Student Loans: UGH!

Student loans can be pretty complicated. Luckily Chuck and Josh are here to wade through the financial muck for you.

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Episode Transcript

Speaker 1 (00:01):
Welcome to Stuff You Should Know, a production of My
Heart Radios How Stuff Works. Hey, and welcome to the podcast.
I'm Josh Clark. There's Charles W. Chuck Bryan over there,
there's Dave c the guest producer extraordinaire. That's right, Um,

(00:21):
and this is stuff you should know about. Wait, don't
go anywhere student loans now, really don't go anywhere. Yeah,
this is uh, this is pretty dry. I mean, we'll
add our funnies. I know we won't. We'll add our
funnies like we always do. But uh, there's no getting
around it that this is one of those stuff you

(00:42):
Should Know episodes that sort of falls under the banner
of p s A a little public service announcement for
people to learn about something that they may not get.
But it's just not scintillating. How's that to drive people away?
I really think you're you hooked him for sure. No,
listen for the funnies. And hey, man, if you're out

(01:02):
there and you don't understand student loans, don't know what
you're getting into, your high school student, or if you're
already drowning in debt, already drowning in debt, we'll pay
that debt for you to send us an email with
your monthly bills and we'll pay them all on. Now.
That should really clear up a lot of that stuff though,
because um, it's it's not complicated, but there's just a
lot to it. Yeah, but like the how we got

(01:25):
into this place, because yes, there's student loans and applying
for student loans and you know what you should know.
But then there's also what you should know about after
that when you join this forty five million clubs student
loan debt holders or debt owers. Um. Who oh, like
one point six trillion dollars worth of debt and like

(01:48):
a lot of that, about a trillion of it I
think a little less than a trillion has been generated
since two Yeah, I mean there are a lot of
progressives in this country. That's a you want to really
kick start the economy in a long, permanent way, just
forgive all these student debts. Yeah, and other people say

(02:09):
you're a communist. Some people do. Um, yeah, you know.
I should go ahead and preface this with my personal experience.
I did not get a student loan. I went to
school and college. You were a little behind me, but
it wasn't as big of a thing back then. No,
I saw in the nineties that average student loan debt

(02:30):
for a bachelor degree, not a year, not a minute,
a bachelor's degree was nine grand. Yeah, college used to
be a lot cheaper. Um. State universities are still, you know,
not the most expensive. But when I was going to
University of Georgia, dude, it was like tuition for a
full load for a quarter was something like six dollars.

(02:52):
Not that much money in like pot, especially at Georgia's.
So when my parents got to worced that part of
the divorce was them, uh selling a couple of things,
like we had an airstream camper and not like things
that clearly the family wouldn't be using anymore. Uh. And
so they agreed, like, let's sell these couple of things.

(03:14):
And Chuck's the last one going through because my brother,
of course had an academic scholarship. Of course, I didn't
have to pay for anything. Uh, Chuck's he needs that
money for school because he's not getting anything. He needs
that camper money. I needed that camper money. So they said,
let's put that in an account for Chuck to go
to school. Uh. That lasted me a two or two
or three years. Camper money did yeah, because Georgia was

(03:38):
so cheap. It was a heck of a camper two Okay,
but yeah, Georgia was really cheap and I was in
living there was cheap and books were pretty cheap. Uh
So that lasted me a few years. And then after that,
I just, um, you know, I've been working since I
was thirteen. Anyway, I was gonna say, you had a
job throughout the yeah, totally. Um, And I just kept

(04:00):
paying for my college after that. It wasn't like some
big like, hey, I'm gonna pay for my school starting
from now. I was just like, well, that money's gone,
so I need to I'm not gonna ask my parents
for it. Like I've been working since I was a teenager.
They sold their camper, so I'll just keep working and
pay for my my remaining education. And it was not
that big of a deal. I live very well in college.
You know what that's called is pulling yourself up by

(04:22):
your bootstraps nineties style. I don't even feel like it
was though. I was just like, hey, I wait tables
and make pretty good money. I can afford that six
hundred bucks a quarter. The thing is is like the
idea of being able to live as a college student
and pay for college and feel like you're doing fine
waiting tables is it's just outrageous, outlandish everything. I cannot

(04:48):
imagine leaving Georgia with thirty thousand dollars of student debt.
I cannot imagine that. And that's well, that's one of
the things that makes all of those people who say
like whiners, you took out these loans, you owe them.
We paid off our student loans when we went to school.
All those older people who are saying that are missing
the point that college has gotten way more expensive than

(05:12):
the last ten about tennis years for um a lot
of different reasons, but it turns out largely because of
an Obama era initiative to make higher education accessible to
more people. There were just a couple of safeguards that
were put in place that really let this thing run
rampant um. And that if you say, like like I

(05:32):
paid off my student loans with no problem, why can't you,
you're missing the point that that it's different. It's a
different world now. Things are different, and it used to
be before. When you had your first real piece of
life long or long term debt. It was a mortgage
for a house. You were paying for that house, and
you were virtually guaranteed that at the end of that mortgage,

(05:55):
that last mortgage payment, what you paid for that house
was going to be less than what the house was worth.
Then it was an investment. Now we're putting out teenagers
into the world who have in some cases mortgage level
debt um without having any income yet whatsoever. And when

(06:17):
they pay off that last bit of debt, there's nothing
that was a value necessarily associated with it because they
had to get a college degree just to try to
get a job. Whereas before it was like you got
a college degree, and you you automatically, we're going to
get a good paying a job. Are certainly a better
paying job than you would have gotten with the high

(06:38):
school diploma. It's a different world now, definitely, you probably
don't get a student one either. Did you know, I
luckily didn't need them. They had the Oh what was
that the lottery paid for? Yeah? I think when you
came along, that was in place. That started right as
I was leaving. I think first year for me, was
it the pel or was it it was the Georgia

(06:59):
lottery pay for it? Uh? Man, I can't remember. I
can't remember the name of it either, but it was
a kind of grant that like like, yeah, you had
basically a free ride in school if your d p
A was high enough at an in state school, that's right,
great deal. Yeah, and if you are a student, hope, Hope,
that's it, hope, because I just remembered all of the
parents saying you better not lose that Hope grant. I

(07:21):
think it was like it was at three point or something,
three point to something like that, because something definitely attainable.
So uh, I mean our first bit of advice, We're
gonna pepper some advice in here as old old dudes. Oh,
so I should say shout out to my dad. He
once I inevitably lost the Hope grant, he stepped in
and helped pay for college for me. Yeah, the herbal Elvis.

