Episode 5 - Understanding College Financial Aid with Joe Messinger
Are you a parent of at least one high schooler, feeling overwhelmed by the complexity of college funding? Fear not, friend! Host Deb Meyer and guest Joe Messinger, a fee-only financial planner and college funding expert, provide critical insights into student loans, merit aid, and the true costs of higher education.
This episode offers a wealth of strategies and valuable insights for families navigating the financial aspect of college. You’ll learn:
How college funding fits into your overall financial plan
The nuances of student loans, including federal student loans and parent PLUS loans
How top students can secure merit-based aid, especially in small, private colleges
New changes to FAFSA, and
Differences between CSS Profile and FAFSA when awarding need-based financial aid
Links
Connect with Joe
Connect with Deb
Website: WorthyNest.com/podcast
Submit your family finance questions to podcast@worthynest.com
Get your FREE family finance starter guide
Pick up a copy of my book, Redefining Family Wealth
Full transcript
Welcome to episode 5 of the Beyond Budgets® podcast. The last episode, number 4, focused on saving for college and higher education expenses, especially when kids are younger. Today’s episode is designed for parents with a high schooler. College is much closer, and you want to help pay for it.
I’m excited to introduce today’s guest, Joe Messinger. Joe’s mission is to empower families, students, and advisors to make educated decisions about the college funding process. Through his work at Capstone Wealth Partners and College Aid Pro™, he serves clients and colleagues as a financial advisor, educator, and guide.
Let's dig in. So Joe, tell me a little bit about your background as a financial advisor and why you're so passionate about college funding.
Joe M (00:57.102)
It's been a journey through financial services, I guess proudly, but kind of awkwardly say 20 plus years in the industry now. This is year 21 for me, so started out working with larger firms and did some management for folks. It will be 15 years next month we'll be celebrating for our independent fee-only firm at Capstone.
So that firm was really created out of the fact that we saw a gap in financial advice around college funding. Like you mentioned in the prior episode, there's a ton of information on saving for college and why should we use 529s and all those things, but we really kind of say, there's just a kind of a gap in how we actually go find schools that'll be the most generous with financial aid. And then also not look at college in a vacuum. Our philosophy has always been, you gotta have college, but there's also retirement, investing, and oh, by the way, you gotta pay the bills today and have a comfortable lifestyle.
So it's all those things that are balancing, but I think helping people understand, I think we can give people an unfair advantage in the college shopping process because of kind of the knowledge we can bring to the table about how different business models work with the colleges. And that's just kind of a unique thing that hopefully we're getting that information to advisors as well as families, and hopefully end the student loan crisis. That's kind of the whole heart of this thing. So don't get it over your head.
Deb Meyer (02:16.503)
Right, right. Yeah, I know hearing you speak at some of the prior conferences, I think I first heard you speak at the XY Planning Conference many years ago, it was a deep dive workshop on college funding and getting the best scholarship opportunities. And then more recently, I heard you speak at NAPFA in the fall conference. I guess you share some pretty startling statistics. I would love to hear some of those for the general audience because I know they haven't heard you speak at these industry conferences. But yeah, please share one or two that are most interesting to you
Joe M (02:52.106)
I think there's, you know, the interesting thing is what gets pressed and what doesn't. And I think when we look at the numbers, they're just so big that nobody can put them into perspective. Like we have over $1.8 trillion in student loan debt out there. And I think that's actually low because it doesn't count home equity lines of credit or retirement plan loans people are taking or just those types of things. So the estimates are probably over $2 trillion. And the scary thing around that is the fastest growing segment of that is people over the age of 50.
Because the governments come along and said, hey, you can just stretch your loans out for 25 years and we'll give you unlimited graduate loans with no harness around how much you can take or what you're gonna make from that chosen degree. So I think those numbers, and the more startling fact is over the last 15 years, we went from about 25 million borrowers to now we have 45 million borrowers. So that number of people borrowing, it's a lot of parents, yeah, so it's just, you know, and the costs continue to go up.
Deb Meyer (03:21.967)
Wow. Nearly doubled.
