Childfree Wealth®

Student Loan Update

June 07, 2023 Dr. Jay Zigmont, CFP® & Bri Conn Episode 26
Childfree Wealth®
Student Loan Update
Show Notes Transcript

The Childfree Wealth Podcast, hosted by Bri Conn and Dr. Jay Zigmont, CFP®, is a financial and lifestyle podcast that explores the unique perspectives and concerns of childfree individuals and couples. In this episode, Bri & Dr. Jay discuss the latest information regarding federal student loans as of June 7, 2023.

With federal student loan payments restarting soon, now is the time to prepare. Figure out where your loans are located, your estimated monthly minimum payments, & when you’ll need to start repaying them.

Resources:

Like the show? Leave us a rating & review. If you want to join the conversation, email us at podcast@childfreewealth.com, follow Childfree Wealth® on social media, or visit our website www.childfreewealth.com!


Stay up to date with Childfree Wealth® by signing up for our newsletter here! Schedule a meeting with a Childfree Wealth Specialist® here!


Instagram | Facebook | LinkedIn


Disclaimer: This podcast is for educational & entertainment purposes. Please consult your advisor before implementing any ideas heard on this podcast.

Bri

All right, Dr. J. This week we're going to be talking about student loans. So I hear things are changing with student loans and student loan, not only payments restarting and the forgiveness is all in limbo. Can you tell us more about it?


Dr. Jay

Okay. So just a date check for everybody. So we are recording this in June 2023. If it's like June 2024, ignore this because it's probably going to be useless. And I try not to do podcasts that are like such date oriented, but some weird things have happened and I apologize if I get political on this stuff, but it is what it is, it’s just politics in the middle of this.


So here's the thing to remember. Bottom line is if you're not going to going to listen to everything else, your student loans are going to start back somewhere around August 29th. Now, that's not a helpful date because it could be somewhere around there. Give or take a couple of days might be September 1st or August, but we don't know the new debt limit bill said that student loan repayment had to restart within 60 days of June 30th.


In theory, that's August 29th. Whether or not the Department of Education gets there, they said they would give 21 days notice before your payments start. I have no clue. It's a bit of a nightmare, but here's what it does mean. It means there's no more extensions. It is in law that it's starting again. So if you've been on the school of thought of like, hey, I want my student loans to, you know, kicked down the road.


Nope. I personally had thought they were going to kick it down the road until the next presidential election and be like, leave it to the next person. It's their problem. That's not happening. So August 29th, you're getting a bill now for many of you, that might be a rough day. You haven’t been paying a student loan for at least two, three years.


You're going to have a payment coming that you're not planning on it. Bri, have you heard of your friends yacking about this yet?


Bri

I've heard a couple, but it's mainly been me saying, hey, just pay attention to your student loans, guys, like they might be coming back here soon. So a few have said something, but for the most part, not a whole lot.


Dr. Jay

What's your plan for student loans?


Bri

My plan is, well, we're we are working to pay off all of our student loans aggressively right now so we can absorb the payment. And we're very lucky to be in that position. But we're just going to keep dumping extra money on all of them to hopefully get them gone soon.


Dr. Jay

All right. Good idea. Now, let me give you kind of some of the other questions I get. What about that $10,000 forgiveness or $20,000 if you had Pell Grants? That's completely separate. And that depends on what the Supreme Court decides and anyone who believes they know what the Supreme Court's going to decide. They're making it up. So if you have, like a student loan, that's like $8,000 and you're hoping the $10,000 pays for it.


Right now, the plan is if the $10,000 pays it, they would give you a refund. Now, that does not mean, hey, I paid off my loan in 2021 and I get… No, that's like during this period. There's actually kind of a weird thing here. So if your loan is somewhere around that ten grand and that ten grand does hit or $20,000, if you get a Pell Grant, you can actually request a refund for any payments made during the COVID forbearance.


Not before, not after. Just kind of like in that period of time. And that's only for federal loans. It's got private loans. Sucks to be you. Like, there's nothing we can do about it. So the ten or 20 grand? I don't know. If I had to make a bet. I would flip a coin and go with whatever I answer is there.


What do you figure they going to approve the $10,000 loans as a forgiveness?


Bri

I honestly have no idea. I feel like when it comes to the government, you can't really make a prediction because whatever you think they're going to do, it changes. So for us personally, we are going to just pay down until we hit the $10,000 limit and wait until a decision is made and we’re expecting to have to pay it. But if we don't have to, that would be great.