(07:43):
So uh, we want to give out a few pieces
of advice here and there. Um, avoid taking student loans
if you can. Yeah, try and get as much free
money as you can, grant scholarships. What I don't get
is why so many parents of these children didn't set
them up for college. What do you mean start saving

(08:05):
for college? Like by the time my daughters graduating high school,
all her college is going to be ready to go.
So if she wants to go to college. Um. One
of the things that this this Obama era initiative to
expand higher education, one of the purposes of it was
to make it so that people lower income families, um,

(08:28):
had an easier opportunity to go to college. Yeah. So
they basically said, come all, who want to borrow money
to go to college, regardless of your ability to repay, well,
go finish. But I want to amend my statements to
go ahead and so so. Um. A lot of people

(08:48):
who started to get to go to college, their families
didn't have any money to put them through school. So um,
they I think for people whose parents have been planning
for very little change. But it was that an entire
tranche of Americans that hadn't really had much access to
higher education all of a sudden did starting in two

(09:10):
thousand ten. Yes, to be crystal clear, was not talking
about those people. Did their parents just set them up?
Romney thing right, remember when he said that. No, he
was like, why don't you just go borrow the money
from your parents? When he was binders full of women. Uh,
was that Romney who had binders. Um, now I'm talking

(09:31):
about the the tranche of kids whose parents could afford
to save money for their kids college and did not.
I don't know. I think one of the other things,
maybe there are a lot of parents who are like,
you know what, this is your education, you pay for
it yourself. I think there are also a lot of
selfish people in that generation of parents, narcissists too. Uh,

(09:54):
did not plan for that stuff for their children because
they were busy taking care of themselves, but they blew
it all on. Hey. I don't know, man, I'm not
I'm not saying that, but I just want to make
it clear. I was not talking about less fortunate people
that are totally now able to go to school. I
think that was good that you amended that. But if

(10:16):
anybody didn't know that that you weren't saying that, they
haven't listened to stuff. You should know very that's true.
We haven't even started this podcast. It's gonna be three
hours long. No, we'll we'll blaze through this. Uh. There
are different types of student loans. The main two big
groups are federal student loans and then private sector student
loans and so so again, after you've exhausted all chances

(10:39):
for grant scholarship, any kind of free money, and you
turn to right the first ones you want to turn to,
or the federal governments, because the loans you get from
them are top quality as far as your being a
borrower is concerned. That's right. And there are a few
different kinds of those. They are direct subsidized, direct unsubsidized,
and direct plus plus is capitalized all the way across

(11:02):
subsidized direct loans. Um, the Department of Education as your lender.
I didn't know any of this stuff. Well it's new, yeah,
I mean, I was just surprised at some of this stuff.
But it's not I'm sorry, it's not new. These member
stafford Stafford loans. Yeah, that's what they used to call
direct loan. Okay, I remember, it's basically the same thing,
but it's just radically expanded since two thousand ten. Okay,

(11:24):
So I don't I don't feel as old as I thought. So, Um,
the Department of Education is going to cover the interest
under a few circumstances. And the interest is you're gonna
hear that word a lot. That's a big deal with
any kind of loan or credit that you get. That's
that's where they get you. And this is specifically the
direct subsidized loan that they will cover the interest. That's

(11:44):
right if uh, you were in school at least part time. Uh,
that is one during the first six months after you
leave school. Don't you have to graduate, but you've either
graduated or disenrolled or whatever unenrolled been dishonorably question rulled
or if your loans are in deferment um. Only undergraduates

(12:07):
can get these. They are based on financial need and
the school is going to say how much you can borrow.
You can't just say like, yeah, tuition's ten grand, but
i'd really like thirty. Well even if even if you
could do that, these things are capped because the interest
is covered by the Department of Ed, like you were saying,
which is a big deal. So if you go to
school full time for four years and get your bachelor's degree,

(12:30):
that whole time, you're not accruing a penny of interest. Yeah,
and that's a big, big deal, huge deal. But there's
a cap on this on the amount that you can
borrow if you're a dependent student, meaning that your parents
still claim you as dependent on their taxes and they
could conceivably help you out or whatever. They don't have
campers to sell exactly, or they've sold all the campers

(12:52):
and now they're tapped out. Um, you can conceivably borrow
UM thirty five hundred dollars and have it be subsidized.
And I think over the course of your college career
it's something like, uh twenty three thousand dollars or something. No,
I'm sorry, it's UM thirty one thousand dollars for a

(13:15):
four year degree. UM that could possibly be subsidized, which,
as we'll see, is not enough to cover a four
year degree basically anywhere these days. I didn't I didn't
tell you what the second thing they sold though. By
the way, we had a food truck. What this is
pre food truck. It was a trailer. Didn't even call

(13:35):
it a food truck. You know what it was called?
What the food factory? What? What kind of food? So
my dad and my mom would go to these arts
and crafts festivals and set up and sell like hot
dogs and hamburgers and popcorn and stuff. And they still
got a divorce after that kind of experience together. Some
might say it had a direct correlation burned the popcorn again.

