The College Financing Journey

EMILY BIGHAM: Hi, and welcome to the podcast MakingCents, brought to you by Navy Federal Credit Union. I'm your host, Emily Bigham, and each week, I'll be taking your questions to the experts to help you make sense of your money. Pun intended.

Welcome back to MakingCents. Today, we are going to be talking about the college finance journey, preparing, saving, paying, and that post-graduation planning. We talked about the basics of student loans back in 2021, and in that episode, we dove into a conversation about student loan options and requirements along with the headlines we were seeing about the federal student loan forgiveness. Well, a lot has changed since 2021.

In our discussion, today, I'm going to take you guys through the journey of preparing financially for higher education, and on the podcast, we have Caroline Curry. She's the Assistant Vice President of Education Lending here at Navy Federal, and Thomas Rocca, Manager of our Personal Finance Management team. OK, so saving and preparing for college, we hear all the time, it's never too early to save for college. So, Caroline, when and how should we start saving for college?

CAROLINE CURRY: So my philosophy here is have a plan and start saving as early as possible. Some great options here are 529 saving plans, Education Saving Accounts or ESAs. There's a lot of great options. But even if it's not something formal, it's always good for students and parents to know that, if their goal is to attend college down the line, it's going to be a pretty large price tag. So it's good to have some savings and some buffer worked in.

Now, I think we can all remember that meeting that we had with our parents or the family around the table and trying to go through the school list and think through where we wanted to go, what we could afford. And what I would say there is, at that point in the journey, just don't eliminate any schools just yet. There are a lot of ways and a lot of research that can be done to see what can be a great option for you and your family.

EMILY BIGHAM: So you bring up the point of college education and how costly it's become. Recently, in the news, we are seeing that more and more people are asking, is it still worth the investment? A lot of people feel priced out of the market and no longer see themselves as being able to afford a higher education. Can you speak a little bit to that?

CAROLINE CURRY: Sure, and a great question and a great discussion we're having as a country. I think where we stand at Navy Federal is for those who feel like that's the right option for them, we are here to help them. So what I mean by that-- and oftentimes, we speak about the investment of going to school and back to my having a plan concept. If the investment is worth it for a student because of the goal they're trying to achieve or the job they're trying to get, then it might make sense to go to a four year college. If someone's looking for a different kind of job, then trade school might be a better fit for them. But at the end of the day, for us, for those who choose a more traditional four year college route, we are here to help them once they've exhausted other benefits at their disposal.

EMILY BIGHAM: So I kind of want to talk a little bit more about the planning, and saving, and preparing. Thomas, maybe this is a little bit more in your arena. So do you have any tips for members on how to start saving and preparing for college?

THOMAS ROCCA: Yeah, what a wonderful question. Let me start out by saying that one of the miracles of modern finance is compound interest, and what you will find with saving for education is often the same thing that you hear about saving for retirement, saving early, making it a habit. Getting established with getting money into an account early and often is going to make things significantly easier for you as your child approaches college bound age, and I think Caroline made some really wonderful points about pursuing a four year degree and finding the right strategy. And I'll tell you one of the saving cheat codes that I see a lot of folks look at today is starting out with a community college and using that for an 18-year-old kid who might not know exactly what they want to do for the next 50 years, giving them a two year soft landing that's a little easier on the pocket, and allowing them to make a more informed decision saves you a couple of bucks on the front end and is absolutely going to help you make a more informed decision for how you want to complete your four year degree.

EMILY BIGHAM: That's a great point, finding ways to trim the college costs. So you can plan ahead of time, but then, also, while you're in college, are there some ways that you can trim those costs, Caroline?

CAROLINE CURRY: Sure, one of the options is repaying when you're still in school. One of the options that we have is a $25 payment per month. And what that helps students achieve is, as Thomas said, forming the habit of repaying, but also, chipping away at their loan. And by doing so and by repaying on time, it also helps for, when they are out of school, looking for an apartment and so on. They'll have a financial history with their loan.

