Because most philosophies that frown on reproduction don't survive.

Friday, January 17, 2020

Paying For College

We spent the other night filling out the FAFSA (Free Application For Student Aid) form for our eldest daughter, who is in the final stages of applying to go to the college were MrsDarwin and I ourselves went. The FAFSA collects information about how much income and savings you have, and informs you how much the federal government believes you can afford to pay towards your child's college education. This amount is then subtracted from the cost of the college you want to attend to determine your need, which is the amount which colleges are supposed to help you find some kind combination of grants and loans to cover.

Knowing that we have come to make a pretty good income, I expected that we would be responsible for paying a good bit more of our children's college costs than my parents were able to when I went to college. But at the same time, I had heard over and over again, "Don't worry, the published tuition is funny money. No one pays full price."

It was, thus, with some shock that I sat staring at the computer screen when, after several hours of Kafka-esque struggle during which I went through all the stages of modern disillusion other than turning into a giant bug, I completed the form and was informed by the FAFSA website that our "estimated family contribution" was somewhat over four months of my take-home income (and incidentally more than the total cost of tuition, room, and board for our daughter's chosen college.)

Now, there's a certain logic to this. The whole point of financial aid is to help people afford college who could not otherwise afford it. Thus, logically, we do not need financial aid as much as a family that makes half what we do. And there are, in truth, plenty of families that make half what we do, or even less. It is entirely just that the public money intended to help people afford college go to those people and not to us.

And yet, even people who make well above the median income don't tend to have significant portions of their income just sitting around as spare. People make decisions about what house to buy, what classes to enroll their kids in, what contributions to commit to make to their churches, etc. based on their income, and although with increased affluence comes increased flexibility, it doesn't tend to be 25% flexibility.

Of course, one very clear solution to this probably would have been to spread the college expense out over more years. Any financial planner would tell you that you should start saving for college early so that you can have the power of compounding interest working for you and also so that you can spread the expense over more years. However, this is where our particular history makes things a bit more difficult. For the first five years we were married (during which we had our first three children) our income was low enough and our family budget was so tight that we weren't successfully putting away savings for anything: retirement, college, emergency fund, nothing. Fortunately, during that period my mother put aside some money to help pay for the kids' college, and since that was fifteen years ago it's grown over the intervening years to the point where each of the older kids have almost a year's tuition in savings. That will prove a huge help, and it underscores that having a family that can help with such things makes a big difference.

Over the following five years, our income grew a bit and we were able to pay off some debts and start making basic 401k contributions. But even then, we didn't really have much money to put away for the kids college, and if our income was still at that level, the FAFSA would have assessed our family contribution as essentially zero.

Then over the last ten years our income began to grow pretty steadily. I changed jobs three times. We moved to Ohio and bought our big old house which gobbles up a chunk of money in repairs every year. We had more kids, bought vehicles large enough to carry a family with more than seven members, and yes, finally began putting away money to help pay for the kids' college. But because this growth in our earnings was fairly recent (and at first we used it to pay off debts and pay for family resources we hadn't had before) we didn't have that many years to save. We also didn't have that many years to re-adjust our thinking. I was still thinking of the conventional wisdom that "no one pays full price". And not knowing the precise nature of the FAFSA calculation, I was thinking that just as having seven kids lowers our taxes quite a bit, having seven kids would also reduce the amount that we were expected to cover out of pocket for college. (Hint: FAFSA gives you very little credit for having lots of kids.)

With a little more time, I might have realized that I needed to go on a crash college savings program. And indeed, when I sat down with a financial planner at our bank a month ago to talk about retirement savings, he looked at my summary of our family and said, "You have seven kids? Your biggest thing to think about right now is that you could have nearly a million in college expenses over the next twenty years."

And I laughed nervously because a million dollars is a number that one isn't used to talking seriously about outside of work, and I was still half thinking, "But no one pays full price..." We're having our follow-up meeting in a couple weeks, and I won't laugh off the college question this time.

