Avoiding Student Debt With Art Rainer

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It's on, it's off, it's on again, maybe. What's the lesson here? Hi, I'm Rob West. The lesson is this. It's much easier to avoid student loan debt than to get out of it.

It just takes discipline. I'll talk about that with Art Rayner today and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is faith and finance. Faith and finance. Biblical wisdom for your financial decisions. Well, our guest today is financial author Art Rayner. He's a regular contributor here at Faith and Finance and the author of The Money Challenge for Teens.

Prepare for college, run from debt and live generously. Art, great to have you back with us. Rob, it's always a pleasure.

Thank you. So, Art, we promise to provide biblical wisdom for listeners' financial decisions. Going to college is, of course, a huge financial decision. So, where would you take us in Scripture as we think about preparing for college? Hmm, I think Proverbs 22.7, the rich rules over the poor and the borrower is a slave to the lender. That should guide your decision process because it's so easy to borrow and run up tens of thousands of dollars in debt that will take you decades to pay back.

Yeah, that is so true and we hear from listeners all the time dealing with just that. Now, in your book, Art, you list four ways to minimize debt and if you're really good at them, they could even enable you to graduate debt-free. So, why don't you share those with us? Yeah, number one is this, start saving now. The second, make sure that you are taking college-level AP courses or dual enrollment courses that are available. The third is to explore scholarships and grants and then, finally, be willing to work while you are in school.

Yeah, those are really helpful. We're not saying that doing those things will be easy, only that they're easier than paying back thirty or forty thousand dollars in student loan debt. But you have another list, Art, that can make this whole process a lot easier, I think.

So, tell us about that. Yeah, it's a list of misconceptions that could cost you a fortune in student debt, but knowing them will enable you to avoid them. And the first one is this, attending a costly school will get you a better job. So, higher tuition does not always equate to higher salaries. Employers don't look at the amount you paid to get a college degree. They just look at your degree.

Yeah, that's really helpful and avoiding that one could save you a ton of money. What's another misconception? The second misconception is that you need the whole college experience, right? Choosing to work to help offset tuition costs can help ensure that you won't still be paying on student loans ten to fifteen years after your graduation. And the third misconception is this, that it's okay to stretch out college. Now, certainly, there's some leniency here, but be careful when choosing to stretch your degree program. You may end up paying more and you also run a greater risk of not completing your degree. And don't take throwaway classes. Make your investment worth it. Yeah, that's great advice, whether you borrow or not.

Alright, the fourth misconception? It's that you don't need to know what you're signing. Educate yourself on student loans. Before you sign any papers, understand the commitment involved, what it will take to pay off the loan, and what alternatives are available. And the number five misconception is this, that everything will take care of itself. Student loans are stubborn things. They even survive bankruptcy. So I'm less concerned with students who feel burdened by their loans than the ones who feel no burden from their debt.

Unless you manage to get through the obstacle course of debt forgiveness programs, and that's not easy, your loans will have to be repaid no matter what. Yeah, that's exactly right. And then our time for one more, perhaps incorrect line of thinking in this whole area. Yeah, it's that there's no other option. Without question, the cost of higher education is a very difficult challenge for many current and future college students.

But this doesn't mean that there aren't other options. Diligently pursuing scholarships and grants can be incredibly helpful. College costs are sky high, much more than your parents experienced when they were in school. So be sure to look at those other options.

Yeah, boy, I've been down this road, Art, and I couldn't agree more with everything you're saying. My wife, they turned their living room into a scholarship factory. She got over $100,000 in scholarships. And I have a entering college freshman this year that took 15 AP classes in high school.

He's starting halfway through his sophomore year. So this stuff works. You just got to put your mind to it. Art, thanks for being with us today. Rob, thanks for having me. All right.

That's Art Rayner, author of The Money Challenge for Teens. Your calls are next. 800-525-7000.

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Membership eligibility required. So why don't you grab your phone right now and download the FaithFi app? Welcome back to Faith and Finance. I'm Rob West.

To Tampa, Florida. Hey, Noah, thanks for calling. Go ahead.

Just a quick question. So I'm 28 and I'm self-employed. I have a Roth IRA with a company called Thrivent, and I contribute what I can.

