A Tip on Paying for College

I was at a high school graduation party this past weekend and the topic of paying for college came up with a woman that has a very young child. I happened to share a little bit of our method of putting our two daughters through college over 7.5 years. 

In order to cash flow a portion of college using the income coming in at the time, we chose not to take on car payments during those years. We had paid off our vehicles several years before they entered college, but we chose to drive older vehicles during those years we were paying for college. 

Specifically, we purchased a 2007 Honda Odyssey van in 2008. We paid off the loan in 2011, if my memory serves me correctly. We also purchased a 2007 Honda Ridgeline in 2011, which we paid off in 2013 or so. I do not remember the car payment amounts.

A car payment of $250/month is $3,000 a year. A car payment of $500/mo is $6,000 per year. There are families that spend much more on car payments. Eliminating any car payment you have by paying off car loans early or at least ahead of college tuition will allow you to use that money towards tuition or housing. By no means do I imply that only eliminating a car payment can pay for college. I point out that this cash not being put to other debt, such as a car loan, can be applied to the cost of college expenses. 

Ideally, a car would be paid off six months to a year prior to the first college tuition payment, so that this money could be saved to put towards the first payments and reduce the reliance on loans. Of course, there are many other tips and ways to pay for college, but for us, not having auto loan payments and driving older vehicles while our girls were attending college helped us not take out very limited student loans. 

My husband is still driving his 2007 Honda Ridgeline to work everyday. We purchased a 2023 Honda Odyssey in late 2022, just months after we paid the last of the tuition for our youngest daughter. This is the van loan I reference in my posts that will be paid off in 2025. We currently send at least $1200/month to this debt. 

We did take out one small student loan for our oldest daughter, when she realized she needed to spend another part time semester to finish up classes due to scheduling conflicts. Because we had both daughter's attending school, the loan made the most sense, since we had not planned for additional time at school. She has received the money to pay it off, but is currently using it to cash flow her master's degree, and putting the student loan in deferment. 

I believe I wrote quite a bit about how we paid for college along the way if you want to scroll back on previous posts. One daughter was an out of state student and attended for five years with two majors, and the other was an in state student and completed her degree in 4.5 years (she also had a minor). 

Happy to answer questions on the idea of not having car payments while paying for college in the comments. 

A College Savings Windfall

Our youngest daughter is about to start her final three semesters of college this month, so it's been time to evaluate how to pay the bills! As planned we are beginning to use her Post 9/11 GI Bill benefits she received from her dad. 

For at least the next two semesters tuition and fees will be paid in full by the VA, each semester is equal to about $6365. 

Her housing cost and meal plan is $4,066 per semester. The VA will provide housing allowance and a book stipend for each of these semesters. Each semester should net $6,517. Clearly more than the cost of housing we pay! 

I found out yesterday that her scholarships with are $2,250 per semester can be applied to the housing costs! This means that the actual housing cost owed will be $1,816 each semester, after scholarships are applied. Her sister had a scholarship at another university that didn't benefit us in this way when the VA paid. I think this has to do with type of scholarship and that one university was out of state tuition, while this current university is in state tuition. So we are pleasantly surprised to have this $4,500 benefit and windfall in our favor.

I have been saving $500 a month since the end of last year and have set aside $4500 in anticipation of paying the housing cost out of pocket, knowing we will eventually get the housing allowance (it's paid out monthly). I basically don't need this savings at all to handle the upcoming bill, because on top of these benefits she still has nearly $7,500 in her Educational Savings Account. I have already made a transfer out of her ESA to cover the housing we owe after scholarships are applied. 

Now remember I said she has three semesters left? The final semester her scholarships will have ended and depending on her housing choice, cost may increase, to as high as $6K. And we know how universities love to increase costs. I expect we will owe between $10,500 and $12,000 for her that final semester, but we have plenty of funds between the VA payments (and they may pay a small portion in the last semester) and her ESA.

Funds currently available

Cash $4300

ESA $7504

Expected VA payments

$13,034

Total Funds

$24,838

Expected Costs

Fall 21 $1,816

Spring 22 $1,816

Fall 22 $10,500 (min) 

Total $14,132

We have more funds available than expenses!

$24,838-$14132 = $10,706

The next two semesters will come from ESA funds and I will shift the $4,300 I saved this year to other priorities! We will stockpile the VA payments as they come in, drain the ESA the final semester, pay the difference with VA funds and keep the remaining amount, which appears to be $6400! Interestingly enough the VA does not require that housing and book payments be used for these costs. If you don't have books to buy or housing to pay (say you are living at home) than you are allowed to keep the funds for any other use. 

So yes, a $10K+ windfall!! Whohoo! 

Because we over saved for our youngest daughter and our oldest daughter took out a small student loan her final semesters of college in the amount of $5,500, we are going to pay her loan off which is about $3100 remaining. She hasn't paid any money to the loan yet because of the deferment currently allowed. She is sitting on a housing reimbursement since the college closed early in March 2020 and a small VA payment that total $2400. 