It also strikes me that this explains a bit about a phenomenon which had seemed odd to me in politics: young adults from fairly upper-middle-class backgrounds being very, very attached to the "free college for all" plans being presented by candidates like Bernie Sanders and Elizabeth Warren. Well, if a lot of these people had parents who were too affluent to qualify for many grants or subsidized loans, yet committed to too much spending to afford to actually pay for their colleges, they ended up with a fairly large amount of debt in unsubsidized (higher interest) loans. So now they're out of college, with lots of debt to pay off, and looking up at their parents who are making a lot more money than they are and getting ready to retire soon. It's easy to see how such people would conclude the system is fundamentally unfair. And yet, from a progressive point of view, the way that the family contribution to college education is calculated is one of the most progressive taxes they could desire. People in the bottom 60% or so of incomes will be assessed virtually no contribution. And over a certain level of income, the calculation assumes that you can devote nearly 50% of all your incremental income to paying for college. Add that to taxes, and it's close to the kind of 1950s top marginal tax rates that progressives pine for.

My own advice, having gone through this experience is: If you make over $100k a year (the exact cliff point will depend a bit on your taxes, family size, etc.) or if you are likely to make that much by the time your kids reach college, you are going to be end up being assessed with a pretty hefty "estimated family contribution". Unless you're pretty confident that your child is going to be so strong on some recruiting criteria (academic, sports, arts, or what you will) that colleges will be throwing money at him or her for the privilege of getting him as a student, start socking away money in a 529 college savings account or an ordinary investment account and let the power of compound interest do some of the work for you. You may find that you are one of the "nobodies" who is asked to pay pretty close to full price for college. Also, of course, do some reasonable assessment whether college is the best fit for each child and what college options are more affordable. (In the case of this student, college does seem like the right next step, and the college she wants to go to is about as cheap as a private college gets.) But be prepared for applying for financial aid to be a pretty harrowing experience.


Kelly said...

We had that same disillusionment last year. Our federal family contribution was a third of our income! Private colleges are more expensive but they do tend to offer more scholarships than the public universities. However, since their tuition is so much more paying everything out of pocket at a state school is going to be less than most private schools with a token scholarship amount.

Yes, the reason why everyone jokes about the millennials living in their parents basement is because of their huge amount of student loan debt. How can you think about buying a house when you graduate from college owing a house payment for student loans? I'm really driven to make sure my kids have as little college debt as possible for that reason. But to do that we made the choice to not be attached to a particular school because you don't have an ability to entertain better offers, so to speak.

Our oldest managed to get a full tuition scholarship to two different schools. That's an anomaly and I'm assuming it won't happen for our other children. But of the five colleges she applied for, her financial aid offers were all over the board. Options for typical college bound students would include: taking classes at a community college for a year or two before transferring as long as you know the credit will transfer, choosing a college you can commute to because housing is more expensive than tuition at state schools, and planning to become an RA after the first year. With room and board running $10k+ the lowly RA job has become much better paying than anything else a student could do.

One of the schools we're looking at for our second child is Eastern Michigan University. They give in state tuition to Ohio residents and they are rolling out a program where you pay no tuition for years 3 & 4 as long as you reside on campus (plus minimal academic requirements).

Kelly said...

Two other options: Deferring college for a year to work full time. This could have the side effect of causing them to take school more seriously. Also, some of the large corporations offer a small tuition benefit to part time employees as long as you continue working there while you're attending school. McDonald's is one that comes to mind.

mandamum said...

We're in a pretty similar situation to your unique one, and it happened within the last 2-3 years. I think part of *my* mind problem is also that the total amount of subsidized etc loan aid was significantly smaller when I went to school, so the total "expected family" including "loans you should take out" amounts were likewise smaller. Very few people were ending up with mortgage-sized loans when graduating before the end of last millennium.

Great. Good to be prepared... for the shock. We're still too new to the "enough to pay for the house repairs and still save something in retirement accts" level to have anything to sock away, which doesn't bode well for having anything to pay with in the moment either.

Jen said...

We have been through this and the best piece of advise I can give you is THERE ARE NO RULES AND IF YOU WANT IT ASK FOR IT. Private schools tend to give out way more money than public. Having high SAT & Act scores trump athletic scholarships except maybe at D3 schools where the athlete receives ‘merit” money. Negotiate negotiate negotiate. I once took a picture of my daughters financial aid offer from one school and sent it to another and immediately they found another 10 grand in grants. We’ve had our children take out the maximum Fasfa loans so they have some skin in the game. Also if the school is not a good fit, many schools give out generous transfer grants. The schools are literally fighting for every student so make them work for your child.

