May 28, 2020
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In this Paying for College edition of Ask Suze Anything, Suze answers questions from Women & Money listeners Jodi, Scott, Miriam, Grace, and Jean.
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May 28, 2020. Welcome to the Women and Money podcast as well as the men smart enough to listen. So, you seem to have loved last Sunday's podcast. You loved hearing me talk about kids and the graduation and then give them a little slap down for the colleges, and the things that are going on in colleges right now, in my opinion. And then all of a sudden, I got a slew of questions all about you trying to fund college educations for your kids. What should you do? Should you do a 529 plan? Should you not? All of those things. So, since you got excited about that and this still is really around the time of graduation, and this is also the time that so many of you get into trouble because you feel bad for your kids, they didn't get to go to school, they now have to do things online, and you're doing all these things that I think are just crazy. I thought, why not just continue this Ask Suze Anything with things that you should probably know about funding a college education as well as what you can do if you funded one and you can't pay for it, whether it's for a kid or for yourself? So, let's go. Our very first question goes to, let me see which one should I choose, oh, I liked Jodi's. Jodi says Suze, I'm running short on my 529 plan. The market took a hit on the amount of money that I have in that plan and now I have only a year and half or so, maybe two years, to get enough money back into that plan to make up for the shortfall. Do you have any ideas? First of all, Jodi, how many times have I said to all of you, money that you need within one or two years is not money that belongs in the stock market? And what's so dangerous about the market now, having come back up again, aren't you all glad that you just stayed in, that you listened to me if you didn't need your money for five years or longer? That's another podcast, however, is that when you see these markets start to come up, you're like, no, I'm just going to hold on. I'm going to hold on, it's going to come back a little bit more. I'm not going to take my money out even though I need it in six months or one year. No, I want to make as much as I can. And then, of course, you didn't sell and the markets retreat. Do not just assume because these markets have been going up and all of you are looking at how much money could have made if you stayed in, or whatever it is, or how much you recouped that it's always going to go up. Markets go up, markets go down, and you best never forget that. However, Jodi, so what you should have understood is that even a year ago or so, if you are coming that close to when your kid was going to go to school, that's money that shouldn't have been in the market. It's one thing if you had money in the market that the kid didn't need for four years, but really, for just a year or a year and a half from now? Anyway, here's a few things that you could do. You have some time, and did you know that most 529 plans have gifting programs? So, it's not just you that has to fund this gift. It could be your relatives, your friends, all people who tend to give gifts to your kid, maybe rather than Christmas or Hanukkah or birthdays or whatever it is that they're buying for him. Send out a notice to everybody saying, if you want to give my kid a real gift, give my kid a gift of an education, and here's the 529 plan and you can make a gift, a financial gift, into this plan. That may help you really make up a big shortfall because you would be shocked at how much money people spend on giving your kid gifts. A new iPhone, a this, a that. Just try that one on for size. Also, I have to tell you, I really like the You Promise Program. You all should look into that, where when you buy things, a percent goes into your 529 plan, it links directly to it. And over time, especially if you are younger and your kids are younger, and you're not a year, year and a half away, you're 15 years away or whatever it is, I think that You Promise Program is a great way to go. Next question comes from Scott, and Scott says I live in a state that does not have a pre-paid college plan. I'm too afraid to invest in a regular 529 plan because I don't want to invest in the market. I want to know that in fact, my kid will be able to go to school, I don't have to worry about the markets going up and down. What do I do, Suze? Scott, you happen to be correct in that I think there's only about, oh, how many, maybe 12 states that currently offer pre-paid college plans? Alabama, Florida, Illinois, um, who else? Kentucky. Let's do this by the alphabet, Suze. Let's see Kentucky, Maryland, Michigan, Mississippi, Nevada, South Carolina, Texas, Virginia, West Virginia. I think that's about all that offer a pre-paid plan. However, there is one plan and it's called the Private College 529 Plan. You know, it used to be years ago known as the Independent 529 Plan, and it services about 300 private colleges. So, you might want to go to www.SavingForCollege.com, that's where all of you should go. By the way, Mark Kantrowitz has got to be the most brilliant man when it comes to college plans, everything about college. He's the dude, he's the deal. Um, hi, Mark, I hope you're listening. Do you know I say that about you? Again, besides the point, but you might want to go to www.SavingForCollege.com and