Are you freaking out about how you're going to pay for your kid to go to college? This episode is for you, as Scott talks with Nannette Kamien the author of “Crazy College Money”. With all the news about the student loan crisis, college admissions scandals, and ever-rising college costs, it's easy to get caught up in the crazy that is the college admissions process. Nannette starts with the root of all this crazy - the emotions and experiences of you, the parents. She believes paying for college is as much an emotional decision as a financial one. Based on her work with families of college-bound kids, she shares her process and expertise to help you make smart money decisions, instead of crazy ones.
You’ll stop wishing for the Financial Aid Fairy to arrive and stop using hope as a strategy to pay for college and learn to rely on yourself and become a smart consumer of college education, without going crazy.
Intro: Welcome to Sheepdog Financial, you will get answers to your financial questions. Learn to plan for your financial future and have the type of life that people dream of brought to you by Trisuli Financial Advising, a fiduciary financial advisor practice focused on military members and their finances. Your host of sheepdog financial is Scott Vance.
Scott: Today on Sheepdog Financial, we have Nannette Kamien. Nanette is a financial planner and college funding expert who recently authored the book crazy college money. She gives parents practical advice, tips and guides you through the financial aid process to help you keep your sanity as you figure out how to pay for your child's attendance at college. She brings the emotions and experiences of college in touch with the cold financial facts and tries to ensure the best college experience for you and your child.
Nannette: Hi, how are you doing?
Scott: Good. How are you doing?
Nannette: I'm good.
Scott: So we're here to talk a little bit about college, specifically college funding.
Nannette: A great topic.
Scott: Yeah. So tell us a little bit about yourself and how you got here.
Nannette: Sure. So I started my financial planning firm a little over four years ago after I made a career change. I'm from information technology. I always wanted to work in personal finance and finally got to a point in my life where it, you know, I was able to do that. And so I opened my own firm and I started thinking about who I wanted to serve and since I'm sort of a solid gen x person, I I wanted to help families that were in my, you know, in my age bracket. And one of the biggest challenges that they're facing is figuring out how they're going to actually pay for college. I think the financial planning industry really focuses on saving for college and that's been to the detriment of, of clients who once they get there, maybe they haven't saved enough and they figure out, you know, how am I going to pay for it? And as everyone knows, there's a student loan crisis out there and I'm, I'm trying to help families avoid getting themselves into that situation before it happens.
Scott: College is very current in the news between, like you said, the student loan situation and Becky, there's also another court or another news item I saw where parents were essentially disowning their kids so they could have lesser income for the calculations.
Nannette: That's actually in my old backyard up in Illinois, in the northern suburbs of Chicago. They were changing guardianship before college in order to receive, potentially receive more financial aid.
Scott: With respect to that, what do you see as far as some of the trends coming down the line for college funding
Nannette: Overall? Well, the good thing is is that over the last couple of years we've seen a decrease in the rate of increases in the cost of college. Schools are finding that now, now that, you know, people just can't afford to send their kids there that, that the rate of increases has gone down. So that's, that's a good thing. And I really like to see that people are becoming more educated about consuming college as a, as a product and understanding the return on that investment or not. So I think that's a good thing. I think schools are starting to realize that the money train is, is hopefully slowing down. The other thing I think is going to become huge over, I would say the next 10 years, hopefully before my kids go to college, is that there's so many alternatives coming up to the traditional four year, attend college, get a job, a process that I think people are really gonna have a lot of other options. And that's really gonna Change, I think, the world of higher education.
Scott: Well good. Yeah. So speaking a little bit about the alternative schools and finding it in your book, you speak about developing a college money philosophy. What is that and how does that work?
Nannette: Yeah, you know, I, I, I came up with that term because I found that when I was working with clients, so many of their thoughts and their expectations of themselves and what they wanted to do for their kids were shaped by their experience. And you know, I worked with a lot of different families where maybe one parent had their entire school paid for by their own parents and really thought that that's what they had to do. Or other parents who worked their way through college, other people might have gone into the military and you know, gotten their education later. It really affects how parents think about what they should be doing for their kids. Either they want their kids to have the same experience they did or they want something better for their kids. If they had to borrow a lot of student loans, they don't want their kids to have to have that burden. And you know, and most of the time couples didn't have the same experience. You know, maybe the wife had one experience and the husband had another, it really, you know, they don't often talk about it until their senior in high school starts applying for schools and all of a sudden they have very different philosophies on how they're going to pay for it. No, I sit down with every client who wants advice about college funding and I, and I talk about those emotions first because this is a very, very emotional time in parents' lives when they're thinking about letting their kids go off to college. And I want them to think rationally about where they're coming from.
Scott: Sure. So do you put this as a separate part of the financial plan or does it fold into the plan? How do you work the integration between I guess the two?
