Masterclass: Unlock College Funding Scholarships & FAFSA Essentials

Oh, it is 11 o'clock, and I would like to get started here. My name is Carrie Anderson. I'm with College Ready. And first off, you guys, I want to apologize. Shellee Howard is not going to be on the webinar. And again, I want to apologize and extend an apology from her. She is in a location where it is storming, and they don't have Wi-Fi at the moment. So, but the good news is we do have Brad Baldridge, and he is going to go forward with his presentation. We're super excited to have him today. So thank you, Brad. And he is going to be speaking on FAFSA and scholarships. So welcome, Brad. We're super excited to have you with us today.

Yeah, thanks for having me.

Oh wait, what did he— hello, I don't know if you can see me, first time on webinar. All right, so welcome everyone. Without further ado, I'm going to have Brad take it away.

All right, all right. So again, my name is Brad Baldrige. I'm founder of Taming the High Cost of College, which is a website, a podcast, the name of a lot of my presentations. I use it, use it wherever I go. Um, but what we do is we help families plan and prepare for college. So whether it's need-based aid, merit aid, you know, saving and investing, all the different pieces of the puzzle, that's what we do. So, and typically what we would focus on is what I call late-stage college planning. So early stage, you know, you've got a kindergartner, a newborn, or hey, we're pregnant for the first time, and you say college is important, we're going to save and invest, which is great. You can do that. But late stage is now you have kids in high school and now it's getting real. Now, not only do you have to maybe continue to save and invest, but on top of that, you've got to visit schools. You've got to understand need-based aid and merit aid and scholarships, and you're going to do visits and testing. And there's a lot to do. And if you did a great early stage plan and you have a big pile of money, you still have to do late stage planning because now you have to figure out how and when and where to spend it. And for most of us, we didn't realize college was going to be so expensive. So a lot of times our big pile of money is not as big as it needs to be, and we need to figure out how to fill the gaps. So that's what I do, and I will share a presentation now. And All right, there we go. All right. So late stage college planning, it's a lot of different things, but we'll start with, you know, college finances.

I don't see— are you screen sharing?

You're right. I am not screen sharing.

Yeah, not yet.

Now, am I sharing?

There you go. Perfect.

