Saving for College- Prepaid or 529? (1 Viewer)

[Neil M]

If you want to be safe, go with the 529 plan. If you want to make more money for your investment, play the market. My advice is that you cannot lose in the market in the long run unless you are a complete idiot that does not pay attention to the market. You have 15 years and the market is very low right now. My portfolio has gone from $1000 when I was born to almost $200000 in 21 years. Of course, I put some money in every once in awhile but not really that much. Buy low, sell high....the only four words you need to know when it comes to investing your money.

 

[Todd Hochard]

Don't bet your retirement, your children's future and any other financial goals you have on an amateur (you).

Nice sales pitch. I'm sure you're well-intentioned, but that really doesn't come across very nicely as written.

After considering the manner in which I'd have to round up funds for prepaid (even though I can pay monthly, I'm a lump sum kind-of guy), I'll probably take what I've set aside, and go into a 529. Now, which one?

Todd

 

[Rob Landolfi]

It's late out here and I don't have access to my paperwork at the moment, but I believe another point in favor of 529 plans is that scholarship $$$ earned/won by your child will allow you to take out the scholarship amount from your fund without penalty. Our contributions are taxed, or maybe stated better: there's no deduction for our 529 contributions, but the growth is tax-free as long as it's used for education. If your kid gets a full-ride for being a hotshot musician, academic or athletic stud, etc, then you'd be able to either keep the money for your next kid or withdraw it for something else without any penalties (I think the penalty is around 10% in addition to any gains taxes at your appropriate rate). Someone will correct me if I'm wrong, and I'll try to find it.

In this area (MD/VA), if you're on a state prepaid plan and want to go somewhere else out of state, you will get the $$$ equal to your in-state tuition in your home state to put toward the costs of the other school. Beware of out-of-state costs... they're often more than 2x as high as in-state costs.

One option (a bit off topic, but maybe something you could consider) is to do the 529 plan (plan for the "worst"), and gently suggest to your kid around their sophomore/junior year of HS that a military academy (West Point, Navy, Air Force, Coast Guard) might be worth looking into. They're free, your kid will get paid to go there, will have a decent paying job when he/she graduates, and can play Division I or in some cases Division III sports. Lots of other activities besides sports and military as well. Just another thought.

Good luck.

 

[Eric_L]

One way I've seen the cost of college moderated is to buy a house in the college town. I plan on doing this with my three children, 2,5 and 7 yrs old. Their first year will be in the dorms. Second year they can move into the house provided they are mature enough or else more dorms. They can rent rooms to cover the mortgage and by the time my last graduates there should be a tidy bit of equity.

Yes, that means they will have to all go to the same college. So be it. Unless there is a VERY compelling reason to attend another school they will be stuck at the same college together.

Choosing a college will be the most difficult. My alma-mater would be ideal if it weren't 3000 miles away. I hear Gainesville has a nice college-town flavor that compares to my old college. I'm tempted to buy a rental there now...

 

[Brian Perry]

Now, which one? (529)

I have one set up with Learning Quest (through Charles Schwab). They automatically withdraw a certain amount from my checking account each month, and offer various investment strategies (I think I'm in "moderate risk growth"). The annual account maintenance fee is $27.

www.learningquestsavings.com

 

[Todd Hochard]

One way I've seen the cost of college moderated is to buy a house in the college town.

I own my home 3 miles from UCF. Does that count? Of course, it's not certain that she'll go there.

What about Education IRAs? Yeah, yeah, I've heard the argument that you can't put enough in there to cover college, but here is the hard reality at my income level- I'll be lucky to put $2000/kid in each year.

EDIT- Gainesville does have a pretty good college town feel.

Todd

 

[nolesrule]

Eric, I'm glad your not my parent. I wouldn't want to get stuck in Gainesville. I think you'd better understand the nature of the instate college rivalries before you go through with your plan to force them to go to a specific school.

My parents considered it cruel to limit our options in regards to college. While I am an FSU alumnus, there are plenty of excellent schools outside the state of Florida and I'm glad I had the option to go to them if I had wanted.

Also, I don't think you'll get tax benefits for buying a second house. And even if you did, it'd only be on the interest. The 529 and pre-paid plans are a better deal in terms of tax savings. The house is also much more restrictive than the savings plans, because it's only good at one college.

 

[Edwin_C]

Wow. If that's not scary misinformation then I don't know what is. I wouldn't count on government hand-outs for your children. Especially in the median income bracket. (In FL your income is actually higher than average)
Re: 50% off for alumni. Haha, that's just funny. That wouldn't pass muster anywhere - Talk about perpetuating class warfare... That'd be a bomb.
I can say more but it would be mostly unkind and nonconstructive.

Hmm... I could be an asshole here, but I choose not to. My dad graduated from JHU, brother got 50% tuition because of that. My uncle graduated from UMass Amherst, cousin could've gotten 50% tuition. My friend went to UMass Amherst, his children will get 50% tuition. My mom went to UCLA, I could've gotten 50% tuition. Every child of an alumni at MIT will get 50% tuition.

Now before you go talking on behalf of your ignorance, find out for yourself. Ask the school, and they'll tell you pretty much the exact same thing that I just told you. Don't talk if you don't know for a fact.

-edit-
Adding on... why do you think it is that for practically EVERY university application they ask you if your parents work for or graduated from that school? If one of your parents work for it, you get a discount. If one of your parents graduated from there, you get a discount.

 

[Brian Perry]

Adding on... why do you think it is that for practically EVERY university application they ask you if your parents work for or graduated from that school? If one of your parents work for it, you get a discount. If one of your parents graduated from there, you get a discount.