Dr. Jay

All right, Bri, let me ask you the follow up on that one. So do you think there's going to be more forgiveness in the future?


Bri

No, I don't. I'm not very hopeful with the forgiveness in general.


Dr. Jay

So I'm with Bri. And this is where I said I'm not trying to get political. I just they've been talking about some forgiveness for decades. If you really want to get into it, you know, Bernie Sanders has been talking about this is the seventies and it hasn't really happened. So I'm waiting to hope it gets paid off. Yeah, right.


You might be waiting forever. We have we have some problems. You know, some loan issues are giant problems for our country. Giant problem for people. I saw a stat and I don't know where it came from, but they were you know, the Republican Party was very happy cause $5 million a month is going to come back to being paid off and student loans.


And I go, Yup, that's $5 million from people who can’t afford it. But I don't know. It's a nightmare. I mean, you did sign up for the new loan, so you do owe them. That’s the bottom line. I would argue right now tuition is out of control. And I don't know that I can justify anyone going back to school and taking out student loans.


But you have you got to deal with them. Is that fair?


Bri

Yeah, I'd say that's definitely fair. And I think as now, if somebody is looking going back to school, you know, there are a lot of scholarships available. It just takes time to look for them. And if you can get them, great, because that will really help you out. But yeah, I'm not hopeful with the student loan forgiveness. However, you know, ours is a mix of federal and private, so we're going to just put the federal one as like the last thing to worry about.


Dr. Jay

Okay, so let's talk about how do we actually pay off student loans because we got like with we can't forget it now. Like literally by the time you read that, you know, watch this or read this or whatever it's going to be like tomorrow. It's going to feel like you're going to start getting a payment. And I did somebody’s they had a six-figure student loan and their payment was going be like $1,000 a month.


I mean, crazy. So keep in mind that student loans, the standard repayment, wants you to pay it off over ten years, 120 payments plus the interest. Refinancing student loans right now, I don't really think that's much of an option. Interest rates are up. You might save 1%, you might be able to combine. But chances are you guys have some loans that are lower percentage than what the refi rates are right now.


That might be and it might be change in a couple of years or year, I don't know. But refinance really ain’t going to help you much. So now we start looking at some other weird options if you are in a public service job. So we're talking, you know, nurse or you work for nonprofit government health care. Some of those fund things is public service, loan forgiveness.


Now, the way that program works, you have to make 120 payments on time for it to be forgiven. But they're in that they've extended a public service loan forgiveness a little bit to say we're going to give you credit for COVID, we're going to give you credit for forbearance. They're being very lenient on it. So essentially ten years, your loans disappear.


If you're in a nonprofit job for ten years, cool. The downside of this is you have to take a nonprofit pay for ten years, which tends not to be the best. The other part of the public service loan forgiveness is it's all political. So the previous administration approved like nobody. I mean, it's less than 1% of applications. This administration is approving everybody.


And where the next administration is or the administration after that, if you got to go out ten years, is I have no clue. And I can't even guess how that program's going to to work out in the future. I mean, Bri, can you tell me what the political world is going to look like ten years from now?


Bri

Oh, God, no. I can hardly tell you tomorrow. I can't.


Dr. Jay

That's the problem with relying on the public service loan forgiveness. You could start it today and ten years from now we end up in they issue. The good thing about public service loan forgiveness is at ten years, it's all forgiven or 120 payments technically. And that is a tax free forgiveness. Awesome. If you qualify, great. Do it. Now for everybody else, which is like most everybody.


One other group I will call. If you're a military VA, you may have some benefits there that can help you with loans. Beyond that, everybody else, your chances are you're going to end up working with one of the new income driven repayment programs. So the new program will include a link in the show notes. The details are supposed to be out in August.


So like talk about cutting it close. They thought they were going to have more time, but things have changed. Here's what we have for details now. And by the way, they may have changed like the day after I said these. So please look them up. The general rule is if it's an undergraduate loan, they're going to cap your payment at 5% of your discretionary income.


If it's all graduate, it's 10%. If it's a mix, they're going to do some type of mix of rate. By the way, I have nomclue how they're going to do that. A lot of loans just got smushed together. And which ones qualify under where? Who knows? Like I. That's one of those. I'm like, sure makes good sense. The other one that's happening is it's 225% of your discretion, ordinary income.


