If you are a personal finance enthusiast with children, you might be wondering: at which family income level will the university stop offering scholarships and grants (i.e. free money) to help your child participate? What is the income threshold?
Given that the cost of college is already outrageous and may get worse – this is an effective and important question. The biggest joke? At this rate, you need to be a millionaire in order to have four years in a private university, with a total cost of nearly $1 million!
Thanks to Bloomberg’s article titled ” Top colleges are even too expensive for parents who make $300,000we now have a rough answer. The study, conducted by Ann Choi, Francesca Maglione, Paulina Cachero and Raeedah Wahid, highlights that America’s “middle class” is increasingly squeezed out of the affordability of elite universities, but has few choices but opting out.
As a parent of both, I don’t think Snowball has a chance to make it to the top 50 colleges, and I’m ready for a more practical route: a public university or community college for the first two years. However, Bloomberg’s article points out that even public universities may not necessarily be much cheaper, depending on your family income.
Let’s explore this key and interesting topic.
Family income limits for getting free money from college
According to Bloomberg’s analysis, once the family’s income reaches $400,000families no longer expect any scholarship or grants. In other words, families who earn $400,000 or more usually pay the full list price. About 50% of these elite private college families have done so.
I think it’s great for private universities to try to make higher education more affordable for more families. If your family makes $225,000 a year, it’s not a bad thing to be able to pay half of the price. After all, $225,000 provides a comfortable middle-class lifestyle for a family of four, living in a non-coastal city.
Unfortunately, colleges don’t seem to take into account the cost of living differences faced by families across the country. Earning $225,000 in San Francisco or New York City is much lower than earning the same amount of quality of life in Des Moines. It would be adorable if the university could take the next step and make the cost-of-living adjustment (COLA) factor.
From the article:
At USC, families expected to earn about $180,000 will pay 22% to 33% of their income, or an average of about $50,000, the biggest financial burden in Bloomberg’s analysis, each using the MyIntuition calculator.
Families with the same financial position are expected to contribute 13% or $24,000 to MIT’s annual tuition fees.
At Williams College, a student with a family income of $300,000 will be required to pay between $43,000 and $73,000 a year to a list price of about $92,000. Analysis shows that the same student’s tuition fee is about $87,000 per year with little relief in Harvard.
Thanks to Bloomberg’s article, I hope everyone knows now that earning $300,000 per year is considered middle-class income in many parts of the country. Despite a clear and realistic family budget, I was scattered on coal in the comments section of the article. But people are finally here!
It’s not like earning less than $400,000 to get free money
At first glance, family income earnings are under $400,000, which sounds easy. After all, $400,000 makes you the top 3% of income in the U.S., which means about 97% of household income is lower. Yes – most of us should get free money for college, right? Wrong.
What does the Bloomberg article ignore The impact of assets. In the personal finance world, net assets are more important than positive income. One day, you may earn a high salary, and the next day you may lose your job. But once you build a large enough net worth, you can generate enough passive investment income to live freely forever.
Bloomberg’s focus on income alone reflects a broader social trend. After all, the average savings rate in the United States hovers at just 5%. Our society prioritizes positive consumerism over disciplined savings and investments. According to the latest survey on consumer finance, the median net worth in the U.S. is only $192,000.
Bloomberg may assume that a typical American household does not have a rental property portfolio, does not have a custodial investment account (UTMA), and cannot save 529 college saving plans – they may be right!
Example: I recently spoke with a friend who specializes in managing funds and has an MBA at Harvard University. He has two 5 and 8-year-olds and he doesn’t know what the 529 plan is!
Your assets are important when applying for university financial aid
When filling out the FAFSA (free federal student aid application), rely on Family (i.e., considered to be used to help college payments, which can reduce financial aid eligibility) usually includes:
FAFSA’s assets count:
- Cash, savings and checking account balances
- Investments, including:
- stock
- Bonds
- Mutual Funds
- Certificate of deposit (CD)
- Cryptocurrency
- Real estate (but not the main residence for the family – see more below)
- College savings accounts, such as 529 plans (if owned by parents or students)
- Trust the Fund
- UGMA/UTMA Account (Student-owned Account)
- Business and farms (Only if they have over 100 full-time employees or invest in business)
FAFSA’s assets Do no Count:
- Junior living (not including family home net worth, so buy the best home you can afford)
- Retirement accounts, such as:
- 401(k)s
- IRA (Traditional and Rose)
- pension
- Annuity
- Life Insurance Policy
- Personal property (such as automobiles, furniture, jewelry)
Additional Notes:
- The appraisal rate of parent assets is much lower than that of student assets.
