Podcast Show Notes & Transcript

In this show Mike and Amy cover scenarios to effectively utilize the Post 9/11 GI Bill: 

• Mistakes to Avoid when splitting Post 9/11 GI Bill benefits among multiple beneficiaries (1:31)
• Advantages of transferring benefits to a spouse rather than children (5:15)
• Student Aid Index Considerations (6:48)
• Understanding the schools funding model (8:32)
• Leveraging the housing allowance  (12:07)
• Yellow Ribbon Program (13:04)

Links:

Mike’s Blog on Splitting the GI BIll   

Operation Retirement Readiness

Schedule a consultation with Amy

Schedule a consultation with Mike 

TRANSCRIPT

Amy:

As we talked about on the last podcast, the Boost Post 911 GI Bill is an amazing benefit. It can provide payments for tuition, housing allowance for those pursuing higher education or certification, but there’s better ways to use it so that you can get the. Most value out of it.

Mike:

Exactly. The value is really relative. It can be worth anywhere from nothing if you never use it. Potentially hundreds of thousands of dollars if you use it. The most expensive schools. So today we’re going to talk about some of those things that you can do to make sure you are maximizing the value of this great benefit. And some of the stake mistakes that you want to avoid when you’re using the GI Bill.

INTRO

 

Amy:

So Mike, I know that you wrote a whole blog post about the mistakes to avoid when splitting the GI Bill, and we’re using that as a basis of this episode. So we’ll link those show notes. And how about you go ahead and kick us off?

Mike:

Yeah, it was probably mistakes to avoid when using the GI Bill and it primarily centers around when families have multiple people that are trying to use the GI Bill. They’re splitting it in some way in the member spouse or multiple kids. And that’s when you really see the you know. Errors, if you will come in to play. You only got one child or if you’re going to use it and you don’t have any children, you know there’s still some things to consider, but there are less ways to kind of optimize usage of it. So the first thing you want to talk about is, you know, what is your goal? Most people are trying to get. The you know, pay the least amount of money for an education and and that’s really how you get the best value from the GI Bill. Many factors really the way that colleges price schools, different schools have different models of how they will charge you. Even though the sticker price says one thing. So there are a lot of things moving parts within the GI Bill to consider. It makes a lot more sense to dive into this and really understand it before you just split the GI Bill, you know 5050 or a third, a third, a third. If you have three kids or people that are going to use it. So Amy, what about? Yes.

Amy:

Yeah. I mean, I think that’s a a good overview. You know the point that you made in terms of depends on what your goal is for education. We’re sort of operating under the assumption that most people’s goal is to pay as little as possible for education, whether you have one child or several children or you’re splitting it with a child. Or your spouse or yourself. So you know that that makes a lot of sense in terms of the overview that you gave and the complexity of, you know paying for college, just the idea of paying for college and everything that goes into the college cost calculations is is very complex all by itself. It’s a little bit beyond the scope of this podcast to get into the complexity of the costs of college. But we can get into some considerations that you should. Reflect on before you go forward in using the GI Bill for one child or several children. And and maybe you know that can all be distilled by giving you an example. So let’s say for the cost of attendance, if you’re, if you’ve got your GI bill, let’s say the cost of a school’s attendance or the sticker price is $65,000 a year, and that includes room, board, tuition fees, all of that. If you’d only pay 25,000 because of merit or need based aid, then that would be the value of the. Right though. So you you basically have the ability to manage what you’d potentially pay because of different income situations or different, you know, mayor scholarship scholarship situations. UM, this is where GI Bill planning can come in now. This is in contrast to how a lot of people sort of approach it. The most common approach is splitting it evenly, so you’ve if you’ve got two kids the full 36 months of benefit, then you give each of them 18 months, which would cover roughly two years. The other two years, you just have to figure out. So so Mike, I think. This brings us sort of to the first error. That people make when using the GI Bill.

