How to Pay for College while Early Retired

yale-university-doorway

One of the top questions I’m asked when people see “retired at 33 with 3 kids” is “yeah, but what about college?”.  The truth is I never really gave it a lot of thought because the total cost is well into the future (though closing in fast for our oldest kid) and not huge relative to our total net worth.  I had a very vague goal of being able to cover the tuition and fees for four years of in-state tuition for all three kids.

We funneled some cash into 529 accounts when North Carolina offered a tax credit for doing so.  We earned a $350 tax credit for contributing $5,000 per year to the 529.  When that tax credit was eliminated, I stopped contributing to the 529s and stopped thinking about college funding.  Paying tens of thousands of dollars for college is no biggie when you have a million or two, right?

It turns out my lazy attitude toward college funding won’t spell disaster for my children’s higher education future.  Between what we have saved in 529s, our large investment portfolio, and a plethora of other funding sources, the kids will be perfectly fine when the college tuition bills start piling up.  You’ll have to read on to find out why I’m so confident (or is it cocky?).

 

How much does college really cost?

“It works out to just pennies per inspiring moment” reports the University of North Carolina at Chapel Hill’s Cost of Attendance page.  While technically true (it’s about six cents per minute assuming all the minutes are “inspiring”), a better way to look at the cost is dollars per year.  For the 2016-2017 school year, the cost of attendance at UNC is just under $25,000.

Univ. of NC Tuition & Fees $8,834
Room $6,292
Board $4,926
Books & Supplies $1,442
Travel $810
Health Insurance $1,088
Loan Fees $58
Personal $1,448
Total $24,898

Here in Raleigh at North Carolina State University, the total Cost of Attendance is closer to $23,000.  NCSU doesn’t include health insurance (something we would likely provide at near zero cost after subsidy through the Affordable Care Act) which explains $1,000 of the difference in cost (the other $1,000 being meals; Raleigh is cheaper than Chapel Hill I guess).

UNC Chapel Hill and NC State University are two great local options for school where the sticker price is under $100,000 for four years.  We pay for these institutions through our tax dollars and we’re hoping to get a nice return on our tax dollars when our kids attend one of these two flagship research universities (Mrs. RoG and I are alumni of one or both schools.  Go Heels/Pack!).

Breaking down the approximately $24,000 cost of attendance further, we see the actual academics cost around $10,000 between tuition, fees, and books.  The remaining $14,000 covers personal expenses like rent, food, transportation, and beer.  For those living on campus, that’s probably a good number to use since the dorms and meal plans cost what they cost and that’s the bulk of the living expenses.  Off campus living costs vary greatly based on whether you own a car, whether you split a house or apartment, and whether your college crash pad is luxury, slummy, or somewhere in between.

For those students living at home, the cost of college is the $10,000 cost of tuition, fees, and books plus whatever the parents have been spending for the past 18 years.

I don’t know whether my kids will live at home, attend NC State University and commute the 12-15 minutes to school by car or live on/off campus at whatever state school they attend.  With either choice, the total cost for college will be between $10,000 per year plus whatever we already spend on them as part of our $40,000 early retirement budget and $24,000 per year.  

A quick note on college cost inflation.  Yes, tuition increases at a faster rate than overall CPI inflation.  But tuition is less than half of the total cost of attendance at the two schools I’ve mentioned.  The room and board, while subject to inflation, isn’t increasing at such a rapid rate.  For example, when I started college in 1998, tuition at NCSU was $2,364 while it’s $8,880 in 2016.  That’s an average annual 7.6% increase.  Holy smokes!  All other costs of attendance totaled $6,672 in 1998 while it’s $14,159 today, a more modest 4.3% average annual increase.  The total cost of attendance increased 5.3% overall during the past 18 years.  CPI inflation averaged 2.2% during that period of time.  Tuition outpaced inflation by 5.4% per year whereas room and board outpaced inflation by only 2.1% per year, with the overall cost of attendance outpacing inflation by 3.1% per year.

Keep that in mind when you see the headlines that read “college tuition increases at 8% per year on average for the past X years”.  Room and board aren’t going up at nearly the same rate, and if you live and eat off campus, your room and board will probably track CPI very closely (because you’re paying the same prices baked into the CPI that all of us are paying outside the university).  It’s also worth noting that the quality of room and board has increased greatly in the 18 years since I started full time higher education.  We didn’t have tikka masala or sushi in the dining hall for example, and many of the dorms didn’t even have air conditioning back in 1998!  You pay more, you get more.  Or you can eat 6/$1 ramen noodles off campus like all the broke college students did in 1998 (back when it was 8/$1).

Life often throws curve balls, so it’s quite possible our kids will attend some other in state public university (which all cost less than NCSU and UNC), a private U, or an out of state school.  It really depends on what will work best for the kids, and what kind of financial aid a particular university offers.  We are still seven years out from the oldest kid starting college, so for planning purposes I’m focusing on the costs for the two best in-state universities that routinely rank well for great values in public universities.

 

Nobody pays sticker price for college

Like the MSRP on a new car, the college sticker price is the starting point for negotiations.  If you’re early retired and don’t have a high Adjusted Gross Income or huge assets in taxable brokerage accounts, you’re in luck.  You’ll probably get a nice financial aid award.

The University of North Carolina offers a Net Price Calculator to estimate what kind of financial aid package you’ll receive.

After roughly estimating our numbers and filling out the calculator, the results say we’ll get $4,250 in grant money when one kid is in college.  One year later when our second kid enters college we’ll get $10,250 PER KID.  That’s almost half of the total cost of attendance right there, before we even start talking about other sources of financial assistance offered such as work study or student loans.

Is this an equitable result?  Probably not.  But that is how the system works.  We look poor on paper because they don’t ask about retirement account values and that is where 75% of our net worth resides.  Therefore we get a lot of free money for college.  And this is with us making zero effort to game our assets and income to maximize free grant money!

If those grants work out, we’ll be paying a maximum of $14,000 per kid half the time and $20,000 per kid the other half of the time.

 

What do we have saved for college?

We invested in 529 accounts for several years to snag some state income tax credits.  The older two kids have $18,000 each in 529s while the youngest kid has $7,000 in his 529.

The older two kids have UTMA accounts at Vanguard with about $2,500 per account.  This is their money but could be used for college, or something like a new (used) car to commute to college if living at home.

The remainder of college expenses will come from our main investment portfolio.  As of mid-September 2016 we have about $1.45 million in the investment portfolio (including the 529 accounts) and another $50,000 cash in a money market account.  I’ve mentally set aside $200,000 (including the 529 account values) to cover college, car purchases, higher teenage expenses, and some adult gifts like house down payments and weddings.

That will leave about $1,250,000 to fund the remainder of our early retirement expenses (which, if we spend $40,000 per year according to our budget, will equate to a 3.2% withdrawal rate).  If our portfolio does well, we will feel more free to spend the $200,000 and then some.  If things don’t go well, we might not part with all of that $200,000 if we need it to cover core living expenses. In a way we’re taking a wait and see approach to deciding exactly how much we’ll pay for college.

Money is fungible and we can move it around all we want.  We’ll likely spend enough on college expenses to deplete the $43,000 in the 529 accounts, so I’m not concerned about paying a 10% penalty to withdraw any balance remaining after they finish college.  But I don’t want to save a significantly higher sum in the 529s because I expect they will obtain college funding from numerous other sources (to be discussed later in this article).

 

Will the kids help with college expenses?

Yes. And we have talked with them about this starting around age 9 or 10.  Exactly how much they will have to pay is uncertain, although we plan on paying (at a minimum) the tuition and fees (and maybe a lump sum for books) which will total around $40,000 per kid.  That leaves them responsible for room, board, transportation and miscellaneous personal expenses, though some of that would be covered by us if they drive one of our cars and/or live with us.

There’s a strong incentive to save when it’s your money you’re spending and not someone else’s.  There is plenty of moderately priced off campus college housing around NCSU.  With roommates, monthly rent is $250-400 per month plus a share of utilities ($50-75/month per person).  A private bedroom in a shared apartment (with kitchen) rents for 12 months for around $4,000.  In contrast, shared dorm rooms cost around $6,500 per person for the fall and spring semesters (summer session costs extra).

A full year of off campus housing is much less than the price of a shared dorm room on campus for nine months, and would allow the option of a full semester of summer studies for only $3,500 tuition and fees.  Two or three summers of that would lead to graduating college in three years (or less!).  Paying for three years of college is a lot cheaper than paying for four.

The same logic applies to the food budget.  Pay the rack rates for on campus dining plans and it costs $8.61 per meal IF every single meal in the plan is consumed during the school year.  I’m pretty sure my kids can figure out a way to pay less than $8.61 for some fruit, cereal and milk, oatmeal, and yogurt for breakfast.  Rules vary by university, but it appears that NC State University requires first year students living on campus to purchase an overpriced meal plan (“looking out for their best interests” and all that), but beyond the first year students have the choice to skip the meal plan and pay a la carte (or dine off campus as often as possible like everyone did when I went to NCSU).

Having the kids pay part of their own way through college isn’t just a devious way to remove some of those costs from my cash flow statement and lower the overall costs for all parties involved.  There’s also a real benefit to the kids.  They will learn crucial money management skills in a sort-of real world environment with a parental safety net stretched underneath them in case they take a tumble.  It’s better to fail when the stakes are small (calling mom and dad to make up their share of the month’s rent) instead of when they are enormous (calling to say they are $50,000 underwater on their mortgage and will lose their house without help).

