Working the System for a Scholarship Essay

My last entry was about working with my daughter on college. This one is about working with my son last year. He didn't want help on any class but Calculus for his associate's/PSEO, but he did need help applying for a ton of scholarships. This one was my favorite because it was for a structured payment purchasing company. We worked it over together like a game. The company provided the topic, and they were hoping for reasons for people to use their service. They weren't expecting a scientist to ask them how many cents they pay on the dollar. We didn't give them what they wanted, but I sure got a laugh from the movie references. Did I mention that Pierce is a John Oliver fan?

STRUCTURED PAYMENTS ESSAY

If I had both a $2.5K monthly payment and $50K in debt, the first thing I would do is declare Chapter 13 bankruptcy immediately. The payments are protected under this mechanism. Why? Even someone with an average credit rating would pay 11 percent interest for a $10K consolidation loan, but I doubt someone with that much debt could swing a bigger loan on favorable terms. I would pay $3000 for a good lawyer with a high success rate and promise to pay back the principal amount in four years, costing me only $1104.17 out of my $2500 a month. As long as I had the lawyer, I’d have him draw up a will to make sure my sister got the money if something happened to me. People my age don’t normally think of that sort of thing, but one of my cousins lost everything when her fiancé died in a motorcycle accident because he didn’t plan ahead. With the proper strategy, even if you lose, you win something.

Why wouldn’t I cash in and get a pile of money upfront? RSL has offered me $373K today. My grandfather is fond of saying that the only real way to make money is to start with other people’s money. I also learned from “The Producers” that properly managed, a Broadway flop can turn more profit than a hit. Instead of paying thousands a year plus for medical insurance and another $6K in deductibles, I could get it for free if I’m broke. Unlike my hard-earned savings, which FAFSA will penalize me for, as a student in the US, any debt is now an asset. If I applied to the University of Minnesota, I could get an average total gift of $10,444. Since my plight probably came with a really good hard-luck story, I could leverage that into another $2K a year in outside scholarships and guaranteed loans for 19K over four years. Why more debt? Because Uncle Sam pays the interest for me until six months after grad school. If I die, the government pays it all!

If it costs me $109,876 total for my STEM degree at U of M, including room and board, that means $539.58 a month left over. If I invest that in SMTFX the Minnesota Tax-Free Bond Fund, I am historically guaranteed 4.62 percent totally tax-free, which will not affect my broke status on FAFSA. I will, however, spring for one share of Proctor and Gamble stock because they send out great coupons with the quarterly report, and I’ll need them. And if I couldn’t get that much aid, I could start at Brigham Young’s Hawaii campus until I proved myself. With annual tuition and fees of $5400, one Pell Grant would cover that. Hawaii would be a hardship, but they have great telescopes!

At the end of four years, I would have none of my original debt, $28,584.57 in the bank, and only $19K in loans. Note that I didn’t have to work a day so far. With this degree, I could get a job making $114K easy. However, I won’t pay my loans off yet. I will attend a world-class grad school in Astrophysics at Ludwig Maximilian University—for free. Tuition doesn’t cost a dime, but living expenses are about 800 Euros, or $912 a month, including medical coverage. Now my profit has increased to $1558 a month. By the time I graduate, I can work as a physicist wherever I want in the $130K salary range. I will also have $70,704.66 in bonds. I now elect to pay off my loans and improve my credit score. Instead of taking a 20 percent discount on those 6 years of payments and sacrificing $36K, I turned the debt into over $50K of free money and medical benefits—a net gain of $170K.

Once I find my dream job (with medical insurance), I would be ready to cash in at RSL. Why? Because my settlement isn’t really $720K in a bank. It’s probably more like $350K in a stable 7-percent annuity. I can manage a better return on my investments than that. With the same discount rate RSL offered before, I could realize $298,400. After buying a plane ticket home and a year-old hybrid for $14K (so someone else takes the first-year drop in value), I would still have $37,704. I would set aside six month’s salary in bonds as an emergency fund. I plan to take a vacation each year with the interest. A guy has to have some reward for all this hard work!

What should I do with the remaining $271,104? I could invest all of it in growth stocks because, without dividends, they wouldn’t show up as income until I cashed them out. If I give them as a gift (say to a spouse or children), I pay nothing. My Dad says to keep wealth like an iceberg, mostly hidden under the surface. I would start with funds like AMAGX, which performs well even in down times, and something trendy like Netflix. I would also invest in unglamorous things people must have, like Waste Management. After the 24 years left in the settlement, at a modest 11 percent, I would have about 3.5 million in investments. But that’s a long time to wait for my big payoff.

What if I wanted to live better sooner? Since I’m single, I could buy a duplex house and rent out the other half. I won’t get stuck with a thirty-year mortgage where you pay three times the price of the property. Instead, I’d form an LLC and pay cash through a lawyer for a flat fee, which saves a bundle on closing costs. I’d use that savings to reduce the purchase price and lower my tax assessment. From my recent experience, people also take less when offered guaranteed cash now. That means I could buy a house worth $300K. Rent would bring in an estimated $1250 to $1500 a month. It should pay my property taxes, house insurance, repair bills, lawn care, snow removal, Internet, and utilities while being a tax write-off. Extra rent would pass through as a capital gain at a lower taxation rate, but depreciation over 27.5 years will bury $11,000 a year. The profits should net me more than enough to pay for my gas and groceries. Even if I lost my job or the stock market crashed, I would be covered. With all my recurring expenses taken care of, almost everything I earn at my physics job, minus taxes and my share of the healthcare, can all go toward investments. That’s $77,750 a year of disposable income. With the same 11 percent assumption, this method outperforms the “invest everything” model after only five years. After 16 years, I’d have the same 3.3 million plus a house. I could improve the performance by maxing out my 401k at 6 percent salary pretax for the first few years and getting any company match.

But I would definitely want to retire before my oldest child reaches 17. I’ll sell the child the family duplex for a dollar and claim the loss on my taxes. Then I could rent it back from him so he shows a paper loss as well. That way, we wouldn’t have the income to report on the FAFSA. College will probably cost a fortune by then, so every cent will count. I should be able to spend the rest of my days in comfort, relaxing while my financial decisions pay off. I’ll get a library card and crack open a good book. If my children ever need sound financial advice, I’ll be right there for them to ask me.