How to Pay for College Without Going Broke

Hey everyone. Thanks for joining me this week. I’m Laura Adams, a personal finance and small business expert and author. I’ve been hosting the money girl podcast since 2008, and I’m thrilled that you’re with me today. I hope that you’ll subscribe so that you automatically every episode when it gets released. And if you’re on the socials, be sure to connect with me there. I’m on Twitter at Laura Adams. It’s L a U R a a D a M S. I’m on Instagram at Laura D. Adams. So there’s a D in the [email protected] is my personal website where you can learn more about me, my courses, books, and even use my contact page to say hello, or send a money question. The mission here on money girl is to help you get the knowledge and motivation to prioritize your finances, build long lasting wealth and have more security and stress. Every show is designed to make sure you come away with practical advice and tips to make better money decisions that will hopefully take your financial life to the next level.

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And if you’re like many people, this is a key consideration. Uh, the idea of paying for a child’s college or even your own education can be completely daunting. The rising cost of education seems like it’s just out of control. It’s just getting bigger and bigger every year. And taking on a mountain of student loan debt to pay for it can be a little frightening. According to the federal reserve. In the second order of 2021 Americans owed 1.7, 3 trillion in student loans, that’s a 3% increase from the same period in 2020, the prior year. So the burden of repaying student loan debt can simply be overwhelming. And I think it can prevent you from reaching critical financial goals, maybe buying a home, or of course investing for retirement. So how do you create a plan to pay for college without going broke? If you’re a parent, maybe you wanna be a parent someday, or you are struggling to repay your Stu unit loans right now, do not miss this show.

Be sure to stay with me. I’ve got a great interview coming up to discuss this critical topic with Dan Rito. He’s a clinical professor of finance at the university of San Diego school of business. Dan’s also an author, entrepreneur and money [email protected] He is a noted expert in personal finances, economics, and capital markets. Dan and I had a great conversation about what parents and students need to know about planning for education expenses and managing their student debt. We cover why the cost of college has skyrocketed in recent decades. Well above the inflation rate, common mistakes families make when it comes to prioritizing saving for college or retirement, how much you should borrow in federal and private student loans for higher education based on your future expected income. When to begin the federal financial aid application process for college admission, what to do, if you can’t repay student loan, when the emergency pandemic relief ends in January, 2022, how credible helps you compare student loan, refinancing rates to restructure your debt and save money.

And we talk about a lot more. Also Dan and the credible team were kind enough to offer money, girl listeners who go through their platform to refin answer their student loans, a $350 gift card, saving you even more money. So they set up a page where you can learn more for free without even getting a credit check. So it’s a fantastic resource at credible.com/money girl right now, their rates start at just over 1%. So if you are paying more than on your student loans, restructuring them could be the ticket for cutting what they cost you so that you can save money and reach other financial goals like building an emergency fund or investing for retirement. Again, I wanna give a big, big thanks to credible for making this possible for the money girl community. For a limited time, you can learn more about re for free and get a $350 gift card at credible.com/money girl.

All right, here is my interview with Dan Dan, welcome to the money girl podcast. I’m so glad to have you appreciate it. Thanks for having me great to be here. I really am interested in talking to you today about student loans. Um, you know, you’re a professor, so you get to work with students and, and maybe, you know, I don’t know if you see the, the federal aid side of things or the student loan side of things, but, um, I would love your perspective on how the average family with kids can prepare to send them to college. It just seems like the price is going up year after year. What can families do to make sure they can come to a wonderful college like yours and make sure their kids can, can get through it?

Yeah, that’s a great question. And, um, full to disclosure, I have four kids. Uh, one of whom is still in college. the other three have, have, have gotten through. In addition to, to working with students all day around our kitchen table, the RI Rico house, we talk about these very issues. How can we afford it? What’s the best strategy to pay for it and those sorts of things. So it’s a topic that is close to home for us. And I will tell you right up front, there’s no right best way for every family. So there’s, uh, from that perspective, if, if you’re listening, take the pressure off yourself a little bit and, you know, step back and say, what’s best for our family. What’s the best way to do this. What’s the best strategy to get our children, to equip them with the tools and the education they’re gonna need to compete in the, uh, new economy and also to not bankrupt the family in the process, right? Not to bankrupt our retirement in the process, not to bankrupt our sibling or the siblings of this child in the process. So that’s an important thing. I think family sometimes lose perspective when they’re doing their college tours and they’re looking at, you know, these fabulous universities and colleges that are out there that are available, they kind of lose some of that perspective when it comes to thinking, you know, cost versus value and coming up with the right personal strategy, them, there are ways to do this without bankrupting your family in the process.

