How to Pay for College: Problems and Misinformation About Saving For A Child's Education

For various reasons having to do with not earning enough to rise above humble middle class status, it was virtually impossible for my wife and I to save much money for our children's college education. Somewhere between carrying them around in diapers and enrolling them in high school we socked away $5000 for each child in some sort of mutual fund with a Lutheran-managed financial company who promised us the money would grow by leaps and bounds. But it never did. Years went by and those college funds crept along like turtles with hemorrhoids, never gaining enough interest to be a threat to prosperity or even catch the attention of the tax man, who loves things like "capital gains." With such a slow rate of return there was little incentive to add much to the college fund. So it stayed at $5K. It made me wonder why those fellow Lutherans would lie to us so badly about their investment knowledge. But it would have to do.

My son never got anything lower than an "A" in any of his high school courses. Straight A's for four years. He even aced the college prep courses at the well-respected high school he attended. The kid nearly killed himself keeping up his academics during his junior year, yet still managed to act in no less than three plays, taking the lead as "Charlie" in Flowers for Algernon. If you haven't seen that play, it is about a mentally challenged man who becomes a genius through medical experiments, only to die at the end of the play. The same thing happens first to a mouse who undergoes a similar experiment, so the pathos of the play occurs from the realization that we are little better than unsophisticated animals even after we become geniuses. At least I think that's the point.

It should be the point, because that's all the smarter our family feels after paying for four years in college at an Expensive College. When you visit the campus, they make all kinds of interesting promises to parents about "need" and "financial aid" and "low interest loans." But when I asked the fellow at the financial aid presentation what was the average debt burden for graduating students, he told me they had no clue about that. I thought they should know that. But they didn't. And that was very disturbing to me. Because paying for college suddenly looked like a race with a starting line and no finish line. Except when you die.

If we paid cash for my son's education it would have cost $200,000. As it was, our family has been asked to contribute about $55,000 in cash for tuition expenses alone. That's about 27% of the total cost. Plus the amounts my son had to contribute on his own. Plus the weird amount the college categorized as "work study." That's money we supposedly need for college, but don't really have to pay. That's how it was explained to us. Once again, we've never been able to establish what we owe versus what they bill us for. At our particular Expensive College, they don't ever really tell you the real, total cost. So we wind up paying more like 45 or 50% of the cost. This is how it happens. When we got the first bill from Expensive College, it had a statement on the invoice that said something like, "We think this is what you owe. Send us a check and if it turns out you owe more than this, we'll tell you." I'm not kidding. My wife and I looked at each other and said, out loud for real, "Whoa. What have we got ourselves into."

So THIS is how they do it in Big Finance, I thought to myself. You see, my son's college is well known for its graduates who are Free Market Capitalists who Run the World. These fellows operate World Banks and serve as the President's Men in Finance. They have done a lot of damage to America the last 25 years, but we can blame Ronald Reagan, a Californian with a goofy smile and a talent for uttering vacuous platitudes about ketchup and trickle-down economics as well. You'd think our country would have figured out that you can not trust an actor with our nation's future, because if all of life is a play, some of them don't turn out that well. Remember Charlie in Flowers for Algernon? He got smart, then he got stupid again, then he died. Life imitates art quite frequently, especially when it comes to brains and money.

But we average dopes in "the audience of life" keep sending our kids to Expensive Colleges bearing high minded reputations because we think these Big Money Men know something we peasants should know. Here's what it turns out they know how to do: Bankrupt the world's largest financial institutions by letting them run whole hog over regulatory procedures. Then they send us taxpayers the bill with a Message: "We think this is what you'll owe. We'll tell you if it turns out to be more or less."

We're seeing a pattern here, don't you think? The Free Market Capitalists running our banks and colleges seem to know that we'll keep paying for the chance to know what they know even though they know they don't really know anything. Most of them admit this once they retire with all their money socked away. They say, "Damn, I wonder how they let me get away with that. Pass me another beer."

