RPF0357-Brad_Baldridge

00:00:00.000 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,

00:00:05.680 | skills, insight and encouragement you need to live a rich and meaningful life now while

00:00:10.920 | building a plan for financial freedom in ten years or less.

00:00:14.160 | My guest today is Brad Baldridge from the website, podcast, business called TamingTheHighCostOfCollege.com.

00:00:21.920 | Brad, do you think that children and paying for children's college is antithetical to

00:00:29.240 | financial independence or do you think that you can work out a plan where these two things

00:00:32.320 | can coexist?

00:00:34.520 | I think most families need to figure it out whether they like to or not.

00:00:38.120 | Welcome to the show, sir.

00:00:40.080 | I'm glad you're here.

00:00:41.080 | Yeah, I'm glad to be here.

00:00:42.520 | So we're going to talk about college, which is a hot topic, and we're going to try to

00:00:47.920 | give as much detailed information as possible, some real meat for my audience, some ideas,

00:00:52.800 | both some mainstream ideas and some offbeat ideas.

00:00:56.040 | But I'd like to start with your background.

00:00:57.240 | You come from the financial planning world and you've approached this as a financial

00:01:01.140 | planning specialty.

00:01:02.140 | How did you wind up becoming an expert in the area of college planning?

00:01:05.040 | Well, I started like most financial planners and I worked with just about anybody and everybody.

00:01:11.820 | And I realized that I started resonating with parents and one of their big concerns was

00:01:20.200 | college and retirement.

00:01:21.200 | And as I learned more and worked on it harder, I realized that there's a huge need for families

00:01:26.060 | to really understand college as it gets more and more expensive in order to do it and do

00:01:31.960 | it well so that you don't mess up mom and dad's retirement, I guess, in general.

00:01:38.080 | How long have you been practicing in this area?

00:01:41.440 | I've been a financial planner for about 20 years and about 10 years ago I started specializing

00:01:45.240 | and actually launched a couple of businesses around college planning.

00:01:49.120 | So let's start with the changes.

00:01:51.600 | Have you observed any cultural changes in our cultural attitude toward college and college

00:01:59.040 | planning in the last decade or two?

00:02:01.200 | Absolutely.

00:02:02.200 | The biggest change was in the economic downturn where up until that economic downturn, most

00:02:10.900 | people pretty much said, "I'm going to go to school.

00:02:12.940 | I'm going to get that piece of paper and I'm going to get a good job and that's just the

00:02:16.820 | way it works."

00:02:18.300 | And then when the economic downturn happened and some graduates struggled with finding

00:02:23.020 | work, all of a sudden it became, "Well, wait a minute.

00:02:26.060 | Is it really worth it?"

00:02:28.140 | And the answer for many is, "Yes, it still is very much is worth it."

00:02:31.740 | But not all degrees and not all people should be going to college in my opinion.

00:02:37.980 | I definitely saw that major change.

00:02:40.340 | It seemed like, and I guess you're probably right with regard to the timing of it, but

00:02:46.380 | it does seem that there was a dramatic shift in the last decade from that cultural idea

00:02:52.580 | of college is just the way that you set up a good life to almost a cultural disdain.

00:02:58.940 | I don't know that we're quite there but at least among my generation, the younger generation,

00:03:03.580 | I would say there's probably more disdain than there is admiration for the college path.

00:03:10.780 | I've noticed a distinct age gap on this subject where when I speak with older people and they

00:03:17.460 | say, "Well, why are you so down on college?"

00:03:19.140 | You don't understand.

00:03:20.820 | You're living in the world that existed 30 years ago, some people, but the world that's

00:03:25.100 | today is very different than it was for you.

00:03:28.100 | And so it's definitely been fascinating for me to watch.

00:03:31.700 | Have you observed the same age gap that I have in working with clients?

00:03:35.740 | Michael: Yes, absolutely.

00:03:38.340 | I obviously work a lot with parents more than I do with the actual students.

00:03:43.740 | But even parents today are really examining it because it's getting so expensive that

00:03:49.300 | for many families, it's a big item now.

00:03:52.380 | It's a major decision as to whether or not we're going to spend the kind of money to

00:03:57.660 | go to that expensive private school or just go to the state school.

00:04:02.780 | For some families, that's the type of decision.

00:04:04.340 | For other families, it's, "Can we afford college at all?

00:04:07.180 | And is it worth it if we can't afford it to borrow that kind of money to make it happen?"

00:04:12.980 | And those kind of decisions now are a case-by-case basis.

00:04:17.440 | It isn't an automatic, "Well, it always makes sense to do this."

00:04:20.380 | It's, "Well, it may make sense, but what are you going to do when you graduate?

00:04:24.500 | And what's your earning potential?

00:04:27.060 | And are you willing to take on debt or not?

00:04:30.900 | And is there an alternate path to get to where you're trying to go that doesn't include college

00:04:36.140 | or it includes less of college?"

00:04:38.980 | So what's actually happening with college costs?

00:04:41.740 | What are the actual trends?

00:04:43.380 | Right.

00:04:44.380 | So college costs are going up, especially what I would call the top-line price, which

00:04:48.140 | is the official published price where Harvard is now over $70,000 a year all in, which is

00:04:55.420 | tuition, room and board, books, fees.

00:04:57.660 | And there's a lot of schools in that realm between 65 and 70.

00:05:01.580 | That's the high-priced name brand prestigious schools are all up there like that.

00:05:08.820 | And then we have the state schools where maybe 20 to 30,000 for the flagship state school

00:05:15.080 | in your state, maybe less than that at some of the low-cost states and maybe more than

00:05:18.380 | that in a high-cost state.

00:05:20.100 | Then you also have the out-of-state situation where it's more like 40,000.

00:05:25.020 | So it's not nearly as bad as the high-priced privates.

00:05:28.540 | And then we have the low-priced privates that are 45, 50 comparable to the out-of-state

00:05:36.820 | prices.

00:05:38.740 | So there's a lot of different types of schools out there as far as kind of categories and

00:05:44.780 | how they work and whether or not you're going to qualify for aid, et cetera, et cetera.

00:05:50.460 | And because it's getting so expensive now, I think most families need to spend a lot

00:05:53.620 | more time at it.

00:05:56.180 | A typical family would spend a lot less time planning for college than they would, say,

00:06:01.740 | planning a large family vacation.

00:06:04.660 | Yet now with college being so expensive, you really need to put some time and effort into

00:06:09.020 | it because it is a big decision and there's lots of consequences.

00:06:13.100 | And if you can save 10 or 20% on college these days, it adds up.

00:06:20.940 | And ultimately, you want to get somewhere.

00:06:23.180 | I always, again, if you could talk about a vacation again, the way college was done in

00:06:30.660 | the past was kind of like on a vacation analogy, that would be, "All right, well, guess what,

00:06:36.060 | Josh?

00:06:37.060 | We've got this week off.

00:06:38.740 | So I guess we're on vacation.

00:06:40.300 | So let's figure out where we're going to go.

00:06:42.140 | Let's go down to the airport and pick a destination.

00:06:45.180 | And then when we get there, we'll see if we can find a place to live and then we'll see

00:06:49.140 | if there's something fun to do."

00:06:51.060 | Most people don't do it that way for vacation because they've got limited time and resources

00:06:55.740 | and they want to make the most of it.

00:06:58.500 | But that's how college used to work, right?

00:07:00.580 | You'd say sometime in your senior year of high school, "I think I want to go to college."

00:07:06.020 | You visit one or two of the local schools, you pick one, you sign up and you just kind

00:07:11.440 | of stumble your way through it, which worked for our parents and grandparents.

00:07:17.820 | But as we get into it today, we need to do more, in my opinion, again, because it's so

00:07:23.580 | expensive and you quite literally can lose tens of thousands of dollars because you made

00:07:31.040 | a mistake that you weren't aware of when it comes to things like financial aid, choosing

00:07:36.180 | the right loan, choosing the right school, or choosing not to go to begin with.

00:07:41.100 | All those types of things can have a huge impact.

00:07:45.300 | I'm not convinced that college costs are actually increasing and I'll explain why and I'd love

00:07:51.100 | it if you could convince me one way or the other.

00:07:54.140 | The top line number does seem to steadily increase.

00:07:59.000 | It's very difficult to argue with that just given the simple data that you cited.

00:08:03.060 | However, the actual bottom line number, I can't figure out a way to actually calculate

00:08:09.300 | that because the top line number includes, if Harvard is, what do you say, $70,000 a

00:08:14.180 | year, they're including room, board, books, everything in that number.

00:08:17.940 | But room and board are highly variable depending on where you live.

00:08:22.540 | Also living on campus and using the college campus room and board is generally a more

00:08:27.060 | expensive way to live than can be accomplished through other means and mechanisms.

00:08:33.700 | Some of the colleges that have the highest upfront cost or the highest top line number

00:08:39.140 | also have the most generous student aid programs, the most generous grant programs.

00:08:45.740 | Plus you have to look at the various scholarship programs, et cetera.

00:08:50.300 | If I wanted to – and if you look at the options, it's never been cheaper.

00:08:55.580 | I look at local community college options.

00:08:59.700 | It's never been cheaper.

00:09:01.260 | Even if you want to go through the official state college, it's never been cheaper to

00:09:04.100 | get tuition credits at a local community college if you're just focusing on tuition credits.

00:09:12.500 | So is there a way or have you been able to pull out the data and figure out what the

00:09:18.460 | actual increase rate is versus just the top line number that's so easily studied?

00:09:24.020 | Are you aware of any data that pulls those numbers apart a little bit?

00:09:27.980 | Absolutely.

00:09:28.980 | The national database, I actually just did this.

00:09:33.540 | I pulled all the net price by income for Wisconsin colleges.

00:09:41.220 | Obviously people that are listening are all over the country, but I live here in Wisconsin

00:09:45.500 | and work with a lot of Wisconsin families, so I chose to do that.

00:09:50.100 | You're right.

00:09:51.100 | The top line is going up a lot faster than the net line because at a lot of schools,

00:09:55.340 | they're offering scholarships.

00:09:57.400 | So what's happened at a typical private school, let's say they raised their price in the

00:10:01.340 | last few years from $45,000 to $50,000, they may have also increased their aid by $5,000

00:10:09.580 | as well.

00:10:11.420 | But the challenge is that $5,000 of aid, they get to choose who gets it and who doesn't.

00:10:16.820 | So for the students they want, they'll still offer it.

00:10:20.140 | For students that they will accept but they aren't really chasing, that's where the rub

00:10:25.980 | comes in.

