You’ve asked & we (finally) answered – let’s tackle student loans!
According to the U.S. Department of Education, outstanding Student Loan Debt has now reached a staggering 1.56 TRILLION in 2020. Over 44 million Americans have outstanding student loans and the average debt per individual is $32,731 – WOAH!
It’s time for us to Face The Fear of Student Loans – understand what they are, how they work, and find the best way to pay them off!
To learn more about David Hessel, click here: www.davidhessel.com
To get the details on student loan planning, click here: www.studentloanprofessional.com
To get in touch with Face The Fear, email: firstname.lastname@example.org
Here is a summarized list of Q&As:
1. “Do you need to be of a certain profession or in a certain field to utilize the extended or graduated programs while in the overall 10-year repayment plan?” Nope! Everyone with federal student loans has access to these, but there are many things to consider before jumping into one.
2. “When does it make sense to put my student loans in deferment?” If you need to stop your payments, you do need to apply and be accepted for this. This is because interest will not accrue during this time period. You might do this if you become unemployed, if you have economic or medical hardship, etc. Interest will not accrue while in deferment
3. “When does it make sense to put my student loans in forbearance?” You have a total of 3 years to be in forbearance. Remember, interest continues to accrue while you are not making payments. So really, this tends to make sense when you need a very short-term payment relief.
4. “Can I use forbearance or deferment if I have private loans?” The unfortunate answer is no. You can speak with your lender and try to change the terms of your loan but the options available for federal loans are not available for private loans.
5. “Can I spread the ‘tax hit’ when student loans are forgiven over time or is it all taxed as income in one year?” The short answer is that it is taxed in one year. However, when working with a CPA, depending on your situation, there are ways to strategize the taxation. When working with my clients, we calculate the anticipated tax amount and immediately set up a savings/investment bucket for those dollars over the course of their student loan repayment plan.
6. “Can I be 3, 4, even 5 years into paying my student loans and still switch to a repayment plan?” Yes, you can do this at any time! It is a voluntary program, so you must reapply / show income every single year. If you do not reapply you will be automatically switched back to the 10-year plan. For my clients, we just set reminders every year, so we never forget. Thankfully, the Government has worked on their online submission process and applying is getting easier and easier.
7. “For PSLF, do I need a specific type of qualified loan?” In short, to apply for PSLF you need 3 things: 1. You need to work for a qualified employer full time (talk with your HR rep or visit https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service#qualifying-employment) 2. You need to make 120 qualified payments (10 total years of payments) 3. Your loans need to be DIRECT loans. (These started after the year 2010, so anyone with loans prior to 2010 will usually need to do a direct consolidation)
8. “If I have worked for a qualified employer while working towards PSLF and then switch to another employer that is not qualified, is there any sort of partial forgiveness of loans?” Unfortunately, the answer is no.
9. “What has changed for my student loans with the CARES Act?” Start listening at 48:18
Lastly, here’s a disclaimer: GVCM is an SEC Registered Investment Advisory firm, headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188. PH: 262.650.1030. David Hessel is an Investment Adviser Representative (“Adviser”) with GVCM. Additional information can be found at: https://www.adviserinfo.sec.gov/IAPD/Global View Capital Insurance, LTD. (GVCI) insurance services offered through ASH Brokerage and PKS Financial. David Hessel is an Insurance Agent of GVCI. Global View Capital Advisors, LTD is an affiliate of Global View Capital Management, LTD (GVCM).
The choice to go to college is a big commitment. It’s a commitment to yourself and it’s a commitment to the payment that accompanies this hope for a successful life. Some people are lucky enough to have the financial burden of a college education taken off their shoulders by parents, family members, sponsors, etc. And some people are extremely diligent, work incredibly hard, save up, and pay for college themselves.
I, however, am neither of those people. I am with the group that I would assume is the majority: the unfortunate souls who had to take out student loans to attend college. Through my own personal experience, I have learned a few lessons on how to avoid some of the student loan burden before you jump into college, as well as how to alleviate some of that burden once you’ve crossed the stage with diploma in hand.
My first tip comes from something that I did not do enough: Be involved in the process of applying for student loans. Do your research. Knowing what you are getting yourself into is half the battle in being prepared when your loans finally come due. My mother was nice enough to walk through the loan application process with me. Although I was fortunate to have her assistance at the time, I still did not fully understand what I was getting myself into or how much time it would take to repay the loans after graduation.