Joe M (03:51.906)
We'll have schools well over $90,000 for one year of undergrad. So a year or two from now, we'll have schools that will mostly, all of the IDs will probably be over 100,000 by 2025 for one year. That's looking at $354,000. But the key is those private schools, they discount their tuition over 56%. So you just have to find out what schools are going to give you the discounts and how, because the way you shop should not be...
Deb Meyer (04:03.567)
That's nuts.
Joe M (04:20.81)
Every student, every family going through this is a snowflake. It's all unique based on your academics and based on your family's financials. So never rule a school out based on the sticker price. It's all about what the net cost is for you and your family. And again, that number of discounts, those private schools that have $60,000 tuitions, they're discounting it over 56% as of last year. So hopefully there's some good startlers, but maybe a little hope too.
Deb Meyer (04:43.839)
Yeah, I mean, obviously, those are some pretty interesting statistics. But it's also important to acknowledge that if college is a goal for your son or daughter, especially if you have multiple children, you know, this is a very big cost to be planning for and it's not in a silo. If you're a parent, you have these other competing goals and it's really hard to get someone who's going to be honest about these are the realistic costs to expect. So.
I'm glad that you're doing this work and I really think it's an important piece for most parents to consider, especially as their kids get more advanced in high school. Do you have any high schoolers yourself or kids that are in college?
Joe M (05:25.854)
I don't have children, so I have this kind of bias, a vision where I can be the numbers person. A big part of this is it's an emotional buying decision. We buy with emotion all the time, and then with this one in particular, gosh, if you're a parent and you go do a tour at Georgetown or MIT or Harvard, if you just go to the Greatest Hits, they got a great product to sell you, and taking some of that emotion out is kind of what we try to bring to the table.
Deb Meyer (05:26.977)
Oh, okay.
Joe M (05:52.238)
that, you know, try to put some, some rails around what we're going to do. But again, not having children myself, it's interesting to be the college guy without any children, but it's kind of the perspective. I can just bring that out. Hey, I'm the numbers person. I'm going to show you the reality and the future. So I like when we talk through college, I think you've probably seen this, but, if you were to walk into a bank and I have a slide that shows a Lamborghini, a Ferrari, a Bentley, and like all these cars that cost $300,000, nobody would give that loan to a 17-year-old. But we're doing that for college all the time. So some of that framing and that lens is like, do you really need that car or do you want it? Does it really get you to that much better of an outcome? So it's kind of like I said, the framing around it of just having worked with hundreds of families over the years.
Can we help you have an earlier intervention with our young adults because they're not taught finance. I think our young adults now are becoming more aware that student loans are a problem. Maybe they have some older friends. So they're beginning to be aware, but to them, is $100,000 a lot of student loans? I don't know. How do we begin to create that and also create that expectation earlier when they're a freshman or a sophomore having the college money talk, not when they have the acceptance letter to Columbia and they did everything you told them to do to get in.
Deb Meyer (07:08.097)
Mm. Sure.
Joe M (07:12.802)
They got the scores and the GPA and all the things to get in. Now you're saying, we can't go, we thought you'd get scholarships, but we make too much money, you don't get any aid. So those are earlier interventions is kind of a big thing with, I think we need to hopefully empower parents with, hey, here's some tools, resources, have the conversation earlier, give it a runway.
Deb Meyer (07:32.931)
And I mean, it can be a very emotional decision, but as you're pointing out, it really needs to consider the financial aspect and how that's gonna play out for the family long-term. Because if people are getting into debt heavily, whether it's students or parents or both to pay for this big expense, that does sacrifice the retirement dreams that they had down the line if they're overextending themselves. So I think it's, again, a really important conversation and thing to bring the people's attention, especially as the kids are starting to enter high school. I have a freshman in high school, so I'm already asking some of this stuff selfishly because I'm like, okay, I need all the info I can get here as we prepare for our son to go to college in a few years.
Joe M (08:12.738)
Perfect. Yeah. But even for you, right? Like you have this lens of being a Certified Financial Planner™ and working with clients, but as you're approaching this, it's got to be emotional for you too. I mean, you want what's best for your children. So it's got to be a little different, you know, doing your own planning than with clients, right? Yeah. Just it's, yeah.
