Women's Money Wisdom

Episode 265: Navigating Trump's Proposed College Funding Changes With Ann Garcia, CFP®

• Melissa Joy, CFP® • Season 4 • Episode 265

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Are big changes coming to the way we pay for college? 

In this episode, host Melissa Joy, CFP®, sits down with Ann Garcia, CFP®, and  author of How to Pay for College, to discuss the shifting landscape of higher education. With potential policy changes on the horizon, including modifications to student loans, grants, and university funding, families need to be more strategic than ever in planning for college expenses.

Melissa and Ann explore the role of the Department of Education, the impact of proposed Parent PLUS loan eliminations, taxation of scholarships and endowments, and how federal research funding plays a pivotal role in the U.S. economy. Ann provides valuable insights on smart financial planning strategies for families navigating the cost of higher education and shares actionable steps for making informed decisions.

Key Takeaways:

✅ Potential Changes in Higher Education – How proposed federal policies may impact college affordability and financial aid.
✅ Understanding the Role of the Department of Education – What it funds, why it matters, and what could happen if it’s restructured or eliminated.
✅ The Risks of Taxing Scholarships & Endowments – Who could be most affected and why financial aid could become even more limited.
✅ Parent PLUS Loans on the Chopping Block? – The pros and cons of eliminating these loans and what it could mean for families.
✅ Why Research Universities Matter – How federally funded research drives economic growth and innovation, from medical breakthroughs to technological advancements.
✅ Financial Planning for College – Smart strategies for families, including using net price calculators, alternative education pathways, and financial aid negotiations.
✅ The Importance of Open Conversations About Money – How to discuss finances with your kids and prepare them for responsible decision-making.


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Speaker 1:

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and the founder of Pearl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence and be strategic in order to grow your wealth. As a woman, you work hard for your money and I'm here to help you make the most of it. Now let's get into the show. And I'm here to help you make the most of it. Now let's get into the show. Just a quick note before we dive in the information that we share is meant to educate and inspire, not serve as personalized financial advice. Everyone's situation is unique, so be sure to consult with your own financial professional for guidance that fits your life. And just so you know, the opinions shared in this podcast are my own and those of my guests, and they don't necessarily represent those of any organizations that I'm affiliated with. For more important disclosures, please go to our webpage at pearlplancom. Now let's get started. Well, I think the theme for 2025 is the times they are changing. Well, I think the theme for 2025 is the times they are changing, and we're going to dive deep into the topic of higher education today and what could be coming around the corner when it comes to funding and paying for college, what that means for institutions and what you should do about it.

Speaker 1:

I am thrilled to bring back the resident expert of the Women's Money Wisdom Podcast, a regular contributor, anne Garcia. She has helped thousands of families save millions of dollars on college. She's a certified financial planner and the author of how to Pay for College, and she's the mom of two twins, or of twins, who's graduated debt-free from college. And welcome back to the podcast. Thank you so much for having me. Well, I'm fortunate to consider you both a friend as well as a terrific resource when it comes to advice on paying for college, which is an important part of the financial planning work that we both do, which is an important part of the financial planning work that we both do. And we were texting back and forth about other things and you said, hey, do you want to? You know, should we talk about what might be changing with new proposals in the Trump administration? And I was like, heck, yes, that's what my clients are asking about. So thanks for coming. What are you talking to people about and thinking about right now? Yeah, you know, it's a great question, because a lot of this is just speculation at this point, but I think you know the big heading of.

Speaker 1:

If we get rid of the Department of Education, some of its functions will continue, some will not. Those that continue would be housed elsewhere and elsewhere might have different priorities than the Department of Education, whose mission is to educate American kids and adults. Frankly, as part of its mission, and so I think overall, what that means is it's more important than ever for families to be making good financial choices about their kids' educational pathways. Because we could lose access to Parent PLUS loans. There could be changes in how scholarships are done. If endowments are taxed, as has been proposed, there's likely to be a spillover effect on financial aid dollars. So there's lots of ways that the proposals in front could have a dramatic impact on the college landscape and there's other ways where the impact is likely to be minimal.

Speaker 1:

Well, let's start, if you can, because I always learn something when I'm talking to you, because you spent so much time really getting into the weeds of this higher education subject, into the weeds of this higher education subject. So the Department of Ed some people may be like oh why would we need a federal kind of curriculum creator? Because we've got state and local school boards, et cetera. But what is the actual function of the Department of Education when it comes to kind of the world of higher education? Yeah, and the Department of Education plays a much larger role in higher ed than it does in K-12 education. You know, the vast majority over 90% of K-12 education funding comes from states and private sources. The biggest source of federal funding at the K-12 level is for free and reduced lunch and Head Start. So the Department of Education plays a really minimal role and most of what it does is pick up programs that local communities don't have the resources to support, things like special ed programs for rural communities to provide educational access and programs for high poverty areas.