Let me give you a snapshot of what my college expenses entailed. I attended a lovely private university in my home state of New Jersey. Fortunately, I was a good student in high school and received $12,000 per year in scholarships. I also commuted an hour to the university each day to save money. But even with scholarships and without the cost of on-campus housing, the tuition still added up to approximately $30,000 a year. And that’s not even counting the cost of textbooks, which amounted to $500-$1,000 each semester! So how was this all paid for? We took out student loans; sometimes per year, sometimes per semester.
All the loans that I took out were fixed rate as opposed to variable. I didn’t know much, but knew I wanted to have a set payment. (Fixed rate means you have the same interest rate for the life of the loan and variable means the interest rate can move around). I consider myself to be mostly conservative, especially when it comes to my debt; so, for me, fixed rates were the better choice. With a variable rate, you are subjecting yourself to the possibility of rates changing, potentially increasing or decreasing throughout the life of your loan. One option is not better than the other; it simply depends on your financial outlook and how you want your future payments to be structured.
Fast forward four years and I am a college graduate! Thankfully, right after graduation, you are not expected to pay your loans immediately. So, go out and live it up! Because in a few months, it’s about to get real!
No, please don’t do that. Plan for your payments and prepare yourself for the abuse you are about to take.
After I graduated and my student loans came due, it was the biggest slap of adulthood I had ever received. I had about eight separate loans, all at varying interest rates, coming to a grand total of around $100,000. My monthly payment totaled out to approximately $950. Combine this payment size with the fact that the first job offer I received out of college was $28,000 per year as a junior business analyst. $28,000. You can imagine how I felt: COOMPLETELY DOOMED!
I took a step back to figure out what steps I could take to reduce the financial burden and the feelings of doom. First, having eight separate payments is a nightmare. Secondly, all the varying interest rates made some payments seem like a good deal while others seemed to be a rip-off. Finally, the biggest issue was obvious: paying $950 a month while making $28,000 a year was not going to work.
The solution I discovered was to consolidate and refinance my loans with a longer payment period. Consolidation, simply put, allowed me to take all my separate smaller loans and combine them into one larger loan. Refinancing student loans is just like refinancing a mortgage. In ideal circumstances, a new loan at a better rate will replace your existing loan, although this might not always be the case.
A plethora of private companies and banks promote assistance with student loans, such as College Ave, Earnest, and SoFi. Many of these organizations allow you to fill out a free online application to determine if you “pre-qualify” for their services. When I began searching the internet for a solution, SoFi and Earnest offered the best interest rates to consolidate and refinance my loans. Here’s the catch: unless you are either making close to $100,000 a year (aka making BANK) or have an extremely solid cosigner (someone who loves you very much and is willing to put their name on your loan so the lender feels more comfortable), the qualifications to be accepted by these companies are quite high. However, through diligent searching and applying, I was able to consolidate and refinance my loans through Citizens Bank. While the process of finding the right company to assist with your specific situation may take time and effort, it is fairly easy and well worth the effort.
Once I was approved by Citizens Bank, the final step was to choose the term of my new loan. Ultimately, that’s what the consolidation and refinancing process is all about: taking out a new loan to pay off your inconvenient, higher-rated current loans. Here’s the basic principle when selecting the term of a loan: the shorter the term of the loan, the less you will pay in total interest, but the higher the monthly payments will be. The longer the term, the more you will pay in interest, but your monthly payment will be lower over an extended time period. In my case, I chose the longest term possible. As much as I want to pay off my loans quickly, I also need to keep my everyday living expenses in mind. Also, the loan that I chose allows me to pay early without penalty. So, if I can contribute more than my required payment, I will be able to pay the loan down more quickly. Even if this is a rare occurrence, it’s a nice feature to have. Not all loans allow this, so it is worth asking if this feature is available when refinancing your own.
Ultimately, the consolidation process brought my number of payments down from eight to one. The refinancing process reduced my interest rates to a more realistic average, and the longer maturity allowed me to pay a lower monthly payment. Although I did extend the amount of time I will be making payments, the cost of the payment is much more manageable for my current situation, and it addressed the problems I needed to fix. I know I am not the first or the last college grad to feel the wrath of student loans. But, being able to share my experiences, ideas, and relate to others is an important step in finding solutions.
Article Contributed By: Christian Boyle
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