Your Finance: College and cost-of-living factor

Students walk through the Dowling College campus in Students walk through the Dowling College campus in Oakdale. (Sept. 27, 2012) Photo Credit: Chris Ware

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From where I sit, $250,000 a year -- the amount President Barack Obama and other Democrats say is top-tier household income -- is a substantial amount of money.

But I don't sit in Manhattan or Honolulu, where folks say they can easily blow through that much paying rent and child care, and not living like kings.

Cost-of-living disparities are in focus now, and not just in the national tax debate. It's a big deal for families from expensive places when they apply for college financial aid.

People who make, say $60,000 a year in Fort Smith, Ark. -- one of the least expensive places in the country, according to Kiplinger.com -- have significantly more disposable income than people trying to make it on that much in Manhattan. You can buy a four-bedroom, two-bathroom house in Redford, Mich. (just outside of declining Detroit) for $60,000, or pay $1.7 million for a similar home in Los Altos, Calif., in the heart of Silicon Valley, according to numbers released from Coldwell Banker Real Estate.

There a few other ways to make the disparities work for you or at least minimize their impact if you're on the other side of them. Here are some options:

Dig into financial aid exceptions. Federal formulas for most financial aid don't adjust their so-called expected family contribution for cost of living, though they do allow a small adjustment for state taxes. But some 300 schools use the College Board's so-called institutional method for doling out aid.

That gives them the option of applying a cost-of-living adjustment to the family's expected contribution. For example, a family earning $80,000 in Manhattan would probably be expected to come up with about 10 percent less than the same family if it lived in upstate New York, says Myra Smith, executive director for financial aid services at the College Board.

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To figure out whether schools you are interested in offer that adjustment, and how big it is, use the net-cost-of-attendance calculator on the schools' websites.

Buy a vacation home instead of a first home. This is not an unusual strategy in Manhattan, where even small apartments may be unaffordable to buy but weekend homes near the Pennsylvania mountains or Jersey shore may be priced significantly lower.

Consider holding on to your home if you move from an expensive to a cheaper area. People who leave San Francisco for a short stint in New Mexico, for example, have a tough time regaining their place in the San Francisco market. Rent out your costlier place for a year or two instead of selling it, just to make sure you don't want to go back.

Retire to a cheaper area. Many people spend their child-rearing years in costly neighborhoods, because they value the schools or proximity to good jobs. But once the kids grow up and the parents retire, priorities change. In addition to cost-of-living disparities are income tax disparities; a person who spent a lifetime building up a tax-deferred retirement account in a high-tax state can make his or her money last significantly longer with a move to a less expensive and lower-tax state when it's time to make withdrawals.

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