E84: How To Save Money Financing College with Infinite Banking

Nate: In this episode we will discuss exactly how you can finance college education by using an infinite banking policy. And the different ways it can be done whether you’re in school now or you’ve recently graduated and are trying to pay off your student loans. Or whether you’re saving money for your kids to go to school in the future. She’s Holly and she helps people find financial freedom.

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

Nate: This podcast episode really spawned because it’s a question that we get asked a decent amount about because college education is really on everybody’s mind in one form or another, it seems like. All the way up for the grandparents these days trying to help save money for their grandkids and the parents saving money for the kids. Or you’ve gone through school and you’re dealing with student loans. It’s a huge commitment, a lot of costs, a lot of confusion on how to save up for it, what you should do.

Nate: We’re going to try to unlock some of that and share how infinite banking can come in, in any stage of your student experience. Whether it’s you, or your kids, or your grandkids. Why policies are such a powerful tool to use and really in almost any scenario. Holly and I are going to do a deep dive today on those topics.

Nate: Let’s start with the people who have already gone to school and they’re sitting with student loans right now, could be any variety of debt but we’re just going to talk about student loans today. They’re trying to figure out how to pay for it. Should they pay it off really fast? Should they send a whole bunch of money to it? Should they start a policy and use that? What do we think about in that arena?

Holly: I think mostly in the arena what we think about is the fact of, it’s always better to put the money into a life insurance policy first and then start paying off your student loan. Versus just sending that money to the student loan and paying it year after year. I’ve heard of people that now have student loans in the upward of 30 year loan repayment, same as a mortgage. Basically their life is just, “I’ve got to earn money and I’ve got to pay this student loan.” Instead the reality is you need to actually be first putting the money into a policy and then working to pay the student loan. Because all you’re going to do is keep giving them that money and it’s going to leave you and your family and it’s never going to come back to you.

Nate: There’s some of us out there who have such small student loans with such small monthly payments and low interest rates because they’re government subsidized where it’s just not a big deal. But a lot of people just hate having that hanging around and hovering over their head. We’re all trying to pay it off, the question is just, should I spend the next three, four, five years or more throwing as much money as I can directly at the student loans? Or should I do something else with that money and pay it off three, four, five years but have my money instead of just throwing it at the student loans doing something else? That’s what we try to suggest doing is funding a policy first, and then use the policy to finance or to pay off the student loans when we’ve built up the cash value to do so. That way you actually have access to money instead of being broke with a low student loan balance.

Nate: Now that’s the problem with the student loans. Every time you send them money, it’s not like you can ask for it back if you needed it. You can’t just call them up and be like, “Hey, I prepaid a whole bunch of this student loan debt. I didn’t have to, I just sent you extra principal. But now we’re in a bit of a tough bind. Can I get the money back?” That doesn’t work that way. You have to keep that in mind. It’s possible that it makes sense to keep the money on the side using a policy and then pay it off in one fell swoop when you’re on solid footing. But throwing everything you have at student loans may not be the best choice.

Nate: But then on the flip side, once you’re there and you’re able to pay it off. Now you have this policy that’s four or five years old. We just drained it to pay off these student loans, which is fine. But even with it being drained at cash value, 100% of it’s still earning for us and will continue to earn for you even though we just used it all to pay the student loans. That’s the beauty of the policy. We don’t actually withdraw money, we borrow against the money. But this allows us to have a policy where four or five years in, especially if you’re already doing infinite banking, you guys know this. Man, once you hit that four or five year mark, you’re paying a premium of a dollar … let’s say the premium, we put a dollar in and we can pull out $1.40 or $1.50 of cash value.

Nate: We get to start there on our lifetime instead some people waiting four or five years to start a policy until after their student loan debt is gone. I don’t think that makes a lot of sense. It’s also true that by starting the policy first, we don’t talk much about the death benefit. But it’s true that if you’re married and you have student loans, you probably just don’t want to die with the student debt. Having the policy in place in advance that you could be throwing some money at the student loans and to void the balance. But if you were to die before it’s gone and that bill is left hanging. Having a policy to be able to pay that off at any given point can be very comforting. Especially if you’re a professional or if you’re an individual that’s got 200,000 of student loans.

