College Debt Got You Down? (S3E7)

Friday, July 14th

Don't get overwhelmed by your student loan debt it may be a different type of debt but it is possible to pay it off! 


Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

Do you know the difference between student loan debt and other types of death. Is that a kind of difference that really surprised me for her it's. On this episode of her money. Why is colleagues dead and different. And how do you pay it off. Her money is sponsored by Carol financial hi this is in only natural financial advisor with Carol financial. They're ready to match retirement can be curvy confusing and quality tourist and stops with you simply getting started. Approaching retirement or fall somewhere in the middle join us sir our new series of workshops this summer. We college retirement. Simple for more information visit our website and Carol financial dot com. It's Carol financial it's retirement and simple. Not to long ago Chris and I did have FaceBook lives where. One of the questions we got was. Okay I'm figuring out how to pay for college but what if I didn't discover you guys until it was too late no I have all of this do you dad are there any strategies. To paying down and managing and being smarter about student loans once you've already got them so let's talk about that today on this episode of Herman Crist. Some people and it's kind of mind blowing when you hear some of these numbers so I'm sure we'll have six figure high six figure student loan debt. Yes absolutely and and the government has made it. I shouldn't just blame on the government to government and lenders have made it easier and easier for people borrow money and for two gigs just. Pretty out of control hi I mean you've got people who. Borrow money to get undergraduate to live our money to go to graduate school and before you know it it's this enormous number and hopefully you know there. Doctors and lawyers they can pay that money back and time. Not just doctors lawyers that specialist us because one thing that I read it was really interesting is. The majority of doctors in the US or GP eastern practitioners. And may make in the money they used to they're not so they're now you've got that maybe six figure student loan debt and your doctor or your lawyer. But that doesn't necessarily guarantee you. A spot on easy street right. Now that's exactly right yeah you know what ever your going to borrow money for. We've talked about this before you can you know there's borrowing money is an investment. And there's borrowing money as just borrowing money to spend it. OK so a good education that we sued good career that makes good money is that you can look at that as an investment brain. And OK you're OK college to get a degree art history and get out and not know what you're gonna do that's not an investment anymore now it's just you. Consumed. For an education. So he give out and you start working power unit paid off this college debt the first thing I would tell you is. Don't feel like you have to pay an awful wants don't feel overly burdened by your college debt OK I think. You north I think in their early years some people are overwhelmed by it. If you get overwhelmed by you'll start getting emotional about it what happens when you circular emotionally. Not thinking clearly clearly make bad decisions so you know here's the thing you. Look realistically future college debt and say okay this is how much are blue and know what the interest free pitcher paying. And how does that interest rate determined. The cases that that last thing I should really important how does that interest rate determined. In some cases you have an interest rates this fixed. Like when you get a house right you get a fixed interest trader little rest and time no matter what happens in the financial market you're interest rates. Doesn't change exactly but in a lot of cases student loan is not fixed it's floating so he can change over time. That's kind of like getting an adjustable rate mortgage. And Randy sometimes. The changes at least in my experience or not your favor that. That's correct the change means your payment goes up up up and correct them and so what are you really doing well like a house. You would like to lock in the lowest intra sure you can. For the longest time that you can't. Right that's just makes sense you wanna pay doubts. You know that that's the best thing you can do now with like a house most college loans you can pay eerily. Without penalty without penalty right so. So what Chu warned his low interest rates sin and you were locked in a low interest rates they can't change. So let me let me stop you there when a couple of questions armed. So there's. You know third third group loans that are major actually do you student loans TV student and then their separate their loan that your parents can take out yet to help you with your education. Are all student loans created equal in terms of term land of. Payment they're there they're very different actually won two and other you know most of the time when you first go to school. You're gonna sit down with the financial aid office and they're gonna put together our here's our you're gonna pay for college we gave you this little you know sheet that works all the numbers for