Other tips and tricks, there's often folks who are working during school as well. So part-time employment is a great resource as well. There's often some programs within the school as well that can help students cover some of those costs. Setting automatic deposits, so that you're not forgetting or missing a payment by a couple of days, involving family members. Some folks have relatives and friends that can chip in and just honest conversations with parents and guardians to figure out what is an appropriate level for folks.

And, lastly, I would say just a savings goal. I think that's something that you can do with your financial institution or on your own. But just having a savings goal in mind and knowing what you're trying to put aside is also just a great tip and trick to make sure that it's not something you have to consider and have to prioritize each month. It's just a habit you form, and you can set it and forget it.

EMILY BIGHAM: So the average college tuition this year for a private university is about $42,000, on average, for a public out of state, $23,000, and public in-state, $10,000. So when you're making your savings goal, can you give me a ballpark number of what someone should choose if they don't know yet where they're going to go to college or if they're going to go to college?

CAROLINE CURRY: Sure. That's a tricky question, Emily, I will say, because every family has a different situation. And as an example to give you a couple of stats, oftentimes, many families rely on a combination of financial resources, and that could be out of pocket payments or loans. So a couple of stats to throw in there, parents' income and savings typically makes up about 43% to 50%, again, for those parents who are able to help out their students.

Scholarships and grants are making up about 26% of the payment. Their own students income and savings typically is around 11%. Gifts from relatives and friends is sometimes around 2%, again, if that's an option. But when you're looking at borrowing, whether it's from federal to private, the parents borrowing, as well as the student borrowing, is typically around 10% to 20%. So that's where it really depends on what is coming in, what forms of financial resources you already have at your disposal, and the ones that you might not have.

And then what I would say, too, is just take a look at the holistic cost of college, right? Not just the tuition, but looking at room board, if you're planning to stay on campus, books, various other expenses that you would need, and then start looking at what would that mean on a monthly basis, and is that something that your current income, while you're in school or if your parents are helping out, is something you can cover comfortably? But again, there are also options, where you're not repaying in college for those who really can't afford it. But setting a habit early, as Thomas said, is the best way to set yourself up for success long term.

EMILY BIGHAM: So, say, you're 17, 18, junior, senior in high school, and you plan to go to college. But you did not save. You have not prepared financially. What's the first step?

CAROLINE CURRY: Sure. I think the first step is having an honest assessment of where you stand. I think that's always a good idea when forming the plan, and again, as I said, don't eliminate any colleges yet, because there are a lot of really good options out there. Now, I would say, roll up your sleeves. There are a lot of organizations, as well as federal, and state, and school benefits, that students are eligible for. And oftentimes, it's just that folks and families just don't know about them.

So what I would say is, number one, look into the costs of college prep, right? There are application fees. If you're planning on touring a college, you will need, obviously, the time and money to get to the college, look around, possibly get a hotel room, and that can get pretty pricey, as well as any prep college exams, and so on, and so forth.

I would say the other sort of sequence of recommended approaches would be looking into scholarships and grants, then looking at the students savings and earnings, and seeing what that looks like, then looking at the parents savings and current income, and seeing how that will contribute to the mix. For graduate students, there are often fellowships and assistantships that are also essentially an award that you don't have to pay back. So that's a great way to supplement some of the payment for school.

Then, as I mentioned before, the school work related programs, many, many schools have these aid programs for folks who are working throughout their school year. Then, as early as you can, go look at that FAFSA application, which is the federal student loan application, which is a great resource. I would go there as early as possible, as soon as it opens. And then, if there's still a gap, when you look at your budget essentially and there's still a gap, that's where private student loans come in. And that's where we can help you at Navy Federal.

But any financial institution that offers student loans would have these available to you, and essentially, what that is, is the bridging the gap of all these other sources of income where you might need a little bit more to get to school. So that's where we come in, and we at Navy Federal have very competitive rates, and the expertise, and especially the service to guide you if there's any questions. Because we know this is a lot, and this is typically a pretty confusing, stressful time for families.