Deb Meyer (08:32.567)
Mm-hmm. Exactly. So let's go back to the loans for a bit. I know there are some good guidelines you've shared about what's an acceptable level of student loan debt. You know, there are some colleges that no matter how great a student you have, there's just going to be some unmet need there that can't be done through typical cash flow. What would you say is a good guideline to consider, at least in the undergrad years for student loans, if they have to be taken?
Joe M (09:03.854)
So the way I think about it is you want a plan of how we're going to pay for all four years of college with the net cost down to the penny, including the resulting loans and loan payment. So that part is important because when we say how much is too much loan, I'm not anti-loan, I'm anti-too much. So when we look at that, one of the rails we would provide would be never take out more total and student loans for that degree than you're going to make your first year out in that chosen major.
Deb Meyer (09:13.698)
Mm-hmm.
Joe M (09:32.75)
So when you look at the statistics, if you come out with a data science degree, you're gonna make upwards of $85,000 per year on average. Some make hundreds. But if you come out as an educator, you make around $38,000. So it's nothing wrong with being an educator, but your ability to repay that loan, if you had $80,000, you'd have probably an eight to $900 a month payment. So if you, but if you only took out 38, you'd have about a 380.
So to frame that up, for every $10,000 you take out, you owe back roughly $100 per month. So if you took out 30,000, you'd have about a $300 a month payment in that neighborhood. So, and that's probably doable. And so that's on this, good point, on the standard 10-year repayment schedule. And that's the thing, the federal government, when we talk about what are the types of loans, the federal direct student loan in the student's name is the place to start.
Deb Meyer (10:09.131)
And that payment is for how long of a duration?
Joe M (10:27.35)
Ten years. And the thing with those is it's a total of $27,000 over four years. So one of our goals, Clint, is if you can take just that amount of student loan and just a federal direct, you're going to be in pretty good shape because you won't have a huge payment. And the other benefit of those, but the thing to remember is they're use it or lose it each year. So you get allotted $5,500 for your freshman year, $6,500 for your sophomore, $7,500 for your junior, $7,500 for your senior. And some of those too can be subsidized if you qualify based on need.
Meaning that there's no interest due while you're in school. No interest until you graduate. So that's kind of a no-brainer. Even if you have the money, if you get a subsidized loan with zero interest, you might as well keep your money and then pay it back down the road. So it's something to be aware of. So, and I think it's where, if you can utilize those student loans, and again, the temptation a lot of times is to use, let's say you have 25,000 and a 529, hey, we'll pay for year one out of that, and then we'll figure the rest out later.
Where a better strategy would be, hey, can we take out the federal direct student loan, 5,500 for the freshmen, and utilize that all along the way, because if not, we're gonna have to get into private student loans or parent plus loans. And that's where the trouble happens. Parent Plus loans is kind of the next level. If you go to a school and it says, hey, we cost 50,000, we gave you $25,000 in your aid package, so you have $25,000 to figure out.
Joe M (11:54.038)
you gotta come up with that 25,000. All you need to do is click here and you can apply for a Parent PLUS loan for $25,000. And it's approved, you basically have to have about a 480 credit score. It's very expensive, it costs about 4 and 1/2% to originate and over 8% in interest, and that's for a parent. If you did that for four years in a row, you now have a baby mortgage, $100,000 of student loans, and you're going, how do I pay that? I wanna retire, now you're probably in your mid-50s.
So that's a trap that I think it's way too easy to get that loan. And people just, it's just an easy way to kick the can down the road. But again, it's like having a smart lending strategy. How much is too much utilized to federal directs, be very cautious around parent plus loans, are there other places you can get those dollars? That's the, that's the thing that, and before you know, how do we pay for all four years, you know, the loans is part of it, but I think what, you know, listeners probably want to hear is how do normal families actually pay for college?
How are people doing this? These scary numbers you throw out. So that's maybe the next step.
