Every quarter I do a re-evaluation of my financial standing and strategies. I just completed it this weekend and noticed the levels of my kids’ college funds. The middle kid’s account level was starting to look a bit hefty, so I decided to do some investigation into if I should slow it down or even stop it. What I researched shocked me.
Don’t get me wrong; this isn’t the first time I’ve researched this subject, so I wasn't shocked by the numbers. But it’s the first time I’ve examined it with the new Boredom goggles. I didn’t realize the ludicrous nature of the situation before. It’s scary how much college education has become the new “Keeping up with the Joneses.” It used to be about having the biggest home, the shiniest car, or the most featured gadget. Now it’s about what college “experience” your kid is given (NOTE: frequently not earned). No wonder the nation has an ongoing massive college admittance cheating scandal.
Let me document some of the findings I unearthed this weekend, mixed in with some of the research I’ve done in the past.
The first step in planning college finance planning is to break college expenses into thirds. The first third will be paid in the past and is done by the parents from the child’s birth to adulthood (18-years-old) on a monthly payment. Present efforts fund the second third. Parents pay for this portion through their regular monthly income while their child is in college. Considering the first third is spread over 18 years with compounding interest or returns (depending on if you’ve done savings or investment accounts) while the second third only contains four years of contributions, that means the first third is a slow accumulation while the second third is a frantic spend-fest.
Then the last third is paid in the future in the form of a loan taken out either by the parents, by the child, or both. Since college loans are the new mortgage, this is spread out over decades. Although there is interest associated with it, there are also tax advantages that offset the real costs. Therefore I imagine this is another slow burn.
Okay, we have our buckets. Now how much do we fund? Boiling everything down to averages, I saw the following recommendations for covering 33%-50% of college expenses (which fits into the 3-bucket approach).
Buckets: check. Allocations: check. Next up defines where to make the allocations. Typically 529 plans are the first vehicle of choice. Tax advantages on gains and some states let you take tax advantages on contributions. Transferable if the initial benefactor decides not to go to college. Downsides are that there are restrictions on what expenses this money can cover. Besides 529 plans, I’ve also seen a couple of child custodian accounts. I don’t recall their names, but from what I remember, they are very similar but have a few key distinguishing factors. Then, of course, there’s just an earmarked account in the parents’ name reserved for the child’s education.
At this point, I’m just like holy ****. Can this be any more complicated?
I need a 4-year STEM degree to figure out my kids’ college experience with the roadmap starting at their birth with the first 529 plan contribution and lasting potentially into their 50s with their final student loan payment. How did the act of planning for a college education become so moronic? It's like our life's purpose is to figure out how to pay for a college education, instead of our college education's purpose is to help figure out our life's journey.
I’m not sure what my next steps will be. There has to be a way to hack this system. The FIRE community, among many others, has figured out some very cost-effective hacks to decrease or remove college expenses. But hacking implies complex maneuvering to beat the system. Is that honestly the best way? Instead of the “experience” of college spending four more years in a party and alcohol invested, high consumption, arrogant dominated atmosphere, how about swapping or preluding that with the “experience” of traveling the world for even a year moving from city-to-city earning a living wage while finding out who they. Instead of putting in four more years in a classroom setting, emphasis your kids to put themselves out there and start a High School business which they can grow to profitability before graduation.
I’m not saying higher education isn’t beneficial; it’s just not the end-all solution that we make it out to be.
I have some ideas now that I would like to try implementing, but I'll kick this re-evaluation down the road a bit more. My contributions are inline for the in-state/out-of-state contribution levels in a 529 plan, so there's no pressing need to minimalize this yet. Being that these costs can be a bit part of my Financial Independence path, I’ll want to tackle this eventually. But there’s still time, and there is more simplification cleanup needed in the other parts of my financial life.
(Written 2019.04.06)
Don’t get me wrong; this isn’t the first time I’ve researched this subject, so I wasn't shocked by the numbers. But it’s the first time I’ve examined it with the new Boredom goggles. I didn’t realize the ludicrous nature of the situation before. It’s scary how much college education has become the new “Keeping up with the Joneses.” It used to be about having the biggest home, the shiniest car, or the most featured gadget. Now it’s about what college “experience” your kid is given (NOTE: frequently not earned). No wonder the nation has an ongoing massive college admittance cheating scandal.
Let me document some of the findings I unearthed this weekend, mixed in with some of the research I’ve done in the past.
The first step in planning college finance planning is to break college expenses into thirds. The first third will be paid in the past and is done by the parents from the child’s birth to adulthood (18-years-old) on a monthly payment. Present efforts fund the second third. Parents pay for this portion through their regular monthly income while their child is in college. Considering the first third is spread over 18 years with compounding interest or returns (depending on if you’ve done savings or investment accounts) while the second third only contains four years of contributions, that means the first third is a slow accumulation while the second third is a frantic spend-fest.
Then the last third is paid in the future in the form of a loan taken out either by the parents, by the child, or both. Since college loans are the new mortgage, this is spread out over decades. Although there is interest associated with it, there are also tax advantages that offset the real costs. Therefore I imagine this is another slow burn.
Okay, we have our buckets. Now how much do we fund? Boiling everything down to averages, I saw the following recommendations for covering 33%-50% of college expenses (which fits into the 3-bucket approach).
- In-state public institute: $100 / month
- Out-of-state public institute: $250 / month
- Private institute: $500 / month
Buckets: check. Allocations: check. Next up defines where to make the allocations. Typically 529 plans are the first vehicle of choice. Tax advantages on gains and some states let you take tax advantages on contributions. Transferable if the initial benefactor decides not to go to college. Downsides are that there are restrictions on what expenses this money can cover. Besides 529 plans, I’ve also seen a couple of child custodian accounts. I don’t recall their names, but from what I remember, they are very similar but have a few key distinguishing factors. Then, of course, there’s just an earmarked account in the parents’ name reserved for the child’s education.
At this point, I’m just like holy ****. Can this be any more complicated?
I need a 4-year STEM degree to figure out my kids’ college experience with the roadmap starting at their birth with the first 529 plan contribution and lasting potentially into their 50s with their final student loan payment. How did the act of planning for a college education become so moronic? It's like our life's purpose is to figure out how to pay for a college education, instead of our college education's purpose is to help figure out our life's journey.
I’m not sure what my next steps will be. There has to be a way to hack this system. The FIRE community, among many others, has figured out some very cost-effective hacks to decrease or remove college expenses. But hacking implies complex maneuvering to beat the system. Is that honestly the best way? Instead of the “experience” of college spending four more years in a party and alcohol invested, high consumption, arrogant dominated atmosphere, how about swapping or preluding that with the “experience” of traveling the world for even a year moving from city-to-city earning a living wage while finding out who they. Instead of putting in four more years in a classroom setting, emphasis your kids to put themselves out there and start a High School business which they can grow to profitability before graduation.
I’m not saying higher education isn’t beneficial; it’s just not the end-all solution that we make it out to be.
I have some ideas now that I would like to try implementing, but I'll kick this re-evaluation down the road a bit more. My contributions are inline for the in-state/out-of-state contribution levels in a 529 plan, so there's no pressing need to minimalize this yet. Being that these costs can be a bit part of my Financial Independence path, I’ll want to tackle this eventually. But there’s still time, and there is more simplification cleanup needed in the other parts of my financial life.
(Written 2019.04.06)
