Paying_for_college
00:00:00.000 | Hello everybody, it's Sam and Sydney from Financial Samurai and this episode
00:00:04.080 | we want to talk about the different ways to pay for college as well as my blind spot and also your thoughts on
00:00:11.640 | college expenses going forward. So Sydney, what are your thoughts about the price of college today?
00:00:18.880 | Oh boy, it's it's crazy. The prices are out of control
00:00:23.000 | I mean we both went to state school and we were fortunately able to have low tuition
00:00:29.280 | But even I feel like even state tuition these days, it's not cheap. College is expensive
00:00:34.960 | No, yeah, when we went to William & Mary the tuition was
00:00:38.000 | $2,800 to
00:00:41.120 | $3,500 in tuition a year and now William & Mary I just looked is about
00:00:47.040 | 18,000 a year which actually seems
00:00:50.200 | reasonable because tuition for
00:00:53.360 | Yeah private universities it was like
00:00:58.480 | 58,000 in tuition a year still not cheap. Oh and I just looked at the William & Mary website and then there's
00:01:04.200 | $6,536 in fees. So the tuition is really more like
00:01:08.640 | 25,000 and then plus
00:01:12.160 | 13,500 for housing and food books travel and incidentals. So that's about
00:01:15.960 | 41,000 a year in state out of state is
00:01:19.400 | 64,000
00:01:21.680 | $346 ouch, but still cheaper than private universities
00:01:26.880 | 58,000 a year in tuition and then adding up everything is more like
00:01:30.600 | $83,000 a year. I just looked at Boston University where Democratic Socialist
00:01:35.640 | Alexandria Ocasio-Cortez went
00:01:38.160 | 83,000 a year. I don't know what kind of middle-class or socialist person can afford that kind of tuition
00:01:43.720 | So it seems to me only the really rich or the poor are able to comfortably afford to
00:01:51.160 | send their kids to college because the poor will get financial aid good financial aid in terms of grants and scholarships and
00:01:59.040 | The rich can afford anything they want and then there's a whole swath of people in
00:02:04.080 | between and so for me
00:02:07.080 | I have had a constant desire to save and plan for the future because I like to plan things out
00:02:12.200 | I like to do the pro forma calculations to see how much we have to save
00:02:17.880 | For the future and we have now a six-year-old and a three-year-old
00:02:21.640 | So that means potentially our son will go to college in 12 years in the year
00:02:26.480 | 2036 and so what I did was I looked at the most expensive private school out there and
00:02:32.720 | Then times it by four and I got to three hundred twenty thousand dollars and then I used a five percent annual compound
00:02:40.840 | Growth rate over the next twelve years to come up with about six hundred eighty five thousand dollars
00:02:47.560 | Total cost for him to go to school. What do you think about that? It's a scary number
00:02:51.920 | It's really scary. So I really don't know any
00:02:55.400 | middle-class family that can comfortably afford
00:02:58.960 | $320,000 in today's dollars and why am I using the most expensive?