Holly: Great point on the death benefit because when you’re sending extra money, you don’t get it back. But on the same hand, there’s no death benefit should something happen to you to provide even for that debt or your family should something happen. All you’ve done is given the money to somebody else to use. Even if you’re just starting out and you’re like, “What do I do?” I have to tell you, after helping more than one, or two, or three people actually paying off their student loan by using a policy. They have so much freedom with their money in the control of it and what they want to do. Instead of this burden of this huge student loan debt looming over them because they feel like they have options. Versus, “I just have to keep giving them this money and it’s gone and I never get to see that again.”

Holly: I think that’s the power of it, is understanding the money goes into the policy, but the fact that you’re borrowing it means it’s still growing for you. It’s not gone, it’s doing more than one thing. We talk about that a lot. But not only are you able to pay your student loan off, that money is able to grow for you tax- free and it provides a death benefit. You’ve got to start thinking of a bigger picture other than, “Let me just keep sending that money to the student loan people for the rest of my life for the next five, six, seven, eight, nine, ten years.” Then have nothing to show for it when it’s gone.

Nate: Exactly right. You want to be building wealth while you’re paying down debt. Paying down debt itself is not building wealth. There’s nothing creating on the asset side. You’re just reducing liabilities. You want to build assets correspondingly, the assets are what make you free. You can have no debt and be broke and that’s not very exciting. The key is to have assets and start reducing liabilities if they can gives you a great chance to do both. Another thing to note on this is we’re talking about just strategy of being able to pay down student loan debt or this really applies to almost any debt. That the vast majority of times if you’ve gotten a policy and we’re talking about paying off debt so you can start paying yourself back that money, which we want to do. It doesn’t always make sense to just take money out of the policy and throw it at the debt over, and over, and over again until it’s gone and chip away at it.

Nate: That goes back to what I’d mentioned earlier with just being broke and having a low student loan balance. Because you don’t always just want to take all the money out because once you send them the money, you can’t just walk over and get it back. We have to be wise about it. The rule of thumb that we have is that it can make sense to pay down debt and chip away at it if you’re able to free up a cashflow. Free up a monthly payment so that you can start paying yourself back.

Nate: But what you don’t want to do is if you have a student loan that doesn’t reassess the payment when you make a principal reduction. If the payment’s just going to stay the same, then our suggestion many times is don’t just throw money at it and chipping away at it. Let’s wait until we build them enough value in the policy just take it all over. Because we don’t want to throw money at a debt if they’re not going to free up your payment structure so you can actually recapture cash flow that was walking out. The same thing we go for like car loans or mortgages. Instead of chipping away at them now, our suggestion would be to pay him off all in full with the policy. Would probably make more sense because if you just throw money at them, sure you’re reducing the principal. But if you don’t have any money to show for it monthly, you can feel pretty cash poor and pretty broke.

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Holly: We have to start thinking differently with our money. One option is, how are we using it and why are we sending money if we can’t get it back? If it doesn’t change anything financially for us, then it didn’t do you any good to pay a lump sum off of that student loan. If you’re still going to have to be paying the monthly payments and nothing changed or adjusted at all.

Nate: If you’re an individual who is going to school yourself and you’re going to dental school, chiropractic school, you’re already in college, something like that, or you already have student loans, you’re trying to pay it off. Almost every time it makes sense just get something going now. Don’t wait until after you pay off the debt, don’t throw every dollar you have towards the debt. Start paying yourself first, build up an asset and then use the asset to pay the debt off. I think you’ll be much happier with that solution to the problem.

