Everything you Need to Know About Your Student Loans (and How to Prepare to Start Paying Them Off!)

Transcript:

On this episode of the Personal Finance Podcast, everything you need to know about your student loans and how to prepare for starting to pay back your student loans.

What's up everybody and welcome to the personal finance. Podcast, I'm your host Andrew, founder of Master money.co. And today on the Personal Finance Podcast, we are gonna be diving into everything you need to know about your student loans and the repayment plan. If you guys have any questions, make sure to hit us up on Instagram.

Tick. Talk Twitter at Master Money Co. And follow us on Spotify, apple Podcast or whatever podcast player you love to listen to this podcast on right now. And if you want to, how about the show? Leave a five star rating and review on Apple Podcast, Spotify, or your favorite podcast player. And if you wanna watch this, make sure you check us out on YouTube.

On the Androgen Cola YouTube channel, which is all of our YouTube videos, and you can watch the podcast as well. Now, today, we are gonna be diving into the student loan dilemma that a lot of people have now found themselves in, and this is something where we typically don't do episodes. On current events, but this is one we're getting so many different questions that I am going to go through exactly what I would do in your situation if you have to start repaying your student loans again.

Now, before we dive in, one thing I want to note for a lot of people is, If you were one of those folks who was hoping that this would not happen, you were hoping that you were gonna get some sort of leeway or student loan forgiveness. I am sorry that you have to go through this because for us, the number one thing we want you to do is we want you to be debt free.

I. That is the most important thing for me. Why? Because we want you to be able to build generational wealth for you, for your family, or pursue the things that you absolutely love, and that's what our entire goal at this podcast is. So, if this did not happen for you, I'm sorry that this did not happen for you, but now what we have to do is we have to focus on the things that we can control.

What we can control right now is figuring out how we can actually handle these student loans, and this is gonna be a really, really important thing that we all need to be looking forward and doing so that we can take the right measures, making sure we fit it into our budget, making sure we do the right things and have the right.

Savings in place so that we can get rid of these student loans. Imagine just being free of these loans once and for all. You could take those extra dollars and you can put those extra dollars towards your investments. That is so incredibly powerful once you can do that, and you can get completely debt free.

Now, for folks who are looking to get out of debt and maybe you have a bunch of different types of debt, you have no idea where to start. We have a free debt course. If you go to master money.co/debt course, you will be able to see it there. And what I do is I try to do it in under an hour, is I walk you through how you can get out of debt, how you can put together your debt repayment plan so that you can order your debts in a specific order so that you can get paid on your debts as fast as you possibly can.

The purpose of that being free is that I'm not gonna charge people who are in debt. I don't want you paying for anything. If you are in debt, I want you to get outta debt first so that you can continue to build wealth and learn how to build wealth. That's part of the goal of what we do here. Now, if you are someone who has a student loan and did not know what happened, the Supreme Court.

Blocked the current administration's plan to ease up on federal student loans where each person was potentially going to get up to $20,000 relief on their student loans. This has now been something that the Supreme Court ruled unconstitutional. We're not gonna get political on this podcast. We do not get political on this podcast.

I never will. In fact, there's a lot of reasons why. But for this specific thing, I am not gonna go into that. What I am gonna go into is what you can control, focusing on what you can control. So this happened in late June, so now it's time to figure out what we can do. Now let's look at the numbers first.

This is actually pretty crazy. If you look at the numbers, guess what age group actually has the largest amount of student loans? Well, you'd probably say, if you're thinking about it. Well, the most recent graduates, because they haven't paid down any part of their student loans. That is not actually true.

People who are aged 35 to 49 actually have the most student loans in this country at $634.2 billion in student loans. Why is that the case? Why do they have higher student loans than everybody else? This is the negative power of having debt. They have more student loans than everybody else because, The interest rate has caused those loans to grow because they have not been paying them down.

This is the sad, sad reality of debt and something I want every person listening to this podcast to keep in mind when you take on debt is that debt can grow over time, and if it grows over time, it is absolutely an emergency that can kill your wealth building ability. So we want you to get rid of debt as fast as you possibly can.

