Bankrupt U: Money Trap 2: How friction-less college tricks cost you BIG money

Welcome back to the show for another episode of Don't Let College Bankrupt You.

And you can mean that—

make that read you as in university, or you as in Y-O-U. Don't let college bankrupt you. My guests, as always, are two college professors, Drs. Bill Quain and Joe Kurabi. Who pay you back as college students. And during this series of shows, for those of you who followed us, we have talked and we'll talk about what colleges don't want you to know and provide you some guidance on how to keep your costs down and prepare for a more successful post-college career. In this show, we're going to talk about money trap— yes, we have money traps— money trap number 2, how frictionless college tricks may cost you big. Joe Carabi, Bill Quinn, always a pleasure to have you on. Joe, money trap number 2, frictionless. What are we talking about?

Gary, frictionless is a term that Bill and I often use because when you really think about it, it's so easy to spend money. Just think about how convenient it is, whether it's, you know, a debit card that's loaded with money or In the book, we talk about Amazon. You know, before you check out, you know, there'll always be another recommendation for a purchase. You know, Bill and I, we've spoken about this many times. Bill and I, we love to fish. And, you know, when you're on the water after a morning of fishing, you get very hungry. And, you know, we don't pack our lunches anymore. So in the area where we live, we have this store called Wawa. And Wawa is like an East Coast 7-Eleven, basically. And they have great hoagies. All right. Hoagies, a sub, grinder, whatever you want to call it, depending on where you live. But anyway, they've made it so easy to, to buy these hoagies. Very simply, I remember coming in one day and I said to Bill, I said, Bill, you hungry? He says, yeah, I'm always hungry. So I said, well, let's get something from Wawa. I said, do you want your, you want your regular hoagie? He says, yeah, that's good. So I opened the Wawa app. I hit Bill's hoagie, dock the boat, went to Wawa, picked it up, ready to go. Friction less. See, you know, we're, we're a society where we like to have things made easy for us. So Bill and I, we kind of advocate for something called friction more. We want it more. We want you to be a little more difficult to spend your money. Reach into that pocket and, you know, pull out a $20 bill and you'll know where that money goes. It's tangible. And so frictionless is really a term to spend money a whole lot easier than maybe you should.

And Bill Quain, how do colleges— give us some examples of how colleges engage in creating frictionless systems to get access to student money.

Gary, they have elevated this to a high art form.

This is—

I'll tell you something, they would make any marketing department at any major corporation so proud of how they make it so easy. You take it like, for example, the student loans. Of course, in the student loans, they have another complicit partner that has really done all they can to make everything frictionless. And that's the United States government with their student loan program, which is why there is $1.7 trillion in outstanding student loans. And outstanding, I don't mean like very good. I mean still being owed as opposed to all the money's already been paid. So, so here's how they do it. Let's, let's take your, your student loan program. Uh, if you're— first of all, the announcement that you are eligible for a student loan comes in your offer package or offer letter from the, from the university. And it looks like it's a grant, but it's actually a loan, but they put it in there. Uh, and, and so it starts that way. Now, when you, when you get that loan, you— all you have to do is— or you've already filled out the FAFSA, otherwise you wouldn't have gotten a loan, uh, offer there. Uh, and you— and of course, if you're a freshman, your federal student loan is limited to $5,500 for the first year, but there are parent loans on top of that, and then you can get private loans on top of that. So And it's almost unlimited. So, you just sign your name. Now, you think about who would lend a 17 or 18-year-old kid $10,000, $20,000, $30,000. Now, again, that would have to be split up with the parents and that kind of stuff and some private loans. But nonetheless, you can get that. You're putting nothing down. You don't have collateral of any kind. And it's very easy. Now, here's where it gets even easier because of course, the money does not go to the students. If that money went to the students and their families, and then they had to turn around and write a check to the college, well, that would be friction more, but we don't want to do that. We want to make it frictionless. So, the money goes directly to the college. So easy. Now, you never, you never have it in your hands. There's no pain. And now here's where it gets even more frictionless. You don't have to start making payments on that until 6 months after you graduate. Now, you're a freshman in college, you're 17, maybe just turned 18, something like that. You have this money, you walk onto the campus, your dorm room automatically opens for you because that was been paid for. You've got a swipe for the cafeteria that's been paid for. Of course, nobody laid out money for that. That just came through the loans, or if your parents are wealthy enough to do it, kid doesn't see it. And then you don't even think about it. So, it comes to be sophomore year, let's do it again. It was so easy. It's so frictionless. And even when you graduate, you don't have to make any payments until you're 6 months out. So, And of course, the federal government is very complicit in that. They're happy to do it. All the lobbyists are happy. It's win-win-win for everybody except for the people who now are broke.