I try to do 10% a month. I've always kind of seemed all right with them, but I was sitting down with my cousin who has a little bit more financial knowledge than I do. And he was just looking at some of the statements and stuff with me and was saying that their fees seem a little bit higher than many other companies. And what he does is he goes directly into an index fund.

And so my question would be is, in your opinion, what would be a wise choice for me in the long run? Because I do like that Thrivent is a Christian company. So I do enjoy that part where I feel better investing in the companies that they invest in.

But if they're taking more than what another other Christian company might be or possibly trying to do some index funding myself. Sure. Yeah.

So are they making the investment selections for you, Noah? Yes. Yeah.

I sat with an advisor and kind of built a portfolio based on like, you know, right now it's very aggressive because I'm only 28. Yeah. Yeah. That makes sense. Do you know what the fees are as a percentage of the portfolio?

If I'm correct, I believe it's like 0.7 or like 0.7 to 0.85 or something like that. Okay. Yeah. I mean, if that's the case, I would certainly be comfortable with that. That wouldn't be out of the norm, especially if they're making the investment decisions for you or giving you guidance in that and you're kind of signing off on it. So that's one approach.

And I don't have any problem with you staying right where you're at. If you wanted to take more of an indexing type approach and not try to pick the winners and losers, but really just capture the broad moves of the market, then you could certainly look at one of the discount brokerage houses like Fidelity or Schwab. If you wanted some faith-based investment options where they were screened for your Christian values and companies that were specifically promoting investments and looking for investments that, you know, had a return potential, but also were promoting human flourishing and even advancing the gospel.

You could look at Eventide or Timothy Plan or, you know, One Ascent. I mean, there's a number of them, and then you could find them all on our website at faithfi.com. Just click on the show and you could see a listing of a lot of those faith-based investing fund families. And those would all be accessible through one of the discount brokerage houses as well, like Fidelity or Schwab. So I think it really just depends upon kind of the approach that you want to take. Where you are at right now, if you're right on the fees, then those don't sound out of the ordinary. So if you have a good relationship with your advisor, you like how it's performing, you could stay right there.

But if you wanted to have some faith-based investments or you wanted to go indexing, that's where I think probably one of the discount brokerages could be a good base for you for the Roth IRA, and then you can make those investments in that way. Does that make sense? Okay, absolutely. Yeah. If I could, a quick question to go along with it. If I were to kind of roll over from the Roth IRA I have into one of those things, would that create a realization of loss?

Because it is down a little bit right now. Yeah, not necessarily. What I suspect would happen, and you'd want to confirm this, is that those investments, as long as they could be held at Fidelity or Schwab, whatever you own in the portfolio at Thrivent, as long as those could also be held, they weren't proprietary or something like that, then they would just come over with the existing holdings. So those would not be sold, they would just be transferred to this new institution, and then you could determine at what point you sell those investments. Okay. Yeah.

So what you would do is when you open the account, you would just want to give them a listing of all of your holdings, and they'll tell you whether they can hold those investments, and if they can, then you would just tell them to transfer them as opposed to liquidating and then transferring the cash. Okay, thank you so much. You're welcome, Noah. Thanks for calling today, my friend.

We appreciate it. 800-525-7000 is the number to call. That's 800-525-7000. To Dayton, Tennessee. John, go ahead. Hi Rob, this is John.

I got a question. I'm debt-free right now, and I'm 46 years old, and it's only by the grace of God, so I thank my Lord and Savior for helping me with that. But I'm currently, I've got a high-paying job, and I don't know if I'm going to be doing this for the long term, but I'm making a lot of money, so I'm trying to save in retirement. I'm putting a lot away in retirement right now, but with the economy the way it is, I'm somewhat nervous and a little bit conservative investor, so I can't stomach the roller coaster that we're on. So I'm curious, what does a diversified portfolio look like to you? What is your age, John? I'm 46 years old.

Okay. You know, at 46, I would typically say that you would want to probably have about 65% of your money in stocks, which would mean you'd have 35% in bonds. If you wanted to be more conservative, you would probably go with maybe 55% or so in stocks and 45% in bonds. The good news is this is a great season that we're heading into for bonds, and I think stocks will do well. I think the key is you've got to take a long-term perspective.

