← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1875: Ask Farnoosh: How to Pay for College (Actually) + 529 Improvements
00:47:41
Loading summary
Transcript76 lines
- [00:00]
Quit with Jones Narrator
Okay, real talk Quitting or cutting back on nicotine doesn't have to mean changing your whole vibe or skipping out on your friends. That's why I'm into Quit with Jones. They make discreet, great tasting nicotine mints, so when everyone else heads out for a smoke break, you're still right there, fresh breath and all. Plus, their app is actually helpful. You can log your mints, track your progress, connect with other quitters in the community, even play this one minute game that helps cravings pass. And with the combo of digital support and nicotine replacement, studies show people have way better chances of sticking with it. If you're ready to take a step toward quitting or just cutting back, go to quitwithjones.com you can take the free quiz and get $10 off your personalized quitting journey. That's code FRESH10. And just a heads up, the mints contain nicotine, which is an addictive chemical.
- [00:54]
Bluehost Narrator
Jones is FDA approved for 18 years and up.
- [00:58]
LinkedIn Ads Narrator
Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers. A network of 130 million of them. In fact, you can even target buyers by job title, industry, company seniority, skills and. Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads? Spend $250 on your first campaign and get a free $250 credit for the next one. Get started@LinkedIn.com campaign. Terms and conditions apply.
- [01:28]
Bluehost Narrator
I'm no tech genius, but I knew if I wanted my business to crush it, I needed a website. Now, thankfully, bluehost made it easy. I customized, optimized and monetized everything exactly how I wanted with AI. In minutes, my site was up. I couldn't believe it. The search engine tools even helped me get more site visitors. Whatever your passion project is, you can set it up with Bluehost with their 30 day money back guarantee. What have you got to lose? Head to bluehost.com to start now.
- [01:58]
Farnoosh Torabi
So Money Episode 1875 Ask Farnoosh.
- [02:03]
Podcast Intro Narrator
You're listening to so Money with award winning money guru Farnoosh Torabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers and from Farnoosh yourself. Looking for ways to save on gas or double your double coupons. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to Sew Money.
- [02:30]
Farnoosh Torabi
Welcome to Sew Money everybody. It's AskFarnoosh Friday. Did you know this? It's college savings month. And so we're dedicating this entire episode to how to do that, how to prepare for college, how to afford it, should you afford it. And helping us out today, as always when we talk about 529s and college savings is our friend Patricia Robertson, who's the author of the newly updated book Route 529, one of the nation's leading experts on college savings. Patricia, how are you doing?
- [03:00]
Patricia Robertson
Great, Farnooch. Thanks for having me today and having me to talk about one of my favorite topics.
- [03:05]
Farnoosh Torabi
Yeah. So timely and thank you. You brought this to my attention. I had no idea. September for me is just back to school hell. But I guess aligned that we're also dedicating this month to thinking about education costs. And we know the 529 plan is expanding in terms of what it covers and how it can be college costs are continuing to rise, as we all know. I was just at breakfast with a mom who was about to drive her daughter to school in Toronto, which I'm hearing more and more families consider this idea of sending their kids abroad for college because if they're gonna pay the big ticket price, at least you're gonna get international exposure. But a lot of times you can save, believe it or not, going the international route, of course, depending on the value of the dollar, which is going pretty far right now in Canada. I must say, it's not so great the other way around. So we're going to cover the latest updates on the one big beautiful bill signed this summer, what it means for families. We'll also answer listeners questions about saving, borrowing and paying for higher ed in smart, sustainable ways. And we're also going to tackle one of my personal philosophical questions around this whole topic of college, which is is it still worth it? Maybe you're not going to care about this question if your kids are in college right now or about to go to college. But I still have little ones. We have five to nine plans, but I'm looking at how the job market is changing very rapidly because of AI and wondering are the skills and education that kids are getting in college the right skills in education? And colleges are very slow to change. And anyway, it's what is to become of higher ed and how to also pay for that? The math isn't mathing right now, if you ask me. But first, Patricia, let's talk about this one big beautiful bill. For the most part, I hate it, but I think there are some things that are noteworthy with respect to expanded 529 uses, right?
- [05:05]
Patricia Robertson
That's right. There was some positive news in this bill. OB3 as some are calling it one big beautiful bill trying to make it cute.
- [05:13]
Farnoosh Torabi
And it's not cute.
- [05:14]
Patricia Robertson
What is really great is there's great news for parents all around, particularly parents who wonder will that child ever go to college someday day? Because the one big beautiful bill or HR one as it's sometimes called, or the tax Reconciliation Bill expanded 529 plans to cover much more than what is thought of as traditional college. So I think that's great news for putting parents minds at ease and also great news for adult learners who may want to expand their skill set to grow in their career. What's also great about this bill. So there were two pieces to it. That expansion of 529 for what they're calling post secondary credentials. So approved post secondary credentials and we can talk about what they are and also expansion of 529 in the K12 space. So prior to the enactment of what happened over the summer, parents could use a 529 college savings plan to pay up to $10,000 a year in K to 12 tuition. Now as of the 1st of next year, 1-1-2026, they can now pay up to 20,000 from the 529 account for a child. So that's one piece of it and there's a lot more.
