“So how exactly do upper middle class people pay for college?”

A father called me yesterday and asked me this question. I thought about it long after our conversation, because I know that so many families are struggling with the same issue. With the cost of college as astronomically high as it is today, how exactly are families with incomes of $200-300k supposed to pay these bills? I’m not going to sit here and say this is not a very respectable income- it absolutely is. Any household in this income bracket has at least one, if not two, individuals working very hard each day to be there. However, after paying taxes and DC area housing prices, there is not always as much left over as we would expect. Certainly not enough to pay for $65,000/year worth of tuition and room and board, and keep food on the table for the rest of the family!

So, here’s how real people in this income bracket pay for their children’s college education, knowing that they will not qualify for need-based financial aid but cannot afford the sticker price:

1. They plan ahead financially. Unfortunately, many parents don’t think about this until it is too late to plan very far ahead. However, the best way to do this is to plan ahead financially with a 529 plan. 

2. They plan ahead logistically. Really want little Suzie to go to UVa or Virginia Tech? Time to move across the Potomac and settle in Virginia. Again, this is not always a reasonable option. However, in an ideal world, settling in the state in which you are happy with the public educational options is an excellent way to make college more affordable. Don’t forget about the DCTAG program for DC residents, either!

3. They focus on schools that offer merit based scholarships to lessen the cost of tuition. Many highly selective schools do not offer merit based scholarships, as I have discussed before. However, a student who is admitted to Georgetown (a school that does not offer merit based scholarships) may have the qualifications to win a full tuition merit based scholarship from American. A less competitive school, yes, but still a good choice for a student who desperately wants to be in DC. I often work to help students find alternatives to their top choices that will provide substantial scholarship funding. 

4. They rely on grandparents to pay the bill. Yep – it’s true. Every year, I see more and more grandparents funding both the cost of college as well as the cost of supplemental educational services (my fees, standardized test preparation, etc). This is not going to be a viable option for many families, but it happens more than the general population probably realizes. 

5. They think outside the box. For example, some students can study out of state while paying in state prices, as I have discussed before, through the Academic Common Market. Other students can use the services of a company called In State Angels to help establish residency in order to pay resident tuition in another state (note: this is very challenging). One of my students this year is benefiting from the ACM, paying in state tuition at an out of state school.. and her parents are THRILLED!

6. They take out loans. I hate to even include this, because I really do not think it’s a good idea. But if all else fails, parents and students can take out private loans to cover the cost of college, and can pay those loans back over time. Again- I really, really, really do not think this is a good idea. I would hate to see someone 250k in debt for an undergraduate education. Yet, in the spirit of answer this question accurately – this IS something that a lot of families will choose to do.

7. They get divorced – but they DON’T remarry. Ok, this is kind of tongue-in-cheek. Again, I DO NOT RECOMMEND THIS as a good solution! However- as I have discussed before, all colleges require the FAFSA for need based financial aid. The FAFSA does not ask for noncustodial parent financial aid information – it only goes by the household income of the household where the child resides. However, many colleges, especially private ones, also require the CSS Profile. Most of the colleges requiring the CSS Profile also require what is called a Noncustodial Profile for a student who has divorced parents. Still following me? Essentially, what this means is that if a family is divorced, and the student is living with a parent with a low household income, it would be possible to fill out financial aid forms accurately without declaring the income of the noncustodial parent.

Here’s an example: Jane’s parents are divorced. Dad makes 260k. Mom makes 60k (she doesn’t work – this is just as a result of alimony and child support). If Jane picked her college list strategically, only including schools that were FAFSA-exclusive or did not require a Noncustodial Profile, she could legally and ethically fill out the forms listing ONLY Mom’s income of 60k from alimony and child support. Dad’s income would NOT be considered, even though he’s going to be the one who foots the bill.

However, this can turn into a very messy situation if Mom gets remarried. Let’s say Mom gets remarried to Step Dad, who makes 260k as well, but has already paid for college for his own kids and has already assured Jane’s family that he will not be contributing to Jane’s education. All of a sudden – boom! Jane’s household income shoots to 320k. No more financial aid, even though many would agree that Step Dad should not really be under any obligation to pay for her education. Like I said – I do not recommend this as a viable option, but if you are already divorced and one parent makes substantially more money than the other parent, families can really spin this to their advantage. I had a client a few years ago that essentially got a full ride to an excellent school because we hand picked his list with this very concept in mind. 

At the end of the day, it’s clear that planning ahead is the way to go. However, if that ship has already sailed, don’t worry: other options remain. And a divorce does NOT have to be one of them! 

Posted on May 19, 2016 pm31 1:54 pm

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