By coinnews 
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College matters. It can lead to higher income and lower unemployment, but tuition costs are rising and so knowledge of financial aid and 529 plans is essential to making college more affordable. And here to talk with me about that is Tricia Scarlatti. She’s the head of education planning at JPMorgan Asset Management. Trisha, welcome. Thank you. So I want to start not with that so much, but with recent news, uh, right now wending its way through, uh, the House of Representatives.Something called the Student Success and Taxpayer savings plan. There are two elements to it. One called the repayment assistance plan, and then there are some borrowing limits that are being proposed, not law yet, but can you provide any insight onto this? Sure.
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I mean, look, this administration said they were going to try to tackle financial aid, and so they are trying to tackle it, you know, they are simplifying it. This particular proposal is simplification, so.You know, what does that mean? That means that some of the flexibility that was there before it would go away.
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So that would be like save and IBRs and public loan forgiveness. That’s correct,
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yeah,yeah, and, and, and I think what they’re also trying to do is they’re trying to eliminate this, you know, ongoing debt that the debt keeps going on and on. I think that’s what the goal is, you know, some say the goal is to, you know, help the deficit.Um, and some say the goal is to make people more aware of exactly what they’re getting into and really hopefully maybe trying to get these institutions to look at what they pay because you know it’s like anything else the institution gets more expensive people take out more loans. Who knows what’s going to happen. These things evolve. We saw it time and time again with forgiveness. I’m not sure that this is going to pass, but we’ll see. We’ll keep an eye on it, right? I
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mean, just on the topic of debt for those who go into it.Aware of the cost and and the benefit of going to maybe a school where you incur that debt, is that problematic per se on the face of it,
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you know, I think it, look, I think that the standard or the school of thought, right, is that you really shouldn’t take out more debt than you expect to earn in year one, you know, so if you think you’re going to earn $50,000 or $60,000 in your first year, you really shouldn’t be taking out more debt than that.Because if you start to look at the percentage, so you don’t want to really go higher than 10 to 15% of your gross income, right, because that payment starts to get hefty. You’re talking $500.06 $700 a month. You’re just getting out of school. That’s a lot of money,
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right? So that, that.The decision has to be made when you’re a senior in high school before
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you commit. I think you’ve got to be really starting to have that conversation a lot earlier, Bob. I think, you know, we just talked about there’s so many options. You don’t have to go to the most expensive school. I mean, these, there’s, you know, state schools are a fraction of these private schools or, you know, in our college planning essentials guide, one page that we have in there is the community college.option so you could reduce your total cost by almost half if you went to a community college for the 1st 2 years and then the last 2 years go to wherever and have that experience. Look, these conversations need to happen really early on because it’s very hard for parents, and we know this to say no and that’s when we get in trouble.
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It’shard, but I can tell you firsthand we have a cousin whoTo a community college for 2 years and then went to Columbia for 2 years and it worked out perfectly fine there,
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right? No one knows about that community school for the most part, you know, certainly when you, you do a job application, you have to say the schools you went to. But at the end of the day you’re writing on that resume Columbia. I graduated from Columbia, so it’s where you got that diploma.
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Yeah. So the other thing when my, we have 4 children in my case, triplet boys.And uh we had hired a consultant who ultimately said to us, you want to apply to schools where you’ll be in the upper quartile of incoming freshmen based on your standardized scores and your GPA. That’s where the most merit aid is not enough people know that.
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No, and, and I do talk to families about that quite often because if you look at what the averageFamily got last year in aid. It’s about $12,000 not a ton, but the most money you can get, and that’s averages and we know how averages work, right, but the most dollars you really can get are those merit dollars and so yes, if you have a child to, you know, if you have a Yale student, a Yale student, someone who could go to Yale, wonderful, um.If that student applied to somewhere like Providence College, let’s use that as an example, Providence is going to give that kid a lot of money and so I always encourage families to not just apply to a school that you think your kid’s going to get into and schools that are a reach, but also apply to those schools. Same if you’re if you’re applying private.Also apply to a private school that you know is a guarantee get in because you can use that to help leverage and get potentially more money from some of the other institutions but then you can make an educated decision. Hey Bob, you’re getting $30,000 from here you’re getting nothing from here so do you want us, do you want to take on, you know, $50,000 of debt or do you want to take on 100?It’s an educateddecision.
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Yeah, it’s in a number of books that I’ve read, either they talk about it as paying either wholesale or retail or fully funded versus full price.