 

Sources of college funding

But it’s cruel, you say, to make kids pay for any of their college when they should be studying hard.  That would be true if they didn’t have nights, weekends, breaks, and a huge 3+ month summer vacation to figure out a way to make a little money.

15 possible sources of funds for the kids:

  1. loans
  2. grants
  3. scholarships
  4. research assistanceships
  5. teaching assistanceships
  6. work study
  7. formal co-op program
  8. internships
  9. ROTC
  10. resident advisor (free housing + meals + living stipend)
  11. on campus jobs during school year
  12. summer jobs between college semesters
  13. jobs during the school year in high school or during HS summer breaks
  14. entrepreneurship
  15. UTMA investment accounts

Parental source of college funds:

  1. 529s (currently have $43,000 total for all 3 kids)
  2. our main early retirement portfolio
  3. doing something productive that pays money (part time job, freelancing, more blogging or consulting, entrepreneurship)

As you can see, the kids have more options for funding college than us parents do.

I wanted to elaborate on a few great ways to cover half or more of the total cost of attendance:

Resident advisor or RA – I strongly considered becoming a resident advisor but decided to move off campus and split a $700 per month apartment between four people for extremely cheap rent instead.  The Resident Advisor lives in a dorm room for free, gets a university meal plan, and receives a small annual cash stipend (currently $1,735 or more at NCSU).  The room, board, and stipend are worth about $12,400 per year at NC State (more at UNC), which is over half the total cost of attendance.  You aren’t supposed to work other jobs while working as an RA because they claim it’s a 20 hour per week work commitment, though in practice many of those hours have you chilling in your room in the evenings for “office hours” while you do your homework (or whatever kids do in college these days).  At 20 hours of “work” per week for a $12,400 benefit, that equates to somewhere between $17 and $20 per hour, almost all of which would be tax free. Becoming an RA is an option after your first year of living in the dorms.

My freshman year resident advisor, George, was an overseas engineering student from Ghana paying his way through undergrad primarily by being a resident advisor plus getting some small grants and scholarships.  I could totally see my oldest daughter being an RA and loving every minute of it!

ROTC – I didn’t have any personal experience with ROTC but it sounds like an incredible opportunity.  I reached out to Doug “Nords” Nordman, a retired nuclear submarine officer who blogs at The Military Guide and an occasional guest poster here at Root of Good.  Doug’s daughter Carol recently graduated from college after completing the Naval ROTC program.  Here’s what Doug had to say:

Every student who’s the least little bit curious about the military should join a ROTC unit just to try the first year for free. At the very minimum they’ll get priority registration (for ROTC classes), lots of new friends with peer tutors, and a summer tour of their career options. Parents will know that their freshmen are getting a good start with plenty of career options.

NROTC paid over $160K of Carol’s tuition, fees, and textbooks at Rice University. She also earned $2K-$5K/year in stipends and summer training pay.

Carol also landed a well paid position as a commissioned officer in the Navy straight out of school.  Doug reports her net worth is significantly higher than her peers even though she’s only a few years out of college.  Sounds like another early retiree in the making!

ROTC provides funding for everything but room and board.  Students can drop out of the program at any time during the first year without penalty and don’t have to repay the ROTC funds (that’s what Doug meant by “free”).  There’s very little risk for joining ROTC for one year.  Starting in the second year of ROTC, the grant recipients are on the hook for repayment of any additional moneys received if they drop out of ROTC.  Alternatively they can enlist in the military later to discharge that debt.

 

How I funded my college

If you’re a long time reader you won’t be surprised to learn that I managed to finish college on the cheap.  First up was entering the fall semester of my freshman year just a few hours short of being a junior upperclassman.  Through AP credits, taking several courses at the state university during high school, taking several more during the summer after graduating high school, and taking one course through credit by examination, I managed to enter the university as a full time student with 56 credit hours (FYI most bachelor degrees require around 120-132 credit hours to graduate).  With all that credit, I managed to graduate with two bachelors degrees in three years.  And I managed to bum around Mexico for six weeks one summer.

Considering I finished 120th in my high school class, my experience wasn’t atypical for the upper level students at my high school which is the exact same high school that our two daughters will attend in a few more years (one of the reasons I like our public schools here).  So far both kids are academically on track to follow the same general path that I did, therefore entering college as a sophomore with 30+ credit hours is very possible.  If that happens, that’s $48,000 saved (minus costs of AP exams and several thousand dollars for university courses during high school and summer sessions).

Once I was in college, I received some parental help with tuition, books, room and board, and other living expenses the first year (but I couldn’t tell you exactly what my parents paid for the first year).  I also took advantage of the subsidized college loans offered to me.

During my first year of college I landed a position as a DJ at the college radio station.  In addition to being as cool as it sounds, it also paid very well if you took the boring shifts that included running the control board during men’s baseball and women’s basketball games (read: 2-3 hours to do homework punctuated with 2 minutes of work each hour to run station identification reels plus a couple of advertisements).  I didn’t suck at DJ’ing so I got promoted to production manager and became a member of the board of directors where I made $200 per month producing commercials and other on air spots.  Overall, the college radio experience was mostly jamming out to music while doing some homework during my shifts.  And getting paid cash money for the privilege.

By my second year of college I won a number of scholarships that more than paid for all of my expenses (I guess doing all that homework while working at the college radio station helped my grades).  I also started teaching an intro to engineering class for incoming freshmen ($25/hour) and landed an internship in the university’s facilities engineering department ($10/hour).  I quit the facilities department internship when a professor hired me on a research assistanceship ($13/hr) that later morphed into a grant ($3000 for a semester).  These progressively more challenging jobs qualified me for an $18/hr research engineer position during the summer between undergrad and law school.  All these dollar amounts are in the 1998-2001 time frame, so you can inflate them by 40% to arrive at values in 2016 dollars.

During law school I founded my own business that initially didn’t make more than $400-500 for an occasional small job.  Then I made $30,000 profit in five weeks (mostly working 12-16 hours per day).  I wish I had a $99 course explaining the secret to making that much, but it’s really common sense.  I did a great job on the smaller projects which led to my selection for a massive job that included some add on work because my quality was better and my prices were lower than the other team in competition with me.  Skip the $99 course fee, just do good work and profit.  And then there were the summer jobs during law school that paid between $0 and $23/hr.

Overall, I made a ridiculous amount of money by the time I graduated from undergrad and even more by the time I graduated from law school.  For the curious, here’s all 20 jobs I held between being a paper boy at age 12 and retiring as an engineering director at age 33.

In addition to making money and learning how to hustle, all those jobs provided invaluable experience that helped me land a professional job right out of school.

Will my kids find as much employment success as I did during college?  Even if they don’t, they can still make quite a bit of money to help pay for living expenses during college.

 

Hacking college

A four year degree doesn’t have to take four years, nor does it have to cost $100,000 to $300,000.

For those students that excel academically, they can start college as a sophomore or junior.  Focus on AP classes, credit by examination, summer school before college, and university/community college courses during high school.  If you can’t find resources online, then starting around 8th or 9th grade ask your kid’s guidance counselor what programs are available to earn college credit while still in high school.  I recall getting bored on summer during high school so I grabbed a course catalog from NC State University (pre-internet days, folks), and that’s when I realized they have very specific guidelines on what AP test scores get you, and what basic educational courses I should take to apply toward an engineering degree.

Another classic college hack is to attend community college for two years in a college transfer program.  Then, apply to a four year college and transfer in those two years of community college credits.  This way you only pay for two years of the more expensive university tuition.

I’m a little skeptical of this one after running the numbers.  In our situation, tuition runs $2,768 per year for full time at Wake Technical Community College, a $6,112 cost savings versus NC State University’s $8,880 per year for tuition and fees.  Not too bad but it might be a money losing proposition for students that miss out on financial aid and merit based scholarships (the engineering college at NCSU was awash with scholarship money and often had a hard time finding applicants for all that free money in my experience).  Community college is probably a better bet for students in an academic field with little prospect for discipline specific scholarships or for “average” students that graduate high school without credit for many of the freshman level college courses.

I also worry about how well those two years of community college credit would transfer into some four year degree programs that require very specific coursework (NC State University College of Engineering, I’m looking at you).

Ed Mills of The Millionaire Educator fame has figured out a way to hack a college degree in 12 months from a real, accredited four year institution for just $7,500 in tuition and fees.  It’s a little circuitous and requires discipline to study on your own then pass third party exams to demonstrate competency.  But well worth the effort for someone that needs a bachelor’s degree and doesn’t have a lot of money nor four years to waste.  Mr. Mills hones in on a few universities in the US that allow the bulk of the required credit hours to be taken through various credit by exam options.  You might want to add a second year to your course of study to allow time to actually learn the material that will be on your exams (or what the heck, take the exam and maybe you’ll pass it without studying!).

 

Other thoughts on college

I still wonder whether college will be relevant in another 10 years.  And at what cost will it remain relevant?  Is it worth a quarter of a million dollars?  Half a million dollars?  If college costs continue their meteoric rise to the moon, at some point we can jump off that vertically asymptotic crazy train by simply skipping the whole college charade and handing our kids a huge portfolio full of investments and let them join us in FIRE at age 18.  Then they can read Chaucer and learn Laplace transformations at a more leisurely pace.

