NerdWallet Smart Money Podcast is here to answer all your money-related questions. This episode explains how to protect your money by being aware of student loan frauds and how you can cover the cost of child care without getting into debt.
Sean Pyles, Liz Weston and This Week In Your Money dissect a real voicemail of a scammer who is attempting to trick you into paying for student loans. They do this line-by-line so that you can better understand the manipulation strategies and tactics. Sean Pyles and Liz Weston also give practical advice on how you can protect yourself from these scams, and how to prepare your budget when the student loan repayments resume in 2023.
Kim Palmer, a personal finance nerd, helps Sean and Liz to answer a question from an listener about how parents can afford two full-time children in daycare even if they both earn six figures. Kim Palmer shares her experiences in making trade-offs to pay for childcare. They also talk about the dangers of using your home equity to pay for daycare, lifestyle creep, and how to reduce child care expenses by becoming a stay at home parent.
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Sean Pyles : Liz – I am sorry to inform you that they have returned.
Liz Weston, They? Who’s they?
Sean Pyles, the student loan fraudsters The scammers are back and I am really tired of them. This episode we will do something.
We’re excited to welcome you to NerdWallet Smart Money Podcast, where we take your questions about money and answer them using our Nerds. Sean Pyles.
Liz Weston: And I’m Liz Weston. Listener: Quick reminder to send your money-related questions. You might need some help with paying down a credit card or be unsure of how to begin a money discussion with your partner. The Nerds can help with any money questions you may have.
Sean Pyles: If you want to leave a message or send a text, please call the Nerd Hotline 901-730 6373. This is 901-730 N-E-R – D. Email us at [emailprotected].
Liz Weston, in this episode we address a question from a listener about covering child care expenses without getting into debt. Sean, however, has a beef to settle.
Sean Pyles: You are right. Few weeks ago, I got a message from the scammer who was my old enemy. These pests, like the lantern fly that will not leave you alone or your ex, are also back and I am really tired of them. We’re going listen to that voicemail and break it down piece by piece, so you can hear how these scammers are trying to trick you.
Liz Weston: This is going to work out well. For those who are new to the show, Sean received a lot of calls last year and decided to play with them until they hang up.
Sean Pyles: That was fun. Here’s your voicemail.
The Scammer “Andrew:” Hello. Andrew from the Student Services Department. On June 30, the payment pause will be over for federal student loan payments. Call us to see if we can help you avoid an increase in your monthly payment and if there are any federal programs that will forgive up to 90 percent of your balance. These programs might not last much longer. I can be reached at (beep). Please contact us if you need assistance.
Liz Weston Do your thing, Sean.
Sean Pyles: Let’s start with the very first sentence. Andrew, if this is the real name of these people, claims they are from an alleged department for student services. My first question would be, which student services department are you calling from? This name is official but vague enough to make you think that it’s from the Department of Education or your Student Loan Servicer.
Liz Weston Okay, what else did you notice in this voicemail message?
Sean Pyles: If that’s their name again, I will say that very next sentence, Andrew. It says that the payment suspension on federal student loan payments ends on the 30th of June. This call was received within a week of the first time I got it. This is simply incorrect. The payments are scheduled to resume in the month of October. Many people may not be aware of their exact bill due date because of all the confusion over when payment will resume. Some people may have believed that the June 30th payment date was valid.
This date is also being used by Andrew, the con artist to instill a feeling of urgency. This is a way of saying, “I’d better take action now before the payments stop in just a few days.” ”
Liz Weston, yes. That’s the way it is with scammers. The scammers are trying to get you to act fast and ignore your rational thinking. Andrew then says in the following sentence that you might have to pay more for your student loans, but they may be able help you forgive up to 90 percent of your debt if you contact them.
Sean Pyles : Oh, yeah. This is classic. Andrew raises the stakes. My payments have resumed, and inexplicably they may be even higher. Andrew and other good people are around to help me get my loan forgiven. I just need to call. These programs may not last long, so I should hurry.
Liz Weston says that the Federal programs which offer forgiveness of loans, such as the Public Service Loan Forgiveness Program, aren’t going away. But, they require people to pay for years before they qualify.
Sean Pyles: Yes. In a matter a sentences, the scammer was able to instill fear in my mind about student loan repayments, and then he said that he had a solution.