Nannette: I like to have it be fully integrated with a family's financial plan. I, in the past I've done more one off college engagements and I found it was really difficult to get people to see this decision in the context of their whole financial situation. So I really do like to put it, you know, as, as an integral piece of their comprehensive financial plan. But I, I start with talking about college funding and the college money philosophy along with all of the others sort of background goal-based conversations that I have with families when I'm working on their plan.
Scott: Yeah. So probably the first thing in helping to build out this philosophy is assessing where you're at for college funding. What do you look at to do that and how do you build that out? Sort of assess your current situation?
Nannette: Yeah, so I actually have people think through the emotions first before and because oftentimes what I find is that their reality doesn't match their philosophy. So if they want to pay for college or they want their kids to get scholarships they want their kids to, you know, work partially through college. I oftentimes find that when they start thinking about them, what their actual financial situation will allow them to do, there's a mismatch there. And so once you sort of get the emotional side out of it, then the sort of the reality of how much have you saved, is there anybody else that's going to be able to help you? Like family members, grandparents, you know, does your job give scholarship funds, those kinds of things. What assessing what your child's academic potential is, what are their interests, you know, and how much do you have any money? Do you have any money to pay for college? Because a lot of people aren't really strong on tracking their budget, figuring out do they have money leftover at the end of the month. Nobody has 30 grand a year sitting around or they're just gonna write a check. And so it's a lot of different moving pieces. When you think of the budget, the savings, you know, what are the things that parents are willing to do as trade offs in order to free up money? You know, I talked to families a lot about what they want, sort of the last couple of years of high school to look like with their kids. And a lot of parents would rather spend time traveling with their family the last time, you know, the last couple years of high school rather than putting extra money toward college. And that's okay. People feel a lot of pressure. Like they are obligated to do x, Y, and Z to pay for college.
Nannette: But at the end of the day it's, it's about, you know, doing what's right for your entire family. So, you know, I have people look at the numbers and if you don't have any extra money leftover in your budget, you can't pay out of pocket. So you sort of crossed that piece of the puzzle off. You know, if you haven't saved anything for college and you cross that piece of the puzzle off, if your child really isn't strong enough academically to get a lot of scholarship money, you cross that off and, and you know, by process of elimination you figure out what your options are.
Scott: I've seen this a lot in the retirement question. People sometimes give up contributing to retirement to put money into college funding. And that becomes, that begs the question, would you rather live with your kid in retirement and fund their college or maybe have them come up with some alternative ways to fund their college and have your own separate retirement.
Nannette: Yeah. And that I think one of the things that people struggle with the most, because when you're young and you're in your thirties and your forties retirement seems really far away and you've got a kid in middle school or high school and you know, it seems like a really immediate problem to pay for college. And so many people have such a hard time visualizing that retirement that might be 30 years away and putting money toward it. And what I tell people is if you aren't contributing money for retirement right now, you can't afford to pay for college. And that's just the bottom line. Their retirement is the number one priority. Now granted, I don't follow that, you know, because I feel better putting 100 bucks a month away for kid, you know, my kid's college and there've been times when I've done that instead of funding retirement. But it's, I want people to understand that the, the retirement piece of it is, there is no second chance on that. There's no loans for that. There's I think there's going to be a lot of uncertainty in the future 2030 years from now. And the college decision. There's so many other options for that right now.
Scott: Yeah. There's the alternative thing, like you had mentioned earlier is taking off, I know locally here in North Carolina, they've got some programs where seniors in high school get some credits. I know that some of the, some of the community colleges will do a thing with like NC state and UNC Chapel Hill where you do a year at the community college and then bounce into NC state or Chapel Hill for, you know, the last two years or whatever, which ends up a lot of money.
Nannette: Yeah. And there, there are similar programs like that where I live in California and I think every locality probably has those kinds of options. It used to be that community college or sort of, you know, two year college was seen as a last resort for people. But I think as the cost of college has gone up, it really should be your first option because of the fact that you can get a year or two years worth of credits out of the way and then transfer to a four year school and have paid virtually nothing for those first couple of years. I think that that's a very underrated opportunity that people think about right now. The key is just to make sure that you're working with a school where those credits are gonna transfer because what you don't want to have happen is that you spent that time and get all those credits and then they don't transfer and you still need to pay for four years at a four year school. And then the other thing that you mentioned too is getting credits while you're in college or in high school, whether those are college credits, whether they're AP credits that transfer into college credit, there's really no excuse for not looking into those options prior to applying for a four year school.
Scott: The Community College options is x. I saw when I went to my first undergraduate degree, four years, I saw a lot of kids waste a year to try and figure out what they were doing, changing, changing majors. Maybe. Maybe they decided they didn't want to go to school. And I know if I was a parent of somebody doing that or who eventually after two years said, Nah, I don't like school anymore, I would be quite perturbed with the amount of money that was wasted.
Nannette: Oh, yeah! So many kids graduating from high school have no idea what they wanna do and there's no reason to go waste $45000-50000 dollars a year while they figure it out. Yeah. And work. Go in the military, go to community college part time. I mean, go bum around the country in a backpack. I mean, I don't, you know, everybody's got their thing right, but there's no reason whatsoever to pay a large sum of money for somebody to go find themselves at four year college.