To put the absurdities of growing costs in more stark contrast, there are so many free or extremely cheap educational options available today that continue to grow in quantity and quality.  Harvard, Yale, MIT, and Stanford (among other top tier schools) offer tons of free undergraduate and graduate level courses in every academic field imaginable.  Education is mostly free already, it’s just that diploma – that piece of paper that says you’re educated – that you need to get a job.

There also educational consolidators like Coursera, Udacity, Codecademy, and Khan Academy offering courses from a variety of instructors.  If you have $300 for a laptop and access to an internet connection, it’s hard to stay ignorant if you’re motivated to learn.

Will all this easily accessible free education ever supplant the need for a traditional four year degree?  That’s the $64,000 (or $99,592 at University of North Carolina) question that remains to be answered.  It’ll take a paradigm shift in hiring practices and corporate mindsets away from a strict requirement for a four year degree toward a more fluid skills-based or portfolio based assessment of job applicants.  Or a willingness to accept credentials from a different kind of educational institution.

Perhaps one day smart kids will brag about a set of certificates from Coursera instead of a diploma from Harvard.  That day isn’t today and I don’t know if we’ll see it before oldest two kids graduate college in 10-12 years.  But it’s a valid question to ask as you’re planning on college costs for a newborn today.  18 years might be enough time for an educational revolution.

Jeremy at Go Curry Cracker put a lot of thought into college funding for his newborn.  The most interesting take away from his article was the fact that investing college savings into a stock index fund like the S&P 500 is a smart way to combat escalating college tuition if you start early.  He looked at a 34 year period from 1979 to 2013 and found that

[f]rom 1979, consumer prices increased 3.4x.  Tuition increased 10x.  The S&P500 increased 18x.  And with dividends reinvested, the S&P500 increased 45X!

The stock investment grew 4.5 times as much as the cost of tuition.  Even with a much more mediocre stock market, it’s still a good bet that stock returns will at least keep up with inflation.  That’s why I’m not too worried about the inflation we’ll see between now and 7-8 years from now when my oldest two kids enter college.  Their 529s are invested in an aggressive mix of equities, though I’ll be slowly dialing back on the risk as the looming tuition payments draw near.

image courtesy of Go Curry Cracker

 

The bottom line

My kids will be able to attend college and somehow we’ll pay for it.  And we can remain early retired.

I see the best case scenario playing out like this:

$24,000 cost of attendance for 3 years – BEST CASE SCENARIO:

  • $4,000 – cut costs on room and board, misc. expenses (live at home with us?)
  • $6,500 – average need based grant (probably free money but maybe some loans)
  • $4,000 – merit based scholarships and grants
  • $6,000 – various jobs and internships
  • $3,500 – spending from our 529 accounts

If this rosy tinted picture plays out, we’ll have three years of spending at $3,500 per year times three students.  Our total outlay will be $31,500 in today’s dollars, and our kids might leave college with a small dose of those dangerous student loans.  That’s about $10,000 less than we have in 529 accounts today, so we are well prepared if this scenario occurs.

But what if my kids end up being “average” and deviating from the path their old man followed?  And what if they can’t or won’t economize on housing and food?

$24,000 cost of attendance for 4 years – WORST CASE SCENARIO:

  • $6,500 – average need based grant (probably free money but maybe some loans)
  • $4,000 – various jobs and internships (they’re average; the earnings are lower than the optimistic scenario)
  • $13,500 – spending from our 529 accounts and investment portfolio

In this scenario, where our kids are very average, can’t economize on costs, get no merit based grants or scholarships and deliver pizzas or bus tables instead of engaging in paid activities related to their field of study, we are left with a $13,500 bill every year.  That means we’ll be paying a combined $162,000 for three kids for four years of study.  That figure exceeds our existing 529 balances by $119,000, so we’ll be digging deep into our investment portfolio to cover the shortfall.  I’ve mentally set aside $200,000 in my portfolio to cover some variation of this worst case college funding scenario plus other big, lumpy one time kid expenses, so we’ll be okay financially.

I suppose I should mention the beyond superlative worse than worst case scenario (though in purely financial terms, the least costly).  There’s a chance that one or more of our kids won’t attend a four year college at all, which means that $3,500 to $13,500 per year spending figure drops close to zero (spending tons of money on adult children is a topic best left for another article).

Whether our kids excel academically and need very little parental financial assistance, or whether we end up paying for the majority of their college costs, we’ve got it covered in our early retirement financial plan.

 

 

What is your plan for kids’ college funding?  How did you fund your own college experience?  Anything you would do differently?

 

 

134 comments

  • Your 4800 words were incredibly informative (I saw your tweet about that!) I hope you found them well worth the effort! My son is going for his ROTC interview this morning! After our first college visit and some calculations on costs, he decided that ROTC was what he wanted to do. He is looking at a few colleges that may cover room and board with the package as well. His plan is to finish in 3 years and then work on his Master’s degree the 4th year of the ROTC scholarship (and he has already checked on that and chosen colleges that offer the degrees he is looking for.) This is a kid who wasn’t interested in even doing college visits this spring – and now he is totally on fire with this plan. (He also spent a few months this summer lifeguarding at a pool with only a few visitors. I showed him a few PF blogs – and I think he blazed through some of them!)

    My daughter is at a state school, finishing in 3 years and working too. We had plenty saved but she pitched in a third of the cost each year too. She is applying to Master’s degree programs now and it looks like she may have an offer that covers full tuition with a stipend too.

    Money is out there and opportunities are out there too. In my opinion, you just can’t let your kids “fall in love” with a campus. It has to be a carefully managed decision. And yep, I did college in 3 years back in the 80’s – you could do it then too.

    • Very awesome stuff. Good to hear my own experience wasn’t an anomaly.

      Agreed on the whole “not falling in love with a campus” thing. It’s easy to get carried away with some notion that college is something bigger than it really is, and that paying a high price tag, or having extra granite buildings and marble tile work somehow makes the students or professors smarter.

      When I was finishing up undergrad, I had a standing offer from my professors to continue into a master’s degree program. On offer was a full ride for tuition plus health insurance, plus a $15000 scholarship and a $15000 teaching/research assistanceship. So I would have earned $30,000 per year (plus any scholarships or fellowships I could pick up!) plus received a masters (or PhD) degree at the end of it. My professors told me it was very hard to find good American applicants for grad school and I’d be guaranteed the full $30,000 (most applicants were from overseas, as is very common in competitive STEM graduate programs I understand).

  • Love the detailed post, thank you. I will add as one of our options (plus all the above you mentioned), seriously strongly considering retiring early and moving abroad somewhere that offers free education, at leas t we can all share housing at least for a few years before we move on, like here: http://www.bbc.com/news/magazine-32821678.

    I paid for mine with a full athletic ride and then cash for grad school – I think my parents paid WAY more for my sport so not sure I am hoping for that ;0).

    • Going overseas is a pretty radical move just to avoid tuition, but certainly something we would keep an eye on. I noticed the one guy in the article you linked to still needed $6-7k/yr in living expenses so it’s still a cost that must be paid. But I wonder how a German college’s degree would stack up to a US degree when it comes time to find a job. I know the local state U’s have solid reputations among employers, but not sure how well a German degree would stack up, especially if you’re interviewing with a “good ole boy” here in North Carolina. 🙂

      The sports scholarship is interesting, and you’re probably right – many families spend as much on training for the sport during K-12 compared to what they receive in the form of scholarships. And in some programs, an injury can mean the end of the scholarship if it’s not a guaranteed 4 year deal.

      • Well, technically I am overseas right now (so I would say I ‘studied abroad” here as athletics was the only way for my fancy pants private college to give me a full ride as a foreigner), and we also did our MAs in a third country (30% cheaper masters than USA even with expensive living expenses), so essentially it is all I know. And since our goal is to do something similar to GoCurryCracker and travel is SO important to us as part of our kids education, this would be part of our way of living, not on purpose just for college (heck they may not even want to go to college then I will give them the money to travel).

        Actually as a (now) HR person for a very large company that has very significant presence in NC, I am trying to innovate our recruiting practices, among other things (including anticipating changing recruiting and benefits practices given many trends, including ROI of college). I personally appreciate candidates with international experience (adaptability) and actually love student athletes (I know the discipline that takes), but I know I may not be the majority. 🙂

        Additionally, countries like Germany, for example, are going through such population shifts that they welcome immigrant workers (hence programs like these to keep their market competitive), so there may be employment opportunities there. At the end of the day, these days you get jobs by who you know not where you went to school.

        My kids have a ways to go but I have been looking at some study abroad programs – there are some amazing options out there lately!

  • I just had to start thinking about this the last few months, we got some help from our parents (my wife more than me) and it helps a lot. I don’t think we will fully fund a college education (depending on where they go) but will definetely help – provided they take their classes seriously.

    I am surprised they don’t pry into retirement accounts when figuring out how much money the parents can put up in their calculation. Another benefit of using retirement accounts I guess!

    Thanks for the breakdown!

    • I was surprised when I found out they don’t look at retirement accounts. What a great way to “conceal” wealth and it boosts my philosophy of aggressively maxing out tax-advantaged accounts to save on taxes, then slowly withdraw funds over time.

  • Sounds like you thought it through very well and will be in good shape to help your kids out. Too bad NC took away the 529 tax deduction huh? My kiddo was born the year it went away…oh well. One thing is true, you can finance an education but you can’t finance retirement.

    I agree with many of your approaches and will plan on encouraging my kids in the same manner. For example, I paid for half of my college costs by working in high school and the summers, because I was on the hook for some of it, I was more motivated to do well AND graduate early in just 3 years to save money and start to earn money in the real world. I think it is usually better for kids to have some skin in the game.

