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How we do it? College Savings – SSC style!

When we had our first kid, we knew that we wanted to start saving for college immediately. This led us straight down a rabbit hole with questions like, “How much should we save a month?”, which then turns into “How much is college going to cost in 2030?”, which (after the shock wears off) leads to, “What savings vehicles/plans do we use to save this much?” which inevitably ends in the question that seems to stir the most controversy in our social circles “How much should we as parents pay for?”

How much should WE pay for?
Originally Mr. SSC and I were coming from different angles.  Mr. SSC had to pay for his entire education himself (well, I helped pay off over $40k in loans when we got married), so he thought college should be 100% or mostly put on the kids. Thankfully, he’s changed his mind since then.  I always thought we should pay for a good portion of their college.  This was based on my experience- as my parents were able to pay for some of my tuition, and then I had to take out student loans.

Taking out student loans, was for me, a good experience.   Being a teenager, I had no desire to go to the state university where I grew up, and so I chose a private university. Even back in the ‘90s the cost was upwards of $25k/year.  While I was rebellious, I was also moderately intelligent and didn’t want massive loans (especially since I was originally thinking of majoring in Religion, not Physics).  So, I decided to graduate in 3 years by taking my non-major coursework at a local in-state college during the summer and transferring them to my pricey university. This helped me cut out $25k of potential loans.  I also was an RA, TA, and tutor, which helped with costs.   Ideally, we are hoping our children are more like me than Mr. SSC.  For more back story on his student loan issues – check out this post.

Eventually, we both decided that we would aim to pay for 50% of an in-state university because 1) we have the means to save for the kids’ education, and 2) the kids need to have some skin in the game, after all it’s their future. Not having any skin in the game was the main reason that Mr. SSC took so long to graduate -he had his first few years covered with Pell grants. He stayed undeclared and took a lot of electives that were interesting and developed his intellectual side more, generally added nothing towards a degree except an overabundance of electives. He graduated with over 200 hrs. for an undergraduate degree for goodness sakes. For perspective, the average is ~120 hrs for an undergraduate degree…

We have many friends who disagree with our 50% goal.  They want to save 100% for their kids. Heck, I even have co-workers who are still working because they want to pay for all their grandkids college educations. Ridiculous.  Plus, I could also go on an entire rant about my issues with higher education, inflating costs (and grades), and how a Bachelors is hardly more than a glorified high school degree nowadays in some fields, but I won’t….

How much will college cost in 2030?
Ahh… the most difficult question.  This is where we found some online calculators to solve this riddle!  We looked at a few – they are easy to find.

Here is one from Fidelity    that suggests college for our son at an in-state public institution will be ~$140,000.   Here is another by American Funds  that suggests it will be more around $226,000 if the cost of college inflates at 6%.  Obviously, these calculators are not crystal balls, and we have no idea if college costs are going to continue to increase at the ridiculous rates they do now.   I like to keep things simple, since there is no magic formula, and so I’ve settled that college will cost around $180,000 per kid, and since we want to save enough to pay for half – we need to invest enough to have around $80-100k per kid by 2030.

How much should we save a month?
OK, so here is where I consult my trusty spreadsheet.  Ahhh… I love Excel.  If you don’t love excel as much as me, don’t worry, there are lots of online calculators to help you with this too. The only difference for people like us, is that we are going to stop funding this when we hit our FI around 2018.  However, we may still add more through the years as holiday gifts, and my parents tend to give us a little $$ for the 529s on occasion, but for practical matters, we will stop contributing at 2018.  You can see in the chart that we have saved aggressively the first couple years, mostly by using our bonuses to help front-load the accounts, and currently, we save $400/month/kid.  Using a 6% growth assumption, we should get close to $90k in each account when they head off to college.

Our college savings chart

Our college savings chart

We use 529s through Vanguard for our college savings accounts.  Picking a 529 is a whole other topic that could be a whole separate post. Since you don’t have to invest in the 529 in the state in which you live, you get to shop around and find one that benefits you and your situation best. For instance, some states have tax benefits for saving in 529s (Texas has no state income tax, so no benefit for us).  I primarily consulted Morningstar’s 529 rankings, but there are websites out there that let you compare plans as well.  This site has some good starter info and questions that could get the ball rolling for you, and a lot of tools and calculators as well. FYI- we’re not affiliated with them at all and they are but one source you could consult.