you. It in net sheet you're gonna have. Core may be grant money grant money generally doesn't get paid back great. Then you're gonna have subsidized. Loans and bonds subsidized. Loan. It's not subsidized loans are tied to the government sure sauce troops subsidized loans means that you will not pay interest until you graduate OK as far as you're in school full time we don't pay no interest accruing correct. And other subsidized loan is accruing interest but usually you don't have to make payments until you graduate. Now with feet to subsidize vs on subsidize I mean obviously it sounds like subsidized is the way to go it's better but I'm not gonna be deductible on your time they're telling you everything that you don't -- so great is that it needs based decision yes so how nicely yes. How much you get depends on your needs depends on the cost of college. It's pretty complicated. We actually have somebody about the succumb specializes in this stuff. So she would know more about that I would. But do do the four new little complicated but every every time everybody fills out the form the same way just accept the facts and and singing you can't just stroll any go RB Evan wanted to those sometimes I've. Yeah because everybody would like to try very that's exactly right but then OK so after the subsidized in the un subs on subsidized there's the personal. Okay. So the personal wounds a little bit different and the incher shrew Purcell and tunes to be. Pretty bad free hired and I. It you know the so when you get out it's not uncommon for you have three different loads out there. With three different raised three different rates are really very accrual loans held on your gonna pay them off. I'll say something that should be obvious but I still should say it and that is. Can you ought to pay off blew the highest interest rate were first campaign right the personal the personal in this case. No the thing is a lot of times when you graduate you're given an opportunity to lump all of these I ask you yeah that. And he you're gonna have to sit down and do the math to see if it's a good deal unfortunate title for you right prisoner in his new short circuits you right. You have three of loans one of homes that. Four point 8% problems that brought 41% in the last one's a seven point 8%. And you can wrap them all up into one new loan at six point one and you've got to sit down and figure out. You know which one is the best thing that people do that drives me nuts. They make the decision based on the lowest teen met. Which is also sometimes the way we buy house is in Carson and that's not awesome need to listen. Strategy no cars cars the worst people like I can afford to pay 400 dollars per month. Wolf 400 dollars per month for the next seven years. Is very different than 400 dollars a month for the next three years for spray it. So greedy about it in terms of what's the most car I can get for 400 dollars above the system when all I wish you guys yes it's the wrong way to think about it. Well let me ask you this and tell me if I'm doing amount math correctly so looking at this to grant subsidize on some ties personal and now I've got the option role at all and if because of my need. The bulk of my money was subsidized. It might make. More sets to keep all those loans separate correct and then focus on paying the higher interest one back first correct. So maybe the first step in figuring out Sendai lump sum that. That debt. Is looking at what ratio. Yeah you're you're you're about to. Our search tool thinks through what the monthly payment is think about what the teen wolf interest in some pay an annual interest is really key really easy to calculate because all you're gonna do usually take what's the interest freedom paying great times what's the balance. So a five room 101000 dollars and I'm paying four and a half percent. Just multiplied 101000 offer for a half percent I'm paying 450. Dollars per year. Without alone for that aren't exactly and then I can break it up and I can do every low life that I can say okay altogether. This is how much interest I'm paying per year. See add all those numbers up and that's that's number day that's what you already oh yeah. And then you look at a lump sum refi basically refinance and say what's my interest per year if I put them altogether and then you compare those numbers and so now you're comparing apples apples. That the the the problem with a lot of these college debt things. Is that it's hard for people loose compare apples to apples that's super easy but. Are are people going to sit down and do it or they gonna focus on oh well this un says are you just a hint of 367. Dollars a month for the next. 28 years and. Her pictured are happy but the people here hearing this are gonna do it because one of the things is sort of overwhelming. When you're trying to figure out a decision like this about managing student debt especially. When you're talking to like in my case an anthropology major and not a finance major. I already I. I already am not wired for math and money is I'm talking about everyone's talking about me I'm already not wired for Amare to terrified of it. And I've got all these you do things and I lose financially at a and until you just told me this very simple way of figuring