    We are still about 15-16 years away from college for little one, but we have started to plan ahead and model out the cost of college. I like how you broke out the tuition inflation rate and the other costs. I agree there are some solutions available to reduce those too. Our initial plan is to have enough to cover all the costs of a in-state public school, but in reality we will likely have the kiddo pay 25-50% and we’ll use the other money for alternative purposes like weddings and gifts similar to you.

    Good post, thanks for the detailed overview!

    • Sounds like a plan. Totally agree on the benefits of having skin in the game. I saw too many kids with scholarships from the Mom and Dad Foundation who enjoyed very successful five, six, or seven year careers in the university.

  • This is a great and super-detailed post. Thanks for the time and effort.

    I am super jealous that you were able to make money during law school. I graduated undergrad with only minimal federal student loans and was in pretty good shape, but then I went straight through to law school and picked up a massive student loan debt. I did not have the foresight or entrepreneurial spirit at the time to follow your lead. Very impressive feat, Justin!

    • I was jealous of those guys that landed internships at Biglaw that received $25k for a summer clerkship. 🙂 I was never that ambitious. I did okay though. We still had debt, but actually invested most of the loans we received. It helped that law school tuition was very modest – $10-12k per year for me and under $5k for Mrs. RoG.

  • If it is still around, you might also get a lot back from the American Opportunity Tax Credit. As long as you pay some of the expenses from cash each year.

    “The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.”

  • Great post! IB and AP courses are the way to go, as well as community college courses during high school. Your basics in college are basically a repetition of your last two years of high school anyways. Kids are more motivated when they have some skin in the game. I did my bachelor’s in 3 years and my Master’s in 1 year. Then finished my MBA while I was working. I’m 26 and ahead of my peers because I have work experience and two master’s degrees.

    • Wow, sounds like it worked out really well for you, too! I knew a few other people that finished in 3 years but in the engineering college, it was fairly rare because they require tons of core engineering discipline specific courses to graduate. And you can’t even take those higher level courses until you finish the basic ed courses in physics, calculus, etc. Which means many students don’t start core engineering classes until year 2 best case, or year 3 if they have trouble with some courses.

  • Our local community college works very closely with the state schools so that all the credits transfer. The tuition is less, but it really saves on things like housing if the kids can live at home. Also I often wonder if kids who live at home are more likely to do well that first year. I knew a few kids I grew up with who moved to a school a few hours away and spend most of that first year drunk. I think it can be a tough restart when you fail every class the first year and waste all your parents money, or now have loans to show for it!

    With 5 little kids, it’s something we are taking more about. Our kids will be responsible for part of it, be that grants, scholarships or work. I’m not sure if we will cover two year, or 4. I do know I want them to have some skin in the game. But it not be too much of a burden on them. The trick is finding the right balance.

    • That balance is key, and I think it has to be kid by kid to a certain extent. You don’t want them to focus too much effort on a min. wage job if that’s all they can find for example.

  • Terrific post, loaded with practical advice.

    We have two boys, age 9 and 7 and have been saving quite aggressively in 529 plans since each were born. Our goal is to continue to invest in them on a monthly basis before we pull the plug from the corporate world in two years. And then let the market winds take them from there. They are both in Vanguard and will ratchet back the risk as each fund ages and the college date approaches.

    One piece of information I found interesting is related to financial aid (or not) if you have a sizeable taxable brokerage account. Are there any guidance documents you have come across that speaks to the nature of this? Assuming 401K’s, IRA’s are excluded from these calculations. I am also wondering whether a company pension income stream would be excluded or not from such financial aid calculations?

    Anyway, very helpful information indeed. Will bookmark for sure.

    • I haven’t seen anything specific on financial aid formulas or calculations that I thought worthwhile enough to share. I’m sure they are out there, but I’m not focused on that level of planning yet since I think I have the bases covered from a high level. There are Net Price Calculators at many institutions that you can plug in the pension to see the impact with/without it.

    • I looked into it a while back… They look at taxable accounts and expect parents to spend 5% each year. In regard to kids assets they expect 25%each year so we’ve steered clear of 529s. We have a separate taxable account in our names that’s earmarked for our daughter’s college education. Our daughter is pretty smart so I’m planning to tell her what my parents told me “we aren’t paying for college so you’d best keep up your grades and get scholarships.” It worked for me with a full ride to UNC-Chapel Hill. I’d also like her to study abroad 1-2 years, but usually that’s cheaper to do enrolling directly at the foreign university instead of relying on the US Uni’s study abroad program which charges regular tuition even if the foreign school is waaaay cheaper.

      • Good point on the study abroad. So many times it’s cheaper to “create your own” experience. I would also consider giving a kiddo cash and saying “have fun, maybe learn something!” and let them loose on the world. Lots of free/cheap local language schools or learning experiences all over.

  • What a great post — I’m going to forward this to all my friends who have kids. They’re really worried about the cost and I think this would help them.

    I was fortunate that my dad worked at a prestigious private university so I only had to pay 10% of the tuition (but full room & board). In 1995-1999, tuition was approx $14k/year, with room & board as another $6k or so. I lived on campus for the first 2 years, then moved off campus since it was WAY cheaper. My parents paid for my tuition and I paid the rest, using savings bonds from my grandparents the first 2 years and holding a part-time job the last 2 years.

    My MBA was mostly funded by my employer, so I only paid around $3-4k. There’s really no reason for anyone to pay for their master’s when just about every employer some kind of tuition reimbursement.

    There are some great options for funding education — you just need to do some research and get creative!

    • I’ve seen the “work for a university to get free tuition” mentioned elsewhere. I also know some people that did that with Duke University, and received a similarly sizable discount off the sticker price.

  • This is one of the largest questions we have about financial independence.

    It’s great analysis, much more in-depth than I’ve done. We have a 2 and a 3 year old. I’m not entirely sure that a Khan Academy certificate is going to replace Harvard by 2030. If it does, that would be a nice savings.

    When I ran the numbers with inflation and everything, it looks like each child is going to be around $200,000 which is $50,000 (due to inflation) over 4 years. It’s nice to think it may be 3 years, but I don’t want to plan for the best case scenario.

    Due to my wife’s GI Bill, we’ll be able to save half of their costs (depending on how we split it up). That brings it down to around $100,000 each in 2030 dollars. It seems like a lot of money, but $200,000 that far away seems reasonable. As you point out, investing seems to outpace the inflation costs. The only problem with this is that there’s not a ton of time like there is in my Roth IRA.

    What might really blow your mind is that my 2 year old and 3 year old’s “tuition” at their daycare/preschool is more than UNC’s tuition.

    • That whole preschool tuition thing is no joke – it’s the same way here. People are paying $12-14k for preschools and about the same for the better private K-12 schools here. Stick them in a public school for a few years early on, plop the savings in VTI, let it run for 10-12 years, and you’ll probably have more than enough for a full ride at a state U.

      • The preschool is actually around $20K a year, but we get a 50% military discount, so it seems like a bargain. It feels like Harvard.

        A few years before they are ready for college, I calculate we’ll have around $150,000 annually in relatively passive income from wife’s military pension, investment properties, and blogging.

        A state school wouldn’t be a problem, it’s the expensive private schools that would be noticeable. I’m presuming no hacking for the cheapest college deal, but having this be the one thing we plan to splurge on. (Maybe we won’t need to splurge, but it’s nice to know we can.)

  • Great post. Similar to you I live in NC. I have a child who graduated from Appalachian, and two currently at UNC. I am retired, though not as early as you! I did save in 529 plans enough for four years of in state college for them.
    A couple comments.
    1) it is correct that retirement accounts, and I believe home equity are not used for FAFSA. However many private schools use additional information, including retirement funds, home equity, even automobile purchases. So if your kids go to Duke the numbers could be different.
    2) below a certain income (I think around $48000) assets are not taken into account. As you mentioned, it may feel like gaming the system, but if you can keep your income low it helps. (They just started using the tax return from two years previous. So for 2017 school year, the application will use 2015 tax return).
    3) talk your oldest into a gap year, and send them both together. As you noted the expected family contribution is per year, regardless of the number of family members attending school. I even think about attending next year when I will still have two in college.

    • Good point about the gap year for our oldest. I thought about that too. We could save $16000 by having her take a year off between HS and college (enough to fund a year of bumming around the world for her?? 🙂 ). It’s definitely an option to keep in mind but not something I want to force on her. What if she loves the freedom too much and never makes it to college?

      • Also make sure you understand financial aid. Some aid is only offered to kids going straight from high school into college, much like the aid difference between community college and university. If you have a smart cookie that might be looking at a full ride it could more than make up the difference.

        • Hmmm, didn’t realize they would restrict aid to those coming straight out of high school. I guess those might be the full ride scholarships like the Park and the Morehead scholarships at NC State and UNC (respectively).

  • EscapeVelocity2020

    This might be an odd perspective, but since we are FI but not ER, we are debating between retirement a year or two before the first child starts college (to optimize FAFSA) or continuing to work to maintain positive cashflow as the second child lines out the college decision. This is roughly 5 years out so we are keeping an open mind, but it’s nice to have a fully funded scenario (with safety margin) already planned out. Most scenarios ends with surplus 529 money going to grandkids – the EV legacy fund 🙂

    • That is a weird scenario you don’t hear about much, but it would probably be optimal from a financial perspective. Quitting just before your kids hit college to max your financial aid! As someone else mentioned in the comments, they just revised the FAFSA rules starting in 2017 to look back at your tax returns and AGI from 2 years ago (2015 for 2017 enrolling students). So keep that in mind! If your oldest starts college in 2020, you would need to retire early in 2018 to “earn” a low AGI for the year. And 2018 is coming up soon. 🙂

      • I’ve thought about the same thing. Taking time off. Perhaps another option for you would be to take an alternative salary such as stock that doesn’t vest for several years and therefore would not count as income.