00:03:04.520 | Assumptions. Well, there are several reasons one
00:03:07.720 | Unlikely for our children to get scholarships due to intelligence or merit. What do you think about that reality? I
00:03:16.160 | Think it's better to be conservative
00:03:18.160 | Yeah better to be conservative and save too much then end up with too little if you look at us
00:03:25.000 | Did we get any scholarships to attend William & Mary? I had a one-time
00:03:28.920 | $800 scholarship
00:03:31.720 | $800 baby, that's pretty good paid for some pizza at the cafeteria for a couple months
00:03:38.480 | No, that's decent $800 because tuition was for you. You're three years earlier than me. So that's like
00:03:46.180 | 23% off tuition. Yeah, I did get a scholarship. I remember I thought I didn't get a scholarship, but I got a
00:03:52.660 | $500
00:03:54.540 | Language scholarship excellent and for Mandarin to study abroad in China my junior year. Okay, but other than that
00:04:00.860 | Because of our average intelligence, we didn't get any merit scholarship
00:04:04.940 | There's this what the scholar building remember the Monroe scholars
00:04:10.660 | Those folks got like 3,000 or 5,000 most of them are valedictorians, I think yeah, so that that wasn't us
00:04:17.020 | Also, we probably have below personality, you know below average personalities. Okay. I don't know about your personality, but nothing stellar
00:04:25.580 | Yeah, Harvard, you know have said that Asian people have below average personalities
00:04:31.140 | So so I guess our children will have below average personalities
00:04:34.860 | And this is a way for private schools to throttle Asian academic performance
00:04:41.220 | so given our children are Asian or
00:04:43.820 | mixed despite their work ethic
00:04:47.260 | Friendliness general peaceful nature not causing violence and harm in the society
00:04:52.500 | Asians are not the preferred minority colleges want to V for and fight for ooh and another thing
00:04:59.820 | So half my family is from Hawaii
00:05:02.620 | And the other half is from Taiwan and so our children have Hawaiian blood
00:05:07.580 | I have looked at our my parents birth certificates my grandparents birth certificates. They say Chinese Hawaiian
00:05:14.220 | However, despite the desire for diversity and inclusion by colleges Pacific Islanders and Hawaiians still seem to be lumped together with Asians
00:05:22.580 | Despite huge cultural differences. Yeah, definitely
00:05:26.300 | so it seems like there's not gonna be any kind of advantage being a Pacific Islander either even though
00:05:33.820 | Pacific Islanders only account for 0.4 percent of the American population, right?
00:05:38.820 | but I do think maybe they are
00:05:42.500 | differentiating between
00:05:44.380 | People of the Pacific Islands and the many many different Asian cultures
00:05:48.940 | They should the cultures are totally different, but let's just say they don't you know, cuz we're all we're all like, right?
00:05:54.220 | We all look alike walk same culture, right? That that's what society said
00:05:58.340 | And then our children are like unlikely to win sports scholarships
00:06:02.340 | I think only like 1% of high school students win sports scholarships
00:06:07.380 | There's also a decline in merit based
00:06:10.380 | Excellence and reward right in terms of it doesn't matter how hard our children try to get good grades and test scores
00:06:17.980 | Yeah, they're not looking at them they're you know banishing or removing SAT and ACT is optional because you know
00:06:26.960 | We got it all equalized
00:06:29.020 | And then although our incomes are not high our assets are above average because we've been prodigious savers and investors since 1999
00:06:36.980 | Since the day I had my first job and I needed to get the hell out
00:06:41.140 | So it's a long-winded answer to say why I am expecting to pay
00:06:47.660 | $320,000 in today's dollars and
00:06:51.180 | almost
00:06:53.260 | $700,000 in the year
00:06:55.260 | 2036 to
00:06:57.460 | 2040 but here's the thing we have two children
00:07:01.820 | And then our second one is three three years younger than our first so
00:07:06.900 | 700,000 plus maybe 800,000 is 1.5 million dollars
00:07:13.020 | So imagine the average American household
00:07:16.740 | two children white picket fence
00:07:19.460 | Three bedroom two bath house has to face 1.5 million dollars in college expenses for their two children
00:07:27.860 | It isn't feasible so that's why I think there has to be this greater anxiety
00:07:32.980 | There is this anxiety to save and work to pay for college tuition, and I think it's a great idea to work
00:07:41.420 | through
00:07:43.260 | College so until your kids graduate college just keep on working
00:07:46.860 | I think that's a normal and very common target for people to have
00:07:51.500 | But we don't have that because we stopped doing official work back in 2012 for me and
00:07:56.980 | 2015 for you as a result we've had to really focus on trying to save and
00:08:03.940 | Invest as much as possible in their respective five to nine accounts to somehow get to these figures that seem
00:08:11.420 | Unbelievable right now, you know seven hundred thousand four years and eight hundred thousand for four years for our son and daughter
00:08:16.740 | It seems unbelievable now, but that's the math
00:08:20.340 | And since math don't lie
00:08:22.340 | this stress and anxiety to try to save over a million dollars or 1.5 million dollars in 12 to
00:08:29.820 | 15 years is immense. Yeah, but I
00:08:33.900 | Realize there's another way because I read Ron Lieber's book the price you pay for college and in the book
00:08:40.420 | He highlights this financial aid expert fellow named Mark
00:08:45.620 | Trowitz and he says look there are four ways to pay for college
00:08:50.100 | The first way is parents pay one quarter of tuition from college savings like a five to nine plan or Roth IRA
00:08:57.380 | Two parents pay one quarter of tuition from their current income during the four years of college
00:09:03.380 | Three students borrow one quarter of tuition from the federal government or through work study they pay for it and then four
00:09:11.660 | Parents borrow the rest from home equity or through a federal plus loan or private lender
00:09:16.780 | So if you have these ways of borrowing and paying for college
00:09:21.180 | Then you don't have to we don't have to save and invest
00:09:25.660 | 1.5 million dollars
00:09:28.220 | Now, did you realize there were these four ways to pay did it even enter your head?