All right. So late-stage college planning is lots of different little plans all put together. So it's the college finances that we're going to spend a lot of time talking about. Things like need-based aid, merit aid, all those types of things. But also college selection. How do you find a school that's the right fit? Not just academically and socially, but also financially. College testing or test optional. How is that going to work? Athletics for some. Academics. Are you doing the right things in high school to get into the colleges you're interested in? Career life planning. What does your student want to be when they grow up? Admissions— what is it going to take to get accepted? And then finally, scholarships. So need-based scholarships, merit scholarships, institutional— all the different areas there. So what are we up against? Well, the average public school is about $28,800. The average private school is $60,000 now, and that is what we would call total cost of attendance. So it's tuition, room and board, Books, fees, beer, and pizza. It's the whole cost for a typical student for a typical year of college. And yes, that's per year. So a lot of times people see those numbers and they're shocked a little bit. And again, this is the average published price. So here's one solution. We decided to support you for the rest of your life. It's cheaper than sending you to college. So get a quote on remodeling the basement, and you can then compare that price to what college might cost, and then you'll have an informed decision. All right, so net price is what we— what really matters when it comes to college. So we have cost of attendance, which we just talked about. Again, that's tuition, room and board, beer and pizza, minus the free money that we receive— grants and scholarships and that type of thing equals your net price. And the net price is what we actually pay. And a lot of people, you know, in the back of their mind know that there's scholarships out there and there's various ways to lower your cost. But how you make it all come together is a, is a bit of a challenge. But there's a lot of free money out there. Again, the average private is $60,000. The average public is $28,000. But after free money, the average private drops to $34,000. The average public is $20,000. So there's about $26,000 of aid for private schools. There's about $8,000 for public schools. And that's no accident. A lot of private schools have higher prices. They know it. So in order to be competitive, they have to offer more aid than the average school. Now, the average across all students is $10,600 in grant and scholarship aid. So the free money on average is $10,600. Now, here's a newsflash: you're not average. So you might get $10,000, $20,000, $30,000, $40,000, $50,000 off, or you might get zero off depending on your particular situation. And that's the crux of one big piece of college planning is how much can we, you know, what kind of discounts are we going to get and what, and in what form and how do we make it better if we can? So here's a couple of, you know, harder examples, right? So low-cost state schools, Florida and Iowa happen to have state schools that are very reasonable at $23,000 all in in '22. Now, when we look up their average actual numbers, what people pay on average, it's $14,000 and $15,000. Higher cost states, Pennsylvania and California. Now we're looking at $38,000 and $36,000 and a net cost on average down to $26,000 and $30,000. So there's a big swing from the most expensive to the least expensive states. And these are all public schools, and this is all assuming you're in-state. So out-of-state, you're going to spend more even at a public school. And then we have private schools. So Crichton is kind of a medium-cost private school at $60,000, and Stanford more expensive at $78,000. And this data is a couple years old because Stanford is approaching $90,000 now, I believe. But at the time of this data it was 78. And then of course Stanford is very generous. You notice that their average discount is $60,000, so on average people pay $18,000. Now there's a big asterisk to this data as well. This is of the people that applied and qualified for financial aid. So there's a lot of families that send their kids to Stanford who don't even bother to apply for aid. They just write a check for $78,000. Now, you know, obviously if you can afford to do that, you probably wouldn't be on this seminar, but that does happen and it happens a lot at the, at the big name brand schools more than some of the others. Uh, and then of course Creighton is down to $32,000. So now you look at these numbers compared to the state numbers and you say, well, wait a minute, maybe I can afford to go to a private school instead of a public school. Then we have two other examples, Santa Clara and Tulane. And I picked these out because they're not as generous. So on average, you pay $50,000 at Santa Clara and $50,000 at Tulane. And again, you're not average. So not everybody, you know, nobody pays $50,000 exactly, or very few. So at Tulane, you still might get lower numbers. It's just on average, they're not as generous as some of these other schools. So again, it's the net price that matters. Cost of attendance minus free money equals net price. If you guys have questions, by the way, you can put them in the chat and we'll, I guess, collect them up and you can help me with that. Okay, good. So how does this going to work? Another way to think about college planning is what is your role in all of this? I have most of you out there, I believe, are parents. And parents have a role and then the students have a role. I tend to work with parents, so I'm going to be skewing to the parent side of this puzzle. Shellee Howard's presentation talked a little bit more about what students can do. That's not my area of expertise. You know, when I bring in someone like Shellee Howard, we need the student to get working on their side of it. All right, so the students hopefully in charge of picking out what they want to be when they grow up. They're in charge of filling out the ACT applications and writing the essays. They're in charge of getting good grades and taking the right courses in order to be college ready. And what do the parents do? Well, they do all the financial stuff. You know, parents need to figure out what kind of financial aid you might qualify for. They need to figure out what the net price of college is going to be and make sure that it's within the ballpark of affordable, whatever that