there is where you will find all the information you would ever need to know about this. Next one is from Miriam. She says, I'm a single mom, just lost my job, and somehow, I think Suze, it's not coming back. I took out a Parent Plus Loan for my kid. My kid didn't get to finish school because they shut it down, and now I'm in trouble because I can't pay for the Parent Plus Loan. What do I do? See these are the problems, everybody, about taking out a Parent Plus Loan. You always think that you're going to have the money to pay it back, that it's going to be OK, you'll figure it out. Just get your kid to go to school, whatever it takes, the kid has to go to school. If you have to take out a Parent Plus Loan for your kid to go to school, you better make a plan with that kid that if you lose your job, if anything happens, that he or she, your kid, is going to go out and make money, doing anything and everything to pay back the loan that you took out for him or her because things like this happen. But yet, no, your kids just tug on your heartstrings. They want to go to an out of state university, they want to just go and be with their friends, it doesn't matter, right? And you just say, OK, I'll take out a Parent Plus Loan, but you don't look at the ramifications of what it does on your own finances. So, the first thing you have to know is, let's say the kid goes back, all right? But if the kid isn't enrolled at least halftime or more in that university or that college, it doesn't qualify. And normally, after the final dispersement of a Parent Plus Loan, you have to start paying that loan back in 60 days. And that's just how it is. And if you've just lost your job, and I don't know how much you took out, I don't know what you have going, hopefully, it's not a whole lot. But, if it's $20k, $30, $40k, it could be any amount of money in there and you've lost your job, now you are in financial trouble. If you don't do something and you just stop paying it, that is going to ruin your FICO score. If it ruins your FICO score then good luck ever refinancing that once you do get a job again. You don't want to just default on it. What you could do is you can go on income-contingent repayment programs known as ICR. Now, I don't like those. You've all heard me talk about, I don't like income-based repayment programs or income-contingent repayment programs, they're all the same truthfully. So, if you really need to change from the standard repayment method which is over 10 years, because you can't afford that payment, then you have to look at an income-contingent repayment program, which again, will be based on 20% of your discretionary income. So, it could just be a few bucks a month to tell you the truth, but that will keep your FICO score in good standing. All right, Miriam, for you to enroll in that type of program, you first have to consolidate all your Parent Plus Loans into a Federal Direct Consolidation Loan, and then you contact your loan provider to get on an income-contingent repayment program. Of course, you're going to have to totally verify your income and everything again, but that's how you will do it. Now, this will go on for 25 years, after 25 years, if you still haven't been able to pay it off, whatever you owe, and you might owe far more than what you originally borrowed. It will be taxable to you as ordinary income, even though the loan has been forgiven. So why am I telling you all this? I'm telling you this because if there is any way possible for you just to go on the standard repayment method, whatever it may be, and pay for that loan, especially when you get a new job and you keep your FICO score in good stead, maybe you could refinance it, who knows, at a lower interest rate. I've always thought Parent Plus Loans were absurd, really absurd, everybody, because you have to pay at least a 4% origination fee to even get it. I think it's 4.2%, that's true today. And prior to July 1st of this year, when the interest rates for Parent Plus Loans and Stafford Loans have gone down considerably. Prior to that, however, you're all at like 7.1% or 7.2%. That is ridiculous, that is ridiculous. But yet, many of you chose to do that. So, Miriam, I'm sorry that I really don't have good news for you. I can tell you this, you would be crazy, you would be crazy to once again, have that kid go back to that university where you had to take out another Parent Plus Loan. That will be the biggest mistake you could ever make in your life. Do you hear me? So, if you can't pay back this one, do not take out another one. This is where you're going to have to be strong and just say no to your child. You know everybody, I get it. You all sit there and you think well, that's easy for you to say, Suze, you don't have any kids, how do you say no to them? What have I told all of you? I've told all of you that you say no out of love for yourself versus yes out of fear that your kid will be mad at you, or angry at you, or not be like all the other kids. Do you not think as years go on, if you have all of this debt, the kid can't get a job, whatever the reason is that they can't help you with this loan, do you know how horrific that's going to make them feel? Remember, I wrote that book, The Young, Fabulous and Broke book back in 2005. And during that time, and I may have told you all this, I interviewed thousands of students who had just graduated from college and universities. Do you know how many of them told me, why didn't my parents tell me that they were going to go into debt to send me to