Lastly, the other thing we try to keep in mind is a good perspective. If we aren’t accurate in our predictions and assumptions, no biggie, life will go on.  Maybe college costs will get reasonable by then and we may need less, maybe our kids decide they want to do something that they don’t need a degree for, and want to learn a trade instead.  Just maybe, our personal retirement investments will grow more than expected and we can contribute more to college than just the 529s. Time will tell.

To sum it up
If you read our posts – you can see that I tend to try and keep things simple and not over-think and over-analyze.  We have no way of knowing the future.  For us, right now we save $400/month in the 529s, and that should give the kids enough of a boost to help them with their education.  But, honestly, an education is what you make of it – and teaching our kids to value education is more important than worrying too much about if we should save $200 or $225 a month or can cover all or just some of their education.

Also, there are amazing free and almost free online courses available (I’ve been taking them the last few semesters from edX just for fun), and community and local colleges can often offer better quality education than mega- universities, particularly for required non-major courses in a liberal arts education.

At this point in time, I plan on advising my kids to go to a local or community school the first year – take non-major requirements and some electives, have fun, explore, and figure out what they want to study.  I spent my first year figuring out if I wanted to study religion, biology, or physics, and then I realized I was best suited for engineering – which was not offered at my school.  Mr. SSC ended up taking time off to hike the Appalachian Trail in the middle of his Bachelors work just to figure out what he wanted to do in school, or if he even wanted to be there at all.  Sometimes I think we push kids too quickly to grow up and pick their careers and maybe that is why we search for a way to escape the 9 to 5… We see life as a career ladder to climb, always looking for more money and recognition, instead of taking time to figure out what brings us happiness before we start down a path that is difficult to exit.

So that is our plan!  What are your plans for your kids?

22 thoughts on “How we do it? College Savings – SSC style!

  1. Maggie @ Northern Expenditure

    The 50% in-state tuition is basically our plan too! Our parents did things two very different ways, so we’re still unsure how to distribute it to them. And I don’t like the idea of a 529 because education for them could be so much different than it is now. So, for now, we’re basically just investing their PFDs and we’ll give them back to them at some point when they’re ready for college.

    1. Mrs SSC Post author

      I sometimes worry if a 529 is the way to go – but we figure either kid, or future grandkid could use it. Or even a niece or nephew. Or we could take the money out with a penalty… which Mr SSC already jokes he is going to buy a boat with our son’s fund.

  2. Fervent Finance

    I think that’s a great plan! I’m not a huge fan of 529’s simple because who knows what your child will actually want to do. I don’t hold college on the pedestal that many do. If I have a kid and he has no interest in college but is great with his hands, I’d be fine with him/her being an HVAC technician or an electrician or carpenter. I know people in those fields that are right around six figure incomes. Instead of spending $150k on college that they don’t want to go to, I could spend $30k on their work van/truck and some tools to get them started. Also I’m an accountant by trade and could teach them how to start their own business. So many options for things to do in life that don’t necessitate spending six figures on college. I don’t want a ton of money sitting in a 529 when that time comes. But when you have two or more kids, you have less risk with a 529 because at least one or two will go to college 🙂

    1. Mrs SSC Post author

      I agree – we both will also encourage the trades if that is where interests lie. College was awesome for our parents generation, but I think the value of it has eroded this last generation. But that is true – with two kids, maybe one will get almost a full ride, if the other is interested in some trade.

  3. Brian @ debt discipline

    We want to help as much as possible, but want our children to be accountable “skin in the game” too. We started saving way late, so we’ll have to cash flow and have the kids work and hustle as much as possible while in college too.

    1. Mrs SSC Post author

      My husbands brother won’t even start to save for his daughter (who is 13) even though she is very clearly highly intelligent and driven. He doesn’t see the point, no matter what Mr. SSC says. But I say its always better to save even just a little. I am baffled by how many of my work ‘peers’ don’t see any need for their kids to pay. I’ve seen so many people who had full-rides, by scholarship or family funds, and they didn’t tend to take advantage of the opportunity… it was just like a extended high school.