THOMAS ROCCA: Carolyn, you hit the nail on the head with so many great pieces of advice there. One thing I would love to chime in there as a parent is this is a wonderful opportunity to see that not only is college a chance for them to learn a skill as they're moving into adulthood, but it's also an opportunity for us to teach our kids some things about life, and making the child a part of that planning process, engaging them, and making them have some skin in the game really can go a long way towards helping make the burden on the parents easier, as well as teaching responsibility and ownership over their own next steps. So, for example, you did a really good job of touching on the potential scholarships and different items that are out there.

One thing that I've seen pretty popular with some families is putting a certain cost on the child. So it might be their meal plan. It might be their books. It might be their housing. Again, that conversation really is unique family to family, but something to say, OK, we're going to support you. But this is for your own growth into adulthood. So I think there's some great opportunities for learning, and again, I love all the tools that you gave there.

EMILY BIGHAM: One thing I did want to mention kind of along the lines of what you were saying, Thomas, is using college as a way to learn about finances and set yourself up for financial success. When I was in college, I got my first credit card. My parents opened it for me.

I don't even know what the credit line was. All I know is I was always maxing it out, and that was it. They were like, OK, every month, this is what you get. But I'm so happy they did that, because now, I have a few credit cards. And that is my oldest trade, and that's really important for your credit score is to have a long history of credit.

So definitely involving your children in this process is a good learning experience for them. It's good awareness for them. They will probably be doing it in the future for their kids. If they decide to get a higher degree past a four year university, these are things that they we'll need to know and take really seriously.

So, Thomas, I wanted to ask you a question. Since the pandemic, we've seen a lot of universities go to online universities. Is that a way to save money, or do you lose out on the benefits of having that in-person interaction, building your network?

THOMAS ROCCA: You know, a lot of that, I think, is dependent on the field that you're looking to go into. When I was looking at going to school 20 years ago, one of the things I heard over and over, again, was the college experience. It's the relationships you make. It's the connections that serve you later in life. It's teaching or showing a potential employer that you can learn, that you can see something through to completion.

For many, it's a social maturity, and experience, and a sharing of ideas and discussions in the classroom. With all of that being said, I did go to a commuter school. I didn't quite build the relationships, until I was out of the college environment. But what I see in today's space is for many of our graduating high school seniors, they lost a year or more to virtual school. They lost some of that in-person experience.

What they've begun to gain is learning how to leverage virtual learning tools, learning how to use AI, learning how to put a different unique set of skills that is something that this generation is going to need to learn to function in a lot of professional areas in the next few years. So is there a loss? Yeah, absolutely. I think you do lose something with not being together and having that free discussion day in and day out. But I do think that there's a trade, and there is a different value that college is placing on how we learn and how we leverage new and existing tools to help us be successful in our given careers.

CAROLINE CURRY: And I think a lot of it to add to Thomas's point is also based on the type of student. So I think a big part of encouraging touring, even if it's a virtual tour, or talking to a alumni, or folks that went there is to understand, is that the right culture? Is that the right place for me to learn? And as an example, I wasn't sure exactly what I wanted to do. I still wanted to explore a little bit. So I chose a school, where you could be undeclared for two years, because I wanted to try out different schools. And I ended up transferring from one to another.

So that's also another option. I've heard a lot of folks do that, as well, where the culture is a big part of it, and you have to make sure that you feel like you can learn in that environment as well. So for some folks, it's great to be at home, and some folks, I think it's harder to motivate when they're not part of the group.

EMILY BIGHAM: All great points. I went to a four year university all in person, and it was great, the camaraderie, the networking, and all of that. But I've also taken courses online. I've done Summer programs, and all of them are helpful, and all of them are beneficial in different ways.

I think it's just making the most of every opportunity. So let's talk a little bit about life after college. So repaying those loans, when do you have to start repaying your loans?

CAROLINE CURRY: So that might differ. I can jump in here. That might differ based on what financial institution you're working with, as well as federal loans. So there's a lot of different timing, and that's where, I think, it's really crucial to understand every loan you have and what the rules of engagement are with each one of those loans.

As an example, you mentioned, Emily, earlier on, there's a lot of changes on the federal side, and there's a lot of servicer changes on the federal side. So the first thing I would do is look at these very generous federal programs that have just been instituted and to look to see if there's any additional benefits that you can use.

