March 31, 2016
Free Tuition? What might that look like? This is my thinking, and nothing more. I may be completely wrong, entirely right or (likely) a little right and a little wrong.
If beginning January 20, 2017 the next President declares free college tuition for everyone, this is what I think that would look like:
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Tuition will not appear as a "cost" line item at colleges continuing to participate in the Federal Student Aid program. Some private colleges will opt out.
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Costs may change at first, but they will creep up year-by-year until the "free tuition" is replaced by other fees and charges. Even with free tuition, room and board, mandatory fees and books will not be free.
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Admissions criteria will roil with confusion. If college is free because of federal tax supplements, how can a student be denied admission? To manage enrollment, free tuition will be offered for limited college choices based on students' home zip codes?
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If anyone can attend, and everyone attends tuition-free, there will be an impact on the marketplace value of a college degree. Degrees from private colleges that have opted out, and continue charging tuition, will be perceived as meritorious, and a two-tiered market value will emerge.
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If college is tuition-free, what will be the motivation to complete a degree in four years? Students may find it much easier to stay, and stay and stay in the crafted comfort of higher education.
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The federal government will seize some portion, or the entirety of current 529 Plan accounts, using the rationale that they are no longer needed. The argument will be made those funds are needed by the federal treasury to cover the costs of making college free.
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The IRS will impose a new federal surtax to cover U.S. Treasury disbursements. It may be a tax added to filers with AGI above a certain dollar amount. It may be a surtax on filers above a certain income level who also have students attending college during that tax year. It may be a tax on intercollegiate sporting events and revenue. It may be all of those, and more.
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Colleges participating in the free-tuition-program will be monitored as to salaries and capital expenditures. The federal government will not, you can be certain, pay a per-student tuition reimbursement college comptrollers think is fair (to wit: Medicare and Medicaid reimbursements to doctors). Tuition reimbursement will be according to a federal schedule, based on per capita census, with regional cost-of-living adjustments.
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Professors will retire early; will exit for higher-paying, private-sector employment, or will devote less time to education and more time to writing, speech-making, fee-based private education, and other means of sustaining and increasing their personal incomes.
Where's the "free" in all of that?
Posted in College Planning.
March 1, 2016
Do you understand affordability? How much money, per year, can you lay out on college costs for your children? What factors must you consider? What can you do to bridge the gap?
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How much money per year can you lay out on college costs for your children?
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Know the actual costs per year.
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Colleges publish "Cost of Attendance" estimates.
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Cost of Attendance includes tuition, mandatory fees, dormitory rent, on-campus meals, books and supplies, travel costs to and from home, miscellaneous out-of-pocket expenses
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Without borrowing any money, how much of that total can you pull from your monthly cash flow?
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What factors must you consider?
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What is the anticipated college-costs inflation rate? The prices do tend to go up every couple of years.
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Never, never, never touch retirement funds to pay for college. That includes money already set aside, and monthly contributions from current income.
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There are four questions about retirement to consider, all determined by your current retirement funding plans. Based on what you are doing now (err on the side of caution), for your money to last throughout your spouse's and your life expectancy:
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What Rate of Return must your accounts average?
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How many more years will retirement needs require you to work?
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How much more do you need to be saving monthly?
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By how much will you be forced to reduce your lifestyle in retirement?**
**if you think you can do that, why not start now and put those extra dollars into your retirement account?
3. What can you do to bridge the gap?
a. Every student is eligible for the Federal Student Aid program (college loans to the student for which the parents have no obligation). The loan amounts top out at around $27,000 over four years (with some additional possible up to about $31,000 total).
b. Federal Pell Grants may be offered for students from lower income families. Those are need-based grants-in-aid, not loans.
c. Draw on resources that present the lowest, possible risk. Some people go to home equity. The risk is, should something happen to your income down the road, you could lose your home to foreclosure. Obviously, reducing current lifestyle expenses during the college years is the safest option (although not the most pleasant) to free-up extra cash.
Sometimes families are transferring wealth away unknowingly and unnecessarily. We offer a no-obligation/no-charge audit to help you know.
Posted in College Planning, College Planning Strategies, Retirement Planning. Tagged as Cost of College; College Affordability;.
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