out I would if I do no idea where to begin. Making that decision. Right and I noted that you're going woman. Get more but your dream is organize different. Lire and that's okay right that this is. This is this is why people need you know you need finance majors in the world to you yeah. You know so so it's good to sit kind of figure orchard interest is figure out what the interest it's the same way you ought to be approaching any financing decision. If you do these clashes quorum that I think people miss a lot and this is a little off subject for pretty girl related news. A lot of times the car company will give you a better deal. If you finance that yes and if yes right they'll say well look but if you pay if you paged through it for a through all the finance certain gonna not he can come down our tax dollars from our tax dollars will yes sit down and figure out what's the interest you're going to pay them over. The life of a blown right so if you're gonna borrow 20000 dollars is. 2% which sounds great right I mean that it's 2% money that sounds great. We'll 2% of 40000 dollars as well. 400 bucks grave so if you do that for five years you pay them for her bucks a year for five years that's 2000 dollars in interest. Well if they're gonna knock 500 dollar softer car for you to creating music video yeah yeah you didn't get such a good deal but she got to think through that stuff and I think a lot a lot of people don't sit down and just do it's it's. Hard master you know Asia business edition. As blindly obvious things that never occurred before OK okay so here's a question we were looking at this and we've we've done this very basic and simple calculation. On what happens. If you default. On student loans and are are these different kinds of loans also very different com default time. Well that there are slightly different come default time if they were not. Proper we noted as student loans some personal loans you have led give you sort of a risk. That a portion alone will not be identified as a student loan meaning when it gets imported when you define exactly hero campaign and that there's there's a couple of reasons I can be a problem one can be a problem because student. Interest on student loans this tax deductible. But interest on personal wounds is not tax deduction. So one of the questions you need to ask that they at the beginning of the process and. How neat this is it is this personal loan coded as a student loan and am I going to be able to. Claim that hasn't claimed the interest just to. Suction really person not blindly obvious thing that we should have known that I didn't know to ask. So that's good that's in the financial link conversation yeah and in each to the answer should be yes don't. Worry about it the only time that you grow into a problem with that is he. If this happens a lot people in double. And before you know it they're not nearly unity they actually have seven separate learns in different things and if you just have to stay on top of what's what's counting your student debt. Who is followed that you took out. Love that you took out to buy the car that you needed while you were in college not student debt exactly and so what happens a lot of times that money gets all kind of mixed up. You know because if you're paying your race through college for four years of borrow money along the way. You need to somehow really segment what money was for wallet and ultimately what matters is. The bar or two is the bar were calling it a college life. So that makes me wonder when you say is that coded as student dead. That but it is that because in the event that you do default but to follow his lead differently by the credit agent you know you each. Bankruptcy does not get you out of student. Shot the door. See income from pop culture most of us believe that bankruptcy gets you out of everything. It is. It doesn't it does and doesn't and so your student loan debt does not kill wiped off the books are a few for it. You know we're gonna do a whole episode one day about Chapter Eleven and chapter thirteen because and can you get those terms get thrown around right left and senator no nobody that financial people lawyers know that means. So student if it's coded a student loan that. It does not disappear in bankruptcy. Yeah there could well once again it depends on the type through bankruptcy so that might be something we need as a whole another head that's probably hold another episode but in general bankruptcy does not get your student loan debt wiped out. So that's been venues for use student loan person that. Is there any is there any good news like let's say you have a late payment on student loan debt to the credit agencies view it differently. Student loan debt is its own classification. Of debt so having a large amount of student loan debt doesn't hurt your credit score as well as other types of debt. Can't. Late payments once again don't affect your credit the same way as like her who only credit card payment does. So they're called you know we have we're called revolving. Credit to rehab installment. Credit. Okay. They're just treated differently. And and they go into the formulas differently. The other thing you'll find is that a large student loan debt journal we won't stop you from. Buying Howell sore it's it's just it's altogether viewed differently got you then then other types of. So on the one hand there's a little more her mom forgiveness and flexibility. In terms of late payment yeah but there's no escape. Dad I will say you know also it is. Tax deductible. To a certain income level. Nutritional student loan is tax. Loans or tax deductible which is nice you know if you're paying. 