- [06:36]
Farnoosh Torabi
Let's talk about that piece of it. That sounds great on paper but realistically are there a lot of families that have enough in their 529s to start paying the 10,000 a year for third grade private school? I don't even think that was probably the intention when they opened the 529. Most of us open it with the intention of this is a long term investment vehicle for college and beyond that it can be available now for kindergarten through 12th grade is nice but realistically how many households are actually in a position to take advantage of that?
- [07:09]
Patricia Robertson
Yes, you're right. So the average 529 account balance I believe is in the $35,000 range. So certain paying K to 12 tuition will be challenging for many. However, every now and again there's a family with a grandparent interested in helping in some way and perhaps an account could be opened by someone other than the parents to help cover those K12 costs. I think there is some thought around making certain that a child receives a good foundation in K12 in order to be even better qualified for that post secondary pursuit. So Perhaps in some situations people can use the money for that. But I agree with you, Farnooche. Most will not have the resources to really pull down on whatever they've saved for those very early years. Perhaps with the help of others they could. But what is good, in addition to what we just discussed, is that for K12 expenses they can now include tutoring. Tutoring outside the home by someone unrelated to to the child is what the rule says. But tutoring can be covered and certainly children of all ages sometimes need that little extra help. So being able to use the 529 for something like that I think is extremely valuable. Also test prep for some of these standardized tests and the cost of taking those tests, that can be a huge expense for families. I remember growing up in my very low income family and I almost didn't know how was I going to pay to take the sat. And I certainly didn't have money to get somebody to coach me on how to take it. So now These dollars from 529 can be used for some expenses like that. Also, they can be used for dual enrollment in a high school college course. Now those dual enrollment courses, when they're offered through certain high schools around the country, can be really helpful to students. First they get a sense of what it's like to go to college and secondarily they can get some college credits and start off day one with a few credits in their bag and perhaps can reduce their overall cost ultimately. And then one last thing is that with the K to 12 expansion, the funds can be used for support that's needed for a child in terms of speech therapy or other academic aid. Perhaps a child that has some needs that go above and beyond what their current school can offer. And I think that's terrific as well. As I look at these K to 12 experiences, expansions, I do believe that they will help families, particularly with these smaller expenses. If they can pull the money out for some tutoring or for a test or something like that, they can help the family have the student be a little bit better prepared and confident in the college application process because they've done a little better in that calculus course or they're feeling a little more self assured about whatever speech challenges they had once had. And I think that's a good thing. So I do think the K to 12, even though a little counterintuitive, as you said, is something that can be helpful to families, certain families.
- [10:28]
Farnoosh Torabi
Anyway, what do you think is going on in terms of these changes? Why? What is it that they're speaking to this is happening in the political realm. This is like happening with this big beautiful bill. But the expansions have been slowly happening over the years and it seems bipartisan. Like Everybody wants the 529 to become expandable and flexible. Do you think this is speaking to the fact that our lawmakers are aware that college is getting out of hand and the cost of education is becoming out of hand?
- [10:58]
Patricia Robertson
Yeah, I mean, I think you're correct that lawmakers and others are cognizant of the fact that college is out of reach or becoming increasingly out of reach to many. I think others are aware of the fact that college isn't the only route to a successful future of rewarding career and that there are many forms of education that can be extremely useful for individuals. I know some of us who are 529 champions have always felt that the broader the use for 529s the better for families of all types across the country. Not every family, not every child is interested necessarily in that traditional four year degree. And now, no. Knowing that so many other paths can be pursued I think is very satisfying certainly for those of us who want to help families have access to higher education and help their children have futures that they're proud of and joy to many extents. So I think that there are people who have been advocates on 529 that have working towards some of these and others as well who just recognize that perhaps the way it was all these years with college being four years and so traditional is not really the right thing for everyone.
- [12:15]
Farnoosh Torabi
Yeah. You mentioned earlier these workforce credentials that the 529 can support. And I think this satisfies a little bit of my concern stated earlier, which is that if you're saving for college and then college is not really where you're seeing the ROI in 10 years for where the job market's at. You do have the option now to use the 529s for things like vocational school, trade school, continuing ed for adults and career changers too, which is key because maybe you have residual savings that you haven't used and now you have to upskill because the market's changing. You need to pivot. Maybe because the market's changing in your. Your bachelor's in economics is not competitive anymore in the marketplace. I'm making that up. Maybe it fill in the blank. Nothing against economics majors. My brother was an economics major, I was a finance major. Love the business schools. But that's a real bonus, I think and really does speak to how the World is changing.
- [13:18]
Patricia Robertson
That's right. And these post secondary credentials are often non degree credentials as you've implied. And the costs that are covered are to pursue, attain and maintain. You talked about continuing education. This could be anything from licenses issued to dental hygienists, to home inspectors to truck drivers to nurse practitioners, insurance agents, real estate. You and I just spoke of real estate a bit ago. Real estate agents have licenses that need to be pursued, right? There's maybe a course associated with that. There's testing associated with that. They then got the license, they've got to maintain it. There are annual fees involved. Elevator inspectors. There's lots of licensed professions in every state that are overseen by state authorities that can be now covered by 529 college savings plans. And I think this is great.
