E45: How to Avoid Going Broke Paying For College

In this episode, we discuss how you can avoid going bankrupt paying for college. We’ll share techniques, strategies, hacks, and tips. Click here to tune into the show…

There are a ton of questions parents ask themselves when thinking about paying for their child’s college tuition. What are some things we can avoid when we send our kids to college? How do we pay for this and not go bankrupt in the process?

And merely to send them to med school, it can cost up to $2.6 million in some situations. This is putting your kid through college, med school, and specialty. Now that doesn’t mean you will have all that debt, but they’re going to graduate with a lot of debt.

It is possible in the world we live in today to have this kind of debt when they graduate. And we as parents want nothing more than to have our kids succeed, be successful, and to pursue those dreams they want to do.

But at what cost? Every year it’s getting more and more and more expensive.

Paying for College Without Going Broke Topics Discussed:

  • The ever-growing cost of paying for college tuition.
  • Tactics and strategies for reducing costs.
  • Building a “family scholarship”
  • Leveraging financial aid and scholarships
  • Negotiating with colleges
  • How to “look poor on paper” without being poor
  • The hidden trouble with 529 programs
  • The sneaky scholarship and aid trick with whole life insurance

Click here for the transcript

Podcast transcript for episode 45: Avoid Going Broke Paying College

Nate: In this episode, we will discuss how you can send your kids to college without going bankrupt. She’s Holly, and she helps people find financial freedom.

Holly: He is Nate, he makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered. 

Well, Nate, I’m gonna say we kind of came up with this, because I have a lot of friends who actually have kids who are starting to graduate from college, or they’re graduating from high school going to college, or they’re at the age where they need to have already started thinking about college. Or hopefully start thinking about sending their kid to college if that’s the route their child wants to take.

And the reality is is that sometimes you have to ask yourself, is it really worth it for my kid to go to college? Or what are some things we can avoid when we send our kids to college? And how do we actually not go bankrupt? And believe it or not, you might think that’s crazy, nobody would become bankrupt in stuff like that. But the reality is, sometimes just to go to med school, it can cost up to $2.6 million through college and med school, especially if somebody specializes, right? Now that doesn’t mean they might have all that debt, but they’re gonna graduate with a lot of debt.

And I even know somebody that graduated, they went to orthodontics school and different things like that, specialized. When it was all said and done, they had around $800,000 debt. And they were actually paying $80 a day in interest until this debt was paid off. Now you say, that’s not possible. It is possible in the world we live in today to have this kind of debt when they graduate. We as parents want nothing more than to have our kids succeed and be successful and go pursue those dreams they want to do, but at what cost?

Nate: I mean, college is … No hidden fact here … It’s going bonkers with cost. And every year it’s getting more and more and more expensive. Holly and I are seeing story after story of either people who have graduated who are in tons of debt, or people whose kids are wanting to go to school and they’re coming to us with figures that are just astronomical. 40, 50, 60,000 dollars a year for an undergrad degree. Then you ask them what their degree’s in, and it’s in like Old English Architecture I mean or something like English poetry. You know, like what on Earth are you guys spending $50,000 a year to get a general education degree?

And I just talked to somebody the other day who has a child who is graduating with over a hundred thousand dollars in student loans. Not uncommon, I have plenty of clients that do this. But, I mean, they’re sitting here and their child is graduating a hundred thousand dollars of student debt, at like average of seven percent interest. That means you’re graduating in $7,000 a year you’re paying in student loan interest, this person is. And you ask them what the degree was in, is it a high paying thing?

Are they becoming an engineer? Are they becoming a doctor or a lawyer? I mean, what’s going on? And it’s not, you know? It’s … Maybe they got like a teacher degree or something like that. And teachers are well-known with all the strikes that are going on, they’re not getting paid very well.

Nate: So it’s getting crazy out there. So that’s our goal of this podcast, is that you don’t find yourself in that position, where either you or your children are going to suffer severely just to be able to attend school.