There's actually $1.75 trillion in total student loan debt, federal and private loans, almost $28,950 per borrower. Obviously, this is a huge issue, about 92% of all student debt and federal loans. Remaining are private student loans, and about 55% of students from public four year institutions actually have student loans.

55%. 57% of people from private nonprofit, four year institutions took on education debt. This is the wild part. 24 and younger have $13,722 in student loans. On average, 25 to 34 is $32,707. 35 to 49 is $44,441. 50 to 61 is $47,660. Imagine having $47,000 of student loans between 50 and 61. Some of you listening probably do.

And guess what? It is growing over time because people are just making the minimum payments. The interest is growing too large, or they refinance these student loans and they had a larger interest rate. There are so many different reasons why this is a major problem, but this actually is something that bothers me.

It bothers me that people are approaching retirement age and they have this large of student loan debt. And to me, this is a problem that we're gonna be battling for a very, very long time. I think the entire system is broken, obviously. And so what I wanna do is be the beacon of light for you. I want you to learn how to pay down these student loans so that we can get rid of them.

Because at this point in time, there's nothing else you can do, but pay down these student loans now. We have an episode called Severant. Different Ways to Pay Down Your Student Loans Fast. That episode we will link up down below in the show notes. It's from very early on in this podcast so that you can see some of the faster ways that you can pay down your student loan debt and make sure that it is something where you can go after that and get after it.

But I'm gonna show you first what you need to do step by step now that you're going to have to start paying back your student loans now that the Supreme Court is not allowing. The current administration's plan to go through. So we're gonna go through that first step by step on what you need to do.

Alright? So the first thing you need to do is make sure your student loan servicer can actually find you that your address is current. If you've moved within the last couple of years, make sure you contact them and make sure your email address. Your mailing address and your phone number are all current.

You have to have all of three of those current so that they have ways to contact you. Now if you don't know who your student loan servicer is, you can go to student aid.gov and we will link these up in the show notes, student aid.gov to find your account dashboard. And if you scroll down to my loan servicer section, you can also call a Federal aid information.

Phone number now, if you need that phone number, it's +1 800-433-3243. We'll link that up down below in the show notes as well. So that is the first thing you need to do, make sure that they can actually contact you. Then what I want you to do is go through a number of steps here that's going to allow you to make sure that you have a plan in place.

So number one is to review your student loan details. So you need to gather the necessary information so that you can figure out what the actual details are with your student loan. If you haven't looked at this in a while, what company actually holds your student loan or what entity holds your student loan?

Go get that paperwork. Then you need to understand your repayment. Options. We're gonna talk about a bunch of different repayment options here. There's a bunch of them out there, though. There's a ton of different repayment options. Some people are gonna have access to different repayment options than other people will.

So you need to figure out which ones are available to you when you call in. That's a great option because there are federal student loan offers. Like the standard repayment plan. There's the graduated repayment plan, there's the income driven repayment plan. There's so many different things and factors that come into play.

These get actually complicated, so you want to talk to your student loan servicer when you go through this process. Now, one big thing I want you to do, this is the biggest part of this whole thing, is you need to assess your current financial situation because you need to see how much of my extra income do I have available to make sure that I can make my new student loan payments.

If your lifestyle has crept up because you didn't have these student loan payments and you are using this money to go towards other things, maybe you bought a new car, for example. Well, this is something where you're gonna have to figure out a solution so that you can take those extra dollars and start focusing.

On paying down those student loans so that you don't end up like the folks who are between age 50 and 61 who have $47,000 of student loans. We gotta get these paid down so they don't creep up an increase. Ensure averages are skewed by folks who are lawyers and doctors who have these massive student loans.

But at the same time, this is a major problem for a lot of people, and that's why it's so important to weigh out these repayment options because you can consider switching your repayment option as you go through this process. Then setting up automatic payments is the way to go. Don't try to rely on yourself to remember to pay your bills on time.

You need to automate this process and set up those automatic payments. So the big question, when will payments actually restart? When is this entire process gonna restart, and how is it going to restart? So, payments are gonna resume in October, and interest will start accruing in September. So if you can, I mean, you're gonna have to start paying this down anyway in October.