5%. But it's tax deductible that it's really like your paying us right. So let me just Q that's on let's say we have someone listening right now and they have a fair amount of student loan debt to thirteen other working at things are going okay and they've got a house and and they've got some equity in that house and they're looking at the student loan debt most of which is on subsidized. And they they go well wait a minute what if five paid off my student loan that was my home equity line isn't that a good strategy. Some he could be although I'll tell you generally it generally no huge general leave the home equity line. Injure sure he will not be much lower. Then student loan debt is okay both our deductible OK so no real reason to hit your momentum kind there's not a lot of reason to doubt now if you're getting older you know let's say year. Tony years are college now and you're getting towards the end of your student loan. And usually get repayment paired off the American it's kind of not going to be a big saver or big cost he choose which one you're not here so it's just kind of a psychological relief year out exactly so you might do it for more for psychological reasons but I you know I just. I don't push people to pay off student loans as fast as possible because. In general it's better debt in general it's lower interest rates. In this tax deductible I can't think of it like pay off her house or. It's okay if you wanna do that should not pro group to start critical. So I think may be just answered the next question I was gonna ask which is is there any value to amortizing. Or paying you know trying to pay the interest down on a student loan debt. You know and again I just I'm not sure it's a big deal you know I I look at. I look at it very similar to mortgage. Some people wore to the blues debt free. Some you know but that's a psychological more than a financial right that's an emotional it's emotional decision and and so if you're gonna pay off your house of pay are for student loan hey you know things through what's the benefit T well normally the benefits psychological. And that's okay then that doesn't mean don't do it. I'm just saying I can't pound the table execution drew this here you go right round like that. One thing I do think. When people refinance their student loans sometimes I've actually seen people refinance or student loans to deport her. There's student loans can last longer than their working career. Which seems. He's he really say you don't like it does around people do the same thing with their houses so it's not but but one of the things I would tell you is is going to make your life much simpler. To kind of pay things off or over the course of the time that you printing to work. I I want to ask you question and I I've I have two questions com. And I don't wanna throw late you know for profit schools under the bus church but my first question is is rising graduate school I would. I would have here my classmates talking about my student loan money came in and buying a MacBook. Yep thumb and that you know I know people do that is that and is that an okay thing to do and not ideal thing to do or please god don't do that. Not ideal thing to do not regularly and and it's a you know if you need it for school it's one thing if you don't linger for sure it's different in it's the same thing. It's the same way I feel about it don't want vacation which is on my Willamette that would be crazy but but it. You know here's that they use the same way I think about buying a car borrowing money to buy a car. Doubt if your borrowing money to buy a Honda so you can get back and forth to work reliably and securely and safely for a long period of time. That totally makes sense to me Eric. If you're borrowing money because you need a BMW because the Honda you've got justice shiny enough for a drive back into that she differed financial decision yeah I mean. So I kind of look at student loans kind of this big dirt during a similar vein OK you know if if you're borrowing money for something you need to get an education to further your career. Totally makes sense I mean that's that's life that is why dead is there if you're borrowing to buy the bat mobile is fish. No carrier behavior borrowing because your old laptop has a cool enough to be seen live and you need like the news rather prefer just one big -- more than yours also pretty shiny. And not just different. Let's talk about financing for profit schools like this yeah I do not intend to be negative ever throw any of these institutions under the bus. It just seems lake. Mom there's a there's money out there you're that you can borrow. Go to a for profit school and they they make a lot of promises kept about the jobs that you're gonna get. Yup when you finish the program. And then you shear. And this might just be like you urban legend that you hear some more