  4. Tawcan

    We want to help as much as possible too. My parents helped me through university and I was very appreciative of that. Having said that, I think kids need to be accountable as well, we don’t want to hand a gold spoon to our kids when it comes to money.

    Right now Denmark government pays kids to go to university. Since Mrs. T is Danish and our kids can get the citizenship, maybe we need to explore that option in the future as well. It’d require us to live in Denmark for a number of years.

    1. Mrs SSC Post author

      The Denmark option seems like a great idea! I think what is important is that the kids learn the consequences of their choices – like that maybe they want to go to a fancy 4-year school, and that is great, but it means more loans on their part… so they have to think about the future value of their degree.

  5. Alyssa @ Generation YRA

    Saving 50% for your kids’ future education is great (and oh my goodness to the staggering costs of an in-state tuition predicted for the future)! We do not have kids yet, but I have already started saving around $50 a month. We have not looked into a 529 savings plan, it is simply set up in a portfolio in Betterment more weighted towards stocks than bonds. It is way too challenging to predict what will happen in the future for our kids when they start looking into universities (will college be free? will their be an income-based repayment system? etc.). There’s also the route of having our kids take on a specialty sport that would lock down a unique full-ride scholarship! Just kidding, but that would be neat. 🙂 I am definitely a huge supporter of taking initial first year credits at a community college, having the ability to work & save, determining what you would like to do, then transfer to a 4 year university. I think about all the initial courses and how much of a joke they were (yet I didn’t realize at the time how expensive each credit was)!

    1. Mrs SSC Post author

      When I think of how much they predict in-state tuition to be in 15 years, I just think it is a joke. We like the 529 for the tax savings benefits. And with the plan to only save 50%, we aren’t too worried that it won’t get used in some way.

  6. Sarah Noelle @ The Yachtless

    I don’t have kids so haven’t thought much about how to save for college in the future, but it’s really interesting to me to hear a little about your own college experience. I’m super impressed that you had it together enough at that age to realize that you could minimize loans by being strategic. I think that’s what loans are really there for — helping people bridge the gap between what they themselves can pay for and what they can’t. I didn’t figure this out until very recently, and I have a ton of (grad school) loans that I now have to pay off. I often wonder how my approach to higher education might have differed if my parents had only paid for 50% of my college instead of 100% like they did. In one sense, I’m extremely grateful to them for generously paying 100%, but on the other hand, it’s definitely possible that this caused me to appreciate college less and spend less time thinking about the concept of return on investment.
    Anyway, nice thoughtful post. 🙂 And I agree about the online courses — we are living in an amazing time!

    1. Mrs SSC Post author

      My brother and I were very different for some reason in our loan thinking, even though we are only a year apart. I think because I went to a catholic high school, and he went to a private independent high school with lots of super-rich kids (long story behind that). But, he grew up among all these kids that money was never an issue, and when he went to college it took him years to buckle down… he had about the same amount of student loans as me, but when I went to grad school, I decided I wasn’t going unless the school paid for me 100%. My brother, on the other hand, racked up 6-figure student loan debts…

  7. Jason

    Another thing to think about is that if either one of you plan on working at a university, either full or part-time (you will have to check on p/t) you can often get some kind of tuition benefit. That could be huge in your post-retirement working years.

    1. Mrs SSC Post author

      Oh my gosh! I actually never even thought of that! That is a really great point since I do want to get a teaching job!!!

  8. Elephant Eater

    We are taking a bit different approach. We’re saving enough that we feel should cover our daughter’s college tuition, but would plan to let her pay her living expenses because that worked very well for me having some responsibility and skin in the game. Mrs. EE had to do it all on her own with no parental assistance, and while I see where this holds some value in developing work ethic and responsibility I think it is too much for most teenagers/young adults.

    We are not using a 529. I think that with only one child, the risk of the penalty if not using the fund for educational expenses is a turnoff. This allows us to keep the money in our control to spend however we choose and so can help her with things other than education costs if not needed. I would possibly think differently if 2+ kids, b/c I believe you can change the beneficiary of the account.

