Ep.34 - Adulting101 - How to Pay WAY LESS ⬇ for College? - Buy a House and Quit Your Job (3 Minute Read)
Read Time: 3 Minutes
HOW EXPENSIVE IS PRIVATE COLLEGE IN 2017?
We all know college is expensive in the United States, especially private colleges. In my own experience, the total cost of attendance at Dartmouth (tuition + room + board + insurance) was $53k in 2008, $55k in 2009, $58k in 2010, and $60k in 2011. That's 1/4 of a million dollars after 4 years!
Fast forward to 2017: it's even more expensive! For example, first year undergraduate costs $71k at Dartmouth, $69k at Williams, and $67k at Pomona College.
The rich (top 10%, at least ~$175k/yr in 2016 dollars) can afford it regardless. (The source of my $175k cutoff references the 2016 U.S census data here.)
Low-income families (the bottom 50% households that make less than $60k/yr in 2016 dollars) receive a lot of financial support due to generous scholarships from college endowments.
However, there's very little support from the college for the middle class families, which I am defining as the middle 40% of American households that make between $60k and $175k. But there is a hack that can help. Let me show you!
HOW YOU CAN PAY LESS IN ONE SENTENCE- BUY A HOUSE AND QUIT YOUR JOB
Yes, you read it correctly - Buy a house and quit your job!
The idea is simple. Your contribution is highly impacted by your household income, moderately impacted by your liquid assets (cash/investments), and weakly (if at all) impacted by your illiquid assets.
Let me break it down. In order to pay less, you need to do 2 things: 1) convert liquid assets (cash, stocks, money market funds) into illiquid assets (retirement account and a house), and 2) reduce your income.
On the asset conversion part, the single most effective way to convert large amounts of cash is through building equity in a house, because the alternative through a retirement fund has a low annual limit of $5,500. However, this effect does seem to phase out for higher income households.
On the income front, you can lower your income by switching to part-time, taking a less demanding/lower paying job, or only have one of the two parents working.
A MIDDLE CLASS FAMILY ($80K) CAN SAVE $10K/YR WITH THIS STRATEGY
Let's run through 3 scenarios with Dartmouth, Columbia and Pomona College. The numbers are collected from MyIntuition. It is legitimate to me, especially because Dartmouth's own website embeds it publicly.
In this example, the middle class household makes $80k/yr, with $100k in cash savings, $100k in stocks, and another $100k in a retirement account. Not bad at all. They are expected to pay about $19k/yr, between Dartmouth, Columbia and Pomona College (circle through for yourself).
After taking step 1 by converting $180k from cash and investments to equity in a house, the family now pays about $5,000 less every year.
This middle class family then further reduces income by $20k a year. The result is the family now only pays half of the original amount ($19k), about $10,000 less every year.
AN UPPER-MIDDLE CLASS FAMILY ($150K) CAN SAVE $18K/YR WITH THIS STRATEGY, BUT ONLY WITH INCOME REDUCTION, NOT ASSET CONVERSION
In this example, the upper-middle class household makes $150k/yr, and everything else stays the same. In other words, they still have $100k in cash savings, $100k in stocks, and another $100k in a retirement account. Because of the higher income, they are expected to pay about $34-$38k/yr, depending on the college (circle through for yourself).
They also convert $180k from liquid assets to equity in a house. The result is different at this income level. There is no benefit actually.
This family then reduces income from $150k to $90k/yr. The result is they are able to reduce their contribution by half, which saves them $16k to $18k a year, depending on the college.
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