- [14:14]
Farnoosh Torabi
Yeah, we want to get to the mailbag. We got a lot of great questioners from listeners about is it too late for me to save? I have four kids. Federal versus private loans. What's a smarter move? Does it still make sense to go the federal route? How much to save in a 529 for a newborn and when to not use a 529 and maybe go with a brokerage or other options. But you Patricia, are in this world day in and day out and you hear a lot of commonly asked questions. Questions including this one which is how many should I have for my family? So If I have two kids, should I just have one 529 plan or one for each child? We know that with the 529 plan you can change the beneficiary. So depending on maybe the ages of your kids, one will be done with college before the next one starts. And so it's easy to transfer it and use for both kids. But if they're close in age it could be tricky. What's your take on that?
- [15:13]
Patricia Robertson
Yeah, it's a great question and it comes up a lot. I think parents instinct sometimes is to simplify by putting everything in one account. You can certainly do that. But every account allows for only one account owner and one named beneficiary. So my strong advice always is to have a separate account for each child. And I say that for a number of reasons. First of all, unless they're multiples and we know many families have twins or triplets or quadruplets, they have have different dates of birth and different time horizons in terms of when they'll be needing that money for use. Let's set the K to 12 aside. We're assuming people are using it for college only. They're going to need that money at a different time. And many of the 529 plans, and in fact they're the most popular options that families pick are these age based or target date options. So you want to have, if you go into one of those investment options, you want to have one that's suited for the particular beneficiary that you have in mind for those funds. Another thing that I would say is I think it's extremely important to have separate accounts because I always encourage families to politely tell the loved ones to stop it with the stuffed animals and the toys and games and outfits that are quickly outgrown and instead consider even a modest contribution to the 529 account. You'll want to have separate accounts for those purposes because perhaps at one of the December holidays, holidays, someone's going to want to put something in each of the kids accounts. So you'll want to have separate accounts for that purpose as well. Also, children's aspirations may be different. I know you don't know this when yours are young, but as they grow and develop, you may realize you're saving for something very different for one child versus another. You can always switch those funds to a member of the family if you figure that out later on. And I think the most important reason I think is one should have different accounts for each child. An account for each child is that each child should know that you are saving for them. I think these conversations are important and I think they're important in age appropriate ways. I know there's research that says children, even with modest amounts of savings are more likely to attend and finish a degree program than those without. Even children with less than $500 is what the research says. And I think seeing that account statement, their name on it, gives a child sort of a peek into their future and what the possibilities are. So please don't couple it all together.
- [17:48]
Farnoosh Torabi
If you're not the eldest, you just feel like you're getting seconds, whatever's left. And I think it's also important to remember that these 529 plans, they're investment accounts. They adjust for risk as you get closer to college. So if it's one account, you have to pick a target date, right? For maybe you do an average of the two ages. But if you're saving for one child with the intention that with whatever's left, you'll have for the second child, maybe that second child can't take on the same amount of risk or needs more risk right in their portfolio because they have many more years ahead. So just keep that in mind too that when you're the reason to have two accounts is because each child has a different timeline to college and will require a different kind of investment strategy.
- [18:39]
Patricia Robertson
That is absolutely correct.
- [18:41]
Farnoosh Torabi
You know those nights when your mind just won't quiet down?
- [18:44]
Quince Narrator
Your to do list keeps running. You're thinking about tomorrow's early alarm or juggling the endless schedules. That's when the right sheets really matter. With Bolen Branch you can finally unwind Their signature sheets have a softness so extraordinary that your whole body relaxes into sleep. Bolen Branch's signature sheets are made from the finest 100% organic cotton and they feel buttery soft from the start, only getting softer with every wash. Plus they come with a 30 night worry free guarantee and are ethically crafted by artisans who earn fair wages. I can tell you from experience the quality is unmatched. The first night I slipped into my bowline branch bed, I could feel the difference immediately. These sheets actually change the way you sleep and the breathability makes such a difference, especially when the weather warms up. I genuinely sleep deeper and wake up feeling more rested. Feel the difference an extraordinary night's sleep can make with bowl and Branch get 15% off plus free shipping on your first set of sheets@bowlandbranch.com that's Boland Branch.
- [19:41]
Farnoosh Torabi
B O L L A N D.
- [19:43]
Quince Narrator
Branch.Com Sewmoney to save 15% and unlock free shipping exclusions apply. Fall is in full swing and it's the perfect time to refresh your wardrobe with pieces that feel as good as they look. Luckily, Quince makes it easy to look polished, stay warm and save big without compromising on quality. Quince has all the elevated essentials for fall 100% Mongolian cashmere starting at just $50, washable silk tops and skirts and perfectly tailored denim, all at prices that honestly feel too good to be true. I've been especially eyeing their wool coats. They look very designer but cost just a fraction of the price and the quality just as good, if not better.
- [20:23]
Farnoosh Torabi
What I love most is that quince.