Yeah. And I think you mentioned a key thing here, which is weighing the cost of future education versus your own retirement. I know so many people that feel so compelled to send their kids to school that they really are, are, are not prepared for retirement. And so, you know, if you, if you make that mistake, you’re going to end up relying on your kids to pay for your retirement, you know, and that is not something that, um, that we want to do either. So I think there is kind of a middle ground there, um, between parents doing what they can, but also hour and kids to get scholarships and get jobs and, and figure, figure it out on their own. You know, I, I was very fortunate in that. I had parents who paid 100% for my college. So, and I know that is, you know, uh, uh, probably a small minority of, of kids who, who get that luxury. So, you know, I know most kids are gonna need to work. They’re gonna need to, um, maybe take a little longer to get through school. Uh, that, that might be the reality.

Yeah. I’m glad you said that. Um, it’s about being creative and you sent the shiver down my spine Lord, when you talked about moving in with your kids, when you’re retired, cause you can’t afford to be anywhere else. That’s every, every parent’s horror is living in their kids’ basement, eating cat food because they went bankrupt paying for college. So we wanna avoid that for sure. We wanna avoid that at all costs, but you said something that’s important and that’s be creative and there are ways to do this. Um, and I think some of the common mistakes that you and I have seen over the years with families that we’ve worked with is number one, the assumption that college traditional four year college is for everyone. It’s not every, child’s different for some parents. That’s tough to accept, but once we accept the fact that the traditional path, if, if you want to call it that to a four year school, um, you know, child moves out lives on campus for a few years.

That traditional path works for some, but not for everyone. Number two, we tend to put too much emphasis on the school versus the program. The major and study after study is shown that schools are important. There’s no question, um, but age or your choice of what you’re going to study and how you apply that is much more important to the economic outcome. Next, we have the fact that, you know, oftentimes families and we’re all a little bit guilty of this. We’re not as focused on the outcomes as we should be. Americans are the best shoppers on the planet, right? We get we’ll go the store and we’ll look at the ingredients in a box in mini wheats for 20 minutes, but we don’t spend as much time really understanding the, the cost, the value, the, the, you know, that value proposition for college. When in fact for most families, they’re single largest expense after their home. So we apply some of the acumen that we have as shoppers to the college search and selection process. I think we’d all be a little bit better off in terms of what’s the return on investment. What’s the outcome I can expect. So I think those factors as, as you and I and parents across the country go through that, that, you know, evaluation process and decision making process, keep those in mind and it’ll help us through this.

Why do you think college is going up so much year after

Year? Yeah, that’s a great question. From 1977 to 2021 college inflation, it was about 6.4% annually, more than double, more than double the rated inflation in the economy. And I think there’s a number of things. Number ONET is up. Now. This is a good thing, right back in 1970, uh, seven and a half percent or so of Americans had a college degree today, it’s about 40%. So the first thing is demand is up and that’s good. We want an engaged, educated society, right? There’s no question that’s good for us. Number two, the wide availability of student loans, you know, the, the fact that you can get federal student loans through various programs with virtually no credit history has changed the game. So in many ways, people who were priced out of college, a generation before that door is now open to them because they can get fairly easily student loans facility build out.

Number three is phenomenal, right? These schools that we’ve created over the past 10, 20 years, uh, are just magnificent, right? We have everything from new buildings. I tech, uh, vegan kitchens, rock climbing walls, , you know, wave pools and look at some of the salaries, right. I have a daughter at Notre Dame, uh, Brian Kellys, you know, just left Notre Dame to, to coach at LSU for nine and a half million a year. Now I don’t begrudge him that, but these are some of the reasons why colleges and gotten so expensive relative to general inflation in the economy.

Yeah. And if you’ve got to borrow money to attend college, what do you think is the right amount? You know, I know a lot of people use some guidelines like perhaps your first year salary out of school that, uh, projected salary or estimated salary, let’s say, you know, if you’re gonna be a, a doctor and you’re gonna be able to make, you know, $150,000 out of school, maybe 150,000 is the right number to borrow. Do you think any of those guidelines make sense? I

Do. I like that. I’m glad you said that there is, you know, a lot of wisdom in trying the, not to borrow more than your anticipated first year salary. Now, the problem with that is, you know, is a lot of students go in that their freshman year thinking they’re gonna come out a doctor and wind up coming out, you know, something completely different. So at 18 years old, uh, you may not necessarily have your whole life planned in front of you. I certainly didn’t, that’s for sure that is a good rule of thumb, but we also have to have some flexibility understanding that there’s something that gets in the way it’s called life, but that’s a great place to start beyond that. What we wanna do is we’re gonna look at what I call sort of the investment in human capital. And that’s really what the education is, right? You’re investing in your single biggest asset, which you right. You’re human capital. So from that perspective, we want to take a longer term approach and say, my career might span 40 years, uh, or maybe even more so over that career span of 40 or 50 years, what’s the right balance between borrowing now and 40 or 50 years of hopefully a return on that investment.