And so, Bill, I'm going to do a follow-up question on this. And I run into this in my college viability business. The historical perspective, the cultural perspective on colleges is that they are kind and caring institutions of learning. And then that they don't have finances, right? You go there and nobody gets paid. They don't buy buildings and that kind of stuff. But really, they— you say in the book they spend all their time— I know it's figure of speech— spend all their time creating frictionless ways, from quoting from your book, of picking your pockets clean.

Okay, well, Gary, like I say, it's a high art form, and it's, uh, it's practical. You know, it starts with making the offer to you. They use AI for that. That was so much about you because they know you're completely financial history. They know what high school you went to, what neighborhood you're from, they know what your interests are. They know all that stuff. So they're armed with all that and they just spend the entire 4 to 6 years that you're there just offering you one opportunity after another to spend without feeling the pain. And it's When I lived in Florida, we had two dogs named Abercrombie and Fitch. And every day, we had a pool out back and we had a big screen around it. So every day, I'd put them out there, out back before I went to work. And then a lot of times I'd come back, Abercrombie was still in the backyard, but Fitch would be in the front yard. She would escape the backyard. And I would look around and try to figure out how did she get out? And sometimes I would find it, sometimes I wouldn't. I said to Jeanie one time, my wife, I said, and then this is a cautionary tale for anybody who's married, don't ask this question. I said, "How am I getting outsmarted by a dog?" Well, she had all kinds of theories. Yeah. But here's the thing. She said, "Bill, how much time do you spend thinking about how Fitch escaped the backyard?" And I said, "I don't know, like 10 minutes?" She said she spends every day, all day with only one thought. So that's what the colleges are, Gary. They spend all day, every day with one thought. How are we going to get as much money out of every student? And listen, people think I'm really being cruel to colleges. Joe and I worked there. This is one of the things that bothers us. It happens all the time. Colleges have turned from these— well, I don't know if they were kind and caring, but they've turned from that to this money machines. And there's really only one place that they can get money if it's not from the state or the taxpayers. It's from the students. And they spend all day, every day thinking about it. They're right in your front yard when you come back.

So I don't think there is such a thing. I know every college name in the country. I don't recall one called Fitch University. Maybe we should have a college called Fitch University in honor of your dog.

Hey, Gary, let me jump in real quick because, um, Bill and I have been parts of, of many, uh, of many committees at colleges. And you know what's really interesting? If you look at the agenda, uh, I'll go out on a limb here and I'll say at least 90% of those agendas lead off with something that's either the budget, enrollment, recruiting, marketing. I mean, and I don't care whether if it's a department meeting, it still is about budget, recruiting, enrollment, marketing. That's the name of the game. Okay. We have to remember colleges are a business and, you know, as we've often said, they've got, they've got, well, they've got some goals, but The main goal, the number one goal in their mind is to also be at college tomorrow.

Yeah, yeah, yeah. And Joe, this frictionless is a big deal. And let's create a scenario and I'm going to ask you to educate me. I'm a new college parent to be. My kid's about ready to go to college and this student loan thing, step me through from that new first-time parent with a college student perspective, how student loans are frictionless.