means for your family. And then parents can also do the saving and investing and that type of thing to help pay those costs. And then there's the stuff in the middle there that you're going to do together. You know, you're going to do the school research together. You'll do the visits together. The testing, you'll do at least put the test— put together a test plan together. Again, parents probably aren't taking the test, but you need to work with your student, especially now that there's test optional. It's confusing. I wouldn't leave that up to the student. I would get involved and understand, are we going to take the test multiple times? Are we going to prep? Are we going to go test optional? What's right for our situation? And then the other big category that you work on together is scholarships. And scholarships is a loaded word because scholarships could be scholarships from the colleges themselves, scholarships from outside sources. It could be a big to-do major project, or it could be something relatively minor. Um, I had a family 8, 9 years ago, they applied to 41 scholarships. The student won 7 of them for a grand total of $39,000. Now people say, oh, that's great, I'd love to do that, which is true. And if you were going to win, especially you want to do that. But how long does it take to do 40 scholarship applications? It wasn't some random Sunday afternoon where they sat down and hammered it out. It was a project that the family worked on for months and months and months. It was many Sunday afternoons. Does everybody pay the same price for college? Well, the obvious answer is no, just on some of the numbers we've been looking at. So who pays less for college? And a lot of times people would say, well, the high academic achiever is going to pay less, which is true, potentially. Or the athlete pays less, or the scholarship winners pay less. All true. But the one that matters to you is those that plan and prepare pay less than those that don't. And that's one thing that's under your control. Right? Whether your student is an academic rock star or not, that, you know, that die is cast. You may have a great student, you may have an average student. You may have a below-average student, but if you plan and prepare, that's something you can still do moving forward here. Then we need to talk about advanced strategies. You know, what can the student do to increase the odds of receiving admission or a scholarship? You know, get better grades, study more, put up better test scores. All those types of things. Choose the right schools. And then what can the parents do to increase the odds of receiving admission or scholarships? And hopefully, and when from the parent perspective, it's the coaching, right? It's the— I'm going to learn how need-based aid works. I'm going to learn how merit aid works, and we're going to find schools that are a good fit for our student. And again, mostly it's going to be needed, the parents, because most students don't really understand tax returns and income and how the whole process works. And you'll learn a little bit about it just coming up here. So where does the money come from to pay for college? Well, there's current income, right? The student could be working, the parents could be working, and you say, well, we're going to pay $500 a month or $1,000 a month, or we're going to put the bill, whatever it is, on a payment plan. And we'll pay it. Often families have some sort of savings and investments or college money set aside in some way. Then we have financial aid. Who's the number one provider of financial aid? Well, that, of course, is the federal government. A big chunk of their aid is loans, which is the next item. But then there's also outside loans and private loans. Then we have that big scholarship word again. And then finally, we can pay for college by reducing our other expenses. You know, if we could save some money on your taxes so you have more money for college, would that be okay? We could reduce your overall interest expenses, or we could eliminate unnecessary expenses. You like to pick on cable TV. Let's say you finally cut the cord and you save $200 a month. Well, that money could then be used for college. For a lot of families, you know, doing those first 3 things makes sense. And the last one, you could reduce your lifestyle. You could delay your retirement to pay for college as well. Now, what I tell most families is that the— that reduction is the last step, right? You do everything you can in all the other areas, and then you start tapping into lifestyle and retirement. Okay, so circling back around to cost of attendance minus your free money equals your net price. But now we've expanded each of the boxes, right? Cost of attendance, as I mentioned, is tuition, room and board, books, fees, beer and pizza— the whole cost of a typical student. The free money, all that's need-based aid scholarships, merit scholarships, private scholarships, athletic scholarships, federal and state grants, and maybe some employment benefits. That net cost that we've talked about, $70,000 school down to $30,000 because of all that free money, and then you've got $30,000 left to pay. Well, how are we going to pay that bill? Well, that's where we get into the savings. Student can save, the parents can have some savings, student can work. We've got cash flow strategies, student loans, parent loans, a number of different ways, tax savings, all the different ways that we can then pay that. And for a lot of families, you're going to do 3 or 5 or 10 of these different items in order to make college work. It's not all going to be scholarships. It's not all going to be savings. It's not all going to be tax benefits. It's not all going to be scholarships. It's going to be a combination of all of those things. And for some of you, it'll be different proportions of different things. So how does aid work? Well, we've got need-based aid and merit aid. Need-based aid is based on the income and assets of the parent and the student. And then we have merit aid, which is based on typically the student's academics, their talents, their geography, their— whether they provide diversity, whether they play the right instrument because the band needs tuba players. All kinds of reasons why colleges might offer more money to one student over another. Now, when we go talk about need-based aid, income and assets of the parent and the student, well, a lot of times the student's income and assets are zero or nearly zero. So they kind of fall, fall out of