September 26, 2019
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In this Ask Suze Anything podcast, we get questions about financing education from Women & Money listeners Amy, Alyssa, Pat, Don, Samantha, and Rayne.
Hello there, Suze O. here. It's always so funny to look through all the emails that you send in for the Ask Suze Anything portion off the podcast, which is every Thursday, at least that's when it drops. Who knows when you listen to it, but it seems like there's always a theme. Like here we are in September when I'm recording this and you're all sending in, or the majority of you are sending in, questions about what? Student loans. Why are you sending in questions about student loans? Because we're in September so all of your kids have gone back to school. Or, have had to take out loans, so that's what's on your mind. In May and June, you all send in questions about getting married, how to pay for a wedding and things like that. Have you ever noticed I don't do many questions on that? I don't know, it's probably because I don't think they're worth it. But that is not the topic today. On today's Ask Suze Anything, let's answer questions mainly about student loans. Parents paying for the loans, should you do it, should you not do it? And this is something you should listen to, whether or not your kids, they're going to college today or your kids already went to college and they're paying for loans, or you're paying for loans, they're not going to go to college for another 15 years or whatever. These are questions that you need to know the answers to. The first one is from Amy.Suze, what do you do with a 529 college plan that wasn't all used by my sons? Amy, all right. First of all, I just want to say this. When it comes to 529 plans, Mark Kantrowitz at www.SavingForCollege.com, he is the absolute expert in this field. Nobody in my opinion even comes close to his knowledge. So, all of you go to www.SavingForCollege.com and get the information you need there. You know, I've never really had a guest on this show where I've interviewed them. I've played you interviews with me that other people did or whatever, but I have to tell you, if there was one guest that I was going to have, it would be Mark Kantrowitz. And so, I think I'm just going to do that because, honest to God, he is brilliant. So, if you want your questions answered by the nation's expert in this area then send in your question to AskSuzePodcast@gmail.com, S-U-Z-E is how I spell my name, and let's see what happens. But back to Amy's question. So here you go, Amy, listen. First of all, if you have money in a 529 college savings plan that hasn't been used, you really have two choices. One, you could transfer it to another beneficiary, and even that beneficiary could be you if you want to go back to school. Or, you can simply withdraw the money. Whatever money you withdraw, you're only going to pay taxes and a 10% penalty on the earnings of the money that you deposited. So, since you deposited money that was after-tax, you're not going to have to pay tax on this money again. The other thing you should know is that if your kid I had a scholarship, a grant, whatever it may be, you can withdraw that money from a 529 plan. They got a grant for $10,000 and you have $10,000 in a 529 plan, you could withdraw that $10,000 penalty and tax-free, the earnings on it anyway, all tax-free because your kid got a scholarship or a grant. But really, it's not that big of a deal. You're only going to pay taxes on the earnings and a 10% penalty on the earnings. Now you know.The next one is from Alyssa. She says, hi, Suze. I am 48 and my annual income is about $95,000 a year. I don't have any debt except my house, but I don't have as much as I need for retirement. I have two young children, 12 and eight, and I hope both will be going to college. I have $100,000 retirement from a previous employer, and I am currently a government employee. I am working on my emergency fund, but I'm wondering, once I have that in place, do I try to do the 15% to retirement even though I also need to save for my children's college education? I also want to pay my house off in 10 years. Not sure how to best manage all this. Thanks for your advice.Listen, Alyssa, you are 48 years of age, you have a great job, but you also work as a government employee. Now, you know and I know what happened. What happened at the beginning of this year with federal employees, government employees? Who knows, is your job secure? Is it not secure? Are they going to go into debt again? And they're not signing a bill or whatever and then you're not going to get your paycheck. It is essential that you have all your bases covered. So, therefore, even though you have $100,000 in retirement from a previous employer, it isn't enough at 48 years of age. You have to add to that, you are only about 20 years away from retirement, so you have to think of yourself first. You have to fund your retirement accounts to the max. Hopefully, you're going to be doing Roth retirement accounts and you need an eight-month emergency fund, and you need to make sure that you are on a payment schedule that your house is paid off in 10 years. I don't think you're going to have any more money than that to be able to save for your kid's college education. So, what do you need to do?You need to sit down with the 12-year-old and the eight-year-old right now, and you need to tell them the truth. You need to say, I am doing everything I possibly can to make sure that we have a roof over our home. We have food, we have clothes, we have everything that we need. But you need to participate, so you're going to have to get straight A's. You're going have to be a great student, you're going to have to get scholarships and grants for you to go to college because Mommy doesn't have the money to be able to afford to send you. So, let's do this as a team. Let's see if we can get summer jobs, let's see what we could do. Let's put every penny away. Let's from now on for our birthdays, for any holiday, let's ask people if they're going to give us anything, give us money so that we could put it away for college educations. Make this a family affair. And listen to the rest of my answers in today's podcast so that you can see, if you do need to take