Podcast | Season 2 | Episode 05

The Description 

Ever feel like you're in a maze when it comes to figuring out student loans and college financing? Well, you're not alone and we're here to guide you through it, step by step. Joined by Josh Oller, an expert on the subject, we're peeling back the layers on direct plus loans, subsidized and unsubsidized loans, and offering some hard-hitting advice on why you should think twice before jumping into debt. We're also sharing our personal experiences and insights into the potential pitfalls of taking out loans purely for the college experience.

Thanks for listening! Make sure to follow us on all the socials at summitwealthgroup.com , so you don't miss an episode!

The Transcript 

Jessica

"What's up guys? Welcome back to the Reach, your Summit podcast, where we help you navigate the path to a better, more secure future. My name is Jessica Magnuson, I'm your host here at Summit Wealth Group and I am with one of our Ridgeland, Mississippi advisors, Josh Oller, who is back joining us for our final episode on all things college planning, savings, everything you need to know about that realm of life. So welcome back again."

Josh

"That's good to be here. What a time."

Jessica

"Yeah, it feels like you've never left huh, that's right."

Josh

"I had to talk about some loans."

Jessica

"Yes, I know this is a big, you know hot button topic. It feels like everybody has an opinion about student loans, student debt, and is not shy about sharing them. I know that everyone's just getting tons of information all the time about this."

Josh

It's all over the news, it's all. That's been very politicized and you know everybody's got an opinion, but I hope we'll try to sift through some of the opinions and get to a few facts today.

Jessica

"Perfect, that is exactly what we're looking for here, so we'll jump right in. So I'm kind of wondering when someone comes to you and is thinking about going the route of taking out student loans in order to go to college, how do you start that conversation and what do you usually tell them?"

Josh

"Yeah, so I think I mentioned on the last podcast. You know the primary ways that we're paying for college these days is through, you know, grants or aid from where that's? From? Federal government, state government, the school, scholarships, cash flow or loans. Obviously, in general, you know nobody wants to take out debt to buy a car. You don't want to take out debt to buy a house. You don't want to take out debt to go to school. You know they charge interest on these loans. This interest can get to be very high interest rates. It can get to be tough to pay back if you don't land the job that you're desiring right out of college. So it's very tough. But you know, on the other hand, if a client really comes to me and says, hey, you know, I've really looked into this, I really want to go to college, I really want to get this degree and the only way I can do it is to get student loans. You have tried all the other avenues and at that point in time that's like okay, that's fine, I appreciate that you value a college degree so much that you know that it's worth to take a college loan out to go out and pursue this career. I don't like seeing clients come in and say, hey, we're going to get $30,000 loan for Little Johnny. He doesn't know what he wants to do with his life yet, but I want him to get that college experience. You know it's like is that? Do we think that's the best route here? Can we look at going to junior colleges? Can we look at something else? It's a tough conversation. It's very hard because it's very personable. And I went to college. I had a fantastic time at Mississippi State University, go Dogs, and I had a great time, great experience. But I did get you know, I did buckle down, made great grades, had some scholarship we took out. We did take out loans for me to go to grad school. It was very small and I repaid it over the next four or five years when I got out. But yeah, you know it's a hard subject to talk about, you know, but I do, you know. I think it's probably a good time. I kind of breeze through the main types of loans that people get whenever they do decide they want to go that route. You know there's you can go get loans privately from private institutions. There's many different avenues to get a student loan, but I'm going to focus mainly on the ones from the government. Here We've got first option as a direct plus loan. I think that this used to be I think what was the parent plus loan, but they now renamed it direct plus. You know that you can make a loan directly to the student or parent. If you think about the most basic student loan, this is it. You know it's a standard fixed rate of interest. I think right now the new loans that are getting issued are a little over 8%. The loan payments there's different types of loan payments. You can have the payment start immediately right when you start college. They have a graduated loan repayment where kind of the payment starts off a little lower, gets bigger over time. The loan term kind of depends on the amount of loan. You can get it from anywhere from 10 years to 30 years. Then we go. Then we hop into the subsidized or unsubsidized direct loans. Most people probably have an idea what this means. Obviously, subsidized loans mean that the government is subsidizing part of the payment Whenever you decide to go to university. I think it's for yeah, it's only for the subsidized loans are only for undergrads. They are based on financial need. If you qualify for the subsidized loan while you're in school, the government will pay for the interest on the loan. Then, on the other flip side of that the unsubsidized is for people that don't have the financial need interest does accrue on the loan while you're in college. There are some different ways that you can defer the payment out into the future if you drop down to part-time, not full-time student, things like that. In general, those are the three most popular and well-known methods of obtaining financing for college. Keri Benschel MD. Student Loans."

Jessica

"Thinking about taking out student loans just to have the college experience. It's like, of course, hindsight's 20-20, but I know I had student loans and I was fortunate enough to kind of have a situation where I could get a second job, pay them off pretty quick out of college. But I'm like, no, don't do it. Don't, you will kick yourself later. Because it's yeah, like you're saying, the high interest rates. They're pretty substantial typically for most people that have to take out loans. I am in my 30s now and most of the people my age I know are still paying on their loans 10, 15, 20 years out of college."