JoAnna Wahlund said...

Here was my situation. The FAFSA takes into account household income, not the income of both parents. (At least it did in 1998.) My mom and dad, together, made very little (they are/were teachers). But my stepdad at that time had a very good job. However, since he was my stepdad, and he didn’t marry my mom until my freshman year of high school, he was not going to pay for my college. The FAFSA doesn’t care, and we had to put household income down instead of the incomes of only my mom and dad. So I got 0 financial aid and I’m still paying off student loans nearly 20 years later.

Ladyhobbit said...

We put our four children through college with a combination of their scholarships, their loans, our payments (usually we used a yearly payment plan to spread out our share), and a couple of parent loans.
Jen is right about negotiating. Private colleges do give more scholarships, and their "sticker price" is rarely what you will actually pay. Public colleges are much less generous with scholarships and grants. Our children also earned some outside scholarships. Somehow we managed to cobble it all together and manage the expenses.
Do you have a community college in your area? Does your local high school offer dual enrollment--college courses through or in the high school? When my children were in high school, I did not consider these options, but I wish I had! People who start out at a community college finish with much less of a burden in loans. Research what will transfer to use this strategy to the best advantage.

Ladyhobbit said...

By the way, the best thing about getting all four through college was that I would never have to complete a FAFSA again. The worst part was being selected for verification: we had to send our tax forms to every college my older son applied to. I bitterly joked that just posting them on a billboard would have been easier and more private. The whole system is repulsive.

mandamum said...

A friend of mine in high school ('94) actually had a situation where she lived with her mom, but her estranged dad had lots of money. And short of getting declared an emancipated minor, she couldn't keep FAFSA from taking her dad's money into account, even though there was no way he'd be paying for anything.

Probably FAFSA is just the least-bad way of trying to figure out a complicated issue....

As far as community college, I just came across a distressing article pointing out that up to 70% of community college enrollees drop out rather than either getting an AA or transferring to 4yr. I wonder how much of that hinges on expectations going in - whether you know you'll just be here for a few years saving money on your way to 4yr college? They said one thing that increased the odds was getting a certain # of credits in the first year, which is apparently really challenging to do because new students are at the bottom of the list for enrolling in classes and often can't get into the classes they need?!? So there's also that to consider....

Ladyhobbit said...

Interesting comments about community colleges, Mandamum! Full disclosure: I teach full-time at a community college, though I did not always do so; I have also taught as an adjunct at four-year colleges.
You are correct that many students do not come to a community college to get a degree: they come to "get their gen eds out of the way." (I teach English, so this statement makes me wince, but it is the truth.) Many students plan to attend community college for only a semester or two, but when they leave, they are indeed considered "dropouts" for statistical purposes.
Quite a few of our students are first-generation college students or non-traditional students with many life challenges that may derail their college success.
Community colleges are open-admissions institutions, so anyone who wants to give college a try can attend. The population is different from that of a selective university. But we do give people an opportunity that might not otherwise be available to them.
The problem of getting into the classes that one needs in the first year probably varies depending on where the student is. This is a problem that does not happen very often at my college, which is small and rural, although it can happen if a student decides to attend once the semester has started. We run a limited number of courses called "late-start" courses for that situation, so the student would then have less of a choice.

Sally said...

Our oldest is a sophomore in college; we had the same issue in that we didn't qualify for any financial aid at all, and the FAFSA assumed we had $40K in cash just sort of lying around. I think it is further skewed by the fact that we live in the metro Boston area, where salaries are higher than in much of the country - but where housing costs are astronomical as well, so those salaries don't go all that far.

Our oldest is going to a state school -- as it turns out, she got much better merit scholarship from the University of Maine system, and as her particular major is not offered in the UMass system, she is able to pay a reduced tuition as part of the New England reciprocal program. Based on her grades and SAT scores, she could have gotten into a much more prestigious private college, but even with financial aid it still would have been double what she is paying now.

Other things I have learned: Many large southern universities offer full-ride academic scholarships for students with SATs of 1300+ and GPAs of 3.8 or better; flagship state schools in the Northeast tend to be stingier with the merit scholarships than the less-well-known branches (i.e., UMass Boston has better merit scholarships than UMass Amherst); private colleges have more flexibility as to how much they will grant in terms of aid/scholarships so if your kid is a star athlete or whatever you can often get a better deal by asking for one; and it is better to be a big fish academically speaking in a smaller pond (i.e., be a top student at a less selective school) for financial aid leverage than to be an average student at a highly selective school.