Scott: Yeah. Yeah. And I actually had looked at the stats and the number of people who finished college in four years. It just, it's abismal. So it probably applies to more people than we would think.
Nannette: Yeah, absolutely. The most of that, most of the graduation rates that are reported are six year graduation, graduation rates, not four year graduation rates because they're so awful. Some schools, it's in the single digit that people graduate in four years. The school I went to was a small private college and if you didn't graduate in four years, people looked at you funny. So I didn't even really, you know, my experience was that everybody graduated in four years now. I think that that's a, it's changed and at different schools it's a very different experience. So parents are thinking about that and if it's bad enough to pay four years of college, think about paying for six, there's no reason to do that.
Scott: And some of them mean the five years. I know some programs here in North Carolina, they get things if there's a master's of science and taxation and they do a five year program. So it may be some of those facts are kind of a little bit misleading, but I think those are intentional for those kinds of specific things.
Nannette: Yeah. And I think there's a lot of great programs that are out there, you know, whether they're, I went to college in Indiana and Purdue was really popular and they had, you know, engineering co-op programs where you would do a semester of school and then a semester of work. Those things are awesome and, and that will take you more than four years to graduate. And that's, that's totally, you know, that's totally understandable. I think the problem is, is that when you think about kids transferring, when they change majors in California where I am, they, they're letting too many kids into freshmen classes and so people can't get the classes they need in order to progress towards graduation. So that's another thing. That causes that problem. So I think it's just about thinking about those problems ahead of time, knowing what the graduations, our rates are at the schools that you're looking at and putting that plan together, whether it is a four or five, six year plan.
Scott: Sure. So we've talked a little bit about how you do this and the alternatives and your philosophy. We talked a little bit about the kids. How are you seeing people bringing their kids and are you seeing them bring them early, later? I mean obviously at some point they would have to tell them, but how do they involve their kids in the whole process?
Nannette: You know, I may, I make a comment in my book that most parents would rather talk about sex with their kids than money. And I see that that is definitely the case. Money is like a taboo subject in our society. I think a lot of parents avoid talking about it with their kids as long as possible and whether, again, whether that's because that's what their family did. They don't feel, you know, they feel embarrassed or they feel ashamed or they just don't think their kids can handle it. They're not, you know, they think their kids aren't mature enough. I find that on average, most people wait way too long to talk with their kids about money. I advocate for people to start talking about it in middle school, when kids start thinking about what they might want to do with their lives, you know, what are they going to take. What classes are they going to take in high school? What are they interested in? That's when you should start having that discussion. And you know, you don't need to give all the gory details, but you know, talk to kids about whether you're saving, whether you have an expectation for them to work during that, you know, during high school or Summers to help pay for college. Whether you have expectations that they're going to get scholarships. All of those are discussions that need to happen sooner rather than later. And then by the time your child gets gets to be a senior and you're starting to apply for financial aid, the bottom line is, is that when they fill out their portion of the financial aid application and then you fill out yours, they're going to see the data. They're going to see what your income is, they're gonna see, you know, what your assets are. And that I don't want that to be a shock to people. Parents really, really don't want their kids to see this information. And I guess I, for me, I grew up in a family where finances were very openly discussed. And so that, that blows my head apart, that parents don't want to help prepare their children for the real world and managing money and understanding, you know, what it takes to raise a family. So it's, it is a difficult conversation to have with people who are very closed about money.
Scott: Yeah. I can imagine that. My, I've talked to my son about college funding and fund and your money in general, and I always thought it just bounced off of him. And then this year we were, he's in middle school sewer digging through electives and one of the elected as well as Spanish is the language. And he said to me, he said to me, I'll never forget, he said, if I take Spanish now I won't have to take it in college and I'll be able to save that money. And I was like, I guess that sounds good, but let's pick something that is not just for money's sake at this point.
Nannette: Right, right, right. Yeah. I've, I've realized the same things about my kids sometimes I'm like, maybe I'm a little too open about money. Yeah, there's always that balance, you know, I mean I think everybody in the family needs to be on the same team and they need to understand sort of the trade offs that you're making. But there is definitely a balance.