out loans, what kind of loans should be taken out. Next one is from Pat and Don. It says hello and thank you in advance. My daughter will be beginning college this fall. We have been researching private loans, and we're very confused between Sallie Mae and Discover, etc. Any help or suggestions would be greatly appreciated.Now, what's interesting is that normally people ask me, Suze, should I take out a parent plus loan or should I take out a private loan? These two are asking me only about private loans, and I have a feeling the reason that is, is because they already know that they should not take out a parent plus loan.What? Stop the presses. What did Suze just say? You know, I think it was in last week's podcast, somebody wrote in and said, Suze, you're always changing, you know, you're changing your recommendations and your information. I answered, yeah, because time has changed. You know, years and years and years ago there would never have been a situation, ever, where I told you to take out a private loan in your own name. Never. I would have said do a parent plus loan, I would have said something else, but I never would have done that. Today the times have changed. And that is because a parent plus loan, which is if you don't know what it is, it's a federal loan given by the government where you as a parent, and even if you don't have really great credit, you can qualify for it. You can take out a loan to subsidize the loans that your kids hopefully took out, the Stafford loans and everything, in their names. Because chances are that may not be enough for them to pay for college if you have don't have any savings at all.However, today a parent plus loan is really too expensive. First of all, there's an origination fee for you to get that loan, and it's about 4.6% just to get the loan. So, on a $10,000 loan, it could be like $450 or $460, that is a lot of money, number one. Number two, the interest rate on a parent plus loan is fixed at 7.8% and it's fixed for the lifetime of the loan, which is usually 10 years. That is a really high-interest rate today, when you think about interest rates are going lower, and they're going lower, and they're going lower. But no, not the interest rate on a parent plus loan. It's one of the highest interest rates out there if you look around. Compare that to the alternatives that are out there. Now I know that I was talking about private loans because that's what the person asked me in the question.But before I even get there, I want to talk to you about, have you ever thought about if you have a student loan and you need to refinance it because the interest rate is too high? Have you ever thought about checking out a credit union or getting a loan from a credit union to send your kid to school? Their interest rates are usually lower, number one, than any other place around. You can get some without any origination fee what so ever. So, number one, always check out a credit union.Next, all right now let's go to the private loans because that's what the person wanted to know. Even if you looked at the comparison between a parent plus loan and a private student loan, there are some better out there that are half the origination fee, and you can get them at about 3% if you have a good FICO score. So, the difference is, if you're going to get a parent plus loan, you don't really need a great FICO score or a good FICO score. If you're going to get a private loan or possibly one at a credit union, you need a good FICO score.Next, if you are going for a private loan or a credit union loan, it has got to be a fixed loan, meaning the interest rate is fixed for the period of time that you need that loan for. That's a great thing. You do not want to put yourself in a situation where interest rates can go up. Got that?Now, there are three really great private loan companies. There are more, but just let me give you three. There's Sallie Mae, there's College Avenue, and then there's Discover. Those seem to be the three most popular ones, but check them all out and also make sure you check out loans, college loans, at a credit union. But here's really what I want to say. If you cannot finance a college education with the amount of money a student themselves can take out with Stafford loans, you are sending that kid to too expensive of a school. As a parent, the truth of the matter is, you should not need to take out a loan at all. So rather than taking out a loan, you might really want to think about sending your kid to a community college, a trade school, a less expensive school, an in-state University rather than an out-of-state one. There’re all kinds of ways that you can afford for your child the cost of a college education within the limits of a Stafford loan that the kid him or herself can take out.This one is from Samantha, and I like this one because yeah, well, you'll see as I read it to you. She says, good morning, I am at work listening to your podcast. First of all, Samantha, you should not be listening to my podcasts when you are at work, you should be working. That's all you should be doing, you should be one-pointed. You know, I have a thing about multitasking. I will forever believe that multitasking is the ruination of perfection. I only do one thing at a time. When I am podcasting, I am only podcasting. When I am writing a book, by the way, I am writing a new book that will come out in March. It's going to be a little bit of a different book. Do you know I have not written a book in over eight years? And the publishers were all like, come on Suze, write a book, do this, do that. I said I've already written 10 books, I don't need to write another book. And then a topic came up and I decided, yeah, and it actually happened from this podcast. But anyway, I'm doing a new PBS special after the title of the book and that will all come out in March of 2020, but you'll just have to wait for it. And what was I talking to you about? But anyway, I know, right, right. See? I started multitasking and look at what happened, I forgot what I was talking about. But when I write a book, all I do is write a book. When I watch TV, that is all I do, I watch TV, I am not on my phone as I'm also watching TV, so stop multitasking. But alright, Samantha, that isn't why you wrote in.You said, I