A friend and I were talking the other day. His daughter is one year younger than mine but both will be off to the college campuses of their choice this fall.
He was sharing that his daughter had the choice between two great schools in her state which would leave her with ONLY “tens of thousands of dollars in debt” upon graduation and another, highly rated school just three-hours from home, which will leave her with “over six figures of debt.”
You can guess which one she selected. Yep, the high-debt one.
And it’s not like she was choosing between an awesome school and two dogs. They were all great schools and two of them (the one she selected and another) are premier schools nationwide.
I told him what we had going for college and he said he envied us.
There are hundreds of “how to save on college” posts around the web, but I thought I’d give you a spin on the standard by making it personal and sharing exactly what we did to save on college costs. There should be lots of learnings in our story that can benefit others, particularly those families with a high income/high net worth (since we’re out of the need-based aid options).
Talk and Offer an Incentive
College saving tip #1: Involve your kids in the decision and put in place incentives to encourage them to make responsible choices.
Our savings strategy started with a conversation with our daughter. It basically went like this:
- We have saved a good amount for you to attend college ($90k).
- This amount should be enough to get you a good degree from a solid school without having to incur debt.
- If you decide you want to go to a school where it will cost more than $90k, you will need to pay/borrow for the amount above that.
- If you complete your education and graduate for a cost lower than $90k, you can keep the difference.
The details of this arrangement can be seen in Managing College Costs by Offering an Incentive.
BTW, yes, this committed us to spending the full $90k in one way or another. But it also locked us into a maximum amount we’d pay.
In addition, you could say this was generous. We could have kept the difference ourselves or struck another deal like splitting the difference with her. But we viewed it as her money anyway and wanted to give her a large incentive. You can play around with the amount and the offer to fit your needs if you try something similar.
We had the conversation when she was 14 or 15. We also pointed out some ways she could choose to save if she wanted (which I’ll discuss in detail below).
Free Community College Credits
College saving tip #2: Take advantage of free college credits.
When we lived in Oklahoma, they had a program where high school students could take classes at the local community college and receive both high school and college credit. Our kids were homeschooled, but they were allowed to take advantage of the program as well.
All the classes were online except for some tests that had to be taken at the school.
Fortunately, my daughter was bright and disciplined enough to take college classes beginning in her sophomore year. She took a couple free classes each semester and by the time we left Oklahoma, she had 21 credits to her name.
Online College Credits at Reduced Rates
College saving tip #3: Take advantage of low-cost online credits.
Then we moved to Colorado. They have the same high school/free college classes option as Oklahoma, but 1) you have to enroll in the program by a certain date (which we missed the first year) and 2) some of the classes required physical attendance at the college (versus taking all the classes online) which my daughter didn’t like as it created conflicts with her work schedule.
So, we began to look at online college options. We eventually selected a college where 1) the credits would likely transfer easily to most other schools, 2) she might eventually attend in person, and 3) the costs were affordable.
We paid for these classes as they were part of her high school credits as well.
The online cost for high school students was $165 per credit hour versus the cost of being on campus of $636 to $953 per credit hour (assuming a low of 12 hours per semester and a high of 18).
For a year my daughter took two courses per term (eight-week classes) for fall, spring, and summer, and racked up 18 more credits.
Of course one of the keys for both this tip and the previous one is that the credits transfer to her final destination. If they don’t, you’re wasting time and money.
Stay at Home
College saving tip #4: Keep the costs as low as possible for as long as possible.
As we approached the fall of 2016, we had a decision to make. My daughter had enough credits to graduate from high school. But she was also only 17 and had one more year of high school left if she wanted it.
So the choice was to attend a college on-campus or continue her high school career and keep doing the online classes.
As you might imagine, the cost differences were enormous. On-campus she was looking at big money — tuition, room, board, etc. At home taking online classes, she was looking at a cost of zero since we agreed we’d continue to pay for her classes without using her college funds.
She decided to stay at home for an extra year. Over this time (which draws to a close in another month) she will get another 21 credits. For those of you counting, she’s now at 60 credits and hasn’t spent a penny of her $90k. (Yes, she’ll begin her fall classes as a junior and will graduate at 20 — giving her two extra years of earning potential to boot!) Even if we had made her pay for the online classes, the cost difference between home and college was several thousand dollars.
Take the Money
College saving tip #5: Grab all the free money you can.
In the middle of this, we made a college selection trip in April of 2016. We visited three colleges and selected the one she had been attending online since it had the best combination of atmosphere, academics, and, of course, job potential post-graduation. (I must admit I’m a bit jealous — the college is awesome!!!)
We applied and she was accepted easily since she had been taking their online classes and had all A’s. And we confirmed prior to this that all her credits would transfer.
Then we got to work getting as much free money as we could. We had started a list during our campus visit and we began to work it.
