3072: Managing College Costs by Offering an Incentive by ESI Money on Education Planning

[00:00:02] Oh, fühlt sich das nach Sommer an! Die neue Sommerwäsche von Chibo begeistert mit leuchtenden Farben und fröhlichen Trins. Feine Spitze, leichte Mikrofaser und sommerliche Schnitte sorgen für pures Wohlgefühl, selbst an heißen Tagen. Entdecke jetzt die neue Wäschekollektion von Chibo und finde deine Lieblingsstücke für den Sommer.

[00:00:32] Echt? Mich entspannt meine Steuer total! Steuer? Wie Finanzamt? Die Steuererklärung? Ja, ich habe ganz locker über 1000 Euro zurückbekommen. Hast du geheime Connections oder Excel-Superkräfte? Nö, nur die Wieso-Steuer-App. Wow, und das ist einfach? Klar, die macht fast alles automatisch. Ich fühle mich plötzlich so. Entspannt! Hol dir dein Geld zurück. Abgabefrist 31. Juli. Was? Schaffst du ganz entspannt mit Wieso-Steuer? Ach, ja.

[00:01:00] Hallo, ich bin Greg Audino, dein host hier auf ORD. Und du findest in einer meiner Woche bonus-episodes in der, in der, instead of reading to you myself von einem article über relationship-building, ich share eine previously-aired-episode von einem unserer anderen shows in unserer network, die ich denke, du möchtest. Heute kommt von Optimal Finance Daily, unser show that covers all sorts of posts about personal finance information, und wie zu cultivate a smart-money mindset.

[00:01:27] So, with that, let's hear our host over there, Diana, narrate this post for you and provide her commentary as well, as we optimize your life. Managing College Costs by Offering an Incentive by ESI of ESIMoney.com Other than retirement, we only have one major expense left in life, college for our kids. Some might say that it's not really our expense, but one for our kids.

[00:01:57] But we've always wanted to pay for our kids to go to college, if they were so inclined. This post will detail what we've done to pay for it, as well as the path chosen by each of our children. Background Many years ago, when our kids were toddlers, they are 20 and 18 now, we started saving for their college expenses. We saved in education IRAs, education savings accounts initially, and graduated to 529s.

[00:02:26] We lived in Michigan at the time, and when we started, the state's 529 was well-rated. In addition, we got a tax break for being in-state investors. Throughout the years, we socked away money here and there in an effort to build a fund that could cover a good amount of college costs. The problem is, you don't know how much to save. If your kid goes to an elite school and you get zero aid, that could be $50,000 per year

[00:02:53] or more. If they earn a full-ride scholarship, you pay nothing. That's a widespread, and it's certainly unknowable 15 years ahead of time. So we, mainly me, decided to save what should be adequate for a reasonable college education with some, not a lot, of scholarship money. We certainly weren't going to qualify for need-based aid, so our kids would be limited somewhat. In addition, we wanted to incentivize them to look at college as a

[00:03:23] business proposition. It's an investment that should lead to a payoff, long-term employment in their chosen fields at a greater financial level than what they could have otherwise obtained without the degree. They needed to make decisions based on the fact that this was an investment, and they should expect a return. In other words, no racking up $200,000 in college debt for a job

[00:03:46] paying $20,000 per year. Our plan. With these things in mind, we took the following steps. We saved $90,000 for each child. We talked them through the purpose of college, to get a job, as well as the costs and benefits of various schools, jobs, etc. We told the kids that they would have $90,000 to spend for college. If they spent more than this, they would have to make up the

[00:04:13] difference, either by borrowing, saving in advance, or working. As part of this, we advised against leaving college with debt, but the decision was up to them. Here's the key. If they spent less than the $90,000, they got to keep the difference. Caveat. They would have to earn a college degree to get any difference. They couldn't get partway there and claim the rest of the money or simply take the money and head to the Caribbean after high school. If they wanted to take college classes,

[00:04:43] while they were at home, then we would pay for the cost of the classes ourselves, not out of their college funds. Both our kids were homeschooled, and it's common for kids to take dual enrollment classes in high school. These are college classes that count for college credit, but also count as credit towards high school graduation. With this sort of plan, we thought we would encourage the kids to consider the cost-benefit options with various college choices. A Tale of Two Kids

[00:05:13] As you might expect, each of the kids reacted differently to the plan. Our son, 20, has never really liked school. While he did okay, his heart was never really into it. He's more creative and a free spirit. He's also a bit entrepreneurial. He took business and marketing classes at a local high school as a supplement to homeschooling and really enjoyed them. He earned college credits along the way. I think he earned six credits and placed third in a regional business

[00:05:42] plan competition. So he's probably not going to go to college, though you never know. His current plan is to work a bit, save some money, and start his own business. Not a bad plan, but he does need to develop a viable business model. Not sure if we'll help him or not financially, or if he would take help. That's to be settled down the road. But if he doesn't use his college money, it will be absorbed

[00:06:07] back into our finances. Of course, there's the issue of how to get it out of the 529 without penalties, but that's a subject for a different post. My daughter's plan, 18, is as follows. Take as many college classes while in high school as possible. She could have graduated high school last year or this year, but has decided she'll stay one more year to rack up the credits. Her objective is to enter

[00:06:33] college in the fall of 2017 with 60 credits, two years of college, under her belt. Take two years of college on campus and get her four-year degree. She'll spend $20,000 to $25,000 per year to do this, based on the school she likes, subject of another future post, and the scholarships available. Even at $25,000 per year for two years, this only adds up to $50,000, leaving her with $40,000 to pocket when she graduates.

[00:07:05] You just listened to the post titled, Managing College Costs by Offering an Incentive, by ESI of esimoney.com. I meet a ton of people in the FIRE community that often discuss this question of saving for college for their children. I find that there are two camps, parents who feel it's their responsibility to pay for college and parents who have no intention to pay for it. I personally feel

[00:07:31] that I benefited from paying my own way when it came to school. Now take this with a grain of salt because I got a full academic scholarship and took out loans for living expenses, but I do have a sense of pride in figuring it out for myself. And I always thought that if I did have kids, I would want them to have a similar experience. I remember being annoyed in school by the kids who didn't value their parents covering the cost of their education. Perhaps if they had to cover it themselves, they wouldn't change

[00:08:00] majors five times, or they would put that degree to work in a higher paying field versus staying at their restaurant job. I know I'm oversimplifying, and as someone who graduated college in 2009, I recognize how hard it is to get an entry-level position in a tough economy. It can be argued that the cost of higher education these days makes it impossible for young people to pay their own way. But perhaps if they had to pay for it, they'd be forced to consider the return

[00:08:27] on investment of that education. Look, if you do decide that it's important to you to pay for your child's education, I would just encourage you to first make sure that you're set on your own financial goals. If paying for college is going to risk your own retirement or put you further into debt, perhaps it needs to be considered further. Your child can take out a loan for school. You, however, cannot take out a loan for your retirement. It's great to help your offspring get a good start

[00:08:57] to their adult life, but who's to say they'll be in a financial position to help you when you're in your elder years? That'll do it for this episode. Have a happy rest of your day, and I'll be back with you again tomorrow where your optimal life awaits.