I'm almost shell shocked that we did it, or are nearly there. With our college savings efforts, cash flow and VA benefits we paid in full for our two daughters to attend college (19 semesters). 

2021 Financial Planning: College, Promotion and Taxes

I've been running lots of numbers over the last couple weeks to help us plan for college and to adjust for my husband's promotion which should be effective on December 1. It remains to be seen how long it will take to get the correct pay. 

Just a little update, slightly unrelated, our oldest daughter graduated college in May with about $5,500 in student loans. She starts her first full time job on November 30. She has been preparing a budget and asking about things we pay for that she will take over, which is primarily auto insurance. Her paycheck in comparison to ours which has grown over time is stressing me out and giving me flashbacks to our early married years! I'm proud that she is thinking ahead and trying to figure it all out. I reminded her that some of what she has saved was a housing refund from the spring and should be applied to her loan. While I don't think she wants to see her savings go down, she seemed to be relieved about a much lower balance to work on! 

Our youngest daughter just took her last final of the semester. A few weeks ago she signed up for spring classes and determined that she can't keep up the 18 credit hours per semester as an engineering major. This means she will be extending her time at the university by one semester. For us that means four full semesters of tuition and housing left to pay. She has just under $12K in an Educational Savings Account (ESA), around $4K in a UTMA and 8 months of Post 9/11 GI Bill benefits to use. We also save $500 a month for college expenses to cover at least $4000 in eligible expenses so we can take advantage of the American Opportunity Tax Credit(AOTC). We do seem to find a way to spend the full $6000 we save each year towards her expenses. 

The current plan is to pay out of pocket for tuition in January, using her ESA to pay for housing. We will begin using the Post 9/11 GI Bill benefits in August 2021. It will cover all of January 2022 and possibly a small portion of her final semester in August 2022. The final semester will be a larger bill as her scholarship will have run out, but we have figured out that we will have the money on hand to pay it as we continue to save the $500/month. We might have extra funds that we won't use, but that will be determined by how much tuition rises over the next two years. I started the process to start using the GI Bill benefits this spring, but when we realized she was going to need an extra semester it made sense to wait, primarily so we could also get benefit of the AOTC in 2021, very helpful as we adjust to the raise my husband is getting. In 2022, we will no longer be eligible to use the AOTC, but the Lifetime Learning Credit is an option and also provides some tax relief. 

In reviewing our taxes for this year and next, I had to calculate my husband's future pay and how taxes would affect the increase which is significant as he is being promoted to the next rank. We have maxed out our Roth IRA for quite a few years now, including the catch up amount for my husband because he is over 50. We have been in the lowest two (I think) tax brackets and it made sense to pay the taxes now knowing we aren't likely to be in even lower tax brackets at retirement. Without any deferred retirement we most definitely hit the 22% tax bracket. However, I am considering putting the amount he puts into his Roth IRA all into a Traditional IRA or adding it to his TSP (Thrift Savings Plan). We save on taxes now and will likely be in a lower tax bracket when these funds are withdrawn on these funds and their earnings. I think that is the plan anyway. I may go back and see if I can figure out a smaller amount to add to the TSP to keep the taxes low, but also put some into the Roth. Just takes time to figure out and I do feel good that I have a plan for now at least! 

The next step is to determine what we do with the extra income. Do we just save it? Should we save it in a mutual fund or look for a great CD rate (do those exist?!)? I feel like we are in a new place with our income, so it's time to start dreaming what this extra money could do!

Have you made any adjustments to your finances as you look ahead to 2021?

Cash Plan for Fall Tuition

Our youngest daughter is in college and will be going back to live in the dorm this fall. Classes start a week earlier than last year and the semester ends the day before Thanksgiving. The exciting part financially is that the Board of Regents did freeze the cost of tuition and housing for the upcoming school year. It is still higher than we paid last year because our daughter bumped into the higher tuition differential for engineering majors, but it would have been even higher if they didn't make that freeze. We are grateful for that and for her continued scholarship that is $2,250 a semester.

It takes diligence and effort to pay tuition in cash.

After the scholarship we will owe $9701.50 for the fall tuition, room and board.

Here's where we found the cash:

Saved $500/mo x 7 months $3,500
Spring housing refund $2,291
Tax Refund 2019 $1,308
ESA Funds $2,602.50

We bought a couple used textbooks this summer that I purchased out of current income. She has a few others that are immediate access books, technically ebooks, and ones that are loaded into her account and she is automatically billed for them because she is enrolled in the class. Those books will add another $200. I expect this will be bill by the University in September, which I will pay from current income also.

After this semester, assuming her plans do not change and she stays on track, we will have just three more semesters to pay! We think we will use her portion of the Post 911 GI Bill for the upcoming spring and fall of 2021. It feels like light at the end of the tunnel since we starting paying college expenses for our oldest daughter in the fall of 2015.

Are you saving for college, paying for college, or changing plans for college? Tell me about it in the comments!