- [20:24]
Quince Narrator
Has really become a one stop shop for me. Their cashmere sweaters and silk tops have turned into true staples in my fall wardrobe and every time I put them on I get that mix of comfort and polish that just works whether I'm at home running errands or heading to a meeting. By partnering directly with ethical top tier factories and cutting out the middleman, Quint delivers luxury quality pieces at half the price of similar brands. Keep it classic and cozy this fall with long lasting staples from quince. Go to quince.com sewoney for free shipping on your order and 365 day returns. That's Q U I N Q quince.com somoney to get free shipping and 365 day returns. Quince.com somoney.
- [21:06]
Verizon Narrator
Popsicles, sprinklers, a cool breeze. Talk about refreshing. You know what else is refreshing this summer?
- [21:12]
Farnoosh Torabi
A brand new phone with Verizon.
- [21:14]
Patricia Robertson
Yep.
- [21:14]
Verizon Narrator
Get a new phone on any plan with select phone, trade in in MyPlan and lock down a low price for three years on any plan with my this is a deal for everyone whether you're a new or existing customer. Swing by Verizon today for our best phone deals. 3 year price guarantee applies to then current based monthly rate only. Additional terms and conditions apply for all offers.
- [21:35]
Thumbtack Narrator
Avoiding your unfinished home projects because you're not sure where to start. Thumbtack knows home so you don't have to don't know the difference between matte, paint, finish and satin or what that clunking sound from your dryer is. With Thumbtack, you don't have to be a home pro, you just have to hire one. You can hire top rated pros, see price estimates and read reviews all on the app. Download today.
- [21:59]
Farnoosh Torabi
All right, another question is what if my child doesn't use the funds? We've addressed this, but another flexible component of the 529 is that you can change the beneficiary to not just another child but also another family member. It's pretty flexible.
- [22:14]
Patricia Robertson
It sure is. And that family member, if you happen to be the account owner for your child, that family member can be you.
- [22:21]
Farnoosh Torabi
Right?
- [22:21]
Patricia Robertson
So let's not forget about you. As parents, we are always on the back burner. But if your child, for whatever reason, does not need those funds, want those funds, you've got funds that you can use to upskill your career. Now that there's all these expansions on 529, I think it's a great piece of advice to consider that or use.
- [22:40]
Farnoosh Torabi
It to catch up in retirement. Can you roll that into your own Roth ira?
- [22:46]
Patricia Robertson
Cannot roll it into your own Roth ira, but that's a great question, Farnooch. You can roll it into the Roth IRA original beneficiary if the account has been open for at least 15 years and other requirements are met. But up to $35,000 can indeed be rolled into a Roth for the beneficiary on the 529 account. But it's gotta be that same exact person so you couldn't quickly change it to yourself because you wouldn't have had the 15 year period. But good thinking for an issue.
- [23:18]
Farnoosh Torabi
I try, I'm trying. Squeezing that retirement money out of anything.
- [23:22]
Patricia Robertson
Absolutely. There are other things you can do too. You can certainly save the money. There's no time limit on 529s. Save it until that child realizes that now they do want to pursue education. You can save it for your child's children someday. If the reason you don't need the funds is because your child received a scholarship or attendance at a military academy and doesn't need the money, you can always take the money out without federal penalty because you didn't need it for the intended purpose. You will pay tax on the earnings portion of the withdrawal only. But there'll never be a penalty in the case of scholarship receipt and God forbid, death or disability of the child. And then the last thing you can always do is get at your money. It belongs to you. You can take a non qualified withdrawal. What you'll be paying there is the, the federal and state tax on the earnings of the withdrawal and a 10% federal penalty. That's the penalty that is waived in.
- [24:22]
Farnoosh Torabi
The case of like an IRA or if you did an early withdrawal or a 401k. Essentially.
- [24:28]
Patricia Robertson
Absolutely. But I think parents mind should be at ease and knowing there's a lot of flexibility in these plans and plenty of different things you can do if one child does not need the funds.
- [24:37]
Farnoosh Torabi
Yeah, let's get to the mailbag. We have a question here. Let's talk about this. This family with four kids, let's say they all do want to go to college and they don't have anything saved yet. If anyone ever asked you, is it too late for me to save in a 529? What would you say?