Holly: Absolutely. And really, if you think it’s unrealistic, honestly they say on average, college tuitions are being raised anywhere from as low as about 2.9 percent a year to as high as four percent a year. It’s not like it’s a steady rate that for the next 10 years, this is what the college tuition cost is gonna be. And let me just throw out some figures so you guys understand this. If you’re child just wants to go to a private college, not an Ivy League, just private college, it’s gonna cost you at least $34,000 a year, minimum. That’s the average. If it’s a state resident school or public college, you’re still gonna be spending about $10,000. And that’s just like tuition and stuff, that’s not actually housing or anything else. And out-of- state, it’s around 25,000. And if your kid really wants to go to one of those Ivy League schools, you’re looking at around 48 to 50,000 dollars.

Nate: And that’s probably just tuition. That doesn’t include room and board and all of that, which you’re just gonna keep boosting it up. The moral of that story, Holly, just have your kids live at home. I just … I don’t know. But it seems like that’s one of the only pathways these days, is it’s just getting unbelievably expensive.

Holly: And Nate, it’s gotten to a point where, even at least … And I’ll say this … In California, having worked for the California State School Systems … It’s gotten to the point where sometimes your kids don’t even have the right to live at home anymore. That they actually tell you, oh, if you don’t live within this radius of the school, you’re required to live on campus. So now it’s another bill you’re having to pay. You’re gonna be spending easily $10,000 just in housing for a year. Easily. And I would say that’s a low number, and that’s a shared room or something like that. But let’s say you’re going to that state school. And they say on average with books and everything like that, and the housing and throw it all in, you’re still gonna be spending around 30-some-thousand dollars a year to send your kid to school.

If the average state schools taking five to six years to graduate from, it doesn’t matter that you saved money by sending them to the state school. Because a private school, they’ll be out in four. You’re gonna make up the money somewhere. The government or the banks are gonna get your money one way or the other if we don’t think different ways of getting out of it. And actually, what is our kid going to school for? Maybe you should go to a two-year junior college first if you’re gonna go into a degree that’s not gonna bring much pay. You can say that’s harsh, but really, do you want to go into Art History or something, where you’re starting out working minimum wage maybe of that? Maybe a little more. And the reality is, it’s gonna take you years to pay off that college debt.

Nate: You’re absolutely right, Holly, with going to the community college or the junior college or something like that to get a lot of the general eds. You’re taking the same classes those first two years of college that you could take at a junior college for a fifth of the price. You talk to the colleges, no one cares about the general eds. I mean, really, you’re paying a huge amount of money for them to learn things that they probably already know or they don’t need too much of. So a lot of people do this for the college experience, but the college experience is just getting too expensive. It’s just going out of control.

So we wanted to give you guys some advice I guess. Everyone’s different. Don’t take our advice for gospel or Bible or … Just some advice that we kind of came up with with how you can handle this rising cost without going bankrupt. Without spending all your money or without putting yourself under a deep load of debt.

So one of the first things that I thought of was come up with a dollar amount that you can afford to do to send your kids to school. Say it’s 10 grand a year, 20 grand a year. I don’t know what the dollar amount is. I have the idea of almost like a family scholarship. Because we love you, we’re gonna offer this to everybody. You can account for inflation if you want and raise it, different things as time goes on. But just have … You know, this is the family scholarship, and really encourage your kids to try to get aid and try to get scholarships and find some schools that you can afford to send them to without them having to pay anything in that realm, if that makes sense, under that family scholarship. If it’s $20,000 a year, then let’s go for that. Work together, find a school that you can send them to they can actually get through for that if that’s the case.

Holly: Set a realistic number for yourself. I know we want the best for our kids. I know you want them to be able to go wherever they want to go, but the reality is that might not be true. You might realistically not be able to afford to send them wherever they want to go. Ir-regardless of scholarship and how brilliant they are, the cost of that might not be realistic for you and your family. And so, say, hey, this is what we have, we’re gonna call it our family scholarship. This is what we can give you to go to university. Like Nate said, there’s ways to save in sending them, but honestly, think of that. Like what is that dollar amount? And be realistic with yourself. Don’t make it $50,000 if you can only afford 30.