This is an old scam, but it’s still used. Scammers take advantage of the fact that people are in desperate need for help with student loans and are worried about their financial situation if they resume payments.
Liz Weston : Sean, do you know what they were trying to achieve?
Sean Pyles: There are several possibilities. First, my Federal Student Aid ID or password. Scammers could use it to access your account. Scammers could take advantage of your FSA ID to act in your place and sign documents that are legally binding.
The fact that I did not know my FSA number was the main reason I chose to play with these scammers. This was an indication they were after this information.
It’s very important that people treat their FSAID as they would any other login credentials. It’s important to note that neither your servicer nor the Department of Education are going to ask for your FSAID. You should hang up if a stranger calls you and asks for your FSA ID.
Liz Weston : Okay.
Sean Pyles: Oh, yeah. It’s a classic scam that extends beyond student loans. You will be tempted to pay for services you could do for free.
In this instance, they may have been referring to a program that forgives loans. You’ll need to provide your payment details and more information about yourself to any scammer if you choose this path. This can be risky. Your email address, Social Security Number, or banking details could be on their list. As you might imagine, scammers can cause a great deal of harm with this type of personal information.
Liz Weston: Yes. OK. What advice would you give to other people receiving these calls, or worried about the resumption of student loan payments?
Sean Pyles: My advice is to arm yourself with information and take proactive steps. Know how scammers work. We just went through it. They will often create high-pressure scenarios to make you divulge personal information, or to send money immediately without giving you time to consider it. Be suspicious of all calls, especially from the Department of Education or your loan servicer.
When it comes to proactiveness, my first suggestion is that you make an action plan. Recently, I opened a high-yielding savings account to pay my student loans. Now I am putting some money in there. Once payments resume, my monthly payment will be taken from this account. This is one way to go about it.
If you need assistance, contact your loan servicer as soon as possible. These servicers will be inundated with calls as we near the time when student loans payments resume. You can use the current time to work out new arrangements with your servicers.
Liz Weston, that is a really great advice. We also encourage people to share the message.
Sean Pyles, yes. You are probably a pretty savvy financial person. But you may have friends or family who don’t know much about money. Let them know these scams to help them avoid falling victim.
One final tip is to not answer your phone when it’s not from you mom. This is some good phone advice for 2023.
Liz Weston: Excellent. Yes.
Sean Pyles (Sean Pyles): Before we continue, I have a very exciting announcement. Before our Nerdy Book Club next episode, we are holding another sweepstakes to give away books.
Liz Weston: We’ll be speaking next month with Cameron Huddleston. He is the author of Mom and Dad, we Need to Talk, which helps us navigate through difficult but necessary financial discussions with our parents.
Send an email with the subject “Book Sweepstakes” to [emailprotected] during the sweepstakes. All entries must be submitted by August 9 at 11:59 pm Pacific Time. Please include your name and surname, zip code, phone number, and email address. Please visit the official rules of our sweepstakes page for more information.
Sean Pyles (Sean Pyles): That concludes our This Week in Your Money segment. Stay with us for today’s money question.
The Money Question for this episode comes from an email sent by a listener. Kaely, our audio wizard reads it.
Kaely: “Hello, NerdWallet Smart Podcast. I am a huge fan of all your podcasts and have heard them almost all. Soon I’ll be making a decision on my finances to ensure that our kids are financially prepared for daycare. Both my 2-1/2-year-old child and 6-month-old baby are in full-time daycare. We both work two jobs and earn six figures, but we can’t afford to pay for daycare, the mortgage and credit card payments each month. Our savings are slowly disappearing and will be gone by the winter. Was wondering if I should get a HELOC or home equity loan to pay for our next three year’s of childcare. The cost of daycare outside Boston is about $2,500 for each child. The monthly mortgage payment is around $3,000 Other than small auto loans, we have no other debt. Please let me know your thoughts. I would love to have this in your podcast. Thanks. Mike. ”
Kim Palmer, host of Smart Money Book Club Series and personal finance Nerd, joins us on the podcast to help answer Mike’s questions. Kim Palmer, welcome back to Smart Money.
Kim Palmer Thanks for having me.
Sean Pyles: Kim. I’m really looking forward to talking with you because it feels like you may have had a similar situation in the past when trying to pay for child care. Mike and his spouse are struggling to find a way to pay for expensive child care, especially in an area with high costs of living. Mike’s wife and he both earn six figures, which means they bring in good money each month. As the children say, I can see this, but I don’t think that the math works. What is the purpose of all this money? Maybe they should spend time reviewing their finances. Kim, where do you suggest we start?