Speaker 1:

When it comes to higher ed, there's several functions that the Department of Education does. You know they run the FAFSA, the Application for Federal Student Aid. They have student loan programs and student loan forgiveness programs. They provide education funding in the form of Pell Grants, work-study and some other grants. They also have an important role in research and particularly around the areas of outcomes. So is it, you know, if you invest money in this educational pathway, is that likely to lead to benefits over the long term?

Speaker 1:

So there's a program called a website called College Scorecard, where families can go and look at what the actual outcomes have been for students who attend specific schools and even specific majors at those schools. I don't want to assume, but would those outcomes be like hey, what's the graduation rate of this program? Or job placement rate, those types of things, it's all of that. So it's graduation rate, it's job placement rate, it's student loan payoff, it's how much student loan debt did they incur as a student? So really great information for families who are trying to make informed decisions about this very major, very major purchase that they're. You know that they're, that they're considering. And it lets you make apples to apples comparisons. You know, let's say you're going into a nursing program and you have an option, or you want to be a nurse and you have an option of a direct admit nursing program at a private school that costs a little bit more versus going to a public school that costs less but it's not a direct admit program. So you may or may not actually end up in the nursing program and you can make those kinds of comparisons and say is it worth the investment in this private school versus versus the public, versus the public school. So really a terrific resource.

Speaker 1:

And you know, as part of the research, as part of the research arm, there's the, the IPEDS data, which is the integrated post-secondary education data system, and that's where colleges are required to report net price by income for their students. It's where they're required to report how many students are receiving any form of financial aid, how much debt they're incurring, what the three-year what's it called, the three-year rates of non-paying their debts, their student loan debts, their graduation rates all kinds of really important data that we as consumers should be demanding of institutions that want to charge us at this rate for our education. And that's data that feeds things like net price calculators and other tools that families can use to figure out what it's likely to cost them to go to any specific college. Well, you've really emphasized in our previous conversations how a net price calculator can help you sort through the weeds when you see a private school that may have a price tag of $55,000. And then you plug it into the net price calculator with your personal information and it may indicate that you would typically receive grants or financial aid. But all of that is incumbent on data that's provided by the schools to the federal government to get back into that net price calculator with auditing right instead of just self-reporting. Exactly, and that's the really important piece of all of this, is there's an auditing function on this data, because there is other. You know, ipeds data is one data set, but it is mandatory that colleges that receive federal funding provide their data there. There's a second set of data called the common data set, and, and that is a private entity that collects data and it's voluntary for colleges to participate in that. They do a great job of making that information available. You know the website college data that uses. That is a lot more usable than the, than the iPads site, college navigator, but part of why that works is there's a check on that data in the form of the of the mandatory iPads data. That is. That is that is collected.

Speaker 1:

There's another important piece of the education. There's another important piece of the education pie, specifically the dollars of it. That's not the Department of Education, but that is federal research dollars, and the 2025 federal research budget is over $150 billion. A large portion of that goes to our research universities that they use for basic research, and the reason that's pertinent to undergraduates is a couple of things, you know. One is it funds a lot of science labs. It funds a lot of professors, but also a lot of colleges include research grants in their financial aid packages and a lot of students get jobs working on these research projects. So there's two pieces of it on-campus employment and financial aid that flow from those research dollars that we've seen with the National Institute of Health Research cutbacks is already impacting universities in a pretty significant way. Well, we're going to talk about that in a second and it's really important to many of our listeners because, as you know, our location is just outside of Ann Arbor, michigan. The largest employer in our county, washtenaw County, is the University of Michigan. So, and including, you know, the research functions, the health system, etc. So this is really important to many of our listeners. But before we get to that, I also want to talk about proposals to changes in grants.

Speaker 1:

So you mentioned, or funding just in general. So you mentioned Parent PLUS loans, which I don't think they're either yours nor my favorite ways to finance college, because they are very punitive to the families. You pay a lot of interest and you know you can end up retiring with those loans. It's just a difficult bill to pay. It's the fastest growing segment of student loan debt. It's so necessary for so many families, though, because they're behind the eight ball and weren't able, because of circumstances and a variety of reasons, or just you know, the ability to make a plan. They weren't able to save for college. So they're sitting here with a big bill that they don't have the cashflow or budget to pay for, and those are at risk. Is that correct? That that is correct. I mean, no one has said specifically these are the programs that we would cut, but that has always been one of the ones that federal direct student loan, and with the direct student loan a student can borrow $27,000 over four years. With the plus loan you can borrow up to the full cost of attendance.