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Exactly. I mean, and and again, it’s, it’s really knowing what that number is going to be, and I encourage families to not only know the cost, so.Know what that number is. My son went to Fordham. I think Fordham’s $92,000 now. Thankfully I do not pay $92,000. But then look at what could you potentially get in aid. So will your child get merit? My son got merit from Fordham, so got a very nice scholarship. Again, Fordham was not a reach for him. It was, you know, a target school.He got that money and knowing that number is how you can begin to plan and so most people just kind of don’t do that extra research and a good way to look at it is just go to the institution and go to their net cost calculator. So if you went in and Googled Fordham University net cost calculator.You would be able to, you get right to their net cost calculator and you could quickly find out what that institution will cost for you based on a couple inputs. Yeah, you know, a lot of folks you recommend that I do because you can see.Child school, their high school, where were people previously that got in and ask that question at your high school. I remember, I, you know, I wanted my son to go to Villanova and I remember he would never have gotten in unless he ED’d. So I’m, I, you call that guidance counselor and you asked that guidance counselor last year.What did the ED students that got in, what were their stats, and they can tell you that. They can’t tell you the student’s name, but they’ll say, you know, one kid was a 92 GPA with a 1400, another kid was a 90, you know, whatever those stats are, you can find that out and you can also get it on Naviance. Yeah, look, you got to figure out a way to make yourself stand out. It’s just like in a job. So if you’reApplying to a competitive school, you know, and your and your child’s in high school, how can they stand out? You know, there’s so many athletes, there’s so many kids with goodgrades
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to Costa Rica.
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It’s tough. It look, it’s tough, but we both know as parents, they always wind up where they should be
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they should be and if they make the most of it, it doesn’t really matter.Where you go,
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absolutely that is 100% correct.
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100% on where you go. The other thing that I think sometimes gets lost in the discussion is that people can appeal the aid that they’re getting and maybe don’t do that often enough. I have an anecdote where a friend of mine, his daughter got into UConn and Syracuse. Syracuse didn’t offer a lot of money, so UConn seemed like the more affordable choice.Then they appealed not once but twice and made it as affordable as UConn.
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Appeal, appeal, appeal. I did the same thing and it does work. Look, there’s going to be a point where they’re going to say no, that’s it, but this is where you use leverage, you know, where, you know, I remember encouraging my son to apply to another private school that was.You know, a tear down again just as I mentioned before. So let’s use that as leverage because you can’t, you can’t use a private institution and a public institution. So you can’t say my kid got into Binghamton and Binghamton’s only going to be 25, and for them, I want you to be 25. They’ll say that’s not apples to apples, but you should absolutely appeal. What you want to do is for financial aid, true aid.You want to go to the financial aid office. If it’s merit dollars, you want to go through admissions and don’t just send an email. Hey, I need more money. We all need more money. Tell them what you specifically are looking for and be realistic. If you go in and say I need another $30,000 and they’ve given you 250, it’s not happening. Be real.Realistic and go to the right, go down the right pathwaysto the right folks.
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This is really helpful. I, and I have to say it spans the gamut. My daughter ended up going to the University of Wisconsin in Madison, and you would say we live in Massachusetts. There’s no way that she’s going to get any sort of aid at all. But lo and behold, they have an alumni association that gives out, right, grants and whatnot.To undergrads and it was a surprise because otherwise my daughter would have ended up at not a bad choice. UMass Amherst, not a good school, but yeah, but it made UW Madison as affordable as UMass Amherst.
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So interesting, you know, and I tell families all the time, Bob, leverage your again, go to your guidance office. There’s a lot of community-based, um.Scholarships that kids can kids can be applying for. Some of it’s just essays. Yeah, it takes a little bit of work. It takes a little
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bit of work. Talk about essays. So my wife does some coaching on essays, and in one case, a student that she worked with uh went to University of Rochester and in her, um, a letter of acceptance they actually mentioned.Really, which is the first time, right? So somehow, some way someone actually read the essay and it resonated.
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Wework very closely with a couple different private counseling firms, um, that counsel families on how to get into whatever the college of their dream is and, and, and sometimes we’ll go and present on how to get in, or how to afford it, how to save and invest for it, but then also how to get in, right?And so they tell us that they read these essays, and that could be the deciding factor. I would take them very seriously. I really would.
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So when you think about helping kids with essays, does it matter that they get some help aside from their guidance counselor, that they go to outside help? Or look,
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I thinkyou need not, like, look, I think a lot of help. I will tell you, you know, I, I sent my son’s essay to forward them around to not professionals but to colleagues, to friends, just take a look at.I think that’s OK, but I think, look, the story needs to be realistic. They’re no dummies. They know when somebody else is actually writing this, and I think the more authentic, exactly. Well today that that wasn’t even an issue when he applied so much, but you know, I think the more authentic you can be, it’s not that it has to be this, you know, far-fetching idea. You just need to be authentic in it and tie in something about that institution.Why is that institution the place for you in your story? So, so I remember with him specifically he used sort of the the theme of the school, and I can’t even remember what it was, but he tied that into the story that he was telling, and I think it was quite effective, you know, I hope it was, I guess it was, but I really do instruct people to make sure they’re somehow tying into what they want to do eventually.So somebody may be talking about, you know, I know somebody that’s child talked about learning to ski and and doing sort of the, the, um.You know, your French fries and pizza, French fries and pizza, and this particular child was applying for engineering and so tying that into engineering, sort of that thought around process, how do you learn being process oriented and achieving your goals. So think about that. How can you relate that essay back to what your degree is and what that institution provides?