(13:57):
So they sold the airstream in the food factory. Wow,
we so would they sleep in the air stream and
the food factory would tow the air stream? No? No, no,
these were just local things. She goes set up for
the weekend at the Yellow Daisy Festival in sal hamburgers
all weekend to rednecks. Did they do it for fun? No,
they did it to make money. My dad was always
trying to make extra money. He always had these, Uh.
I don't know about get rich quick schemes because they

(14:18):
weren't but make a just enough money to cover the
cost schemes. Yeah, he was great schemes. Yeah, it's funny.
My brother's kind of the same way, but he's actually
smart and uh and it does make money on the side,
I said, way too much direct unsubsidized Our Wikipedia page

(14:40):
so annoying. Uh, these unsubsidized direct loans you can get
undergraduate and graduate students. Uh, they're not based on your
financial need, even though the school is still going to
say how much you can borrow. It can't be more
than the costs to attend the school obviously, Um, and
the interest rate is probably pretty low, but you are

(15:01):
going to pay interest and they're accruing interest over the
life of the loan. Um. That's a big deal. It's
it's basically like like you're it's you're still accruing interest.
So it's like a regular loan. But what makes it
so much more attractive than say, like a private loan,
which we'll talk about, is that the interest rate is

(15:23):
fixed and it's low. The government's like, we're not trying
to like screw you over anything like that. We're gonna
loan you money. It's still alone, but we're gonna make
the terms pretty good to just bend over and we'll
make a deposit. You're still going to Wow. We where
they're like teens getting ready for college listening to this
with their parents right now. They get it. Yes, kids,

(15:45):
ask your parents what Chuck just meant. They get it. Um. Okay.
So there's direct subsidized, there's direct unsubsidized, and then there's
the one that comes from the federal as that most
resembles like a regular private lender bankload. That's the direct
plus loan. Do you know what plus stands for? No?
I should have looked that up. This is a house
stuff Works article. By the way, very thorough. Um, I

(16:09):
wasn't telling you I want to know to Uh, all right,
so you look that up, but rare in show look up, Um,
federal student loans. These are the direct plus. They are
federal student loans UM borrowed by your parents or if
you're a graduate student or a professional student. Let's say,

(16:29):
what is it parent loan for undergraduate student whether you
have it? Okay, but it doesn't really make sense in
a second, Uh, really what am I missing? Then? Just
go ahead? Okay, Um, if your parents are eligible, is
just going to be based like your regular loan, on
their their credit score and that kind of thing, and
the cost of attendance where you're going to be going

(16:52):
to school or enrolling in school is going to set
that limit again kind of like the other ones. But
your parents are just king this loan and these are unsubsidized,
so they're unsubsidized. You can also borrow for an entire education,
and you can also use them not just for undergrad
but for graduate school too, which is why it doesn't
make sense because the grad plus loan means graduate parent

(17:16):
loan for undergraduate students. Somebody didn't think that one through. Um,
Thanks Obama, but with with the with the plus loans um,
that cost of attendance is a really big deal. And
it's true with any loan. Every school you go to
has the cost of attendance. And every year they calculate

(17:36):
how much it costs for everything, for tuition, fees, books, transportation,
room and board, everything, how much it will cost the
out of the person pot um to go to the
school for a year. But the problem and you can
borrow up to that amount. You can't borrow pass to
each borrow up to that amount. So you can say

(17:57):
I'm borrowing and I don't need to spend a penny
other than what I borrowed. The problem is is it
may cost you less to go to school than that
average amount, and so you've borrowed up to that amount,
which means you're paying interest on money you don't need.
And there's when you get these loans. There's a lot
of different things, a lot of different processes there that

(18:19):
it's going to go through. But the upshot of all
of them is it doesn't come to you. It goes
to the school. Never knew that. I didn't either, But
the school says, okay, let's deduct for this and this
and this, and oh, they have the scholarship, so we
can take that out. They have this grant, we can
take that out, and let's say that there's some money
left over there. Then they will send you a check

(18:41):
or deposit it directly into your account. But when they
do that, you would be very wise to say, no, no, no,
you guys, hold onto this. I'm gonna use it for
next year. You can just roll that right on over.
That's the best thing you could do with a bad situation.
And the reason it's a bad situation is because you
have borrowed too much and now you're paying interest on

(19:04):
money that's just sitting there for a year in the
school's coffers. They're actually making money off of that interest.
You're paying interest on that money you're not using until
next year. So the best thing you can do is
really try to calculate the best you can, down to
the penny, how much money you really need to borrow,
and borrow that amount and not just borrow the cost
of attendance because it might be less than that. Yeah,

(19:24):
is the school really making money on that? Sure? Yeah.
Anytime any institution has money that they're holding, they make
interest off of it. I didn't know if it was
like an s grow situation. I don't know, alright, I
don't know. That's a good point. So that's a great point.
Oh I thought you were You said you knew for sure.
You just were thinking, Hey, they got the money in
the bank. They're making some money. Basically, like Tony from

(19:47):
Jersey would think. So, Uh, here's the deal. If you
some private schools are really really expensive. Uh, you might
not be able even if you max out, you may
not be able to cover the call of your school.
Take it or leave it here some more advice from
your uncle Chuck. Don't go to one of the schools. Yeah,

(20:08):
just don't do it. Go to a school you can afford.
Because you know what, it doesn't matter. The one thing
I saw, get that college degree. How many people have
been like, oh, well, I mean there are some prestigious schools,
sure where that really does matter that them. I don't
think it really matters. I think it's more than the

(20:29):
networking that's available to you those schools. That's what they
say is necessarily a degree these days, I think. But
the thing is they go to a big state school
with so many more students in such a bigger net
the thing I saw that was, like, the most foolish
thing you can do is to go to a state
school that's out of state for you, because you get