I would just start paying it down if it was me personally, whenever they start to open up the floodgates and allowing you to do so. So if you're allowed to do this, if you call your servicer, they send you a bill, you're allowed to start paying it back August, September, I would just start making those payments so that you can get ahead on this, because if you can still make a couple interest free payments, which you would've been able to do for this entire time, which is why originally on the podcast we talked about this, making those interest free payments during this timeframe so that you can get this loan paid down even faster.

But these payments will resume in October. I would take advantage of this and go after that. Now, what if you miss your first payment? If you miss your first payment, do not panic. So if you miss your first payment, do not panic. In fact, they do have some things that are going to be in place that for the next year or so, all the way up to September 30th, 2024.

If you miss a payment, they will not report it to the credit bureau. Now do not abuse this process. This is so people can actually ease back into the process and get used to making these student loan payments. So it's great that they're giving you this one year runway. This is actually a very important thing that they're doing so that people's credit scores aren't taking major hits.

When they try to readjust back to making these payments. But at the same time, you wanna make sure that you have your budget in place and you are factoring these numbers in so that you can just take care of this, take care of business, focus on those things that you can control and get these paid down now.

So here's a big question that we've been getting. If I cannot afford my loan payment, what are my options? Now, this is a big question a lot of people have. I'm gonna talk about a few different things that you have here, because thankfully, Federal borrowers have a bunch of different options, and the calculation is gonna depend on a number of different things.

And this calculation's also gonna become much more simple in the future. But right now it's actually somewhat a little bit complicated. So the first one you have is you have fixed payment plans. So these include your standard fixed payment plans. They also include the graduated payment plans, which once you graduate, then your payments start to rise.

If you remember that when you graduated. And the extended payment plans, which means that you pay over a long period of time. So sometimes people can draw these out. I do not recommend doing that because that's how you end up with a large sum in your forties, fifties, and sixties of student loan payments.

But that is one option. So fixed payment plans are number one, a lot of people do fixed payment plans. Number two are income driven repayment plans. So with income driven repayment plans, these plans are based on your income and family size, and they may yield payments as low as $0. And then after a couple decades of payments, the government forgives whatever balance you are still carrying.

So these types of plans are probably gonna be the preferred plans for people who are struggling with making their payments. And this is one thing that if you really are struggling making these payments, you do not make enough money to even get to this point in time. You can. Visit this option and you can see if this option fits for you.

If you are at a poverty level, for example, you just have no more disposable income, you're doing everything in your power to do that, then you can visit some of these options and see what you can do. And with these income driven plans, the rules are actually pretty complicated. I. The gist of this entire thing is actually fairly simple, so I'm gonna try to explain it as easily as possible.

So, payments are based on your earnings and your family size, and they are readjusted every single year. So every single year, if your earnings go up, they're gonna readjust these payment plans based on your income level. And after you make monthly payments for a set number of years, usually 20, sometimes it's 25.

Any remaining balance that is left is forgiven. So that's how these income driven payment plans work is that they are forgiven over the course of a long period of time, but the balance is taxable as income. So you're still gonna have to pay taxes on that balance, actually gonna be seen by the I R S as taxable.

So you have to remember that if you get this money forgiven, if. So for existing plans right now, the monthly payments are often calculated at 10 to 15% of your actual discretionary income. And if you don't know what a discretionary income is, this is usually how they define it. It's the amount earned above 150% of the poverty level, which is adjusted for household size.

So there's all these calculations that come into play. If you wanna look at this, some of this stuff, there's charts out there that you can look at it and see if it works for you. That's how those income driven level plans work. Now, another big question we get is if your loans were in default before March of 2020, what is the status now?

So many borrowers who fell in default because of Covid in 2020, maybe your income was taken away, or you were not able to make the payments for a bunch of different reasons. Then if you were in default at that point in time, you're actually going to be forgiven and the slate is gonna be wiped clean and you're gonna start all over.

So whatever your balance is, you're still gonna have to pay down that balance. But your slate is going to be wiped clean. They're gonna call this the Fresh Start program, I think, and so a lot of these benefits are gonna come up where you can still take action and get a fresh start. You will not be subject to collections.