But if we can switch gears, there’s some of you who are grandparents, who are parents, you have young children and you know at some point they’re going to go to school. You don’t want to be stuck footing the bill for college without having any preparation. You’re figuring out how to pay for it, what you should structure, should your kids pay for it. I think we should offer some advice in that world, as well. How can you think about your kids going to school, your grandkids going to school and how can we pay for it? Why do Holly and I suggest a policy as opposed to a more traditional approach of like a government plan, like a 529 plan or just stashing cash somewhere?

Holly:

I think, too, now is a perfect opportunity because you either have grandkids that are young enough, you can start now. Or you have kids or they’re going college. They’re getting those letters of acceptance of, “Hey, you’ve been accepted to the school of your choice.” I’ve had three different friends who, “Hey, my daughter got accepted here.” “Hey, my son got accepted here.” Then the tuition comes into play. How much is that tuition going to cost and things like that.

I have one that hasn’t used their whole life policy and one that is. The excitement and joy is very different for the ones that have this life insurance policy because they’ve planned and they know. they’re not so worried about where she’s going to go and how they’re going to pay for it. Versus one that, “Hey, I’ve got this 529 program and this is the only thing it covers.” I think that reason we want to talk to you guys about this is so you understand there’s a better option than a 529 program in a way to really control your money and be able to provide for your grandkids or your kids. Or even have them pay you back in the future once they’re out of school without being tied to a financial institution or the government for those loans.

Nate: I think you’re right. I think we can talk about so much, but I think most people understand that the 529 plan is pretty deficient. Like there’s a lot of deficiencies there. They don’t even need us to talk about on the podcast. But we hear all the time people saving up money. College is becoming less and less important because the government sponsorship of it and the student loans are offering. The market for college education is flooded and there’s no guarantee of really having that much more success by going to college now than going off on your own and becoming an entrepreneur or something like that. Especially with how expensive it’s getting. I feel like we’re seeing more and more parents and kids where college is not … I mean sure you can go, but it’s not important.

But it is a little awkward whenever you have money sitting in a 529 plan reserved for your child and they decided not to go to school and you’re like, “what the heck am I going to do with this money?” Because if I pull it out in that we’re not using it for higher education, then we’re going to be penalized on the growth and pay taxes on the growth. Whereas if we had just put it in a policy, we can use it for anything we want, whenever we want without having any taxes or penalties to worry about no matter what. There’s way more flexibility with a policy. Then plus 529 plans are almost always funded with mutual funds. Which I don’t understand because typically 529 plans are not looking at a very long horizon. If there’s a collapse of the market, a huge correction, something like that right before your kids go to school. That can leave you footing a big part of the bill that you weren’t planning on footing because they happen to go to the school the year that the economy got wiped out.

There’s just so much concern there. I don’t even think people really love them, they just do it. There’s not a lot of benefit to doing a 529 plan. The policy is way more flexible, but I think it unlocks things that Holly alluded to. Like this, this hybrid student loan, this family loan system. The way I’m going to do it from my kids, none of them are anywhere close to being college age. But the way I’m planning on doing is I’m going to offer it like a family scholarship of sorts that I will just give them the money to go, up to a certain amount. Anything above that amount, if they do choose to go, is not going to be me just footing the bill for it. It’s going to be more of a family banking funded student loan where they’re going to pay dad back as opposed to the government, or as opposed to a private institution.

There’s going to be more flexibility there, we’re going to keep all the money in the family. Instead of having them make payments to everybody else. We’ll get to reuse the money. But that’s the hybrid system where parents, mom and dad, don’t have to foot the entire bill for this ever-increasing cost of college. They can recoup some of the money if it gets too out of control. This middle ground road I think is really becoming very popular.

Holly: I think the middle ground road is what’s essential. You want to provide your kids with something but maybe not have to give them everything. My kids are a little bit older than Nate’s, so I’m going to speak to the fact that I’m already thinking of if they’re going to college. Maybe they don’t want to go to college, that’s not their goal. For me, they all have a program they can use whether they go to college or not. I feel like they have a freedom to make the choice they want to versus, “Nope, mom and dad put this money here. We’ve got to go to college or I don’t really want to go to college. What do I want to do?” Because I want to support my kids in whatever they want to do.