Mike:

Yeah. So the first one, I like to tell people about is, you know, maybe it’s using it instead of for the kids is using it for them or their spouse. If that could significantly raise their earning potential. So say the cost of sending your kid to school is $35,000 per year without the GI bill for, you know, a total of $140,000, which is still a crazy amount of money over the full four years. But if you or your spouse is able to increase annual income by, say, $25,000 per year, you know with a degree or an advanced degree, and then work 15 more years. That would be almost $375,000 in earnings that you’d have. So even if you had to take loans to finance you, your son or daughter, education, while you know you were going to school and using the GI Bill, you know, over the long haul. You’re probably going to make out better by, you know, increasing your your earnings potential.

Amy:

I think that’s a really good point and I think it’s hard for people to consider that. I think a lot of people are so focused on getting their kids through school, they may put their own education or ability to increase their earnings kind of on the the back burner.

Mike:

Yeah, that that’s definitely true. So, Amy, what’s what’s mistake, #2?

Amy:

So #2 is not understanding how the student need index or. Basically what you’ll be expected to pay out of pocket could change as your income changes. So the biggest factor on whether you’ll qualify for financial aid is the parents income for the child rate. If your income is going to increase significantly in the future, then it might wait. It might make sense. To wait to use the. Yeah. So as an example, let’s say that there’s an E7 with two kids. There’s a senior in high school and. 1/7 grader. There’s a spouse who is not currently working outside the home, which which often happens for service members on active duty. The income that’s going to be used on the FAFSA is going to be base pay and bonuses, but it doesn’t include Bah. So the oldest child could possibly qualify some for some need based aid. But then, Fast forward five years. This E7 has now retired, has gotten a job that pays 20% more. They’re also getting their pension. They’ve settled down South, potentially the spouse has returned to work, so their household income is much higher and they are likely to qualify for much less need based aid, if any need at all. So they’re going to be expected to pay much more out of pocket for the 2nd child’s education. If you split the GI. Bill evenly. That means that. Collectively, you’d pay. You know more out of pocket for the second child.

Mike:

Yeah, complexity around college costs are are significant and you know, people may not. Just understand that and so the third mistake is kind of a corollary to that it’s it’s really not understanding the school’s funding model. And colleges, colleges operate on several different funding models. They, you know, they list the prices Amy talked about in one of the previous ones. The total cost of attendance. But most of the time. Time. Folks don’t pay that. You know, unless you’re a super high earner or have a super significant amounts of assets. You know, you’re probably going to qualify for, you know, potentially need based aid and then a lot of schools also give out merit aid now, which is basically based on the student scores or GPA or or things like that. So. So let’s talk about a couple of the different funding models, so. The Ivy Leagues, the elite private schools, you know, the top of the top, that have these huge endowments they are, are basically need blind. They will, you know, whatever, when you fill out the FAFSA free application for federal student aid or the. Most of those elite schools use the CSS profile. When you fill that out, you’re going to get a, you know, expected family contribution, now called the Student Aid Index back. And if there’s top schools, that’s what you’re going to pay. They don’t give, you know you pay based on need if you if if they determine that you can pay a bunch, you’re going to pay that. If they determine you can’t, they’re going to meet all the need, mostly through grants from the, you know, huge endowments they have. They don’t give merit aid, so even if they’re top of the top best student out there valedictorian, they do not. They won’t get any so. Smaller private schools. They’re competing a lot of times against each other to try and get the best and brightest, so they will offer a lot of merit aid. You know they do the same calculations on the needs side, but a lot of times they will also be, you know, fighting to attract those top students. And so. If you’ve got a student that scores super high on the ATP SAP or you know has has a super high GPA. They may get significant aid just based on their scores, even if you don’t qualify for, you know, public schools. Typically you get the in state discount a lot of times they you know may give a little bit of need based aid, but you know, sometimes there’s a big gap. Sometimes between what you’re. You know, family contribution is is supposed to be and what they’re going to, you know, say you need to pay. So just understanding those different ways and understanding your kids and where they, you know, may go now, sometimes that’s harder if you’ve got a big gap between kids and you don’t know. Hey, you know, is this one going to try to go to Harvard and this one’s going to go to a state school, but if they’re close enough, then you can kind of project that out of what type of school they may, you know, best fit in. And that can allow you to optimize when to use the the GI bill.