If a listener is not familiar with the financial aid process, what is, you know, what, how does it work? Where do you start? Is there any good resource that you can give folks to sort of begin this whole journey?

Yeah. So in the old days, um, it was extraordinarily complicated with paper forms and things like that. It’s gotten a bit better. So the good news for everyone listening is it’s not as daunting a task, uh, as you may have heard it, it has somewhat been, you know, made a little bit easier for us the best resource. If you remember, one thing, the best resource is student aid.gov. That’s the website that the government department of education sponsors that opens the door to a lot of good, valuable educational tools with respect to the college process, paying for college, borrowing for college. And that’s where you’ll find the fast form, the Fe, uh, free application for federal student aid form, which is no longer a paper form. It’s all electronics. That’s good, a lot easier than it used to be. And that really is the turn style. That really is the gatekeeper. That’s our first step in starting with a funding plan for college. How are we gonna pay for this? So it started on October 1st. It closes on June 30th of next year for the following school year. So we always encourage folks to get your FFA in as quickly as you can. And again, the good news Laura is that it’s a lot easier than it was in the past.

That’s great. So that’s gonna help folks understand how much federal aid they may qualify for

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Then what do you do if you still need more money? You know, when does it make sense to take out private loans?

Yeah, let’s call it the gap, right? We have our cost of attendance and then we have our expected family contribution and there’s that gap in the middle. And as you said, some of that will be, you know, uh, hopefully plugged with scholarships, grants, those sorts of things. But for most students, for most me mortals, we still will be left with a gap. And that’s where borrowing comes in at the federal level. And we, my counsel to all families is if you’re going to borrow, always start with the federal loans. They may not necessarily have the lowest interest rate at the time, but they will certainly have the most flexibility in the future as we’ve seen during the pandemic, right. When we had the pause on federal student loan payments. So if we can, we always want to start plugging that gap with the available federal student loans and your college will inform you of which of the, those are, you know, available to you. If there’s still a gap after that, there are federal loan programs available for parents beyond that there are private student loans available as well, but the parent loans and the private loans are based on credit availability, credit score, your, you know, you, your attractiveness, if you will, uh, from a credit perspective, whereas the federal student loans that go directly to the undergraduate student, the factors that we don’t really worry about too much are your credit scores. Essentially, everyone qualifies as an undergraduate for a limited amount of federal student loans. .

And then when students get out of school, what do they need to know about repaying, these loans? Um, you know, some of them are going to be, uh, deferred interest. Um, some of them you may need to start paying right away, you know, are there any tips you can give for kind of, uh, just navigating the repayment, uh, as soon as you graduate weight?

Yeah. So by the time you’re a senior, by the time you’re getting close and you’re, you know, you’re sort of thinking your last semester’s coming up, you should start putting together a plan for repayment. And as you said, with the federal student loans at the undergrad level, you might have up to six months where you don’t have to make payments. Now that doesn’t mean the interest isn’t running of the interest as a meter, that meter is running. So the sooner you can start making those payments the better, just because you may be able to defer, it may not be the best solution you may want to, you know, if you can afford it, start paying those as soon as you can. But ideally by the time you leave the quad, you want to have a reasonable strategy in place for how you you’re gonna tackle that monthly payment in terms of when it’s gonna start, how much it will be and how that’s gonna fit into your budget. After graduation.

You mentioned that there was some emergency relief for the federal student loans, um, due to the pandemic that is coming to a close here pretty and at the end of January, um, unless there’s some, you know, another extension of that benefit, what should folks be thinking about right now, if they’ve been deferring payments, and let’s say they’re dealing with a financial hardship, they’re not going to be able to start making those payments again at the end of January, you know, what should they do? Where should they turn for help?

Yeah. Good question. So first understand that if you’re out of work and legitimately unemployed, looking actively looking for a job, there is up to six months more available in terms of your, um, deferral on those payments. If they’re federal student loans, you might be able to get up to another six months. If you qualify as unemployed beyond that, assuming these are again, all federal student loans, um, there are various income based repayment programs that as the name implies, the monthly payment that you make is essentially a function of your monthly income. So if you have a very low income, potentially you would have a very low payment. Those programs are also available for federal federal student loans. And again, the best resources student aid.gov to find out about those programs on the private side, which, you know, many private loans were not paused. So presumably borrowers have been making those payments, or at least hopefully making those payments.