Scott: Sure. And then talk a little bit about, so with your kids, you probably want to talk a little bit about what choices you make as far as school and then major to lead to a job. And there is a definite trade off between what major you choose. And what your potential income could be. Yeah. And
Nannette: That, so that, that comes into things in, in a couple of different areas. You know, it used to be back in the day where you know, going to college was for the elite only and you went as sort of, it was like the final step in your childhood. You went to find yourself and to go to fraternity and sorority parties or if you're a woman you went to find a husband. That was the whole purpose. Right. And obviously more people, more and more people have started going to college. It's more seen as you know, really a step to get a job. And while I don't tell people to only choose a major based on a job, I think that you should be able to get a job when you graduate from college. There's no reason to major in 20th century philosophy. You can minor in that if you're interested in that or go take free courses online. But if you're spending $100,000 or more on a degree, it should get you a job. So I want people to balance interests and learning with the practicality of coming out of school with, you know, with a and on the financial side of things. What I tell people as the rule of thumb is everybody asks how much, how much borrowing, how many, I know how much student loans is too much. And the rule of thumb for me is one year's worth of salary. The very, you know, your very first job out of college. So if you're a teacher and you're only going to be making $40,000 a year, you shouldn't be borrowing more than $40,000 to go to Undergrad. If you're going to be an engineer or computer programmer, then you know your budget might be a little bit higher. Maybe it's 60 or 65,000 and I feel like that's a reasonable amount of borrowing. Now you can't even borrow that much on the federal student loan program. So if you stick to the federal student loans, you're golden because you can't borrow too much. The maximums are in place such that you can't borrow more than 31 I think it's 31,500 so that's, you know, that to me is a good, a good rule of thumb for people.
Scott: So speaking a little bit about financial loans, specifically federal loans. Have you seen anybody make use of this public service loan forgiveness?
Nannette: I have some clients who are currently in the process, the first bar where's, who would have been eligible, who would have reached their 10 years and have been eligible, started becoming eligible in the last year or so. And they're, the approval rates are abysmal. I mean, let's bring back that abysmal word because of the fact that the co, the, the rules for becoming eligible are so tough to meet. And so many borrowers who think they are eligible are being denied because they didn't meet this criteria, they didn't meet that criteria or they switched payment plans or they s you know, whatever it is. So few people are being approved for loan forgiveness that I tell people, you know, I don't feel comfortable telling you that you can count on that. And especially for somebody going into school now just don't see it. I just don't see it. I don't think anybody should take out a bunch of student loans on the assumption that they will be forgiven or something.
Scott: Yeah. I have a client, him and his wife have taken out a lot of student loans and even have taken steps to reduce their payments in the idea that after 10 years they will be forgiven. And I was a little bit nervous. I'm a little bit nervous for them cause I think they're going to be hit with the having to pay for it.
Nannette: Yeah. Yeah. I'm worried too. I'm worried too and, and I would never, because you know, while it's a short term fix to be able to get on an income based repayment plan and be able to make those payments I just don't trust, I don't trust the promises of the government. I just don't.
Scott: Yeah, that's a, it really makes me nervous for this guy that he's kind of paying for it. So yeah. And
Nannette: So the other thing that's contributing a lot to this whole student loan thing is that people are taking out not only loans for undergraduate, but then so many careers these days are requiring a degree or graduate degrees. People then take, you know, graduate courses and they get graduate degrees and then they compound their problem by borrowing even more. And so for, I always tell parents, you know, if there is any chance that your child is going to be going into a career that requires a master's or higher spend, as little as possible on the undergraduate degree,
Scott: Even teachers are not required, but they are pushed to get a master's degree.
Nannette: Absolutely. And I, yeah, I think teachers are, they are one of the most underappreciated and overburdened occupation out there. And it really does have to be a calling for you to do that because the, you know, it's just the amount of education that's required, the return on that investment that you get is just, unfortunately, it's just not there in our, in our country right now. So it's, it's really the one thing, I guess that's the beauty of teaching is that nobody says you have to go to a fancy university to get a teaching degree. So get it, you know, the least expensive way possible that you can is what I tell people.
Scott: So talk a little bit about the process of college funding. I've heard the word FAFSA financial aid award. How does all this work and then how does, what's the process to get your kid off to college.
Nannette: So I generally tell people that everybody should file the FAFSA, which is the free application for federal student aid. And unless you can write a check for 50 grand a year without any problems, you need to fill out that form. And what it does is it gives the government information about your family finances such that they can come back and say, okay, here's how much we think you can pay towards school. And here's whether or not we think you're eligible for government grant aid, which is money from the government that you don't have to pay back. Those it out is then becomes eligible to borrow from the federal student loan program. So that's how you access those options for mo for most states. That's how you also access state grant aid and the application opens up October 1st of your child's senior year. In high school. It used to be that it didn't open until January and you were sort of waiting on getting your taxes filed but they changed all that a few years ago. So now it opens up October 1st and you're using the previous year's tax information to fill that out. So right now we're in 2019 your kids going to school in 2020 and you're using 2018 tax information. So you should, unless you are waiting until October 15th to file an amended return or an extended deadline or return you should have your final tax information and that should be ready to go October 1st. I'd recommend people file as quickly as they can after that date because a lot of the grant aid from the state and federal perspective is first come first serve. And so you definitely want to get your piece of the pie if you're, if you're eligible for that. And then a lot of schools will use the results of that form to determine whether or not they're going to give you aid that comes directly from the school. Whether that's scholarship aid or you know, based on academics or whether that's need based aid based on your financial situation of what a lot of people think is that financial aid is financial aid and that is not necessarily the case. Even though you're submitting one form the FAFSA form, every school is going to look at that differently and determine how much aid you might be eligible for. Some schools don't cover a very high percentage of your financial needs. So if you are, you know, a lower income family, you're gonna want to look for those schools where they cover a lot of financial need. I have people all the time that are, you know, asked me how do I, how do I lower, how do I get more financial aid? How are I low or my expected family contribution, which is the number, the EFC that comes out of the FAFSA process. And what I tell people is first of all there, if you have a lot of income, there's not a lot you can do to lower it and get more knee, you know, get more aid. But secondly, even if you do, many schools don't cover a high percentage of need. So you won't get financial, extra financial aid from a lot of schools regardless of what you do on the financial aid form. And I think that's a big shock to people because they think, oh, I have, I have need, I don't have any money. I should be getting a lot of money for school. And that's not the case.