00:10:27.340 | So I have a lot of families that are looking at colleges and they're saying, "Well, I want

00:10:32.340 | to stretch.

00:10:33.340 | I can just barely get accepted at the name-brand school, say Notre Dame.

00:10:40.740 | But if I get there, I'll probably have to pay full price because I'm just an average

00:10:45.740 | student in Notre Dame and their aid is reserved for the top students."

00:10:51.500 | That same student could then say, "Well, I could be an above average or a top student

00:10:55.720 | at a 'lesser school'."

00:10:57.780 | And I don't like the word.

00:10:58.780 | I mean, there is no good school, bad school.

00:11:01.980 | This one's better than that one per se.

00:11:04.740 | I mean, that's a long drawn-out argument.

00:11:07.400 | But anyway, just as part of the story here, you could choose a school where you're a stronger

00:11:13.260 | student relative to the average class and go to maybe a more local private school and

00:11:20.700 | get a $10,000 or $20,000 or $30,000 scholarship.

00:11:25.240 | And then, of course, if you really shop around, you might find a school where you're a rock

00:11:29.260 | star, right?

00:11:30.260 | Where this school over here has relatively low cost and offers very generous scholarships

00:11:37.820 | for top students and you're a really strong student at that type of school.

00:11:42.020 | But again, it doesn't have the name recognition.

00:11:43.860 | It's not a top-tier school.

00:11:46.300 | There's many students and parents who essentially say, "Well, we've worked too hard to consider

00:11:50.720 | going to the 'no-name school' just because it's very low cost.

00:11:56.080 | We'd rather spend the money and go to Notre Dame or whatever that college might be."

00:12:01.260 | Which is fine if you have it.

00:12:02.440 | But if you don't have it, then the question becomes, should we borrow it?

00:12:08.160 | Are we going to put ourselves in that much financial jeopardy just to get to Notre Dame?

00:12:14.320 | Or is another path a reasonable path for our student?

00:12:19.480 | Well, get to the planning question.

00:12:22.880 | I want to spend some time on that student loan question in a minute.

00:12:25.880 | Before we do that, let's continue on this theme of name-brand schools versus non-name

00:12:30.200 | brand.

00:12:31.280 | If I'm seeking to do an objective economic analysis, meaning I don't care that my dad

00:12:38.320 | went to this school or that I'm a fan of this football team.

00:12:40.720 | I'm just interested in the nuts and bolts of the economic analysis.

00:12:44.720 | And one of my primary goals for college is the income potential.

00:12:50.040 | There are lots of people who don't fall into that.

00:12:51.480 | They say, "Well, I'm trying to learn something else and earning potential and career potential

00:12:55.400 | is only one of the benefits of college."

00:12:57.000 | Got that.

00:12:58.000 | Set that aside.

00:12:59.360 | Are you aware of any objective data that would indicate to me a way that I could make the

00:13:05.400 | decision criteria between choosing an inexpensive, non-name recognized path versus a name brand

00:13:14.600 | expensive path?

00:13:15.600 | Yeah, I don't know that that type of data.

00:13:20.400 | They're working on that type of data.

00:13:22.240 | But all that data is relatively useless because it's all averages, right?

00:13:28.400 | You look at, well, if 100 kids graduated from this school and did this and 100 kids graduated

00:13:32.560 | from that school and did that, great.

00:13:36.560 | But that doesn't really matter because you're not 100 kids.

00:13:40.360 | You're one.

00:13:42.280 | And I think it has a lot more to do with how your student applies themselves and the majors

00:13:48.520 | they choose and how hard they're willing to work.

00:13:51.520 | So there's obviously some data skewed at these high-end schools, as an example, because they

00:13:57.520 | only accept the best and brightest kids.

00:14:00.240 | Well, you know, so is Harvard a good school or they just have the privilege of accepting

00:14:06.080 | only the best kids?

00:14:07.760 | And I think the second answer is true.

00:14:09.680 | They accept the best kids, give them an average or maybe even an above average education.

00:14:16.560 | And in the end, what they turn out is some very productive, you know, high earning potential

00:14:21.480 | type graduates.

00:14:24.200 | But they got to take the cream of the crop.

00:14:27.320 | And if you happen to be the cream of the crop, well, then you can maybe consider going that

00:14:31.320 | path or an alternate path.

00:14:33.680 | But the cream of the crop, I think, is going to do well whether they go to Harvard or the

00:14:37.240 | local state school or no college at all, potentially, because they have what it takes to get out

00:14:43.720 | there and do it, whether it's with formal education, informal education, on the job

00:14:48.680 | training, owning a business, all the different things that, you know, tend to create wealth,

00:14:54.480 | I think are potentially just because of the way the student acts and behaves.

00:15:00.880 | Right.

00:15:01.880 | You face that and I appreciate your point about it's a big issue to me is that you have

00:15:06.000 | to deal with selection bias at every stage of this, whether it's at what type of student

00:15:11.600 | is here or I'm of the opinion that you face that even in terms of the earnings record.

00:15:17.280 | What is the fact when you get to somebody earning a higher income amount on the average,

00:15:22.320 | is it because they learned something in college that allowed them to earn a higher income

00:15:29.920 | or is it because the college process was tailored to that type of person and they were the ones

00:15:35.960 | who were the kind of person who goes through and finishes things and does what they're

00:15:38.760 | supposed to do and that type of person has the skills to succeed and be more financially

00:15:43.860 | productive in the world of work than many other people.

00:15:47.160 | It's challenging to get good data.

00:15:49.040 | Same thing, another one that really bugs me when looking at the numbers, it's my understanding

00:15:53.120 | of student loan debt and the amount of people – the earnings record and things like that.

00:15:57.840 | Many people when looking at it don't factor in the reality that – it's my understanding

00:16:03.720 | that about 40 percent of college students never graduate and so you don't just have

00:16:08.200 | to deal with what are the problems of student loan debt for those who graduate.

00:16:13.360 | You got to deal with the fact that 40 percent of students don't graduate and so those

00:16:17.120 | – their stories are often filtered out of the data that you're looking at and you're

00:16:21.960 | only looking at the 60 percent who actually graduated and you're making advice and recommendations

00:16:26.640 | without factoring in the fact that almost half of the students never actually fulfilled

00:16:31.160 | the requirements.

00:16:32.160 | And thus, they may have student loans or may have spent a few years of their life without

00:16:37.040 | getting the benefit of actually having the degree.

00:16:39.720 | Right.

00:16:40.720 | That's all true and that's where – again, when we're doing research as is college effective

00:16:47.720 | and what do you recommend.

00:16:50.280 | But again, when you start using that broad stroke, there's all kinds of things.

00:16:54.440 | As an example, what majors are available at that particular college?

00:16:57.080 | If it has an engineering school, guess what?

00:16:59.560 | They have a lot of graduates that go off and do well and make good money, especially right

00:17:03.020 | out of school because the average engineer starts substantially higher than the average

00:17:07.600 | social worker as an example.

00:17:10.040 | Now that's all averages, okay?

00:17:11.040 | And it's kind of like saying, "Well, I'm going to be a musician."

00:17:14.600 | Well, are you going to be a starving artist musician or are you going to be a rock star

00:17:17.640 | musician?

00:17:19.640 | And there's a very drastic difference to the lifestyle, the income potential, etc.,

00:17:26.240 | etc.

00:17:27.280 | And whether or not you can do it is based on the individual in my opinion most likely,

00:17:35.240 | not the college you attend.

00:17:38.680 | Let's walk through two scenarios because one of the biggest values that I think you

00:17:44.120 | can bring to my audience is talking about the framework of the decision process.

00:17:48.200 | So first, the scenario.

00:17:51.040 | I come into your office.

00:17:52.120 | I'm a young father.

00:17:54.600 | My wife and I, we have two young children.

00:17:57.120 | We both have college degrees and we're concerned about planning for college.

00:18:01.160 | That's the extent of the data you have on this case.

00:18:03.960 | But I have a one-year-old and a two-and-a-half-year-old.

00:18:05.960 | And I'm sitting and saying, "Brad, I want to plan for my kid's college."

00:18:10.320 | Walk me through the framework that you use to give clients good advice with regard to

00:18:15.880 | what to do.

00:18:16.880 | Brad O'Reilly Right.

00:18:17.880 | Well, you actually – and I happened to listen to a show that you created where you talked

00:18:22.720 | about it and I think you and I are on the same page in that if you're young and starting

00:18:26.880 | out, if you're maxing your Roth IRAs, maxing your retirement plans at work, and you have

00:18:32.280 | extra money that you want to save for college, knock yourself out.

00:18:37.960 | For everybody else, get your own financial house in order.

00:18:42.520 | Do the best you can so that when you get to college 10 or 15 years from now, and theoretically

00:18:48.680 | your earning potential is high at that time, right?

00:18:51.320 | You've had a couple of promotions at work.

00:18:54.120 | Your small business is now not quite so small, whatever it might be, and theoretically you've

00:18:58.280 | got more to work with.

00:19:00.960 | At that time, you can make some decisions as to how much you might want to commit to

00:19:05.000 | college.

00:19:06.400 | And if you're thinking, "I'm probably going to want to pay for college," well then bake

00:19:10.840 | that into your plan, but not necessarily a specific investment.

00:19:15.680 | So if I know, if my wife and I agree or your wife and you agree that, "Hey, I'm going to

00:19:22.960 | contribute quite a bit to college.

00:19:24.200 | I want to be there to help," that's fine.

00:19:26.960 | Then when you're making your car buying decisions, don't spend so much money on cars.

00:19:32.400 | When you're making your housing decision, don't spend so much on a house so that you

00:19:36.200 | have more free cash flow over your lifetime.

00:19:41.280 | And then you can tap the college out of your net worth as it makes sense when you get there.

00:19:47.000 | But it's really hard to plan for a one and a three-year-old because I think the system

00:19:52.480 | is going to change between now and then.

00:19:54.480 | I don't know how.

00:19:57.120 | So to base your decisions now on what we have now is probably not very useful.

00:20:04.680 | On the other hand, if you just say, "Well, we're going to grow our net worth.

00:20:07.720 | We're going to have, by the time we roll around to college, we're going to have $400,000 in

00:20:12.320 | our 401ks and we're going to have $200,000 in our Roth IRAs.

00:20:16.120 | And we're going to have $100,000 in investments.

00:20:19.080 | And our house is going to be half paid off and all our cars are paid for.

00:20:23.560 | And we'll have an extra $2,000 a month coming in that we don't know what to do with.

00:20:27.660 | And if we choose to spend it on college, we can."

00:20:30.120 | Well, you're in a great position.