- [24:55]
Patricia Robertson
I would say it's never too early to get started. And I feel in most cases it's really never too late. Even if the child is nearing say the end of high school or the middle of high school, you still have some time. And also they may be pursuing a degree that's two or four years long. You'll still have time within that period to get started. Now, we don't know the ages of the younger children. You say the oldest is 14. But surely there's more time even for those younger children as well. I would say don't be hard on yourself that you haven't gotten started. My God, four children. And keeping that all afloat is quite a thing. But congratulations on asking the question and taking your head out of the sand because it is likely that one or all, all of those four children are going to want or need to pursue some form of higher education. And it's never really too late to get started with savings. Now, what can you do? You've got a lot on your plate. You're not sure where the money could come from. A couple of suggestions. First of all, get the account opened and begin contributing what you can. And if you can do it, contribute on an automated basis. People tend to save more. I would seek the support of others. I mentioned the fact that friends and family can contribute to these accounts. Why not raise your hand over Thanksgiving dinner when somebody's saying what do the kids want this year? And tell them you really don't need anything else. So get friends and family involved. I think that can be helpful to you. Employers now increasingly are starting to realize that employees need help with this. I would see if your employer, if you're employed or your partner is employed, see if you can get somebody to contribute as well to those. And then the other thing I would do, as you're worrying about all of this, is to remember college comes at many different costs. If you are thinking of traditional college, there are high quality schools that cost less than some of these big names. And sometimes those lesser known schools will give larger amounts of merit aid to a student that they really want. So don't be so worried about the big ticket prices you're seeing. Know that your child can perhaps pursue something less expensive. Also know that they don't need to necessarily go away to school or they can go to the state school. Farnooche talks about this all the time. It was Penn State. We are where she went instead of going to the big name out of state school. That was her father's insistence and her acceptance of it, which led to a brighter outcome for her. So I'd think of anything you can to start putting your mind at ease. Get the account opened. Realize it doesn't have to be the big ticket. Start talking to your child, though. You can't wait till the very last minute to say, we really don't want money for this. Start talking to them. Perhaps they can work and contribute. And the other thing you should remember is that they also can work while they're going to school. Your priority needs to be emergency savings for the family. Your retirement needs to be a notch above all of this. And it's great that you want to focus on it, but you've got to let them Know that they need to be aware of what's happening as well. Perhaps they could start looking for scholarships at a young age if they have a particular skill set to see where they might find some money for that. There's plenty you can do. It feels late, but give yourself a break, get started and get others involved is really what my tip is as.
- [28:20]
Farnoosh Torabi
A parent who lives in a suburb of New York. And maybe this is an east coast thing, but I think it's a lot of parents, no matter where you live, there is. And this is a big thing to get over because where your child goes to college, it's like a social status thing. I will be the first to say that I was at breakfast this morning with my friend who was sending her daughter to a school in Canada, a wonderful school, but there was another mother at the table who was like, my kids go to Duke and Tulane and oh, and everybody went ooh. And it was like a moment. And we all felt it and we aspire to the ooh a lot of the times. And we will sacrifice our retirements to get our kids into those hundred thousand dollar a year schools, which who knows what they'll be by the time you have a kid who's maybe five or six years old now. I don't even want to know. That's sometimes the biggest hurdle. And this is like such a wild thing. It recurs in a lot of my conversations with families, especially those who are about to send their kids off to school while they've worked so hard. They have their heart set on this school. It's $100,000 a year. They want to apply early because now colleges are getting smart and they're accepting more and more kids early. And those kids are not relatively getting any aid because they know you are. We're your number one choice. You're coming whether you get aid or not. And so it creates just this challenge that can be avoided by simply getting it in your head that after the ooh part at breakfast is over, you're gonna have $400,000 owed and none of your friends have to pay that bill, but you. So just be smart about this. This has to be an investment. I'm not saying I don't wanna crush anyone's college dreams. Like, I hope everybody gets to go to the college of their dreams. But realize that what you're really after is a degree. And you can go and start at a different school that's more affordable and then transfer to that dream school and still finish at that dream school paying half the price. Overall and getting the degree. Or you can go there for grad school, which might be a lot more affordable than undergrad, depending on how long you're in grad school. But all I'm saying is be flexible, be open minded and don't get caught up in the social influence of it all.
- [30:49]
Patricia Robertson
That's great advice.
- [30:50]
Farnoosh Torabi
I'll get off my soapbox. I'll get off my soapbox.
- [30:52]
Patricia Robertson
Oh, great. It's great. I know parents that have felt this way and I know one family where the daughter got into incredible schools and they opted in the end to do borough of Manhattan Community College for two years and have her live at home and commute there, and that was next to nothing. And then transfer to nyu. She's got the NYU degree. Exactly.
- [31:17]
Farnoosh Torabi
You get the degree. I mean, there are extreme thoughts on college right now. Don't even pay for it. Give your kid the $400,000 if you have it and start investing that for their future or give them some of that money to start a business. I think it all depends on your kid. Obviously this isn't healthy advice for everyone to follow, but I think increasingly parents are open to these alternatives and that's a real existential crisis for universities. Right. Like how are we going to make ourselves competitive and convince parents to con Some parents will always pay it like it doesn't matter. But I think more and more people are realizing the math needs to math.
- [31:58]
Patricia Robertson
That's right. And if they could see into the future and the stress that they're avoiding or the stress that they would encounter by having that debt, I think they'd make very different.
- [32:08]
Farnoosh Torabi
Absolutely. Another question from the audience. Federal versus private loans. This is outside of the 529 world now. And if you're comfortable answering this, Patricia would love your thoughts on the smarter move. The smart money always went for the federal options first because we know that they're typically more flexible when it comes to repayment. They're typically cheaper when it comes to their interest rate. But the world is changing. The financial institutions are getting a little savvier. What do you think?