Nate: Don’t feel guilty about it, either. I know we want the best for our kids, but not everyone is unbelievably rich. Not everyone can send their kids and spend $200,000 sending them to school. Each one … I mean, you have three kids and you may not be able to send all of them exactly where they want to go. Everyone needs to be on board with that. Or another thought we had, Holly, was to have the family scholarship, but instead of ruining your retirement or ruining your financial future by sending everything you’ve got, the next step would be to offer the family scholarship. But nobody really wants their kids to be in debt to the student loans and the government. That’s a burden that they carry for the rest of their lives. So we want to do everything we can to avoid having them borrow money from the government if at all possible and having to carry that out.

But maybe, if the school’s gonna cost 40,000 and you’re family scholarship’s 20, maybe we go ahead and fund the other 20 if we have ability to. But we do it as a loan instead of as just a gift. That way when they graduate they can pay Mom and Dad back instead of the government. Keep all the money in the family. They’ll hopefully get it back whenever we die as part of the legacy that we’ll leave them. But that way, you can work with them. You can offer assistance. You can do the things you want to do, with that being the case, without having to, you know, impose this debt from university. Parents are normally more merciful than the government and the banks, especially.

Holly: If you have the means and the ability to create that loan, you’re giving to your kids, but you’re not making them dependent on you. You’re creating independence for your kid to stand on their own two feet and to actually say, it did cost me something to go to college. I think that that’s a great learning lesson, because you want to pay Mom and Dad back. Mom and Dad typically sacrifice for the kids, and they give them all they can. And a loan to go to college is no different than a loan from a bank or the government, but the reality is like Nate said, Mom and Dad will have more mercy and grace, I truly believe.

And the other thing is, if you borrow from the bank or the government, they can start garnishing your wages and taking it from what you earn, ir-regardless of if you can’t pay. And that means you might not have a roof over your head. And I think the reality is that when you’re loaning the money, there’s a lot more flexibility to create what those terms are and what it looks like for your kids to help them out down the road.

Are you tired of being stressed about money? The Dollars and Nonsense Podcast is sponsored by Living Wealth. Visit livingwealth.com/freedom to get your free Smart Money eBook and sign up for our personal wealth presentation today.

Living Wealth is a family-owned and operated business which works with individuals, families, and even businesses to slay the money stress dragon. Our clients receive individual coaching regarding wealth creation and how to create a retirement income. You’ll be enabled to have cash today and in the future. Since 1972, Living Wealth has been committed to educating smart people on basic money principles. To assist them in becoming debt free and finally find financial freedom. Let us help set you free. Remember to visit livingwealth.com/freedom to receive your free eBook and even sign up for an individual wealth presentation today.

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Announcer: After working hard, my reward was to be able to afford the lifestyle I had built for my family. Of course, when you’re not sure about money, it always seems to get away from you. That is how I felt back in those early days when I still had many money lessons to learn. The good news is that I did learn them. And along my journey, I picked up some incredible insight into how money works and how I could make sure that living from paycheck to paycheck would not become my eternal fate. God wants us to lead a life of abundance, and that is really what this book is about.”

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Nate: Another thing you can do as a family … But one of them, I know with my little sister going to school … We don’t come from a wealthy family whatsoever and they had to kind of set amount that they thought that they could do. Got approved to the college they really wanted her to attend, and so they pretty much just came up with a number, our family did, that they could send her to school with. And they kind of play hardball with it. And what I’m trying to get her to do is fight for reduction. For the reduction of the tuition and play some hardball and say, this is all we can do. This is it. If you guys can meet us here, then we can go. If not, we’re gonna have to go try somewhere else. And really build a relationship with the financial aid folks and work it so they may do it at your level without having to go nuts.

So I guess that’s my next, you know, advice on how to do it, is come in knowing what you can do. And then fight to get to that. Wherever you’re applying. And you might have a much better chance of them dropping if you come in in control and in charge. Don’t just have them tell you what financial aid packages you get, continue to work with them. Ask for exceptions, ask for more aid. Say we really want to go this school. And work with it, and you may find yourself in a position where they will continue to drop it down until you can make it there.