Now, for us at Navy Federal, we do have a grace period of six months. So there's some time, where we understand that college students are transitioning from college to, hopefully, their first job and that there's always a little bit of time in between to get set up. But what I would say is really know your facts before you come out of school and understand, again, their repayment schedules, the amounts, and start looking at your monthly budget, hopefully, with this new job and new income that you have coming in to make sure that this is something that you can afford.

I would also add, for some, like myself, I have a harder time managing multiple loans, multiple rates, multiple organizations. So for me, it was for my student loan a much better option to consolidate. So what I did is that I consolidated multiple loans into one. It made it an easier payment to one organization. It consolidated my rate, actually, lower than what I had, so it was beneficial for me, and it just made it simpler. So for me, I like sort of simple, easy, and hard to ignore, I guess, I will say, because I wanted to make sure that I was on the right path.

THOMAS ROCCA: Caroline, I love your insights on the student loan products and what that actually looks like coming out of college. I love the expertise with that. On a bigger budget and discussion, I'll tell you one thing that our personal finance management counselors talk about regularly is with any decision, and it can be health, relationships, or financial, the bill always comes due.

Decisions that we make today have a downstream impact that we have to be mindful of. So if it's staying up late on a Friday night or swiping a credit card for an impulse buy, eventually, we do have to square that with our own health, with our financial institutions, with our parents, whatever that case may be. So knowing that information, being mindful of being reflecting on what financial decisions you're making, they have an impact that we're going to feel years and years later. So I love those insights, and I love seeing the overlap with the different with the different areas.

CAROLINE CURRY: I agree, and also to add to that point, as well, really prioritizing, right? Because I think it's really easy to get excited, right? I remember my first apartment, and I thought it was going to be furnished with really nice furniture, and instead, I think I had a cardboard box for a table for a couple of months, right?

So I think it's also prioritizing, and for me, I've always been a saver, first, because similar to you, my father instilled you spend what you have, right? So I had student loans, but I also had a debit card for the longest time, because I had to be able to afford what I was buying. So I tried to form those habits really early, and my first job, my number one priority was saving for retirement.

I love working, but I love traveling. So for me, it was let's make sure that my future goal is set up, and I always maxed that out. And then I maxed out my student loan, and then sort of slowly, but surely, I went down the line. And gym was up there for me, but car wasn't. So that's where I made some choices, where I wanted to live, and what I wanted to do, and shared apartments or not.

So it's really a matter also of prioritizing where your future impacts might be, and Thomas is completely right. Sometimes, it's really easy to think in the moment, but it's the credit lines and the credit sort of hiccups do follow you. So it's important that you look at what's mandatory, what needs to get done, and then look at what you're left with, and then go buy that coffee table used.

EMILY BIGHAM: Right. Well, yeah, so you mentioned prioritizing. I also think just setting expectations is really important, like depending on where you grow up, you might have all these things, and you think, after college, that that's going to be your life. And it might not. It might take you a while to get there, but college is an investment, like you mentioned. It's an investment for your future.

So setting those expectations about when you get out of school, and also, in the job, right? I mean, a starting job, oh, my gosh, my first salary is like, I don't even know how I survived. But you just have to remember that you just keep working at it, do the best that you can, and slowly, but surely, things will work out. It will work out, and also, having a financial partner that you trust, like a bank, or a credit union, or somebody that you trust that is looking out for you that has options on your mobile phone, options to set up reminders about payments, maybe autopay.

What are some other ways to repay your loans and to make it easy to repay your loans? You mentioned consolidation. Or, Thomas, maybe we can take it from the other way of, what are some of the biggest mistakes that you see that people should look out for?

THOMAS ROCCA: Oh wow. You know, there's a lot that we see that are pretty common. I think, in that age bracket, credit card debt is probably the thing that boils up the most, right? We see teenagers that are going out and are on their own for the first time. They have their independence, and I will say, they've cracked down in years recently, where you're not allowed to advertise credit cards with these particular promotions on the campus anymore, right?

