Getting financial aid is a common way for students and parents to afford college. This article will share how to get financial aid making multiple six figures a year.
That’s right. Even if your family makes multiple six figures a year, you can still get financial aid. That said, not financial aid is created equal. Ideally, you want free money, or grants not loans.
Despite earning a six-figure household income, many parents struggle to pay for their children’s education without going into debt. In many big cities, it now requires earning about $300,000 a year to live a middle-class lifestyle. It sounds kind of nuts, but inflation has really made the cost of living more expensive for everyone.
Let’s discuss how a family can qualify for tuition assistance despite making $300,000, $400,000, or even $500,000 a year. We can then have a moral discussion about the topic in the comments section!
Wealthy Six-Figure Households And Financial Aid
I was talking to a parent of four who used to send his kids to a private grade school K-8 about the makeup of families who pay $35,000+/year in tuition per child.
I cherished my time growing up in Africa and Asia up until middle school and enjoyed my experience attending a public high school in Virginia. To have my son attend a homogenous school where everybody looks the same and comes from similar economic backgrounds would be a shame.
The dad mentioned the school tried to diversify its student body through financial aid. When I asked how the school determined which families got financial aid, he said something surprising.
“Households qualify for financial aid if they don’t make at least $100,000 a year per child.“
In other words, if you have four children, you qualify for financial aid if you make $390,000 a year. Financial aid consists of low interest rate loans, but mostly free grant money. I thought this was a high threshold because $390,000 is right around the top 1% income level in the country.
Nobody needs to send their kids to private school given every child can go to public school for free. Further, I’m not sure if too many folks decide to have four children if they can’t afford to raise them. Sure, one or two children may be unplanned. But having four is definitely intentional.
Because the dad and mom could not afford to continue paying $120,000+ a year in after-tax tuition for their kids, they moved their family to the suburbs to attend free public school. Ah hah, at least they decided to take action instead of complain why life was so hard making $500,000 a year!
Financial Aid While Making $500,000 A Year
Despite finding a solution, the dad seemed a little bitter about not being able to get financial aid for his kids because he asked me the following,
“Is it better to provide financial assistance to underrepresented minorities and lower income households whose kids have a much higher probability of dropping out after several years at the school because they don’t have enough parental support? Or is it more worthwhile to help families like mine who make just over $100,000 a kid, but whose kids will likely graduate from school?“
His argument was that social engineering in private school wasn’t working, just like how the lottery system for public schools in San Francisco is arbitrary and a waste of property tax dollars. In San Francisco, living in a neighborhood where you want your kids to go to school gives you no edge.
Part of every private school’s wish is for as many of its students as possible to graduate so the school can score higher marks when rated. The higher the marks, the greater the school´s demand, prestige, and tuition revenue. Further, the more successful the graduate, the higher the donation rate, which over time has grown in importance.
I still believe trying to diversify the student body to better reflect the makeup of the city is a more worthwhile goal than trying to help families who make just over $100,000 a kid, but who all look the same.
The real world is diverse. If you spend your entire life in an un-diverse bubble, don’t know how to connect with other people and only speak one language, you will have a tougher time getting ahead.
Before taking out the pitchforks, let’s take a look at why this $500,000/year family could no longer afford sending their four kids to private school. A recent divorce might also have something to do with it.
Budget Breakdown For A $500,000 Household
Based on a 36% effective tax rate, the couple needs to earn $203,125 a year just to cover the cost of private school tuition for four kids. What I haven’t included are the additional givings every family is pressured to offer each year.
Although a $1,700,000 home sounds like a lot, the median home price in San Francisco is $1,500,000. With a six person household, you need at least four bedrooms and preferably three bathrooms. The median house size in San Francisco is closer to three bedrooms, two bathrooms.
I’ve gone through the budget in detail, and there is very little left to cut, except for contributing less to their respective 401ks for 2018, taking one less vacation a year, and donating less than 2% of their gross income to charity.
Even if they donated $0 to charity and spent $0 on vacation, they’d still be $3,620 a year in the hole without lowering their 401k pre-tax contributions.
The problem with this family is that they are not accumulating any liquid savings to pay for any emergency expenses. With six people in the household, something always comes up. In other words, this family was scraping by on $500,000 a year and now has $130,000+ of breathing room by sending their kids to public school.
If this family is ~$23,620 in the hole each year on a $500,000 household income, then a family making only $390,000 a year is certainly going to be hemorrhaging money if they send their four kids to private school. Let’s take a look at their budget.
Why A $390,000 Household Qualifies For Financial Aid
As you can see from the chart above, even after lowering the student loan debt, donating less to charity, spending less on vacations, and lowering their effective tax rate by 4%, this household is $70,440 in the red every year. From a school administrator’s point of view, financial aid is warranted.
Kids Are As Expensive As You Want Them To Be
A quality education is becoming the biggest contention point between the rich and poor. I know many ultra wealthy parents who donate heavily to every level of education to increase their child’s chances of getting in. And then there is a whole swath of multiple six figure income parents who feel downright middle class because they can’t get any assistance.
The great thing about the internet is that it makes knowledge accumulation free. And when something can be obtained for free, the value of anything that requires payment declines.
For those who like to plan, it’s good to realize the $100,000 income per child threshold for financial aid is becoming more common among private grade school and universities today.
If you’re making $199,000 a year and have two kids, it might not be worth the extra hours and stress to make $50,000 more. And if you have kids under five, it’s probably best to spend as much time with them as possible anyway.
At the same time, if you’re making $380,000 a year and are considering adopting a fourth child, knowing you’ll be eligible for tuition assistance may make helping a little one easier.
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Achieve Financial Freedom Through Real Estate
If you are fortunate enough to make multiple six figures a year, you should do your best to invest your savings into income-producing assets. I recommend investing in real estate, my favorite way to achieving financial freedom.
Real estate is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. Growth rates tend to be faster as well due to demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
How To Get Financial Aid Making Multiple Six Figures is a Financial Samurai original post. Make sure if you get financial aid, you get grants. A grant is free money. A loan needs to be paid back with interest.