Deb Meyer (12:50.115)
Sure. So I know in terms of paying for it, there are cashflow sources of your own salary and income as your child's approaching college. There's obviously the student loan piece, the Parent PLUS loans, which you talked about and are not a great idea. But I would like to touch a little bit more on merit-based aid. I think you brought it up a little bit with, you know, some of these...
colleges that have a high sticker price but potentially have the means to offer more merit-based aid regardless of financial need. Obviously, there's the financial aid package of grants and other loans if you have financial need in your family … that's a separate discussion. But could you share a little bit more on insight into that merit-based aid approach and what things the colleges are looking for specifically that those colleges that are willing to provide merit-based aid?
Because a lot of people, if you look at different schools across the country, they vary in terms of what the guidance counselor or administrators are providing for specific guidance in this area. So I'd just be curious to hear any general guidelines you have on that.
Joe M (14:08.158)
Yeah, I think I would frame it up just to understand that the colleges are a business, right? Make no mistake, they're not for profit, but they're businesses. They're big businesses. It's a huge business, but if you think of the business model, they award money based on need or merit. And some schools do both. So you can influence getting better scores if you're going to get scholarships, but you can influence your financial, but you can't influence the school's policies. So what I mean by that is a lot of our top schools, probably around the top...
They meet close to 100% of your need, but they don't offer any merit scholarships. These are all the Ivy Leagues … the Amherst, the MITs, the Stanford's, Northwesterns. They don't have scholarships for academics. So that's the first thing to understand. And that's why building college selection becomes important. But there are a lot of schools that they have to recruit and they use scholarships to do so.
They package to compete. They have to compete with their other private schools in their area, and they have to compete with the state school down the road. So they'll charge a little bit of premium, but there are hundreds of small colleges out there that give very good, what they call non-need merit aid. That's the important number. So non-need merit aid. So if you pull up a school profile, you go to College Board, you can go to collegedata.com, you can go to College Aid Pro.
And it'll show you, hey, how do they run their business? How much need do they meet? And then how many kids get scholarships? So trying to think of a good school, like Denver University is a school that costs over 70,000 per year. Nobody pays that. 40% of kids that go there get a scholarship. And most of those, when you're looking to find scholarships, if you're in the top quartile, based on your GPA and your scores, those are the schools where you're likely to get the most scholarship.
Thinking in terms of a business, right, what do they need to do to attract and raise their numbers for the next year so they get better ratings and get better kids in the door? So, you know, it's a game they're playing and if you're considered like a blue chip academic student, a lot of schools are gonna compete and they'll offer you great scholarships, even down to the first offer may not be the best offer. That's kind of another layer of appealing for more scholarships if you find the schools.
Deb Meyer (16:01.251)
Mm-hmm. Sure.
Joe M (16:26.338)
But you've got to have schools that are competing. So, you know, if you have Denver on your list, you got to have other schools like Colorado School of Mines, if you're out in Colorado. You know, you got to have other schools like that, that are giving really good scholarships. That way you can go back and say, hey, you only gave us 20,000, this school gave us 25, can you match it? And that's what you have there. So you, the idea of appealing for more scholarship, these schools, a lot of the smaller privates have to play that game.
Like I said, the elite schools, it's just needs, so they don't play that game at all. But small private, that's where you're going to find those scholarships. And then I guess the other layer there is out of.
Deb Meyer (17:03.876)
For the top quartile students, right? I mean, that's the other caveat?
Joe M (17:08.626)
Yep. And then the other part is if you look at out-of-state, state schools, there's a fascination sometimes with kids that they want to cross the border to a new state and pay three times the tuition for basically the same education most times. It's kind of an interesting thing. But a lot of those schools, depending on where they're at, they have some great scholarships. Like the SEC really aggressively recruits kids from all over
Deb Meyer (17:15.628)
Mm-hmm.
Joe M (17:37.686)
Some of them have what they call grid scholarships. So, you know, if you get this GPA and this ACT, you get this amount of money. So, you know, and knowing what that grid is, is important. There's not a ton of them out there, but that's another thing to look at is, how do they award their aid? Is it on a grid? Because if it's a grid, you say, gosh, if I have a 29, if I can get that 29 ACT to a 30, that means, you know, 8,000 more dollars. That's a really good thing to know, because that's a nice car you can buy with that $30,000 plus.
