Looking forward into Beth and Brian’s future was essential to helping them make a decision about their daughter’s education. Could they afford to pay Yale’s tuition, probably having to take out student loans to cover the costs?

Brian’s 401(k) and IRAs were worth$120,000 at this point.  Beth had saved just over $50,000 for combined retirement savings of $170,000.  Currently, he was saving $15,000 per year, or 15% of his income and she was saving $10,000, 17% of her salary.  They were trying hard to save for retirement, but their accounts had lost value in 2008 and had not come back from the $250,000 that they used to have.

“Shouldn’t we have more than that at our age?” asked Brian.

I created a retirement projection, which showed that they were right.  They didn’t have enough money saved to afford to spend $46,000 on tuition for four years and still be able to retire at age 67, their expected retirement age.  (A person’s full retirement age with Social Security is set based on when each person was born.)  They were able to save a lot each year currently, but they couldn’t pay so much tuition and continue to save at all.

Aside from their retirement savings, Beth and Brian’s greatest asset was the equity in their home.  They owned a home in Arlington, Massachusetts that was currently worth $650,000.  They had bought it back in 1987 at a cost of $250,000.  The remaining balance was only $92,000 and their interest rate was 6%.

“We’ve both been wondering if we should borrow the money from our home equity to pay tuition and then work as long as we need to to pay it off.”

I agreed that this was possible, but I wanted them to consider other possibilities.  For the difference between the cost of Yale and the cost of Clark, they could spend $15,000 less each year.  If they chose the University of Massachusetts, they could continue to save at their current rate and greatly improve their retirement picture.

I told them that I had seen couples convince their children to try out U.Mass. when offered some incentives, such as a car or a regular paid vacations over spring break.  If she were willing to go to U.Mass for at least one year and then to transfer if she was unhappy, they would saved one year’s tuition and maybe more.

Beth and Brian decided that they needed to go home and discuss the matter, given that this was a very difficult decision.  But at least now they knew how much a decision to send their daughter to Yale could cost them.