(20:53):
at that state school is going to be virtually identical
to the education you get at the in state school,
but you're paying three to four times as much for
that same education. But your parents don't live an hour
I guess so. I guess so. But surely there's another
state school four hours away or two hours away or whatever.
I get wanting to be a your parents or whatever.
I totally get that, but like, figure out another way,

(21:17):
Like going to a different state school is a not
a good idea, agreed, And you know you can just
flush all this advice down the toilet. Kids, But um,
what you really shouldn't do, I think, is go to
that super expensive private school that has like students because
you're not. The networking opportunities there are so slim, you know. Well,

(21:38):
they say that people who borrow for a litteral liberal
arts degree um typically have the hardest time repaying it,
even if they come from the socio economic class that
is more likely to repay it, that could repay it
because the wages don't pan out to be anything that
that can really pay off a really so you have

(22:00):
a really expensive education and then reading poetry. Yeah that
that that that doesn't graduate well. And it's not all
about money totally. I totally get that. Chuck gets that too.
That's not that's not the point, and it's not the
answer to to everything. Money is not the answer to everything. No,
But having lifelong debt you will never get out from

(22:22):
under is it's it's hard to fathom at age seventeen.
And so hopefully your parents are worried about this and
saying like, hey, you need to be thinking about this,
you shouldn't do that, and giving you good advice. But
if they're not, please please seriously sit there and consider
whether what you're going to spend an astronomical amount of

(22:43):
money on is actually worth it. Yeah, because it's not
just about money. But having that mountain of debt at
twenty one years old really narrows your opportunities in life.
And if you might think it broadens opportunities to have
gone to the school, but if you've got nine thousand
dollars in student debt, you it narrows your opportunities. It

(23:03):
just does. I'm not opportunities but on the paths that
you might be able to take right, well, you're probably
going to be in a situation where you don't have
the luxury of saying I'm gonna wait for a better
job offer to come along. You're gonna be like, just
give me a give me a job please, They'll take whatever,
and you're gonna be very unhappy. What's more, there's a
really high likelihood that the more astronomical your debt and

(23:25):
the lower your wages, that you're going to default on that,
which we'll talk about later. But once you start defaulting
on loans, then you really are on a hard path
because credit opportunities are closed to you. Um, you get
harassed all the time. There's just it's it's there. It's
a lot. It's a bad jam. Bad things can happen
if you owe people too much money, even the federal government.

(23:45):
All right, we should take a break. But it's really
occurring to me how smart we are and how every
child in America needs to be listening to us. Now.
All right, we're gonna come back right after this. And

(24:25):
you just made me really nervous. All Right, kids, we're
gonna catch some heat for this, aren't we we're gonna Nah,
we're gonna talk because I've guaranteed their parents that are
gonna be like, hey, you should listen to this. Yeah,
you won't listen to me. Listen to Josh and Chuck
your stupid heroes. You want to go to Sarah Lawrence.
Listen to these guys. Don't blow it all on pot alright, Lawrence.
So now we're talking about private loans. Where is Sarah Lawrence?

(24:50):
Is that Massachusetts? It seems like a massachuse every schools
in Massachusetts, isn't it. A lot of them are, Yeah,
they are all. That's one of the great spinal tap
joke is uh when they talk about canceling a Boston show,
they say, oh, sorry, it's not a big college down
so uh and you finally saw it, right, I've seen

(25:13):
it before. Yeah. I don't know why you can't take
this kernel of information and subsume it into your general's
awere and subsumed. So private loans um you there are
a bunch of little bells and whistles that a private
lender can offer you that a federal government loan will not.
They can be like, hey, we'll knock off a little

(25:34):
quarter for a percentage point if you sign up for
auto pay. If you refer people, you might get a
little kicked back. The guys they send to your house
to break your legs are usually really well dressed and polite.
If you pay on time, you might get a little
discount along the way. So they're they're a little fun
things like that that they can do that the federal
government does not do or can't do. Maybe uh, sometimes

(25:57):
they say you can defer this until you graduate six
months after UM. We'll talk about defermance in more detail
in a minute. But it's also a private lender, so
the only thing they care about is taking your money, sure,
and they know how to get They know how to
lend it, and they know how to get it. One

(26:17):
of the other things the other cons about UM going
to a private lender for a loan is like they
might say, no, you can't have it. That's a huge
distinction UM from a federal loan. The federal government analyzes
your ability to pay UM. As a kid, you're they're
just gonna say, yes, fine, come on in, here's your money.
If it's a plus loan and your parents are on

(26:38):
the hook, they don't look at your parents credit score.
They don't look at your parents debt to income ratio,
meaning essentially their ability to repay the loan. I think
they do look at their credit score. They look at
their credit worthiness, and there's a big difference. Basically, they
look to see do your parents have any negative reporting
on them? Have they defaulted on other ones in the past. No, great,

(26:58):
we don't need any other Yeah, I see what you mean.
Not No, they pay their bills, but they also only
have five percent of their income left after bills are paid.
And this is a horrible hardship for uce. But please
lend us the money. Anyway, a private lender is gonna
be like your parents that the income ratio is too high.
We're not gonna We're not gonna give you this or
I hate to break it to the seventeen year old,
but your parents are in a really bad financial situation.