I mean, you still have time on your side. You've got this high-income paying job. It's a great opportunity for you to sock some money away, but you want to do it with an eye toward the future, recognizing that, yeah, we've got some challenges, but every decade has its challenges, and we still live in the strongest and best economy in the world. And as long as you're properly diversified with a good mix of stocks and bonds between, as I said, probably 55% to 65% at the most, 70% in stocks, then you just kind of set it and forget about it, if you will, and recognize that in the ebbs and flows and ups and downs, at least historically speaking, you're not going to lose money over that time period. The key is just to be systematic in your contributions, and one of the benefits of that is something called dollar-cost averaging, where you're buying in at different price points, and when the market's down, you actually should see that as a great buying opportunity because you're buying more shares of the same stocks with the same amount of investment because the stocks are selling at a discount. And then as they rise, you benefit from that by owning more shares, but you've got to just have that long-term perspective and not get too emotionally attached, which is also why you'd probably want to involve an investment advisor in this, somebody who's arm's length, who can bring a more rules-based, disciplined approach to your investing, and not necessarily you, which you're a little bit more emotionally connected to this, which can lead you to some poor decision-making with regard to selling out at the wrong time.

Because you get fearful, if that makes sense. So what I would do is interview two or three certified kingdom advisors there in Tennessee. You can go to our website, faithfi.com, that's faithfi.com, and just click find a CKA if you want to do that. But that's my best advice on how to think about diversification. Thank you so much. Is that helpful? Yes, that's very helpful. Do you recommend metals at all?

Yeah, but not overweighting. So my recommendation would be to have no more than 10% of your portfolio in precious metals. You can do that in physical possession where you actually buy the coins or the bars and store it and secure it. Better yet, though, you may want to consider just a tracking ETF like GLD or one of the others that tracks the price of the move of the precious metal that gives you that diversification in the portfolio.

But you're not having to pay the premium on the buy and sell and store it and secure it and all of that. But I would say no more than 10% would be my recommendation. Hey, just after this break, we'll be back with a lot more of your calls and questions. Stay with us. This is Faith and Finance. Hey, Greg, I need some advice.

Oh, what's up? I'm really struggling with finding ways to cut back. With costs going up, especially in healthcare, what do you guys do? Oh, we use CHM, Christian Healthcare Ministries. It's a health cost sharing ministry that's been sharing members' eligible medical bills for over 40 years.

Sure helped us stick to our budget. Here's the website, chministries.org. C-A- Chministries.org. Welcome back to Faith and Finance. I'm Rob West. All right, it's time to take your calls and questions. We're ready for you, whatever you're thinking about financially. We'd love to get you into the conversation today. The number to call is 800-525-7000. That's 800-525-7000.

We welcome your phone calls today. Palm Beach, Florida. And is it Arcadio? Arcadio. Arcadio. Very good.

Go right ahead, sir. This is my question. I have a mortgage, right, with the USDA, $44,000. Now, if I go into my 401K and I pull the $44,000, I can pay off my mortgage. But I see that every time I pull $1,000, it doesn't knock down $1,000. It knock down like $200, $300 only. Yes, yes, that's right. How long have you had this mortgage? I think for 15 years or so far.

Okay. Yeah, I'm a little surprised it's that little because the way an amortized mortgage works is at the outset of the loan, they will tell you what portion of every payment, the payments will be equal, they'll be the same every month over the life of the loan, and they will tell you based on that schedule what portion of each payment will go toward interest and what portion will go toward principal. At the beginning of an amortized loan, the vast majority, nearly all of the payment goes to interest and a very little bit goes to principal. And then in the latter years, as you're nearing the end of the mortgage, the vast majority of each payment is going to principal and just a little bit to interest. And that's the process of the amortization that determines that. So it's not surprising to me that it's not all going, but it should be halfway through the mortgage more than $70, $30.

Could it be that you, during the pandemic, had a portion put on the back end? Has there been any changes to the mortgage along the way? Well, the other thing I suspect is because at the beginning, maybe the five, six, seven, eight years, I was having a subsidy. But now I make more money, so I don't qualify for subsidy. I don't know if they're trying to catch up the money, you know, that they kind of give away because of the subsidy.