Josh

"You've probably heard me say this kind of same thing on the prior podcast, but I just I'm such a proponent of going to college as an investment in yourself and it's an investment in your career, and you've got to take it seriously. If you get to the point where you decide you're going to take out a college loan, you need to have a very focused goal of what you're trying to accomplish in college, what job you're trying to get when you get out of college, because I've just seen too many people with $50,000, $75,000 loans that are earning $40,000 to $50,000. Maybe they're a teacher. Maybe there's different scenarios. Maybe somebody went to school, they wanted to be an engineer, they got all this debt and then they decided they wanted to go be a teacher. That's fine, but at the same time, the investment into college was not worth it at that point in time because it's going to probably more than likely take you a while to pay back that student loan, given the income limitations of the career you're in."

Jessica

"Do you feel, like when clients come in, that there is a certain area that's common that people don't understand when they are thinking about taking out a loan, or that they're just not really clear on exactly how it works or what they're getting themselves into?"

Josh

"I think it's just the repercussions long term of how financially crippling it can be. I've used this analogy before, but I'm a Mississippi State Bulldog fan and I've talked to some coaches up there and things like that and they talk about how every single player on the football team thinks they're going to the NFL. Every single person that goes to college thinks they're going to walk out of college making $100,000 a year and they're like, oh, we'll worry about those financial, those student loans later. The reality is that's just not everybody's life path. A lot of people are not going to walk out of college making $100,000 a year. You have taken out debt at 8% and the government expects you to pay that back. There could be some tight times in the beginning and a couple other nuances people don't think about. It's like student debt never goes away. We'll get to that later. According to another SAFE plan, there's a chance some of it does go away. But if you file bankruptcy, most of the time student debt does not get lumped into that. The federal government can seize your paycheck for not paying back student loans. They can withhold your tax refunds. They can withhold social security payments If you've got a father or grandfather who signed on a student loan with you and he's getting social security. You don't pay it back, they can start seizing grand power for security payments. It's tough, it's a big decision and you've got to weigh every option, all the pros and cons."

Jessica

"Yeah, definitely a big decision to be making too. When you're 17, 18 years old, going off to college, definitely want to be as educated as you can about what you're getting yourself into and what the decision really means."

Josh

"I've heard people believe it or not. I've had people clients come to me to say, well, I'm just not going to pay it back, it's an unsecured loan. What are they going to do? If you get to the point where you can't pay your house note or your car note? You can go give them the keys to your house or car. They take it back. They can't do that with a student loan. But, as I kind of talked about, there's other things they can do to recoup their costs."

Jessica

"Right right, it's not just going to go away, that's for sure. If clients come in and they have already been to college, they already have the student debt and maybe it is a significant part of their financial portfolio at this point. How do you advise them with paying that off versus investing? What route do you tell them to go?"

Josh

"With today's rates, whether they're issuing loans out on it's kind of like a credit card Credit cards, are anywhere from 15 to 25% interest. It can be financially crippling to have a large balance of credit card debt. Probably the next highest interest rate loan that clients have is student debt. At this point in time, when you do have accumulated credit cards and student loan debt and you're trying to figure out which ones to pay off, how do I do this? How do I manage all this? It gets to be a behavioral issue. Are we spending our money in the right places? Are we paying the absolute minimums on our debt and going and enjoying vacations and restaurants, or do we need to perform some kind of debt snowball, figure out which debts to attack and then do it? I was listening to a finance podcast probably oh, this is probably two or three months ago, and these callers call in and ask for advice. This guy said I've got $200,000 of student loans. Blah, blah, blah. This guy was like you're done with vacations For the next 10 years. You're done with vacations. Your vacation is going and playing around a golf nine holes that you're a local municipal course. If I see you inside of a restaurant, it better be because you're cleaning dishes and waiting tables when you accumulate that debt. Maybe life didn't work out exactly how you thought. There's got to be some massive behavioral changes. You've got to cut all expenses that can be cut and start attacking that debt."

Jessica

"Right, which is also something I feel like you have to think back to. If you're in that position 17, 18 years old, getting ready to take out these loans where you're not guaranteed a great salary just because you graduated with a college degree, making sure that you're starting good behavioral habits with your money, if you're going to make this decision, is a huge thing to think about, as well, you're going to have to probably sacrifice later on down the road."

Josh

"Yeah, you see it a lot in the law community. There's more kids in law school than there are lawyers in the United States. Everyone thinks as soon as they get done in law school they've made it. Whenever they go out for their first job interview and they tell them that you're going to make $40,000 as a young attorney and you're going to work 60 hours a week, the reality hits them in the face."

Jessica

"Then right, it's going to be a little bit different than anticipated, maybe Exactly. But yeah, like you're saying, the behavioral changes is probably the biggest key to success with paying off any kind of debt that large."

