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Early Retirement Extreme Forums » Money Questions

1. 

   Mo
   

   Master
   Joined: Jul '10
   Posts: 442

   I have a 4 month old child. I know many on here have questioned the value of higher education on this site before. I have my own questions in that regard, yet I do find myself thinking that it would be wise to set some money aside for my child's future education.

   In Florida, there is a prepaid college education plan.

   The program I'd chose covers 4 years at a state uni. The three options for me are: Lump sum payment of $48,735, 55 monthly payments of $907.90 totaling $49934, or 211 monthly payments of $304.57 totaling $64,264. The interest is about 3.95% for the payment plans. All of these are affordable to me.

   The program is run and guaranteed by the state (I can't lose money in it). It is fully refundable at any time (okay, $50-100 in fees). It is protected from creditors. I can transfer the beneficiary to another person (e.g. if I had another child). If the child qualifies for a scholarship I will be refunded. If the child goes to an out of state or private school, it will pay that school the same amount of benefit that I would have gotten at an in state school.

   Program site: http://www.myfloridaprepaid.com/

   Any thoughts on whether to do this or not? Which payment option and why? Thanks, in advance.

   Posted 1 year ago #
2. 

   George the original one
   

   Expert
   Joined: Jul '10
   Posts: 1,941

   There are some small towns that you can live in and easily get college scholarships. Fossil and Lakeview, Oregon, are two that I'm aware of.

   How small? Fossil is small enough that the high school plays in the 7-man football league... but only when they have enough players. Population about 500.

   Lakeview has about 2,500 residents.

   Posted 1 year ago #
3. 

   dragoncar
   

   Expert
   Joined: Oct '10
   Posts: 1,287

   Wow, so you prepay 17 years in advance and they still charge you interest?

   I guess it all comes down to whether you think college costs will continue to rise as fast as they have in recent history. Some people call it a "bubble" but it's not quite the same kind of bubble as others.

   It doesn't sound like a great deal to me. Current tuition is, what, $5k/year?

   Posted 1 year ago #
4. 

   DutchGirl
   

   Master
   Joined: Sep '11
   Posts: 480

   @dragoncar: I think this college plan doesn't charge you interest, I think it's the interest you get on the money you put in. (That is why the lump sump is smaller than the total of the monthly payments, too).

   I am definitely not against higher education, since I am, (ha), a product of it. I finished two university studies and I think they increased my abilities. I think others here mainly object against paying down student loans for the rest of your life for a mediocre education. And I think you have to choose your school, and your study program, wisely.

   So if I understand it correctly, this program seems rather secure. I haven't looked at the website or the fine details, so I trust you when you say the money is secure. You put money in, you get about 4% of interest each year, and in 17 years your child can either use it for an education (again, hopefully he or she chooses a smart option, but that is definitely up to him/her), or it can be withdrawn at any time by you for other expenses.

   I don't think 4% is such a bad interest rate; specifically if you also expect education costs to rise much more than that (then you actually get even more value for this money).

   My country (the Netherlands) has paid for most of my university expenses. My parents paid the rest. I am forever grateful to them for that. So I think it's great that you're providing your child with the option of college education.

   Posted 1 year ago #
5. 

   Boater
   

   Novice
   Joined: Sep '11
   Posts: 8

   Mo
   Have you considered letting your child find their own way to pay for college? It seems as though if you give your child a free ride through college you run the risk of making them entitled. I know far to many willfully unemployed college graduates who are living at home because jobs they could go out and get today are "beneath" them because they received free rides from parents and didn't have to work their way through college.

   Posted 1 year ago #
6. 

   DutchGirl
   

   Master
   Joined: Sep '11
   Posts: 480

   @Boater: I don't know them. I think most children will understand that once they're out of college, they're on their own. Maybe it also depends on how you raise them. I knew, for example, that my parents weren't going to support me indefinitely; and I also knew that they couldn't, anyway.