The Card Act has made things a lot more transparent and front and center, which is great, because we want to have an educated consumer. But there's still so many temptations when you enter college, and we actually-- fun, little story. We have a partnership with a local college here in the Winchester, Virginia area, and recently, a high school mentee of mine actually gave a presentation to that group specifically on what challenges and opportunities do incoming freshmen see. What are some of the pitfalls, and what are some of the decisions they can make at 18 to help them down the line?

And I was shocked at how many free services and discounted services were available to students and just the little decisions of use the gym on campus, don't pay for one off campus, look up where your student discounts are valid, look up what free events are happening in the community. When you start these habits at 18, 19 years old, they can snowball and save you quite a bit of time down the line. When you get together with your friends, you don't need to go out to eat. You can do a night in. And while I say that these are things you can do at 18, 19, 20 years old, the truth is these are things that become habits and can help you maintain your financial security as you get into your mid 20s and early thirties. These are potentially things that are going to save you a little bit of money here and there, but that little bit of money quickly adds up to some real savings when it's compounded and done over the long haul.

CAROLINE CURRY: Another item I would add to that, and maybe this comes more related to our previous segment, there was a stat I saw this morning, where only 44% of families actually discuss student loan repayment. And while it's not discussed much, 98% of families expect the student to be, at least, partially responsible for paying back the student loans, and 66% of families expect the student to play a role in repaying parent loans. So the reason why I say that is, I think, that plan, and that honest conversation, and making sure that your student is part of that plan and taking the actions to educate himself or herself on sort of the fine print and some of the steps that will need to be taken and some of the key milestones, I think, is a really important part of it as well. I know, for me, I was a little bit head in the clouds going into school, and I think the excitement of going to school was all I could think about.

And I worked during school. I mean, I did all the things that made me great at repaying and budgeting in school, but then my graduation present was my student loan. And I sort of didn't realize that. And when I got my 20 pages of disclosure after I graduated, I didn't understand a thing about it, and that's really what I needed to understand, because I missed out on a really great consolidation rate that could have saved me a lot of money.

So that's just a lesson I tell almost everyone is make sure, if you are cosigning a loan right, if you're helping your student out, cosigning a loan, or even taking out a loan, a Parent PLUS loan, just make sure, as Thomas said earlier, to involve your student, to make sure that they understand how it impacts not only their school life, but their life after school. Another little tactic that was shared with me was to boil down a monthly cost, and even a per class cost for your students, so they never skip a class. Because when you have a figure of $200, $300 for an hour of class, you start realizing that sleeping in may not be the best for your wallet. So I think that's another item that I just want to make sure that came through in this discussion as well.

EMILY BIGHAM: I could have used something like that--

THOMAS ROCCA: Caroline--

EMILY BIGHAM: --back in the day.

CAROLINE CURRY: Me too.

THOMAS ROCCA: Caroline, you see a lot of memes nowadays that make the same basic joke, where they talk about, oh, thank goodness in school, I learned how to play a recorder. It really comes in handy during recorder season, right? And the standard joke is we don't learn about taxes, or how to balance a checkbook, or interest rates.

And I think certain parts of the country are starting to get better with that, but so many of these lessons end up falling to parents, and it looks really different. Navy Federal has a partnership in Pensacola area called Parent University, where we go out, and we have these conversations with the parents about what budgeting looks like and what credit looks like. And it is so easy for our young adults today to fall into debt, be it student loans, or credit cards, or a car loan, whatever the case may be.

And if the parents don't have the knowledge, or if they're not sharing the knowledge, where is it that you turn to have these conversations? And I will say, something that's unique with Navy Federal is we do offer free financial counseling services to all of our members. So I strongly encourage you, if you have questions about how to set up your budget, if you have questions about ways that you can try and get ahead, then, please, by all means, log on to Navy Federal's website, navyfederal.org/pfi. And you will find some information there on setting up a budget, setting up your spending, as well as a link to an online application, where you can fill out your existing budget to the best of your knowledge and speak with a certified financial counselor.

EMILY BIGHAM: Yeah, and sometimes, it takes something bad happening. Well, not necessarily something bad happening, but a lot of times, people wait for the shoe to drop before they go to get help. So if your family's financial situation changes, as you're going through school, and you've graduated, and all of a sudden, there's not as much income as you thought they were going to be. What options do you have? Can you refinance similar to how you refinance your mortgage? Can you refinance your student loans?