        • Absolutely. Or quit working FT, and start a business. Many businesses don’t make a significant profit for a couple of years, so it’s perfect timing to get a few good years of financial aid!

          • I assume virtually everyone here can not file a 1040-EZ or a1040-A (business income, capital gains, etc) which means no simplified needs test which means assets come in to play for FAFSA. Am I missing something? I keep waiting for my opportunity to qualify for freebies.

            • They will look at assets, but some assets don’t count against aid available (like retirement assets). So many of us will still qualify for decent amounts of financial aid in spite of large (overall) assets. Have you calculated the amount of aid you’ll receive? How about if you didn’t have a high income?

      • ha this is totally “plan A” for us if we do stay here.

  • Thanks for that detailed expose! We started our 529 years before little Ms. ERN was born (with me as the beneficiary). Once she was born we changed the beneficiary. Over the next 16 years, we hope to save small regular amounts in the 529 to get to a 6 figure amount if invested in 100% equities. Even that will not be enough if education inflation keeps going the way it is. So, hopefully, scholarships and even student loans will make up the rest. With a little bit of creative accounting, keeping our income low for a few years around the college admission time, we might even get some assistance. Unfortunately, we have most of our net worth in taxable accounts, which has its advantages in other areas but might hurt our prospects in getting financial aid.

  • My parents told me early on I was on my own for college. Starting sophomore year of high school I took dual credit courses through the local CC. I only took classes that would transfer to the university I wanted to go to. I graduated with 23 college credits; just a few shy of being a sophomore my first year.

    I still didn’t have a way to pay for the rest so I joined the National Guard. Then I got a full-ride scholarship for academics from the school. They covered everything but fees. My first year I also got some specific freshman scholarships, so I got paid $1000 to go to school. Then the Guard benefits kicked in and I got paid a stipend. I saved most of the $900/mo and my bonuses. I graduated not only debt free, but with $10k in the bank. The flexibility that came from no debt was priceless.

    • National guard – another great option to pay for school (or rather, get paid to go to school in your case!). Did you manage to finish college in 3 years given all those credits you started with?

  • You’ve certainly done the research. This is a great reference if I do end up early retired with offspring. haha.

    It’s interesting what you say about college might not being necessary, because there definitely is a shortage of certain careers that don’t need the degree. Where is the next generation of welders and moldmakers going to come from? All the guys we know are in their 50’s or 60’s….and they don’t have apprentices.

    it sounds like having most of your net worth in tax advantaged space is such a huge boost in minimizing one’s costs, whether that’s health care or education.

    I’d say that I expect the law-makers to plug that hole by the time I reach that point, but with such a low percent of the population being savvy enough to take advantage of it, I’m not sure if I should be concerned.

    • Yeah, I really didn’t get into the huge benefits of working a trade instead of spending $$$$$$ on college. At some point of escalating college costs it’ll be more profitable to be a plumber, welder, electrician, HVAC tech, etc where one can take a 1-2 year community college course and/or learn through on the job training or apprenticeship. Parents can keep the $200-300k or whatever the pundits are predicting college will cost in 20 years, and gift it to their kids to launch a plumbling/HVAC/electrician/welding company (after the kids learn the trade of course!!).

  • Thank you for the interesting blog post. A couple of years late for me BUT I’m sure others will benefit. I would like to share it is very important to become “intimately familiar” with the FAFSA…This form basically decides what you will pay for school. The FAFSA, for me anyway, was like getting a root canal with no Novacane. But it is what it is. And I will share that SOMETIMES having the 529’s adversely affects your costs. My experience with my kids was that I considered the tuition reasonable BUT the room and board was just CRAZY. So if they could commute and forgo the “full college experience” that would be a big plus IMHO….And I would encourage your kids to go in state….as the out of state tuitions are “off the chain”. My thought is that a lot of the cost burdens of the NC schools are carried by the out of state students. I’ve had friends from this neck of the woods send their kids to school down there and I’m told the costs approach $35-40K a year…..When I regained consciousness I’m was told…”that was the deal” and that only so many out of state kids are admitted….Make no mistake the FAFSA is an “art and a science”. Thanks once more for an interesting post.

  • Great plan. North Carolina has a excellent state universities. My wife and I both went to state universities in NY which are also pretty good so I’d encourage my kids to go there. NY state schools will give full tuition to all NY students who graduate top 10% in their class and major in STEM program and work in NY after graduation. So that would be a possibility…though it can be unfair as I graduated in the bottom 50% of my class with a 90 average (my high school was very competitive)…also didn’t major in STEM. My high school also allowed as to take 12 college credits with the adjacent college which was great…I could have finished school earlier but I enjoyed college a little too much and didn’t want to leave =) I’m currently putting my kids college funds in a 529 plan since there is a tax credit and it’s run by Vanguard. How aggressive are the funds that you’re investing for college?

    • I definitely didn’t finish in the top 10%. It’s a shame they don’t make provisions for highly competitive high schools, because the talent pool at my HS ran pretty deep (top quarter of the students went on to decent universities and probably would qualify for merit based scholarships; I think I was in top 25% just barely).

      Your NY direct 529 plan is great. Best in class based on my research a few years ago. I could probably save a few basis points by transferring my assets there (they are in vanguard funds here but include a 0.25% management fee through NC’s plan). Our 529 assets are invested in whatever the “aggressive” allocation is. Probably similar to Vanguard Lifestrategy Growth.

  • Wow, this is one hell of an extensive assessment. Nice job. And as you clearly demonstate, not an issue for your FI status either. Man, you must sleep really well at night.

    Fortunately for us, College/University is not nearly as expensive as the in the States (albeit it is catching up quickly). However, we have also started a small fund for the little one to use for education, in case she want to, and is capable to, study at a higher level.

    • I do sleep well. 🙂 The best case plan looks great, and even the worst case plan is tolerable without busting our overall FIRE plan.

      How do Dutch students do college? Is it typical to move on campus to a dorm and not stay with the parents? That’s probably the typical “college experience” here in the US, but often that’s because there isn’t a good nearby university (big country; lots of rural areas).

      • Campuses or dorms, as exist in the States, are fairly uncommon here (albeit they do exist). Most students rent a small room in a house with other students (which is very common in the larger cities). But due to the ever increasing costs and reduction in support from the government, more and more students are staying home at their parents and commute to school (where possible obviously).
        I actually had the pleasure to stay on campus at a good school in Colorado, as part of an exchange program. Was a great experience and lots of fun!

        • I think the on-campus living is definitely a big part of the perception of the “college experience” here. Sort of a coming of age thing where you transition from living with parents to living in a semi-autonomous housing environment (subject to a whole lot of rules). It comes with a cost though. Part of that cost is having dormitories that are only used 9 months out of 12 (the cost of which must be amortized over the 9 months).

  • Very in-depth post! My college career is one of those things where hindsight is 20/20. I received a half-tuition scholarship to the state school I attended because of my grades and SAT scores. I also graduated in 3 years due to AP classes in high school and one summer class in college. Family paid for about 1 year, so I was on the hook for the other two and graduated with about $30k in loans ($15k/ year). While I got away better than many, I wish I was more proactive with trying to get scholarships and not selecting the nicest dorms and meal plan each year.

    • For some reason college is like a wedding. The rational analytical side of things gets turned off and people choose the nicest or best option regardless of the cost. Good to hear you didn’t end up with too much debt!

  • Perhaps rethink using the 508 plans for your kids, especially if you think they’re inclined to have kids of their own. Allowing that money to grow for another 30 years would really open the education gates for generations to come.

    • That might be a good option, though I don’t really have a ton of assets I want to lock up like that right now. It wouldn’t be hard to imagine pre-funding grandkids’ college educations right now (28-30+ years before they are likely to be of college age) with a moderately sized lump sum contribution.

  • This was a very thorough write-up. Thanks for that. I recently wrote a much less detailed post on the topic that you can check out here: http://www.fiscallyfree.com/2016/07/why-im-not-saving-for-my-childs-college.html

    I earned a full scholarship to a state school, so college was pretty much free, and I suspect my kid(s) will probably be able to do something similar.
    Like you said, there are a plethora of options for funding college, if college is even necessary 18 years from now, that won’t drain our life savings.
    Luckily, we have a long time to figure out exactly what we’re going to do, and I plan on enjoying that time with my children as much as possible.

    • I think it makes a lot more sense to front load retirement savings instead of college savings. You really don’t know how well your kids will do and whether a four year college is the right choice, and how much merit based aid they will receive until late in the game. But you know you’ll need something pretty substantial for retirement!

  • I think it’s very wise to require your kids to contribute to their education. Several public schools in our town allow you to go to the community college and take classes, for which the students receive both high school and college credits. However, one of the public schools allows their students (while doing this) to receive an associate of art degree while going to high school. I think that’s pretty awesome.

    • I think we have a high school here that awards an associate’s degree with one extra year of study. That would be a great way to only pay for 2.5-3 years of college. Lots of options to pay less than full price, that’s for sure!