Now, what they do is the federal poverty line is a math, blah, blah, blah. This is one of those areas where being childfree hurts you because of your family of one or two no dependents, your poverty line is lower. Just is what it is. So it caps it at five or 10%. But here's what's more important about the new IDR.


The new income driven repayment program says no more interest will accrue than your payment. So let's say your new payment is 4 million a month, but your interest on your loans is 500. Your loan will not grow. They'll apply the 400 to the to interest first, everything else they'll cover. So this is really important because I've had people that have been paying on loans for a decade and have made no progress. Well if you’re repaying less than the interest you'll make no progress. So being the IDR program should in theory stop that interest from accumulating.


There's also some weird things in here. So if you just did community college and are in the lower end of the income scale, you actually can get it forgiven in something like ten years. Everything else going to be like 20ish years. And I say ish because who knows?


But this program currently, as it states when that's forgiven that debt, you get a form saying, Hey, we forgave $50,000 of your loan. You have to pay taxes on that. Now, there's been some…


Bri

That’s gonna hurt!


Dr. Jay

Oh yeah, but it's better than owing $50,000.


Bri

It is. But that's still going to… If people aren't expecting that and don't think about that, that's going to hurt them.


Dr. Jay

Well, here's what happens. So if you get a credit card and you negotiate and pay for less, the amount they forgave is a taxable benefit to you. So that's kind of where the student loan thing goes. Now, there's been some weird things during the COVID period, and some states have made their rules to get around it. But right now, I don't know if you're getting a giant tax bill at the end or not because PSLF specifically says you're not getting a tax bill.


This one, I didn't see that. So, yeah, let's let's say I have $100,000 a loan forgiven. You know, it might be 20 years, but 20 years from now, you get $100,000 a loan forgiven. That's a big old IRS chunk.


Bri

Big, big chunk there.


Dr. Jay

Yeah. Yeah. Another kind of weirdo stuff under this new IDR, it specifically does not include parent plus loans. Now we don't have kids, so that's easy. But if your parents took out a loan for you, they’re out of luck. Kind of weird how that works. The other thing I haven't seen the full details on in this plan, most of the plans have some type of weirdo math where like if you're married, you can file married filing separate and just go off of your income.


I haven't seen the full details on this, but that would only be if you had filed in 2023 that way. So you may be able to change it for 2024 if you are on a current income driven repayment program, a current income based repayment promise, slight differences, but just go with the general. Right now, they're still going off your income pre-COVID.


That could be good for some people. Other people, not so much depends on what your income was. So you may not want to upset that applecart until you know you see which income they're counting and where you fit. Now, Bri, I just threw a lot at you. That's got to be clear as mud. But what are your questions?


Bri

Oh, it's absolutely clear as mud. So I've been open about this before I I did not have student loans. My parents paid for my college. My wife does. And those are the ones we were working on. So I'm just learning student loans and I don't really understand them. But this is helping. When you said earlier the 21 day notice, when or how is that going to be given so people know when to start paying their loans again? And like when… when we log in right now to the platform, it says everything is at 0%, 000. So thankfully, we have the numbers written down before. So we know what's there, but how would people know otherwise?


Dr. Jay

Hey. Yeah. And by the way, if I don't give you a real answer, it's because I don't really have a great answer. A couple of things like in the StudentAid.Gov that you can see what your loans are and who they're with. Because one of the other things happened during COVID is a whole bunch of like Sallie Mae gave up a whole bunch.


So if you like, hated Sallie Mae, now you hate like Nelnet or somewhere else. And it's not that there's anything wrong with any of them. It's just we all hate who we owe money to. So you got to figure out where your loans are the first step. second step. How much is my payment going to be? I want that. We’ll include a link to a calculator that I like from StudentLoanPlanner.com that does this. The other thing is you can go into student income and it says which programs are best for me. An IDR or other things or IDR that that in theory works. But I've done it with some clients and I'm like, it's missing this loan or it doesn't have this information like there’s weird stuff missing.


Now, the, the messed up part of this is you are responsible for all this. When are they going to send notices? Yep. Supposedly 21 days. Are they going to send an email or mail? I have no clue. They haven't said it publicly. So look everywhere. The other thing I've had people do is pull your credit report. You can get a free credit report will include the link in here.