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Yeah, I could talk about essays.
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I know, me too,me too.
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We’re going to take a short break and when we come back I’ll ask you all these questions. Tricia, don’t go away.Welcome back to Decoding Retirement. Hi, talked to Trisha Scarlatta. She’s the head of education planning at JPMorgan Asset Management. Trisha.Um, we would spent the whole first half talking about things that aren’t even on my cheat sheet here.
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Get in isimportant,
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but I, I want to talk about the thing that I think troubles most parents when they think about saving for retirement and saving for their children’s college education at the same time, which is to say two competing demands on your money and finiteresources.
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You know, I, I, and I know you know my colleague Mike Conrath talks about very similarly, you know, knowing that number, right? So, so your retirement number, what’s your retirement number so what do you need to get to and how do you get there, but it’s, it’s kind of the same with college. So, so knowing what that number is and the number is going to be different for everybody because obviously schools costs are different but also not everybody’s looking to pay.For 100%, so one family might only be able to pay for 50% or 25%. Another family is at 100%. So understand what that number is and not today’s number, because you and I both know that tuition goes up 5 to 6% every year. So, so look at not where today’s number is, but what, where, when your child goes, what that cost is going to be.Per year and then obviously you want to multiply it by 4 and then think about what part of that you want to cover is it 100%, is it 50% but also you know really be realistic about aid be very realistic about what you think you’re gonna get. I mean I tell families all the time go to studentaid.gov and and do the simulator. There’s an estimator on there you can calculate what you may get as of today, um, and that know what that net number is, um.And you know, look, families are doing a really good job saving. They are putting money away, but they’re not necessarily planning and investing for college, which they are doing for retirement. With college they’re not taking that next step, and you know my goal is to always talk about how if you’re not investing and you’re not potentially leveraging a 529 account, you’re missing out on that tax free.Growth and compounding over time and that ability to take that money out for qualified distributions or withdrawals tax free and cash is just not going to get you there. And so, you know, investing and leveraging that tax-free benefit is really what we try to encourage peopleto do,
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you know, it’s we had Olivia Mitchell on from Wharton a little bit ago and then she had just published a paper on 529 plans and that theLack of knowledge that people had around 529 plans and choosing the wrong one made a big difference in how absolutely,
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absolutely. I mean, if you just look at the two accounts side by side.A taxable and a non-taxable account, all things being equal, you make a $10,000 contribution up front and then you subsequently put in $500 a month.At the end of 18 years you have almost $42,000 more in the tax-free account. That’s a big amount. That’s in today that’s almost 2 years of a public institution and so we’ve got to spread that word and 529 plans are very accessible. You know, you could some of them are $15 to get started and you have to think like I think people get discouraged because it’s so expensive and they just feel like I’m not gonna do anything and and I’m not gonna take that next step, um.I encourage people to take the next step, leverage those benefits, because every dollar you put away today is less in debt in the future.
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Yeah, it’s a great report, but one of the things that’s mentioned in there is that 55% of families are delaying retirement by 5 years to pay for college costs. And, um, you know, I know there’s been research that says, oh, it’s worth delaying retirement by 2 years to make up for inadequate savings, but 5 years.
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5 years is a long time. I mean, if you think about it, 65 to 70, 70 to 75, you know, those are meaningful years as we get older and I know I’m getting closer to those, those that age and, and so, you know, look, it’s a family decision it’s a family decision and what we have found.Is that parents do not jeopardize their college savings fund. They almost never take those dollars out early. They wait till that child goes to college and then they withdraw. What we do find is a lot of them are borrowing against their retirement.To pay those tuition bills and that’s where I always get concerned because when you start to borrow against your retirement or your 401k what we see is that most people then don’t contribute and so a lot of times they’re missing out on that company’s match.And that’s free money, so you want to at least be doing up to that um and getting that, you know, that company match and, and, you know, to borrow against it, you know, isn’t always and and and and and look we talk about in the guide for every $10,000 you borrow, you know, it winds up being $32,000 less.
