My unconventional plans to pay for my daughter’s college education

I just sat down to write this post a moment ago and literally stared at the screen for twenty minutes. I'm still ready to bolt out the door at a second's notice, if needed, and the tears won't stop rolling down my face.

But thankfully, these are good tears.

My mother told me I might feel this way on my daughter's first day of kindergarten. Like it or not, the little person I gave birth to five years ago is no longer a baby, but a little girl.

A fearless little girl.

I looked into her eyes this morning and told her how much I loved her.

“I'm so proud of you,” I said, with tears in my eyes and a knot in my stomach.

“Stop worrying, momma,” she said.

“You know I can't,” was all I could say as she beamed with excitement for her first day at school. Then the bus turned the corner and she smiled and took off without a care in the world.

Moments later, she was gone.

I'm so happy for her, but I'm also afraid. At home, I can keep her safe. I can protect her. But at school, she's on her own — left to navigate a big, scary world without my help.

As a worrier, I also think a lot about what happens next — maybe too much. Her school career may have just started today; but we all know that, just like the last one, this chapter also has an end. And when that day comes, I will no longer have a kindergartener, but an 18-year-old young adult. I've been around long enough to know that it will be here before I know it. And as I plan for her future, I often wonder, “Am I doing enough?”

The growing costs of a college education

My oldest daughter was born in 2009 — a year when the average cost for an education at a four-year college or university came in at around $21,093 in today's dollars. And now, just five years later, College Board statistics show that the costs of a four-year-degree skyrocketed to an average of $30,336 for the 2013-14 school year.

But these huge tuition rate increases aren't exactly a new trend. A recent Bloomberg chart-of-the-day shows that the average costs of higher education have exploded over 500 percent since 1985 — the exact year I turned five-years-old. To put that number into context, medical costs grew 286 percent and the consumer price index increased 121 percent during the same time period. In other words, college costs grew faster than almost anything else.

But all of that is out of my control. Try as I might, there is literally nothing I can do to keep spiraling tuition fees in check, or ensure that a college degree is within her reach when she comes of age. When it comes to the cost of college, I can only watch in despair as the news goes from bad to worse.

But I do have some control on my end. I can do what I do best, which is to save, save, and save some more. Other than that, I can only hope and pray that things will be better for her than they are for today's generation of aspiring students.

College savings: What we're doing so far

I'm glad I realized how important this issue would be to me so early in my daughter's lives. The truth is, I've been socking money away for them since they were babies. It all started with money they received from relatives when they were born, or “free money” as I saw it.

Money that was likely meant for diapers and formula always made its way into my children's savings accounts so fast their little heads would spin if they knew it. Then, once my second daughter was born, I started a 529 account in each of their names. And that's when the savings really started to grow.

Since then, we've socked away any money they've gotten for birthdays and holidays, and contributed small amounts monthly ourselves. It all adds up.

In fact, it really is amazing how small amounts of money can grow over the months and years of a child's lifetime. It's hard to believe it, but my children already have thousands of dollars saved for college at the young age of 3 and 5. Still, I'm afraid it won't be enough. That's why, a couple of years ago, we started looking for other ways to grow the amount of money we would have available to pay for their college. And we didn't need to look far.

Using rental income for college tuition

My husband and I became unlikely landlords in 2007 at only 27 years old. Our first rental was a small brick ranch home we chose to buy on somewhat of a whim. Shortly after its purchase, we turned our first home into a rental and upgraded into a slightly larger, nicer home for ourselves.

We weren't sure what we were doing all the time, but we've always been happy to learn as we go and fly by the seat of our pants. And mostly through trial and error, we have learned a lot since then — so much that I've come to see our inexperience as a good thing. In a lot of ways, we were just too dumb to be afraid, which is probably the only reason we became landlords in the first place. In a strange twist of fate, it appears that our lack of awareness might have led to our best financial decision so far.

Regardless, we were making plenty of progress on the home's respective 30-year mortgages by late 2011, but we still had many years left to go. But it was around that time that home mortgage rates began hitting record-lows and, as always, my wheels started turning.