   Posted 1 year ago #
7. 

   jennypenny
   

   Expert
   Joined: Jul '11
   Posts: 1,338

   That seems like a really good pre-paid tuition program as far as tuition programs go. (much better than my state) What happens if you move out of state? How many credits does it cover? What if your child ends up taking 5 years to finish? (not uncommon, and most athletes get red-shirted their first year and have to attend 5 years)

   My husband and I went round and round about prepaid tuition plans and 529s when the kids were small. In the end, we decided not to participate because we wanted more control over our money. Now that we're looking at colleges with our oldest, I'm glad we didn't participate. Our oldest wants to attend college in another country to study languages. Our middle child is really bright, but does not do well in traditional school settings. He's the kind I could see starting his own business. Our youngest has health issues (as you know) and so his "fund" might end up paying for more immediate needs for him. I'm just trying to illustrate that there are many different avenues now aside from traditional college. With the way the economy is, I think the trend will continue. I'd probably take the $50K and invest it somewhere else. (I understand the appeal of the program though)

   I know many people feel that you shouldn't even pay for college. FWIW, we live near a great, affordable state university. We have told the kids that we'll give them the $$ equivalent of tuition at that university each year. If they decide to attend that school they'll go for free. If they go beyond that they'll have to ante up. If they get a scholarship they'll have extra money left for grad school or travel or whatever. It was the best compromise we could come up with since DH would foot the entire bill and I would only provide housing/living support.

   Posted 1 year ago #
8. 

   ksoto
   

   Apprentice
   Joined: Sep '11
   Posts: 30

   When I moved to TX almost 20 years ago they were just setting up their plan. They closed it several years later. My kids were older than yours but the youngest is still in college. I enrolled all three and paid a lump sum. You might not want to hear what the prepaid cost was for 120 credits in a Texas state university back then. It was about $8,500.00 each. Covered tuition and most fees and has worked out very well. In your case, since the money is refundable I don't see how you can lose. I always liked the fact that the child can't get access to the money. Nor creditors and it is not considered a marital asset in a divorce either. In my case if they did not use it to pay tuition by the time they turned 26, I would get back the average cost of 120 credits and fees at a public Texas University at the time of redemption. Would have been a good investment if that happened although taxes would be due.

   Also, none of the gain is taxable if applied to tuition. In my case the state pays it directly to the university and you still get to use the full amount paid for tuition when computing the various tax credits and deductions.

   Posted 1 year ago #
9. 

   FrugalZen
   

   Journeyman
   Joined: Aug '11
   Posts: 270

   ABSOLUTELY DO THIS!!

   I live in Florida and it has been done for my neices and nephews.

   You can only go wrong getting an education if you do one thing....GET STUDENT LOANS AND EMERGE LOADED WITH DEBT!!

   It doesn't matter what the degree is in employers are more interested in the fact that you have spent four years pursuing something that, unlike high school where you MUST attend,
   you have VOLUNTARILY gone after.

   They are going to train you to their own way of doing things anyway.

   And who knows...perhaps the course in Basket Weaving will lead to a life as an Artist whose works sells for $$$Thousands$$$.

   (Can you tell I'm biased toward learning...LOL!)

   Posted 1 year ago #
10. 

    palmera
    

    Journeyman
    Joined: Aug '11
    Posts: 270

    I see @DutchGirl's point, but in my 1.5 years living in Europe I can say that the whole "parents paying for education with the understanding that the kids are on their own after" is something I saw more with my French peers.

    With my friends, peers and even in my own family here in Canada, I see plainly the comfort and sense of entitlement that comes from parents paying their way through school and not having a "dry run" of what it's like to struggle on your own through University.

    I worked 2 or 3 little part-time jobs through university, plus summers nannying, and working labour jobs (so hard to get an "office" job with out connections...)and it definitely helped prepare me for being thrust out there in the real world.

    my sibling and cousins who had their way paid: not so much.

    This is why I agreed to ONLY put aside enough $ for my godkids' LOCAL, non-private tuition. They will have to work McJobs and save to come up with the rest.

    Posted 1 year ago #
11. 

    JohnnyH
    

    Expert
    Joined: Jul '10
    Posts: 1,363

    Some interesting angles to be sure... If you could put the funds in whatever investments you want, ie; at a brokerage, I'd be all for it. But I certainly wouldn't want take a 20 year long position on the USD for a meager 4%.

    Also, tuition is clearly in bubble mode... Many are graduating only to find their degree wont get them a job. When the product is discredited, I see demand dropping.