Deb Meyer (18:05.931)
Yeah, I'm not even sure if this is still at play, but I know when I was looking at college, I grew up in Milwaukee, so UW-Madison was a popular choice for a lot of students that went to my high school. And then I had quite a few friends actually go to Minnesota Twin Cities because they had reciprocity. It was the same rate, even though it was technically in Minnesota, they had in-state tuition rate for the Wisconsin residents that chose to go there.
Again, I don't know if that's in play right now. I know it was in play many years ago when I went to school, but yeah, it's interesting how some of the schools are willing to work in that capacity. And even talking to my sister-in-law, she's a graduate of Mizzou, and so is my husband, University of Missouri-Columbia. And even if we're not in-state residents, I guess Mizzou has a special rule where they allow the in-state tuition rate for alums, children of the alums.
So, you know, there are some nuances there, even among in-state universities or public universities that, again, you have to kind of do some additional digging, but I think it's worth noting, especially if your son or daughter is dead set on going to a particular school, really trying to see if there's any special accommodations or rules that you can find, right?
Joe M (19:24.194)
Yeah, and it's very regional to your point. Like I didn't know that about Missouri. I learned something new every day with college funding. I mean, there's just, you know, but it is very regional. So in the Northeast, there are tons of colleges and universities. There's a lot of reciprocity. Like if one state doesn't offer the major you're looking for, you can go to another school across the border and get it because they don't have that major. And then out West, there's the Western university exchange called the Wooly where they have a lot of reciprocity and at least discounts, maybe not all the way to end state, but a significant discount for crossing the border. So yeah, totally be mindful of all those opportunities might be there. And it's unique to where you live and where you're shopping. So, yeah.
Deb Meyer (20:07.399)
Okay, so let's talk a little bit about FAFSA. I know the new FAFSA just came into play, right? Should have been released sometime this month. Is it released yet? I'm not quite sure. We're taping this on December 8th, so I don't know. By the time this is released towards the end of the month, it should hopefully be out the new FAFSA, right?
Joe M (20:31.618)
It is not. We're hearing December 31st. I mean, a few months ago. So the FAFSA typically gets released on October 1. If you're listening to this in the future and you've got a younger than ‘24 or ‘25 graduate, October 1 is the typical date, but this year is the FAFSA Simplification Act. It's not that simple. They're having to rework the actual form. So the Free Application for Federal Student Aid.
And the good part of what they're doing is it has shrunk the number of questions. It's kind of streamlined the process down from over a hundred questions to around 30, I think 36. And they're doing a lot of things. Like, so they're having to retool the system. And they got a lot thrown at them. Department of Education said we got to have this out. So it's, it's a, they're a push and a squeeze, but by filing, filling out that free application for federal student aid, that's how they determine your eligibility for need-based aid at most schools.
Deb Meyer (21:30.607)
So yeah, let's talk a little bit more specifically about the FAFSA. Obviously, it's the application if you wanna get any kind of financial aid and it's a recommendation regardless of your financial need, right? I mean, just to promote scholarships, even merit-based scholarships, you still have to fill out the FAFSA at many universities. Is that a fair assumption?
Joe M (21:52.854)
Yeah, I think it's for most, the vast majority of folks, you're going to want to fill that out. And it's, well, the one reason is it's how you qualify for the Federal Direct Student Loan. So if that's part of your plan, you have to fill that out, even though it may not be subsidized, you have to fill it out to get those offered to you. And to your point, a number of schools require you fill that out, even to be considered for merit. So, and then the other part is things change. So having something on file with the college.
In the university, if you have that FAFSA and you've filled it out, then you can go to amend it, but if you don't have anything on record, they can't help you as much. You've got to go start the process. This is people losing jobs and people passing away. It's happened, been doing this a long time. So in that case, we had a FAFSA on file, just a quick example. If we hadn't had it on file, this probably wouldn't have happened, but we were able to go mid-semester and they gave them an additional $8,000 in need-based aid because the father was a primary breadwinner and mom didn't work outside of the home. So yeah, he passed away. And then the next semester is a lot more because of the new dynamic. But I mean, if we hadn't had that on file, they probably wouldn't have had a leg to stand on.