I wondered if it would be possible to refinance our loans into loans with shorter, more-favorable terms. If we could, we might be able to move the process along and free up thousands of dollars of monthly income in the process. Even if we couldn't refinance for some reason, I thought it was worth a shot.

Persistence pays off

Anyone who has ever refinanced a home knows what a huge pain the process can be. Well, trust me when I say that refinancing a rental home is an even more difficult experience then refinancing your primary residence. With both homes, the ordeal was somewhat of a nightmare.

Fortunately, after several months of trying and plenty of heartache, I was able to get both of our rental homes moved onto 15-year-loans. And amazingly, with a substantially lower interest rate, the monthly payments hardly budged. That means that our current rentals, while temporarily less profitable, will now be paid off in approximately twelve years — just in time for our daughter to turn 17. They currently rent for a little less than $2,000, but should rent for quite a bit more by then. And, if all goes as planned, most of that money will go straight into the college funds of my little girls.

Sometimes all we can do is save

The fact that the cost of a college degree has risen over 500 percent since I was my daughter's age does not bring me comfort; but again, I can only control so much. I can't change the fate of higher education any more than I can sit in my daughter's school today and hold her hand.

I'm sure we're all afraid of what kind of world our children might find when they graduate from high school. And if not, we probably should be. But we all know deep down that there is nothing we can do to soften this world for them. So we do what we can, and sometimes it means that all we can do is save for them and hope for the best.

On my daughter's first ever day of school, I want her to know that I am proud of who she is and excited to see who she will become. And I want her to know that I'll never stop worrying about her future, even if she asks.

I'm her mother, after all, and it just isn't possible.

Are you worried about paying for college? Do you have any unconventional ways to pay for college?

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Retired by 40
Retired by 40
5 years ago

Very cool! Not the cost of college, but how you’re looking at saving for them 🙂 Savings the money they receive as gifts is always good, but using the rental income is even better!

Blake
Blake
5 years ago

I applaud your focus on saving for your children’s college educations! It does, however, seem that your primary focus is on that and not necessarily on your retirement. It may simply be that you “ignore” that topic in this post, but I do hope you’re not sacrificing your retirement planning/contributions to focus instead solely on college savings. Best of luck to you and your family!

Holly
Holly
5 years ago
Reply to  Blake

Our main focus is retirement and saving for college is secondary. Sorry if this post didn’t make it seem that way =)

I am self-employed so I save in a SEP IRA and Roth IRA. I maxed both of them out last year and am on track to do the same this year. My husband has work-sponsored retirement and also contributes to a ROTH.

Beyond that, our rental properties are also part of our retirement strategy. Once college is over and paid for, they will provide us with a steady stream of somewhat passive income.

Brian @ Debt Discipline
Brian @ Debt Discipline
5 years ago

We are certainly worried about college costs. With twins less then 4 years away from college, saving will be a focus shortly after we complete our debt snowball. I had wished we had started sooner, but it just didn’t work out for us that way. Seems like you have a great plan in place for your daughter no matter what path she takes.

Slava
Slava
5 years ago

I have another hope. May be in 15-20 years of such exponential growth of the price for college the cost would become unsustainable and crush just like housing market did.
I don’t count on much and I still be saving a lot but I think this scenario has a good chance of happening.

Ramblin\' Ma\'am
Ramblin\' Ma\'am
5 years ago
Reply to  Slava

I agree. I think this is the next bubble to burst.