Holly: Well, and I’m amazed, too, at all of a sudden sometimes how there’s scholarships available that when you don’t fight for it, you’re gonna miss out on that scholarship. I’m gonna tell you, there are schools that have scholarships available, waiting to give them or grant them to individuals or people, and they wait and they look for that student that’s coming in that’s gonna be tenacious. That’s gonna pursue. They want to go to that school. They wanna earn a degree, and they believe they’re gonna be successful.

They want to give a scholarship to somebody that they don’t just believe has earned it, but is gonna follow through on their commitment to the school. So sometimes when you play hardball, they actually can all of a sudden find some money, whether it be via scholarship or a grant, that was there all along, but they were waiting for the person to ask.

The worst part that can ever happen when you’re playing hardball and saying this is all I can do, and this is all my family can afford, is that they say no. That’s the worst answer you’re ever gonna get. The best answer you’re gonna get is, hey, yeah, we found some extra money somewhere.

Nate: You’d be surprised how many times they do. I mean, not … Maybe not some of the Ivy League folks. And I’m sure there’s some universities that really can’t work very well. But … And honestly, there’s quite a few who probably will work with you.

Holly: There’s a lot of private universities and people out there that can even find an internship or something that gives you some type of aid that helps you in exchange for maybe it’s a work service project or something like that. But I’ve just been amazed even working for universities how all of a sudden, there’s money somewhere. It just took the right person asking the right questions. If that’s not your style, you do have to be honest. When you’re applying for financial aid and when you’re communicating that, you can’t go to a school you can’t afford.

Nate: Yeah. I’ve heard too many stories of people who are just so desperate to send their kids to a school that they really shouldn’t be sending them to. And it hurts the kid and it hurts the parents, ’cause the kid probably graduates with some debt and the parents are broke afterwards. And they have to restart it completely.

Holly: It’s true, Nate. I have friends that said, we know we can afford to send our daughter to this school for one year. So we’re gonna send her for the one year, and hope we can find the money for the next year.

Nate: Oh, good grief.

Holly: Out of state, great school, right? And guess what? They did not have the money to send her the second year. Talk about devastation. At the end of the school year, you finish one whole year there, and you’re packing up knowing you can’t come back? You couldn’t enroll in classes like all your friends did. You’re packing up, going home to live at home. And they’re like, well, maybe we’ll be able to get her back there, you know? And the reality was, I don’t know if it honestly hurt her more to send her for one year, and not have the honest conversation. I think they should have said, hey, you know, we can only send you to school there for one year.

But to not have that conversation … Or to have the conversation and still do it, what is the benefit of sending them there? For one year? And you have all this debt, and now she’s going to a junior college and then is going to transfer to a state school. ‘Cause you gave her the college experience, there’s mountains of debt now. It would have been in their best interest to just have been honest and said, hey, I’m sorry. We can’t send you there. I know you love that school.

So, just be honest with yourselves where you’re at financially, but also with your kids where you’re at financially. Kids need not honesty, not fantasy. They need you to be realistic of where you’re at and what you’re gonna do. And the other thing I want to do, is for some reason, when our kids go to college, I feel like our brain goes out the window, and we just agree to anything. Any terms, any conditions, just to send them to that school, or to make their dreams come true. So if at all possible, really think about those loans you’re taking out, that financial aid you’re taking out, before you just agree to that loan. And sign the terms and conditions just because your kid needs to go to that school. Really honestly think about that.

Holly: And I think another thing, Nate, we want to talk about, too, is how do you make yourself look poor?

Nate: Right, that’s our final thing here today … Is one of the best things you can do is look broke. You can be extremely wealthy, but if you can figure out a way to look broke on paper, especially in the eyes of the financial aid forms for FAFSA, the federal forms, but also for each of the universities’ financial aid forms … There’s certain things that aren’t normally accounted for in those forms. So even if you do have a lot of money, your goal going into it is trying to position your wealth so that you can look broke, and that will improve your chances of qualifying for different scholarships and grants that are more need-based, and not as much academic-based.