Scott: I was surprised that there's a website out there that you can actually look those numbers up.
Nannette: A lot of times if you just Google things, colleges that meet a high percentage of financial need, you'll get a lot of articles that are written about it. You'll get lists, you'll get rankings. So you, you know, Google is a really a good friend. And this, this college aid search. The other thing that a lot of people are shocked about is that some colleges require an additional financial aid form called the CSS profile. So a lot of things that you can do to improve your financial aid picture on the federal form. The CSS profile is more of a private form and those same strategies don't work for that form. That form can ask for divorced parent information. It can ask for business information, it can ask for all kinds of information about your findings, family finances, medical expenses, private school expenses. Really every school who uses that additional form is allowed to pick the questions that they want to answer, that they want you to answer. And they're also allowed to write their own formula basically.
Scott: Yeah, I've run into that with a couple of my tax clients. Usually retirement funds, IRAs are not included in that federal calculation for student aid. But for the CSS, they are brought back in.
Nannette: Well, if I knew I'm not, I'm not qualified retirement accounts, those are safe. They are assessed slightly differently in the CSS folk profile versus the FAFSA. But the differences really pretty minuscule, so that's okay. That's a, that's one place that's really the best place to have your money, to be honest. Home equity is one thing that's very different. The FAFSA doesn't look at your primary home equity at all. Yeah. Yeah. DCSS profile asks about it and then each school has their own formula. One popular strategy that a lot of insurance and annuity salesman sell is to put money into whole life insurance policies or non-qualified annuities. The CSS profile can ask about those particular investments. So if you're a parent and you're sold that strategy, you fill out the FAFSA, those aren't counted. All of a sudden you go to a school that has the CSS profile and they ask about all of those investments and then you're thinking, oh my gosh, what have I done?
Scott: And once you get until there's mistakes, there's really no an unchanging them either. Right.
Nannette: Let's see. You know, that is the sad part is that when you lock up your money into something like a life insurance policy or an annuity, the penalties for getting out of something like that and the ramifications that it can have on your, your whole financial picture are really detrimental. And so I, that's one of the things I fight against a lot because there's a lot of people out there that are selling all kinds of strategies to beat the financial aid system. And unfortunately, while they may accomplish a portion of the objective, they're usually the, the sort of the other side of the coin is, is, is weighed much more heavily.
Scott: Yeah. It's kind of, I see it in taxes where people do things to avoid taxes and then ended up paying something else in fees or, you know, lost investment income is far more than the taxes they would've paid.
Nannette: So true. You know, and that happens with saving for college actually too. I just worked with somebody a little while ago that was asking about, you know, they had a family that was basically putting in, you know, the minimum to the student's five 29 account each year in order to get the tax deduction for their state. And I said, well, if they have this money, why don't they just basically super fund that you can put five years worth in at the same time and then maybe you don't get that tax deduction those next four years, but it was like a hundred dollar tax deduction and you're missing out on all of that investment growth over five years. You know, I just ran a simple projection. I'm like, this would have made much more sense to put this money in right now if you have it. So I think you're totally right that the choices that people make because of either saving on taxes or getting a tax deduction or beating the financial aid system in total, when you look at the full financial picture, that doesn't add up.
Scott: Oh, the big one with that too is people always come to me and say they've got the mortgage or home. They bought their home and they have a big mortgage deduction and actually it doesn't work out that way. It's usually just standard deduction exceeds what the mortgage interest deduction is. Even then you're only getting 30 whatever percentage back on the dollar. It always amazes me. Yep. Okay, so you get the financial aid award. Do you got, do you recommend that they, if there's two different awards that you play them off of each other trying to get a better situation or how do you, how do you deal with that with if you have multiple that you're dealing with? Financial aid awards?