Speaker 1:

And so, getting rid of plus loans, there are definitely some pros to that, because we see all the time people getting into tons of trouble with Parent PLUS Loans, and oftentimes that comes not from intention but from lack of awareness, when they read a financial aid offer, that a Parent PLUS Loan is part of the financial aid package. So I would say getting rid of Parent PLUS Loans might not be the worst thing in the world, because, absent that funding source, it could force colleges to either reduce prices or increase financial aid awards Through other sources. Through other sources, because as long as you have people who are willing to pay any price for their kids to attend their dream school, there's no incentive. You know, there's no incentive or pressure on the colleges to change the pricing Right. And certainly the financial aid department has an incentive to perhaps convince a likely less informed consumer that this is the right way to go by, just like. You know, here's the pathway. There's no choices when actually there may be. Yeah, here you can do this. Here's how we close this gap Right.

Speaker 1:

So other proposals I've heard, I think, are taxing scholarships. Tell me more about this and how it might work. So taxing scholarships would be extraordinarily punitive to the kids who most need access to college. You know the people who get the largest scholarships are students with high financial need. Now, when you tax a scholarship. So the way scholarships work now is, if it's scholarships that cover tuition fees and required supplies like books, computer etc, etc. Are tax free. Scholarships that cover room and board are taxable to the student already. Now the proposal is that institutional scholarships covering anything would be taxable to the student. Thing would be taxable to the student.

Speaker 1:

Now one of the big problems with that, besides the fact that this is a large amount of taxable income for a student I mean think of a student with a full scholarship to Stanford. That is $95,000 of scholarship every year, and students whose family incomes are below $200,000 are likely to be getting that type of a scholarship if they're admitted to those schools. Now scholarships are considered unearned income by the IRS and there's a big distinction between earned income and unearned income for minors who are dependents on their parents' tax return, and that is that unearned income is subject to the kiddie tax, which means it's taxed at the parent's rate, not at the child's rate. So a couple thousand dollars is taxed at the child's rate. Any amount in excess of that is taxed at the parent's rate. Now a parent who makes $150,000, $175,000 is probably in the 22% federal tax bracket and so that student is paying 22% tax on $95,000. Where do they come up with that money? I don't know how that actually is. $20,000 a year, I don't know how many thousand dollars a year. Yeah, really difficult to understand to take in. And so you know, we'll just have to wait and see, because all of these, as of now I will say we're recording at the beginning of March and it's a few weeks lag before we release the episode. So who knows what else is on the table by the time we get there? But I do love that we're able to talk about the real world concepts of what could be changing, you know.

Speaker 1:

Another proposal is that. So you know, I'm thinking, using University of Michigan as an example there's a giant endowment that tends to accumulate and get bigger. You know one that tends to accumulate and get bigger. You know one you know kind of idea would be okay. If there's less financial aid federally, perhaps there's more usage of an endowment. But there's also tax proposals. When it comes to taxing the endowments as well, right, and so the proposal is, I want to say it's a 35% tax on unused endowment funds, which is a significant amount, and I know for a lot of people it's like oh well, that's just money that's sitting there. Why not tax it if it doesn't get used?

Speaker 1:

One of the big issues with endowments is a large portion of endowment gifts, so money going into the end is gifted for specific purposes. It may be a building, it may be an on-campus activity, it may be a department, it may be a specific function. It may be a research program. So a large portion of every college's endowment can only be used for specific purposes. The biggest use of unrestricted funds, you know, so gifts that people say, use it for whatever you want, is financial aid. And so when a tax gets applied to all of this, the one discretionary area in the college's budget is financial aid.

Speaker 1:

I don't want to, and that's going to again impact the students with the highest financial need. I don't want to, and that's going to again impact the students with the highest financial financial need. I don't want to act like endowments are this just universal good and nothing should be done. I feel like there is a lot more that colleges should be doing with their endowments to promote their mission of education and research and making the world a better place, informed citizenry and all of that. That's not to, you know. So I'm not solely defending endowments. I am just, you know, pointing out that the people who are going to be hurt most by attacks on endowments are not universities. It's students with high financial need who would like to attend those universities.