00:20:33.220 | Then when you come to me with a high school sophomore or junior, we've got things to work

00:20:38.240 | with and we can make it work.

00:20:41.200 | Where I see what you want to avoid is the opposite of that plan, which is you learn

00:20:45.600 | how to spend everything you earn, et cetera, et cetera.

00:20:48.800 | And I see these people all the time.

00:20:52.080 | They're earning $100,000, $150,000 a year, which disqualifies them from most aid.

00:20:58.480 | Yet they need that $150,000 to cover all their lifestyle.

00:21:02.520 | The kids are doing dance.

00:21:03.880 | The kids are in sports.

00:21:05.680 | We take family vacations that are expensive.

00:21:07.880 | We've got nice cars.

00:21:08.880 | We've got a nice home.

00:21:10.000 | We've got credit card debt.

00:21:13.080 | And our budget is such that we need to earn what we earn just to cover our budget.

00:21:17.640 | And now you want to put college on top of it?

00:21:19.840 | There's no way.

00:21:21.080 | Well, guess what?

00:21:22.680 | I've seen families earning $75,000 easily cover college.

00:21:26.880 | And I've seen families earning $150,000 just crumble under the pressure of college.

00:21:33.520 | And it has nothing to do with who qualifies for aid.

00:21:35.600 | It has everything to do with what their financial mindset was as they moved into the college

00:21:41.760 | years.

00:21:42.760 | It has to do with how they prepared.

00:21:45.000 | And again, not necessarily having a specific college fund set aside, but having the cars

00:21:52.240 | paid off and having some free cash flow to be able to do what you need if you choose

00:21:58.920 | to do it.

00:21:59.920 | And then of course I have parents that are across the gamut as to whether they want to

00:22:03.080 | do it.

00:22:04.080 | Some parents say, "College isn't my problem."

00:22:06.080 | Other parents say, "We're paying for it all."

00:22:09.520 | There's no right or wrong there.

00:22:12.120 | But if you say you want to pay for it all, realize it could potentially be expensive

00:22:16.720 | and you need to plan accordingly as you're raising your kids.

00:22:21.640 | Another big one would be that private school, private high school, as an example.

00:22:25.480 | I've had families say, "Well, we spent all our money on private high school instead of

00:22:30.320 | college, because we thought that was a, you know, and now he's going to go win a bunch

00:22:33.340 | of scholarships and ta-da, college is paid for."

00:22:37.280 | It's like, yeah, maybe, but there's a whole lot of kids that go to private schools that

00:22:42.840 | aren't in any better position than kids that went to public schools.

00:22:47.400 | Could you think of the scenario in which, so obviously we're in agreement on that, and

00:22:55.980 | to me when looked at that way, that plan of paying for kids' schooling by attending to

00:23:02.200 | everything else brings so much more flexibility for a future that's very uncertain, especially

00:23:10.000 | for younger kids.

00:23:11.200 | I understand if you have a 12-year-old who's seemingly very interested in engineering and

00:23:16.480 | you come from a background of MIT and you say, "Well, MIT is interested in them.

00:23:21.840 | They're working on that."

00:23:22.840 | I get the planning at that point.

00:23:24.960 | But for many young families, which seems to be the situation where you get the question

00:23:29.320 | as a financial advisor, you get the question, "Hey, what do I do for my one-year-old?

00:23:33.080 | I want to go ahead and open a college account for them."

00:23:35.400 | I just think the plan that you laid out there and that I've discussed elsewhere is so much

00:23:40.840 | more flexible.

00:23:42.360 | But let's contrast that.

00:23:45.120 | Could you design a scenario in which you would, or what would be the scenario in which you

00:23:49.360 | would actually say, "No, a college savings plan is the way to go.

00:23:54.540 | What you should definitely do is go and open and fund a college account of some kind."

00:23:58.920 | What would be the scenarios, what would be the facts that would lead you in that direction

00:24:02.040 | of advice?

00:24:04.560 | Being relatively financially sound in retirement, et cetera.

00:24:09.480 | So again, I have some young professionals where they just got married and they're both

00:24:16.720 | earning 80,000 each or high six figures or whatever it might be, where all of a sudden

00:24:23.000 | they take their two households and they merge them and they go, "Man, we've got 4,000 a

00:24:27.520 | month that we used to have two rents and car payments and all that stuff and that's all

00:24:32.640 | gone.

00:24:33.640 | We've got 4,000 a month.

00:24:34.640 | What do we do with this?

00:24:35.640 | And we're already doing well in our retirement.

00:24:37.440 | Well, by all means, go ahead, put some of that into college."

00:24:44.080 | I deal a lot with parents of high school students.

00:24:46.320 | So I have a lot of parents come to me with 25,000 or 50,000 in a 529.

00:24:51.720 | And I've got some that come to me and say, "Well, 100,000 in 529s."

00:24:56.280 | And they're also the ones that are saying, "By the way, I plan on sending both kids to

00:25:01.880 | high end school.

00:25:02.960 | So yes, 100,000 is a good start, but I need to come up with another 300,000 to make it

00:25:07.160 | all work."

00:25:08.160 | So let's jump to that scenario because that was going to be the next scenario I was going

00:25:11.040 | to present.

00:25:12.040 | I'm now the parent of a couple of high school students.

00:25:15.720 | Both of them seem appropriately qualified for college.

00:25:19.760 | It seems like college would be an appropriate decision for them of some sort or another.

00:25:25.200 | What's your decision framework for giving advice in that circumstance?

00:25:29.000 | Pretend I've got $25,000 in a college savings plan and it's not enough.

00:25:33.840 | Now you're trying to give me some advice.

00:25:35.280 | How do I approach that?

00:25:37.080 | Right.

00:25:38.080 | So what I recommend people do is they lay out their other goals and say, "Are we on

00:25:44.400 | track for those?"

00:25:45.400 | So a typical family that I see, they've got two goals.

00:25:50.440 | Figure out college, work a few more years, and retire.

00:25:54.760 | That is a very typical.

00:25:56.320 | And then, you know, we'd like to have some family vacations, but they're not as critical.

00:26:01.120 | We'd like to do some other things, buy a boat, place up north, whatever it might be.

00:26:05.680 | Might be, you know, I wish I could, but that's, you know, that's, we'll drop that in a heartbeat

00:26:13.520 | to get these two goals done.

00:26:15.940 | So that's the typical family.

00:26:17.880 | And again, if you've done your planning well and you've already, you know, you've got that

00:26:21.640 | half million tucked away in your 401k or million or whatever it needs to be, and you're sitting

00:26:28.840 | pretty good, I've done an analysis quite often where we say, "You know what?

00:26:33.520 | In order for you to be able to retire, you need to continue to save about 10 or 15% into

00:26:38.560 | your 401k, which you've been doing all along.

00:26:42.040 | And that works great.

00:26:44.480 | And you're on track.

00:26:46.600 | Now if you want to pay for all of college, we need another 1500 a month."

00:26:52.360 | And the parents look at each other and say, "Yeah, I just started a new job.

00:26:55.000 | I got a raise that covers that."

00:26:56.720 | Done, right?

00:26:57.720 | Now, it's just a matter of, we've got it.

00:27:00.560 | How do we do it efficiently?

00:27:01.720 | Should we use saving, you know, 529s or Coverdells or Roth IRAs?

00:27:08.640 | How are we going to, you know, let me get into the details.

00:27:11.360 | And doing that planning is important as well.

00:27:15.800 | But for the typical family that I'm seeing, I'm telling them things like, "Well, you need

00:27:20.000 | 1000 a month to make this work, or you need 1500 a month to make this work."

00:27:24.120 | You're at the high end and sometimes maybe it's, well, what you want to do is 500 a month.

00:27:30.240 | And if you can do your other goals and hit that nut, and again, it really boils down

00:27:36.120 | for most families is they say, "We're here.

00:27:38.800 | College is important."

00:27:40.240 | And I have to say things, "Well, is college as important as that $10,000 a year you spend

00:27:44.320 | on family vacations?"

00:27:45.320 | "Oh, college is much more important."

00:27:47.320 | "Okay, are you willing to stop the vacations?"

00:27:49.560 | "Well, yeah, probably.

00:27:51.080 | The kids are grown and gone and they're off doing their own things.

00:27:53.920 | So you know, a big family vacation is a thing of the past anyway, or it becomes a family

00:27:59.840 | camping trip or whatever."

00:28:01.400 | But yeah, from that standpoint, I think a lot of families, you know, I have a lot of

00:28:08.280 | examples.

00:28:09.280 | I think about the other day, I had a dad in my office, four kids.

00:28:13.880 | His oldest is a performing artist, wanted to get into New York, got accepted to NYU,

00:28:21.440 | did great, got lots of great scholarships.

00:28:23.440 | So the net cost for college was about $35,000.

00:28:26.640 | Now dad is looking at that and saying, "Well, $35,000 times four years, that's $140,000

00:28:33.720 | times four kids.

00:28:36.020 | That's a big number."

00:28:37.980 | And then we started talking about, "Well, if you do it for one, does that by definition

00:28:41.440 | mean you're doing it for all?"

00:28:44.200 | Maybe, maybe not.

00:28:45.200 | I mean, some parents say, "Well, we'll teach their own if they need more or less, that

00:28:48.560 | you know, we're not going to, doesn't have to be equal as far as dollar amounts."

00:28:53.400 | You know, we're going to, our idea of fair is different than that, and which is fine.

00:28:58.000 | You do it however you want, but it's got to be part of the plan.

00:29:00.760 | How are you going to be fair or do you even care if you're fair?

00:29:04.680 | You know, I've had parents say, "Well, this kid earned it.

00:29:06.480 | They've worked hard.

00:29:07.480 | This kid has never tried, never worked hard.

00:29:10.000 | You know, I don't care that they don't get as much as the one that has been going, you

00:29:16.720 | know, working hard at it."

00:29:19.000 | But that's again, kind of the scenario we're looking at is now in dad's situation, he was

00:29:23.920 | doing well at work and we were able to squeeze a couple thousand a month and with loans and

00:29:31.240 | everything and his current savings and investing, we could make the plan work.

00:29:35.560 | It would probably delay his retirement by three years.

00:29:39.040 | And he was good with that because it was within what he was willing to do to make it all happen.

00:29:45.240 | How would you decide, if I come up short for college, how would you decide if student loans

00:29:51.640 | are a good idea?

00:29:54.020 | And if we decide the student loans are a good idea, how would we decide whether it should

00:29:57.560 | be the parent borrowing money or the child borrowing money?

00:30:01.120 | Right.

00:30:02.680 | All right.