Amy:

Exactly. Now moving on to the 4th mistake, that is not factoring in the basic allowance for housing and the yellow ribbon. So basically thinking about bag. Differently and including yellow ribbon in the calculation when you’re. Bring out. How much it will cost out of out of pocket, so the Bah, the basic allowance for housing benefit actually adds quite a bit of value to your GI bill. The yellow ribbon likewise. So VH and schools for larger cities on the East Coast, the West Coast typically much higher than for. You know, say, a Midwestern small town school. So some some families will use the GI Bill for tuition for an older child, but then make the child pay for room and board, and then they’ll take that BH and invest it for use for their younger children. Now for yellow ribbon. The GI Bill only covers the cost of tuition up to the tuition price of the most expensive state school. Many private schools have higher costs, obviously, as we know and as we discussed in the last episode, the Yellow Ribbon Schools essentially provide additional money that’s matched by the VA, so this can be, you know, hundreds of extra dollars, thousands of extra extra dollars up to full tuition. And it can make a huge difference in the value of the GI bills. So keeping this in mind. Based in context of everything Mike just reviewed is a great way to increase the value of the GI bill to your family.

Mike:

Yeah. And, you know, we went deeper in the yellow ribbon last time, but, you know, just making sure you understand that specifically because you know sometimes there are limits on how many students qualify and and or that they’ll give out each year. And so. It’s kind of understanding all those things. If it is a yellow ribbon school, but yeah, it’s a it’s a huge additional value. And it kind of hit on the the last mistake, but we’ll go into it a little more is, you know, not really understanding the difference between kids and what they may, you know, where they may want to go. And you know, what type of, you know, will they qualify for merit aid? So if you’ve got again. Somebody that’s that’s going after the top school that’s going to be expensive and and you’re not really going to qualify for need based aid. You know if it’s a yellow ribbon school, it may make sense to even if it’s the second child. Hold all the the GI Bill benefits for them. Just because you know the costs could be so, you know, extreme versus if the other student was hey, going to go to a state school or you know a cheaper school. So that that really is one of the key things is is trying to figure out ahead of time where the where the kids may go and and how best to to use it, so. Any any other you know kind of mistakes or things to add as we as we kind of wrap up.

Amy:

Yeah, I mean, so not not really a separate mistake, but just a footstomp, a theme that has shown up throughout all the mistakes that we’ve talked about and that is looking at things big picture. So instead of, you know I think a lot of times families are so focused on. Getting the kids through school. And and looking at it, you know, child number one child number two child, you know number and whatever. However many children you have getting them through. School. I think that the theme has been where mistakes show up, is looking at things individually. So looking at an individual child’s education and how to fund that individual child’s education. Rather than looking at the education. And desires, opportunities that that are across the whole family across a longer period of time, how the income situation is going to change and how that’s going to change the cost of education where kids want to go to school. So basically the key take away is looking at. The use of the GI, though more globally than I think people do, so not a new mistake, but really just the theme that shows up in all the mistakes. So as you’re considering how to use your GI Bill, I just think you know, encourage you to think a little bit. More you know, I’ll use this term globally again, holistically across your family to try and get the most possible value out of your GI bill. Mike, how would you? How would you sort of summarize things?

Mike:

Yeah, I think the the key point is just to really understand what you’re going to pay and and really trying to figure that out ahead of time to. Understand when the best time to, you know, use the GI Bill is going to be because there are definitely different strategies to use based on based on that and. Again, it’s it’s, it’s easy just to split it. It makes it simple, but you could be leaving, you know, a significant amount of money on the table by just doing that and and not taking some of these things into account.

Amy:

Exactly. You know, and and just again, you know, summarizing don’t, don’t forget to consider your spouse and yourself in the equation. When you’re considering you know how to maximize the value of your of your GI bill. So not just for kids, but for yourself and yourselves too.

Mike:

Awesome, Amy, I think that pretty much wraps it up. So appreciate everybody tuned it in and we’ll we’ll be back in a couple weeks with another new episode.