Kim Palmer: I think that this mystery is so intriguing for us to resolve because, at first glance, it appears as though they are earning a healthy amount of money. Yes, it is costly, but their income would seem to cover the cost. We should start with a closer look at their finances.
To get to the bottom this, I made some simple calculations. Let’s begin with their respective incomes. Both claim to have incomes in the six figures. We’ll just make a guess that it is at the lower end. Let’s say that they both earn $150,000, for a combined household income of $300,000. After taxes, this should come to about $17,000 per month. To get these figures, I did a sort of general calculation.
We have $3,000 to pay for the mortgage and $5,000 for child care. That leaves us with $9,000 left for all other costs like transportation, food, housekeeping, etc. In this case, I would suggest that they track their expenses to determine where the money goes. Personal, I like the 50/30/20 approach to budgeting. This means that 50% of take-home income is allocated towards necessities, such as housing. 30% goes towards wants, like restaurant meals. And 20% are set aside for savings and debt repayments, if any. This is a general guideline, and I believe we should start here to find some answers.
Liz Weston: Kim, as soon as we received this question, our minds immediately went to you because it’s your area of expertise. You have dealt with high child-care costs in an area of high living expenses. How did you and the other person work it out?
Kim Palmer: First of all, it’s difficult because our youngest child is still at daycare. The hardest part was probably when both of our older kids were at daycare simultaneously. So I get it. That is an enormous payment, especially when it’s doubled.
We did this by cutting back on everything else. We cut back on fancy meals, vacations and takeout. It was a very difficult time for us, so we tried to cut back on all expenses. To me, it’s important to understand that this is only temporary. It’s important to get through these years, particularly the ones where you have doubled up your daycare payments. You’ll also see that when your child starts kindergarten at age 5, 6 or 7, you can say goodbye to the daycare payments, even though there are other costs like sports or activities.
Sean Pyles: Oh, yeah. It’s good that you brought up the fact that this is a temporary circumstance. Many people are shocked at the cost of child care and think they should be staying home with their children. There are also real costs associated with this decision, correct?
Kim Palmer: Yes, there are. You don’t just want to focus on saving money on daycare because you quit your job. It has some long-term effects on your finances. You’re not only giving up your income but also raisings and retirement savings. You may find it difficult to return to work when you’re ready. It also makes you more vulnerable to things that may happen unexpectedly, such as a separation or the loss of a job by a spouse. You should consider all these factors. Liz, you’re sure to have some thoughts about this.
Liz Weston (English): I’m worried about those who make decisions without fully considering the consequences. It’s important that you redouble efforts to prepare for your retirement if you have taken time away to care for children or other reasons. Many women find that they need to continue working for a couple of years after retirement to increase their Social Security benefits. It is possible, of course, but it comes at a high price. You should weigh all your options and investigate the costs before you do.
Sean Pyles: Kim you said that you cut back on eating out and vacations when you had to pay child care costs for two children at once. You and your husband may have thought of making bigger sacrifices like contributing less money to retirement or moving into a cheaper area. What did you think?
Kim Palmer: It’s hard. We did take all these things into consideration. We did keep them going because I’m a huge proponent of saving for retirement.
College savings is one place where we have cut back. We try to save money for the college of our kids. We sometimes reduce our college saving when times are tough and we have to pay double for daycare. Retirement savings is so important that I want to prioritize it even over college savings. This is something many people argue about. To me, the retirement savings are so crucial. You can’t just forget it.
Liz Weston : You’ve probably heard it a thousand times before, that while the children can borrow money to go to college, no one will lend you any cash for retirement.
Sean Pyles Yes.
Kim Palmer: Exact.
Sean Pyles: Did you ever find it difficult to resist the temptation to “keep up with the Joneses”, or maybe lifestyle creep, when you observed parents spending money on things you didn’t? Then I wondered if this was the case with one of our listeners. They could also be spending more on lifestyle creep, such as a newer car, going out, or purchasing nice toys for their children.
Kim Palmer: Absolutely. It’s easy, in my opinion, to see what others have, and think, “Oh let’s just spend a little more money so that I can also have this.” It’s not healthy to do that, because it is impossible to have everything. It’s hard to maintain that mindset. It’s hard to keep that perspective. It’s tough for the parents, and I understand that. But I believe you have to do some sacrifices despite how difficult it may be.
