Hello everybody, it's Sam and Sydney from Financial Samurai and this episode we want to talk about the different ways to pay for college as well as my blind spot and also your thoughts on college expenses going forward. So Sydney, what are your thoughts about the price of college today?

Oh boy, it's it's crazy. The prices are out of control I mean we both went to state school and we were fortunately able to have low tuition But even I feel like even state tuition these days, it's not cheap. College is expensive No, yeah, when we went to William & Mary the tuition was $2,800 to $3,500 in tuition a year and now William & Mary I just looked is about 18,000 a year which actually seems reasonable because tuition for Yeah private universities it was like 58,000 in tuition a year still not cheap.

Oh and I just looked at the William & Mary website and then there's $6,536 in fees. So the tuition is really more like 25,000 and then plus 13,500 for housing and food books travel and incidentals. So that's about 41,000 a year in state out of state is 64,000 $346 ouch, but still cheaper than private universities 58,000 a year in tuition and then adding up everything is more like $83,000 a year.

I just looked at Boston University where Democratic Socialist Alexandria Ocasio-Cortez went 83,000 a year. I don't know what kind of middle-class or socialist person can afford that kind of tuition So it seems to me only the really rich or the poor are able to comfortably afford to send their kids to college because the poor will get financial aid good financial aid in terms of grants and scholarships and The rich can afford anything they want and then there's a whole swath of people in between and so for me I have had a constant desire to save and plan for the future because I like to plan things out I like to do the pro forma calculations to see how much we have to save For the future and we have now a six-year-old and a three-year-old So that means potentially our son will go to college in 12 years in the year 2036 and so what I did was I looked at the most expensive private school out there and Then times it by four and I got to three hundred twenty thousand dollars and then I used a five percent annual compound Growth rate over the next twelve years to come up with about six hundred eighty five thousand dollars Total cost for him to go to school.

What do you think about that? It's a scary number It's really scary. So I really don't know any middle-class family that can comfortably afford $320,000 in today's dollars and why am I using the most expensive? Assumptions. Well, there are several reasons one Unlikely for our children to get scholarships due to intelligence or merit.

What do you think about that reality? I Think it's better to be conservative Yeah better to be conservative and save too much then end up with too little if you look at us Did we get any scholarships to attend William & Mary? I had a one-time $800 scholarship $800 baby, that's pretty good paid for some pizza at the cafeteria for a couple months No, that's decent $800 because tuition was for you.

You're three years earlier than me. So that's like 23% off tuition. Yeah, I did get a scholarship. I remember I thought I didn't get a scholarship, but I got a $500 Language scholarship excellent and for Mandarin to study abroad in China my junior year. Okay, but other than that Because of our average intelligence, we didn't get any merit scholarship There's this what the scholar building remember the Monroe scholars Those folks got like 3,000 or 5,000 most of them are valedictorians, I think yeah, so that that wasn't us Also, we probably have below personality, you know below average personalities.

Okay. I don't know about your personality, but nothing stellar Yeah, Harvard, you know have said that Asian people have below average personalities So so I guess our children will have below average personalities And this is a way for private schools to throttle Asian academic performance so given our children are Asian or mixed despite their work ethic Friendliness general peaceful nature not causing violence and harm in the society Asians are not the preferred minority colleges want to V for and fight for ooh and another thing So half my family is from Hawaii And the other half is from Taiwan and so our children have Hawaiian blood I have looked at our my parents birth certificates my grandparents birth certificates.

They say Chinese Hawaiian However, despite the desire for diversity and inclusion by colleges Pacific Islanders and Hawaiians still seem to be lumped together with Asians Despite huge cultural differences. Yeah, definitely so it seems like there's not gonna be any kind of advantage being a Pacific Islander either even though Pacific Islanders only account for 0.4 percent of the American population, right?

but I do think maybe they are differentiating between People of the Pacific Islands and the many many different Asian cultures They should the cultures are totally different, but let's just say they don't you know, cuz we're all we're all like, right? We all look alike walk same culture, right?

That that's what society said And then our children are like unlikely to win sports scholarships I think only like 1% of high school students win sports scholarships There's also a decline in merit based Excellence and reward right in terms of it doesn't matter how hard our children try to get good grades and test scores Yeah, they're not looking at them they're you know banishing or removing SAT and ACT is optional because you know We got it all equalized And then although our incomes are not high our assets are above average because we've been prodigious savers and investors since 1999 Since the day I had my first job and I needed to get the hell out So it's a long-winded answer to say why I am expecting to pay $320,000 in today's dollars and almost $700,000 in the year 2036 to 2040 but here's the thing we have two children And then our second one is three three years younger than our first so 700,000 plus maybe 800,000 is 1.5 million dollars So imagine the average American household two children white picket fence Three bedroom two bath house has to face 1.5 million dollars in college expenses for their two children It isn't feasible so that's why I think there has to be this greater anxiety There is this anxiety to save and work to pay for college tuition, and I think it's a great idea to work through College so until your kids graduate college just keep on working I think that's a normal and very common target for people to have But we don't have that because we stopped doing official work back in 2012 for me and 2015 for you as a result we've had to really focus on trying to save and Invest as much as possible in their respective five to nine accounts to somehow get to these figures that seem Unbelievable right now, you know seven hundred thousand four years and eight hundred thousand for four years for our son and daughter It seems unbelievable now, but that's the math And since math don't lie this stress and anxiety to try to save over a million dollars or 1.5 million dollars in 12 to 15 years is immense.

