Drew University (New Jersey) was the school that offered our daughter the merit scholarship. I'd rather not mention the name of the school she attended, other than to say it is a small New England liberal arts college that is a member of NESCAC (New England Small College Athletic Conference). This group includes Colby, Bates, Bowdoin, Middlebury, Hamilton, Williams, Amherst, Trinity, Wesleyan, and Connecticut College. She is about to graduate, and has had a wonderful experience. She arranged an internship last summer through an alumnus which was very helpful in securing a permanent job (including a full-paid Master's degree). In addition, she was able to spend a semester in Rome accompanied by a professor and 12 other students. We believe it was well worth the money to give her the opportunity to spend four years living in a community of bright interesting people.
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Colby, Bates, Bowdoin, Middlebury, Hamilton, Williams, Amherst, Trinity, Wesleyan, and Connecticut College

Yeah, I'd take most of these over Drew (and the others I don't know). I knew some VERY bright people who went to Middlebury, Williams, Amherst, and Wesleyan, in particular... Not that you need me to tell you you made the right choice, but... :-)

It's just money. We earn it and save it and manage it... so that on the day we need it, we can spend it.
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