Nannette: Yeah, that's a great question. I think because like I said, every school is going to be different, different and sort of what their objective is. The financial aid is not for you, it's for the school to be able to entice you to attend. That's what I try to get people to, to sort of shift their mentality. The financial aid award is not to help you afford it. It's to help the school get you to come there and when you look at it that way you can see why schools might give one aid versus another kind of aid. So when people get multiple different acceptances and financial aid award letters, the first thing they need to do is to sit down and work on comparing them apples to apples. There's a couple of different financial aid comparison worksheets out there on the Internet and you can, because the schools aren't required to label things the same, you need to get it all in one place where you can compare apples to apples, whether they're loans, whether they're grants, whether they're scholarships, lay it all out side by side for each school along with the cost of attendance because you know you might get a $20,000 financial aid package from one school and a $30,000 package from the other school. At the end of the day, it's really what's important is what you're going to pay out of pocket. Right. You said the cost of attendance is a key number there, but you look at them side by side and for the most part you're going to get less financial aid from public school or versus private schools. Private schools have higher cost. They also give on average more financial aid. So if you're comparing a public school and a private school, it's going to look very different. If you're comparing to private schools that are similar in either ranking or similar types of institutions and they're going after the same kinds of students and the Pi packages that you receive are very different. I always tell parents, you can ask for an additional review of your financial aid package. I don't call it negotiating. I just say ask the school if they could review your financial aid package to see if there's any way that they could meet the financial aid package of the other school. Because again, you think about them being in competition for your college spending dollars. They want to do their best to get you to attend. So it's really only gonna work when they want your student to attend and you'd, they're competing with a school that's a similar kind of schools type of school size of school and you know, ranked school, that's where you're going to get the best opportunity to be able to ask for a review of your financial aid award. And sometimes dairy, you know, toward the end of the admission season, you might have a better chance at doing that because if they've offered financial aid to students that end up declining and saying that they're not going to attend, it sort of goes back into the pool for that school. So it never hurts to ask. The answer's always no until you ask is what I tell people.
Scott: Sure. So that's good for the first year. So do you do the same thing in the following years as well? Third Second, third, fourth year.
Nannette: Well, so that's, that's a good question. And one the most important things to understand about any financial aid award package. So your freshman year is whether those pieces of the package are renewable for all four years or five or six, depending on how many of you are there. Because a lot of schools will front load their package and you're all excited and it only costs you 10 grand to attend this year, but the next year it's going to cost you 30. So understanding that initial first year financial aid award package is really crucial. You do have to apply for financial aid every year. You have to fill out the FAFSA every year and the CSS profile of the school requires it. But you, you know, the second year, you don't have any school to play that off against. Right. So it's really, it's most crucial to understand what goes into that first year package and what is going to be an ongoing award versus a onetime award.
Scott: That's just trying to think through my years in college. I don't really ever remember after that first year. I mean my dad submitted the FAFSA and that was it. And we just went. We never really sat down and looked at it and consider it.
Nannette: Yeah, most as long as there's not a big change in your financial situation of your family, the fastest going to be pretty consistent year over year. You can, you know, basically when you go in to fill it, fill out the next year, you can retrieve your information from the, you know, the previous years. You don't have to start all over from scratch. So you know, it, it becomes easier if you are receiving scholarships that are based on academics. You might have to maintain a certain grade point average, you might have to be making satisfactory progress toward graduation. There may be other criteria that you have to fulfill in order to maintain that scholarship, that amount that you're allowed to borrow from the federal student loan program goes up in your sophomore year and then it goes up again and your, your junior year. So that might have a small change in your other financial aid that you're receiving. And then the other thing too is that one of this sort of the pieces of the financial aid formula at called the, the asset protection allowance has been going down in recent years. So in the past you used to be able to sort of protect a certain amount of assets from the financial aid formula. They, the formula itself sort of excluded those assets and it's basically in the last 10 years gone from say, let's just give an example of like $40,000 down to 10 that can make a difference in your aid eligibility within a couple thousand dollars because of the fact that your expected family contribution has been rising. So at any given family apples to apples year over year, as that asset protection allowance decreases, the expected family contribution goes up. That's been a surprise for a lot of people, especially ones that might've had three kids for example, that have been going through college over the last 10 years. They've definitely seen their eligibility for financial aid drop.