Paul
Paul
5 years ago

When our son was born in 2005, I started thinking about college costs. The family I grew up in could not afford to help financially with college, but we were all expected to go, all six of us. My older four siblings are much older, and were done with college in the ’70s, when costs were much more reasonable. They all managed to get by with scholarships and working while in college. My younger sister and I attended in the ’80s and costs were still pretty reasonable. I was in the military when 9/11 happened, and thus eligible for the… Read more »

Eliza
Eliza
5 years ago

Here are some ideas: 1. first two years at a community college, then transfer. The degree will be awarded from the 4-year institution. 2. apply for as many scholarships as she can, and piece together many smaller ones, AND do this throughout the four years; not just the senior year of high school. 3. work-study programs help shave off some of the tuition. 4. consider working fulltime and going to school part-time. Will take longer but especially if you live close to the school, she can live with you (and save on rent) and graduate debt free or close to… Read more »

RandyC
RandyC
5 years ago
Reply to  Eliza

For many majors, especially STEM, companies offer paid internships. My employer brings in many student co-ops. Graduation takes 5 years rather than four, but the student has two years of relevant experience in their field and has made excellent money (many times what a fast-food/ retail job would pay). We primarily hire engineers, but also have IT, HR, business and students in two year degree plans (technicians).

Beth
Beth
5 years ago
Reply to  RandyC

I second the point about internships and co-op! There are quite a few colleges and universities in Ontario who have co-op, so I’ve met students from all different programs, not just STEM, including Arts. It’s a great way to try out some career options and work in a variety of settings.

Entrepreneurship is also a growing trend in post-secondary education. Imagine leaving school with a company of your own…

Jen
Jen
5 years ago
Reply to  Eliza

I second your #1 Eliza! I went to a community college for my first 2.5 years then transferred to a university for my last 2.5 years. When I started college, tuition was $59 a credit hour at the community college and $144 at the university! I got all my gen eds done for way less, and in a smaller classroom setting. I also made sure any class I was taking would transfer into my program at the university. A girl I was going through the same program with was able to get a full ride to the university from the… Read more »

Steven Smith
Steven Smith
5 years ago
Reply to  Eliza

I have to disagree on the community college idea, but it is dependent on where you are. In my town the average amount of time spent at a community college for an AA or AS is 4 years, simply because the availability of classes and the lack of institutional support for students and counseling. If you can get through a state school in 4 years, the amount of money you can make in the time saved will usually more than make up for the higher cost. This depends on your job field and location but generally speaking go for the… Read more »

Sarah
Sarah
5 years ago

I think it’s great that you’re thinking ahead for your children’s education and doing whatever you can to ensure that they have the funds necessary to receive post secondary education. My husband and I however decided not to save for our children’s college education rather we’ve decided to just save. When our son was born we did look into educational plans but did not like the fact our money is tied up until our son reaches a certain age and all the other rules they’ve incorporated with it. Furthermore, I don’t want my children growing up “knowing” that their parents… Read more »

Holly
Holly
5 years ago
Reply to  Sarah

That’s actually one of the big reasons we thought this would be a great way to fund most of their college education. Rental income is not tied up in an education account in any way so we can quickly pull the plug on their funding if they are screwing around or wasting the stream of money we’ve worked so hard to create for them. It’s not free money- they need to earn it with decent grades and a sincere effort in their studies.

I don’t plan on raising slackers though, so that is not a big concern of mine.

Sarah
Sarah
5 years ago
Reply to  Holly

I agree with you… even that part about not raising slackers… but sometimes it happens even for those not planning for it.

Marie
Marie
5 years ago
Reply to  Holly

My parents took out a loan for the total amount of each semester of college. Once my grades came in, if they had been less than satisfactory, they would have handed me the loan and said “You’re on your own from now on.” They paid each loan off once they had official confirmation of me getting As.

phoenix1920
phoenix1920
5 years ago
Reply to  Sarah

Perhaps this is just my limited experience, but I have not seen a kid who was driven and motivated in high school who then lost these traits in college on the basis of who is footing the bill. Although my parents told me from the beginning that I was going to college and they would help me, I was never drifting through school. My best friend knew along that her college was paid for because her mother had been saving it for years. She didn’t float thru, flitting here and there. In fact, I can’t recall any of my college… Read more »

Sarah
Sarah
5 years ago
Reply to  phoenix1920

Well, I’m not really saying that all trust fund babies go through university/college without care. My cousin’s parents paid for their whole university career including all living expenses and they went on to finish university. During school I’ve also seen both, trust fund babies working hard and those that didn’t. My main concern is for my child feeling entitled and therefore not working hard to finish school with the money that I’ve saved up for. At the end of the day I think it depends on the child… personally I’ve always been motivated even in high school and followed through… Read more »

Elaine
Elaine
5 years ago

College has increased significantly, but the numbers you have seem quite low. Accounting for the cost of living in addition to tuition, the total price is more like $75k-$100k for four years at a state school and much higher for private. Obviously working in college is the way many students reduce that so they do not leave with that level of debt.