Deb Meyer (23:03.331)
Sure. Okay, with the FAFSA specifically, I'd like to talk through some of the nuances of that, even under the old regime, and then now this new, quote-unquote, simplified FAFSA. But I know one of the key differences I've heard when you've spoken about FAFSA versus the CSS Profile, and we can get into that separately, is just what's considered a parental asset.
So when you think about home equity, that's usually a very big portion of a family's financial net worth. And retirement accounts are typically pretty sizable at this stage in life as a parent. Are those two things considered in the parent assets for FAFSA purposes?
Joe M (23:52.438)
They are not, no. The FASFA, it's the federal method, just to kind of add to layer, the federal method used to determine they don't look at home equity or your retirement account balances.
Deb Meyer (23:59.919)
That's wonderful news. Yeah, that's a big deal for a lot of families. But to bring up the CSS Profile, which some private schools sometimes require the CSS Profile, they do count home equity and retirement assets of parents and their calculations for financial aid.
Joe M (24:24.802)
So it's nuanced actually. The CSS Profile, College Scholarship Search, it's run by the College Board. So if you've taken the SAT, they also administer that. Most people already have an account if they've taken the SAT. But it is, the one thing I make sure people understand, it's an additional form. It's the FAFSA and the CSS profile will be required. And that's really to get the institutional money. And there's about 300, just over 300 schools that use that.
Deb Meyer (24:25.739)
Oh, okay.
Joe M (24:53.034)
additional form and they use an institutional method. So the way I think of the institutional method is the institution does what it wants. From a home equity standpoint, the trend has been schools beginning not to assess it. A concrete example there would be, I think most people would agree Northwestern and Stanford are pretty darn good schools for a lot of majors, right? If you look at Northwestern, they assess your home equity just like any other non-retirement asset.
Stanford does not look at it at all. So if you have $500,000 of home equity and you live in Boston, you're not rich. It just means you bought your house a long time ago and the markets have gone up. But they would, Northwestern would say you can afford $25,000 more per year than Stanford just because of home equity because they assess it at 5% of whatever your home equity is. So it's nuanced and different schools look at it. Some look at it fully.
Deb Meyer (25:42.467)
Wow. Right.
Joe M (25:51.254)
like Northwestern, others only look at it as like two times your income. And it's kind of a moving target. So that we, you know, College Aid Pro Team does scrub for that and it should be pretty accurate what's in there school by school. So again, it's like that institutional schools, those private schools, it's very nuanced. They ask for your retirement account balances now. I've been assured by financial aid directors, they're not looking at that, but I'm like, that's why are you asking them and requiring me to put it there if you're not, if you're not really looking at it. So I just think it's a...
Deb Meyer (26:16.769)
Right.
Joe M (26:20.594)
Again, they're a business and they're trying to get as much information as they can on you. But hopefully that's helpful. Just understand if you have home equity, the federal method schools won't look at it at all. And on the private side that use the CSS Profile, it varies and it probably will change from this year to next year.
Deb Meyer (26:38.239)
Yeah, that's an important point because even with some of these FAFSA changes as well, it could change three or four years from now, five years, ten years, whatever. So whatever we're sharing in this episode today, you have to make sure you're doing your due diligence and still making sure it's current.
Deb Meyer (26:57.583)
Great. I guess to start wrapping things up, anything in particular you think is most important to share with parents who are trying to get their arms around paying for college in the short term, what best, not advice, but education you could provide around giving them some things to think about as they embrace paying for college and coming up with a concrete plan?
Joe M (27:29.495)
Yeah, some of it is, I call it new opportunities that exist because of the FASFA Simplification Act. There are winners and losers there, so depending on your scenario. A couple of the changes that one is the FASFA used to call the expected family contribution. It's now called the Student Aid Index. And the big difference there is that when you had multiple kids in school, they would split that number.