Also, don't pay free credit report and you can see where your loans are. That might help. It's kind of a fishing expedition to figure out what it is. Also, while the program is supposed to like point you in the right direction, there are so many people out, there are so many different types of loans. You have to do this yourself, so you're going to have to dove into it.


And let me talk about kind of some weird stuff about like we have we're going to be holding a group Q&A on June 20th, if it's past that, sorry, but June 20th, I'm going to do a group Q&A. The link is going to be in the notes we'll try to dive in where we can. And if that gets filled, we'll add another one or we're going to try to help you however it is. You can email us at podcast@childfreewealth.com. We'll try to see what we can help. Like, I'm really worried about people trying to figure this out. So some of the other weird stuff that's happened, if you went to a for-profit school, you may have already been able to get your loan forgiven. So there's a lawsuit that looked at a whole bunch of the schools.


And I'm just going to pick on one because I can think of time ahead. So when I was growing up, that used to always be these commercials for ITT tech. This is, you know, get your HVAC and other you know yup that program got shut down and those people that borrowed through there, the loans got forgiven because the school was kind of not doing the right thing.


Let's put it that way. I want to say what I really think of the school, but I really shouldn't do that publicly. There's a whole bunch of I don't think anyone should go to a for profit school. Let's just let's leave it at that. But there's a whole bunch of schools like that that you might get your student loan just wiped out another way.


Another way you can get your student loan wiped out is if you're disabled now, if you go on to social care, disability, in theory, it's supposed to just magically disappear. I've been working with somebody for over a year to get all the paperwork done, to get theirs to disappear. So if you are disabled, you're receiving disability income. That's an option. The other option is to die, which I don't recommend anyone but like.


Bri

Okay well…


Dr. Jay

I bring it up because here's the thing. If I have a student loan and I die, my student loans go with me. If I refinance and my wife's name's on it, I don't know that it's going away. Depends on if it's federal private, what the rules are. Like it’s weird. Also, you cannot go bankrupt and get rid of student loans. Doesn't work.


There's actually somebody that did succeed in this and he and his argument was that he used his student loan for like other fun stuff like, you know, around his house and his computer and rent and stuff. So therefore it should be forgivable. He actually got this the bankruptcy. But then the Department of Education is appealing that because they don't want people to be able to do that.


I don't know where that's going, but just kind of not really an option for for everybody. So your only option, how do you want to pay it? The disability thing officially announced. A lot of folks will end up just disabled in their life and once they and that's one that's not that there's no tax on. Also when it gets forgiven. It's kind of funky the other one to think about is if your parents took out loans for you, you got to watch out for them because they may not be able to qualify for any of these programs and they may be maybe getting bigger bills.


You know, that's a personal choice, how you handle that. But it's weird in your in your example, Bri though the hard part is first you got to figure out what your loans are, what your payments are. That’s where we’re going. The student loan planner will actually tell you what your current payment should be, what it would be under the income based repayment. Remember, it's only as good as the information you put in. So, if you got crap information is not going to work but the least information. So that's good. Yeah, you do. But not everybody else does.


Bri

I know.


Dr. Jay

But you'll see, like the new, the standard, the refinance, all that. The other thing is, I'd be very careful. There's a whole bunch of lenders out there and I'm not going to name names out kind of doing predatory things to get people to refi. Some of those people, some of those banks actually, like started suing and going after the government for having the repayments start earlier.


So I'm not loving them right now, but refinance is very rarely going to be the chance in the current interest rates.


Now if you just got used in a loan like last year maybe, but yeah. Yeah, you know, five years ago, I don't know, it's, it's one of those weird things and the other option people go is I'm just going ignore it. Well, the hard part of that is the government can kind of start taking your paycheck, taking, you know, you know, they can actually seize your funds and you owe money to the government and they have a lot of power.


They can make your life hell. I've seen some more fun ones. I've seen some people. So they want to go international. So now here’s a trick. You go international, you get enough income to make it through there, but not enough to be over the minimums for the U.S. so you report essentially zero income to the U.S. then you don't owe anything on the income based repayment.


Then after 25 years like I had, somebody explains to me because I'm like, I lost you somewhere in there, but I got where they're going, like in you. You can, in theory, leave the country and work. And I'm like, wow, we get in that part where you have to be out of the country for 25 years before you start loans disappear in a grown at that point, because of the interest and…


Bri

That seems like a lot of effort.