  • Great analysis- especially for NC, which has great and inexpensive in-state options. And I agree that since being an employee is a worse and worse proposition, college may become less and less important in an increasingly entrepreneurial nation.

    But what happens if ROG jr wants to follow a traditional college path and has his or her heart set on UC Berkeley? College of the Atlantic? A discussion of the costs and benefits? A firm no? Loans?

    • I’ve heard of UC Berkeley and almost applied there for grad school (and possibly would have gone there if they offered a full ride). Never heard of college of the Atlantic. I would discuss the costs and benefits of whatever school they want to attend. It’s not out of the question, but there would have to be a compelling reason to pay $40-60k/yr cost of attendance instead of $24k per year (or $10k if they live at home). That extra $50-150k would have to buy a whole lot of better career prospects to make it worth while. So most likely the result would be “no”, but I’m open to anything.

      Loans would probably be a big part of the answer. If one of our kids really want to go to a high sticker price school, we’ll probably give them $X thousand per year that we were going to pay toward a state school and wish them luck and help them economize however possible.

      Private schools or out of state schools might be a decent option if the school offers a huge financial aid package (in the form of scholarships and grants; not loans). I’ve heard that at many Ivy Leagues the endowments are so large that most students receive a significant portion of their schooling costs paid by the endowment IF the don’t have huge incomes or assets (like us maybe??). So we might throw a few applications to some of the higher profile schools and see what kind of aid packages they come back with.

      In all honesty, if we asked any of the kids “would you rather have this duffel bag filled with $50-150k and attend a state school or skip the huge money bag and go to a fancy pants school?” I bet they will all take the cash and enjoy the heck out of the state school. 🙂 I know I would.

      • Oh I agree with you. Most of the worthwhile private schools offer buckets of money to those in your situation. I was just curious…

  • Great post Justin! I have a 13 year old and we’ve been saving for her in a 529 for a number of years and have almost $60,000 in the account with about 40K in contributions and 20K in earnings. I was originally going to scale back the contributions in the future but from what I’ve read, if my child gets a scholarship, we would be able to withdraw the earnings portion of the account and pay only federal income tax. We could strategically time that withdrawal after we retire to control the tax rate (or to pay no taxes). The principal portion would always be a tax free withdrawal. We’ve told our daughter that if she does get a scholarship and doesn’t end up needing any funding for school, she will be able to take the earnings portion of the account and use it towards her future in whatever way she sees fit.

    So, all that being said, we’ve decided to just keep contributing so that we’ll likely have 100% of the college costs in the account between principal and earnings. Not a bad problem to have. Of course, we only have one to pay for so it’s been easier for us to save than most who have to save for multiple children.

  • Thorough breakdown! I’m sure the folks with kiddos will find this super helpful! One clarifying detail: Financial aid is determined based the federal FAFSA form, which DOES look at assets (though home equity and retirement accounts are generally exempted), not just income like the ACA exchange. Of course some states may look primarily at income and not assets, and it’s possible NC does this. But most early retirees are going to get aid based on their huge wealth (that is: not much aid) not based on their low income. That said, you have lots of other things in the hopper (plus, for goodness sake — the kids can work!), so I’m sure you guys will be a-okay even if your assets get counted.

    • I think the two big in state schools look at assets and income on the FAFSA, but retirement assets don’t count. So for our purposes, our taxable brokerage account counts against us big time, but with a modest income it isn’t too bad and we look relatively “middle class” meaning we’ll get a small to moderate award depending on how many kids are in school at one time.

  • Great write up Justin!
    Really interesting stuff, especially now that we have a kid on the way 🙂

    I paid for 90% of my college costs through a Tennis Scholarship (you could say my dad paid for much of that through sweat equity put into many years of coaching) Thanks dad!

    The other 10% was a combination of help from my parents, work, small academic scholarships, and living frugally.

    College can be very expensive or not depending on your skills, creativity, and badassity (like anything else in life). I’m not concerned about paying for my kid(s) to go to college. Although a little more concerned than you since my net worth isn’t at 7 figures quite yet 😉

  • Great article, lots of info and a great “cheat sheet” for diving into this type of planning.

    Have you considered a worse “worst case scenario” where your kids want to go to a private university that’s $50-60k/year?

    You bring up really interesting points about the value of college in the future and I think a decision here would be a combination of not only the societal/professional value of college but how much you value it for your children (e.g. how important is it to let you child choose whatever school they want or how much value added is it for your kid to go to the more expensive school over a cheaper option). And assuming you can technically afford it of course.

  • Nicely done Justin. Here in Canada university/college education is slightly cheaper but it really depends on what degree you get. An engineering degree is certainly more expensive than an arts degree, given that you’re taking somewhere like 6 or 7 courses per semester. A cheaper way might be go to college for the first 2 years before transferring university to get the university degree.

    For Baby T1.0 and T2.0 we have started RESP (Registered Education Savings Plan). Each year we can put $2500 and government will contribute another $500. Instead of buying dividend funds, we’re doing the index ETF approach. Given that the kids can get Danish citizenship and that university is free for danish citizens (for now anyway), attending universities in Denmark when they’re older is another option. But I’ll let them make that decision. 🙂

    • That RESP sounds like a nice deal. Many of the US states offer a similar (though typically smaller) deal in the form of tax credits. Getting that “free” $350 tax credit on $5000 contributions was awesome, and probably saved us several thousand in taxes while we were contributing.

      • Hard to say no to free money. When you withdraw from RESP there are tax consequences. Since the beneficiary (the child) will be in school and probably won’t have much income (plus tuition credits), the tax on the capital gains should be very minimum (if anything at all).

        It also surprises me when parents say they don’t have RESP for their kids.

  • Hi RoG,

    Very nice post! Something I don’t get…
    I am planning on being early-retired by the time my kids go to college (i.e. low AGI) but at that time I am also planning on drawing my money to live from taxable accounts (not that low). Retirement money will be for 59.5 years old and plus.

    You said 75% of your net worth is in retirement accounts which I assume you don’t touch. How do you manage to have enough money in your early retirement stage? (25% of 1.4 million = $350,000, at 4% withdrawal is $14k/year).

    Thanks

  • One other source, that can be either conflated with ROTC or on its own, is becoming a member of the National Guard. Guard service includes both Federal tuition assistance as well as State Tuition assistance in most states. Plus they have a weekend job, can get _cheap_ health insurance, and, depending on the job, some useful skills. Con is of course they can get called up, but they really try to incorporate student status outside of a warshot environment.

  • JP at TheMoneyHabit.Org

    Hey Justin, thanks for tackling this subject so thoroughly. From our past convo on Reddit, I can only repeat how frightening the whole kids thing has been as we project out our expenses and college is a big part of that question. I echo your thoughts on scholarships and am hoping my kids can contribute to their own education via merit awards.

    If you’re also looking into this, the best site I’ve found so far for scholarship listings is Unigo. This is an example of what they have in NC. Some great category fields (athletic, university specific, merit-based, etc.). You have to squint a little past the adds on the right hand side, though, as it can get annoying. https://www.unigo.com/scholarships/by-state/north-carolina-scholarships

    I’m not sure what’s happened since I was a kid, but they have scholarships for 13 -year-olds which sound awesome. The spouse and I got a kick out of the Zombie Apocalypse one, where you’re supposed to write about how you’d survive a zombie apocalypse at school at what 5 items you’d bring with you. Heck, he’d write about that for free!

    And for those talking about college in three years, as someone who also went that route I can’t say enough positive things about it. It’s not the right decision for everyone but it certainly was for me. A kid could basically ‘save/earn’ $24k by taking AP classes in high school if the conditions were right. I was done with academics by Year 3 and ready to explore the world. It also made me more confident walking out into the world because I had a little more money in my pocket compared to if I had stayed an extra year.

    -JP

    • Thanks for that link to scholarships. I imagine access to these scholarships is sooooo much easier than it was back in 1998, although I bet people are just as lazy today and a surprisingly large proportion of students don’t apply for them. I landed so many of these $500-2000 scholarships. Like write 3-4 essays, submit and receive $1000. Yes, please, I’ll take another.

      • Some years ago now my daughter was just starting out on applying for scholarships while in her last year of high school. She ended up getting $500 from a women’s group for good citizenship. I went with her to the luncheon where they gave out the awards. One of the judges told me over lunch that only 12 students in the whole state had applied for this particular scholarship! 4 people got the scholarship. After that first sucess and with this new awareness she went on to apply for and get several scholarships….one which was renewed every year for four years. Filling out forms, writing the essay and getting references is worth the effort. My daughter also worked summers as a photographer and worked at a sandwich shop part time while in school. She also got a little help from her parents. Graduated debt free.

        • I think that is very typical, especially when it comes to the smaller scholarships for a particular state or region.

          Good to hear another success story about paying for college and getting by just fine. 🙂

        • JP at TheMoneyHabit.Org

          I am bookmarking this for future Little Money Habit. Local scholarships for the win.

  • Great post! I love how you detailed what you paid vs what your kids will be expected to pay. It is crazy how much the cost of college has went up in the last 40 years, while wages didn’t even increase by a fraction of the increase of college. Yet more and more students are going. A bachelors degree does not hold the same value it use to, given 33% of the US population has one. The masters is the new bachelors. At this rate, it will be common to have a PhD in 40 years. Yikes. Think of that cost.

    • College might be $1,000,000 in another 40 years if PhD is the required degree. 🙂 I’d encourage my kids to fork over the million $ to their kids if that’s the case and let them retire at 18.

  • Good one!