Speaker 1:

Yeah, there's a lot to take in, because you try to say, okay, if something happens here, then where could we go to fill that hole or gap. And then there's extra. Well, it's a complication if we're also thinking that that's a source of funding for the federal government. If we could just pivot for a moment, why don't we talk about the role of research institutions in our society? Because it's not, as you mentioned, wholly the Department of Ed. There are other funding mechanisms from the federal government that go to what I see as somewhat the American success story and the reason where we've been considered a leader in the world in so many areas, including our economy, but especially in the sciences and medical fields. So you know, I'm sitting in the shadow, where I'm at, of a research institution. We know them around the country and what are.

Speaker 1:

What has been the role of these institutions in our country, whether it's for, you know, educating leaders. But also you know the outcome, the research outcomes that have happened in the past. Yeah, it's such a great question. I think it's one that we just don't don't really think a lot about. But you know, if you listen to the news media, you'd think that colleges primarily serve wealthy families and that they're just funnels of privilege from one end. I'm a sports fan, so are you too, so you know, like football Saturdays. That's why. That's why we love our schools, right? Yeah, yeah, we're public school. Yeah, go, blue and gold. Yes, there you go.

Speaker 1:

You know, the truth is we all benefit from our university system. You know, like you were saying, you know American ingenuity. Our research universities are absolutely the economic engine of our country and when you look at the wealthiest regions of our country, they're all anchored by research institutions. You know, in Boston area, in the New York area, research Triangle Park, austin, texas, bay Area, seattle, you know all of those are homes. Your area in Michigan, all of those are homes to research institutions. And you know where federal dollars come in and are married with academics and scientists who can create, you know, the next generation of things that we need and things that we want and things that we use. So there's this incredible power of bringing together federal research funding and our scientists and academics. I mean, if you saw the movie Oppenheimer, you saw exactly how that works and you know we can debate the morality of the Manhattan Project, all we want, but that's another episode, right? But that's just one example of the power of combining federal research dollars with American ingenuity, of combining federal research dollars with American ingenuity.

Speaker 1:

You know if you or a loved one survived cancer. You've personally benefited from our research university system. If you use the internet, you have benefited from our research universities, and that's to say nothing of the communities that are funded, that are employed by research dollars. The problem with basic research, the kind that's done at academic institutions, is it isn't profitable, but it is the foundation for the technologies that can then be commercialized into the products and services that we use, that create wealth, that create jobs, that build new economies. If you think of DNA sequencing, it took decades of scientific research and billions of dollars primarily federal dollars to get CRISPR and other such technologies to the point where we now have hundreds of companies using it to develop life-saving medications, to employ people at all levels of the corporate function, who then go out and spend dollars in their communities. It's so true. That's where I really think of when you take some space and time to think about the role of research institutions and federally funded research in the economy that we have, which you know it really matters to me, my clients, our listeners.

Speaker 1:

You know the functioning of the US economy, but if you were to look at any of the early stage research projects, for example, seeking out gene sequencing for cancer, for example, or self-driving vehicles, early stages at an engineering institution. Space exploration really was, you know, started the ability in, you know, the astrophysics departments. They spin into kind of semi-public, semi-private, you know, kind of cooperation in many cases where there's early venture capital startups that are coming from university-funded research. And there's reasons that you know your hometown, silicon Valley, is close. You know that places close to Stanford and Berkeley have been kind of the hot bed of innovation and you know we probably could delineate the initial AI that were revolution. Back to universities, same, you know there's a reason that the hub of venture capital in one of them in the Midwest is Ann Arbor, because of the access to academics, research and collaboration, cooperation. And so it's when you think about, like NIH grants, you think about funding, we're essentially thinking about an infrastructure, a public perhaps, infrastructure that private markets are able to capitalize upon and that is additive to the economy. So that's a really important and interesting consideration in terms of proposed changes that you know, in essence it's an investment in an intellect that's necessary for innovation.

Speaker 1:

Yeah, and I mean the government's job is not to be a business, it's to do the things that business doesn't do so that business can do what it needs to do. You know, and one of those functions is educating our kids so that they're prepared to be a part of the workforce, whether that's through college, whether that's through apprenticeship programs, through the trades, through other skilled you know, skilled training programs. Companies don't do that, no, but they benefit from having skilled work, a skilled workforce. So you know, this is, this is part of it. When you're a financial planner, you want to be able to hire people that work on your team, who have some of the background, so you don't have to start, you know, kind of your apprenticeship program so far back that you know you're saying what is a stock versus what is a bond, things like that, a hundred percent.