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These parents are also taking out parent plus loans and retiring with those
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loans with those loans and, and look, those loans, the interest rates are high. You’re looking over 9% for some of those, you know, so yes they are. I mean last year the average family graduated with about $55,000 in debt.The parents were, you know, closer to 30. The kid was about 25, so, you know, pretty split between the two. It’s a lot of money to take on as you’re inching towards retirement, and that’s the age. I mean, I have a child that’s graduating this this next weekend, you know, and you know, hopefully I’m getting closer to retirement. Yeah,exactly.
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Um, so the other thing that’s new and different is I think it was secure at 2.0 where we had the ability to convert your 529 to a Roth IRA. There are all kinds of restrictions
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of course, of course,
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maybe talk about the opportunity that exists
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there. Sure. The one thing that this Roth IRA rollover has done is, I think opened more people’s eyes to 529 plans because for whatever reason people think I’m so restricted. If I go into a 529 plan, my my.doesn’t go to school. I’m stuck and so this is kind of giving folks a little bit of a comfort that I could always then roll it over to a Roth IRA. So let’s talk about it. So the max amount that can be rolled over in a lifetime is $35,000 right? So, so it’s $3,500,035,000. It you the account has to be open for 15 years, right? So they’re, they’re not letting you open this account and roll over. OK, so, so it has to be established for 15 years. The beneficiary.Um, is the when you’re rolling over that has to be the same beneficiary, so the Roth IRA has to be and so if I, if you were my beneficiary, your Roth IRA would be yours, not mine, um, and so, so the other thing to think about is you can’t just roll over 35,000, right? So the max you can put into the IRA this year is 7. So if we use this year as an example, it would take you 5 years, right, to roll that over. But what a blessing, you know, I mean, so, so there are some stipulations.Ins around it, but we have another page in the guide that just shows like if you’re able to do that $35,000 over 5 years, you know, and starting when the child is not child but the adult is 23, at 65 it’s almost $400,000. What a blessing. What a blessing.
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I mean, otherwise the money would stay in the 529 plan and would have to either be given to next of kin or I mean there were
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beneficiaries. You can make yourself the beneficiary, so there’s there’s a lot of flexibility.But now you also have this, the ability to do that roll over and we are getting a lot of questions. I actually just got a question yesterday from an adviser just wanting to reach out to clients because they’re, you know, all his clients whose children are graduating, letting them.Oh hey, they, they have access in their account. You can roll it over now. So it’s a, it’s a true, it’s a tremendous benefit.
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Yeah, so we have a little bit of time left, Trisha, and I’m curious, we’ve talked a lot about college. There are some high school students who won’t go to college this year or perhaps ever. What advice do you have for them in terms of the skills and knowledge and abilities that they have to sort of enter the workforce andGet income and not be unemployed.
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Yeah, I mean, look, I, I, I speak, I go to Fordham a lot and talk to the students there, which I love, and they have the greatest questions and um it’s so raw and real.I think a college degree matters, you know, I really believe that it matters and it’s, it’s $40,000 of more income versus, you know, a high school graduate versus a college graduate. So if you think about that $40,000 and you think about what the average family had in debt coming out of college, it’s not that much more than that difference in income. So it’s what, 15, we said $55,000 was the average family graduated with last year, the debt, but you’re earning $40,000 more with that degree.That’s pretty powerful. So I still believe that a college degree is very important, and I think, look, today these kids have the world is the limit, much more so than you and I. We were told if
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I do AI.
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But we were told, you know, get a degree and go into a profession and that’s what you have to do, be a lawyer, a doctor or whatever you and I are, um, these kids have so many options so but I still believe you need that degree. I’m a firm believer in the degree. Look, you mentioned earlier the unemployment rates are 50% for those who have a degree versus those who do not. So when it, when times get tough, you’re better off having that degree.
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Yeah.Lifetime, your human capital, right, your lifetime earnings will be all the greater,
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not all the
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greater,
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right,
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not just the and
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look, I have a child who I mentioned to you earlier, you know, I never thought he’d go to college and now he’s a tremendous musician and he’s going for music, you know, I don’t know that my parents would have sent me for music, but these, there’s so many degrees today. I mean there are so many different things out there. This, like I said, the sky’s the limit for these kids. The education is really important,
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yeah.Tricia, we’ve run out of time unfortunately, but, um, and there’s lots more in the in the CPE that we planning we’ll have you come back on and share more knowledge and wisdom about that in the future if you don’t mind. Absolutely my pleasure. All right, that wraps up this edition of Decoding Retirement. We’re glad you joined us and we hope that we provided you with some actionable advice to help you plan for or live in retirement.And you can listen to or watch us on all your favorite podcast platforms, and if you’ve got questions about retirement, email us at yfpodcast@yahoo Inc.com.
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This content was not intended to be financial advice and should not be used as a substitute for professional financial services.