Investing for College

[Dave Gray]

I have a 4 month old daughter and I want to set up a college fund.

My wife did some research and we're leaning towards a 529.  The main reason is because it has some good tax benefits (it's not taxed as much as others, I don't think), and because it remains in my name, so that my daughter can still apply for financial aid or scholorships.

I don't really know much about it.  How much (monthly) should I expect to be paying into this to be covered by the time she's ready to go to school?

Do any of you with kids plan anything like this?

[MyGodWearsAHoodie]

Straying off topic, but... 

While it is a wonderful idea to save for your daughers education.  Before you do that make sure your retirement planning is in place.  You can always borrow money for college, nobody will ever loan you money for retirement. 

As for how much you need to put aside, that will depend on multiple factors that there is no way to predict.  Such as what school she goes to -- private vs. public varies greatly in price, inflation, how much aid she gets etc.  As for how much to put away -- as much as you can afford.  Mostlikely you won't have saved enough to pay for all of it -- unless you hit the lottery -- and is almost impossible to save too much money.  If you by chance you do save so much you notice that the balance is equal to the cost of four years of college, you can stop adding to it. 

[Dave Gray]

I have retirement planning in place.  I contribute to a Roth IRA each year, for $5000 -- I doubt this is ideal, but it's something and it's what I can afford.  My wife does something with her school.  I think it's called a 403B.  I don't really know how much she saves, but it's not a lot.  We kinda handle these things seperately.

What's the cost of 4 years of college?  I need some kind of estimate.  It's not like I have extra money laying around.  Whatever I contribute, I'll have to dial back my life to accomodate.

I was in favor of the Florida Pre-Paid plan, but its big draw is that you can lock in today's college price.  However, I don't know how much value that has.  I think that there has to be some kind of college bubble that will eventually burst.  The cost just can't keep skyrocketing at this rate, can it?  In addition, it limits you to Florida state schools, which I'm fine with, but my wife wants to keep things open in case my daughter wants to go to Brown or Oxford or Juliard or Clown College or whatever.

[MyGodWearsAHoodie]

I agree with both your reason for not going with Florida pre-paid.  Your daugher might not want to go a Florida state college AND at some point college costs have to stop rising faster than inflation. 

Rough estimate...assuming in-state (least cost) and that your investments rise at the same amount rate as the cost of college....$300 per month. 

In the "Current One-Year Cost" field, enter the total cost of attendance, including tuition, fees, room and board, books, travel and incidental expenses. According to the College Board's Trends in College Pricing, the 2010-2011 average total costs (including tuition, fees, room and board) were $16,140 for students attending four-year public colleges and universities in-state and $28,130 out-of-state, and $36,993 for students at four-year private colleges and universities. Assume an additional $4,000 for textbooks, supplies, transportation and other expenses.

http://www.finaid.org/calculators/costprojector.phtml

[Phishfan]

  In addition, it limits you to Florida state schools, which I'm fine with, but my wife wants to keep things open in case my daughter wants to go to Brown or Oxford or Juliard or Clown College or whatever.

There is an ability to transfer that money but you would have to investigate it. I'm not sure how easy it is or how many options there are for that.

[Dave Gray]

the 2010-2011 average total costs (including tuition, fees, room and board) were $16,140 for students attending four-year public colleges and universities in-state and $28,130 out-of-state, and $36,993 for students at four-year private colleges and universities. Assume an additional $4,000 for textbooks, supplies, transportation and other expenses.

I assume that's a yearly cost?

There is an ability to transfer that money but you would have to investigate it. I'm not sure how easy it is or how many options there are for that.

You can transfer, but there's a penalty which negates part of the reason you saved to begin with...in addition to not being able to lock in the rates, which is the main draw.

[Brian Fein]

With Florida prepaid, I heard from a co-worker who just did this for his kid that, if you don't use it you get your money back with interest.  Its worth it.  State funding for education is getting cut every year, and tuition increases 15% per year.  You will save thousands by locking prices today.

There are probably 10 different state schools to choose from, but it is a concern.  I think that this is the way to go.

