Author Leah Ingram and her husband got their credit in shape before taking out loans to send their daughters to college.
It wasn’t easy for the self-employed writer and her husband three decades ago when they attended college, but it had more than tripled by the time their daughters entered high school. On top of that, the housing market crashed, devaluing her family’s biggest asset.
Finding it impossible to fund their 529 college savings plan as needed, the couple turned away from conventional savings strategies and embraced debt. As Ingram notes in her book (published in October 2017), her family was part of a growing middle class that doesn’t qualify for need-based financial aid, but can’t afford to pay cash.
Ingram’s documented their unique college-funding strategy. Before taking on loans to pay for college, they worked hard to get their credit in tiptop shape.
Now, Ingram redeems her credit card rewards for gift cards to send with her daughters so they dip into their own money less while in college.
Author Leah Ingram
Q: Did your daughters attend expensive schools?
Oh, yeah. Jane just graduated from Barnard, and the total sticker price was at least $60,000 per year. Annie is a junior at Lehigh University and she’s in the engineering department, so it’s even more expensive due to lab fees.
Q: So you’ve managed nearly half a million in education costs on the salaries of a college administrator and a freelance writer. I assume you’ll be paying off that for a while?
We will, but it’s a choice we made. My husband and I were lucky enough to graduate from good schools that set us on a path to satisfying careers. There were many benefits to the colleges we went to, and we determined early that we wanted to afford our daughters the same courtesy.
Some might call it a luxury, but we believe in the power of education. Where you go to school really impacts what kind of job you get and what kind of network you build. We made it clear to our daughters early on that we were not going to be what I call “price-tag parents,” meaning the decision on where they went to college wasn’t going to rest solely on price.
Q: Most financial planners advise funding a 529 plan for college saving because it’s tax deferred, but in your book you admit you gave up on that.
We started a 529, but Bill and I were 29 and 31 when we had our kids. The 529 plan gives you projected estimates of what college is going to cost based on your child’s age and the year the child is going to college. We figured out we had to put away something like $2,000 a month to even come close to fully funding a 529.
Bill had just gotten out of a Ph.D. program and was starting a job. That was more than we were paying for our mortgage! We ended up saving a couple thousand for each of our daughters, which was enough to cover books. Beyond that we just gave up.
We figured out we’re not that good at saving, but we’re awesome at paying off debt. So we decided if we have to go into debt to pay for college, we’ll do it.
Q: Do you recommend people forgo 529 plans?
I don’t think they’re a bad idea. You can set them up for automatic deductions from a paycheck or for grandparents who want to contribute, but I wouldn’t rely on this alone. I think fully funding a college savings 529 plan is nearly impossible today for middle-class families that make too much for traditional need-based financing, but don’t make enough to pay for college out of pocket.
Q: So you went into debt knowingly?
Oh, yeah. Our way of paying for college is an amalgamation of private loans, federal loans and financial aid. Both girls got need-based scholarships from their schools. Annie qualified for some grants.
One thing I discovered in doing interviews for “The Complete Guide to Paying for College” is so many people are afraid of going into debt to pay for college, but they don’t think twice about buying a new car.
Hello? The average college student graduates with about $30,000 debt. Guess how much a new car costs? But a car depreciates in value the day you drive it off the lot. College education, in my opinion, only appreciates in value over time.
Q: You wrote a chapter on how to build credit in order to qualify for student loans. Any tips?
We made a concerted effort to improve our credit scores before the girls went off to college because we knew taking out loans was going to be part of our strategy. For seven years, we made sure we paid our bills on time and our credit cards in full. We stopped applying for new cards or doing anything that would cause a hard pull.
We bought a car in 2006, then avoided buying another. We made a conscious decision to buy beaters and drive them into the ground, and avoided lavish vacations and dinners out, so we could keep up with payments.
We also made a conscious effort to reduce our spending because, of course, if you don’t pay your cards in full, you accumulate finance charges and late fees, as well as interest.
Leah Ingram (right) and her husband their daughter Jane’s graduation from Barnard.