00:30:03.680 | So, and again, the families I'm working with are typically not qualifying for a lot of

00:30:08.800 | aid, although they do get some sometimes.

00:30:12.660 | But families need to realize that the student can typically only borrow 5,500 under the

00:30:17.900 | direct loan as a freshman.

00:30:20.340 | Any borrowing after that, mom and dad are involved.

00:30:23.980 | So these kids that are quote unquote graduating with hundreds of thousands of debt or a hundred

00:30:28.100 | thousand of debt, that was facilitated by parents or it was grad school or some of those

00:30:34.960 | types of things could cause that as well.

00:30:36.900 | You know, becoming a doctor or MBA, that type of thing is.

00:30:40.520 | But a typical undergrad can only borrow about $30,000 all in over four years.

00:30:48.440 | So anything beyond that, mom or dad has co-signed a loan or somebody has co-signed a loan, which

00:30:54.440 | in the private industry, private loans, or mom or dad have taken out a plus loan from

00:31:00.000 | the federal government.

00:31:02.400 | Or mom and dad are the bank somehow.

00:31:05.040 | They choose to take their own assets and lend them to the student or they choose to pay

00:31:09.520 | for college or mom and dad borrow the money on a home equity or from their 401k, which

00:31:15.560 | I'm not recommending.

00:31:16.560 | But somehow mom and dad raise the money provided to the student.

00:31:21.720 | And then mom and dad can say, here's the money you're going to pay us back.

00:31:25.380 | You can say, here's the money you're going to pay us back.

00:31:27.360 | Here's a contract to sign.

00:31:29.320 | Here's the money.

00:31:30.320 | We hope you pay it back, but we probably will never see it.

00:31:33.560 | You know, that's kind of the family dynamic that's often challenging.

00:31:40.280 | So that the reality of it is, is choosing the right loan.

00:31:44.520 | Kind of two questions.

00:31:45.520 | Are you trying to save the family money or the parents money as an example?

00:31:49.720 | So parents might be able to borrow on a home equity for three or 4%, which is a really

00:31:57.320 | good rate.

00:31:58.640 | However, that loan is now in the parent's name and they're responsible.

00:32:03.880 | Whereas if they co-sign a loan, maybe it's at 4% variable and likely to go up.

00:32:10.840 | But that interest is paid by the student.

00:32:14.280 | The loan is in the student's name and it's only going to cost the parents something if

00:32:18.520 | the student defaults and the parents have to step in and clean up the mess.

00:32:24.640 | So again, you look at it and say, well, I don't care if my student pays 12% for this

00:32:29.520 | loan because they're paying it.

00:32:30.680 | It doesn't cost me a penny.

00:32:32.320 | Now most parents are going to look at that and say that, you know, we want to protect

00:32:36.440 | our family and if that's what it's going to take, maybe we will consider using the home

00:32:40.620 | equity or some other way to get the cost down where they can.

00:32:47.680 | So that, I guess, is part of the process is who's going to pay the interest and are we

00:32:53.400 | worried about the family as a whole or are we worried about mom and dad's costs versus

00:32:57.720 | the student's costs?

00:33:00.840 | You wrote an article on your blog that I thought was excellent.

00:33:04.160 | It was the top 10 college planning mistakes.

00:33:08.120 | And about five of these I want to talk about for a moment with you because they're specifically

00:33:13.520 | financial and I think there are some interesting little radical strategies contained therein

00:33:20.200 | that my audience will benefit from.

00:33:21.920 | So your number one mistake that you listed was to assume that you won't qualify for need-based

00:33:28.560 | aid.

00:33:29.560 | Your point was that it's hard to know in advance whether you'll qualify for need-based aid.

00:33:34.360 | You've seen families with a high income qualify, as high as $250,000 qualify.

00:33:39.960 | But you've seen families earning $75,000 not qualify.

00:33:43.720 | And so you need to test it out with actual calculations.

00:33:49.480 | That one's relatively simple.

00:33:52.320 | But in your number two, you said the biggest second biggest mistake, starting your planning

00:33:56.520 | too late or not at all.

00:33:58.280 | And you point out that the base year for financial aid calculations starts in the middle of the

00:34:06.240 | junior year of high school.

00:34:09.020 | And so there might be things that you need to do in sophomore or early junior year before

00:34:13.080 | that base year starts.

00:34:14.240 | Talk about the base year and why that date is important.

00:34:17.760 | So the base year is the year that they use, and it's the tax year that they use to calculate

00:34:24.440 | how much aid you're going to qualify for.

00:34:27.420 | So that base year, you want to behave.

00:34:31.280 | So you don't want to do anything that would artificially inflate your income.

00:34:35.600 | And that would be things like selling assets at capital gains or selling a rental property

00:34:41.360 | or taking bonuses at work or exercising stock options, adjusting what you put into your

00:34:50.080 | 401(k) could have an impact depending on the type of investment.

00:34:53.920 | So there's things that cause your income to go up or down, and you want to do that consciously.

00:35:00.520 | Now another important thing to realize is since that article has been written, they

00:35:04.480 | actually change when the base year is.

00:35:07.000 | They have what's called the new prior prior rules.

00:35:10.440 | So that means a typical family, the tax year that they're going to use for your first year

00:35:15.720 | of college starts in the middle of your sophomore year of high school and goes through the middle

00:35:20.240 | of your junior year of high school.

00:35:23.000 | So that's so as an example, if you have a student starting college in 2017, so they're

00:35:30.120 | a rising senior, you're going to be filling out financial aid using 2015 taxes.

00:35:37.360 | So it looks back a long ways.

00:35:40.980 | So now it's even more challenging that you do what you need to do in order to make it

00:35:46.680 | work out.

00:35:47.680 | So the idea here, because I see some potential for a segment of my audience with this knowledge,

00:35:55.240 | and it does get complicated with the fact that you're saying two years.

00:35:57.360 | The idea is in this year, if we can lower our income to the maximum amount that's tenable,

00:36:06.600 | we will look on paper as though we are more needy and this will help the need-based financial

00:36:13.120 | aid calculations to come out in our favor.

00:36:16.400 | This could be a substantially high benefit if you just calculate – let's say you're

00:36:22.200 | going to get a need payment of $20,000 per year over four years.

00:36:27.680 | This could be a very high offsetting amount.

00:36:30.040 | So a couple of questions to clarify.

00:36:32.940 | This prior, prior year, are these calculations done one time or are they done each year while

00:36:38.640 | the student is going through college?

00:36:40.240 | Yeah, they're done each year, so they continue to look back.

00:36:44.080 | So the first year would be that tax year.

00:36:48.320 | So again, if you have the senior, they're going to be using 2015 taxes.

00:36:50.800 | But in the next year, you're going to do it all over again using 2016 taxes and then 2017

00:36:55.480 | and then 2018.

00:36:57.400 | But a big advantage to that now is you'll use your 2018 taxes to calculate aid for your

00:37:05.600 | senior.

00:37:06.600 | So 2019 taxes will never be seen, assuming you don't have other students and they're

00:37:11.280 | going to graduate in four years.

00:37:12.880 | But 2019, now the colleges are never going to see.

00:37:17.120 | And in 2019, your student is still only a sophomore or junior.

00:37:22.160 | So in that year, that would be the year where you could blow things up, where you don't

00:37:25.520 | see anything.

00:37:26.520 | So that's the year that grandma gives you money.

00:37:28.720 | That's the year that you exercise some stock options.

00:37:31.640 | That's the year that, you know, that you can increase your income, have it available for

00:37:37.600 | college, but it's not going to show up on any forms because you're not ever going to

00:37:42.720 | have to fill out financial aid again.

00:37:45.400 | And these, the data here, we're talking about the data that's going to go on the FAFSA.

00:37:52.000 | Is that correct?

00:37:53.000 | That's correct.

00:37:54.000 | And/or the CSS profile.

00:37:55.000 | So there's two financial aid forms out there.

00:37:58.080 | Okay.

00:37:59.080 | The FAFSA, the Free Application for Federal Student Aid, and then CSS.

00:38:01.640 | Does that have an acronym that I should know?

00:38:04.040 | It does.

00:38:05.040 | It's like IBM.

00:38:06.040 | I don't remember what it is.

00:38:07.040 | It's a company, college something, data service or something like that.

00:38:11.400 | Now, what is counted as income?

00:38:14.080 | Is it using the adjusted gross income number from the tax return?

00:38:17.500 | What is it counting?

00:38:18.500 | All right.

00:38:19.500 | Well, now we're getting into some technicalities.

00:38:21.120 | So the FAFSA looks at your adjusted gross income, which is the bottom of the first page

00:38:25.920 | of a typical 1040, and then they add back in certain types of untaxed income.

00:38:31.520 | So they would add back in, as an example, contributions to 401(k)s.

00:38:36.480 | So if you've got a family earning $50,000 a year and they choose to put 10,000 in their

00:38:41.760 | 401(k), it's not going to help them when it comes to aid because what they do is that

00:38:46.880 | the government says, "Well, what's your AGI?"

00:38:48.880 | And it's going to be 40 because of the contributions.

00:38:52.720 | But then you say, "But what did you contribute to 401(k)?"

00:38:54.960 | That you're going to say 10,000, and they're going to add it back in.

00:38:57.600 | So you're right back to 50 where you were.

00:39:00.920 | So contributing to retirement doesn't help or hurt you when it comes to aid for the typical

00:39:08.280 | family.

00:39:09.280 | But they do add that back in.

00:39:11.320 | The other things they would add back in are things like child support that often families

00:39:15.040 | receive tax-free because the other parent pays the taxes, and things like investment

00:39:20.760 | income that's tax-free, like municipal bonds, disability payments, a few things like that.

00:39:25.600 | So they try and capture all your income, whether it's taxed or not.

00:39:30.200 | And then they also look at the assets of the family.

00:39:34.760 | So let's come to assets in a moment.

00:39:35.760 | But as far as income, so if I wanted to skirt this, and it's hard when you get into multiple

00:39:41.000 | kids because we're talking about a planning scenario where you're trying to reduce your

00:39:45.640 | income on paper for multiple years while your student is in college.

00:39:49.800 | And if you have multiple kids, this could be just not practical.

00:39:54.320 | But it's kind of a fun thought experiment.

00:39:56.640 | So the first thing that occurs to me is, number one, if I'm a radical personal finance hardcore

00:40:03.440 | person who's saving a lot, and if I've got plans for, say, a mini retirement, then it

00:40:09.480 | would be really good to line up my mini retirement with these years that these financial aid

00:40:14.160 | calculations are going to be done if college is important to me, just to naturally reduce

00:40:19.240 | the income.