Scott: Yeah, that would be a shocker to start kicking up on you. Yes. Your financial planner. Is there any other professional help? Like for instance I've seen college consultants and that probably gets more to the side of helping the kid write their essays and stuff like that. Is there anything that you recommend around that? So the, the whole college consulting industry, I, I feel like I saw something recently that it's gone from like, I don't know, something ridiculous from like a hundred college consultants to like 5,000 in the last 10 years. I don't quote me on those numbers but the, there has been an explosion in college consulting and I think in general there are very good college consultants out there. If you're looking for specific things now if you're looking for somebody who can help you pick the right school, I think that that's a huge return on investment. If they help you find a school that you're going to be happy that kids can be happy at and they're going to stay there and they're going to graduate in four years and get a good job. Cause the school choice is the most important thing. If they are going to help you write essays and get into a school that maybe you can't afford. I don't really like that as much because you know, I don't like college consultants that say, you know, we can get your kid into Harvard or we can get, you know, just pay a half a million dollars and we'll get your kid into USC, you know, that can get you into trouble. Uso those are, those are the ones I think people should stay away from, but there are really good folks out there that are helping kids figure out what they're interested in, what kind of school they would be happy at and, and making sure that they're thinking about their major and their life after college. I love those kinds of consultants. The others kind of consultants that I love are test prep consultants. And the reason that I love them so much is because I truly believe that almost any dollar spent on test preparation and proving test scores will follow up with additional merit aid from schools. The higher your test scores are, the more money you're going to be offered from schools in general. And so most kids take the act or the sat more than once these days for kids, you know, you want to understand which test they take, you know, which test they test better on. Are there strategies that they can learn to, you know, be able to do, do better on the tests. Are they anxious about test taking? Do they need some help with coping strategies? You know, what are, what are the things they need help on? Are there specific topics that they're weak on that can be improved? Either math topics or English topics? Test Prep I think is a huge area where people can really get a lot of return for, for spending money with a consultant or a class or online on Khan Academy for free. It depends on how your student works and what's gonna work for them and it keeps the parents from having to nag them. A, which I think is always helpful during high school on the college, on the college planning, financial side of things. That's where I, there's a lot of people out there that are selling insurance. Annuities are selling financial aid form help. Helping people fill out the forms. I think buyer beware, you know, in those areas you really need to understand what the consultant or the planner or the advisor is going to be helping you with. What's their expertise in the area? Are they trying to sell you anything other than their service? That's, you know, it's unfortunate that the, I think that that part of the industry has really gotten a bad name because of the, the bad actions of, of the predecessors.
Scott: It's like I said, buyer beware probably in your gut is where he can tell the best if somebody is trying to sell you something or they're actually trying to help you. Yeah, listen to that. Gut usually helps.
Nannette: Well, you know when the crazy part is is that say for example, somebody sells you a hundred thousand dollar insurance policy to beat the financial aid system, they're going to get, I don't know, maybe $10,000 in commissions for selling you that policy. If you had just left that money in your bank account, the highest waiting in the financial aid form that that money would have is 5.64% so you expected to contribute $5,640 of that 100,000 to pay for school that year. And personally I'd rather give my money to the school then the guy selling me the insurance policy. So I think, you know, when I tried to explain it to parents in that way, it makes sense.
Scott: Yeah. It's that old story of that we talked about before with the tail wagging the dog instead of talking back and the tail. Yup. Yup. Okay. So talking about a little bit of a pitfall were pitfalls or things. Do you say would you recommend parents watch out for as they go through the process to getting their kids off to college?
Nannette: Um well many people, they believe in the, Oh, just let your child apply wherever they want to and see where they get in and then you'll figure out how to pay for it. Don't do that. That is the worst. It is so much harder to tell your son or daughter that you can't afford to attend a school that they got into that they feel like they want to go to. That to me is the biggest pitfall that parents have in this whole process. Think about the money ahead of time. Understand what your budget is, know how much you can pay, and then consider schools that are gonna fall within that budget. There's no excuse for being surprised at the May, first of your new child senior year about how much the school is going to cost to attend. So I would say that to one. The other pitfall is the whole loan thing. Because of the ability of parents you are as a parent provided you have, you know, minimal negative history in your credit, you are able to borrow the full cost of attendance to send your child to any school minus whatever financial aid they receive. So if they get into Harvard and you receive zero financial aid, you can borrow as a parent, $65,000 to send your kid to Harvard each year. And the federal loan program doesn't look to see if you can pay that back. And so many schools make it easy for parents to just sign on the dotted line without reading what they're signing and send your kid to this school. And I think that's a big issue for, yeah.
Scott: Taking on those loans. I have a couple of clients that are dealing with plus loans and they've been talking about how they get their kids to pay. The kids are working a job or maybe not some low paying job and they're reluctant to force the kid to give them some money and they have to pay. And they've been asking me how we can write those loans off. And I'm like, ah, that's, you really can't write those off. Yeah, yeah,
Nannette: Yeah. And you can't, and you, you can't get away from him in bankruptcy. And the, the kid doesn't have to pay. It's not in their name. Yeah. This is the parent's debt. And if you can't pay it, don't borrow it. And I really feel very, very strongly about parents not borrowing to send their kids to college unless it's like a super small amount, like five grand a year just to, you know, sort of cover a cashflow shortage.
Scott: Yeah. There's a lot of parents I think that are hoping that one of these politicians that's campaigning on paying off student loan debt gets an office. Cause I know a lot of parents that are deep in debt that they took on without really thinking about.
Nannette: Yeah. Yeah. And I mean, I, you know, you see articles about garnishing, like social security techs to pay student loan, you know, plus loans back. Yes. Yep. Like that's, it breaks my heart. Yeah. People should understand what they're signing up for. I don't under, and I guess I, I just, it's, it's just a difficult situation all around.