I filled out the wonderful FAFSA as early as we could. We got some aid because we committed early and some due to my daughter’s academic success. Here’s what we netted:
- $6,000 annual academic scholarship based on her grades and ACT scores (which she took three times to get the score we wanted)
- $2,000 annual early commitment award
- $600 in credit at the book store for paying for the fall semester by the end of January
- $250 one-time credit for applying early (I think the date was October 1)
These get us to $8,850 in aid per year.
FYI, we paid all her fall costs in January with a 2% cash back Fidelity Visa (there was no service fee to do this), so we’re well on our way to another great credit card rewards year.
There was some other money we had the chance to get (namely entering the honors program and working on campus). But my daughter decided that since she would only have two years on campus, she didn’t want to bog herself down with extra classes and work. She had enough money and wanted to enjoy herself too, which we agreed with 100%.
Annual College Cost
The cost of the school per year is roughly as follows:
- Tuition — $22,880
- Room (2 person, could have saved with three people) — $6,760
- Board (best plan — can eat anywhere at any time) — $3,850
- Activity fee — $730
- Books (estimated) — $600
- Health fee — $330
Total annual cost: $35,150
The Final Tally
Taking all this info together, here’s where the numbers come out:
- Four-year retail cost of this school: $140,600
- Four-year cost of this school with the aid we received (assuming we get the same amount each year): $105,200
- Cost my daughter will incur going two years: $52,600
- Amount she’ll have left over at graduation: $37,400
Of course she’ll have more costs than what is above — miscellaneous supplies, events like concerts, etc. on campus, and maybe a trip or two — but those aren’t knowable at this point. Besides, these numbers get us into the ballpark of what we’ll actually see.
One problem we have with cutting costs is that I saved too much for college. You can see from the numbers above that our savings could have just as easily been too little. It’s hard to guess what you’ll actually spend on a big-ticket expense that’s 15 years down the road when you start saving.
I believe I can take money out of her 529 for the college’s retail price even if we don’t pay it. That would be $70k or so for two years. I have already withdrawn $7k for her costs for 2016 (which I paid for personally from my funds, not hers, but I at least got money out of the 529). This gets me within spitting distance of $90k.
I’m working through withdrawal strategies with my accountant and will keep you informed as to what we decide. Who knows, maybe I’ll transfer the money to my name and begin studying for my PhD in St. Thomas! 😉
photo credit: Blok 70 Toronto, Canada (University of Toronto) via photopin (license)
I’d like to suggest an idea – look at private scholarships. There are a ton of them out there and a lot of weird ones too where there aren’t a ton of people applying. Easy way to pick up a few thousand dollars to help defray the costs of college even more.
Yes, we talked about that and I think she’s at the point where the reward might not be worth the time.
She does work 35 hours a week and has three online courses, plus applying for internships, friends, etc., so life is hectic.
But I hear you. I gave her a few scholarship books from the library to look through…but no action so far.
I agree in look at the off the path scholarships. Both my son’s received a $500 scholarship from our charter organization for Boy Scouts which was the local VFW. But there is a law of diminishing returns. Son #1 he spent around 60 hours applying for scholarships and received around $2500 while son #2 spent 15 hours and received $1500. Unless you are a stellar student you are only going to get what you are going to get.
When your daughter is attending college, have her look for scholarships in her field of study. They do award scholarships for good GPA in the junior and senior years for GPA. My son had a $1500 a year scholarship for two years just because of his grades.
All the little scholarships can add up to money she will not have to spend and leave more money on the table to work with.
Keep applying for scholarship every year. I think people tend to apply during their senior year of HS and then fall off. With twins heading to college in the fall, we’ll be applying to as many scholarships as possible over the next four year.
Saw this funny video this morning and it reminded me of your post.
I plan on using a similar financing strategy with my two kids when it come to college. Thinking about possibly moving to a state, maybe VA, that has good schools that aren’t expensive for in-state tuition. Fortunately, I have a job where I can work from anywhere so moving isn’t a big issue for me.
For the withdrawal from the 529 I believe you avoid the penalty but you still pay the income taxes if your covered by a scholarship.
Anyway my wife’s education growing up followed a similar path. Local university classes on the side, father paid x dollars and she pocketed the difference. I’m thinking of following the same approach with out kids. One thing that helped my wife, her father was a university professor. In his case his kids got free education at any university in state. That paid for her pre college credits. I’m wondering if an adjunct professor might qualify and I could do the same later on.
“For the withdrawal from the 529 I believe you avoid the penalty but you still pay the income taxes if your covered by a scholarship.”
Yes, my CPA confirmed this at tax time this year.
I actually thought of getting a teaching job at the school to save her college money… 🙂
Jack Catchem says
First, congrats on her being smart and getting into a great school. When I was in college I thought “I’m here because I’m amazing.”
Now that I’m a parent I realize how much a parent might be involved in making their child amazing. 🙂
A great option most do not realize is if a child joins the military they are now counted as a “veteran.” Veterans have the ability to declare themselves independent of their family and the colleges are no longer allowed to look at the family as a source of support.