PB
PB
5 years ago

If you work at a college or university, often tuition will be waived for your children. This can be a very good deal, so think about it when choosing your employer.

Honey Smith
Honey Smith
5 years ago
Reply to  PB

It’s still not free. I work at a university, and myself (and my spouse/dependents) get 9 credits/semester for $25, but the difference between what you actually pay and what you would have otherwise paid is taxed as income.

Mel @ brokeGIRLrich
Mel @ brokeGIRLrich
5 years ago

“Just too dumb to be afraid” – haha, love that.

I feel like that might be the story of my life too. Although I haven’t been… lucky?… enough to stumble into something like rental properties yet.

And congrats on surviving the first day of school, it’s got to get a little easier from there, right?

Allyson
Allyson
5 years ago

My husband and I are also incorporating our rentals into college saving for our daughter. We have three rental properties. One was our first home, purchased in 2002 and turned into a rental in 2007 when we upgraged our home. We have had the same tenants since 2007 and the 30-year mortgage will be paid off when my daughter is 20. It should actually be paid off somewhat early since I paid ahead on it when we were living there. My mother-in-law quit-claimed her home to my husband in 2010. After substantial cosmetic rehab, that is our best cashflow property.… Read more »

Chase
Chase
5 years ago
Reply to  Allyson

Your story sounds interesting, and I would suggest submitting and article to GRS, because I would personally like to learn from it. You seem to have 3 different rental experiences:

1. First home turned into a rental
2. Quit-claimed property transfer (why do this?)
3. A triplex money pit

Plus, you could analyze how those investments have done vs investing in the stock market over that same time period(s).

phoenix1920
phoenix1920
5 years ago

Lovely article!! Thanks. We have our children’s college paid off so long as they stay in-state, but none of their living expenses. One of the things I will offer my children is the option to obtain a down payment on a house after graduation if they chose to stay at home while in college. Specifically, we plan on helping our children pay their college living expenses, up to $500 a month. However, rather than spending this money, I will offer to bank this money and it will be theirs, if they chose to live at home. I have no idea… Read more »

Honey Smith
Honey Smith
5 years ago
Reply to  phoenix1920

Most colleges that I know of require students to live on-campus, at least as freshmen. I don’t know how easy it is or isn’t to request an exemption from this requirement, however.

Beth
Beth
5 years ago
Reply to  Honey Smith

Is that typical in the U.S.? I’ve never seen that requirement in Ontario. Some schools even have clubs or organizations for students living at home or off campus.

My costs went way down when I lived off-campus second year.

Marie
Marie
5 years ago
Reply to  Honey Smith

Yes, a lot of colleges are insanely strict about freshman having to live in the dorms. A friend of mine had a hell of a time getting an exemption, and she was married! Her husband almost blew a fuse talking to the registrar’s office.

Prudence Debtfree
Prudence Debtfree
5 years ago

Brilliant plan and fabulous timing. It’s not a bad idea to give your daughters some ownership of their post-secondary education as well. When they start working summer jobs or part-time through the school year in their teens, they could save a certain amount or percentage of their income and put it towards their education. I believe that when students invest in their own education, their whole mindset becomes engaged and responsible. Also, this early savings habit will serve them well, and saving for a car, home, or retirement will have a good chance of feeling natural later on.

mike
mike
5 years ago

I suggest to keep your kids motivated, you tack a picture of a Corvette Stingray on the wall like I did and let them know that is the alternative usage of the fund.

Beth
Beth
5 years ago

Lovely post, Holly! Hope your daughter’s first week of school goes well.

sarah
sarah
5 years ago

How do you think the results will compare – your rental income from paid-off houses vs. if you had just invested your mortgage payments all along?