Yeah, well, first of all, as Bill had mentioned earlier, you know, colleges have a great partner in the federal government. And, you know, when you start getting loans, here's the thing you have to remember, that it's so darn easy to get a loan, whether it be from a student perspective or a parent perspective. And when you don't see this money coming in, well, you don't actually have your hands on the money, as Bill said. So the reality is it's easy to get money. So as a parent, all right, you're— I think there's an emotional thing here, Gary, more than— it's very emotional. You know, your kid graduates from school, you want your kid to get off to a good start. You're most likely, you know, it's expensive, but you know, it's real expensive. And a few more thousand dollars or so on top of that is really not— you know, you're not thinking that's a big deal. All right. But you got to think it's a big deal, right? Colleges are making it easy for you to borrow the money to do what they want you to do. You've got to change that thought process. You've got to change the thought process into how do I send my kid to college to do what we want to do? All right. And you don't need everything, right? You just don't need it. You know, the loans are going to cover tuition. But what about the other things? Right? Does your kid really need the best sweatshirt? Does your kid really need to go to Starbucks? I mean, come on, you got to talk to your kid. You've got to, you've got to let your kid understand that the money coming to send that kid to college is going to be really easy. You got to be on top of that game. The money that the kid spends there, you can help that kid because that kid could develop a budget. Right? That kid can understand that, that money— just money is tangible. You got to be— you got to make it harder for that kid to spend money. And yeah, you want your kid to have the best experience possible, but it's not a bottomless pit. You've got to cut it off somewhere, all right? You got to realize that when you borrow money— now, Bill and I make the point, if you borrow $10,000 a year All right, at 7% interest, you're going to wind up spending, you're going to wind up spending $14,000 to pay back $10,000, right? Who's doing those calculations?

That's 40%, 40% add-on there.

Yeah, that's crazy. Who's doing that? Who's, who's calculating that for the parent?

Good point.

Good point.

Just because your neighbor who you go to the pool with just because they're willing to go into debt for— that doesn't mean you've got to go into the debt. You don't have to do it. You got to stand up. You got to be smart.

You get—

by the way, if you're smart, if you are smart, when your kid goes to college, 4 years down the road when that kid graduates, that kid's going to be in a great spot.

Yeah, good point, good point.

Think long term.

So Bill Quayn, again, one of the co-authors of the book Bankrupt You, you use the term magic money. That's kind of what we've been talking about so far today, isn't it?

It's magic money. It's money that magically pays for something without you having to interfere with it. You don't work for it. You didn't sweat and toil for it. It wasn't in your possession. It was magically paid on your behalf to somebody else. And now, of course, you owe that money and you owe the interest on it. But that's the magic money.

And then Bill, what else is, besides the loans we've talked about, give us some more examples of frictionless college events.

Well, your meal plan. Yeah, your meal plan isn't taking money out of your pocket. It's a race to spend the entire meal plan. I think we talked, I don't know if it was last, episode we did, or when we were talking about meal plans themselves. And at the end of the semester, you know, students have these swipes they have to use up, and they're asking their friends, what do you want? And that goes up. Uh, you know, it, it, it's that— it's, it's, it's telling you that all majors are worth the same. That's magic money right there. And what's amazing is the federal government will lend you money, or your parents will pay out of their pockets, however it comes in there. For a major that can't possibly produce a return on investment for you. And it's the same frictionless spending as you would if you took a major that had a high return on investment. And that's why so many students end up with a bad ROI because there's no pressure on the parents or the student to actually evaluate what they're buying.

Yeah. And Joe Crabbe, again, one of the co-authors of the book Bankrupt U: The College Professors Who Pay You Back, the big lesson is kind of, I'm gonna make the argument, the big lesson is kind of conflicting. Make your life friction more. And you talked about that a minute ago. Expand on that if you would, please.

Absolutely.

I think it's, It's a long-term thing. I think it's a matter of establishing a lifestyle, a lifestyle of friction more as opposed to a lifestyle of friction less. Uh, you know, as a parent, I think you have a responsibility to, uh, well, just not to not let your kid suffer to the point where they're going to have long-lasting effects. If you teach your kid that money means something, that money is a tangible asset, that it comes out of your pocket, not just through some bank, that's what we mean by friction more. Make it more difficult to spend money. And we make the case in the book about holding off on buying a new car for 5 years. I know some people, that's going to be pretty tough to do. But the reality is you don't have to spend cash on everything and you don't have to use cash for the entire purchase. But the point very simply is, Gary, we've got some seasoning to us just as you do, my friend.

All right.