00:09:32.660 | I didn't really think about it. All I really was remembering is that I had to pay half of
00:09:38.820 | My tuition my parents paid for the other half and they let me know pretty early on that
00:09:43.980 | They wouldn't be able to afford the entire amount so I would be on the hook for the other half after I graduated
00:09:50.900 | Oh, so you actually did take student loans and now I remember right who paid your student loan off big daddy
00:09:59.060 | I think it was $10,000. I
00:10:02.060 | Remember I had like a bonus check and I said, you know what? I'm gonna pay your student along
00:10:07.220 | Yes, I've totally forgot about that. So it was your parents paid work through that half
00:10:11.860 | You paid like maybe a third a third and student loans a third
00:10:16.220 | Something like that
00:10:18.820 | Okay. Okay. So so you you did a conventional way for me my parents paid the twenty eight hundred dollars a
00:10:26.860 | Year in tuition and then the room and board so it came out to about nine thousand a year
00:10:30.900 | But I did pay them back just over time through you know, my work checks
00:10:36.180 | but this is the one thing that I didn't realize until reading this book and
00:10:40.100 | That bullet point his parents paying for college from their income while their children are attending college, right?
00:10:47.620 | Did you think about that because that sounds like if you read it and you listen you're like, oh no kidding. That's common
00:10:53.940 | Right, right. I think it's just
00:10:55.940 | The way we operate is very unconventional
00:10:58.820 | Now so I think that's why it didn't come to mind. I mean, it sounds like a no-brainer, right folks
00:11:06.500 | But I didn't think about that option at all
00:11:09.900 | Because I haven't had a day job in 11 years
00:11:13.380 | Right, and you haven't had a day job in almost eight years. I think eight years. Yeah, and I'm not even motivated to work now
00:11:20.620 | so
00:11:22.420 | What what makes me think that I'm gonna want to work 12 to 15 years from now when I'm like 57
00:11:28.940 | 58 9. Yeah, there's no way in heck. I want to be working then and also I
00:11:35.580 | Don't want to be borrowing when I'm in my late 50s for college, right? Because there's a chance
00:11:40.300 | Did you know that 40% of kids who go to college don't end up graduating within six years?
00:11:46.660 | That's really high or graduating at all
00:11:49.140 | So there's a risk to taking on debt to get a college education
00:11:54.140 | That you don't receive right and hence why we have such like, you know
00:11:58.340 | 1.8 trillion in student loans and there's this big fear about student loan forgiveness and all that, right?
00:12:03.980 | so one of the lessons and realizations I have is if you plan to
00:12:08.200 | Achieve fire retire early do something new and you have kids
00:12:14.340 | There's is this kind of dichotomy between your future expenses and what you want to do now and how you want to earn money
00:12:21.220 | And so you really need enough passive income to cover these future expenses
00:12:27.300 | It's not static folks, especially if you have young kids and our fire
00:12:31.100 | It's ever-growing with the cost of health care insurance, right? We pay how much a month?