Beth
Beth
5 years ago
Reply to  sarah

I’m curious about that too, if we GRS readers can be nosy. I was thinking the rental income must be high enough to cover repairs (a new roof, new appliances), maintenance, etc. Also that other savings would handle those initial lump sum payments for tuition and residence fees?

If I’m not blessed with kids, I’d like to help my nieces and nephews pay for school. I love the idea of an income stream just for this goal.

Holly
Holly
5 years ago
Reply to  sarah

We don’t actually pay for the mortgage or repairs on our rentals-our renters do. The rent they pay covers the mortgage, insurance, repairs, maintenance, etc. The only money we’re out at this point is the down payment we paid for on both homes and a few repairs that went above and beyond what we brought in on certain years (like this year, when we had a drain put in one of the back yards). We’re also out a LOT of time and effort because we do all of the painting and cleaning between tenants. I feel very fortunate that we… Read more »

Kasia
Kasia
5 years ago

Great job on starting out early with your kids savings. It’s the little bits here and there along with compound interest that will make a huge difference by the time they hit college. My little one is only 4 months and we recently opened a bank account for him which any gift money will go into as well as about $10 per week from us. The idea is that it will be for his education but that’s flexible because in eighteen years the world may be a different place and he might have different needs. The cash will be his… Read more »

Melissa Cooley
Melissa Cooley
5 years ago

Another way to fund a college education is work for an employer who has a tuition reimbursement program. I’ve heard stories of folks who have gotten an associate’s degree (or even just a nine-month diploma), and then started working for a company that had such a benefit. After working there for a while, the employees get approval to start taking classes in a field that will help them do their jobs better. Usually, there is a clause in the agreement that says the employee needs to stay working at the company for a year after the completion of a degree,… Read more »

Komrad
Komrad
5 years ago

I’m with Sarah. Focus on your retirement , and structure your support for you children’s education so that they have some skin in the game. You can do this buy offering to pay half their tuition as long as they maintain a high GPA, or other constraints that introduce a financial burden if they don’t take their education seriously .

This also gives them a sense of ownership or their degree once they graduated. Let them win the race through their own efforts instead of handing them a prize just for being born.

Steve
Steve
5 years ago

I’m glad the rental properties have worked out for you, but this strategy can easily back-fire. For example, what happens if you lose a tenant and can’t immediately re-lease because the departing tenant trashed the apartment? This is just a common example of the pitfalls of amateur property management. As a bankruptcy attorney, I see this in my office all the time!

Money Saving
Money Saving
5 years ago

I’ve taken a very different approach from many other personal bloggers. After reading The Millionaire Next Door, my thinking has changed 180 degrees. I come to the understanding that it is generally a bad idea to pay for a child’s college education. The more they know they will be responsible, the harder they will work in school to achieve good grades and learn the material. This struggle will make them stronger young adults and more responsible. Outside of normal college scholarships for academics, several states offer free tuition to public universities if students graduate with good grades. These are South… Read more »

Emma
Emma
5 years ago

You’re doing a fantastic job and your story is inspiring. I keep thinking that someday, market forces must correct the craziness that is college tuition… until then, as you say, we can only do what’s in our control.

Thomas
Thomas
5 years ago

Great plan! I figured out how to cover all our landlord expenses and pay off our 2 rental condos in 12 years. I don’t have kids or a plan for what that money will be used for in 12 years, as life throws changes at plans anyway. I’m planning on adding 4 more to total 6, which in today’s dollars at an average $1200 monthly rent means ~$86,000 in gross rent when they’re all paid off.

Whether for college or retirement savings, holding rental properties free and clear is an excellent contribution to financial freedom.

Bill in NC
Bill in NC
5 years ago

Army ROTC for our oldest, now a freshman at a local private university.

He is re-applying to the military academies, but assuming he doesn’t get into an academy next year his 4-year AROTC scholarship will cover about 80% of the total costs of his university education.

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