    We also think that the tax benefits are not that great with a 529 b/c we plan to start earning far less money by quitting when she is only 4.5 years old. Therefore, we should pay 0% tax rate on dividends over most of the time the money is invested and if planned well should be able to pay 0% capital gains when selling off the funds to pay tuition b/c of our low income and living expenses. The only real downside for us is paying taxes on dividends the first couple of years when working or if we are somehow still making a substantial income in retirement. However, that would also likely mean that we are doing better than anticipated and so we can live with that.

    1. Mrs SSC Post author

      Hmmm… all these comments here are making me think about if we may be over-funding in the 529. You make some great points about not having to worry about as many taxes post-retirement. Our kids should be about 5 and 7 if we retire on schedule. I do have a Vanguard account already set up for them, where I have put money for birthdays and such (its under my name, but earmarked for them). I should probably have a chat with Mr. SSC to rethink the plan, so our money doesn’t get too tied up in education.

  9. Lucky Girl

    Interesting post and an issue my husband and I think a lot about. I think having some skin in the game is important for the kids, but don’t want them to be too burdened by their student debt. My parents helped me, but I also had loans, worked through three years of college, and was an RA for the free room and board.

    One of the reasons this is such a big issue for me is a kind of parental guilt response. We could cover our kids full tuition in college if we work an extra 1-2 years, based on my projections. is it selfish of us to want to RE early and put that student loan burden on them, when it will surely take them many years to pay off the loans? One more year does not seem that long, and we’ll already be retiring early (probably at about age 45). I don’t want to spoil my kids, but I also want to do what I can to give them the right start in life. Curious to hear how others think about this!

    1. Mrs SSC Post author

      We feel the same way – there is some guilt in not saving for all of it, because it would be only another year or so working for us to do so. I think since we both grew up without everything handed to us, we believe that we need to teach our kids that they have to work for it – even though we could not retire early and live a high class lifestyle and spoil them silly. And who knows – maybe if markets are good and our investments do great and one or both of our kids shows us that they work hard and have the skills we want to teach them – we could pay for the rest of their college tuition from our investments.

      1. Lucky Girl

        Thanks for the perspective Mrs. SSC. Spoiling them silly would definitely be counter-productive! I think I am trying to look at it as finding balance. I may save a little more in a non-529 account just in case they need a little extra help, but plan to have them work for it. One idea I’m considering is having them pay room and board for the last two years, plus working for any extras, but providing a gift (if the money is there) when they have proven their financial steadiness, which I hope is by age 30ish. Or maybe I’ll just use that money to spoil my grandchildren if I have any!

      2. Mr SSC

        I think that’s a great way to approach it too. I’m all about helping them out with their loans later on, if they’ve proven financial responsibility at that point. I feel they need to be vested somewhat, even if ultimately we end up covering all of it. We’ll just have to see how it all plays out. 🙂

  10. Our Next Life

    I totally agree that having some small amount of loans is a good thing for students. I was fortunate to get a full ride for college, but had to take out about $10,000 in loans over the four years to pay for groceries and some rent, because I went to school in a very pricey area. And it gave me a financial stake in my education, instead of feeling like “Eh, someone else is paying for this, so who cares if I make the most of it?” And my loan was small enough that my monthly payments were only $100, at least until I decided to pay it off early and stepped up my repayment. But I think it’s okay to not cover 100% of the cost for your kids. So admirable, though, that you’re working so hard to pay as much as you plan to, in addition to saving for your own early retirement!

    1. Mr SSC

      That has been a big debate topic. While I didn’t feel like the kids should pay for ALL of it, I also felt like if they got a free ride, they might not appreciate it as much. That is just from me doing that – not being serious about it until it was my money paying for school. It took all of 2 semesters paying out of my own pocket before I realized I could be using that $3k per semester for anything else, which led to hiking, which led to figuring out “the master plan”. 🙂
      We feel if we give them enough to get most of college covered – barring out of state tuition, Ivy league (lol), etc… that should let them focus on school more and not be as stressed with work, or whatever else they may do to cover the rest. It’s a start though, so they at least won’t be going into it empty handed like I did.

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