Nate: The big one for us is that whole life insurance cash values are typically not on those forms. And so … In fact, I don’t think they’re on any of those forms, really. And so, I mean, if they’re not on the forms, you could have a million dollars and you’ll never have to disclose any of that. And so you can look totally broke … We’ve had people do that, where they’ve come in … They’ve actually been quite wealthy, but they’ve been able to position themselves in a way that they lool broke, and you can send your kid for five or 10 thousand dollars a year out of pocket to a $50,000 a year school because in their eyes, you don’t have any money. If they get accepted and they’re trying to work with you to get them in there, and you say we don’t have any money, look at our forms, then you suddenly have a much higher chance of them trying to work with you than if you come in and you show you have a million dollars sitting around in your brokerage accounts and all those other stuff, and your investment properties and all of this.

They’re not gonna feel on fire to give you more money, ’cause they’re like … They say, hey, we need to go give this to the people who don’t have anything.

Holly: I’m just gonna say that if you do own whole life insurance policies and there is cash value in it, the fact that you can actually use that cash value for whatever you want, if your kid is going to school and how you want to use it versus some of our government-funded programs that only cover specific things. And that’s the only thing the money can be used for. But it also counts against your kids when you’ve started those programs.

Nate: Like the 529 Programs, yeah. Especially they’re like, if you come in there and you’ve got a $100,000 in 529 Programs, well, guess what? They know you can spend it, so they’re not going to drop tuition any lower than 25 grand a year, you know? Or whatever it’s gonna be, ’cause they see it.

Holly: And there’s a lot of like States now starting where you can pay tuition now for your kids going in the future. There just in middle school, even. 12, 13 years old, and you can start paying your tuition now to the State for them when they go in the future. Like, Florida has one. Florida Tuition Prepaid.

Nate: Huh.

Holly: Yeah. So, Florida Tuition Prepaid. Great, you give them the money. What happens when your kid is 16 years old and it’s two years away, and you gave them the money for two years? You can do it in advance, Nate. You can actually pay them a year in advance or they’ll take … You can pay them on a monthly basis. Okay?

Nate: I like to give money in advance, but I’m happy to take anybody’s money in advance if they’re willing to give me.

Holly: The State is gonna find a way to get your money, okay? The government is gonna find a way to get your money. The 529. Does that hurt your kid? It actually does when you start filling out financial aid forms, or can they qualify for this grant or this scholarship, ‘kay? Because they look and see what you’ve already done to prepare your kid for college. Now, it’s not bad to have prepared your kid for college and prepare for them to go to college, but the reality is, is that the more prepared you are and the more invested you are, in government and state programs, the more they believe your kid has the ability to go to that school and another student needs the money more. It actually is like a strike against your kid, ’cause you were prepared.

Nate: Yeah, it’s like you saved up all the money, congratulations. We’re not gonna give you any money. And then these other people who didn’t save any money and blew it all, we’re gonna give them the scholar … Don’t fall into that trap. You can look broke on paper just like anyone else can. You just gotta put your money in the right places, you know? Whole life insurance cash values are one of our favorite ones, ’cause we can put it in there. It’s not on the forms, and yet it’s very easy to use it to actually pay for school.

Holly: And it can continue to grow while they’re in school.

Nate: So it certainly is a great place to build wealth into … Especially if you’re trying to make sure your kids can go to whatever school they want. Then looking broke on paper, maybe you didn’t have a lot of money, but looking broke on paper is a key to being able to send your kids to school without going bankrupt.

Nate: All in all, Holly, we’re just trying to help people get some ideas. Maybe have a set family scholarship to send your kids to school. Maybe lend them some money on top of that if they need more, so they don’t have to go to banks. Try to look poor. Don’t just fall prey to the rising cost of school, but try to figure out ways you can control it.

This has been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/E45.