00:40:20.560 | And that would be the time to plan that round-the-world sailing adventure, or whatever the appropriate

00:40:25.160 | version is for your life.

00:40:27.480 | As far as income that's not countable, the big one that stands out to me is debt.

00:40:31.760 | If I can structure debt income and pay my bills from debt, whether that's, say, a real

00:40:38.000 | estate transaction, refinancing a mortgage, something like that, then that will not be

00:40:42.720 | reflected under my AGI number.

00:40:45.880 | But yet, taking out debt is still money that I could use to pay my bills and fund my lifestyle.

00:40:52.960 | Can you think of any other creative strategies that we could use to still be able to fund

00:40:57.120 | our life without having it reflected there on that FAFSA AGI number?

00:41:01.600 | Right.

00:41:02.600 | Well, I mean, you can just use your assets, too.

00:41:04.080 | If you have built up $20,000 in the bank, and then you're just going to bleed that down

00:41:09.840 | instead of having income.

00:41:11.320 | So yeah, a lot of small business owners and people that have control over their tax forms

00:41:19.060 | and their income can do some things that are relatively creative.

00:41:24.680 | So I've seen small business owners buy a lot of equipment and drive their income down.

00:41:29.360 | You know, so another recommendation in your situation is to pick the years where you have

00:41:34.260 | two kids in college and say, "Well, those years, I'll get double the benefit for having

00:41:38.960 | low income.

00:41:39.960 | So those are the years I'm going to focus on."

00:41:42.400 | And maybe use the other times to spend whatever else is going to count or whatever it might

00:41:49.080 | be.

00:41:50.080 | So that would be another tactic that we use a lot is a lot of times with one kid in school,

00:41:55.120 | it's not going to make much difference if you do your financial aid planning.

00:41:59.200 | But if when you have two or three in school, that's the year you really want to focus on

00:42:02.560 | because you're going to put that number on three different financial aid forms and you

00:42:06.880 | could potentially get benefit three times.

00:42:09.120 | Now you said the FAFSA is different than the CSS.

00:42:13.520 | Right.

00:42:14.800 | So the CSS profile is operated by the more prestigious schools.

00:42:19.520 | As the government makes the FAFSA easier to complete and they make, you know, there's

00:42:23.360 | less data on it and it's just getting easier and easier.

00:42:27.200 | The colleges that hand out substantial scholarships want more information to verify that if they're

00:42:33.760 | going to give you, you know, 30,000 a year times four years in scholarships, that you

00:42:39.040 | in fact deserve it from a financial standpoint.

00:42:42.500 | So you know, things like your real estate are not on your FAFSA.

00:42:51.360 | Small businesses under 100 employees don't show up on the FAFSA.

00:42:56.080 | A number of things like that.

00:42:57.200 | Whereas the CSS profile asks about all those things and it asks about your retirement plans

00:43:01.840 | and they want to know if you've got a 50 million dollar IRA, which you would never show up

00:43:08.080 | on a on the FAFSA.

00:43:10.600 | Whether or not they would count it against you is a different question, but they at least

00:43:12.800 | want complete data.

00:43:14.120 | So they can choose on a subjective basis how they're going to count the assets?

00:43:20.800 | Well the FAFSA...

00:43:21.800 | On the CSS, I mean.

00:43:22.800 | Yeah, the FAFSA has federal rules, federal guidelines.

00:43:25.760 | They have to do it the way they want, the way the government says it has to be done.

00:43:30.620 | When it comes to Harvard offering aid, they can do whatever they want.

00:43:34.640 | It's their money.

00:43:35.640 | They can say, "I like you."

00:43:37.040 | And as long as they're not discrimination with the official discrimination rules, you

00:43:42.120 | know, they can say, "We like redheads."

00:43:43.320 | And since redheads is not a protected class and they say, "I give a thousand dollars to

00:43:48.240 | every redhead," that's fine.

00:43:49.680 | I mean, they can't, again, minority status and disability and those types of things,

00:43:53.040 | they can't break those laws, but they can do it however they want.

00:43:57.400 | I mean, it's their money.

00:43:59.640 | And now from a practical standpoint, although they can do it however they want, they want

00:44:05.760 | to make it look like at least that they're, as they're handing out the money, they're

00:44:09.160 | doing using some sort of system.

00:44:12.320 | They don't just want it willy-nilly because then that gets to be the political problem

00:44:15.720 | of, "Well, you know, this guy got more than I got and it's not fair and you're discriminating."

00:44:21.280 | And, you know, from a long-term viability, they don't want to get into the, like they're

00:44:27.840 | selling used cars and some of those types of things as well.

00:44:31.040 | So, the other planning idea, and I want to see if it would be invalidated on the CSS,

00:44:37.720 | the other planning idea of the way that you decrease your income in order to get aid is

00:44:43.360 | to focus on building a capital asset during the years that you need a low income.

00:44:48.040 | And so that could be as simple as somebody who's handy moving into a fixer-upper, they

00:44:52.720 | buy it cheap and they spend their time increasing the value of that asset by working on it during

00:44:59.400 | the years that they, or year that they need to show a lower income.

00:45:03.520 | That increase in the value of the capital asset is not going to be reflected on an income

00:45:07.960 | number or this would be a good time where you're going to start your business.

00:45:12.060 | And so your business has a very low value in the beginning, but you're pouring yourself

00:45:15.360 | in to building it as a capital asset, thus you're having a low income.

00:45:19.400 | So what you're saying though is that capital assets are more capturable by the CSS data

00:45:26.680 | than by the FAFSA.

00:45:27.960 | Is that accurate?

00:45:28.960 | Yes.

00:45:29.960 | Okay.

00:45:30.960 | That is in general accurate.

00:45:32.780 | Even on the, both the FAFSA and the CSS profile would count anything beyond your primary residence.

00:45:41.320 | So if you had a rental property or apartment buildings and that kind of stuff, that would

00:45:44.920 | be the net value of that would be applicable.

00:45:48.280 | How is the primary residence counted on these forms?

00:45:51.600 | So the primary residence for FAFSA is not included at all.

00:45:57.400 | They don't care about the value.

00:45:58.640 | They don't care about the debt.

00:45:59.640 | They don't care about the big mortgage payment.

00:46:02.040 | They don't care about the equity.

00:46:03.040 | So none of that shows up.

00:46:04.920 | Whereas on the CSS profile, you report it all.

00:46:07.120 | They want to know what you paid for it when you bought it, what it's worth now, how much

00:46:10.120 | do you owe on it.

00:46:12.040 | Now what the colleges do with that data is a case by case basis.

00:46:16.000 | Some colleges say we're just going to count it as an asset, the net value of your real

00:46:20.160 | estate.

00:46:21.160 | Others, you know, especially that California colleges where there's people that are sitting

00:46:25.840 | on tiny little homes worth a million and a half and they can't borrow that money because

00:46:31.040 | they can't afford the repayments on it.

00:46:32.640 | I mean, they have this huge asset, but they can't tap it in any way.

00:46:38.240 | So some of the California schools will say, well, we'll limit your, you know, that asset

00:46:42.880 | to two times your income.

00:46:45.060 | So if you're only earning 75,000, but you happen to have that paid off house that you

00:46:48.840 | bought 50 years ago or 30 years ago, and it was in a great neighborhood and you got lucky,

00:46:55.320 | we're not going to count it against you up, you know, except for up to two times your

00:46:58.440 | income.

00:46:59.800 | Other colleges, they count the whole thing.

00:47:02.040 | And so, and that's a case by case.

00:47:04.840 | Again, with the CSS profile, you fill out the data and the colleges use the data however

00:47:11.240 | they want.

00:47:12.240 | And they typically would use some sort of formula, but some colleges, you know, around

00:47:16.560 | the edges, they all do it similar.

00:47:18.960 | But you know, some will include your home equity, some won't.

00:47:21.560 | Some will do this with your business, some will do that with your business.

00:47:25.540 | And what they actually do is not even published or, you know, not knowledge necessarily.

00:47:31.760 | They don't have to disclose how they came up with their calculations.

00:47:34.600 | But the CSS is only used by higher end schools, you said.

00:47:37.640 | Right.

00:47:38.640 | There's about 300 colleges, the name brand schools, you know, the Harvard and Yale's

00:47:41.920 | and Stanford and Notre Dame and Harvey Mudd and et cetera, et cetera.

00:47:46.600 | So if someone were trying to plan for, say, state school, you know, local, well regarded

00:47:52.760 | state school that's strong in their area, probably the CSS wouldn't be reflective.

00:47:58.500 | So they could use some of these planning ideas in order to generate a higher amount of federal

00:48:04.060 | aid credits.

00:48:05.060 | Correct.

00:48:06.060 | That's great.

00:48:07.060 | Yes.

00:48:08.060 | I like it.

00:48:09.060 | Next one on your list, number three, biggest mistake is putting assets or savings in the

00:48:13.100 | student's name.

00:48:14.100 | So explain here how people get this one wrong.

00:48:16.940 | Right.

00:48:17.940 | So as I mentioned, financial aid in general, there's five major factors.

00:48:22.140 | It's income and assets of mom and dad, income and assets of the student, and the number

00:48:28.420 | of students that the parents are supporting.

00:48:31.420 | And this is all predicated on the typical 18 year old going off to college after high

00:48:36.060 | school.

00:48:37.060 | If you're a returning student or, you know, 40 year old returning or whatever, the rules

00:48:40.940 | are different.

00:48:42.180 | But for the typical parent dealing with a 18 year old student, those are the five factors

00:48:47.280 | that have the biggest impact.

00:48:49.380 | Now a lot of times the student assets are zero and the student income is zero or nearly

00:48:54.300 | enough that it doesn't really have much of an impact.

00:48:56.340 | So now you're really dealing with mom and dad's income and assets and the number of

00:49:00.940 | students.

00:49:01.940 | And then occasionally parents over the years have put assets in the student's name.

00:49:08.620 | In the past it was done for tax benefits, but those benefits have gone away, but we

00:49:12.100 | still see the accounts out there.

00:49:13.460 | So it's called an UGMA or an UTMA account would be typical or maybe a bank account with

00:49:19.340 | the student's name or the student gets an inheritance from grandma or grandpa or something

00:49:24.120 | where they now have substantial assets in their name.

00:49:28.180 | In any of those cases, they assess student assets much more heavily than parent assets.

00:49:35.580 | So parent assets are assessed on a sliding scale up to about five and a half percent.

00:49:40.780 | So if you have a hundred thousand dollars in the parent's name, the biggest impact it'll

00:49:45.660 | have is 5,500 reduction in aid.