Josh

"No doubt."

Jessica

"You touched on a little bit earlier about the save repayment plan, so just to catch people up, this is something that went into effect earlier this year and is framed as something that's going to help people that are paying back their student loans save potentially some money on those payments. What else do you know about it and do you think it could be helpful? Will be helpful. Have you seen it in action?"

Josh

"Yeah, I mean the jury's out, we'll see. It's such a new program. We don't know exactly, that's from sure. There's going to be some kinks to be worked out over the next year or two. So for those who've not heard about it, like Jessica mentioned, it's called the save repayment plan, stands for saving on a valuable education, and so this is a income driven repayment plan, and so they've always had income driven repayment plans. I think the last iteration of it was called repay. That was also an acronym that I don't remember the name of right now. But and so the way this works in general is that if you write when you come out of college, you're not making a lot of money. They're basing how much you owe on your student loan based on your income, and so, like I said, if you come out of the gates not earning that dream salary, that's fine, because your student loan payment is going to be lower, and then, as your income increases, you owe more on the student loan, and so they've always had a program similar to this. The big differences on this new one is that there's a new formula in place. I think they take the federal poverty level, which I think if you're single, it's like 38,000. If you're married it's like 68,000 somewhere in there, and they've essentially taking those limits of. I think they used to give you 150% above that margin, now they're going 225%, and so essentially what they're claiming is that a lot of people that are making a high income are going to qualify for $0 payments. I think they estimated about 1 million borrowers are going to have their student payments go to zero, so that's obviously attractive. They said other people that are maybe don't qualify for the $0 loan payment, they're going to save at least $1,000 a year in loan payments. So on paper sounds nice. There's a formula there as far as, if you have an undergrad loan, the way the formula is based on, you're going to owe 5% of your discretionary income. So discretionary income, think about your income minus your taxes, minus your debt and so, however well the number that comes out to, you're going to owe 5% on undergrad loans and I think, up to 10% on graduate loans. And there is a loan forgiveness provision in there. I think it's once you qualify for this program and then you've been in the program for 20 years for an undergrad loan, if it's under a certain dollar amount, it's forgiven 25 years for graduate school loans and then, once you're in it, for 10 years, low balance loans. I think it's under $12,000, they get forgiven as well."

Jessica

"Okay, so it sounds like there's a lot of potential, but like you were saying we don't know yet, just because it's, I mean, it came out."

Josh

"I think this summer right Is when this rolled out, yeah it was kind of their answer to the you know they originally government. The government was trying to get I can't remember $20,000 or $25,000 of loans. You know, if your balance was under that they're completely forgiven. That got struck down in Congress and so this was kind of their answer to it. I do think it could be a great program. I think if you're already on the repay plan you're getting automatically switched to this save plan and then it's the same studentaidgov you go. If you have a federal subsidized, unsubsidized direct loan you can go change to the save plan."

Jessica

"And otherwise you just have to log in and apply for this. If it's not something that you are just going to be rolled over into, yeah, so definitely."

Josh

"Certain group people are going to get this automatically. Everyone else needs to apply for it. Yeah, another big one I saw is that there's no more capitalized interest, and so which is a big deal because people were you know, let's just say they had to pay $1,000 a month in student loans. They couldn't do it, but they were paying as much as they could. They're paying $300 bucks, $400 bucks Okay, the interest that was not getting paid was collecting more interest, right as of almost like these loan balances were just getting bigger and bigger and bigger, yet they were paying on it, and so they've gotten rid of that. No more capitalized interest."

Jessica

"So that seems like it could be something that really help some people out. Yeah, without a doubt With the amount that they can pay."

Josh

"So, yeah, anybody who's in the repayment phase of student loans definitely something to go look at."

Jessica

"A lot of good information here to do your own research and take a look at if you are in that phase of life where you're still paying off any student debt that you have. Anything else that I haven't covered with you, Josh, that you feel like could be important or pertinent for any of our listeners to think about or know?"

Josh

"Yeah, I can't think of anything top my head, but you know we hear some that we're always here to kind of talk you through this. If you got any questions, comments, concerns, you know we'd love to buy a cup of coffee and sit down and talk with you about it. "

Jessica

"Well, thank you so much, Josh. This wraps up our series on college planning and savings. Like we mentioned, we've covered a lot of information in a short amount of time. If you haven't listened to our previous three episodes, I encourage you to go back and listen to those and, like Josh said, if you have more questions, if you have a specific situation, we would love to be able to talk with you. Reach out to a branch near you. We are spreading fast across the country, so there should be one somewhere close to your region, hopefully. Definitely. Reach out and, if you liked this episode, subscribe to our channel and we will see you next episode. Thanks for listening to the Reach, your Cemetery Podcast, brought to you by Cemetery Wealth Group. If you enjoyed this episode and would like to help support the podcast, please share it with others and subscribe so you don't miss an episode. If you have any questions or topics that you'd like us to cover, please email us at info at info@summitwealthgroup.com"