the picture, and it's mostly mom and dad's income and assets. So there's 3 types of families out there. Type 1 families will qualify for large amounts of aid. Type 2 families will qualify for some aid, and if they do some good planning, maybe they can increase that need-based aid. And then Type 3 families just are not going to qualify for need-based aid. Their earnings or their assets are too high, and there's nothing they can do about it. You're still going to send your kids to college and you're still going to pay for it. You're just going to have to pay for it using merit aid, athletics, cash flow, saving and investing, all the other strategies in order to make it work. So one of the early steps that I encourage families to do is to figure out, well, are we type 1, type 2, type 3? Are we going to get lots of aid, no aid, somewhere in the middle? And then if we plan, if we move things around, if we do things better, can we get more aid? And for a lot of families, the answer is yes. So how does it work? Well, we have this new thing called Student Aid Index. Student Aid Index is a number that's calculated based on the FAFSA process. You fill out the FAFSA, and that's the sole reason for the FAFSA, right? You put some data in the FAFSA, you submit it, and it's getting easier now. Well, there's a lot of turmoil right now as well. But you fill out the FAFSA, you do what you can, it comes back with an SAI, and that SAI is a number that they use to determine how much aid you're eligible for. So the lower your SAI, the better it is. So it works like this: cost of attendance minus your SAI or your Student Aid Index equals your financial need. And that calculation again is based on the FAFSA and it's done every year. So the federal aid system, we— they use the FAFSA. Now on top of the FAFSA, there's also what's called the CSS Profile. That's an additional financial aid form. About 300 colleges use the additional form. In addition to the FAFSA. And they're the name brand schools that we've all heard of. So the Harvards and Yale and Northwestern and Caltech and Rice and Case Western Reserve and lots of, of the higher end colleges. The colleges that tend to be very generous also want to get more information. So they have you fill out the CSS Profile so they gather more information, which helps them determine aid more fairly. Um, I would say about 30% of the families I work with, or 40%, have to do the CSS Profile. But there's— if you're just going to the local state schools, a lot of times it never comes up. So if you're looking at the high-end privates, it's important, and it asks for different information, and it's actually calculated substantially differently now. So you essentially get two different calculations based on whether you're attending a FAFSA school or a CSS school. So as we mentioned, the top four factors— student's income and assets, parents' income and assets— student falls away. So where does the income come from? So they say it's based on parents' income. Well, they pull it off your taxes. In the past, they would say, what is your AGI? And you go look it up and you'd put it in the FAFSA form. Now they don't even ask. They say, may we go look at your taxes? You say yes. They go to the IRS and they suck all the data off your tax form for you. So you don't even have to enter the data anymore, assuming you filed your taxes on time and everything's up to snuff at the IRS. The FAFSA gets really easy because all the tax data is just brought over and they do all the math behind the scenes. Now we need to be aware that they're going to add back in some of your untaxed income. So they start with your AGI, which is your adjusted gross income, which is about line 11 on a typical tax form. That adjusted gross income, then they add back in tax-free income as appropriate. So what would tax-free income that they add back in be? It would be things like some contributions to retirement. So if you're a small business owner, they might add back in your contributions to retirement. They may add in other tax-free income, certain benefits that you might receive. And this is all based on prior, prior tax year. They'll also draw in the student's tax return if they have one, or you'll essentially on the FAFSA say they don't have one. And they'll still look. But if they don't find one, they're not shocked because a lot of students don't file taxes because they don't have income. And if they do find some, generally the student's income is assessed more heavily than the parent's income once the income is over about $11,000. So the first $11,000 for students is a free pass. So if they babysit or have summer jobs or work at McDonald's or whatever and they make 3, 4, 5, $8,000 a year, it's not going to impact them. But if they earn substantial money, then they will— that will impact them. So as I mentioned, is based on prior, prior year. So if you have a senior right now, class of 2025, you're going to use the tax data for 2023 and you're going to fill out the FAFSA this fall. So it's going to open in October or it was going to open in October. It's rumors that it might be delayed a little bit again. So but sometime this fall you'll be able to fill out the FAFSA and the CSS Profile, all based on 2023 tax data. If you have a junior, you're going to do it next fall based on 2024 taxes. If you have a sophomore, it's based on 2025. So what's important to realize here is that for seniors, your 2023 taxes are probably done and filed and there's nothing you can do to change them. If you have a junior, you've got from now to the end of the year to perhaps do some quick changes. And if you have a sophomore now, you're looking at 2025 and saying, okay, I can actually do something and prepare so that 2025 can be the best that it can be. Now, that's assuming that you're going to do some need-based aid planning and it makes sense for you. So you need to understand if making changes is actually going to benefit you before you do it, not after. And so that's some of the process. And we'll talk about how this is calculated in just a minute here. But that's the, you know, the the timeline. So I guess if you guys in the chat could, uh, just let me know what grade levels of students you have, and if you have multiple kids, that would be useful as well. I don't know if I've got a room full of seniors, or if we've got a lot of juniors and sophomores, or if we're mixed. So just let me know from there. Okay, got a couple of real young ones and class of freshman and senior, senior, senior and freshman.