was thinking a question to ask you, so here it is. What advice do you have for kids in college who are living on their own and financially independent? I want to start saving for retirement. There is nothing more Sam, now listen to what she is saying to you, everybody. She's about to be 24, listen to what the 24-year-old thinks and is saying. She says, I want to start saving for retirement. There is nothing more sad than to see an older person working not knowing if they're doing it because they want to stay active or doing it because they have to. I don't want to be in my older years feeling like I have to work. I'm about to be 24, I have a Roth IRA already $400 in it and now increased to putting in $200 a month. What else can I do? Yes, I have credit card debt that I'm paying slowly and student loan debt, but that is deferred.Samantha, the very first thing that you can do is get your student loan debt out of deferment because your student loan debt most likely is at a higher interest rate than probably you will be making in your Roth IRA in the next year, two, or three. So, you have to take things in order, and the first thing you have to do is get yourself out of debt. That is a priority, and it is a priority because debt renders you powerless and when you are powerless, you repel people. People control money and therefore you repel money. You know you owe that student loan debt, you know you hate that student loan debt, and the only reason that it's deferred is because you do not have enough money to pay it. But yet, you have enough money to put $200 a month into a Roth IRA. No, wrong. Debt has to go first, so believe it or not, if you have to choose from one or the other, get your student loan debt out of deferment and start paying it. After you are paying it on a standard repayment method so that it is gone in 10 years, if you are making those payments on time, then you have to deal with what? Your credit card debt. You can't have student loan debt, credit card debt, and saving money. Do you have money? Don't you have money? What do you have? You have to be honest with yourself. So, student loan debt first, get on a 10-year standard repayment method. Next, start paying down your credit card debt and do not use those credit cards anymore. Get rid of that debt. After that, if you want, you can start putting money into a Roth IRA. Hopefully, if you are working, wherever you are working, they are offering you a 401k or 403b. Hopefully, it is a Roth 401k or 403b. If they match your contribution, you have to do that no matter what, you cannot afford to pass up free money. So that's what you should do, Samantha. Just that easy.All right, let's do one more, this is from Rayne. She says, my daughter listens to all your shows on YouTube and reads your books. Please, please, can you answer a few questions for me or do a show on social security numbers? Well, that's an interesting beginning, right? Don't you think? Anyway, let's go on here. The reason why is she is a very controlling person and believes she has a right to have my Social Security number and if I don't give it to her, she calls it being secretive and not trusting. She wants my fiancée’s number as well, and because he wouldn't give it to her, she says he's being secretive. She refuses to listen to reason about these things that are personal. The thing about it is she also demands account numbers as well and sees nothing wrong with it until I demand the same info, just trying to make a point with her. Since she respects you so much, I thought it might make her understand, it's not being secretive, it's a right everyone has to safeguard this info. When I ask her for any info to make a point, she gets mad. Please do a show on this or write something to make her understand.All right Rayne's daughter, listen to me. The question is, why do you want this information? If you were my daughter and you were asking me Suze, what is your social security number? What is the number on all of your bank accounts? What is the number on your brokerage accounts? I want to know all these things. I have to say, I would be very suspicious of why you are asking me that question. It's not the numbers of these accounts that you need to know. Maybe you want to know, Mom, how much money are you going to get in social security when you're 70 years old? That I would understand. Or Mom, how much money do we really have? How much money do you make? How much money do you have in savings? Do you have debt? How are we doing with money, Mom, I want to know? Mom, how much money does it take to run this household? What is our electrical bill? What did you pay in gasoline every month? Mom, how much do we spend on food? But you're not asking those questions. Why is it if you're so interested in money, why don't you want to be a participant in the money? Why is that? Why is it that the only numbers that you want to know are numbers that really don't really matter because they can change? Mom can change her account, Mom can do anything. You don't need to know, Mom's social security number right now. So, no, I would not be telling you those numbers because you aren't taking more interest in other financial numbers of what it takes to be responsible with money. And the fact that you're not telling me about your numbers really makes me suspicious. How many times have I seen daughters and sons rip off their parents? It happens, so no Rayne, do not give your daughter those numbers. Make sure you play her this answer, and if that means she stops watching my shows and doing things like that, well, so be it.All right, that time again. So, as you know, as I say every week, I think that's enough for you, for now. See, I'm afraid if I keep going on and on and on, you're going to get bored. You're going to cut off this podcast, and I don't want you to do that because I want you to listen to the very end of every single one. So, until the next podcast, you stay safe. 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. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information. To find the right Credit Union for you, visit https://www.mycreditunion.gov/. Interested in Suze's Must Have Documents? 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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.