Scott: Yeah. And I could see the backside that these loans have such a big effect on our economy as a whole, you know, people putting off getting married or buying a home. But yeah, that's a lovely thing. So what about, also, I've seen things about scholarship services. Have you seen, do you know anything about these things that they have? Okay,
Nannette: That's a great question. So I get a lot of questions about parents who've already decided where, you know, the kids accepted and they're looking, you know, where can I find scholarships? The bottom line is, is the vast majority, like 85 plus percent of scholarship money comes directly from the school. So that is money that the schools are giving out, whether it's merit based or need based, that comes from the school that you choose to attend. That's why choosing the right school and choosing one that gives you scholarship money for whoever being whoever you are, whether that's you know, a musician or an athlete or a biologist or a computer program or whatever that is, the school's going to give you that money. The much smaller percentage of scholarship dollars are the ones people are thinking about where they're thinking about, you know, the Coca Cola scholarship or you know, private sector scholarships that you have to apply for. And you know, you have to you have to win them, right? There are websites out there that are, you know, dedicated and companies that will again try to sell. You will find your kids scholarships. Just pay us $2,000. We guarantee we'll get you your kid more. I tell people this, first of all, stay away from anybody who asks you to pay to find scholarships. There's so many free websites out there where you can search those kinds of scholarships. You need to find a website. You can look, you know, Google best scholarship websites and finding one where the search criteria are good. You know they're detailed. You know, are you a African American female who's interested in, you know, going to med school, there's probably a scholarship out there for you. You need to find a website that you can search on those things. So finding a good website to search as important, but also making it a part time job. It's not going to just, you know, you're going to fill out a couple applications and the money's going to rain down. It's a part time job to find the scholarship, apply, put in the you know, essays or provide the information that they need and then you wait. And so even if you then earn that scholarship, they're usually small dollar amounts, maybe a thousand dollars, $2,000. And you have to earn several of them to really make an impact on whether or not you can attend a school that's not affordable. And then a couple of other things to consider is if you earn $10,000 in scholarships, for example, this school, those typically go straight to the school. And it's not like the school doesn't know about them. Oftentimes they will replace their own financial aid with the scholarships that you've worked so hard to earn. So parents often think of fire and all these scholarships, I won't have to pay out of pocket. The school says, no, no, no, no, no. You did all the work. You earned the scholarships though that we don't have to give you our money. You still have to pay out of pocket. And the school is well within their right to do that. And that sucks. Yeah. And so you need to understand going in what is the replacement policy, the scholarship replacement policy of the school. And then the final thing is, is that even if you get them this year again, what are the renewal criteria that you need? You know, do you have to go through this whole process and you're not guaranteed that money again next year? One of the biggest problems that the folks that are in the that are, you know, the highest percentage of delinquent student loans, the ones that are in the most trouble financially are students who went to school, started school, borrowed money, and then dropped out because they couldn't afford to continue. So every plan for college should be a four year, five year, six year plan, not just a one year plan to be able to pay that freshman year
Scott: Scholarships. In my experience, usually they were so specific, like you're a member of this American Legion and they give out a scholarship to one of their members kids. So Yup. Even to get them, you know, to get to the point where you can apply for it. It's generally a real specific thing for real sprite person.
Nannette: Either it's super specific or it's so broad that you have a very small chance of winning.
Scott: Yeah. Okay. So as we're closing out here, what a last piece of advice can you give to people getting ready to go to college,
Nannette: Learn about the process, read my book obviously and so many parents because of the fact that this is so different than it was when most parents that have these, you know, high school age kids went to college, it's so important for parents to become educated about the process and the system and not sort of buy into the hype. Don't, don't think you can just maintain ignorance and apply for schools and you just write a check to pay the bill. I think that parents really, you have to become your own best advocate and learn about the process and talk to your kids about it before you start. And I think that that's, you know, parents who do that really, they, they just are, they're so much more equipped to make these tough decisions and you know, without having that pressure of the heat of the moment on them.
Scott: How can people get a hold of you and talk About College?
Nannette: So check out my website, CrazyCollegeMoney.com I'm actually, as I sort of, you know, build out my resources that I'm going to be posting on there. I'm actually going to be adding other financial planners like me who specialize in this area, who are, you know, decent folks and not trying to sell something because I want people to have a network of folks to go to when they need, when they need assistance in this area. But to be honest, 95% of it you can learn on your own as a parent. And that's what I tell people. Just be confident and, and you know, open your mind to, to learning the ins and outs of it. It's not rocket science. So I also have a Facebook group where people can come in and ask questions. So it's, you know, I really am passionate about helping people through this process without making decisions that are really gonna ruin them. Finances.
Scott: All right, well thanks a lot for coming to the show.
Nannette: Yeah. Thank you so much, Scott.
Scott: Thanks to Nannette for coming on the show. The choice of college is as much an emotional decision as a financial. Give her book, crazy college money, a read and keep your Saturday. Thanks for listening. Thank you for listening to Sheepdog Financial. Visit us online TrisuliFinancialAdvising.com for more military centered financial resources.