Lots of seniors.

Yeah, lots of seniors. Senior and first year of college.

Yeah, senior and skip two grades. Wow.

All right, so let's speak to that a little bit. So we've got seniors You may need to do what I would call kind of the— I do planning, and what I offer seniors is what I call a senior rescue plan. In other words, we don't, you know, our school list may be set, our testing is done. There's a lot, you know, there's things we can change and there's things we can't. So let's figure out what we can change, what we should change. How do we deal with this in the very short term, because we got to, you know, maybe we did a great job, maybe we did a poor job, maybe we were lucky, maybe we're unlucky, don't know. But whatever it is, we, you know, what, what we didn't do 2 years ago is, is now water under the bridge. There's nothing we can do about it. But what we can do now is what we can do now. So doing some of this quick analysis and trying to figure out if there's assets that we can move and some of those things. And it'll make more sense as we talk here now. So we have some seniors, we have some juniors where now you've got 2024 is going to be relevant. And again, these are all your base years, right? So the junior, the first time you fill out financial aid, you're going to use 2024, but the junior is going to fill out financial aid 4 years typically because of the 4 years of college. So not only are they used 2024, they're also going to use 25, 26, 27, because you do it every year. So even those of you that have seniors and you're saying, well, wow, I didn't know 2023 is done and nothing I can do about it, you still have to do a quick analysis of, well, should I fix 2024 and/or '25 or '26? Because those are all relevant. And then a lot of you had multiple kids. And now strategizing around, well, what about what tax years apply to both kids? You know, it might be that 2025 taxes applies to your current sophomore and it also applies to your current senior. They're both going to fill out the FAFSA using 2025. So that might be a year you want to target. All right. So they take your income and they take your assets. So but before they do anything, they do a quick test for minimum and maximum Pell. If your AGI is below— these are what I would call your magic Pell numbers. If you can be below these numbers, then the magic happens and your FAFSA becomes— or your aid becomes maximum aid. So if you have 2 parents and 3 dependents or 3 kids in the household, they don't have to be college kids. They could be. But if you just have 3 dependents on your taxes and technically the dependents also could be grandma or grandpa or other dependents as well. Then if your AGI is below $61,000, then you magically get the maximum Pell of $7,000. If you can be below $96,000, then you're automatically going to get a minimum Pell. If you qualify for the maximum Pell, you're done, right? They say you get maximum Pell. You get maximum aid and we're not even going to go any further. You just— you won the prize. Now, for minimum Pell, you kind of get the consolation prize. You get essentially a Pell Grant for a minimum of $7,740. So it's not worthless. So you want— if you can be below the line, you want to do it, but it's not nearly as good as being under the maximum Pell line. These numbers are indexed for inflation, so the targets jump up for 2024. So this is '23 again. Let me back up. This is '23. If you find your number and then stare at it and I'm going to change it to 2024 and it just got bigger and that's due to inflation., and they will get bigger again for 2025. We just don't know what they will be yet, but they go up, indexed for inflation every year. So we'll know the 2025 numbers in January, February coming up and so forth and so on. So then we have assets. What are assets? Well, the assets you need to report are things like savings, money in the bank, all that type of thing. So not all assets are assets. So what's— and other assets are. So what is not assessed? Well, things that are not assessed are things associated with retirement. So you don't have to put your 401s, your IRAs, your Roth IRAs, your pension, your profit sharing, your 403, your 401. All those types of things are out. You do not report them on the FAFSA. You also do not report your primary residence. Or your primary equity. That's the good news. The bad news is they don't care about your big mortgage either. So the fact that you have a big mortgage payment does not come into this calculation. You need to report any real estate that's not your primary residence. So you will report your rental property, your business property, your vacation home. You know, if you own a cabin in our area, it would be the cabin in the Northwoods. Then that would be, you know, and, you know, own it with a brother. Well, then 50% of that cabin would be reported because you own half of it. So you'd also report money in the bank, savings, CDs, checking. You report college savings and investments that are not retirement. So if you've got 529s, Coverdells for college, they're reported If you have just stocks and bonds or investments or cryptocurrency, if you have a bar of gold buried in the backyard, it's an asset. You're supposed to report it. So all those are assets. And then the value of your business is also assessed, and that's a change. So on the internet, it's still all over. You know, a lot of bad information on the internet because they changed the rules and nobody went and changed everything on the internet. So there's a lot of old stuff on the internet. So you want to make sure that your sources are up to date because one big change is you do have to report the value of your business no matter what size it is, where in the past you did not report businesses. Now you also report student assets. So if they have checking, savings, CDs. And again, most students have, you know, might have a few thousand which will count against you. And it's not, it's not terrible, but if you move it, then you don't have to deal with it. But the other thing that we see a lot of is when, you know, Grandma or Grandpa buys some stocks for the kids or when they get an inheritance and now they have an account with $50,000 in it that was left to them by a relative. Or grandma and grandpa had a situation where grandpa bought a bunch of Google stock for the kids and it turned out to be a really good investment. So they had a big pile of money that they had to report or would have had to report. We were able to shift that around and move that away so it didn't count. The new changes change how child support works. So in divorced and separated situations, child support is now treated in a better fashion. It used to be considered income. Now it's considered an asset, which is actually better. So that's an improvement. So you report your assets on the form. So there's, there's essentially 3 questions on the FAFSA. What do you have in the bank? What are your investments worth? And what are your businesses and farms worth? And then when you read the fine print about each of those questions, it says, okay, bank is like it sounds— what's in the bank. Investments would be college savings and all the stuff I mentioned, the crypto and all that stuff. And then your businesses would be the net value of your businesses and farms. And there's rules around, well, my— what if my house is on the farm? And now it's my residence too. Well, you'll have to look that up. But so— but here's a couple of quick examples. So single parent has 3 dependents and their income is $87,000 gross. You know, that's their total income. We look up their maximum PAL, their magic number is $67,000. Their minimum Pell is $95,000. So they're over the max Pell line. So they're not going to max things out. So, but if we look at three families that are all in this situation, family number one puts money— doesn't put money into a retirement plan that helps their situation. So they maybe they're putting money into a Roth and you don't get a deduction for a Roth. So that doesn't change their AGI. Or maybe they're just not saving for retirement. Whatever the case may be, their AGI is the full $87,000. They have $1,000 in assets. Their SAI is calculated to be $9,000. Their Pell Grant will be $800. That's a little over the minimum there. Family 2. They decide to put $19,000 in retirement. So their AGI is $68,000. Remember, $67,500 was the magic number, so they still didn't make the magic number, but their SAI is still pretty good