    And states themselves could default, ie: inability to pay state constitutionally protected pensions.

    Also, I took my college classes much more seriously when I was the one paying for it.

    Posted 1 year ago #
12. 

    ksoto
    

    Apprentice
    Joined: Sep '11
    Posts: 30

    @JohnnyH: I think that is what the 529 plans allow. Like an IRA for college while the state plans offer a guarantee of tuition regardless of how much it goes up.

    Posted 1 year ago #
13. 

    FrugalZen
    

    Journeyman
    Joined: Aug '11
    Posts: 270

    I forgot one important thing....and its true about most prepaid college plans...it only covers TUITION...not living expenses...which is what many people forget when they say in-state tuition is only 5K...you need to add at least 10K for even basic living expenses.

    One of the interesting niche markets (might be good for ERE's too, come to think of it!) up at Gainesville home of the University of Florida are apartment complexes with four individual bedrooms. Each of them has its own bathroom and you need a key to get in...your room key opens the front door and only your room door.

    They are fully furnished (bed, chest of drawers, desk, chair,bookcase, closet) and everything is covered in the rent except long distance phone and high speed internet. Large kitchen and living room and appear to be well soundproofed so you can crank up the stereo in your room.

    The complex owners (10 large complexes that I know of) have a pretty detailed form (20 plus pages) you have to fill in and they run it through a computer to match people up with compatable roommates.

    On the bus line so you can get to school easy and some of them are just far enough out that not having a car makes wasting time going out partying all the time a pain, (When has THAT ever stopped a college student...LOL!)

    Rents are around $400-$500 a month.

    Posted 1 year ago #
14. 

    dragoncar
    

    Expert
    Joined: Oct '10
    Posts: 1,287

    FrugalZen, I don't know if you were referring to my "in-state tuition is only 5K" statement, but I very specifically did NOT forget that there are additional living expenses.

    If you are paying $48,735,55 now, and that only pays for tuition, not living expenses, then you have to compare that number to the $5k tuition number, not the $15k (or whatever) cost of attendance.

    As it stands, it looks like you come out ahead if tuition rises faster than around 5%/year. It very well might.

    Posted 1 year ago #
15. 

    FrugalZen
    

    Journeyman
    Joined: Aug '11
    Posts: 270

    @Dragoncar

    NO..I knew you were only referring to the tuition at 5K. A good $15K a year is needed to attend an instate school and not be living at home.

    The days of a full time summer job and saving the money and have it pay all your tuition are sadly long gone.

    I benefited from the live at home deal but paid the $1200 or so annual tuition from my summer job savings.

    One of the kinks in that sort of program today is in order to "better utilise" the facilities all college students in Florida are required to take at least one semester of classes over the summer months while going for their degree....they will hold up your diploma until you do.

    Posted 1 year ago #
16. 

    Mo
    

    Master
    Joined: Jul '10
    Posts: 442

    @All, Thanks for the input.

    To make it a bit more clear, basically I'd be paying about $49k in 2012 for 120 credit hours of education at a Florida University in roughly 2030. The 3.95% interest is interest applied (meaning I pay it, not get it) if I spread the payments over 18 years-- thus the 18 year plan ultimately costs $64k, as indicated in the OP.

    @dragoncar, 2011 tuition rates put 120 hours at $22,626 (~$189/hr). About $5700/year ish. So, I'd be paying more than twice that (~$406/hr). For comparison though, 18 years ago (1993), the rate was $57/hr ($90/hr, in 2011 dollars adjusted for inflation).

    The past few years have had particularly dramatic jumps in tuition. In 2007 the rate was $109/hr ($119 in 2011 dollars)-- so it's nearly doubled during this recent period of economic difficulty.

    Part of what I'm struggling with is that if I pay lump sum, I'm overpaying in 2011 dollars for a service in provided in 2030. In 2030 the tuition rate will have been impacted by both inflation and the rise (or decline) in college tuition beyond inflation. Is there a benefit to spreading the payments out over 55 months, or 18 years?

    If we assume inflation will have a positive value each year for the next 18 years then the lump sum payment pays the entire amount with the most valuable dollars.