And if it was 20,000, it'd be like 10,000 each. But now there is no splitting. So if you have multiple kids in school, they each have their own Student Aid Index. So it's not split like it used to be. There's no discount for having multiple kids in school.
Deb Meyer (28:06.703)
Okay. So if you have twins or triplets all facing college soon, that's gonna be a rough time from a financial aid perspective with FAFSA, right?
Joe M (28:21.426)
Yep, with the FAFSA, but the CSS Profile schools using the institutional method, they still plan and tend, most of them are planning to give a 40% discount when you have multiple kids in school. So, you know, because they're super high priced, they have the FAFSA, they know what to qualify over here, but they're using their method to say, hey, we're still going to give you a discount. That's what historically they have done. It's not 50-50, but it's about a 40% less that they think you can afford because you have multiples. So, if you've got triplets, you know, really don't rule out those private schools.
Because they're gonna kind of give you that discount across the board so and that's gonna we have to see what happens there honestly. Because we haven't been through the year yet. We'll see what happens when the award letters actually come out and see what they do. So that's one and then another kind of tip or trick is grandparents savings. I'm empowering the parents that are listening go talk to your parents about the college money that they have. I’ve been meeting with people for years and years. It's always “I know they have something.”
We don't know what it is. Get clarity on if they have anything, what that is, because the reality is you're gonna get a bill, in the next 12 to 24 months and you just wanna know if they can contribute to it. And then the other planning opportunity is, 529 College Savings Plans was probably in the prior episode more about saving, right? If you have monies that accumulated in the grandparents’ name, they're not gonna count against you.
It used to be grandparent money that came into the system will be counted as untaxed income to a student at 50%. But now going forward, grandparent or aunt or uncle money, if it's accumulated and they send it to the school, it's not gonna hurt you in the future years financially. So that's something to be aware of. You might wanna consider if the strategy is there. Because non-retirement assets are counted as high as 5.64%. So if you say, if you had $100,000, sitting there in either a mutual fund or a 529 they want $5,000 of that towards school next year. If it was in a grandparent's name, they wouldn't want any.
Deb Meyer (30:20.551)
Okay, and that was a big change. I forgot to mention that, but yeah, I'm glad you brought it up, because it's a different planning technique. I know prior to this FAFSA Simplification Act, there was a lot of, “okay, we have to have any grandparent assets, plan for using those junior or senior year of college rather than early on.” Now the idea is, no, go ahead and have access to that earlier if possible.
Joe M (30:26.888)
Mm.
Deb Meyer (30:48.471)
Would you, I guess with this new change, would it make any sense for the parent-owned 529 to transfer some of that balance over to the grandparent-owned if, you know, they have enough headway ahead of time?
Or is it possible that this could change again another year or two and then you're just like, oh, well, what do you do? You don't want to be transferring back and forth and tax evasion or anything.
Joe M (31:18.513)
Yeah. I was just going to say to give us both a little disclaimer, consult your tax professional before making one of these decisions. And then most 529s allow for a transfer of ownership, but you do want to make sure that it's not going to create any gifting or anything like that. It shouldn't. 529 is kind of a unique asset where you can transfer ownership because it's already been completed.
So be cautious, talk about your 529 plan, talk to your tax professional. But yeah, moving those dollars and transferring ownership is a real strategy if you've accumulated there. And then anybody can put into the 529. So even if a grandparent owns it or an uncle owns it, you can still put in money each month or however you've been contributing.
Deb Meyer (31:55.375)
Mm-hmm.
Deb Meyer (32:03.856)
And you're saying grandparent is one example, but it's really any family member that's not the direct parent, right? So if it is an aunt or an uncle saving for it, that's also not going to get counted in the student or parent asset, at least as the law stands today.
Joe M (32:19.038)
Yeah, or even just a wealthy friend. Yeah, even a wealthy friend if they wanted to give you money for the kids' education. It's pretty broad. Doesn't have to be a grandparent.
Deb Meyer (32:27.679)
Okay, but it really is an important piece and it's obviously it's hard to have that conversation … sometimes to start that conversation and embrace it. But yeah, you know, there needs to be a time where you feel comfortable at least talking about it because you know, like you said, that bill is coming due. It's just a matter of when and who's going to help pay for it.