(27:20):
They had to sell the food truck and the airstream
put you through. That's right, So the private lender may
turn you down. That's another con too. Yeah. Um, you
can get a co signer, of course. This is when
you get um like usually when your parents on board
or something. Um there of course on the hook court,
just like they it is their loan, But lenders offer

(27:41):
a couple of different things. You can get a fixed loan,
you can get a variable loan. Those variable ones, you know,
if anyone learned anything from the housing UH crisis, they
can be very dangerous because they're based on a couple
of things. The lib or London Interbank offered rate UH
and the prime rate. And that's when if you have

(28:02):
like the best credit in the world, you're going to
get that rate. But in the variable rate can vary,
and so three years into school you could be paying
a different rate. Yeah, because those rates change, that prime
rate and the library rate change, and so they're taking
that as the base rate and then adding to it
percentages based on your credit worthiness, and then that's the
interest rate you pay. And because those base rates change,

(28:25):
your interest rate changes, and if those go up dramatically,
your monthly bill goes up dramatically from month to month.
It can just kind of swing kind of wildly, and
it's not good for the old ticker when you open
those envelopes or get that email with your monthly bill. Yeah,
we dodged a bullet with that with our house loan
because we had one of those variable arms and it
just didn't bite us in the butt. Oh that's good.

(28:46):
We just got kind of lucky. I remember hearing about that.
With the sub prime mortgage debacle. You know, people were
getting these loans and the first four years it was
easy street, and then year five would come and the
payments would just balloon boing um. So yeah, that's variable rate.
You can also get fixed rate, although it's usually higher
than what you're signing up for, but you know exactly

(29:06):
what you're getting through the life of the loan. And
that's what the federals. Um, federal government loans offers a
fixed rate, almost always lower than what you're going to
get from a private lender. Right, So if you're going
to a private lender, you're probably going because you have
exhausted the money that you got from the federal government. Um.
The private loans are still going to disperse the money

(29:27):
to your school, which I didn't know as well. Um. Yeah,
everybody's just going around you. That's that drives me crazy.
It's like, I'm borrowing, give it to me the money,
but they're like no, I guess because they're like they're like,
you're seventeen, you can't be trusted. With check. You know,

(29:48):
it's not the worst thing in the world to maybe
do that, agreed, It would still drive me crazy though.
So repaying these loans, there are a bunch of different
ways you can structure these. With private loans, you gotta
few different options, um full deferral, and deferral means, you know,
while I'm in school, I don't want to work, I
don't want to pay off this loan. So just give

(30:08):
me the money, give it to me, and I'm not
gonna work, and I'm not gonna pay anything until six
months after I graduate. And they say we'll give you
to your school instead. Fine, And they'll say, fine, but
you're gonna be paying that interest. You know, that's still
accruing the whole time, Right, You're not making any payments
whatsoever until after you graduate or leave school six months
after sometimes, But like you were saying, the interest is accruing,

(30:31):
and like it's gonna be a bigger payment, and it's
going to be an eye popping payment when you when
you start finally making payments. Right, depending on how much
money you make when you graduate and start paying, you
can deduct some of that interest on your taxes about up.
So that's nice immediate repayment means you're in school, you

(30:52):
get this loan, but you start paying every month just
while you're in school because you're smart, got a job
at MEXICALI grill that's right, are making some payments. Start
making those payments at least on interest. UM. You have
an option, I think, whether to pay interest or not. Yeah,
there's interest only payments to which is basically like, I
want to pay all just the interest on my loan

(31:14):
UM so that I know exactly what I'm paying when
I when I finally start paying off the principle after
I graduate. Or you can even make partial interest payments,
which is just you're just keeping it from being is
this tidal wave of interest when you finally start making payments.
But also I think, and this is this is just
a little bit for me. Just getting in the habit

(31:35):
of making payments, even if it's just a little bit
every month, has got to help ease that transition when
you finally do start attacking it after college. We should
have a little bell in here to day every time
we give a little personal nugget, you know what we need.
We need an arm extender so we can pat ourselves
on the back loudly every time we give one of

(31:56):
the that's a good idea, they make those a little
robot arm grabbers. I also, I think we should just
say saying one more time, even though our school was
paid for, paid for it ourselves, and were we don't
have student loans, we totally sympathize with anybody who struggle
student loaned that like, that's that sucks, and like that's
we don't want you to feel like we're talking down

(32:18):
to you by giving you this advice. Not at all. Okay,
that's very nice thing to say, though. Uh, federal loans,
it's a little bit different with the repayment structure. Um.
You can just like with the private loans, you can
have that option of full deferral if you want, um,
But federal government has this deal where between like ten
and thirty years, they say you can repay this thing

(32:42):
in a standard way or the extended way. I think
standard is ten, extended is twenty five. But if you
can solidate loans, it can go up to thirty. Yeah.
In the private lending world, consolidations called refinancing. It's basically
taking all of your loans and combining them into one
new loan. Let's so called loan consolidation. Sure, but in

(33:03):
this case, from what I saw, it's like the government
calls this consolidation. The private lenders called refining. Yeah really yeah, okay,
swear to God. But um, with the when you're consolidating
the federal loans, you're not saving money. You're just making
it easier on yourself. When you refinance the private loans

(33:23):
or with a private lender, you're probably going to save
money because not only can you consolidate or refinance your
private loans, if you have federal loans, you can consolidate
them with the private leander. They go in, pay off
your loans the federal government, and they say, now you
pay us. But maybe it's at a lower rate, maybe
it's at a fixed rate. Who knows. Um, If you're

(33:44):
doing that, you're probably doing it to make it so
that you're paying less every month or over the course
of the loan. That's right. If a federal loan, if
you go to graduated repayment route over that ten years,
repayments start low um monthly and then they increase over
time with the supposition that your salary is increasing over time,

(34:05):
which makes sense, And so that's I think the standard
one or the graduated one, those are the that's the
default setting when you start repaying your loan. But what
a lot of people don't realize is that the federal
government on their loans offer UM what are called income
based repayment plans of sense, they're a really good idea.