college? Now I feel so horrible because I can't find a job, and my parents are just all, whatever. And then I went back and interviewed a lot of those kids after 2008 happened and their parents lost their home and everything, they felt directly responsible for why their parents lost everything. And those kids carry that burden on their shoulders I'm sure to this day. So, please don't think that you are being a great parent because you are going into debt, simply to do what? Send your kid to school. I know I'm ranting and raving right now, but it just came to my mind. I will never forget this Oprah Winfrey show that I did where this father was, I can't remember if he was sitting on stage with me and Oprah or in the audience, I think he was in the audience. And I was to tell him if he could afford, so I was going to approve or deny him, if he could afford to send his four kids to an out-of-state university that was going to be like $50k a year. And the kids were all really close in age, and there was no way he could afford it even though he qualified for a Parent Plus Loan. He was going to take out hundreds of thousands of dollars of a Parent Plus Loan that was absolutely no way for him to pay it back. And I denied him. And then, you know, we looked at him and said, are you going to do it? He said, absolutely, I'm still going to do it. Nothing is going to stop me from taking out these loans for my kids. And I was like, whatever, sir, go ahead and be stupid, I can't help you. You know, my favorite saying, right? I can't fix stupid. Grace writes and says, Suze, I heard last week that your niece, Sophia, is going back to the University of Michigan and going to be living with four other women. (I call them girls, by the way.) Anyway, four other women in an apartment. My daughter wants to do the exact same thing at a different university, and I am scared to death to say yes to her. Can you give me the advice that maybe you told Sophia? So funny, Grace, that you ask this question because I actually had a long text back and forth with Sophia. For some reason, I do not like talking on the phone. I talk all day on interviews, I talk on the podcast, but when I communicate with my family, I really love to do so by text. I also love to do it by text because I have kept every conversation, every email, and text that I've ever had with Sophia, for instance. So, I have a recollection now of all the years because, you know, Sophia I think is 18 now. In all the years, the 18 years that we've been through, in all the communications when she started to email and text. And I love that because then I can look back on it and go, see Sophia, look how much you've grown or whatever it is and things that we've said. But, I've just gotten off a very long text exchange with Sophia and I was asking her questions and I could tell she knew the answers but she didn't. But here are the questions that I asked her that you need to know the answers for. Sophia, who's responsible for this rent payment? Are you leasing this apartment? If you're leasing this apartment, whose name is on the lease? Sophia wrote back and said oh Aunt Suze, all four of us, (So, I guess there's four of them in total, not five, but four in total.) we all have a direct lease, a direct contract with the landlord. So, we're each responsible for our own rent payment. Sophia, who had to co-sign for you? Why would somebody give you credit? Oh, Suze, my parents co-signed for me.Sophia, did you read the contract that if you have to drop out of school because you get sick, are your parents on the hook for paying the rent still? I don't think so, Suze, because what happens is they just lock down the room. They put a lock on it or they rent out that room to another person. And I go, but Sophia, you're not answering my question. If the University of Michigan has to shut down, whatever it is, they have to send you all home again, and therefore the landlord cannot rent out the apartment to somebody, are your parents on the hook? To that the answer was, I don't know. Then I said, and Sophia, what does this mean that they lock it down and they can rent it to anybody they want? So, you may find yourself in a situation where you're living with somebody that you don't even know where they came from? You know, have they been exposed to the virus? You don't know anything and now you have a new roommate. She said yes, that happens all the time, Suze. And then she says to me, but don't worry, Suze, because the University of Michigan has told all of us that it will be fine, that they've got this under control, so I'm not worried about it. Then I say, Sophia, does this mean you're going to have to be cooking for yourself and cleaning for yourself and shopping for yourself and feeding everybody? She said yes. I said, so how close are you going to be sitting when you're all eating together? It's not like it's just this quarantine group and that you're just going to be sitting there and never leaving your apartment. You're all going to be going to other classes, I'm sure you'll be going to parties, and then you all come back together again. Have you thought about that? She said we'll be fine, Suze, don't worry Aunt Suze. She always calls me Aunt Suze. The other day she said she was so lucky to have me in her life and I'm wondering after conversations like this with her, is that true? However, my final advice to her was, you need to check, double-check, be clear, crystal clear. You need to learn today what does the contract say? What happens if you need to prepare for the