The easiest way I’ve found it is with a life insurance policy that literally we have control over the money. We have control over saying here’s how much we can grant you or give you. Then this is what you’re required to pay for. Giving them some ownership and responsibility. The beauty of it is that I know that no matter what the policy gets paid back. That no matter what the money is still growing. That for the years that we have started their policies, 13 years on one, 12 on another, and 11 on another. The growth of those policies are so amazing right now that I really feel like they could go wherever they wanted to go or do whatever they wanted to do. Yet it’s not a cost to the family, it’s actually a benefit to the family. We actually are going to reap even more reward by keeping the money in the family and allowing them to use that policy and go to university or go do whatever they want to do. Start their own entrepreneurship and figure out what they’re doing in order for them to be successful.

Nate: Exactly right. How on earth could you ever know if your kids are actually going to go to school? In 18 years, if you just have one recently, man, what is the climate going to be like then? What is the landscape going to look like? How expensive is it going to be? Is it going to be worth going? We just don’t know. We just don’t know those. Putting yourself in a very flexible position of building money up in the policy as opposed to other ways, can open things up to where you can have a family repayment system. But also whenever we do give them money or however it’s going to work, once again, there’s still cash value in the policy. It’s still compounding, it’s still growing. As we pay it back, we can actually make a large amount of money sending our kids to school if we have the cash flow. Even if it’s you pay yourself back over 20 years. If you can find the cashflow to pay you back, there can be a lot of money in that policy.

Whereas most people, it’s just a check. We built it up with the 529 plan. We take the money out, we send them to the school and the money’s gone and we’ll never get it back. It’s not earning anything ever again. We got to start over. It’s a shame that that’s the case, but it is. That doesn’t even start to come into all the problems with scholarships and different grants and things that they could do. If they have a whole bunch of money in a 529 plan, some of that money’s going to be accounted for what you’re guaranteed to pay and it may disqualify you for various scholarships. Whereas typically policy cash values are not requested on those forms. A lot of benefit for this hidden money, this private money where you and your family can really be blessed because of it. But it’s never too late to start, I’d say get one going now. Even if you are in school or just graduated and have student loans. Don’t wait, do it now. Then use the policy as the asset to pay things off. I think we’ll be very happy that you did it.

Holly: I think that in mentioning that too and being able to start a policy. Especially the kids that are younger and like you mentioned, they’re just newborns maybe. Or their 18 years is going to go by before they even know maybe what they’re going to do. It gives you the freedom to not have to have this huge amount of money you’re starting with, but something that is financially do-able for you as a family. I think that’s the beauty of it, too.

We didn’t as a couple, my husband and I. We didn’t start out with a large policy on our first kid. Yet that policy is so beneficial now. We started out with what we could really honestly believe we could afford and maintain for that policy. Because of it, I say it was so small yet it’s so gigantic now in my viewpoint of the growth and what it’s doing. I think that’s the goal that Nate and I really have for you is designing a plan or program that works for you where you’re at. So that it really can be beneficial to you as a family. Whether you have student loans now or you think you might in the future. There’s just no … I guess for me, price tag, you can predict on what’s going to be in the future. But I’ve seen even loans get repaid and the power of that is that money gets to work again for your kid in the future.

Nate: Right. Whenever you have a family funded student loan and the kids pay it all back, guess who’s going to get all the money when they die. When the parents pass away or the grandparents pass away. It’s typically going to continue passing down from generation to generation. Which means that instead of just paying off a student debt and being broke afterwards and nothing will ever to show for it. The money stays in the family to be continued to pass down from generation. There’s a lot of value to it, be creative with it. I think you’ll enjoy it.

Nate: With that, we’re going to enclose it down today. 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/e84.