(34:27):
I saw I read a really um great article from
Brookings I believe, basically saying like, here's all the ways
that the UM, the student loan UH situation is just
totally broken. But it's it's based on some really good ideas.
It just needs to be fixed in some ways. It

(34:47):
was written by Adam Looney. It's called a Better Way
to Provide Relief to Student Loan Borrowers. Really interesting stuff
on Brookings. But UM. One of things he says is
like the default should be a repay um income based payment,
the r e p a y E revised pay as
you earn type, because what it is it says, okay,

(35:09):
what's your income every year you you file a new
income report UM, and then they say, well, they take
a hundred and fifty percent of the poverty limit whatever
the government says the poverty level is. They subtract the
two and you pay ten percent of that that's your payment. Okay, So, um,
it actually is is set up so that as you

(35:30):
start to make more money, your payments go up. But
if you don't ever really start to make more money,
you may you pay about the same. So the whole,
the whole idea behind all the income based repayment solutions
is that if you if your diploma is paying off, great,
If it's not, we're not gonna like, we're not going

(35:52):
to treat you like the people who are benefiting from
the college experience that they had you with the philosophy degree.
Bless your heart. Go start thinking about existential risks. That's
the best thing you could do. Uh. There are other
different kinds of income driven repayment options. Um you talked
about revised pay as you earn. There's also pay as
you earn, income based repayment, income contingent repayment, and they're

(36:15):
all just tweaked versions of sort of the same idea,
where and you're figuring out how much you can pay
out of your discretionary income, or rather they're figuring it
out for you exactly. It can be you know, between
ten and twenty years to pay off. It can be
ten percent your discretionary income. In the worst case, it
could be of your discretionary income. Um. But but yeah,

(36:37):
it's it's a set amount and it's income. It reflects
the amount of money that you make. So it's pretty cool. Um.
The other great thing about these with the federal government
that you are not going to get from a private
lender is after the term of your loan, right ten years,
twenty years, whatever, thirty years. I think if you get
like the super duper extended version, they say, okay, well

(37:02):
you tried to pay it off. Um, what this this
amount that's left over, We're just going to discharge. You
don't have to pay it. It's going to be forgiven.
Oh are we talking forgiveness? I think? So all right,
do you want to take a break first? Uh, yeah,
let's take a quick break and we'll we'll get more
specific about forgiveness right after this. We'll call it a
cliffhanger things and chuck and chuck stop. All right, So

(37:53):
you teased forgiveness so hard. You're the one, he said,
bend over and I'll make a depot. I don't want
to hear it from you. Um. Sorry again, parents with
children listening, that's right. There is a plan called the
Public Service Loan Forgiveness Plan that what you were talking about.

(38:14):
Under certain circumstances, if you they will forgive your remaining balance, um,
if you have been paying for that ten years or
a hundred and twenty qualifying months. Um. You are working
full time for a qualifying employer, which is government or
nonprofit that is a true nonprofit. So you can't like

(38:36):
go work for the Democratic National Committee or something like that. Yeah,
it has to be a nonpartisan nonprofit, that's right, but
it can't literally, from what I saw, any five oh
one C three organization that isn't uh partisan or involved
in labor unions, it would qualify. Yeah. But here's the
thing is, uh, they's got a bit of a bad
rap when that first wave came through because uh of

(39:00):
these relief applications were rejected. But then other people pointed
out that, you know what, some of these people didn't
make those add twenty payments. Some of these people filled
out things incorrectly on their applications. They weren't eligible. They
didn't work for a qualifying employer. So like all the
things you said you had to do, like a lot
of people didn't do these so I don't know if
we have a real good percentage number. I don't think

(39:22):
they were just rejecting people like just for fun. Yeah. No,
we'll have a better I guess better view of it
next year, the next couple of years. But the point
of it is to drive people into um careers like
being a cop or a firefighter or working for a nonprofit.
Because again, after ten years, just ten years of making payments,

(39:44):
once you've made that hundred and twenties payment, they say,
thanks for the memories. You don't have to pay anymore.
Not bad, your your loan is gone, sometimes tens of
thousands of dollars just gone, and you still get to
keep that degree, plus your ten years into a career
that you hopefully are really happy. Way, that's right, because
that's what works exactly. Um. Here's the thing, though, is

(40:06):
loan forgiveness. There's something called a tax bomb, and it
works a little something like this. Uh, you eventually will
get taxed because whatever they forgive you have to count
as income and then you are taxed on that income. Right,
they always got their hand out. So this, this is

(40:27):
not gotten away with something. This is not for that
ten year one the ten yere one did you say,
is called the Public Service Loan Forgiveness Plan. That's right, Okay,
that one the text bomb doesn't apply. This is for
the forgiveness for just regular federal student loans where somebody
has been paying for twenty years or twenty five years,
whatever's left. The federal government says, you know what you

(40:49):
did it you were you faithfully paid this stuff off,
but you just never made enough money to really pay
it off. So we're gonna forget about clear that you're
not going anywhere in life. But but that that amount
that's left over, we're going to we're going to count
that as as income on your income text. So so
you have thirty thou dollars, like, if you're a high
income earner by that time, well we should pay Probably

(41:12):
are right exactly. But let's say let's say all of
a sudden, you just had a huge uptick in your
salary and two years before that, twentieth year of payments
come along, um, and you just still had a big
amount left over. You could be paying thirty seven percent
on that. So uh, if you had thirty grand left
over and you're in the highest earner bracket, you would

(41:35):
owe eleven grand in taxes on that debt forgiveness. The
thing is, some people who know about this stuff say,
there's no way the federal government is actually going to
do this because we're not there yet. No, we've got
about ten years before the first people whom are eligible
for that will come. We will be able, we'll be
able to test that. Yeah, and we should also point

(41:56):
out that it's all relative. You know, if you are
not in a high tax bracket, it could still be
a big burden on you because you're not making that
much money. Sure, but when you reach that that right, Yeah, yeah,
you're right, you know what I mean. But hopefully some
observers are saying they won't they won't do that to anybody.
Other people say, I don't know, you know, Like there's
if you default, which we'll talk about in a second.