- [32:39]
Patricia Robertson
Yeah, exactly what you just said. The answer previously had almost always been yes, and it may still be yes. But with recent changes in federal law that go into effect in 2026, I think it's worth re examining. So if you're someone who's going to be borrowing after I think it's July 2026, I think you need to take a more careful look and I'll tell you why, or at least some of the reasons why. The limits on what can be borrowed are changing for both graduate students and for parents. I think undergrad is staying the same, but your ability to borrow from a federal perspective is going to change. So that's something you'll want to keep in mind. I do believe they're still likely to be more favorable in terms of discharge upon God forbid, again, death or permanent disability. I'm not sure that private loans ever really can get discharged. Maybe under some circumstances they are. But because of these changes and just the changing landscape, I suspect that private loans, while typically have been more expensive, may be more competitive. And I think some of these reasons why people went with federal may change a little bit coming changes. So I say, while I don't have a definitive answer for you, I say take a good look when your time comes to borrow, you should be comparing everything when you go to decide which one to attend. You got to be lifting the hood on all of this. This is no to just be shooting from the hip. These are really significant dollar amounts, as you said, Farnooche. And people really need to think about what they're doing.
- [34:19]
Farnoosh Torabi
Yeah, I agree. I can't imagine if they start to change those discharge laws. And in this administration, I think they want to privatize everything. They haven't been very sympathetic with borrowers. And I think that question maybe there was a hint of knowing that there's been some clamping down on these people who had their. Their loans on pause for a while and now they're due again and. Yeah.
- [34:46]
Patricia Robertson
All right.
- [34:46]
Farnoosh Torabi
We have a question from Tori. A bit detailed, but I know you can handle it. She says. Noosh. My husband and I recently discovered a Parent plus loan that his dad took out for him totaling about $69,000 at 7% interest. At first, the balance showed a $2,600 due amount, but after a forbearance was approved because we didn't know about this. So it was automatically requested and approved, the account reset to $360 a month. The loan is in his dad's name, so it would be discharged if he passes away. So we can afford the 360amonth, she says, but we're torn. Should we just stay on this plan? Should we consolidate to access the save program or refinance into my husband's name if the rate drops? This is a very specific situation and I feel bad that no one seems to be helping her with this other than maybe they did negotiate to get to 360amonth, but not next steps. No one's here to give her some next steps. What would you do?
- [35:55]
Patricia Robertson
Wow. Oh, there's a lot here to unpack. The first thing I would do is remind her that if that indeed is a Parent plus loan taken out by her husband's father, unless her husband has somehow in some other way legally assumed responsibility for it, he's not responsible. The student is not responsible for a Parent plus Loan. Now there's something more going on here because he's acting like he is, right? Or it's sounding like he's wanting to be helpful.
- [36:27]
Farnoosh Torabi
Right. Maybe he feels obligated. It could be.
- [36:30]
Patricia Robertson
I don't know those details, but I wouldn't. I feel remiss by not mentioning that if it really is a Parent plus Loan, no matter how you stumbled upon it or what, the amount is not certain unless there's something else going on here that her husband would even be responsible, but commend him and her for wanting to help in some way. The other thing is she mentions something about potentially going into the Save plan. S A V E is the acronym I saw in the recent federal legislation that's going to be eliminated in 2028. So I point that out as well. If that's something that you're foreshadowing or thinking might be desirable to pursue, just know it might not be there. I think the best bet there's so much intricacy to this question and I think there's things that you and I maybe don't even know here, Farnooche, is to suggest that your listener or your audience member certainly talk to the loan servicing company about options. I do research on that. Studentaid.gov of has current information on what's happening with student loans, particularly federal loans. And there's also some nonprofit credit counseling, student loan counseling entities that may be able to help. I know that most states have a financial services arm where you can ask questions about things like student loans, but I'd get a third party's opinion because I don't think either you or I Farnoosh can give a definitive answer here other than what we've said, which is to take a more careful look at it and figure out what would happen. I think she is correct if it is indeed a Parent plus loan for which the father in law is solely responsible and if a federal Parent plus would be discharged upon his death. But that's certainly not something anyone's counting on or wanting to happen and they recently discovered it. Don't know.
- [38:31]
Farnoosh Torabi
I don't get it. But I appreciate the question. I want you Tori. Here's what we're really telling you is look out for you and your. You got to look out for yourselves, right? And if this is not something that you have to pay back, maybe there's. Maybe who you have to talk to is your father in law and together y' all can work it out. If your husband didn't know this was being taken out for him, I feel bad that he's being stuck with the bill all of a sudden. Surprise. So good luck, Tori. Let us know what ends up happening. A question here, Patricia, about newborns and five two nines. Now, I think it's if you've been listening to this show audience. I opened a 529 for Evan before he was born. I was pregnant and maybe I was pushing my luck there, but I was like, you know what, I kind of want to take advantage of this. This is cool. I'm like the nerd in me was like, what? I can do this before, before he's born. I'm gonna do it and get a head start. If I can get a head start on savings, I will. And that has that account, by the way, has grown to six figures since he was born. And we were contributing 500amonth up until recently. We increased it to a thousand dollars a month because I just felt like the pace of tuition was rising faster than my rate of return on this 529, sadly. So we did one for his sister as well when she was born. Taking your advice to have one for each child. But what's a monthly suggestion? Is the question to save for a newborn in a 529?