00:49:50.640 | If you had that same hundred thousand dollars in the student's name, it's assessed at 20%.

00:49:55.020 | So that's going to have a $20,000 swing in aid.

00:49:59.780 | So that's a $15,000 difference.

00:50:03.040 | So if you can, you get that student asset to zero.

00:50:07.360 | So depending on what it is and how it's structured, you know, if it's parents putting money into

00:50:11.780 | the student's name on purpose, we'll stop it and reverse it.

00:50:17.020 | Start using that money for student expenses and other things.

00:50:21.140 | I had a grandmother pass away and leave the student about $250,000.

00:50:29.980 | That student was accepted at Northwestern and mom's single and earning a decent living,

00:50:35.740 | but it's 65,000, something like that, but not great by any means.

00:50:42.600 | And because he was accepted at Northwestern, which will help that school meets a hundred

00:50:46.800 | percent of your needs.

00:50:47.800 | So if you demonstrate need, they've got a scholarship for you.

00:50:50.480 | Well, because of that $250,000 in a trust, he's the beneficiary labeled for college,

00:50:57.560 | essentially.

00:50:58.560 | We had to report it and he essentially got zero aid.

00:51:01.680 | He spent $250,000 of his inheritance on college.

00:51:05.720 | Could he have disclaimed it?

00:51:09.360 | Perhaps, I don't know if there was a contingent or where it would have gone.

00:51:14.120 | I wonder where it would have gone.

00:51:17.280 | But that was heartbreaking.

00:51:18.280 | Yes, that's water under the bridge.

00:51:20.200 | Had that money been in mom's name, it still would have counted against us.

00:51:24.040 | But because of the difference in the formulas, he might have been eligible for $10,000 or

00:51:27.960 | $20,000 in scholarships each year.

00:51:32.160 | So I mean, you spend half of it instead of all of it.

00:51:35.760 | Are there some assets that are generally not reflected on, that some people have that are

00:51:41.320 | generally not reflected either for the student or for the parent?

00:51:45.360 | Yes.

00:51:46.360 | So not all assets are counted against you.

00:51:49.000 | And the major categories that do not count would be, and we've already talked about home

00:51:53.000 | and home equity.

00:51:54.000 | So that's out on the FAFSA, maybe on the CSS, just depending.

00:51:59.060 | But also in general, most colleges will not count retirement against you.

00:52:02.920 | So your 401(k)s, IRAs, Roth IRAs, pensions, profit sharing.

00:52:07.320 | How about retirement accounts for the child?

00:52:10.000 | Same thing.

00:52:11.000 | They're out.

00:52:12.000 | Now, most students don't have it because you need to have earned income in order to have

00:52:15.280 | money in a retirement plan.

00:52:17.680 | But yes, I have had.

00:52:18.840 | That's a strategy that we use quite often, where if a student is working part time, their

00:52:24.960 | Roth IRA gets funded to the maximum that they can when we have extra cash flow.

00:52:31.560 | So yes, so most retirement is out.

00:52:36.480 | Another big category is small business.

00:52:38.240 | We've already talked about that.

00:52:39.280 | Small businesses generally don't count.

00:52:40.600 | As long as there's less than 100 employees and more than 50% owned by the family.

00:52:46.660 | So you can exclude, you know, the typical doctor's and dentist's office and the realtors

00:52:51.400 | and the small manufacturers and the restaurants and all those types of things.

00:52:55.480 | So the entire business, the business investment accounts, all that stuff is out.

00:52:59.760 | So anything that's part of the business, the working capital, etc.

00:53:05.800 | Annuities and life insurance generally are out.

00:53:10.960 | They're not considered an asset.

00:53:13.280 | Now I'm sure you've had life insurance shows in the past, but there is, you know, on a

00:53:20.040 | side, there are life insurance agents out there that will sell you life insurance and

00:53:23.840 | tell you that's a great way to plan for college.

00:53:27.220 | That strategy does work, but it works in very limited cases.

00:53:30.340 | I've, you know, I've helped about 180 families now directly plan and I've used life insurance

00:53:37.060 | three times, I think.

00:53:38.420 | I could never get the policies to, I could never get the return high enough on child

00:53:44.120 | policies to make it work and make sense from the perspective of using the life insurance

00:53:49.740 | policy as the funding vehicle.

00:53:53.500 | I always wound up, and I think they, I mean, I guess in theory it's possible and I never

00:53:59.740 | researched this to the extent where I could find it, but I heard that some life insurance

00:54:04.340 | companies were offering policies that were specifically designed for it.

00:54:08.660 | But for whatever reason with the mortality tables, I could never get a life insurance

00:54:12.380 | policy to show enough return, you know, over even 18 years to make it worth it.

00:54:20.060 | But that didn't mean that the life, but where I went to in a few situations was to say,

00:54:25.660 | "Okay, consider the life insurance policy as a component, but plan it so the premiums

00:54:31.140 | disappear.

00:54:32.940 | And if you're funding it heavily, just plan it so you don't have life insurance premiums

00:54:37.020 | during those years and then pay for the college out of earned income, pay the expenses out

00:54:44.060 | of earned income.

00:54:45.280 | Then you've got some of the assets sheltered aside and you need more than 18 years for

00:54:49.660 | that asset to make it worth it, but you've hidden it to some degree on the financial

00:54:54.940 | aid forms and then you can make up the difference in cash flow."

00:54:59.100 | That was the best way that I could see to use them around that.

00:55:02.740 | Do you have additional ideas surrounding using life insurance?

00:55:06.380 | Yeah.

00:55:07.380 | So in general, where I've seen it work too is it has nothing to do with the child policies.

00:55:11.740 | The child policies almost never work that I've ever seen.

00:55:15.660 | In my opinion, they're a complete waste of money because yes, it would be terrible if

00:55:21.140 | a child died, but economically there's no real good reason to have life insurance.

00:55:29.700 | Where I've seen it work is where we're putting quite literally hundreds of thousands of dollars

00:55:33.420 | into a large contract on mom or dad who already have a need for two million of insurance and

00:55:40.820 | we're sheltering huge sums.

00:55:43.100 | And then when you look at the fixed costs of a policy, a typical policy might have a

00:55:46.820 | hundred dollar policy fee and a $5 a month this and a $2 a month that, premium taxes.

00:55:55.380 | So if you're spending a couple hundred or a couple thousand dollars in fees and you

00:55:59.980 | only have 10 or 15,000 in the policy, it eats the policy alive.

00:56:05.420 | When you've got a half million and you're spending a couple thousand dollars, now you're

00:56:09.000 | spending a half a percent of the policy value and that's where I see it works.

00:56:14.880 | But now you've got a major asset that you really need to understand and manage because

00:56:22.100 | it can blow up on you.

00:56:23.980 | It's not as simple as a basic mutual fund portfolio or something like that.

00:56:27.860 | You've got to make sure that you have the right types of insurance and you don't break

00:56:32.060 | the tax rules and all that kind of stuff.

00:56:34.820 | But again, for the high end estate planning or those types of things, that's where I've

00:56:40.320 | seen insurance work well is the bigger dollar amounts.

00:56:46.440 | I'm going to put in $5,000 a year for the next 10 years.

00:56:50.200 | Use a Roth IRA.

00:56:51.200 | Right, right.

00:56:52.200 | It's simpler.

00:56:53.200 | Right.

00:56:54.200 | It's simpler, it's cleaner, it doesn't have all the overhead expenses and then just buy

00:56:57.280 | some term insurance.

00:56:58.280 | Yeah.

00:56:59.280 | I do think, by the way, on life insurance, I think parents, especially if they're funding

00:57:04.540 | their children's college, I think parents should all buy a term insurance policy on

00:57:09.560 | their 18-year-olds of at least a couple hundred thousand, $100,000, $250,000, something like

00:57:14.840 | that in case their child dies during college or at an older age.

00:57:20.360 | Setting aside the fact that most people have a difficult problem with that emotionally,

00:57:24.940 | do you agree with me on that piece of advice?

00:57:26.880 | Well, yeah, especially if you're cosigning loans, you need to understand what the loan

00:57:32.120 | provisions are.

00:57:34.840 | I know federal loans typically are forgiven if the student dies and it's in the student's

00:57:39.400 | name.

00:57:40.400 | So you don't have to worry about those loans.

00:57:44.960 | And under disability, they're also forgiven potentially.

00:57:49.160 | But it's the private loans, you have to read the contract and really understand, well,

00:57:52.560 | what happens at death and disability.

00:57:54.960 | And you know, to that exact example, right, you have a student that graduates from college

00:58:01.560 | and one year into their life that after college, they get hit by a bus and now who pays back

00:58:06.720 | the loans that they're no longer earning money to pay back, etc., etc.

00:58:12.480 | And yeah, you might want to get some and it would be very low cost on a young, healthy

00:58:16.680 | person.

00:58:17.680 | Yeah, I mean a young male or female, 18 years old, a couple hundred thousand dollars, especially

00:58:21.840 | if you get something like annual renewable term and we're talking $150, $200 a year for

00:58:27.040 | a couple hundred thousand dollar contract.

00:58:29.120 | I mean, it's pretty negligible.

00:58:32.360 | By the way, Brad, do you ever feel bad for the bus drivers that are always hitting all

00:58:39.240 | these people?

00:58:40.240 | I don't know.

00:58:41.240 | I guess I never thought of it that way.

00:58:44.440 | I feel bad for bus drivers that we're always insulting their driving abilities, referring

00:58:50.440 | to all the people they're hitting with their buses.

00:58:53.080 | Excuse me, I couldn't resist.

00:58:56.120 | Next thing on your list, number four, we covered number four, which is increasing parent income

00:59:01.200 | in the base year.

00:59:02.200 | We talked about that enough.

00:59:03.760 | One point you made here that I think is important that when you're trying to adjust your income,

00:59:09.400 | you only want to adjust the income that you can adjust without the fear of losing it.

00:59:13.920 | So when do you actually have constructive receipt of the asset?

00:59:18.040 | Sometimes there are ways if you control your own – and you can't do this when you have

00:59:21.800 | a salary, but if you have a business or you're timing a real estate transaction or something

00:59:26.640 | like that, those are the things you want to control.

00:59:29.400 | You point out that if you're going to receive a $20,000 cash bonus, you just take the cash.

00:59:34.760 | Much more value to have $20,000 in the bank than to give up five and a half percent of

00:59:38.360 | that as far as a student aid credit.

00:59:41.480 | But I think that was a good point.

00:59:42.880 | But let's go on number eight.