(42:17):
If you default on federal student loans, they take your
your tax refund. So who knows, maybe they will charge
people with that tax bomb at the end. Maybe m
So defaulting that means, well, it could mean a few things.

(42:37):
If you're a day late, you're delinquent, doctor short, if
you're if you're three months late, you're ninety days late.
Then they're going to report you to the credit bureaus. Um,
if you don't make a payment for two hundred and
seventy days, then you're finally considered in default. And uh
that you don't want to do that. You don't want
to default on any loan in life, because it's the

(43:00):
wrong thing to do if you can help it at all. Um.
I know sometimes life happens in such a way that
you can't, but if you can avoid defaulting on that loan,
please don't. Yeah. The thing is is like when people
are calling you every day, right when? Um? No, yeah, man,
that took a second. Um, people are calling you and

(43:22):
harassing you every day. Um. Apparently the federal government uses
a company called Navigant, who are particularly despicable when it
comes to some of the stuff they'll do. I think
they have like five federal lawsuits filed against them in
one year, and like the second largest competitor to them
had like forty. So yeah, they're not very well liked,

(43:42):
but they they they When they're calling and harassing you
multiple times a day, the last thing you want to
do is reach out to him and say, hey, how
can I get back on track to paying you? Guys?
You just wanted to go away, right, But like, that's
the opposite of what you should do. If you find
that you can't pay your bill, you should get in
touch with your lender and say, I can't pay my bill.

(44:04):
I need to make this more manageable. What can we do.
The problem is one of the first things they'll offer
is something called a forbearance, and that is just, hey,
take a little time, you don't make any payments, get
yourself together. Yep, maybe you need a couple of months,
maybe you need a couple of years, who knows, but
we're gonna put you in forbearance. So you're not delinquent

(44:26):
on your account, you're not in default. But the problem
is that you're still accruing interest and that's actually not
the best solution that you want. You're like, yeah, so
you turn the interest switch off, right, And they're like,
oh no, no, no, we don't have to know how
to do that. There is no switch, Like, oh sorry,
couldn't hear you buy? Yeah, um, so you're not you're
not in Uh, you're not in default, but you're still

(44:46):
accruing interests. You're just not making payments. And the problem
is apparently these um the servicing companies that actually make
the collections on the loan payments for the government or
for for private lenders. Even too, it's way more expedient
to be like, hey, we don't want you to be
in default anymore. How about a forbearance. Okay, we'll get
you in the program by and it sounds really good

(45:07):
to you exactly like, oh great, I could use six
months or a year, but if they would take five
more minutes, they would say, actually, if you're a federal
loan um borrower, there's all these income based payments that
are going to make it way more realistic for you.
Rather than just kicking the can down the road and
having to face this in six months when your forbearance
is over, we could put you in one of these

(45:29):
income based plans and you'll be better off. And a
lot of people don't know that. So the forbearance does
seem like a great basically gift from God all of
a sudden, when actually it's a it's a it's a
bite in the in the bottom, but from the horse
God that you aren't expecting. That's good. Uh. We talked

(45:50):
about consolidation, that is um can be a very good idea.
Uh We what we haven't talked. Is rehabilitating your account.
If you through a period in life where you default
and you're like, screw it, I can't or won't or
refuse to make my payment. Um, you can pick up
a year later and say like, jeez, is it too late,

(46:14):
and you know what they'll say, Oh no, calm yeah,
get out that checkbook. You can rehabilitate that account, which
is a really good thing. Start making payments again. That's
all you have to do. Uh. And it's and if
you couldn't afford that payment before, they'll even restructure that
back to what you were talking about, to your income.
Like if you let's say I have a salary reduction

(46:36):
in life, and that's why you defaulted in the first place,
pick up the phone. They will just answer the phones.
They're gonna be calling you, uh, and rehabilitate it and
say listen, well let's let's talk this through. Um, I'm
a good person. I really want to pay this, and
they'll say, great, well can you afford Let's look at
your numbers and then you start paying it and then

(46:57):
all of a sudden, if you've paid nine payments over
ten months, then you're considered current. Your default status is removed.
Credit bureaus think you're a great person again, and uh,
you only get one shot at this though, right that
rehabilitation you get one chance. Um, and that's just with
federal loans, right, I believe, So I'm pretty sure that's federal.

(47:20):
So um yeah, ultimately you want to stay out of that.
There is a second chance with the federal government, but
it's not necessarily easy to do. Um. So with one
of the things that happened with all of the student
loan there's like a student loan debt bubble that a
lot of people are worried about because there's like one

(47:40):
point six trillion dollars out there right now. Which is
good in one way because with student loans, the system
is set up so that the people who are benefiting
from it now, people who are borrowing to go to college,
are paying back into it later to benefit the people
who need to borrow, they are coming behind them. Okay,
so it's actually pretty interesting, good system. But the problem

(48:02):
is with that much money out and as many people
at risk of defaulting on these loans, a lot of
people are worried about it. One of the reasons that
people are worried about being of the risk of default.
Among a large section are what UM some people call sums,
people who have some college educations. You see that. Yeah,

(48:23):
people who went to college and like didn't graduate basically. Yeah.
And one of the problems from that Obama initiative to
expand UM higher education was to say, oh, yeah, online
colleges we've never heard of before, Sure, come on in, UM,
barely accredited colleges, come on in, UM, like basically scams,

(48:45):
come on in and take all this money. I won't
very prominent, No, we can't. Okay, I looked it up.
That didn't apply, not even accredited. Yeah, um. So uh so.
The the fact that this that the country was awash
in easy money for college education and that no one