CAROLINE CURRY: So where it's a little bit different than some other loans is that some students will take a loan for each semester, and some will do it for the year. So the income is always taken into consideration to see what rates and determine also the monthly payment. So in the application itself, we would certainly be able to discuss how that might change.

That said, I think, as Thomas mentioned, too, we always try to work with our members to see what we can say yes to, right? So I think there's other options, as well, but it really depends on the student and how the student wants to manage it as well. I know some folks sometimes take a semester off.

Thomas mentioned this too. That is a really great trick to start in community college and then transfer over to another school after the fact. It saves you money, and also, it's a lot easier. Sometimes, if you have a dream school in mind, and you don't get in, a solution might just be to go to community college for a few years, and then you get in, because the game completely changes throughout the years as sort of students progress, student freshman to senior year.

So what I would say is the options are best discussed with your financial institution, and what I would say is take proactive steps to give us a call or look into some of the options that you have online. I mean, that's also a great resource. But I would say, at Navy Federal, we are always here to help guide and to understand your unique situation and, again, to try to say yes. That's really what we try to do and give you the best outcome based on your current income or situation.

EMILY BIGHAM: And if you don't want to go in and talk to someone, there's a lot of really great content online, as well, for people to look, both parents and students. A really great resource there. All right, well, kind of wrapping up here. We've talked about preparing, saving for college, paying, and then that post graduation planning. Is there anything that you'd like to mention before we end? We'll start with you, Caroline.

CAROLINE CURRY: Sure. I think the only item I may not have pressed hard enough is co-signers. So a lot of times, this goes back to your question about you're in high school, or you're about to apply. Students at that age don't really have a financial history.

So oftentimes, applying for a loan, they wouldn't get as good of a rate, because they have no history for the financial institution to base their calculation off of or to take a chance on the student, right? Because there's nothing proving that they've established, again, that history of repayment. So what I would say is we encourage very strongly-- and a lot of our members do this. It's a great option to have a co-signer on the loan. And what that does is that the cosine typically comes in with more of a history, with potentially a better starting point, so the rate is lower.

And we also have cosine release down the line. So again, it's not as if the person is in for the life of the loan, but it's a great way to just get that extra little boost of help up front and to get the best rate. Because, again, that rate, you keep for the repayment of the loan, unless you consolidate, of course. In which case, it might lower. But I think that's the only thing I would add is co-signers is a great resource and a great way to get a really good loan upfront.

EMILY BIGHAM: Yeah, lots of options to help out financially. Thomas, anything we missed?

THOMAS ROCCA: You know, I think Caroline hit a lot of the high points. The one takeaway that I would urge for any students or parents listening is one of the biggest mistakes we see is people planning to jump way ahead with their planning and missing setting up and establishing some of the basics. In this case, the basics are actually sitting down with your kid, with your parents, with anyone that's involved, and putting pen to paper, and saying, I know that as of today, this is where we stand.

This is the income. This is the expenses. This is the anticipated costs, and do that for all of your line items. If you don't know in your budget, where your money is going, then everything that you plan ahead of that is based on a guess.

So you have to have the fundamentals. You have to boil it down. You have to know what you have coming in, what you have going out. Look for ways and opportunities to increase what's coming in and minimize going out, and you'll be able to make a much more effective long term strategy.

EMILY BIGHAM: That's a great tip, and I think that's a perfect place to end. So if you're thinking about college, start now and start with the basics. Caroline and Thomas, thank you both for coming on the podcast today, and hope to have you back on soon.

CAROLINE CURRY: Thank you so much.

THOMAS ROCCA: Thank you, Emily.

MAN: Navy Federal Credit Union is federally insured by the National Credit Union Administration. This podcast is intended to provide general information and shouldn't be considered legal, tax, or financial advice. It's always a good idea to consult a tax or financial professional for specific information on how certain laws may apply to your individual financial situation.

References to and participation with the military community does not constitute organizational endorsement. Navy Federal is an equal housing lender. Navy Federal Credit Union are members of the mission.

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