00:12:35.140 | 2400 and then you know, obviously the cost of tuition
00:12:40.780 | Which you know, the worst case is right now about three hundred twenty thousand over four years
00:12:45.900 | So if you're thinking about short-circuiting your active income
00:12:50.140 | then on the back end, please be very
00:12:53.820 | critical very
00:12:56.060 | Detail-oriented on exactly potentially what your expenses are in the future now in terms of how much you
00:13:02.620 | Should save for college for each child
00:13:05.260 | That's an individual choice. The most conservative way is to follow our way and to save for four years at the most
00:13:13.740 | Expensive private university and assume no scholarships just low expectations, which means high cost
00:13:20.740 | The other I think reasonable way is to save for four years worth of your state
00:13:26.220 | flagship school in-state tuition and if your child wants to go to a
00:13:31.300 | Fancy-spancy private university and it costs more than have them pay the difference put that skin in the game
00:13:38.700 | Or you don't even have to pay for you know, or save for four years of in-state tuition
00:13:44.260 | You could have a combination as well. What I think we should all be is
00:13:49.300 | Dynamic and flexible to see how our children are. We'll figure it out by the time
00:13:54.100 | They're in middle school in high school. Are they studios? Do they appreciate hard work?
00:13:57.660 | Do they want to go into a profession that requires a lot of schooling? Are they frugal? Are they spendy all these things?
00:14:04.980 | Should be taken into consideration in terms of where they should go to school and how much we should pay
00:14:12.020 | What are your thoughts and other ways we should?
00:14:15.420 | Consider paying one other thing that comes to mind is some families choose to have their kids
00:14:21.460 | Continue to live at home while they go through college and obviously that's not going to be the right fit for every family
00:14:27.900 | But it certainly is a way to save on
00:14:30.740 | Room and board. Yeah, and also to go to community college for two years
00:14:35.300 | Some states community college is free and then you do well and you can transfer over to hopefully a better
00:14:41.780 | University and give yourself a second chance at getting good grades
00:14:45.100 | The other way is doing ROTC, you know, they pay for partial scholarship
00:14:51.860 | So that's pretty good as well. And another way where we've discussed before is using a Roth IRA to pay for college
00:14:58.980 | However, I'm not that big of a fan because the Roth IRA is meant for you and your retirement
00:15:05.440 | So put on your seat belt first
00:15:08.100 | Before trying to help others. In conclusion
00:15:11.220 | I understand if you are feeling any type of anxiety about trying to afford the full
00:15:16.740 | Four-year cost of tuition. The good thing is the sticker price is often different from the net price
00:15:22.180 | Most families don't pay the sticker price
00:15:25.740 | It's something like 70 to 80 percent of families don't pay the sticker price because they have some type of financial aid
00:15:31.580 | Hopefully majority good financial aid in terms of free money and not student loans
00:15:36.460 | But if you're feeling that anxiety and you feel like you have to save for the entire four years
00:15:42.060 | Well, don't be like me and be so one-tracked instead
00:15:46.540 | Think about a team effort in paying for college through your savings and investing
00:15:52.340 | Through your child's work and savings because after all we're going to teach them, you know
00:15:57.700 | To work hard and contribute to a Roth IRA and so forth and also to pay for college
00:16:03.500 | From your passive or active income. I totally didn't think about that, but that
00:16:08.900 | Maybe we we might have or some some families might have half or enough
00:16:14.580 | Active and passive income to pay for college while our children are in college
00:16:20.460 | So I hope you enjoyed this episode in an X episode
00:16:25.140 | Perhaps we'll talk about how to get free money how to quote game the college financial aid
00:16:32.980 | System so that you can gain free money. It's not easy. I went through this whole exercise
00:16:37.700 | We should all be thinking about how the system works
00:16:40.820 | But stay tuned for a next episode if you enjoyed this episode
00:16:44.300 | We'd love a positive 5 star review with some nice commentary
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00:16:53.860 | News and if you want a tool to help you plan better for college expenses
00:17:00.500 | Empower which was previously called personal capital has a phenomenal
00:17:04.180 | Retirement calculator expense calculator where you input these future expenses to see whether your future income your passive income
00:17:12.700 | Portfolio income can cover these expenses very helpful. Just go to financial samurai comm forward slash
00:17:18.900 | PC take everyone. Thanks. Bye