State schools are better about accepting high school AP courses for credit and also for allowing students to take the CLEP exams instead of paying for the class. In my opinion, there should be no reason a freshman needs to pay top dollar to take the "core curriculum" classes as those all seems to be easier than high school classes. If your kid is self-disciplined, many colleges offer online courses and/or accelerated courses during semester breaks which can allow a student to graduate early (my sister-in-law did this and graduated with a double major in politics and communications in 3 years).

My 2ndborn is a high school senior and she is planning to work and do her core classes at community college, then transfer to the local state college while continuing to work. She is a computer science major and already has a good job working for an IT consulting company, so the way she plans to do it will result in her having little to no debt. She took advantage of the Early College dual-enrollment plan in high school, along with taking AP courses and passing the AP exams, so she has 12 college credits out of the way already.

My eldest likewise started her freshman year with 12 credits already, so she is technically a junior in terms of credits now in her 2nd year. She probably won't be able to graduate early because some of the courses specific to her major are not offered every semester, but it will allow her to take a semester off and still graduate on time. For her profession, she will need to go to grad school so she is trying to save as much money on her undergrad degree as possible.

There is no real advantage to going to a "highly selective" liberal arts college that justifies the price tag. Unless you are going into law, politics or finance - where connections are the most important thing - and are going to an Ivy, most people are much better off saving the money and going to a state school (or the most economic alternative of community college for 2 years, then transfer to state college). Having worked in HR for years, I can tell you that 95% of the time no one really cares where your undergrad degree is from, unless the person hiring you has an irrationally strong attachment to their own alma mater.

mandamum said...

Thanks for the clarification on community college, Ladyhobbit. For what it's worth, the info in the article also referred to tracking who transferred successfully to a 4yr, but that may have a time limit on it that keeps them from seeing other successes with a lag between leaving the CC and entering elsewhere. And it's written for an audience here in CA, where there is a big push for "College for everyone!" and where if you complete certain credits, you are guaranteed a spot (some spot somewhere) to transfer into in the state college system. I think they were trying to be more introspective about whether their push to get people IN the door was actually leading to more success, and what the next step toward more success needs to be. Personally, I have lots of people around me who went to the community college with a good plan, and used it to great advantage, including the children of fellow homeschoolers back where we lived in WA, who often complete the split High School Diploma/AA degree track, and my brother who got an AA without breaking the bank and then went off to do very well for himself. But I'm making myself a note about the bit about not being able to get the credits, so that should one of my kids be looking, we can avoid ending up at a college with too few classes for incoming students.

So helpful, with a Jr., to see everyone's varied kid-college stories here!!!

Darwin said...

I really appreciate all the experiences that everyone has shared. It's helpful to hear what other people are doing as we feel our way through this for the first time.

Literacy-chic said...

My problem with the whole "private colleges are a lot more generous" is that by the time you get to the end of the money they're willing to give, guess what? You're still left with the tuition bill of a state school. *shrug*

Literacy-chic said...

Beware the community college TRAP. Not only do you have to be very careful about which community colleges have deals with which 4-year schools to transfer all credits, you need to be very sure that the community college has an interest in helping students to maximize their transfer potential. Not every school has transfer scholarships that cover any significant portion of tuition. If the community college has an agreement with a specific 4-year school, you might find that there is money. As difficult as it is to get money for college, it is MORE difficult as a transfer student. And some community colleges have resources, and will essentially pay a good student to attend, but others are going to (rightfully) give the lowest income students all of the grants and subsidized loans (as they should). Depending on the population served by the community college, this might leave middle-income students without anything, who might have gotten more at a 4-year school. If you can pay the community college tuition outright, that's not a concern, but I tend to assume that most people can't afford even a few hundred extra. In my experience, the larger state schools are the ones that are allocated enough grants and subsidized loans to offer to students who fall in between poverty level (where I grew up) and the level of affluence that allows for parental contributions or savings (which I will never reach). My kids will have debt. Their kids will have debt. And so it continues.