But if you’re in over your head there, your best and you know, most important phone call is directly to the servicer of that loan. And be honest, say, I’m in trouble now. I can’t make this payment. How can we together to, you know, come up with a solution. Most private lenders are more than happy to have that conversation. The last thing they want you to do, you know, is go into the witness protection program and not hear from you. They want to hear from you if you’re in trouble, rather than no communication, right? So they will work with you most of the time to try to figure out a plan. It might be extended payments. It might be reduced payment for a certain period of time, that sort of thing, but the worst thing that you and I can do come February 2nd, is throw in our sock drawer and forget about it. We’ve gotta plan for it now. Be proactive, reach out for help if you need it. Talk

To me a little bit about refinancing student loans. I know this is a service that the company you work with credible.com offers. When does it make financial sense to think about refinancing student loans? And talk to me about the availability for, uh, federal and private.

Yeah, it’s a great strategy for some borrowers. So right. Front general rule of thumb, if you have federal student loans, uh, as a, as certainly from an undergraduate experience that you’ve had, you probably don’t wanna refinance them into private student loans. My guess is most of those interest rates are low enough and the terms flexible enough that you probably want to lead those intact. If you can. Ideally, if you’ve got student loans that are say 6%, 7%, some of the older ones might be, you know, might be that high with current rates where they are, which are still near historic lows. It might make sense to take some of those high interest loans, uh, particularly from grad school law school, med school, those sorts of things, and look to refinance those into private student loans. Cause in some cases you can cut your interest rate by 30, 40%. So it’s pretty substantial savings. But again, the first caveat is if you have federal student loans because of the flexibility, the income based repayment scheme, for example, because of the flexibility that the federal programs have, generally speaking, you don’t wanna lose that by refinancing it into a private loan, but if you have a very high interest rate loan, if you have other private loans, if you have grad loans at the federal level that are again, high interest rate, they’re all probably good to candidates right now to look at a refinancing.

So if a listener goes to credible and begins comparing rates, you know, what will that rate end up, uh, what is gonna be factored in, you know, are, are we thinking about financial stability credit are, you know, all lot of those types of factors going to be, uh, evaluated in, in the underwriting process or, you know, does the visitor just kind of look and, and compare from, uh, the different partners that credible works with and kind of just see, okay, I’m gonna choose, um, a various partner based on the, the potential rate. So I guess in other words is a way to kind of do some evaluating without taking a hard hit on your, your credit score.

Yes, yes. And yes. So that’s the beauty of the technology behind, uh, credible is that you and I, if we have just, you know, let’s just say we’re shoppers and we’re shopping to see if a refinancing makes sense with a little bit of personal data. That’s well protected. We can very quickly, um, right online, find out if we’re a good candidate or not for refinancing, meaning that we’ll be able to see actual offers online with rates in terms, um, using what’s called a soft inquiry, rather the hard inquiry. So I’m glad you said that because we don’t want to dig people’s credit scores just for shopping and that won’t happen. So with a pretty, fairly easy process to follow, and it’s pretty quick, you’ll be able to see right on your screen, what those refinancing offers might look like without dinging your score.

Love it, Dan, is there anything else that listeners should know about, you know, just wise ways to pay for college without going broke?

Well, the best way to pay for college, I’ve always said is have somebody else do it for you? and the good news there, Laura is as you know, more and more employers now chip in everyone from Starbucks, the Walmart to, you know, Amazon are all the now in the business of helping their employees get a college education at, you know, various levels. In some cases they’ll pay up to a hundred percent of the cost. Uh, my son, as an example, uh, went military and the military paid for most of his education. So the message for families is a message of hope. There are ways to do this without bankrupting your family, uh, and the best way is to have someone else do it for you. So the good news is those programs exist. Those employers are out there, but as you said earlier, it takes creativity. It takes a little bit of assertiveness on our part and you need to be a good shopper. Dan, thank you so much. I appreciate the wise words. I appreciate you. And, and I followed your work for a long time and you do a great job and I appreciate you having me.

Thanks so much to Dan for a great interview and all the folks at credible, for a generous offering of a $350 gift card to every money girl listener who refinances their student loans at credible.com/money. Girl. Remember that refinancing student loans isn’t for everyone, but I would encourage you to learn more about it before the pandemic forbearance relief comes to an end and that’s going to be at the end of January, 2022. And before we go, if you have not joined my free private Facebook group called dominate your dollars, it’s an amazing group of people who are asking great questions, helping others and reaching their ambitious financial goals. All you have to do is search for the group on Facebook. Again, it’s dominate your dollars. That’s a great place to ask a money question. And as I mentioned earlier, you can also leave a voicemail. You by calling 3 0 2 3 6 4 0 3 0 8, that’s all for now. I’ll talk to you next week until then here’s to living a richer life. Money girl is a quick and dirty tips podcast. It’s audio engineered by Steve Ricky bird with editing by Adam Cecil. Our operations and editorial manager is my show. Marus our assistant manager is Emily Miller and our marketing and public.