Q: Was the idea of looming college expense part of what led you to start your Suddenly Frugal blog in 2007?
That’s 100 percent what started it. Our original plan was that my husband would get a job at a college that would offer tuition benefits so the girls could go there for free. That didn’t end up working because the college didn’t offer what they wanted to study.
Our second strategy was to buy a house that would appreciate in value and use home equity to pay for college. We doubled the equity in our house, but then housing prices in our neighborhood started dropping by hundreds of thousands. So we decided to cash out.
That’s what led to Suddenly Frugal. If we bought a new house, we wouldn’t have enough equity to cash out eight years later. So we thought, OK, we have to totally change our lifestyle.
Q: So the plan you ended up with was about austerity and credit management.
What’s the hot word – pivoting? We had to pivot, as opposed to giving up. Cleaning up the credit became crucial, not only because it put our spending in check. There’s no way to have good credit if you’re living beyond your means. It worked out. We were able to qualify for student loans at a very good rate, less than 4 percent.
Q: You devote a chapter to using credit card rewards to help offset college expenses. How does that work?
We buy everything on cash back credit cards – Discover, Chase Freedom and Bank of America Cash Rewards. Each has different benefits, and we take advantage of all of them and every promotion that comes along.
I don’t need miles, what I need are free gift cards. When my kids go back to school, I load them up with Starbucks or Panera or Target gift cards. That way they don’t have to dip into their own money. They work in the summer and what they earn is their spending money for the year.
We also use free gift cards to pay for meals out. I’ve lived in two places with amazing restaurants – New Hope, Pennsylvania, and Point Pleasant, New Jersey. People are always asking me for recommendations. I don’t have any! The only way we eat out now is if I can cash in my points to get a gift card and that means chain restaurants only.
Q: You write that people are so afraid of taking on college-related debt, they’re bypassing the opportunity to build credit. Explain?
They want to avoid credit card debt so they avoid using credit cards. They pay for everything in cash. My daughters’ generation is so programed to use their debit card, but the debit card doesn’t build credit history.
It’s credit that builds credit history. And student loans – you don’t want your kid to graduate with $30,000 in debt. I get that, but when they begin to pay it back, they’re developing the habit of paying their bills every month and building credit.
Q: Should parents encourage their children to take out loans?
If your kid does not take out federal loans, your kid does not have the option to start paying back those loans and begin to build a credit history. There’s value in that for everything that kid is going to do in the future – buy a house, get a car. If you don’t have a credit history, you won’t qualify for those loans.
Another thing we did to help our daughters build a credit history, in advance of paying back their student loans: We added them as authorized users to the family credit card. I called the credit card company and gave them their names and Social Security numbers. That means when we pay our bills on time, our good credit is reflected on them.
That’s one reason I believe my daughter Jane, at age 22, was able to get her first credit card, which she pays in full every month.
Q: What’s the biggest mistake you made in paying for your kids’ college?
I cashed out one of my retirement accounts to cover tuition and housing for my daughter’s freshman year.
Education expenses are allowed for early withdrawals from most retirement accounts, but not for a SEP IRA – which, as a self-employed person, is what I had. We got hit with a triple whammy. Not only did I have to pay a penalty on early withdrawal, we got slammed on our taxes the following year because my “income” was up about $50,000, and my daughter didn’t qualify for financial aid her second year because of that.
Q: Is there recourse when you make a mistake like that?
Not with the feds but with the college. We met with the financial aid officers and explained what happened, brought all the paperwork, and they gave us back whatever financial aid she had received that first year.
There are a lot of reasons not to cash out a retirement fund or IRA to pay for college. As the wise Suze Orman once said, you can borrow to pay for college but you can’t borrow to pay for retirement.
Q: Tuition rates seem to be dropping now. Do you think it will turn out that parents your age got the short end of the stick?
I don’t see it that way. It’s debt I’m very gladly taking on because it’s going to make my children successful adults. Will it make things tight for us for a while? Yeah. Will we have to work longer and retire later? Yeah. But to me, it’s a very worthwhile investment.