You know, I can remember the ice cream truck coming around my neighborhood. Remember, I grew up in New York City, so the ice cream truck would come And we were here. His name was Gil. I still remember the guy. His name was Gil. Great guy. He used to love us. He was great. I lived in the projects and we would hear Gil coming down, coming down the street. And I remember I would run over to underneath. I lived on the 4th floor and I would yell up, Dad, Gil's here. My father would wrap up a dime and he'd put it like in a, in a, in like a napkin and he'd have it ready. I guess he'd throw it out the window. And I would get that dime. I would cherish that dime. I'd run over and Gil would be there and I would, I would buy an ice cream cone or something. I would give Gil that dime.

Right.

Does anybody understand that? You know, there was a trade-off there. I gave Gil a dime. He gave me that ice cream cone, but that's, that's what we mean by friction more. I didn't take a debit card and say, hey, here you go, Gil, swipe this thing. No, my father had to earn that dime, and I gave that dime to Gil, and Gil gave me an ice cream cone. That's what friction war is all about.

Why don't you just wave your— why don't you just wave your watch, Joe?

That would, uh, pay for it. My watch? Back in those days, we used to tell time using sundials, I think. But that's what we mean, Gary. All we're saying is be attentive. To how you spend your money. That's what it means, friction more. Get in the habit of friction more. And, and it just— I, I think I've said enough.

It's so—

so never, never, Joe, have you said enough. So, Bill Quayn, take us home on this topic on, on frictionless. And a preponderance of college students today, um, need loans. Fact of life, right? It's not going to change. We talk about ways to make it friction more, but talk about some of the tips for those that need loans, which are most students, how they can keep the cost— and you mentioned, Joe mentioned a minute ago, a couple minutes ago, the $10,000 becomes $14,000— state some of the things you talk about in the book on how to keep those loan costs down both during college and after college. Bill?

All right, so we, we give people a lesson in the book, and it's, uh, friction more loan payments. So let's say freshman year you borrow $10,000, you get that $55,000 from the government and you borrow another $4,500 privately or whatever, or your parents borrow for you, whatever. So now you've got a $10,000 loan. That loan, you, so you're a freshman, you know, that loan, that you get in September of your freshman year, that doesn't have to be paid back until December after your senior year is when your payments start on that. And they'll be— I forget, we calculate them in the book. They're like $170 a month or something like that. If you want to pay it off in 10 years, I still think 10 years is too long to be paying off student loans, you know, but it's a long time to postpone, you know, all the other things you need to do. Anyway, so here's what you do. You don't wait because unless it's a subsidized loan, which there are very few of those left, it's going to start accruing interest in September of your freshman year. Okay? And so, basically, 4.5 years of accruing interest before you start making any payments on it. So, what you do is in June, of your freshman year, when you finish your freshman year, you start making the payments on that loan. Or even better still, you start making them in September of your freshman year. In other words, you start making those loan payments on that $10,000 or whatever it is you borrow for freshman year right away, as soon as you take them.

Why?

Because that'll let you know this is real money that you're— and you're going to think about the loan a whole different way your sophomore year when you're in there. Now, how does a freshman in college make those payments? Hey, listen, there are so many ways to make money these days. And even if you have to wait until, you know, between your freshman and sophomore years, summertime, and get a job, you know, just work your butt off and make those payments so that it becomes really— there's nothing better in this life to teach you the value of money than to actually earn it and put it out yourself, you know? And you do that with each sub. So, so then your second year, now you're paying 2 loan payments. Now this, you know, this, this starts to make you think a whole, in a whole different way about it, you know? And so you have to work even harder that next summer. And then when you graduate, they're going to want you to consolidate those loans into one loan. Oh, let's make it easy for you. Never do that. Because let's suppose you borrow $10,000 a year for 4 years, that's $40,000. It's psychologically a whole different thing of thinking, I'll pay off $40,000, than I'll pay off $10,000. We talk about doing the snowball effect in the thing. It makes it so real, Gary, it hurts. And you know what? That's what we want it to do.

How frictionless college tricks cost you big money. My guests, as always, have been Joe Carabi and Bill Quayen. Gentlemen, always a pleasure. We'll be back next time with another topic. This is money trap number 10. And for those many parents watching the shows, pay-to-play college athletics. That's right. You may think you're getting a scholarship and you are, but you're actually paying to play college athletics. Bill Quayn, Joe Carabi, always a pleasure. Let's do it again soon.