Paying for college: 3-part breakdown. Does this work?

[disneysteve]

I've read in different places that one way to plan to cover college costs is with a 3-part plan where 1/3 comes from savings, 1/3 comes from current income, and 1/3 comes from loans. Can anyone here who has been through the process comment on this? How closely did your actual spending fit this plan?

Our daughter is soon to enter her 2nd year of college so I'm crunching the numbers for paying the upcoming bill for the fall and looking ahead to the spring and years 3 and 4. I haven't actually worked out if our reality will match that pattern, but just roughly, I think it may come pretty close. I just found that interesting since I didn't go into the process with that structure in mind at all.

[bjl584]

When I went to Grad school I got loans for all of it. I was then reimbursed for about 1/3 of it from my employer. I paid for extras like lab fees and books out of pocket.

[riverwed070707]

My college was paid 75% by current income (my own ) and 20% loans. I graduated with $12k in debt because I borrowed my freshman year tuition/living expenses. Didn't have any savings really until after I graduated but I did bust my bum to cover my current costs. Was fortunate to be living with my boyfriend - now husband - my soph-senior years because he covered most of our living expenses. Wouldn't have been able to do it without him

[Singuy]

I think you should look at it like this:

1/4 should be free(AP/IB/dual enrollment from HS).
1/4 Undergrad (post AA degree if needed) <-- paid for by state scholarships + savings
1/2 graduate/professional school <--1/3 savings, 1/3 current income, 1/3 loans

[disneysteve]

Just to clarify, I'm talking about the actual out of pocket cost, not the total tab. In my daughter's case, about 40% of next year's costs will be covered by her scholarship and a grant. We have to cover the balance.

[Singuy]

Just to clarify, I'm talking about the actual out of pocket cost, not the total tab. In my daughter's case, about 40% of next year's costs will be covered by her scholarship and a grant. We have to cover the balance.

Correct me if I'm wrong, but from what I can tell..only undergrad loans can be subsidized.

Also loans for undergrad is 4.7% vs almost 7% for grad

So if you daughter is going to professional/grad school
I would take as much undergrad loans out as possible and apply that money to grad school.

So for undergrad

as much sub loans you can get, then savings/earned income
For grad
1/2 Savings, 1/2 income

[LivingAlmostLarge]

I had college mostly paid off. Small school loans to make me serious about it. DH had it 100% covered himself between scholarships and working. School is cheap in canada.

[feh]

I don't know what the rationale would be for following such an arbitrary plan.

I think the goal should be to graduate with as little debt as possible. There are lots of ways for that to happen, including but not limited to: a less expensive school, assistance from parents, student's earned income/savings, scholarships.

[disneysteve]

I don't know what the rationale would be for following such an arbitrary plan.

I agree that it shouldn't be the plan going in. I'm just curious how closely it ends up matching reality for folks. Certainly, our goal was to save as much as we could, have her qualify for the best scholarship she could get, and borrow as little as possible.

[creditcardfree]

I'm a year behind you Steve, so I'm watching this thread. I know I'm trying to avoid loans for as long as possible. We could take out $17K this year, but were going for zero. Scholarships are covering all but about $2500 in tuition, which I plan to pay out current cash flow. Housing will probably come from money saved in our daughter's ESA account.

In the future we expect to use some of my husband's Post 911 GI bill benefits for our daughter's, which basically will cover 4 years of school including housing. We don't think we are using it this year because my daughter got so many scholarships.

I think the approach you mentioned in your original post is a good one...because it doesn't put all the emphasis on paying all cost with loans! I really hope we end up with zero in loans, but if we end up with only 1/3 to 1/4 in loans that is so much better than many people.

[disneysteve]

We could take out $17K this year, but were going for zero.

Our daughter was offered $6,500 in loans for year one that we declined as we didn't need the money and it was unsubsidized (we don't qualify for subsidized loans to Singuy's point above).

I think the approach you mentioned in your original post is a good one...because it doesn't put all the emphasis on paying all cost with loans! I really hope we end up with zero in loans, but if we end up with only 1/3 to 1/4 in loans that is so much better than many people.

Exactly. I think many people see how expensive college is and figure they'll never be able to afford it so they don't even bother trying to save, which leads to insane amounts of debt. I think this gives a more realistic approach. If you realize that saving even 1/3 of the total cost would be reasonable, that's a much more realistic target. If you can save more, that's even better, but at least you'd be on the right track with 1/3 saved.

[corn18]

I have the older daughter in community college now and younger daughter starting college in 2016. I have enough saved to take no loans through 2016. Enough planned to save to cover all costs through both graduations. I put $1,000 / month into the college savings and add a lump sum each year to cover the rest. I am planning on no scholarships, but based on my younger daughter's GPA (4.1) and ACT (34 composite), I think she will get something. That will reduce the total required to get her through school. After I know the annual cost, I can adjust the lump sum add and if she gets enough, maybe reduce or eliminate the monthly add.

With my older daughter, she is going to community college and I am having her take out loans in her name to pay for the expenses. Then when she meets her 3.0 GPA each semester, I pay off the loan. If she doesn't maintain her GPA, she keeps the loan and is responsible for paying it off. So far, so good. We only qualify for the $5,500 / year unsubsidized loan and that covers all her classes as she is working and going to community college at night. Costs me $26 in interest, but keeps her motivated to do well.

I may do the same for the younger daughter, but she will be going full time and the $5,500 won't cover all costs. I plan to pay anything over $5,500 / year with savings and pay off the loan each semester if she maintains her GPA. I might change this if all is going well. She's a lot different than her older sister, so I suspect college will go well for her.

Tom

[MonkeyMama]

I don't know what the rationale would be for following such an arbitrary plan.

I think the goal should be to graduate with as little debt as possible. There are lots of ways for that to happen, including but not limited to: a less expensive school, assistance from parents, student's earned income/savings, scholarships.

I'm with this. The plan for us is to pay 100% with income and savings; -0- debt. (Though certainly would take scholarships or employer-paid tuition, etc.).

A 33/33/33 plan seems extremely arbitrary and does not consider individual circumstances.

[moneybags]

I've read in different places that one way to plan to cover college costs is with a 3-part plan where 1/3 comes from savings, 1/3 comes from current income, and 1/3 comes from loans. Can anyone here who has been through the process comment on this? How closely did your actual spending fit this plan?

Our daughter is soon to enter her 2nd year of college so I'm crunching the numbers for paying the upcoming bill for the fall and looking ahead to the spring and years 3 and 4. I haven't actually worked out if our reality will match that pattern, but just roughly, I think it may come pretty close. I just found that interesting since I didn't go into the process with that structure in mind at all.

Child 1 is going to be a senior in college, child 2 is starting this fall. We have saved forever for their college. So our plan is 100% from savings.

[disneysteve]

I don't know what the rationale would be for following such an arbitrary plan.

I think the goal should be to graduate with as little debt as possible.

I agree, certainly, but I think part of the problem is that students and their parents take out loans with no concept of how much is too much to borrow. One rule of thumb is to not borrow more than you expect to earn in your first year of employment after college, but that's an awfully tough rule to follow. How are you supposed to have any clue as a freshman or sophomore (or even later) how much you'll earn 4 years later when you're not even sure what field you will be going into? And what if you intend to go to grad school too?

Perhaps this breakdown gives a more concrete limit: you shouldn't need to borrow more than 1/3 of your total costs. Obviously less is better but at least this gives another guideline.

Of course, 1/3 of the costs will vary widely depending on the price of the school, but it puts some limits on your selection. If you can't cover at least 1/3 through savings and at least 1/3 through current income, you need to be looking at cheaper schools.