Speaker 1:

But you know, getting back to the original part of our conversation, you know it is March, which means that families of high school seniors are starting to get acceptance letters from colleges. Really good choices that will work for your families, whether or not you can take out a Parent PLUS loan, whatever happens with scholarships, that you can still make a go of it. And you know be reaching out to financial aid offices at colleges and asking them what happens to my package if any of these changes you know go through. What are the risks to me of these changes? Well, I think that gets back to one of the things that, whether it's funding, education, preparing for retirement, in so many areas of financial planning and personal finance, one of the most important things to do is focus on what you can control so you can't impact the outcomes necessarily of some of these big headline potential changes. What can you do If you have someone who is going to be graduating this year?

Speaker 1:

You can fill out that FAFSA, you can make a solid game plan and you can discuss the cost of college and the trade-offs of different choices with your kid who's going to school. And if you've got some more time, I think that this would indicate like, hey, if education is important to you, you may need to factor in more of your personal balance sheet as an investment in that, and so there is no time like today to start planning and discussing that, so that you're prepared for any contingency. Yeah, 100%. And I think it's really important for parents to think what are your actual goals in this process, because it's easy to think my goal is for my kid to go to an Ivy League school, but instead of thinking about those four years.

Speaker 1:

Think about the 25-year-old you want to create, the 30-year-old you want to create, you know, is this someone who has an overwhelming amount of student loan debt? Is it someone who took six years to graduate? Or is it someone who's actively engaged in a career, maybe starting a life, looking at buying a home, you know? So look beyond what's that name that you're shooting for and think of who that person is that you're trying to create and how do you best marshal your resources to create that person. And maybe it's considering different pathways. You know, maybe it's.

Speaker 1:

If your student is taking a lot of AP and IB classes apply to colleges that will give you credit, so maybe you can get out in three years so that you can limit the time span that you're spending in college. Maybe it's looking at your family's budget and saying how can we carve out a little bit more money to save for college to make sure that our kid has the opportunities that we want them to have? It's, you know, it's probably when you look at borrowing. It's looking at what can the direct student loan accomplish for our family, as opposed to what's the universe of borrowing that we can do. Well, I think that is so important and you're describing different opportunities for flexibility in a college plan and you know you have a new adult that you're making these decisions with, or soon to be, so make sure that you're incorporating the conversations.

Speaker 1:

That can be difficult. You know it isn't always easy to tell your kid that there's a limit, there's boundaries, that there may not be enough to do everything they've ever dreamed of doing. But I also think those are some of the most important lessons that I learned growing up in a family where I did need to take on some student loans. We did have. You know, there were trade-offs in terms of where I went for spring break, things like that. So don't hesitate to initiate, you know, your kid into kind of the adult world with some grown-up talk about the decisions that you're making so that you collectively can make the best choices for your current kid as well as your future family.

Speaker 1:

That's such a great point and you know, I think one of the best things that we can do to prepare ourselves and our kids for these college conversations is just to normalize talking about money, and that doesn't mean telling your kids what your salary is, but maybe it means explaining why you choose to spend money on certain things and not on others. Or you know whether it's going out for dinner, whether it's taking a vacation. You know, sometimes it's hey, we prioritize spending time together as a family, without the distractions of our everyday life, and so we spend money on vacations. But that also means that because our money's going there, there's less available for these other things. Yes, I love that conversation and I just can't emphasize enough. It may feel like you're less than because your neighbors can afford to do more. It is preparing for responsibility to in some cases have to say no and explaining why and explaining the reality and also emphasizing priorities. If it's, we're not taking that vacation because we really are focusing on being prepared to pay for school. Or, you know, mom's job isn't necessarily secure because it's somewhat dependent on federal funding.

Speaker 1:

Those types of things, when done right, when not just like the big scare conversation but happening in the day-to-day with you know, thought and care for stress and anxiety that could be initiated with the discussions, can be hugely valuable and pay off over decades A hundred percent. Yeah Well, anne, we know you're going to continue to be, unless you tell me, no, you are a go-to source. I strongly recommend your book how to Pay for College, and also whenever you're talking, I'm listening. You are always dropping great wisdom on LinkedIn, but where else can people find you? So my book, as you mentioned, is how to Pay for College and my website is also howtopayforcollegecom, so those are the best places to find me, as well as on LinkedIn, where I'm Ann Garcia, crp, and thank you so much for joining us.

Speaker 1:

We will keep everyone informed as we know how things are evolving and, as always, focus on what you can control. Focus on the beautiful opportunities that you have in educating your child. You can do this. It just takes a flexible mindset. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in this episode, the best way you can support the podcast is to forward an episode to a friend or leave a review. Go to pearlplancom and the podcast link to get all the resources and links mentioned.

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Melissa Joy, CFP

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