There will not be any of those pieces involved. Instead, what will happen is you'll have that fresh start and you'll have the ability to go out and take advantage and not take as much of a financial hit if you have to do so. If you were behind on your payments, maybe you're still making your payments, but you were behind on them, you maybe were delinquent on those payments.

You will also get that fresh start as well, so you will not have to worry about all the consequences that can come up if you're way behind on your payments. Instead, you're gonna be involved in that fresh start. Your accounts will be considered current, so that's another great thing for a lot of people who were behind.

This is still good news for people who are having that issue. So that is something where this fresh start program. It's gonna be something that's gonna help a lot of people out who were delinquent or were not making their payments whatsoever. So your loan servicer is, if you need to get more help, is the best option for you to talk about your specific situation.

You can go to them and start the conversation so you can figure out what the best options are for you, and they can explain to you some of these additional income driven plans. To see if that fits your criteria. If it doesn't fit your criteria, then we need to put together that plan, your student loan plan for you specifically so you can get this paid down.

A lot of people who focus on paying down their student loans, it's very, very important for them to get these paid down as fast as possible so they can have freedom from these student loans. Now, when do you actually need to be paying down these student loans as fast as you possibly can? If you have low interests on your student loans, we consider that low interest debt here.

I'd still rather you pay that off faster than something like your mortgage because there is no asset associated with that low interest debt. But if you have low interest debt where it's anything below 5% to 6% interest rate, That's something where you can pay them down maybe a little slower, but I would still put my foot on the gas and try to make some additional payments on that to get that paid down faster.

If you are someone who has above a five to 6% interest rate, anything above 6% interest rate is considered high interest debt, then it's time to buckle down. And pay that off as fast as you possibly can. 'cause high interest debt is an absolute wealth killer, so you wanna make sure that you can get rid of that high interest debt as fast as you possibly can.

So that is something where no questions asked. You wanna get rid of that high interest debt as fast as you can. In fact, we had somebody ask us the question, Hey, I have a huge, large amount of savings in a savings account, and I have. A 7% interest rate on my student loans. If I paid off my student loans with my big, large lump sum of cash, I will still have enough in my emergency fund for my emergency fund to be fully funded.

That's a great example of someone who has the cash available. Just get rid of those student loans. You do not need to carry that student loan balance because you're still gonna have an emergency fund in place, so get rid of that high interest debt. 7% is too high in my opinion. And then pay off that student loan debt so that you can start taking those extra dollars and putting them towards your wealth building ability.

Because once you get to the end of this road, you will be so much happier that you paid off these student loans. You're gonna be feel so much more relief that you got rid of these instead of having to pay them down all the time. So the gist of all of this is that payments are gonna resume in October.

If you were behind on these payments, you will be forgiven. You will be. Seen as current, so you want to make sure that you take advantage of this fresh start. I know this is not exactly what you wanted. I know this is not exactly what you thought was going to happen, but at the same time now, if you were behind, at least you get that fresh start.

You get to start all over. And keep listening to the podcast. We'll talk about different ways to get out of debt. We'll talk about some new strategies as well so that you can utilize to get out of some of these situations so that you can make sure you are putting the best foot forward when it comes to building wealth, that's the number one thing that I want for each and every single one of you, is to put the best foot forward so that you can be building wealth.

Listen, I hope you guys learned a ton in this episode about what you need to be doing when it comes to the new student loan repayments. If you guys have any questions, make sure to reach out to me on Twitter, Instagram, TikTok, or the new threads, and reach out with any questions you have whatsoever. I'll make sure to answer those and you know, help you through this process.

My goal is to help all of you through this process, figuring out your budget, figuring out how to. Maximize every single dollar that you have. So if you have that, any questions, make sure you reach out to me. Listen, thank you guys so much for listening to this episode, and thank you for investing in yourself because when you listen to these podcast episodes, that's exactly what you're doing.

You are investing in yourself, and that is the number one most important thing that you can do in order to build wealth. Listen, I appreciate each and every single one of you. If you got value outta this episode, make sure to share this episode with a family member, a friend, and don't forget to leave those five star rating reviews.