at $2,500. So they still get a partial Pell. But family number 3 either were smart or lucky and they put one more thousand in., and then their Pell jumped from $4,000, from around $5,000 up to $7,300, or maximum Pell. Their SAI is automatically zero, so they would qualify for better loans. They would qualify for need-based aid at the college themselves a little bit more. So the, again, they, they met the magic number, so to speak. Now, the same situation, except now we have $200,000 in assets. So now— and that $200,000 could be $200,000 money in the bank or $100,000 in the bank and $100,000 in college, or it could be a small business worth $100,000 plus money in the bank for $100,000 or whatever combination. And it doesn't matter. A dollar is a dollar no matter where it is. So it doesn't matter if it's in a 529 labeled for college or if it's in the bank. If, if it counts, it counts. If it doesn't, it doesn't. Some people get worried that, well, if I put it in something that has college in the name, then they're going to assess it more heavily. And that's not true. They will assess it, just not more heavily than any other dollar that gets assessed. All right. So now we've got these assets to contend with. Well, now the SAI jumps up to $20,000. So I'm going to go back and look at the previous one. So that $200,000 made your SAI go up $11,000. In that situation, still get a minimum Pell of $800. And then the family, family 5 here, again, they just missed it. So they still have an SAI of $11,000. So they don't get their Pell. It's not very good, but we crossed the line. Our SAI is automatically zero and our Pell is automatically $7,395 maximum Pell. Now, if I reran these numbers with instead of $200,000, I put $2 million in there, well, then family 4 and family 5 would have crazy big numbers, but family 6 would still have zero SAI. Because it's the— the magic happens once you get your AGI below that number. Now, a lot of you are looking at this and going, yeah, but I looked up the magic numbers and we're nowhere even close to those magic numbers. I was like, okay, well then that plan is not right for you. And there's lots of people where you're going to look different. So let's look at a different example. Now we've got 2 parents, 4 dependents, and your income is $185,000. Well, the targets are $65,000 and $102,000. We're nowhere close. But what happens if we do the same thing here? So again, hypothetically, at $185,000, you're not putting anything into retirement or the type of retirement you're doing doesn't count. So your AGI stays at $185,000. Your SAI comes in at $35,000. So remember we talked earlier, it's cost of attendance minus your SAI equals your need. So if the cost of attendance at your local flagship school is $32,000 and your coming in at $35,000, you don't qualify for any sort of need. Now, family number 8, we add $20,000 into retirement so their AGI goes down to $165,000 and your SAI goes down to $28,000. And then if we put in $40,000, it goes down to $21,000. So if you're— if you do put in $40,000 into retirement and your income goes down and now you have an SAI of 21 instead of 35, you qualify for $14,000 more of need-based aid than you would have otherwise. Now, at some schools they meet 100% of need, so if you qualify for $14,000 more, you will get $14,000 more. Some schools, unfortunately, they say, yeah, we agree you need more, we don't have more, therefore your aid is not going to change. So very— at the beginning of this whole discussion around need-based aid, I said you might want to adjust your income, you might want to adjust your assets, you might want to change things. Before you make those changes, you need to understand the schools on your list and how they will respond to your changes, because sometimes you can make changes and they will essentially gap you. They will say, yes, you need $10,000. Here's $10,000. You make changes and they say, yeah, now you need $20,000. Unfortunately, all we have is $10,000. So you get the same $10,000 and you say, well, why did I do all that work? And the answer is you probably shouldn't have because it didn't make a difference. But sometimes it works out really well. So you need to understand those options. I noticed someone in there asked questions about if there's a FAFSA calculation, and there absolutely is at my website, tamingthehighcostofcollege.com/sai. Don't go there now. Just write it down. You don't want to distract you, but we have a calculator out there that will help you determine your estimated SAI, your estimated need, and we've updated it now, we'll also estimate your Pell Grant. And then you can do the what-ifs. What if it's this? What if it's that? And compare and see how that works. So By federal programs, we do all this process on the need side. What does that generate for us? Well, we've got the Pell Grant, the Supplemental Grant, Work-Study, Direct Loans, and PLUS Loans. The Pell is the free money. Work-Study is a job on campus. The Supplemental Education is also free money. And then the Direct Loan is a loan to the student paid back by the student, and the Direct PLUS Loan is a loan to the parents paid back by the parents. The— everything from the subsidized loan and up, so Pell, Supplemental, Work-Study, Direct Loan subsidized, that's all need-based. If you show a need, then you qualify for those things potentially. If you don't show a need, you will not get any of them. For sure, they're all need-based, but everybody qualifies for the unsubsidized Direct Loan and everybody qualifies for the Direct PLUS Loan. The, the big myth that I continue to hear out there is lots of people say, well, my student needs $20,000 to pay for college. Where can they borrow $20,000? The answer generally is they can't. Mom and Dad can borrow $20,000 on the Direct PLUS Loan. Mom and Dad could cosign a loan, but there is no place where a student all by themselves can borrow $20,000. The typical 18-year-old does not have an education, does not have a job, does not have a credit score, is a very bad credit risk, and they cannot borrow money in their own name. The big exception is this Direct Loan that we just talked about. This Direct Loan is $5,500 maximum for a freshman. $6,500 for a sophomore, $7,500 for a junior and senior. So that's the most— so they can borrow $27,000 over 4 years in their own name. Mom and Dad don't need to sign or cosign. You're not involved. They'll need to pay it back. But once you get beyond that, now it's the PLUS loan. The maximum PLUS loan is cost of attendance minus any other aid. So you can, you know, again, if you're going to Stanford at $90,000, your student borrows $5,500 and you could borrow $84,500. I'm not saying you should, I'm saying you could. And you notice with the interest rates climbing, these numbers are getting a little bit ugly. A few years ago they were substantially lower than this, and these interest rates change every year. So this is what current college students are paying for this year. Next year's loans, we won't know until next summer, and then the year after that, we'll know. You'll notice they're fixed, which means if you took out a loan this year as a freshman in college, you get this loan fixed at these rates. And then the sophomore year, they're going to declare new rates and then you take it or you don't. So a lot of students will graduate after 4 years with 4 loans, all fixed. But at different interest rates. So that $5,500 from the freshman year at one rate, $6,500 for sophomore year at a different rate, so forth and so on. And then the subsidized loan is better than the unsubsidized loan. So if you do show a need and you qualify for subsidized, what that means is the government pays the interest while you're in school. So you borrow $5,500— is it, you know, you could borrow that much, you could borrow $3,500 on the subsidized program as a freshman. 5 years later, you graduate, you still only owe $3,500 because you didn't— you know, it was subsidized, you didn't have to pay any interest. If you had that same $3,500 on the unsubsidized, well, then they accrue the interest, still don't have to make payments, but that $3,500 might be $4,000 by the time they graduate 5 years later. So subsidized is better and certainly worth it if you can get it, but it's not the end of the world if you don't qualify and you end up with unsubsidized. Are there things we can do that will increase your need so that you qualify for more aid? Yes, and we've been talking about them, right?

