Was having this discussion with my wife after we saw a commercial on the topic of saving for college. We notice the normal discussion on this topic always involves saving now and throughout childhood; investing, 529, etc. and no one ever seems to have the idea of 'why not just pay as you go'? Is it common to pay as you go?
To be more specific, I'm talking about the roughly 10-20% of households that are similar income to us (income in the $100k<x<$200k), which means kids are very likely to go to college. The top 5ish% ($200k+) can likely easily pay as you go without issue. The 15-20% below us, while their kids are still very likely to go college, the household income probably can not support paying college tuition in real time. Anything lower than that, and saving over the life of child is a must if they wish to support the child in college.
I digress to bring in my point;
A constant reminder of where our money goes is the weekly check to daycare. We have two kids 15 months apart. Wife is a HS counselor and after her paying full family medical premiums and daycare, she still brings home money. Not a whole lot, but it's in the green, so it was a no-brainer for her to keep her job so her retirement year stays in her 50s, since daycare is temporary. Plus counseling positions are far and fewer between, and she got landed one in our sd very close to home.. (TMI for this post, just trying to justify my next statement)
We currently pay $630 a week. That's ~$32k a year, which is roughly the cost of current day college tuition for a single child isn't it? (I haven't looked in a while)
We are in that top 10-20% range of income earners, so with that daycare bill, we currently live on a very tight budget that requires frugality. it takes lots of discipline, but we can do it and we know it's temporary. So how will just paying for college when the child is enrolled going to be any harder that what we're doing now? It seems I never see this angle, it's always save save now... but I say we just wait and pay for it then if college is in the cards for the children.
If anything, when college comes around (we'll be 52 when first child is 18, 58/59ish when second child is finished), we should be nearing, if not already in, our top paying years, so it shouldn't be as tight as it is now with an expense like that. So why not just pay the bill as we go? Our savings now (in 20s,30s, and 40s) should be for our retirement, since time is on our side for growth. In our mid 50s-60, there isn't as much time for retirement to grow, so it makes sense to pull back from retirement contributions then and deal with college (if necessary). Obviously, our daycare bill is weekly, whereas college is in large chunks 2-3 times a year.. but we can simply auto save weekly into a savings account. Does this make sense from a 'maximizing investments' standpoint?
Of course we'll have two kids in college for 3-4 years, so that number doubles and so it may be very challenging if possible at all, but for the middle-upper class with siblings 3-4 years apart, why do I not see this in the discussion? Your average top 15%-ish class family should not have an issue paying as you go, just like we are paying the $30k+ right now for daycare.
Are all college expenses deductible or is it only tuition? Currently, I can only deduct $5k of daycare.
Curious on the thoughts of others. This post is me just kind of thinking out loud.
Maybe families in this class already currently pay as you go
To be more specific, I'm talking about the roughly 10-20% of households that are similar income to us (income in the $100k<x<$200k), which means kids are very likely to go to college. The top 5ish% ($200k+) can likely easily pay as you go without issue. The 15-20% below us, while their kids are still very likely to go college, the household income probably can not support paying college tuition in real time. Anything lower than that, and saving over the life of child is a must if they wish to support the child in college.
I digress to bring in my point;
A constant reminder of where our money goes is the weekly check to daycare. We have two kids 15 months apart. Wife is a HS counselor and after her paying full family medical premiums and daycare, she still brings home money. Not a whole lot, but it's in the green, so it was a no-brainer for her to keep her job so her retirement year stays in her 50s, since daycare is temporary. Plus counseling positions are far and fewer between, and she got landed one in our sd very close to home.. (TMI for this post, just trying to justify my next statement)
We currently pay $630 a week. That's ~$32k a year, which is roughly the cost of current day college tuition for a single child isn't it? (I haven't looked in a while)
We are in that top 10-20% range of income earners, so with that daycare bill, we currently live on a very tight budget that requires frugality. it takes lots of discipline, but we can do it and we know it's temporary. So how will just paying for college when the child is enrolled going to be any harder that what we're doing now? It seems I never see this angle, it's always save save now... but I say we just wait and pay for it then if college is in the cards for the children.
If anything, when college comes around (we'll be 52 when first child is 18, 58/59ish when second child is finished), we should be nearing, if not already in, our top paying years, so it shouldn't be as tight as it is now with an expense like that. So why not just pay the bill as we go? Our savings now (in 20s,30s, and 40s) should be for our retirement, since time is on our side for growth. In our mid 50s-60, there isn't as much time for retirement to grow, so it makes sense to pull back from retirement contributions then and deal with college (if necessary). Obviously, our daycare bill is weekly, whereas college is in large chunks 2-3 times a year.. but we can simply auto save weekly into a savings account. Does this make sense from a 'maximizing investments' standpoint?
Of course we'll have two kids in college for 3-4 years, so that number doubles and so it may be very challenging if possible at all, but for the middle-upper class with siblings 3-4 years apart, why do I not see this in the discussion? Your average top 15%-ish class family should not have an issue paying as you go, just like we are paying the $30k+ right now for daycare.
Are all college expenses deductible or is it only tuition? Currently, I can only deduct $5k of daycare.
Curious on the thoughts of others. This post is me just kind of thinking out loud.
Maybe families in this class already currently pay as you go