00:59:43.880 | Well, let me just read number five, failing to plan for the cost of college, relatively

00:59:48.240 | self-explanatory that you need to actually plan with it.

00:59:51.120 | Number six, overuse of college savings plans, getting too much money in there.

00:59:55.840 | Number seven, missing financial aid deadlines.

00:59:57.960 | It can be very expensive to miss that.

01:00:03.680 | Number eight is one of the other two that I want to focus on, which is neglecting your

01:00:07.960 | debts.

01:00:09.080 | Your point here is consumer debts such as credit cards and car loans are not reported

01:00:14.320 | for financial aid, but bank accounts, savings accounts are counted against you.

01:00:19.300 | So sometimes you might want to go ahead and reduce your assets by paying down your debts.

01:00:23.840 | Expand on this, please.

01:00:24.840 | Yeah, and that's right.

01:00:26.720 | I mean, they will count any asset, but they don't generally count any of your consumer

01:00:33.200 | debt.

01:00:34.200 | So if a debt against a specific asset like a home, then you can net that out for like

01:00:38.080 | rental property.

01:00:39.080 | But if you just have credit card debt or a boat loan or something, they don't count the

01:00:42.760 | boat as an asset and they don't count the debt as a negative towards your net worth

01:00:51.200 | either.

01:00:52.200 | So what you may want to do, again, if you've got $100,000 sitting idly in the bank earning

01:00:57.160 | zero percent and if you pay off those loans, will you get more aid?

01:01:02.760 | If the answer is yes, then you go ahead and do it.

01:01:05.860 | But all of this planning that we're talking about as a quick caveat here is generally

01:01:11.100 | you don't want to do something that doesn't make sense.

01:01:14.820 | I mean, I can say this correctly.

01:01:18.060 | So if you're going to make a financial transaction and it makes sense for tax purposes or retirement

01:01:23.420 | or all those things, and it'll benefit you for college, great, go ahead and do it.

01:01:28.620 | If on the other hand, you're going to do some transactions with the sole goal of getting

01:01:33.140 | more aid, as an example, you need to make sure that after it's all done, that you in

01:01:38.060 | fact will deliver on that aid.

01:01:40.220 | Because I've seen a lot of families where you can increase your eligibility for aid

01:01:45.060 | and not get any benefit or only get a loan that you didn't want anyway.

01:01:49.980 | So as an example, I've had families going to a state school, their EFC comes in at $15,000,

01:01:56.700 | so their actual financial aid...

01:01:58.540 | - EFC is their expected family contribution.

01:02:00.300 | - Correct.

01:02:01.300 | So their actual need or financial aid that they need is $10,000.

01:02:05.660 | And a typical state school is going to say, "Yes, you need $10,000.

01:02:08.740 | Unfortunately, all we can offer you is that $5,500 loan that we've been talking about."

01:02:14.300 | Now you go through a bunch of hoops and you rearrange your assets and you increase your

01:02:18.780 | need from $10,000 to $15,000, you get the same answer from the school.

01:02:23.500 | It's like, "Yes, you need $15,000, but all we can give you is that $5,500 loan that,

01:02:29.220 | you know, the direct loan."

01:02:31.440 | So nothing changed, although you went through the effort of, you know, planning and increasing

01:02:37.220 | your need.

01:02:39.060 | So if you're going to go through the planning and increase your need, you need to be reasonably

01:02:43.660 | sure that it's going to provide some benefit if that planning is going to cost you something,

01:02:49.060 | right?

01:02:50.060 | If you shuffle assets around and pay off your debts and now you have less flexibility or

01:02:55.780 | there's a negative to that, now you're trying to compare the negatives of what you did to

01:02:59.980 | the positives.

01:03:01.460 | And if you say more financial aid is in the positive column and you're wrong, well, then

01:03:05.660 | maybe you shouldn't have done whatever it is you did.

01:03:07.620 | Right, right.

01:03:08.620 | I think it's a valuable point and I appreciate you making it.

01:03:11.380 | And then to add to it, you also still have to make sure that the use of the time and

01:03:16.180 | the money in the first place is best spent on college and is best spent on this particular

01:03:21.100 | school.

01:03:23.620 | What's the opportunity cost for the student going to this school?

01:03:26.300 | Are you rearranging things when in reality it might be better off to just give the student

01:03:30.420 | $10,000 and say, "Here, you should invest this in yourself some way and if you want

01:03:34.380 | to use it for college, do it or don't."

01:03:37.300 | But you don't want to engage in creative planning without benefit.

01:03:43.060 | It's just for those circumstances, for those people who are in a situation like this, then

01:03:48.140 | some of these creative ideas could potentially be employed in advance if they are certain

01:03:52.820 | on what their goals are, which is where we started with what are your goals.

01:03:56.380 | Right.

01:03:57.380 | And to clarify again, planning kind of falls into three categories.

01:04:00.700 | There's planning you can do that it's just a net benefit no matter what, right?

01:04:04.620 | Even if the college falls through or whatever it might be, getting your debt in order, you

01:04:09.540 | know, saving for retirement, those types of things are going to help no matter what.

01:04:13.180 | So it doesn't, you know, it's not just for college that you're doing it.

01:04:17.500 | And then you have planning that's around college.

01:04:22.940 | But you've got it nailed down.

01:04:25.080 | You know the school you're going to attend, you know what it's going to cost, you know

01:04:28.060 | how the aid works, and you know that if you do this, you'll get that.

01:04:33.400 | And that's where I spend a lot of time again working with parents of high school students

01:04:37.060 | where colleges, it's not a should we go to college or it's which college are we going

01:04:44.740 | to and how are we going to pay for it.

01:04:46.460 | The college decision is already done.

01:04:48.180 | It's going to happen.

01:04:49.180 | Right.

01:04:50.180 | Now, how do we do it in the most cost-effective way?

01:04:53.340 | Right.

01:04:55.220 | So I think that's important that, you know, and once you land on a particular path, just

01:04:59.900 | like, you know, people might say that, I don't know, a vacation home is a good deal or a

01:05:04.500 | bad deal, doesn't matter.

01:05:05.660 | If you're going to do it, now figure out how to do it in the best way.

01:05:10.020 | In the best way.

01:05:11.020 | Right.

01:05:12.020 | Right.

01:05:13.020 | So one just very simple example that came to mind with using this debt principle, consumer

01:05:18.180 | debt can certainly be considered, you know, for a simple way to utilize that is if you

01:05:23.860 | have $20,000 sitting in the bank and you have $20,000 in a car, assuming you can't leave

01:05:30.060 | yourself in a cashless position, but you also have a car payment, if you can use that to

01:05:35.660 | pay off the car as a capital asset, you clear the $20,000 from your bank account and you

01:05:40.700 | eliminate a car payment, which allows you to lower your income and be able to get by

01:05:45.180 | with a lower income because you've cleared out the need for that income.

01:05:49.900 | That would be one simple way that in some circumstances could be approached.

01:05:54.420 | Or another one, Brad, what about I have a mortgage, I have lots of cash in the bank,

01:06:00.060 | let me go ahead and just move the cash, pay off the mortgage, and then I'll go ahead and

01:06:03.940 | just set up a line of credit on the house so that I still have access to some of that

01:06:07.660 | liquidity if I need to by being able to pull from the equity.

01:06:11.340 | But because it's going into my primary residence and because I'm getting rid of cash, that

01:06:15.340 | could for some people make a big difference or at least make some difference in their

01:06:19.220 | form.

01:06:20.220 | Are those good examples?

01:06:21.220 | Yes, absolutely.

01:06:23.580 | And then allocating debt between your primary residence and your rental property as an example.

01:06:29.020 | So explain that one.

01:06:30.620 | Well again, on the FAFSA, they don't care about your home, your home equity, or your

01:06:34.500 | debt.

01:06:35.500 | So you can have a paid-off home and it's not counted against you.

01:06:38.940 | You have a paid-off rental property and it's very much counted against you.

01:06:42.100 | So if you're going to owe $200,000 on a mortgage and you get to pick which property it's going

01:06:47.980 | to be on, well, put it on the rental property from a college perspective.

01:06:51.740 | Yeah, that's a great point because generally I would go the other way.

01:06:54.140 | I'd rather have the debt on my mortgage and have my rental property clear.

01:06:56.820 | I mean, obviously, to look at the specific financing terms, but that's a good point that

01:07:02.620 | if you have the choice, you're looking at college coming up, now might be a good time

01:07:06.140 | to adjust your portfolio a little bit, clear off the mortgage on your primary residence

01:07:11.860 | and move the debt over to the rental property.

01:07:14.540 | Great example.

01:07:16.500 | Number nine biggest mistake, poor communication with the schools.

01:07:19.940 | I find this is one I think that affects many people.

01:07:23.740 | Poor communication with anybody.

01:07:24.940 | It costs people a lot of money.

01:07:26.540 | In general, if you just pick up the phone and call people or communicate, you can usually

01:07:30.860 | get better deals on many things.

01:07:33.140 | So good point.

01:07:34.140 | Number 10, reporting your retirement plans as an asset.

01:07:37.840 | And so again, just to emphasize this, you write that you're not required to include

01:07:41.780 | any sort of retirement plan as an asset when you fill out financial aid forms.

01:07:47.100 | It's not made very clear on the actual form and many people make this mistake, often inflating

01:07:51.100 | their assets by hundreds of thousands of dollars unnecessarily.

01:07:55.420 | Expand on that, please.

01:07:56.820 | Right.

01:07:57.820 | So, every year, I find myself cleaning up after someone that tried to do it themselves

01:08:04.500 | and then things blew up and they're trying to figure out what went wrong.

01:08:08.660 | And a lot of times what I see is someone's, there's three blanks on the FAFSA.

01:08:12.500 | What do you have in the bank?

01:08:13.780 | What are your investments worth?

01:08:14.900 | And what is your business or farm worth?

01:08:17.540 | So people, again, if you don't spend the time to understand what you're getting into, people

01:08:22.660 | will say, well, geez, I've got a million dollars in all my retirement plans, so I'll put a

01:08:26.140 | million dollars in that blank.

01:08:27.940 | And guess what?

01:08:28.940 | And all of a sudden you don't get any aid, pretty much no matter what.

01:08:32.340 | And it's because you took an asset that didn't belong there and reported it and it was counted

01:08:36.300 | against you.

01:08:38.100 | So I see that a lot where people will put assets in the wrong spot.

01:08:45.500 | And again, it's not hard per se.

01:08:47.780 | It's kind of like taxes, the devil's in the details.

01:08:50.780 | You got to pay attention and make sure you understand what you're doing and do it properly.

