Case Study: Money to Send Kids to College

It was 2002, and Jim and Mary Stoddard came to Tier 1 Capital after beginning to consider the future of their two children. While the two kids were only 11 and 6 now, the Stoddards took home around $150K a year, so they knew they’d have to start saving now to have a chance at helping their kids pay for college tuition later.

In addition to their children’s future, they were also starting to think ahead about their own retirement and lifestyle goals. Jim and Mary wanted to make a long-time dream of theirs come true—building their very own cabin in the mountains for family vacations and their retirement home.

The Stoddards were practical and thought if they started saving for college now they might be able to build their cabin after their kids were done with school—in about 15 more years. After examining their finances, they believed they still had a long way to go even with 7 years to start saving before their oldest went to college.

College tuition costs were increasing, and they worried about how they could possibly manage to save enough to send both their boys to school and afford a cabin without changing their lifestyle, pulling from retirement savings, or getting a loan.

The Stoddards’ situation is anything but unique. College tuition inflation averaged 4.63% between 2010 to 2020, with the costs of tuition at public, 4-year institutions increasing 31.4% over the same time period. With the dollar’s inflation rate at 2.57% per year, it’s becoming harder and harder for families to save money on pace with increasing educational costs.

Additionally, saving in general is becoming increasingly difficult for American families. Despite the general financial wisdom to save 20% of every paycheck, doing so is becoming much harder with rising costs and inflation. Indeed, the U.S. savings rate hit a 14-year low in 2022 at just 3%. While it’s now around 3.5%, the average American family has lost around $7,400 per year due to inflation. There simply isn’t enough money left over for many families to save.

Not to mention, when families do have extra cash on hand, it typically goes toward paying off debt. On average, 30% of Americans’ monthly income is allocated to paying off debts outside of their mortgage, with 7% of that debt coming from education loans.

For the Stoddards, setting enough money aside to ensure their children’s educational futures as well as provide for their own dreams seemed like a very tall order. To build the life they wanted for their family, they needed to shift their mindset when it came to who controlled their money.

After the Stoddards came to Tier 1 Capital and we analyzed their financial situation, we could see that how they were using their money was holding them back. They already had everything they needed between their home equity and cash flow, but they were caught up in a debt cycle by giving money away on their interest payments.

The debt cycle starts and ends without having access to capital. It’s a vicious loop where you’re forced to borrow money to pay expenses, earn money to pay off the debt, and then start right back where you started if you need additional cash for anything else. The only way to break the debt cycle is to reduce your debt payments down to the minimum and start saving in an account where you own and control that money. 

Jim and Mary already had the capital they would need. All they needed now was to change their mindset to access and control that money. We asked, “What if you didn’t have to wait until your youngest graduated college to build your cabin? You have enough within your reach to start the process of building your cabin today.”

They were elated but also a bit skeptical. What had seemed like an impossibility yesterday was suddenly a very real opportunity. After we explained the Tier 1 Capital Growth Process™, they were surprised to learn they didn’t have to pay banks for the privilege of using their money, and that taking control of their money could increase their cash flow and accomplish all of their goals.

They agreed to implement the Tier 1 Capital Growth Process™ to:

• • Pay for both kids’ college educations without going into debt.

• • Continue to live the lifestyle they were accustomed to.

• • Have enough saved for retirement so they could live comfortably.

• • Build their dream cabin in the woods for their retirement now instead of 15 years down the road.

The plan they enacted worked by redirecting their cash flow into new whole life insurance policies that would give them access to the money they had previously made inaccessible. Indeed, the traditional tactic of borrowing from a bank or other outside entity was keeping their money inaccessible during times of need—even though it was their money. By applying the Tier 1 Capital Growth Process™, Jim and Mary learned a better way to keep their money at their fingertips when they needed it, and without extra taxes or penalties.

By taking out loans against their life insurance policies instead, the Stoddards were growing their savings in a way where any interest payments would come back to serve them and where capital was always readily available.

 

By changing their mindset, the Stoddards were empowered to meet their financial goals and then some.

 

• • When it came time for college, they sent their first child to a private university and were able to pay $60,000 a year—nearly half their annual income—without dipping into their savings or retirement.

  
  

  • Just a few months after working with Tier 1 Capital, they were able to pay cash for their cabin’s land and afford the monthly down payment. After a few years, the cabin was complete!

  
  

  • They started saving an additional $500 per month in long-term savings without pinching their cash flow even one penny.

  
  

  • By building a pool of cash that was growing, safe, and accumulating on a tax-favored basis, they could inevitably use it to supplement their retirement income without being impacted by unknown costs from things like Medicare, Medicaid, or social offset taxes. In short, they were able to guarantee a legacy for their children.

 

However, some outcomes are too valuable to quantify. Since they could start on the cabin years earlier than planned, Jim decided to build it with his father by his side. Together, they pounded every nail into the cabin, spending countless hours together during what ended up being his father’s final years.

 

After Jim’s father died, he told us they never would have had those precious moments building the cabin together if he hadn’t come to Tier 1 Capital when he did. It goes to show that, while there are always financial aspects to our client’s goals, the real reward goes so much deeper.

Similarly, when their first child graduated from college, Jim and Mary were able to enjoy their son’s accomplishment rather than complain like other parents about how much it had cost them in retirement savings.

By borrowing against their own money, the Stoddards were able to achieve new heights without adding additional income streams or reducing their lifestyle. Most of all, they were able to spend precious time with family when it mattered most and give their children the future they wanted despite how impossible it all seemed.

Without meeting with Tier 1 Capital, the Stoddards never would have known how they could readjust their cash flow to meet their short and long-term financial goals. They would have remained in the debt cycle, paying out interest to outside entities rather than staying in control themselves. By sticking with the traditional wisdom on savings, they might have never been able to send their son to a prestigious college or had those final years with Jim’s dad while building their cabin.

At Tier 1 Capital, we help our clients achieve their financial goals so they can find meaning in a rich, full life. Our goal is to help you reframe your mindset about money so you can execute a plan that will help you take control of your financial situation. A simple shift in beliefs can go a long way to helping you achieve your dreams and then some.

Our method goes against traditional wisdom by empowering you to pay yourself, not the bank or the government, first. If you’d like to start your own financial journey with Tier 1 Capital, learn more about who we are and what we do, or schedule a call with us today.