These are people who just pretend to be a lot better than the rest of us, and wear really nice suits. That's how Reagan got elected? He looked like a banker and talked like the hardware store owner in your hometown. George W. Bush looks like the hardware store owner but talks like a drunken bum. And he went to Yale. Perhaps you're seeing a pattern here, too.

And perhaps you're by now wondering if you, too, are a sucker for how college finance is being run. See, the traditional advice you'll receive about how to plan for college is to start saving money the minute your child is born. In fact, it would be even better if you started saving before you even participate in the act of making that child. You should throw a few pennies in the jar because the cost of college is going to be up 30% by the time your child graduates. That's the other conventional knowledge at work in the college savings racket. The cost of college is ALWAYS going up.

But I digress. In addition to the money our family paid for Expensive College we got what appears to be some real financial aid. It was all based on need, of course. The A's my son worked so hard to get in high school were enough to get him into Expensive College, but because everybody and their mother who attends this school got good grades and played the lead in the class play and traveled to China to educate snow monkeys and real Chinese people on English so they can put our country into permanent debt...well, you can't just hand out money to good students like these because everyone at Expensive College is smart and accomplished and knows 5 languages. So they base it all on "need." Which means that Education shouldn't cost so much in the first place.

The word "need" when it comes to college parlance has a much different meaning than in normal life. To justify need in the college finance world, you must fill out the FAFSA (Federal Application For Student Aid, how cute...) and often the College Board forms as well. These two forms examine your recent past and decide your soon to be recent future, which means you will have no extra money for the next 4 to 8 years at least. You will be broke and unable to save for retirement.

No matter how much money you hide in socks or in cans in the back yard, the FAFSA figures out you have it somewhere. I don't know if FAFSA is connected to Google Earth or what, but they somehow know that you have $5000 more than you claim, and that you're hiding it under the swing set in the back yard. MAYBE that's because FAFSA, like the IRS, knows every single American is a lying sack of you know what. So they average up the rate of savings or something.

But let's get real: The wholeidea that using one year of income as the measure to determine your ability to pay for college is flatly absurd. Let's say you made $40,000 a year for the five years leading up to your son or daughter's first year in college. But then suddenly you make $80,000 a year by some odd stroke of luck. Don't laugh. That's kind of what happened to us, except we started just a bit higher. FAFSA only looks at your good year and says, "Lookee lookee, this is their cookie." Then they send you an estimate saying you can afford to pay $15000 a year for college expenses.

Never mind that your college fund has never grown in 10 years due to a bunch of damn Lutherans who don't know a good investment strategy if it knocks them in the cajoles. Never mind that your roof might leak or your car breaks down or you actually bought groceries. The FAFSA and places like Expensive College don't care about life, or about you. The actuarial system has you all figured out. You Can Afford It. Now Enjoy that White Bread with weak tea, folks. We'll tell you later if Social Security is bankrupt.

But here it is, four years later and we've made it through. We have 25% less in our savings account than when we started, which never topped $20K to begin with. Our retirement investments are tanking with the financial crash and our incomes got chopped 40% through a variety of circumstances, but we are proud our son has been on the Dean's List at prestigious Expensive College for four years. Ostensibly he's going to get a great job.

But here's what we've really learned from this experience.

Saving for college just means they'll split it up four ways and say "thanks, the FAFSA never lies, even if you do."

A friend of mine says he's not saving a dime for his kid's college education. "If you save money, they just take it. They're all taking out big loans. Why fight a losing battle saving hard earned dollars at current savings rates when you can amortize their education over their working life at a higher earnings rate and not go broke yourself."

I don't know if this is a good idea or not. I have a feeling the colleges will sooner or later figure out even this twisted logic and send him a bill that says, "Borrow this much and we'll tell you later if that is how much you're going to owe."

That's how they all seem to operate at the Expensive Colleges. Which is almost all of them.