    You and a lot of comments talk about getting your kids to save for college as well. I agree that having skin in the game makes a difference. I plan to take a slightly different approach.

    My goal is to cover 100% of 4 years of college cost (not just tuition) for each child in the year they graduate high school.

    My take is the 529 is their account. Anything left over or extra because of scholarships or frugality is for whatever they want to do with it. I want them to watch costs and finish quickly (aim for 3, no 5 year plan) and plan on explaining the advantages. Gap year? On them to manage the 529. They might decide to tour Europe on a cashed out 529 with 10% penalty.. or start a business or join a band.

    My hope is I’ve taught them enough about FIRE and money in general. The hand holding is done by college. Sink or swim, they are the masters of their own destination.

    Yes, it is scary just to type that out. Hopefully they appreciate my guidance and make good decisions!

    What do you think? Too much responsibility?

    • It’s not entirely different than how we might handle the college cash (though more taxable investments; less 529 so as to avoid the penalty). And we would probably pay out 1/4 over 4 years or whatever (easier to recover from a dumb mistake in year 1 if they only have 25% of the $$).

      But yeah, it’s solid I think. No reason to spend tons of $$ on college if a gap year in Europe, launching a biz or a band would make more sense. Money is fungible and should be spent on whatever pursuits that bring the most value and enjoyment.

      • The my question – Do you view the college funds, such as 529, your money or theirs?

        • Right now it’s my money (and shows up in our net worth). Once I withdraw funds and hand it over to them, that’s when it becomes theirs. Except for one 529 account which my daughter has added several hundred dollars to. It gets lumped into the net worth but amounts to just a few percent of her total 529 account balance.

  • “Education is mostly free already, it’s just that diploma – that piece of paper that says you’re educated – that you need to get a job.”

    I couldn’t agree more Justin! The unfortunate truth is that employers are going to rely on the education “machine” for some time to come. The *real* education in life comes from our own efforts to learn and expand knowledge. It shouldn’t stop when we get the diploma.

    So yes, college is probably going to be required for high-paying office jobs for quite some time. Management track individuals will still be cherry picked from ivy-league colleges. Those colleges will never be “cheap”.

    Minimizing education costs is probably the best us “rank and file” folks can manage, so thank you for this exceptional post!

    • Yeah, I still view that piece of paper as “cheap” considering it will instantly double or triple your per-hour earnings rate compared to a zero skill position (and the upside potential seems a lot higher too). To me, it seems like a ticket to easy street where one’s income exceeds one’s basic expenses by a large enough margin to enable FIRE or at least more flexibility with work throughout life.

      I guess we can dream about what the labor market and hiring could look like, but the reality is it probably won’t change a lot in a decade.

  • My kids are homeschooled and for the last two years of high school my daughter has been taking college classes online.

    When she graduates from high school in the spring she will have 60 hours or so of college completed (between a local community college and online classes). In the fall she’ll enter her college as a junior.

    Cost for the first two years is a FRACTION of the retail price for attending the college itself.

    • That’s pretty amazing! Now I’m curious if our kids could be taking online college courses during the summers if they wanted to. I managed to enroll full time right as high school was ending (college summer session overlapped with HS term by about 2-3 weeks and I politely asked my HS teachers if I could skip class to go to college 3 days/wk 🙂 ). With online courses, they could potentially complete 1-2 per summer even if we keep up the 4-8 week vacations.

  • Great post!!! I live in CA and the cost of our public universities is high. The University of California (UC) schools are approximately $40,000 per year (tuition and housing) and our California State University (CSU) schools run about $20,000 per year (tuition and housing). Even at that price, it’s very hard to get into some of the UC’s (UCLA, UC Berkeley, UC Davis, etc…). I have three years until I start paying for college. I have a little over $40,000 in a 529 and it’s crazy to think that would only cover 1 year at a public UC school!!! I am thinking it may be cheaper for my child to go out of state for college! Thanks again for sharing such great info!

    • I don’t know if out of state schools will be any cheaper. I checked out California State in LA and it’s almost exactly the same price as UNC’s in state tuition and other costs of attendance ($23-24k/yr). Even UC Berkeley was under $28k total cost of attendance if you skip the dorms and live off campus. That’s not horrible and hopefully you can land some grants, loans, work study, co-op, etc to defray some of the costs. Worst case you’re out of pocket a good bit of money but at least have some excellent in state schools to choose from.

  • Great write up Justin. There are big shifts happening right now in education, and I actually think deflation is coming. The established institutions will fight it, but there are so many disruptive technologies popping up I can’t imagine education costs continuing to rise. Although as with the stock market, trends can continue longer than one thinks. Humans are not rational.

    The simplest hack, and one I’m going to encourage my kids to do is get as many college credits in high school as they can. Not only does it save massive amounts of money, but it saves time. That’s 1-2 years sooner in the job market, or ability to take a year off and travel, start a family, etc.

    The vast majority of kids would be best served by getting that 4 year degree as quickly and cheaply as possible.

    • Very true. We’re planning on loading up on the free credits during high school as well. For me, the last 2 years of high school were all AP classes and college courses, and I think my parents spent perhaps $1000 on the various AP test fees and college tuition.

  • Having a EE degree, I appreciate the shout out to Laplace transforms!

    We have one son that has just started his freshmen year at one of our state universities. With tuition, room, and board the cost is around $21,000 per year. Our younger son is a senior in high school, so we are currently working on the college search for him. For an undergraduate degree, I just don’t see much benefit in going to a private our out of state school, unless there is a decent amount of grants or scholarships provided. We’ve saved up a good bit in 529s to cover 4 years at an in-state school and we certainly don’t plan on taking out loans – and I think we’ve convinced our sons as well that the loans just aren’t worth it.

    To one of your other points, I certainly hope that a transformation can occur in higher education where community college followed by some type of apprenticeship can replace the traditional 4 year undergraduate degree. I’m currently working in software development (why did I get that EE degree?) and I think a CC/Apprenticeship model would work well in that area.

    • You aren’t the only EE/CE/ME etc that ended up working in software, using very very little of what was a difficult degree. 🙂 There’s something to be said about those coding bootcamps that charge a ton of $ but get the job done quickly and you’re out making money.

  • My parents never really discussed with me what would happen (financially) after high school. Everyone assumed I would go to University, and for some reason I assumed my parents would pay for it.

    It was a bit of a shock to me when I got my first bill for school and brought it to them, and they said, “Well, you better go ahead and pay it, you don’t want to be late with that! Good thing you have money saved up in your bank account…”. [Ok – they probably didn’t say that exactly, but that’s how my brain remembers it 😉 ]

    At that moment, I thought they were being unfair. But, looking back, I think it was a good thing that I had to pay for it. It likely made me work harder and spend more wisely.

    Note that they did help me by letting me live with them for free for about 50% of my schooling, and by loaning me some money to buy a car for transportation near the end. But the rest was up to me.

    I think that system worked out well. The only thing I would change was that I wish I knew about their expectations sooner so it wouldn’t have been quite such a surprise to me!

  • I was an RA in college AND I worked in the college of engineering, where I had first access to see all the scholarships as they came in. I would high recommend working in an admissions office or someplace where scholarships are in the mix. That way you’re constantly seeing the scholarships as soon as they come up!

    As an RA I worked about 15 hours and in the college of engineering about 20 hours. Fortunately/Unfortunately my parents didn’t provide financial support and making me work for my degree made me value it so much. I didn’t waste any time at parties, social events or spending superfluous monies on non-academics. I graduated as an EE and in my opinion, students in college should be studying as fast as they can to finish college, there’s so much distraction in certain social circles / frats. With FI on the horizon I didn’t waste any time/money on any of that.

  • I must say, very informative and brief post which may help thousands of students including me. I’m a final year graduate student from MIT, and willing ṭi retire early and settle my life by clearing all the debts, currently I have following sources of income
    1. Scholarships.
    2. Research funds.
    3. Freelancing income via Fiverr.
    I’m sure that soon I’m going to clear all my debts and get selected in a campus placement.
    Thanks for the post, keep writing more articles like this.
    Have a good day!

  • I started college at age 17 in 1972. I had a full scholarship for all 4 years with guaranteed tuition. The cost was $2400 per year. We had sit down dinners in the dining hall three times a day. I worked summers at $2.25 per hour to pay for my books. There was no separate meal plan, everything was included and food was unlimited. Fast forward to today. I checked the web site and the cost is now $45,940 per year and that includes a basic meal plan. When I checked the meal plan it was 7 exchanges per week. Choices were subs, salads and grill (i.e. hamburgers). This is a liberal arts private college. I question whether potential income for most of the majors would justify taking on that kind of debt.

    • I have the same doubts that $184,000 could ever be a reasonable price to pay for a bachelors degree unless we’re talking about walking out of college with a guaranteed $30-40k pay raise versus alternative career paths. Sadly, some parents and kids fall in love with a college like that and then 10 years later the kiddo wonders why they aren’t doing well with all that student loan debt hanging over their head.

  • We’ve got two options, one would require me to continue working for my current employer until she’s through college though, so while it’s the best possible option form a money standpoint, not ideal for me 🙂
    I work at a private university, and should she be accepted, her tuition is completely free while I work here (yes, all $52k/yr of it), we’d have to pay room and board (required of undergrads) at about $8k/year (according to co-workers). The other plan is state school, since we’re expecting to retire about when she finishes 8th grade, we’re going to ask her what she wants – if she wants to go to a particular state school, we’ll move to that state, she’ll go to High School there and be in-state. Otherwise, we’ll give her the money we saved for in-state tuition and she’s on her own for coming up with the rest.