worst and hope for the best, but you have to prepare for the worst, Sophia. So I hope she took that to heart. So, Grace, that's what I would tell you. It's, have an adult conversation with your kid and sit them down and go, who's going to have to co-sign? What if I can't pay? What is the deal between us? How are you going to eat? What if the school closes down? Do we get that money back? Because now this is with an individual landlord, it's not room and board at the school where they could refund the money. So, what's going to happen there? Can you pay for it out of your 529 plan or not? You have to find out all of these things. So, Grace, I would suggest that you do exactly what I did with my Sophia. Have an adult conversation asking all of these questions plus more, and then the two of you decide what you should and should not do. Jean says, Suze, I've done everything that you've said... Why are all of you, you're all so funny when you write to me about 529 plans or saving for your kid's college education? You all say, Suze, I've done everything that you've said, told me to do? Because you know, you know how I feel about it, that if you don't have a retirement account, you have credit card debt, you don't have money, the last thing that I'm going to want you to be doing is saving for your kid's college education. So, you've all been trained very well so that I appreciate. She goes on and says that I've done everything that you've told me to do. I have a retirement account, I don't have credit card debt, I have a home that will be paid off by retirement, I own my car outright, I fully fund retirement account and blah blah, blah. She goes on and on about all her accomplishments and I’m so very proud of you, girlfriend. All right, but then she says to me, so now my kid is still young, I want to start a 529 college savings plan for her. Can you tell me, there are so many of them, can you just tell me, Suze Orman, which one is the absolute best that I should put money into? Should I do it with an advisor? Should I do it by myself? I’m telling you, this email is like so long it's almost like a book. But here's the answer to that question, in a very short format, by the way. You should go, I said it earlier, I'm going to say it again. Go to www.SavingForCollege.com, and there, I think Mark just recently put out the best 10 529 plans that you should look into purchasing. He also talks all about the difference between you doing it on your own, you doing it with an advisor, he does all of that. He'll even talk to you on this site about pre-pay plans versus 529 college savings plan. Everything is absolutely there, however, if you're too lazy to go there, the top 10 are the District of Columbia Savings Plan, Indiana - the College Choice 529 Direct Savings Plan, Louisiana - the Start Saving Program, Washington - the Dream Ahead College Investment Plan, Iowa - the College Savings Plan of Iowa, New York - New York's 529 college savings program and the Direct Plan, North Carolina - the NC 529 Plan, Pennsylvania - Pennsylvania 529 Investment Plan, Nevada - the Vanguard 529 College Savings Plan, and in Colorado - the Direct Portfolio College Savings Plan. So that is his list of the top 529 plans, those performance rankings, as of March 31, 2020. If I went too fast with that, just rewind this, just go back and listen to it again. It's absolutely free. All right, everybody. So that's enough now on college savings plans and colleges and things like that. Sunday, I'm thinking about just so you know, calling the podcast "The Impatience of Poverty." And I'm really at a loss of the behavior of many, many people and how that's affecting the economy and their own personal economy. So, I think it will be interesting, because I've been thinking about this a lot lately, so don't forget to tune in this coming Sunday. Also, for those of you who want to write in and ask a question, all you have to do is download the app, the Women and Money app that you can find on Apple APS or Google Play. Search for Suze Orman and when you do so, you can ask a question, and if chosen, I will answer it on the podcast. I am answering some that have come in personally, and I have been making a few calls to you directly, especially when many of you have lost loved ones in this period of time. So, you never know when all of a sudden you'll get a communication back from me that says, I need more information can I have your phone number? Give it to me because I will be calling you back to talk to you because you know, the truth is, many of you deserve that. Not that it's really so special that I'm calling you, but on some level, it is. But when you're going through a true loss, then sometimes somebody just really, like me, needs to talk to you. So take advantage of that. You can also listen to all the podcast there as well a search them by topic. Get a transcript of them so that you don't have to listen all the time. You could just read what you want to find out. And that is also where you can join the Ambassador Program where if you have the Must Have documents, and you should look all this up, and you just simply want to make a referral, you can earn now really close to anywhere between $10 and $15 for everyone that you refer. But all of that information is on the app. So until Sunday, I want all of you to stay healthy, to stay strong, to be very smart, and never forget that the goal of money is for you to be secure. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. 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