Yeah, but I Realize there's another way because I read Ron Lieber's book the price you pay for college and in the book He highlights this financial aid expert fellow named Mark Trowitz and he says look there are four ways to pay for college The first way is parents pay one quarter of tuition from college savings like a five to nine plan or Roth IRA Two parents pay one quarter of tuition from their current income during the four years of college Three students borrow one quarter of tuition from the federal government or through work study they pay for it and then four Parents borrow the rest from home equity or through a federal plus loan or private lender So if you have these ways of borrowing and paying for college Then you don't have to we don't have to save and invest 1.5 million dollars Now, did you realize there were these four ways to pay did it even enter your head?

I didn't really think about it. All I really was remembering is that I had to pay half of My tuition my parents paid for the other half and they let me know pretty early on that They wouldn't be able to afford the entire amount so I would be on the hook for the other half after I graduated Oh, so you actually did take student loans and now I remember right who paid your student loan off big daddy I think it was $10,000.

I Remember I had like a bonus check and I said, you know what? I'm gonna pay your student along Yes, I've totally forgot about that. So it was your parents paid work through that half You paid like maybe a third a third and student loans a third Something like that Okay.

Okay. So so you you did a conventional way for me my parents paid the twenty eight hundred dollars a Year in tuition and then the room and board so it came out to about nine thousand a year But I did pay them back just over time through you know, my work checks but this is the one thing that I didn't realize until reading this book and That bullet point his parents paying for college from their income while their children are attending college, right?

Did you think about that because that sounds like if you read it and you listen you're like, oh no kidding. That's common Right, right. I think it's just The way we operate is very unconventional Now so I think that's why it didn't come to mind. I mean, it sounds like a no-brainer, right folks But I didn't think about that option at all Because I haven't had a day job in 11 years Right, and you haven't had a day job in almost eight years.

I think eight years. Yeah, and I'm not even motivated to work now so What what makes me think that I'm gonna want to work 12 to 15 years from now when I'm like 57 58 9. Yeah, there's no way in heck. I want to be working then and also I Don't want to be borrowing when I'm in my late 50s for college, right?

Because there's a chance Did you know that 40% of kids who go to college don't end up graduating within six years? That's really high or graduating at all So there's a risk to taking on debt to get a college education That you don't receive right and hence why we have such like, you know 1.8 trillion in student loans and there's this big fear about student loan forgiveness and all that, right?

so one of the lessons and realizations I have is if you plan to Achieve fire retire early do something new and you have kids There's is this kind of dichotomy between your future expenses and what you want to do now and how you want to earn money And so you really need enough passive income to cover these future expenses It's not static folks, especially if you have young kids and our fire It's ever-growing with the cost of health care insurance, right?

We pay how much a month? 2400 and then you know, obviously the cost of tuition Which you know, the worst case is right now about three hundred twenty thousand over four years So if you're thinking about short-circuiting your active income then on the back end, please be very critical very Detail-oriented on exactly potentially what your expenses are in the future now in terms of how much you Should save for college for each child That's an individual choice.

The most conservative way is to follow our way and to save for four years at the most Expensive private university and assume no scholarships just low expectations, which means high cost The other I think reasonable way is to save for four years worth of your state flagship school in-state tuition and if your child wants to go to a Fancy-spancy private university and it costs more than have them pay the difference put that skin in the game Or you don't even have to pay for you know, or save for four years of in-state tuition You could have a combination as well.

What I think we should all be is Dynamic and flexible to see how our children are. We'll figure it out by the time They're in middle school in high school. Are they studios? Do they appreciate hard work? Do they want to go into a profession that requires a lot of schooling?

Are they frugal? Are they spendy all these things? Should be taken into consideration in terms of where they should go to school and how much we should pay What are your thoughts and other ways we should? Consider paying one other thing that comes to mind is some families choose to have their kids Continue to live at home while they go through college and obviously that's not going to be the right fit for every family But it certainly is a way to save on Room and board.

Yeah, and also to go to community college for two years Some states community college is free and then you do well and you can transfer over to hopefully a better University and give yourself a second chance at getting good grades The other way is doing ROTC, you know, they pay for partial scholarship So that's pretty good as well.

And another way where we've discussed before is using a Roth IRA to pay for college However, I'm not that big of a fan because the Roth IRA is meant for you and your retirement So put on your seat belt first Before trying to help others. In conclusion I understand if you are feeling any type of anxiety about trying to afford the full Four-year cost of tuition.

The good thing is the sticker price is often different from the net price Most families don't pay the sticker price It's something like 70 to 80 percent of families don't pay the sticker price because they have some type of financial aid Hopefully majority good financial aid in terms of free money and not student loans But if you're feeling that anxiety and you feel like you have to save for the entire four years Well, don't be like me and be so one-tracked instead Think about a team effort in paying for college through your savings and investing Through your child's work and savings because after all we're going to teach them, you know To work hard and contribute to a Roth IRA and so forth and also to pay for college From your passive or active income.

I totally didn't think about that, but that Maybe we we might have or some some families might have half or enough Active and passive income to pay for college while our children are in college So I hope you enjoyed this episode in an X episode Perhaps we'll talk about how to get free money how to quote game the college financial aid System so that you can gain free money.

It's not easy. I went through this whole exercise We should all be thinking about how the system works But stay tuned for a next episode if you enjoyed this episode We'd love a positive 5 star review with some nice commentary If you want to keep in touch, please subscribe to our newsletter at financial samurai comm News and if you want a tool to help you plan better for college expenses Empower which was previously called personal capital has a phenomenal Retirement calculator expense calculator where you input these future expenses to see whether your future income your passive income Portfolio income can cover these expenses very helpful.

Just go to financial samurai comm forward slash PC take everyone. Thanks. Bye