[Dave Gray]

I'm totally fine with the in-state thing.  It's hard to plan ahead 18 years, but there's no indication that I won't live in FL by then.  Who knows, though? 

I think that going to school in-state makes so much more sense, regardless.  You can get a good education in pretty much any field, with the choices here, the tuition is considerably cheaper, and if something happens, you can always get in the car and meet up within the day.  I want to give her the option to go away to school or stay at a neighborhood school close by, but I think that having to move across states isn't needed to get a good education, especially for the increase in cost.

[MyGodWearsAHoodie]

I'm totally fine with the in-state thing.  It's hard to plan ahead 18 years, but there's no indication that I won't live in FL by then.  Who knows, though? 

I think that going to school in-state makes so much more sense, regardless.  You can get a good education in pretty much any field, with the choices here, the tuition is considerably cheaper, and if something happens, you can always get in the car and meet up within the day.  I want to give her the option to go away to school or stay at a neighborhood school close by, but I think that having to move across states isn't needed to get a good education, especially for the increase in cost.

I am big fan of instate schools.  But let say she turns out to be a great athlete and gets a 50% sports scholarship to an out of state school, but none in Florida.  Also my attitude is a tier 2 or tier 3 private school vs. a tier 2 or 3 public school -- public school all the way.  But is she is smart enough to get into MIT, you don't limit her to just to the best Florida state school. 

[Dave Gray]

I am big fan of instate schools.  But let say she turns out to be a great athlete and gets a 50% sports scholarship to an out of state school, but none in Florida.  Also my attitude is a tier 2 or tier 3 private school vs. a tier 2 or 3 public school -- public school all the way.  But is she is smart enough to get into MIT, you don't limit her to just to the best Florida state school. 

Yes, this is true.  But I'm guessing that if she's smart enough to demand an education at MIT, that there will be some kind of financial compensation or scholorship to help with it.  I agree that the 529 is the way to go, though, for other reasons primarily.

[SportsChick]

Dave, lock in prices. I've been back at FAU since 09 and each and every year, my tuition has gone up 15% EACH YEAR. This semester, 4 classes was $2500. That doesn't include the additional $440 I dropped on books. Of course, I'm also living off campus and that doesn't include a meal plan or anything like that. 

[Dave Gray]

^ I hear ya, but I am skeptical that college rates will rise 15% yearly for the next 18 years. 

You're reacting to what is happening today, but I'm tryint to predict what will happen.  Between legislation and an outright bubble burst, I don't see how costs can continue to rise at that level for that long, or else nobody will be able to afford it.  At that point, you'd be better holding on to your money and going into a trade, so tuition would wane, based on market pressure.

[SportsChick]

You have to keep in mind that in the landscape of the country, Florida ranks towards the bottom for cost of college (in-state, resident prices). They're trying to catch up to the National Average. We have a ways to go before that happens.

[Brian Fein]

Its not real estate - its not a bubble.  Its a shift in funding from government to private.  The state is cutting funding from the public money, which is shifting it over to "only people who use it" (aka tuition) and that shit is expensive.

[MyGodWearsAHoodie]

I spent some time thinking about the college bubble theory of tution.

My prediction it will occur.  But will not slow the rising cost of elite private schools (Yale, Havard, MIT) nor state supported colleges. It will hit private 2nd and 3rd tier schools. 

MIT can keep raising the price and will continue to get 20 applications for every student they admit.  Unless there is a huge political shift in this country with us returning to Kennedy era attidute towards education state colleges will continue to rise until they cease being supported at all by tax dollars and are fully funded by tution and fees from students.  (Nobody has ever lost an election because his oppenant put up billboards saying Sen.  XXX voted to raise tution at the state colleges every year.  Elections have been lost because politicans voted to raise taxes to fund said colleges)

However, at some point more and more folks are going to say is it really worth spending four or fives times as much to go to a private tier 3 college instead of going to the local community college.  At which point either tutions at such schools are going to have to sto rising as fast or their will be contraction in the marke place.