Saving for College - Private vs Public

Submitted by MrPickles2000 t3_1001vpz in personalfinance

I'm curious how folks here process saving for college and balancing out giving children options/risks of over-saving/valuing private colleges. My partner and I are fortunate to have a good, steady income and are currently maxing out our tax-protected retirement accounts. Both of us were also lucky enough to graduate college without any significant debt (one of us did four years at a private college, the other did 2 years private/2 years public) thanks to parental support. On one hand, we want to give our children the same opportunities but on the other hand, looking at projected costs it's hard to fathom that a private school is providing adequate value for the cost difference.

I've put together a projection in excel to help us plan for our 529. If our kids follow the standard timeline (i.e. no gap years), they'd be entering school in Fall of '29 and Fall of '31.

By my projections the future value for four years of private school would be around $440K (1st child) and $465K (2nd child) while public school would be around $160K/$170K. If we were to fully fund each child's 529 to plan for private school and they attended public school instead, each of the 529s would be left with over $325K after graduation.

Obviously there are options for that leftover money including graduate school, rolling it over into their own children's (or other relative's) 529s, and now rolling it into Roth's, but on the other hand, $650K is a significant chunk of change to wrap up in an account where non-qualified withdrawals are penalized.

Anyway, I'm not exactly asking "what should I do" because I realize this is about personal values more than anything else, but I am curious - how have other people processed making this decision?

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93195 t1_j2f14fn wrote

First and foremost, take care of your own retirement and investing needs first. The best thing you can do for your kids is to remain financially independent until death, and not put them in a position where they feel they have to sacrifice what their own young family needs to support you.

Once that’s done, I’m a proponent of over saving. Too much is better than too little, and the worst case for unqualified 529 withdraws are taxes (which you’d be paying anyway if in a taxable account) and 10% on earnings only, not principal.

So if you ended up with $150K too much, assuming half was earnings and half was principal, the penalty would be $7500. Not ideal obviously, but that’s still $142,500 back in your pocket, minus the same taxes you’d be paying anyway of course.

As far as worst cases go, that ain’t too bad.

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BouncyEgg t1_j2ezdfx wrote

Keep note that only the gains portion is penalized and taxed.

Personally, I'll be looking into taking a culinary class in France (or similar) if I can't figure out how to use up the rest of the 529 funds.

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JellyDenizen t1_j2ezkb1 wrote

Public colleges are normally less expensive for in-state kids.

I have two college age kids. One thing that really surprised me is that most colleges appear to give pretty much everyone aid, scholarships, etc. that significantly reduce tuition cost. Almost no one pays the "retail rate" you see on the college website as tuition cost. It's kind of like the hospital that charges $20 for an aspirin but no insurer ever pays that $20.

Bunch of articles like this one from a few months ago about a trend of colleges toward slashing their tuitions to more accurately reflect what they actually look to get.

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MrPickles2000 OP t1_j2f7j7j wrote

I'll be honest, while I want my kids to have options, I also think that outside of the top 20 or so schools (Ivy+), I'd really encourage my kids to consider our in-state public schools. And for most of those Ivy+, there aren't a lot of discounts and scholarships out there for families making 200K+.

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clearwaterrev t1_j2fd2pj wrote

> it's hard to fathom that a private school is providing adequate value for the cost difference.

Agreed. I'd rather my kids attend the best in-state public university, assuming they can get in, rather than pay significantly more for them to attend a private university. A private university that offers significant merit scholarship would be fine, but I'd look at what is required to keep those scholarships.

I have young kids, and I expect college costs may change a lot over the next 15+ years. I'm hoping public universities will do more to control costs and limit tuition increases, or more states may roll out Bright Futures style programs that cover some or all of the cost of tuition at public universities. I'm therefore going to hold off on sinking a ton of money into 529s until my kids are older and I know more about what their college costs might be.

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