Sean Pyles : Yes. It can be reassuring to know that people are not as concerned about their image as they are. Your neighbor isn’t going to care if you wear a particular shirt or drive a specific car.
Kim Palmer: It’s true! You don’t really know what other people are going through. You might envy someone for their huge home, but they may be stressed by the mortgage payment. It’s impossible to fully understand a situation until you are in it. It’s important to keep that in mind.
Liz Weston: Speaking of mortgage payments, Mike and wife may be considering a line of credit on their home to help pay for child care. Sean and I both had pauses when we heard this. We talk about debt as a strategic tool a lot on this show. What do you think about this situation?
Kim Palmer: Yes, I do agree. This is something that makes me a bit nervous. It sounds risky to me, particularly given the fact that they have room to reduce their spending before taking out a loan. I believe this should be done as a very last resort. You have to consider all the future consequences of taking out a debt, because you will have to repay it eventually. You will also have other future expenses to consider, such as college. If you take out a HELOC you are actually using the collateral of your house. You don’t want to risk losing your house because you are unable to make the payments.
Sean Pyles: Our listener said that his and wife’s savings will be depleted by the winter. This also causes me to feel really, really worried for them. Let’s talk about some ideas on how people who have a severe budgeting problem and are burning through their savings to reverse the trend.
Kim Palmer: I’d love to hear your two ideas, but first I think I should cut back my spending. The best place to start is with your food budget. This means cutting back on takeout meals. You can also look at recurring expenses like subscriptions and see if you can reduce them. You may not have considered annual expenses because they are outside of your monthly budget. These include vacations, holidays, and large insurance payments. It might be time to look around and compare prices for these large payments, instead of auto-renewing. There might be ways to save money in certain areas.
Liz Weston says that we often find people in a tight budget because they have overspent on one or more areas. Mike said that the mortgage was $3,000 which seemed reasonable for this couple’s income. However, there could be other costs associated with housing that have inflated that amount. There could be homeowners’ association fees or a high utility bill. The information we have is not very helpful. Mike mentioned small loans for the cars. This is good because many people are unable to make ends meet due to what they have in their driveway. These cars can be very expensive and payments are often high.
Sean Pyles: This might be the right time to get outside assistance for Mike and wife. This could be calling a non-profit credit counselor to evaluate their budget or hiring a financial advisor.
You’re absolutely right, Liz. Often, it is just a couple of big ticket items that have a huge impact on a person’s finances and prevent them from saving and causing them to go into debt. It can sometimes be a debt of a thousand subscribtions, where you are spending so much money on small items that you do not realize until you step back.
Do you have any last thoughts to share with Mike’s wife, or anybody else struggling financially and in child care, Kim?
Kim Palmer: My biggest thought for the end is to acknowledge that it is hard. The cost of daycare is not cheap. The cost of daycare is high, particularly in large cities. You should take an honest look at your entire budget to see where you can cut costs. Maybe you’ve overlooked something. Do a thorough review of your credit card statements and bank statements to see if you can cut back on anything else.
Sean Pyles is great. Kim, thank you for being with us.
Kim Palmer : Thank you for having me.
Sean Pyles (Sean Pyles): Let’s move on to the tips that we’ll take away. I will start off. Start by reviewing your budget. There are many budgeting options, including the 50/30/20.
Liz Weston says: Prioritise your savings. Consider your future and emergency savings, as well as any savings you have for the future.
Sean Pyles: Lastly, be careful with debt. The debt you carry can limit your options and create financial stress.
Liz Weston: That’s it for this episode. Have you got a question about money? Call or text 901-730 6373 to ask the Nerds your money questions. It’s 901-730 N-E-R D. Email us at [emailprotected]
Also visit nerdwallet.com/podcast for more information on this episode. Remember to rate, review and follow us wherever you get this podcast.
Sean Pyles, here’s a brief disclaimer. We do not provide financial advice or invest in the stock market. The information provided is for entertainment and educational purposes only and does not necessarily apply to you. Liz Weston, myself and Tess Vigeland produced this episode. Kaely monahan mixed the audio. Thank you to all the NerdWallet staff for their assistance.
Liz Weston : Turn to the geeks until next time.