01:08:55.660 | And that type of mistake can greatly inflate things.

01:09:00.420 | And I've seen it probably a couple of times a year for the last 10 years.

01:09:05.420 | Brad, how is real property counted on these forms?

01:09:09.540 | You're talking about...

01:09:12.100 | Consumption property.

01:09:13.100 | I got an $80,000 boat and I got an RV, those kinds of things.

01:09:16.500 | How are those factored in?

01:09:17.820 | Right.

01:09:18.820 | So generally speaking, all stuff that you're going to depreciate it and throw it away at

01:09:22.620 | some point is not considered.

01:09:24.460 | So things like your furniture and your cars and your appliances and your toys, your ATVs

01:09:34.060 | and sports cars and boats and jet skis and all that kind of stuff, all that stuff is

01:09:39.620 | not an asset.

01:09:41.540 | And the debt against it, if you happen to have it, is not really considered either.

01:09:46.640 | So then you may want to take a real asset like a bank account and pay off that debt,

01:09:51.260 | as we mentioned earlier.

01:09:53.220 | So the reason I ask that is because often I think this is something useful.

01:09:56.820 | Before I give my example, just to clarify, is that the same for the student and for the

01:10:03.260 | parent?

01:10:04.260 | Yes.

01:10:05.260 | Okay.

01:10:06.260 | So I clear out, I take and give my child a $20,000 car for their high school graduation

01:10:13.220 | present.

01:10:14.220 | Now we've taken a bank account and turned it into real property.

01:10:17.860 | And then if somebody is looking to say, "Hey, I want to take my trip, but I've got all this

01:10:22.820 | money saved up."

01:10:23.820 | Well, if it makes sense, again, I always go to travel because it's just an interest of

01:10:29.580 | mine and I find a lot of people have that interest.

01:10:31.340 | If it makes sense, this is the time that you might want to go ahead and buy the motorhome

01:10:35.020 | or buy the sailboat, buy the real property, pay off the personal house, pay off your personal

01:10:41.220 | residence.

01:10:42.740 | You might rent it out.

01:10:44.380 | But the point is, take the assets that are counted and consider putting them into something

01:10:49.380 | that's not counted, like the personal property.

01:10:51.980 | So if you need to buy the RV to take the year-long trip to all the national parks, then go ahead

01:10:56.300 | and do it and use the cash from the bank so that you have less cash to report on the financial

01:11:02.480 | aid form.

01:11:03.480 | Right.

01:11:04.480 | And then to leverage that even further, spend the student's asset in the bank instead of

01:11:08.860 | the parent's asset in the bank, if the student happens to have one.

01:11:12.340 | So you have a student with $10,000 in the bank and mom and dad have $10,000 in the bank

01:11:17.380 | and you're saying, "We need a car to send Johnny off to college."

01:11:19.900 | Well, little Johnny buys the car.

01:11:23.740 | And now his asset disappears.

01:11:26.700 | And as from a family, you could say, "Well, that really would have been our money, but

01:11:32.580 | we just did that for planning purposes."

01:11:35.020 | Well, then you take your $10,000 and spend it on whatever to replace whatever Johnny

01:11:39.620 | would have spent it on.

01:11:40.980 | Right.

01:11:41.980 | Absolutely.

01:11:42.980 | And you can do that easily enough with just the verbal discussion in the family without

01:11:48.960 | actually conveying the property, which would make it Johnny's asset.

01:11:54.280 | So awesome.

01:11:56.620 | Anything else, Brad, that you think is great must-remembers from my audience?

01:12:00.220 | I think this has been really fun to get to some of these useful ideas.

01:12:04.700 | Yeah.

01:12:05.700 | And I guess getting back to point number one is planning and starting early.

01:12:11.960 | The biggest challenge with college planning is college is paid for with time, money, and

01:12:17.980 | emotions.

01:12:20.120 | And if you don't start early, if you put it off as long as you can, and most families

01:12:25.560 | inadvertently do, that means you're going to have to do that much more in the time you

01:12:29.640 | have left.

01:12:30.640 | And that gives you less opportunities to buckle down and find the strategies and find the

01:12:35.720 | right schools and do all the work that's necessary.

01:12:38.840 | And you end up just by default.

01:12:40.480 | I have many families talk about scholarships, but they never actually do them because they

01:12:43.840 | run out of time, as an example.

01:12:46.760 | And I'm not saying that you should do scholarships or shouldn't, but it was their intention to

01:12:50.440 | do it, but they didn't know what they were getting into soon enough and they didn't have

01:12:55.180 | a plan to budget their time, not just their money.

01:12:58.920 | So it's a busy process with school visits and testing and test planning and students

01:13:06.700 | doing AP this and prom and all the stuff that they have going on.

01:13:10.840 | I mean, the typical parent of a high school student has got a busy life and you're going

01:13:16.420 | to have to carve out some time and do it sooner than later because as you start learning something,

01:13:22.880 | you'll realize, "Oh, there's something else I need to pursue along the various planning

01:13:28.240 | opportunities, etc."

01:13:30.240 | So I recommend, again, as an example, read a book or two on the subject, plug into a

01:13:35.480 | podcast or two, do whatever it is that, however you like to learn about it, go do it on purpose.

01:13:44.760 | I'll second that and on your time, money and emotions discussion, I'll just expand on that

01:13:50.560 | for a moment.

01:13:52.080 | I've tried to keep our discussion today fairly mainstream.

01:13:55.960 | I oftentimes turn people off with my kind of hardcore opinions about it.

01:14:00.480 | So I've tried to keep our discussion fairly mainstream that's of help to many mainstream

01:14:05.200 | people in the idea that we want to go through the traditional four years of college at a

01:14:09.840 | traditional school.

01:14:11.400 | These strategies matter.

01:14:13.560 | But I'll just point out that if you're planning for financial strategies, usually you're dealing

01:14:18.920 | with the hardest thing to plan for in any area of planning, retirement planning, college

01:14:24.080 | planning, etc.

01:14:25.720 | Dealing with figuring out what asset goes on your FAFSA is a lot more difficult than

01:14:30.880 | encouraging your child to take six CLEP exams this summer and walking away from the need

01:14:36.760 | to do an entire semester of school.

01:14:39.360 | It's a lot easier to get the same education at an inexpensive school than at an expensive

01:14:45.880 | school than it is to figure out how to adjust your tax returns to try to look poor on paper

01:14:52.880 | so you can get more financial aid at the big expensive school.

01:14:56.560 | I see so many students and parents – I like your thing about time, money and emotions.

01:15:02.360 | Talking about time, you're better off – I see so many parents just miss all of the many

01:15:06.560 | scholarships that they and their students could apply for.

01:15:09.340 | They miss the opportunity to do CLEP exams.

01:15:12.680 | They miss the opportunity to take the AP CLEP classes.

01:15:14.840 | They miss the opportunity to dual enroll in school.

01:15:17.080 | I know somebody here locally who is dual enrolled for their high school.

01:15:21.200 | It's a high school, government high school and government state college program and all

01:15:27.200 | of their credits are college credits but they're being paid as though it's government school.

01:15:31.680 | So there are two years basically of free tuition simply because it's a dual enrollment opportunity.

01:15:37.040 | It was a merit-based program for academically skilled and highly qualified applicants but

01:15:44.520 | it's essentially enabling the student to at the age of 18 have their high school diploma

01:15:51.160 | and the first few years of college done at an official local state university.

01:15:58.040 | So there are all kinds of these programs and it's far cheaper.

01:16:02.140 | Those are more expensive in time and emotion but they're far cheaper in money to pursue

01:16:06.540 | many of those other strategies.

01:16:07.880 | So plan wisely with all of them.

01:16:11.360 | Brad, I'll give you the last word.

01:16:12.820 | Any final thoughts you have and then tell us about your website.

01:16:14.720 | You have a podcast on this subject, your blog, your planning services.

01:16:18.540 | Please share all of the action points that you'd like my audience to take to connect

01:16:23.440 | with you further after this interview.

01:16:25.120 | All right.

01:16:26.440 | Yeah, again, I guess the bottom line is just do it.

01:16:30.700 | Find out what's going to work for you.

01:16:33.420 | Obviously you and I were partial to the podcast because we do that.

01:16:36.120 | We create them but there's good books.

01:16:38.680 | There's visiting schools.

01:16:40.120 | There's all kinds of ways to learn and you're probably going to have to do many of them

01:16:44.520 | but I do have a podcast at tamingthehighcostofcollege.com and it's also available obviously wherever

01:16:50.360 | you consume your podcasts and that's a great way where you can plug in and while you're

01:16:56.880 | driving around to the soccer moms going back and forth or the whatever it is that you do,

01:17:02.560 | dads that are traveling or whatever, you can just start dripping a little bit of college

01:17:06.600 | knowledge into your head, you know, starting your freshman year of high school instead

01:17:11.360 | of your late junior year and so that you know what you're getting into and that's one strategy.

01:17:19.080 | I also have a blog.

01:17:21.360 | There's a couple of calculators at my website.

01:17:23.680 | So tamingthehighcostofcollege.com/efc as an example.

01:17:27.880 | I've got a great resource there where you can calculate how much aid you may be eligible

01:17:33.000 | for and then do some what ifs.

01:17:35.080 | Well, what if I change this to that?

01:17:37.680 | How do the numbers change?

01:17:40.160 | As well as some videos that explain what goes in what blank and introduction to the aid.

01:17:46.360 | So it's not just a calculator but it's a okay now that you have this number, what does it

01:17:50.920 | mean and what do you do with it?

01:17:54.960 | Scholarships, tamingthehighcostofcollege.com/scholarships.

01:17:58.680 | There's the free parent guide to scholarships there.

01:18:03.520 | It's designed for busy parents who need to learn enough about scholarships to know if

01:18:08.000 | you're going to pursue it or not.

01:18:09.680 | The right answer for scholarships for some families is ignore it and move on.

01:18:14.720 | For other families, get in there and work hard at it but figuring out what it should

01:18:18.960 | be for you so that you can make an informed decision, that's a resource.

01:18:24.200 | So again, we've got lots of resources, just plug in and take advantage of them.

01:18:29.480 | If you do want to contact me directly, if you have specific questions, I do work with

01:18:34.040 | families one-on-one as well.

01:18:36.360 | If that seems like something appropriate for you, get in contact through the website, give

01:18:41.280 | me a call.

01:18:42.280 | Brad, thanks for coming on.

01:18:45.000 | It's been a pleasure.

01:18:46.000 | Thank you for listening to this episode of Radical Personal Finance.

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RPF0357-Brad_Baldridge_Interview