    Posted 1 year ago #
17. 

    Mo
    

    Master
    Joined: Jul '10
    Posts: 442

    @Boater, Yes, I have considered this. Putting money aside now does not guarantee that my child gets the money, or that I pay for college. That decision can be made over the next 18 years. If I plan now to pay in the future, my options are open in the future. If I don't plan now, who knows...

    This money is refundable, and really only covers tuition, so it doesn't cover the comprehensive costs of a college education without other income.

    Each person will make an individual decision on how much to help his/her children get established in the world. The line must be drawn somewhere, perhaps for you it is high school, perhaps for me it is college.

    FWIW, I had a free ride through college with parents and scholarships. I was a very serious student and did very well in college and graduate school. Not having to work was a huge advantage for me academically.

    Posted 1 year ago #
18. 

    Mo
    

    Master
    Joined: Jul '10
    Posts: 442

    @JennyPenny, If I move out of state, the program is still good, and my child would be considered in-state in terms of tuition. It covers 120 credits, and as far as I can tell this can be spread out over 5 years (or more I think the limit is 10 or 14).

    If my child is a college athlete, I'll have a paternity test run! :) (okay, I know that wouldn't matter at that point, but my DNA doesn't seem to be too athletic)

    @ksoto, the shielding from creditors and future capital gains taxes seemed to be big benefits from my perspective.

    Posted 1 year ago #
19. 

    mikeBOS
    

    Master
    Joined: Nov '10
    Posts: 554

    Probably not an option for the OP. But for other ERE parents and parents to-be scouring the thread. Any student who graduates from a high school in New Mexico can go to any of the 25 public colleges within New Mexico for free. -Including the massive UNM, the NM Institute of Mining and Technology, New Mexico State University and a bunch of smaller, local schools. The only catch is you have to go right after HS and you can't take any semesters off. Lots of nice little ERE-compatible communities throughout the state too.

    Posted 1 year ago #
20. 

    bigato
    

    Master
    Joined: Mar '11
    Posts: 920

    I know that you have some fear that the prices will go up. Besides that, do you
    see any advantage over simply saving and investing the money yourself?
    It's better to get paid interest than pay it to others, isn't it? Did you do
    the calculations on how much less you will spend by investing the money now?

    Posted 1 year ago #
21. 

    FrugalZen
    

    Journeyman
    Joined: Aug '11
    Posts: 270

    Georgia also has a sweet deal....my brother went to Georgia Southwestern in Americus GA...and Jimmy was Prez then...LOL.

    He paid instate tuition because GA has this deal that if your state shares a border with GA they consider you living in GA.

    Posted 1 year ago #
22. 

    HSpencer
    

    Master
    Joined: Jul '10
    Posts: 770

    Here is the bottom line: HSpencer's grandaughter is going to college even if it hairlips every cow in Texas. That is a given. Now, yes there will be tries for scholarships of a couple of sorts. Due to her grade averages I think she stands high up on an academic scholarship. Also, and this applies to her, there is a Cheerleader scholarship at major universities.
    I would not be writing this were she not "good". She is and that is not because she is my grandaughter. She has been a cheerleader from 7th grade now into her senior year. All that same time she has been a member of the Professional Cheerleaders of America (PCA). She works 24/7 as a cheerleader, loves it, eats, sleeps and drinks it. So, the PCA lady selects a couple of girls and takes them to a major university, as she had connections all up and down the system. They fly to the university and in a weekend they are screened or tried out, or whatever they call it. The university selects girls like they select football players and give them a full scholarship to be cheerleaders and keep the grade point averages, and all that goes with that.
    Now the kicker: My grandaughter was accepted by the university selection in all areas but one. It seems they ONLY select girls that are exactly 5 ft 2 in tall, and blonde. My grandaughter is 5 ft 5 in. I guess they can do whatever they want, but I think that is outright discrimination. No one can help how tall they are! Guess this cheerleader stuff rockets straight from high school into college as being a piece of crap. (Remembering news articles whereby mothers shoot each other over which of their kids get to be cheerleaders).
    As I said in the beginning, hoping for an academic instead, and in a coat of last resort, there is always papa's bank account.

    Posted 1 year ago #

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