Joe M (32:57.646)
Yeah. And I think that gets to you. You're kind of saying like, what are the logical things? Just map it out. We've got a worksheet I've used for years. It's called college pre-approval. How are you going to pay for college? And looking at parents' contributions, the students' contribution, and grandparents is typically the three. Grandparents or outside help. What do we have for this student for college? And I think a lot of people, if they've saved, they've got the average savings of 529 is about 30,000.
That's great, but that's not gonna get you all the way there. But the big one for parents usually is cash flow. So just thinking logically about, hey, what are we doing now? What are we already saving in the 529, saving for college, if that's a couple hundred bucks? Assume you can continue that for four years. And then also, what do they cost us while they're at home, and what expenses go away that we're used to paying? Like if you're playing for Club Lacrosse or soccer or whatever, travel hockey is ridiculously expensive.
So if those things go away that you're used to paying for, you can probably cash flow them. If you think about, you know, $500 per month, you know, doesn't sound like much, but 48 months, if you're able to cash flow that, it's a meaningful number. And then, do we expect the kids to contribute towards the cost? If so, how much? Or is it just for walking around money? Just having those conversations of, “Hey, we're gonna expect you to work, you're gonna pay for your books.”
Deb Meyer (34:14.36)
Mm-hmm.
Joe M (34:16.398)
So working part-time or over the summers or whatever that looks like. And then again, pulling in the grandparent to get them on the, here's our budget. Now we can go say, this is what we have for all four years. Now what's it going to cost us? That way you know what your delta is. But without having a budget, it's kind of hard to visualize. Hey, if we know that school is going to cost us 30,000 a year, and our budget is 90, I think we can make this work with reasonable loans. Right. So hopefully that's helpful. Yeah.
Deb Meyer (34:39.111)
Mm-hmm, definitely. That is, thank you. All right, so please share where people can find you if they want to reach out and get more of a direct consultation in the future or just get some additional resources on this college funding space.
Joe M (34:59.49)
For me, it's joethemessinger.com. It has advisor resources, family resources, and just points you in the right direction depending on what you might need. We've got different kinds of free college money reports people can run on our site. College Aid Pro is a good resource as well. Just a very deep blog and a lot of thought leadership from that team too. But joethemessinger.com is probably where to start and go from there.
Deb Meyer (35:24.319)
Okay, great. Thanks so much, Joe. Any other items in closing that you want to share?
Joe M (35:35.852)
The last thing I'd share is give yourself runway. Don't wait till senior year. Your financial aid is based on the spring of your sophomore year and the fall of your junior year of high school. So beginning to look at this, have the money conversations, getting the parents on the same page for starters, and then bringing your students into that conversation. Like I said, don't wait till you get that acceptance letter and you find out it's going to be full price.
Earlier interventions, start the conversation. And yeah, and then also dig for resources, but lean on your counselors at your schools. I mean, they have a duty to help you, but they're not going to talk about the money. So just be aware that counselors in high schools are not equipped with the money aspects. So you got to have to kind of deal with that on your own. So that's the big thing.
Deb Meyer (36:24.163)
They're going to be more there to support the admissions process. Is that a fair assumption?
Joe M (36:31.71)
Yeah, yeah, kind of the mechanical part of admissions and getting your scores to people and, you know, transcripts and all that. And their job is to get you into the best school possible. Right? If you think about it, that's their job. Like at the high schools, they want to have all the pennants up that are at all these great universities their kids got into. And that's great. But we need to have kind of that conversation of, hey, how do we get some, how do we make sure we're making a smart financial choice here? That's not going to put somebody in over their heads. So yeah.
Deb Meyer (36:56.655)
Okay, well thank you so much. Your wealth of knowledge, I really appreciate you coming on and yeah, we'll share some links that you provided throughout the show and make sure that goes on the show notes. Thanks so much, Joe. All right, take care.
Joe M (37:09.718)
All right, thanks so much, Deb. Bye.