- [40:08]
Patricia Robertson
Yeah, this is a very good question, Farnusha. Depends on a variety of factors. And I'm happy to say that Most of the 529 plan websites have great calculators to help families estimate really what their goal is. You've got to start with that. What are you saving for in order to back into how much do you need to save? So there are really good calculators out there that you can utilize. But what are some of the considerations? What are you envisioning this future to be and how much of it are you hoping to cover? Because it's going to be a very different amount. If you're thinking the child's going to go to the prestigious private school and you're going to cover 100% of the cost. If you're thinking we're probably going to be more of a public and state family and my spouse and I or my partner and I are comfortable covering say 50% of it or a third of it, you're going to have a different number to start with and thereby your monthly or weekly or whatever annual contributions are going to be different. So I think you need to know what that is you're envisioning. These calculators are great because they'll help you to estimate what college will cost in that year that your child's going to go and we'll help you to back into what would you need to get there. The other tips I would have once that account's open, once you've decided on how much you're going to contribute, you can always change the contribution amount over time. We did in my family as we were paying back $100,000 in our own undergrad, grad and law school debt. We eventually were able to put more in and as will you when that child's out of diapers. You're going to be saving 60 or $100 a month on those diapering and diaper supplies and your child's out out of paid daycare. You're suddenly going to have a windfall if your child's going to public school because now you've got more money on hand. So you'll be able to increase over time. But try to do some sort of estimate about what you envision for the future and back into what those monthly costs would be without being completely tied to what they are. And then my other tips are automate those contributions. Ideally, do it from your paycheck if you're an employed individual or your bank, checking or savings account. Why do I say paycheck? Individuals who save from their paycheck SA 75% more than those who first have the money pass through their hands? It's the way I saved and I think it's a great way to do it. And then lastly, I'd say invite others right from the get go. This newborn's here. Let's set the tone for the future. Smaller, more thoughtful gifts are welcome, but this is really what we want to work toward as a family and see if you can get other people involved. I bet they will be.
- [42:46]
Farnoosh Torabi
That's a great answer. And just for context, how we landed on that initial $500 a month for Evan. We were working with a financial planner and we ran the calculators and she asked us questions like, you know, what kind of parents do you want to be in this context? Do you want to pay for all of college wherever the kid decides to go, as expensive as it gets, or do you want to be middle of the Road like we both have. My husband and I went to Penn State. State. So we were like, okay, let's say Evan decides to go to Penn State and we're living out of state. What's going to be that tuition? And that was what we targeted. Now that's not cheap, right? That's probably way more than what it would have been for. It is way more than what it would have been for us. But I also find that if you get into these quote unquote elite private schools, if you've got good grades or if you write, if you apply for scholarships there you, you can, a lot of times you, you can surprise yourself. You might get more aid than you think. That this hundred thousand dollars, some people pay that, but many people pay less than the sticker price. And so while maybe you're targeting the average cost of college as part of your savings Strategy, in the 529, you may end up saving more than you need because again, your kid is able to qualify for aid and we're not anti try taking out a little student loan and having to pay that back because I think knowing that is going to be due whether you graduate or not encourages the child to graduate and also gives them some skin in the game and makes it so that they are more motivated to go out there and find paid work so they can pay off that debt when the grace period is over.
- [44:32]
Patricia Robertson
That's great. And by the way, 529s can be used to repay $10,000 in student loan debt account. Some parents are holding back some of that money, not letting the child know there's still a little bit left in the account and letting them take out, as you said, a loan or two for themselves, knowing if they needed to pitch in, they've got the money in the account. Not a tremendous amount you could repay, but it's interesting to know that they can. And Farnoosh, I want to say one other thing in the one big beautiful bill is that employers ability to repay student loan debt was made, made permanent. Employers can repay. So that's child of yours who's now graduated with student loan debt. Employers of all sizes can repay up to $5,250 a year tax free to the employee. So free of income tax, free of payroll tax for the employer and they can take a business tax deduction. So if your child's coming out with some student loan debt, have them look for employers who are willing to do this because there are employers who are and they're interested in attracting people that top talent and Keeping people. And if you're working or your child's working for someone right now who's not offering it, ask the question because they can now do it. That's now permanent. Was due to sunset at the end of 2025.
- [45:54]
Farnoosh Torabi
I love that.
- [45:56]
Patricia Robertson
And I want to talk about that. I just wanted to reference it. I know that's not our topic today, but people should know employers can help here.
- [46:03]
Farnoosh Torabi
Great point. Point. And so it just makes me feel like the 529 is amazing and nothing can stop us from opening one. But some are still on the fence. We actually have a question. This is our last question. When does it make sense to not open a 529 and do an alternative like a brokerage or a custodial account or a Roth IRA even? A lot of people use a Roth IRA as a floating flex account where it's intended for retirement, but it has this flexibility where you can take your contributions out, penalty and tax free. A lot of folks see it as a hybrid vehicle for retirement. Slash, fill in the blank. And sometimes that blank is college.