Dr. Jay

Well, the hard part is the people that have, you know, you know, are $50,000 in loans that's now weighing down your whole life. And for some $10,000 does but just let's let's go $50,000. Then I get people that are have six figure loans that's a mortgage.


Bri

You know.


00:22:18:20 - 00:22:40:15

Dr. Jay

I don't know how you swing that the new idea is the only way to get there because you're going to end up with somewhere between five and 10% of your income going to it. It works, but it's going to be rough. The other one and shameless plug. So we have a course on Financial Foundations. You get a seven day free trial, will include a link to that on the website too.


You're going to have to get on a budget. You're going to have to start making more money to pay off these loans. And there's nothing I can do about it. Like, I feel bad, but you're going to have to make sure your financial house is in order. Yeah, I'm not saying the avocado toast is the problem. I'm saying your overall spending and your budget, all that needs to change.


And something like, you know, a half to two thirds of U.S. is paycheck to paycheck already. Now, you had a student loan payment. I'm worried. I really am. That's why I'm offering the group session. I'm trying to help people like I don't know. But you cannot you cannot cannot just put your head in the sand, say, well, I'm not going to do anything with this.


Bri

Yeah, ignorance is not bliss when it comes to finances now.


Dr. Jay

And the student loan thing, we sort of behind the scenes got a little fun. We have a schedule, we record podcasts in advance and all that. And I said to Bri, I said, we need to like completely screw up our schedule, which then she yelled at me, But that's okay and say we have to, because.


00:23:39:17 - 00:23:41:15

Bri

Oh, it was a slap on the hand.


00:23:42:10 - 00:24:01:06

Dr. Jay

I said, You know, she's got a whole social media plan. I'm like, we need to mess that up to talk about loans because you got less than 60 days now, you know, actually. Sorry, you'll have a little more in 60 days after this comes out, but you may have less by the time you listen to this to work on your student loans and something needs to change.


My advice is figure out what your IDR plan would be. Get the paperwork, moving on that once it's up and then you need to start living today like you have to make that payment. So if it's a $400 payment or a $300 payment, you just put it in a bank right now and use it for the student loans going forward.


But you're going to have to learn that before the payments are due because otherwise, you're going to start bouncing checks. And I just had a reporter say, well, what do you do if, like, you're getting behind on your bills? Well, the first month you're behind, that's a bright red light flashing saying something's gone wrong. Well, I'm kind of trying to get like two of my a couple months ahead of you and say something is going to go wrong unless you happen to have a couple extra hundred bucks in your budget, which most people don't.


Bri

Very true. With the income driven repayment plan, one thing that I think of is are there income limits to that?


Dr. Jay

They're not. But at some point it's useless. So what happens is 10% of your take home, which is the max and the IDR, might be more than the standard payment. So then you would do the standard payments. So there's not an income limit in the numbers, but in reality.


Bri

Yeah, it’s not the way to go for everybody.


Dr. Jay

Then the other thing is the data says earning more money does not mean you have more money left around. There are people making six figures and still paycheck to paycheck. Depending on where you live, it's very easy to do. You know, this is one of those like I think the idea of the forbearance was a good one.


It's been too long. People forgot about what student loan payments feel like and the inflation filled up that area of their budget that otherwise would have been student loans.


Bri

Absolutely.


Dr. Jay

So, the bottom line, we have a Q&A. We have resources for you. Please reach out. If you have questions, you can post them. We'll see what we can do to help. We're going to we're going to try to put you in the right direction for resources. I will say I may not know the answer and I may not have one and there may not be a good one.


And I feel bad admitting that. But I've looked at some people, see the loans and I'm like, yeah, the bottom line is you’re screwed. They’re like, wait a minute, I didn't want to have that answer. I'm like, I don't know what to do. Like, I've done your math, I've done that. We've done every program. You need to like pick up a second job to pay your student loans.


They're like, Is there anything else you can do? I'm like, I got no more tools and I feel bad, but there's just not a great answer. It's something that needs to change. You know, I'm I am going to get a little political for a second. This is why you vote. I'm not saying who you vote for. You can vote for whoever you want, but this is why you vote for what's important and this is going to be an interesting one.


I think some people are going to have a rough fall. So we're here to help you wherever we can. You know, in particular, the childfree folks are getting smacked with this because of the whole you know, you don't have dependents in this. So we've got to watch out for our own community. Please reach out and I'll try to help you where I can.