You just—

just things. You shift your income, you shift your assets, you Do the right things at the right times. How do we apply? As we mentioned, FAFSA, the CSS Profile. Some colleges will ask for supplemental forms, business and farm supplements. Some colleges for the FAFSA in a divorce situation, the FAFSA only requires one parent, the parent that— or the student that provided the most support in the previous 12 months. Which is a nebulous thing. So a lot of times we can plan which parent. So that would, you know, that's another strategy around divorce planning or separation is who do you want to be on the FAFSA and how do we make that happen? But there are rules when it comes to the CSS profile. They'll actually ask for a profile from both parents. So it doesn't matter that you're divorced, they're just going to collect information from everybody. All parents, all remarriages. So, you know, so there could be 4 parents in the CSS profile situation. Next, we have merit aid. It's aid that we get from the colleges themselves, and that's because of academics, talents, athletics, diversity, all kinds of reasons. A lot of colleges now are providing aid, but they're, they're doing what's called enrollment management. So they're essentially saying, how much money do we have to get you in order for you to come? It's not merit aid like, oh my goodness, you have all A's, you get $20,000. That exists too. But some colleges are now saying, well, we have to give everybody that looks kind of like this, we have to give them $15,000 off or they don't come. Therefore, we're going to give everybody $15,000.

So—

and they put it under the merit aid category most of the time. But for some colleges— and again, these are not the elite colleges, by the way. These are the run-of-the-mill average colleges that are a great fit for a lot of people.

All right.

More complex planning. So when it comes to planning, if you've got multiple students, things get more complicated because now you're saying, well, you know, in some years we've got 2 on the FAFSA, some years we've got 1. Which years are important? I've had families with triplets and quads where everything's all happening all the same time. That can be very overwhelming. If you have divorced or blended families, it's more complicated. If you have high-achieving students, there's a lot you can— a lot of opportunity as far as getting more grants and aid and that type of thing, which makes your life more complicated. An area that I've spent quite a bit of time in is when families get an inheritance that can throw a wrench into things of now I have this money I have to report, or can I shift it quickly and get it tucked away before financial aid happens? Or maybe I'll slow roll it and I won't inherit it until after the FAFSA is filled out or things like that. Athletics, you know, if you've got that basketball player that could play or you got that star athlete that's going to get great scholarships, business owners have opportunities and rental owners because you have more control over your tax return. So you can choose what your salary might be in a particular year as an example. And if that— if you can choose the right answer, then maybe you can make things better. You can also set up tuition reimbursement plans and other things like that. All right. Do we have other financial goals? Is retirement, vacation, starting a new business? Is it time to get serious about overall financial planning? A lot of times the stress of college is what prompts us to say, okay, it's time to get serious about all our financial areas, not just the college area. But, you know, I had a family a couple years ago, their daughter was interested in the performing— the Tisch Performing Arts Center at NYU, right near Broadway. It was her dream. She got accepted, which is a huge challenge. She was excited to go. Except NYU at the time was about $70,000. She got some scholarships, which were great, you know. So now the net cost was $35,000. And I'm working with Dad and Dad's like, well, $35,000 is not terrible, but $35,000 times 4 years is $140,000. She's the oldest of 4, so times 4 kids is Oh, that's a big number. Am I on the hook for all of that? Do I have to be? You know, what, what are my options? And then the other part of it was, well, what are your other goals? Well, I want to retire. So we did some retirement analysis and we figured out that he was actually on track to retire early if he wanted to. But he also could retire, you know, he could retire at 61 or 62 if he would just full steam ahead. But if he wanted to spend extra on college and slow down retirement a little bit, then he could retire at 63 or 64. And it turned out he didn't really want to retire till 65. So he was good with— great. You know, we were able to give him permission to pay for his daughter's dreams. But obviously you have to— you know, a lot of people say, I don't want college to mess up retirement. And then the next question is, are you on track for retirement? I don't know. Okay, well, then how do we know what— what is there to mess up if we don't know? So some families, you know, you got to work on that as well. There's also tax strategies at the upper income levels, especially where you can get tax breaks that phase out if you're married at $160,000, $140,000, $400,000, so forth. If you're single, the limits are typically lower and, you know, $70,000, $80,000, $95,000 where they start phasing out. So that's another area that a lot of families— again, is it going to pay for college? No. But if it makes it a little more efficient and saves you $5,000 or $10,000 or whatever it might be, then certainly you want to take advantage of it. All right. I may answer some questions if I can.

Sure, Brad, I'll go ahead and read them to you. How's that sound?

Sounds great.

Great presentation, by the way. Thank you so much. Let's see here. Why, as an asset, is it better? And I'm not quite sure what she might have been talking about.

Yeah.

Shoot. Let's go to the next one. Is there a cutoff below which student assets are not assessed?

Fortunately, no, it starts at $1. So, and it's typically about 20%. So if your student has $100, you know, it's going to impact your aid by $20. So most people would say, uh, whatever. I mean, that's right, but it's that slippery slope of, well, when it's $1,000, it's $200. When it's $10,000, it's $2,000. And, you know, so doing what you can there makes sense for a lot of families.