- [46:47]
Patricia Robertson
Sure. No, that's a great question and it's a fair one. First of all, I want to say there's no one way to save for higher education. There's no right or wrong way. And you can save, behave with multiple approaches. You can diversify your approach so you don't have to be Pro or Anti 529, you can do a little of a few different things if you wanted to. Certainly the things I love about 529 that are not the case with some other options are those tax benefits. The annual state tax deduction at the state level or credit depending on the state, and the fact that the accounts are growing free of federal and state taxes is something that's very attractive. And when those funds are withdrawn to pay for a wide range, and you heard how wide that range now is, range of expenses, you'll never pay tax on the earnings of these accounts. So that's something that you're not going to get in your average brokerage account. The other thing I like about 529 is that the account owner is always in control of this account. We love our children. We hope they're going to turn out the way we hope they do. We hope they're going to follow the paths that we think are best for them. But to the extent they know there's money out there that they can get their hands on and use for any other purpose, they might just do it, but they can't do it in a 529 account, the beneficiary can never, ever get access to the funds. So I like 529, and then that's protective. Oftentimes, parents set up brokerage accounts with these classifications, called UGMA or upmarket, a uniform gift to minors account characterizations. And that money belongs to the child. And when they reach the age of majority, whether it's 18 or 21, it's their money. So if you were intending that money for a particular purpose, it's not going to be the case. The other thing about putting money in an account with those trust classifications is that it will count more substantially against the child for financial aid purposes, federal financial aid purposes, because that's deemed to be the child's money. The FAFSA calculation looks at child assets at 20%. So they feel 20% of a child's assets can be used for education, whereby the 529 is considered a parental asset and only 5.64% of it is considered. So I think for those reasons, I prefer 529. I think brokerage would be great. If you wanted to use the account for multiple purposes, you weren't sure if it was going to be for education. You wanted to be able to dip into it now, later, for a variety of things that might make sense for you. 529 really put you in a lane. And some people like the guardrails of it. I did. I knew that money was for this and I wasn't touching it for anything else. But some people like being able to pull out money. The things I'd ask, whether you're looking at an IRA or a brokerage account or any other form of investing in, is whether there are income restrictions, age restrictions, minimums or maximums that you can put in roths, like what, 7,000, the child has to have earned income. There are these sort of rules you need to be thinking of. What are the fees and expenses, what are the tax treatment, what risks, if any, what are your earnings potential? You want to look at all those things, no matter what an investment is that you are considering. I hope that's helpful. But again, no right or wrong way here. I know 529best and I happen to like it best. But I think some of these other ways are perfectly fine. Saving is a good thing, however you're doing it. But just make sure you understand the type of account, what implications it may have down the line, and particularly that implication of can your child get their hands on it, Because I think that's really important to know.
- [50:39]
Farnoosh Torabi
Yeah, the custodial accounts, I think you brought it up. But just to re emphasize the risk of that money becoming their money in as young as 16 in some states, but most likely 18. And again, the compartmentalization of the 529. We talk about this a lot in personal finance. The behavioral strategies that we can implement that will just steer us in the right direction because left to our own volition, we cannot be trusted. And so when you have something that is earmarked for something, you just accept that and it's a boundary that you don't cross and you are more likely to be successful hitting that goal, hitting that savings target. Wow. We covered so much ground. And Patricia, as always, thank you so much. Tell us a bit more about your book again and where we can find it.
- [51:30]
Patricia Robertson
Sure. So my book is Route 529, a parent's guide to Saving for College and career training. With 529 plans, it is primarily sold on Amazon. That's the best place to get it. It is written from the heart, from a mom who's been there. I know you've read of Farnooche. My son has written the forward to it. You get to hear from a child about experience of growing up in a family that was prioritizing this, driving the same car, still driving the same car from the time he was an infant till now to save on money. We were determined for him to have a brighter future. So I share a little bit about my own journey and I don't miss a beat on how these accounts work. And I try to put it in plain English for the readers. And as I said, update it for 2025. You'll see the ribbon across the top that says 2025 Update when you go on to Amazon to look for it. But I hope you enjoy it. And I'm very. It's one of the most satisfying things I've done. It was my pandemic project. Wasn't good at baking sourdough bread. I said I've got to do something here. With this time on my hands, how about I write a book on 529 plans? A little nerdy, but I think it's helped a lot of people and it's brought us together for anoosh, which I'm so grateful for.
- [52:41]
Farnoosh Torabi
So grateful for you, Patricia. Thank you so much.
- [52:44]
Patricia Robertson
Much. You're welcome.
- [53:00]
Verizon Narrator
Popsicles, sprinklers, a cool breeze. Talk about refreshing. You know what else is refreshing this summer?
- [53:06]
Farnoosh Torabi
A brand new phone with Verizon.
- [53:08]
Patricia Robertson
Yep.
- [53:09]
Verizon Narrator
Get a new phone on any plan with select phone. Trade in in MyPlan and lock down a low price for three years on any plan with MyPlan. This is a deal for everyone, whether you're a new or existing customer. Swing by Verizon today for our best phone deals. 3 year price guarantee applies to then current base monthly rate only. Additional terms and conditions apply for all offers.
- [53:30]
Warby Parker Narrator
Every idea starts with a problem. Warby Parker's was simple. Glasses are too expensive. So so they set out to change that. By designing glasses in house and selling directly to customers, they're able to offer prescription eyewear that's expertly crafted and unexpectedly affordable. Warby Parker glasses are made from premium materials like impact resistant polycarbonate and custom acetate, and they start at just $95, including prescription lenses. Get glasses made from the good stuff. Stop by a Warby Parker store near you.