Wednesday, February 17, 2016

Is Your Child Worth Your Retirement?

The simple answer it NO, no matter how much you love your child, trading in retirement savings for the cost of your children’s tuition is a pretty bad idea, especially when there are alternatives. This is usually the case when one of the child’s parents is a professor. So today, I am going to focus on the financial aspect of getting your child a college degree. Obtaining a deeply discounted (if not free) college education for your children happens to be a benefit many professors already have available. Let’s look at how this benefit works and what you can and can’t do with it.

Today’s focus is on the fee waiver/tuition reduction benefit.

Here is a real story. This weekend someone came to me for a financial decision analysis. Let’s call her Julie. Julie has a daughter who would like to go to the University of Arizona next fall as a freshman. The out-of-state tuition is a little over $30k per year. Alternatively, Julie’s daughter could also attend a school in the Cal State system (she is a professor here) and use the fee waiver benefit. For anyone who is not current on the Cal State costs, the academic year is about $6,500 including fees, but if you are a Cal State employee, you can pass on up to 6 credit hours to your child for almost nothing. This means the academic year will cost you around $3,400. So Julie came to me to ask what the impact of sending her daughter to Tucson would have on her life.

Before we move on and look into the details of the fee waiver benefit, let’s do a quick calculation. Let’s say Emily will be at Arizona for 4 years. I will assume the cost of living is the same as it would be if she went somewhere in the system, say Bakersfield. If mom, who is in her mid-fifties, has about 15 years to retirement and can earn a conservative 5% return, we are looking at about $190k in additional retirement savings over the next 15 years. Is Emily’s desire to go to Arizona worth $190k? I say, not so much. This is where we might differ, but I am pretty sure that the undergrad education from Arizona is not that different from Cal State and is probably not worth the price of a house somewhere in the state of Texas.

Ok, fine, you convinced me. Sending my child to a big state school and paying out of state tuition may not be optimal for my own finances. Now, give me the details. How can my child actually use this fee waiver benefit? 
  • Here is where you find the discounted fees: http://www.csun.edu/financial/employee-dependent-program-fees
  • What exactly is waived?  Three things are waived: tuition, application fee, and ID card fee. You still have to pay all the other fees, which end up being about $550 per semester. You, as an employee, do not have to pay these fees but your dependents do.  
  • Who can use the benefit?  You (as the employee for really, really cheap), your spouse, or domestic partner, and your children are allowed to use it, assuming you satisfy the following eligibility: Tenured and Probationary faculty unit employees (excluding coaches), and temporary faculty unit employees with three-year appointments pursuant to Article 12 of the CBA.  Coaches must have at least six (6) years of full-time equivalent service in the department.
  • How many classes can my child take at a time?  Either 2 classes or 6 units, whichever one is greater. Your child can certainly take more but you will pay the difference in tuition (that’s how I came up with the $3,400 in my original example). If your child only takes 6 credits, you are looking at $550 per semester. For more than 6 credits, you are looking at $1,695 per semester…. This is SO CHEAP. By comparison, look at the most expensive in-state schools in the country and ask yourself, is UC Davis worth almost 4 times the cost of Cal State? http://www.huffingtonpost.com/2014/07/02/most-expensive-public-colleges-2013_n_5552031.html 
  • Can I get any degree this cheap? No, you cannot. These rules only apply to state-supported programs, not to self-supported ones. It is hard to find the list of all self-supported programs by campus (at least I was not successful so far but I am still looking; if you have a handy link please post it) but usually, if a program is online, through the extended college, or is a professional degree (like MBA), it’s not eligible for discounted fees. You should not have this problem with most of the undergrad programs. 
  • What else do I need to know? 
    • While you can take basket weaving classes just because it sounds like fun, “the spouse, domestic partner or dependent child must be matriculated toward a degree or the attainment of a teaching credential in the CSU and the course(s) enrolled in on a fee waiver basis must be for credit toward completion of that degree or teaching credential. 
    • Your dependent must be a CA resident.
    • The eligibility can be transferred to only one person at a timeà2 kids in college at the same time is a problem. If both parents are professors, you can work around this issue; each of you can pass the benefits to one of the children. Or, you can pass 12 credits to one child and not have to pay the $1,700 difference per semester.
    • There is paperwork to complete and deadlines to adhere to every semester. For example, to set yourself up for the spring semester you should have done the paperwork by October 24th, 2015. Some advanced planning might be required.
One of the things I observed by talking to a few people at Cal State is the misconception that they can only send their children to whichever campus they happen to work at. This is not true. Eligible dependents may use the tuition fee waiver at another CSU campus. This is a very strong argument against the “but I don’t want to live at home and go to the school my mother works at”. Now you can tell your children they don’t have to. There is always some other campus 5 hours away to attend.   

On a different topic, a great resource to look into all things college is the College Solution. There are a number of rankings and lists of schools that are generous and not so generous with financial aid. If you have children who will be going to college in the next few years, it is a good resource to check outhttp://www.thecollegesolution.com/

Finally, here is my side rant for the day.  Look, I am not going to tell you what to do but I have seen parents going the two extremes. Some want to pay the out of state Arizona tuition (for no good reason) and others say the children should learn the value of money and finance their studies by taking student loans.

But the other extreme is also not good. Student loans are bad. Forget about the “investment” in yourself argument, especially if your child will most likely be going to grad school. I constantly work with people who have way too many student loans because it is so easy to take those without realizing what you are doing. Most 18-year-olds are not equipped with the skills to calculate the impact of those loans on their post-graduation life.  $50k of student loans is detrimental to the life of your child for years to come. And although a 17-year-old may not comprehend the true gravity of those student loans, we know better, so let’s help the child out.  Bottom line: send your child to the cheapest legitimate (not University of Phoenix) school you can afford without altering your own life or your chance at retirement. 

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