Or in my case, it was “How can I afford to send my kids to college?”, since I have two of them.

It’s a question on a lot of parents’ minds, as we hear about the burgeoning costs of a college education.  It was certainly on my mind, when I stared at the Expected Family Contribution (EFC) that I’d just finished calculating for my own family.  I mean, we all know college is expensive, far more so than it was when we (the parents) went to school.  But nothing compares to the shock of staring at your own number, which might as well be in bright red flashing lights, “Danger Will Robinson!  Danger!”.  And then to realize that I’d be expected to come up with that level of money, 7 years in a row, due to the spacing of my kids.

I also realized that, due to the age at which we had children, those famed and highly anticipated years of “catch-up contributions” to our retirement accounts are far less likely.  When colleges want a jaw-dropping amount of money, cash flow with which to fund retirement accounts becomes tight.  And while there are technically 15 years of catch up contributions between 50 and 65, if your kids are in college from your age 50-57, you’ve realistically got only the last 8 of those 15 years (the least valuable ones, because of the lack of opportunity for compounding) in which catch-up contributions are feasible.

Now that I’ve scared you almost as much as I managed to scare myself… what can we do about it?

College financial aid is a complicated system, after all it was created by the same bureaucracy that created our ever-loved* United States tax code.  And if you’re considering one of the ever-growing number of schools who uses the PROFILE and its highly variable Institutional Methodology, that’s stacking variables on top of variables.

* my kids have taken to asking me to point out when I’m being sarcastic.  This is one of those times.

Worse, by doing what popular wisdom says you should with your money, you can end up being double-penalized by the system.

For example, if you put college money for your kids in a trust they can’t touch until after they graduate, you get penalized by 1) the Financial Aid Officer being frustrated by trust fund babies and therefore not feeling charitable towards helping find aid for you, 2) a system that assessed child assets at 20% the first year, and 3) since your kiddo couldn’t use that money in the first year (or the second through fourth) it continues to be assessed at 20% for the remainder of their college years, over and over again, even though it still can’t be used for college funding.

Or you decide that instead of getting student loans for yourself and/or your child, you’d rather take out a second mortgage.  But a second mortgage doesn’t count as a debt for purposes of reducing your assets in the expected family contribution calculation, while since you put it in the bank for the purpose of paying college bills it’s earning interest – which is counted as income (likely at a 47% contribution rate) for your EFC.  Triple threat alert – if you child is looking at a school that doesn’t consider home equity, you’ve now taken a non-considered asset and made it a considered asset (at a 12% contribution rate), ouch – watch your EFC potentially go up by several thousand dollars with just this one mistake.

Maybe you decide to reduce your income by having one spouse stay home.  While this is a valid life choice in general, choosing to switch to it at college time for the purposes of attempting to obtain more student aid likely won’t go over well.  First, you now have less income with which to pay the bills.  Most people don’t plan ahead enough for changes in circumstances to show up on the Prior-Prior-Year tax return, so you’d still be assessed at the higher income rate.  And while there is an income allowance (up to $4000) for single parent working families, and dual parent working families, there is no such allowance for two-parent families where only 1 parent is working.

Maybe your student doesn’t like the low panache jobs of a need-based on-campus work-study, or they think they can’t handle the competing demands of work and school.  These are too valuable of money to turn down, for a number of reasons.  They’re usually easy work.  In fact, for many you can be paid to be somewhere physically, but you aren’t actually doing work much of that time, and so can dual-purpose by studying.  Second, no commute required, no transportation needs, they’re right there.  And if you’re a night owl, there are lots of jobs that need night owls on campus, compared to what you might be able to find elsewhere off-campus.  They’re also going to be scheduled around your classes, no need to argue with a supervisor about not being allowed to be scheduled for XX shift this semester, vs YY shift next semester.  Many students, when forced to learn the executive functioning skills of juggling a job and school, actually do better than those students only tackling school.  And finally, the income that your student earns from this work-study job is excluded from the 50% student income assessment.

Like our federal and state tax code, the formulas used for the expected family contribution by the FAFSA (federal method) and the PROFILE (institutional method), are in constant revision.  It’s an arms race, colleges trying to collect more money vs. families trying desperately to hold on to their savings, their current income, and their future income.

There are so many mistakes a family can make in trying to be financially ready for college, and some of the mistakes you can make can actually be doubly painful when they hit you from two or more directions at once.  Since we’re easily talking about the difference of thousands of dollars per child saved vs lost, make sure you’re seeking out good advice on college funding.

If you want to try calculating your own EFC, you can do so here (college year 2020-2021), or here (college year 2021-2022).