    • Wow, moving to a new state just for in state tuition? I guess if you’re flexible you can save a ton! That is a tough choice to keep working another decade or so to keep the free college deal.

      • I think if you are retired early, that’s a legitimate thought, right?

        You have the flexibility to move to California if you judged their schools to worthwhile, right? I don’t think it’s a trivial exercise to consider the numbers.

        Personally, I don’t like the idea of moving children in later middle school or high school, but to each their own.

        • Sure, seems legit. People move to new states to avoid several thousand dollars in state income tax, so why not move to save $15k+ per year (times x number of students) on in state tuition? 🙂

          My concern would be uprooting the kids from their friends and familiar environs. We would also lose the institutional knowledge of how our local K-12 system works (and how to optimize it to get the most out of it) and our own personal experience attending (and hacking) the two state universities nearby (I graduated from both). However I see how it could pay off big time to relocate to secure in state tuition (assuming the other costs of moving and living there weren’t more than your previous living arrangements).

    • Do you expect your 8th grader to have much input regarding where she wants to go to college?

  • “But it’s cruel, you say, to make kids pay for any of their college when they should be studying hard. ”

    Why do people baby their kids so much these days? Their kids are not fragile little princess and princes. The more you teach them to be independent, the stronger and more resilient they will be when they encounter obstacles in life.

    I met one guy while in Thailand who said his Dad decided to buy himself a fancy car and get hire a maid instead of paying for his tuition. Turns out it was the best thing that ever happened to him. It taught him to get jobs while in school to pay off his student loans and he learned how to be financially responsible as a result. Now he’s travelling the world and doesn’t have to worry about money.

    My parents didn’t give me hand-outs and I’m stronger for it. Would never have gotten to where I am today if they just babied me and considered it “cruel” to not do everything for me.

    In a world full of whiners and kids who immediately turn to the “bank of mom and dad”, your kids will at least be independent and self-reliant. Good job!

    • Yeah, I hope so. They are still works in progress but so far the “let them taste a little failure occasionally” is working out pretty well (just got the first F on a math test from our middle schooler, and she is being “redirected” right now. Less computer games, more studying. 🙂 ).

  • Thanks for the mention Justin! I liked the list of 15 possible sources of college funding; it made the idea of funding college less frightening. While I’m leaning towards a degree hack for our son, he’ll have a nice sum if insists on going the traditional route. Currently, we have saved about $38k in our educational accounts: $34k in a Vanguard Coverdell ESA and $4k in a GA 529 plan. Ideally, I’d like to see him hack his degree and use some of the funds for graduate school.

    I’d also like to use any remaining funds to fund 0% loans to the next generation. The one thing I don’t want to do is simply give the money away for college. As a former scholarship hoopster, I can attest that my grad school g.p.a. was almost double my undergraduate g.p.a. Skin in the game is very important if kids are going to take college seriously.

    See you in Mexico or I might just invite myself over for a visit,
    Ed

    • I think my kids will want the more traditional route (the oldest finally read this article and ran out in the middle and said “OMG I WILL love being a resident adviser). We’ll push them to do well in high school and get lots of credit, so maybe it’ll be a 2-3 year traditional college if so. Somehow I don’t think we’ll spend a ton of dough on college. I’m with you on spending the college savings somewhere that brings value. I’d be okay handing them a five figure amount if we end up paying very little, or sponsoring a summer in Europe/Mexico wherever (independent travel will be way cheaper and probably more educational than study abroad anyway!).

      Maybe we’ll see you in Mexico. So far summer 2017 looks to be Europe for 8-9 weeks, but I wouldn’t mind a return down south in summer 2018 if one of our other wild ideas don’t work out.

  • Justin, Good post. I have a 10 year old and have a similar game plan as you do. Higher education needs a major hack and I hope it will happen before my son enters college. Like you, I budget for full cost of a private 4 year college ($200k), but hopefully, not pay that much when the time comes. Whatever is leftover is anyway for Junior for his first home down payment or even retirement, if he gets to read my and your blog regularly!

    • That $200k would be a nice start to retirement. 🙂 I think if I were facing $200k out of pocket costs for college I would seriously encourage the kids to consider some alternative to college. 4 extra years working + $200k growing for several decades would give them a great start in adulthood.

  • Hi! Great article. I am also from NC (Wilmington) and my daughter that has a UTMA account with Vanguard. Money in a child’s name gets penalized much more harshly than money in the parents name on the FAFSA. Do you have a plan on how to handle those accounts in regards to financial aid? My daughter will turn 18 her junior year and will be able to access the money then. I have a very vague plan to take the money out of her name on paper and completely funding a Roth IRA or making a big purchase for her or. . . something. Like I said, a vague plan. 🙂 I realize in order to fund a Roth, she will have to have earned income. She will have at least $15,000 (depending on the market) by time she is 18. Does anyone have any experience with UTMA accounts and how it affects college financial aid?

    • I really don’t have much of a plan at all. 🙂 That Roth IRA funding is a good idea since retirement accounts won’t count against financial aid. They only have about $2000 in each of their UTMAs.

  • So much is just preparing your kids that they take classes to learn. When I went to school I was there to learn. I have gotten pity about the fact that I wasn’t partying or traditionally dating [I met my spouse in class and our “dates” were simple study sessions]. I wasn’t taking “fun” classes. And at the time I felt a little frustrated every time I tried to slide something in but then decided it wasn’t worth pushing off graduation or I needed to work either for money or experience. But now that I’m a lot older I wonder at the people who would pity a 20 year old for having to…act like an adult. We have already decided the support of our kids in college will be dependent on them making a plan and having a goal. It isn’t “You’re going to college, so what do you want to study?” it’s “What do you want to study, and will it require going to college?” By shifting it from the college to the program of study you are more likely to avoid the falling in love with a campus you mentioned. You avoid taking into account things like on campus amenities or Greek life. It will also show you why, especially for undergraduate, bankrupting yourself for a specific school isn’t rational.

    • I kind of feel like I wasted my time in college studying when I should have been partying harder. I guess that short term sacrifice paid off in the form of retiring in my early 30’s. 🙂

  • Hello Justin and congrats on your accomplishments!! I have 2 kids in college and we don’t qualify for Financial Aid.
    I was wondering how or where you found those loans for 0.75% interest rate?? that’s a great deal. If you could share that information, it could help us alot. Thanks for sharing your experience and Congrats again.

    • I think those days are gone of the <1% interest rate. I got my loans through North Carolina's student loan lender but they don't offer new loans (all Direct loans now I think). And the local agency offered a .25% discount when repaying with auto-pay through bank draft plus another 2% discount for paying on time for four years straight. So my 3% fixed rate loan dropped to 0.75%.

  • You can find ramen in my city 10/$1.

    • Really? Where?

      I have to admit I don’t shop too hard for ramen since I don’t buy a ton, and usually pay about $2 for a 12 pack from aldi. Except the Oriental flavor (great for quick lo mein) which is $.20 or $0.24 or so regular price.

  • I am new to this website and found this article interesting.

    I am wondering what do you think about those top universities (mostly out of state public or private colleges). Will the high total cost means a high paying jobs?

    I have a high school boy. Many of our friends are aiming for those top universities. I just want my son to have a financial independence like you guys. Thanks.

    • Hi Tina, thanks for commenting for the first time!

      I don’t think an Ivy or Top 10 college education is a free ticket to outsized incomes. There are some employers that only recruit or look at top college programs, and might ignore those applying from schools not in the top 10 or 25, but there are plenty of other places that look much deeper. My guess is that a student that can get into a top 10 school will do very well at one of those or at a decent in state University. The advantage of a school ranked 11-50 is that the student has a better chance at being “top (wo)man on campus” in their little academic niche. I think I hit that status along with 1-2 other guys in civil engineering and had no problem landing good jobs during college and after, and my academic reputation followed me around a dozen years later. Since I was planning on working locally, a degree (and network of peers/former classmates) from the local university was probably more valuable than any Ivy League degree.

      The engineering career fair at my former school (NC State University) was extremely crowded with all the big S&P 500 companies looking to get top talent. Some have local offices, others were recruiting for positions elsewhere in the country. Microsoft, Lenovo/IBM, GE, defense contractors, all the big pharmas, banks, etc. all looking for engineering and CS talent. I think NCSU routinely ranks in the top 26-50 for engineering programs nationwide, so it’s a good school but not top 10. YMMV for disciplines outside engineering. I know investment banking, for example, can be highly selective about their applicants, but they aren’t the only game in town to land a six figure income by age 30.

  • Saw this article last week – thought I come back and share with you and your readers that may be interested. Very exciting stuff (sorry if repetitive but in case someone has not seen it)! Not all hope is lost haha. http://www.nytimes.com/2016/09/29/upshot/an-online-education-breakthrough-a-masters-degree-for-a-mere-7000.html?_r=0

  • Very nice, detailed article. The fact that you’re able to help your kids with college tuition at all is amazing and something they will be incredibly thankful for!

    Going into college, I didn’t think too much about how graduating with approx. 35k in student loans would affect me. Luckily, hard work has paid off and for someone with a BFA in Tennessee, I’m doing really well! Wish I had known more of the money saving tips that I know now back then (such as starting at community college or taking a year off to work and then start school), but alas, hindsight is 20/20 and I don’t know if I would change much anyway knowing that I turned out quite alright.

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