This dramatically helped me as parts of my family are well off but I am (and continue to be) completely independent. It was nice that the college wasn’t able to presume I would get aid where I truly wasn’t receiving any!
Also, don’t worry about withdrawing all the 529 money, more and more postgraduate degrees are developing into the norm. Might want to let the extra keep accruing interest. ?
The Foxy Dad says
That is a great point about veteran status. I qualified for loans and grant programs that I would not have otherwise if I was still considered a dependent of my parents.
I also work with high school students who have been emancipated from parents and qualify for more grant money.
Good article. Make sure you also account for college inflation costs, which never go down every year and can be an additional 5-25% each year. This hard to plan for, but looks like you may have some buffer. Also it seems that financial aid always seems to go down every year a student gets closer to graduation unless the college has incentive scholarships for good grades something else to look into. If the costs do go over your budget you can also look into home equity loans to cover the difference and pay them off as soon as cash is readily available.
Also tuition discounts for employees have dropped for most colleges, but I do know of some parents that took night time custodian jobs for the discount and it saved them a great amount of money note you have to work there a minimal amount of years before the discount is applied.
College classes as a high school sophomore, that’s pretty early to pick a major. We were told by admissions office most students that enter university with a 2-year degree still spend 3-4 years on campus. A change in major can throw a wrench in the best of plans. Required internships can also cause a change in her ability to continue to work 35 hours a week.
My son was able to take some classes at university that counted both towards undergrad and his masters, at the undergrad rate. Nice $avings.
My daughter filled out an application for scholarship describing her service in the community and received $250. It took her 5 minutes. She was already on an academic scholarship, so it went to the ever growing college fees. This daughter was also able to snag a job as a graduate assistant while earning her Masters. It involved grading student work online, $100 per week. (5years ago).
She didn’t pick a major. She’s focused on getting her core classes out of the way.
I’m sure the admissions office told you that. And maybe most students do end up taking more classes. But as of now, we’re on pace to graduate as planned.
Good call on ACT, my oldest daughter was required to bring hers to onsite interview, after receiving Masters. She did get job, everyone was surprised it was required.
We have a somewhat different education philosophy (we expect to pay 100%) but offered a similar strategy for “skin-in-the-game”. We also want our children to go away for four years, have the full collegiate experience, build their own networks, etc.
For both kids, we have a fairly substantial 529, one that would pay for most out-of-state state schools for four years. We also have a UTMA account that is north of $100k, that if you add the amount to the 529, you could pay for any college, private or public.
We told our son, attending college this fall, that this was the pot of money that he had to work with. We expect him to spend down the 529. He might even need to dip into the UTMA account, but this is his money. Whatever he does not spend for college, he can keep for “starting in life” money. Buy a house, start a business, go to grad school, travel for a year around the world, whatever.
(Yes, I know that legally he can take the UTMA money now and buy a Corvette, but he does not know that. Furthermore, if he ever did get the idea of doing such, he would lose access to our largesse in the future.)
The Foxy Dad says
I love the idea of having incentives in place. We’re still some years away – my oldest is in kindergarten and youngest will be starting preschool soon – but I like this idea. I paid for undergrad through reserve GI Bill (not a lot of money), loans, and work studies. My Master’s tuition and expenses were fully funded through VA Vocational Rehab and a small loan to help with living expenses. Admin cert covered by loan. It was really difficult without help from parents, but the feeling of accomplishment is priceless. I want my kids to feel that even though we as parents intend to help them pay for college. I certainly believe incentivizing the process could do that. Thanks!
Yatit Thakker says
Hi ESI, I came across your blog through an article on Business Insider that I was just curious about. I personally can’t see myself retiring (I like working too much :)) but your retirement life seems really interesting.
Speaking of saving for college, is your daughter taking AP classes by any chance? They give college credit and are a great way to save on tuition.
Not taking AP classes (she’s homeschooled) but simply taking college classes directly.
I have three children who attended college. I told them that I would pay $50,000 for them to attend college. Any cost above that I amount, they would have to pay. They graduated from high school in 2000, 2003 and 2007. I had children in college for 11 years. With an inflation rate of 2.12%, $150,000 in 2000 would be $214,178 in 2017.
I did not complete the FAFSA form. I calculated that my children would not eligible for financial aid because of my income. Two of the children attended in state university schools. Two children had 4 credit hours prior to starting college. One child received a scholarship for 2 years at the state school. For 7 of the 11 years, I was a 50% state university employee. I received the benefit of a 50% discount on the tuition. My third child attended a private university and received an academic scholarship for 50% of the tuition for 4 years. Two children stayed at home 1 year and 4 years respectively. The third child required room and board 4 years. Fortunately for me, they all graduated within four years. I think I stayed within my budget.
I would encourage everyone do not take out a loan in your name for a child to attend college. Let the child put the loan in their name and pay the loan for them. If the child decides to drops out, they will have to pay the loan. Children can take out a loan for college but you cannot take out a loan to retire.