(49:10):
was watching the sharks who were coming to soak it up,
means that a lot of people went to schools that
they got zero benefit from but walked away with a
lot of money that they owed. And so these are
the sum So basically these people would have been better
off with just a high school education, because to an employer,
a little bit of college doesn't doesn't help. You have

(49:32):
to go graduate. Yeah, you don't walk in and say, well,
it's spent three years and so close, Jim, Jim, Can
I call you Jim? So close Jim. What's called the
sheep's can affect, which is the actual increase in wages
that you can typically expect from a college diploma. There's
no proportion to it. If you get three years of schooling,

(49:54):
you don't get three quarters of the sheepskin affect. It's
all or nothing, and you only get it when you graduate.
So if you don't eduate, you got nothing from that
that increase in wages, and you actually owe money through
student loans. So there's a big problem associated with student
loans and a lot of people are kind of worried
about it um And one of the things that there

(50:15):
that is causing worried to our people have figured out
how to take a bad situation to make it even worse.
Because some lenders, and I think the federal government's among them,
take student loans, package them up and sell them as securities. Crisis.
It's exactly like the housing crisis, with one big difference

(50:36):
that subprime mortgage crisis. Even if somebody defaulted on a loan,
there was still a house that could be taken and sold.
And I that sounds extraordinarily heartless. But I'm saying from
an investor's point of view, there's collateral with the student loan,
there's nothing backing it. If the person defaults, then you
just lost everything from this investment. But the idea that

(50:59):
people are like, oh, they're a student loan bubble, let's
figure out how to turn it into an investment that
is really ill advised. That's what I think. Something like
a two hundred eight billion dollars of that one point
six trillion is securitized. I think Mark Cuban one of
his big deals as student loan, uh like paying it off,

(51:19):
for relieving it, trying to help solve the problem. Yeah,
I think he's one of the ones that's kind of
been shouting like there's a big problem coming. There's a
huge problem coming. I think a lot of people know it,
but very few people know what to do about it.
There's one other thing. There's a proposal by Rand Paul
that was brought to committee on December third, nine, and
it basically says you can get like fifty sid bucks

(51:41):
out of your four oh one k penalty free and
tax free if you use it to pay off your
student loans. Yeah, that's a tough one. Uh, it's a
math problem, Like, just do the math. Uh, it's sort
of like robbing Peter to pay Paul. You're not gonna
have that money later on, right exactly. But um, depending
on how the numb first workout, it could benefit you.

(52:02):
It could benefit you in the short term. But what
some people are saying is like, no, dude, we were
going to have a big enough problem with a lot
of people not prepared for retirement thirty years. We should
not be encouraging those same people to take whatever money
they have saved a way for retirement to pay off
their student loans. It's not a good idea. It's not

(52:22):
for everyone. It could be for some people. It depends
on how your life goes well. Yeah, Plus a lot
of people are like, I don't have five grain in
my four oh one k. What's a four oh one K?
All I can think about is my student loan debt.
It's a it's a it's a bad situation. I'm very
curious to see what happens. Yeah, me too, And uh,
go to go to school where you want to go
to school, kids, But I'm telling you, try to make

(52:44):
it someplace you can afford and really, really, really look
at the benefit and the and and that that outweigh
is if it's worth it you think to spend all
that money? Just just think more about it. Well, you
want to know one thing that's really despicable that came
across that I did not understand, Chuck. The federal government
is not allowed to share data on outcomes from schools.

(53:08):
So like if you went to a private school and
you just got a wash in debt and you make
ten grand a year, there's no way to share that
with prospective students who say, oh, I want to stay
away from that school. I want to stay away from that.
To Sarah Lawrence, the average salary is agoing senior is blank. Like,
they don't share that. So the what we're advising people

(53:29):
to do, it's very tough to do because the federal
government is barred from sharing that information. I think, have
you got anything else? Nope, this is a big one.
We could talk about this forever. This one, Chuck, may
have broken a record. I had sixty four tabs open
on just student loans today. I believe it sixty four

(53:50):
too many tabs. It's a lot of tabs. Okay, since
I said it's a lot of tabs and Chuck said
something horrid about deposits. It's Sime for listening mail. I'm
gonna call this to listener mails because they're both pretty
short and both uh corrections. Hey guys, been listening a
long time, Really love the show. I finally have some

(54:11):
info that I can share with you regarding a recent episode.
Listening to the Coyotes episode and Josh was searching for
a word, uh for something that is active at dawn
and dusk, and I'm here to tell you that word
is crepuscular. It sounds like a pete and pete kind
of word. It does. The crepuscule is another word for
twilight or dawn and dusk, So crepuscular means of the

(54:35):
twilight or an animal that is active at that time.
Hope that helps at your next tribute night. That is
Sarah from Wisconsin. And now we're gonna read one from
Bethany a correction uh for my pronunciation of tagalog. Hey guys, listen,
we got a few of these. I listen to your
show every day during work and love listening to what
you have to offer. Because of my frequency of listening,

(54:56):
I know you're always looking to improve pronunciation and want
to be respect cool of other cultures. I'm currently on
your latest short stuff on the murder of Tera Cita
Bassa and our Bassa, and wanted to point out the
correct way to pronounce the Filipino language. Chuck said, tagalogue,
it's actually to galug you're thinking of those little Debbie

(55:16):
cookies or no Girl Scout cookie. Now, I just didn't
know that's how I pronounced it to Chuck. I just
wanted to help where I can say thank you for
continuing to produce awesome content year after year. Once again,
it's to galag to to go long, I think, well,
this is g a h g u A somebody else

(55:38):
ad g u h. Boy, here we go. That's from Bethany,
Thanks a lot, Bethany, uh and from Sarah to to
listener mails to top notch ones. If you want to
try your hand at sending a top notch listener mail,
wrap it up, spank it on the bottom, and send
it off to Stuff podcast and i heeart radio dot com.

(56:02):
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