I believe legacy considerations are usually for admissions, not tuition.

 

[Edwin_C]

For the most part, it's for tuition. Public universities (Rutgers at the least) also ask for verification of residency if you want in-state tuition. They use all this to determine your semester tuition in the case that they accept you. Lastly, they have to figure out your semester tuition around the time you apply, otherwise the FAFSA form would be incomplete.

 

[Leila Dougan]

Now before you go talking on behalf of your ignorance, find out for yourself. Ask the school, and they'll tell you pretty much the exact same thing that I just told you. Don't talk if you don't know for a fact.

You can't blindly speak for all schools. My father graduated from U of Washington and I was not offered 50% discount. I wasn't offered a discount at all. I did get preferred admission, though, but still had to pay the same tuition everyone else did.

And I can assure you for a fact the university I graduated from (and will be attending grad school at soon) will not offer any discounts either.

You might have lucked out with your schools there but it doesn't apply across the board. I suggest you don't talk if you don't know for a fact.

 

[Edwin_C]

You can't blindly speak for all schools. My father graduated from U of Washington and I was not offered 50% discount. I wasn't offered a discount at all. I did get preferred admission, though, but still had to pay the same tuition everyone else did.

And I can assure you for a fact the university I graduated from (and will be attending grad school at soon) will not offer any discounts either.

You might have lucked out with your schools there but it doesn't apply across the board. I suggest you don't talk if you don't know for a fact.

I never said all schools, so don't assume that I did.

I made the statement that I did because I didn't know of any 4 year institution that doesn't offer the discount, until now.

 

[Dennis Nicholls]

Scholarships aren't based on intelligence solely, if at all. They're based on achievments.

And don't forget there's a big difference between a scholarship (a piece of paper) and a stipend (actual money). After you receive a scholarship, you then have to fork over all your families financial information to see if you can get any money from it. I've received a pile of scholarships, but not a single one had even one penny of stipend because my parents made "too much money" (i.e. were middle class). I couldn't even qualify for government-backed loans.

 

[Leila Dougan]

Now before you go talking on behalf of your ignorance, find out for yourself. Ask the school, and they'll tell you pretty much the exact same thing that I just told you.

But I'm glad you know better now.

 

[nolesrule]

.

And don't forget there's a big difference between a scholarship (a piece of paper) and a stipend (actual money). After you receive a scholarship, you then have to fork over all your families financial information to see if you can get any money from it. I've received a pile of scholarships, but not a single one had even one penny of stipend because my parents made "too much money" (i.e. were middle class). I couldn't even qualify for government-backed loans.

Dennis, sounds like you are confusing grants, which are need-based, with scholarships whether public or private), which are achievement-based. The (few) scholarships I got while in college were all based on merit. My loans and grants through FAFSA, which included work study, were based on income.

 

[Edwin_C]

And don't forget there's a big difference between a scholarship (a piece of paper) and a stipend (actual money). After you receive a scholarship, you then have to fork over all your families financial information to see if you can get any money from it. I've received a pile of scholarships, but not a single one had even one penny of stipend because my parents made "too much money" (i.e. were middle class). I couldn't even qualify for government-backed loans.

As Joe said, you're confusing grants with scholarships. Stipends are given out by schools as leisure money. It's not meant to be used towards your tuition in any way. Scholarships are given out by the school or 3rd-parties as tuition money, not only in some cases.

 

[Dennis Nicholls]

That's news to me, my (for example) Bank of America scholarship for Mathematics was just a piece of paper because any money awarded was "needs tested".

 

[Seth--L]

While I have not conducted a poll of a random sampling of U.S. Colleges and Universities, having recently gone through the college application process (I'm 20 now), I would think that if a significant number of schools offered such a substantial tuition reduction for merely being the child of an alum, that one of my H.S.'s full-time college advisors, or the many books written on selecting a college would have said something about this, especially considering how much has been written about coping with the outrageous cost of tuition.

 

[Eric_L]

Also, I don't think you'll get tax benefits for buying a second house. And even if you did, it'd only be on the interest. The 529 and pre-paid plans are a better deal in terms of tax savings. The house is also much more restrictive than the savings plans, because it's only good at one college.

You are right about the tax savings, but I was discussing this as a compliment to other tuition savings programs. Most people who went to a public college know that the primary cost is not tuition or books, but room and board. Owning a house would moderate that considerably, and net some nice capital gains at the end of the period.

ps. I'm glad I'm not your parent too... -jk

 

[nolesrule]

Tallahassee and Gainesville are both growing. I don't know how long they will have that college town feel to them. Both FSU and UF are growing and improving their post-grad programs, and as a result, more and more companies with specialties related to the major post-grad schools are opening up in and around the area.

I can tell you a lot more about Tallahassee than Gainesville. My parents also went to FSU, so we have seen all the growth that has happened there over the last 30 years.

And to comment on the rest of the discussion in this thread...

No, I didn't get any legacy discount at FSU for being second generation. It just meant I didn't need much of a GPA to get in.

Of course, my parents having four kids (i'm oldest, the youngest is about to turn 17) meant that we all pay our own way through college, other than clothing, insurance and some incidental expenses. FAFSA applications covered all my expenses for 4 years, between loans, grants and work-study, I never had to get a real job.

When I was a kid, Florida Prepaid was not transferrable to out of state schools, and since my parents didn't want to limit my choices, they decided to skip it. My wife had prepaid and 4 years of classes and 2 years of dorm living and on-campus meal plan were paid