- About 5.64% of parent assets are considered available for college expenses.
- About 20% of student assets are calculated, which is more demanding.
- 529 plans owned by parents are considered parental assets (better).
- The 529 people owned by grandparents (according to the old FAFSA rules) may mess things up when they are released, but from 2024-2025 FAFSAthese distributions are no longer reported as untaxed student income.
The more assets you have, the less free money you get from college
If your family of four kids earns $80,000 a year but has a $5 million taxable brokerage account, $200,000 in cash, a $2 million rental property portfolio and $300,000 in 529 plans per child, you are unlikely to get any free money for college.
Don’t even bother trying to manipulate your lower income. give up! Your years of hard work saves and investments have earned you the “privilege” of paying the full price tag. You can’t hide your assets to make yourself look bad–If the school finds that you’ve tried, your child’s admission offer may be cancelled.
All elite universities surpass FAFSA and need CSS configuration file Assess whether your family is eligible for needs-based financial assistance. CSS profile is much more thorough, as it allocates funds from the college itself rather than from the federal government.
If you have poor income and rich assets, you will lose in getting free financial aid for the university.
How about saving money when going to a public university?
As a graduate of William and Mary College, a public school in Virginia, I have always been a powerful advocate for attending public universities to save money. When I went, my parents paid just $2,800 in tuition a year, while private universities charged about $20,000.
But today, attending a public university to save private money may not be that simple today. According to Bloomberg’s analysis, once your family income exceeds $170,000actually sending your kids to private colleges may be cheaper.
reason? Private universities generally have more resources and are more willing to provide financial assistance, while public universities expect families to contribute more once they cross certain income thresholds.
Personally, I think what might happen to my kids is that they either go to public colleges or go to a Level 2 or 3 private university with “excellent aid”. I proposed “Great Aid” in my offer because many universities now donate money under the guise of merit to make families feel good and motivate admission.
Don’t be middle class when applying for university grants and scholarships
Hopefully, from this analysis, it is clear that when applying to college, you either want to be poor or a multimillionaire.
If you are poor you may get huge free money for college, which is awesome. Please make the most of it. College education remains one of the best ways to get rid of the poverty cycle.
If you are a millionaire, you may not be eligible for a need-based grant or scholarship. However, the sting of paying the full price won’t feel painful because you can save enough assets and it can also be high income. If you are lucky, your child may even receive merit assistance in need of blindness, which is essentially a discount that encourages them to participate.
Unfortunately, if you are a millionaire with a net worth of less than $5 million, paying over $100,000 per year for four years can still be hurt. Ideally, you need at least 25 times your net worth, and the cost is no longer painful.
In other words, if you want to send your kids to NYU or USC for $400,000, you need at least $10 million in net worth to make your financially comfortable. How crazy is that? Soon, going to a private university will only be a luxury for wealthy or extremely talented.
Middle-class families with annual incomes between $150,000 and $400,000 will feel the greatest pain when paying for college. Unless you are part of a traditional student, athlete, or special interest group, a comfortable college can be tough. And you can’t calculate these advantages because they are out of your control.
Reader, what plans do you have to make college affordable? Why do you think Bloomberg and others don’t consider assets when doing their analysis? Are we really just a spending country that doesn’t save and actively invests for the future?
Become a millionaire and afford a million-dollar college degree
Ironically, families need to be millionaires now, as the total cost of college is heading towards a million dollars. But mathematics is not lying. You can take control of what you have in your hands by building serious wealth, or pray for the kindness of others in this cruel and competitive world. I choose the former.
If you want to pay for college more easily, pick up a copy of my new book, Millionaire Milestone: Simple Steps to Seven Numbers. Your children go to the school they dreamt about, but it would be a weeping shame to be unable to attend because you are not wealthy enough. The more money you have, the more options you and your children will have, the more freedom you are.
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