Okay, are health savings accounts that can only be used for health expenses assessed?

No, on the FAFSA, maybe on the CSS Profile.

Okay, does the age of parents affect need if close to retirement?

Slightly.

It's a great question.

They do ask the age and it changes a little bit on— well, actually, no, I mean, they ask the age, but that benefit actually went away. So it has very, very minimal impact now. But they still ask the question as if it is going to matter. So yes. Okay.

Does it matter on which tax return the child is dependent on? Divorce family?

Yes and no. So it does. You know, if the student— if any students are dependent on a particular tax return and that's the tax return you're using, well, then the magic Pell number number change, right? Because it's based on dependents and that kind of thing. It doesn't automatically determine who's going to fill out FAFSA. However, often it, it, it parallels that. So, you know, mom's in Chicago and dad's in Texas, kids live with mom all the time, dad doesn't seem to really participate or contribute. It's pretty clear mom is going to be the one on the form., and it's going to be based on her tax return and it's all going to be mom. But where mom and dad live in separate households in the same school district so that the kids can go back and forth 50/50, and now all of a sudden we might be able to figure out, well, who do we want on the form? And then that student, you know, then that parent pays a little bit more because they have to provide more support. So that parent provides a little bit more support for somehow, even if they do it with assets that were given to them by the other spouse or, you know, because there's different things we can do to force it to be one parent or the other. So a long answer, you know, because the answer to all questions is it depends almost always. So I'll give you— so I have to give you a little of the background. Got it.

Okay. Next question: Are there accounts where money can be placed to use for college but are not required on the financial aid forms?

Generally, no. There are pretty exotic ways to hide money, but usually the cost is more than the benefit. So you, like, you could put money into cash value life insurance, um, but the cost of the insurance often makes that not very feasible. Okay. And you can put money into things like annuities, but then they have 59½ rules where you can't get the money out again without paying penalties. But when we have parents that are going to be 59½ or older during college, then the game changes a little bit sometimes.

Okay. What if parent that provided the most support is British living in London?

Oh, then it would be based on their income and assets. Okay, so it doesn't make any difference, right?

Right.

So a US citizen is allowed to file for financial aid if they're a dependent. It doesn't matter where the dependent is in the world. It's based on their statistics, you have to go through the pain and agony of converting it. And it might be easier to figure out how to make the student a dependent of the local parent. That was a complicated one. So I have to, you know, devil's in the details there for sure.

Okay. So an inherited IRA is seen as an inheritance and needs to be reported.

No, it's still an IRA, so it does not need to be reported as an asset. But an inherited IRA, most likely you're going to have required distributions of some sort, and that's going to generate income, and that income is going to flow through to your taxes. And then that's how it's going to have impact. It's going to— a lot of inherited retirement is not an asset. For FAFSA, but the income that they generate is income for FAFSA.

Okay. People are asking for the replay. You guys should be getting an email with the recording tomorrow. Someone else said great presentation, which I agree, that was an awesome presentation, Brad. Thank you. Let's see, can you please provide the link to the MAX minimum Pell Grant charts. Can you put that, Brad, in the chat to everyone?

Yeah, um, I lost the chat. Where—

actually, if you want to tell me, I can do it right now.

Um, no, I just— I got to get the right place here. I got it. All right, so I'm going to put in the chat— I'm putting a link for anybody that's interested. We've got, uh, you can schedule a That's a link, I guess. There should be a link. Is that a link? Maybe it's not a link. But yeah, so everything we do is at tamingthehighcostofcollege.com. If you go to this presentation link here that I just put in the chat, So, um, Paying the High Cost of College slash presentation, and that, uh, that will, um, give you access to the— once you sign up and you get on our newsletter, but you also have access then to the slides that have the charts that we looked at. So all the slides we looked at are available there. There's also links to some of my other resources, um, and I— let me—

and is there a way, Brad, um, that they can schedule a meeting with you as well?

Yes, I'm working on that.

I don't want to rush you, but we are out of time. But take your time.

Yeah, open, open hyperlink. There we go. Okay, copy. All right, is that a link? Yes, that is a link. Okay, so that will sign you up for a 30-minute consultation where we can talk. You know, everything we talk about here is always, it depends on this and that, so it can be a two-way conversation where you tell me some of the answers we need in order to figure out what makes sense. And then if it makes sense to work together or do some planning, um, you know, typically I help families with this. If I can't save more than I cost, it's not a good fit. But most of the time I can save multiples of what I cost just by making sure you're as efficient as you can be when it comes to planning and paying for college. Great. Yeah. So I think that— let me see if I've got any other links here. And then if you just feel free to reach out as well. If you're old school and you just want to call our office, we'll answer the phone during business hours.

Imagine that. Yes. All right. Well, that was awesome.

Send us an email.

Yep. Great presentation. And again, you guys, I apologize that Shellee Howard was not able to be on the call, but Brad took it away and he filled up the whole hour. Um, again, thank you all for being here and have a wonderful rest of your day. Thank you. Take care. Bye-bye.