Yes, that could be. So what I would do, Arcadio, is call the mortgage servicer, whoever you send your payment to, and tell them you'd like an amortization schedule. And that will show you for the remaining payments that you have between now and the end of the loan, how much is going to go to principal, how much is going to go to interest, and whether or not there's going to be a balloon on the end.

And what that simply means is it could be that because of the subsidy, they were pushing some of it to the back end. And that actually, when you get to the end of the 15 years, you're going to have a large payment that's due in order to pay off the mortgage. So you're going to want to know that, and that would be through the amortization schedule that they would provide you. Okay, and real quick, please, if I have, you know, enough money in my 401k, will it be wise for me to take the money in my 401k and pay off that debt? No, I wouldn't do that. The reason why is I would like for you to let that 401k continue to grow, and I'd like for you to pay off the mortgage out of your cash flow. That 401k is going to be very helpful to you down the road when you are no longer working, maybe because you can't, or you need to slow down, or God directs you to something else. That can be converted to an income stream to supplement Social Security, because Social Security was only intended to cover about 40% of your pre-retirement income at best. And that's probably not going to be enough, and so you leaving that 401k there, continuing to fund it, especially while the market's down and we're waiting for it to recover, is really important. I don't want you to pull that out.

So the key for you is to try to limit your lifestyle spending, limit your expenses, so that you have margin to not only make that mortgage payment, but over time, if you can, you could accelerate it by adding more to the payment. But I wouldn't do that from your funds from the 401k. Thank you. Sure. All right. Well, I appreciate your call today, my friend.

Absolutely. Thanks for listening to the program, and I'm glad you got through. Thanks for being diligent and patient in that. All right, let's head back to the phones today.

They're all full, and we're in our last segment, so we'll try to get to as many as we can. Quickly to Indiana. Charles, go ahead, sir. Yes, I have a lot of grandkids, and when they get to 10 or 12, I set up a $5,000 college fund for them, and I'm wondering, is there a better way? Because so far, I've been setting up that 529 college fund. Yes. I like that a lot, Charles. Have you used the 529 there in Indiana, or did you use another state's 529?

Indiana. In fact, I have set up several of my grandkids. I see. Yeah, I think that makes a lot of sense. It does a couple of things. Number one is it grows like a Roth IRA, so you don't get the tax deduction when it goes in, but it grows tax-free if you use it for qualified educational expenses, number one. Number two, you have those underlying investments like mutual funds in there, so you can grow the money, which is great on a tax advantage basis. Number three, they're getting more favorable because of recent legislation that would not only allow you to get the money back if they get a grant or a scholarship on a pro rata basis, but if they don't use it, they could transfer it to a Roth IRA and have it as kind of some seed money for a retirement account.

There are some requirements there in terms of it's got to be in their 15 years, and they can only convert it up to $30,000 total and no more than the annual limit for the year. But it gives you an option if you have a child who decides not to go to college to be able to still get this money into a retirement account, which could be a great beginning for them on their retirement savings. So I think for all those reasons, I like the 529 a lot, Charles. Also, if their parents are going to qualify for any need-based aid, the 529 is great because it's not going to be an asset of the child, which is factored in much more significantly into the expected family contribution. You want it to be an asset of the parent, which is how a 529 is treated. The only thing I might suggest is you don't necessarily have to use Indiana, and Indiana's 529 may not be the best one. So I would, before you open the next one, go to savingforcollege.com, and if you fill out the questions there, they will actually recommend, based on the tax advantages and the overall historical performance of each of the 529s, they'll recommend the best 529 for you. And unless you just want to use Indiana's, it may recommend that you use a different state. Okay, because I noticed the last one I opened up, there was an interest rate of 4%, but the one before that was a lot lower. Ah, okay. Yeah, I would check that out.

They're not all created equal in terms of how the investments are structured and the performance, so that's where savingforcollege.com can give you an objective look at which 529 is best. But bottom line, Charles, you keep up the great work. You sound like a wonderful grandfather, and this will be an enormous blessing to your grandkids down the road. Thanks for calling today.

Well, that does it for us today. I'm Rob West. Thanks to our amazing production team and to you for listening. I hope you'll join us again next time right here on Faith and Finance. Faith and Finance is provided by Faith Buy and listeners like you.