stories about the level of debt people acquire. At d.s for profit schools what what can you tell us about that situation. Pick the least you know you go when there are some knowledge of protection. He I. For profit universities. There is some in particular we will groom naming names but some for profit universities in particular. Kind of figured out how to game the system they figured out how much the government would let people borrow. And then worked backwards to figure out how much they should charge for classes that cost them virtually nothing to gift right. Sprained. Does is not to say that all four profit universities are wrapped I have friends that have attended. Online for probably universities and actually learned a good bit from them. I've actually attended classes. Four probably universally. But. The quality of the education it is it's a do standards differ from Kenny and in the world views it differently. Okay. Here's the thing that you should really worry about if you're going to to take classes. You need to look at the statistics. On the undergraduates. Not the cool stories they tell you about the guy who graduated from there Rayed 75000 dollars a year in his first shot because you are about. No that's not what you wanna see you Lucy the statistics on what they're graduates may. And where's that information available so some are listening right now goes oh my gosh I'm about ready to enroll. As I wanna go to college in my pajamas like that girl on the TV commercial. In my living room where are those worsened data available and are these institutions are required to make that data available. Case in the they are required to me that kind of deal is available if they are credited. Interest and so that's the hour another finger an attempting to look at is are the accredited and by whom. Now most of the time you will never have heard of the Crowley even to good accrediting group she won't ever heard of them okay they're the it'll be like south. Southeast regional such and such a such and such accrediting agency. You won't there's not going to be a household name OK but you can then go to the accrediting agencies web site. And it will it will tell you here's the things we'd look at him refer accreditation. And then also they will tell you. The most recent. Results. From their audits because every schools audited and the buy your body that a credit by the body that a credits it glamorous of those audits or every four years. But. Look at it. Read it. Because some believe may need a leader concerning this this is real data and its stated that they're not necessarily Europe cushion for your nose OK so if you go to the the trouble to figure out of they're credited. Who were there credited by go to the website the creditor nation that does these Croatian and read what they found in their last audit okay now. That sounds fairly complicated adjustment you can do five minutes in Google. You know I mean this is not this is how complicated yet it's just different this is something this probably knock him or her to speak. Because again you know these aren't links skills and ideas that we learn in school these are you know you learn this stuff too bitter hard experiences. And knowing somebody you screw all right hey that's exactly right she's accurate so as we wrap up this episode an an and other earlier episodes you can check our website for the listing we've talked about how to pay for college and how to get these loans and all of that. You really want to be looking not just that the monthly payment or this semester but at the big picture up. What am I borrowing for four years to get this to greet. And at the end of that if I have I'm a major that doesn't have lake huge pay backs in the job market. Is this a good financial tool as assumption that I can afford to pay back your reasonable period of time. So the shafts is just the beginning yeah Eric. Of this decision process. Obviously studied in the beginning because hopefully you were your parents started years before this so yeah visual thing where you'll. Have you heard he might even. Not to give me birth is the beginning of when we start planning for how we're gonna pay our college loans back. That's really interesting stuff I love that tipped about. Looking at the data on the accrediting body that are super useful heart that wraps up this episode. On her mind to podcast. K if you want more information about what we talked on Wednesday showed why he's just how much other questions about money. Does our website it's WWW Doug Carol financial dot com or you can only shoot me an email whether it's through the podcast or through my website. I'd be happy to help this I can't. Her money is sponsored by killed financial hi this is only natural financial advisor with Carol financial. They're ready to match retirement can be Kirby confusing and fully detours he stops whether you're simply getting started. Approaching retirement are false somewhere in the middle join us for our new series of workshops this summer. We college retirement simple. For more information visit our website and Carol financial dot com. It's Carol financial it's retirement simple. They're hurt already my guess is hosted by me Sherry lynch and meet Chris scare our executive producers or new trial broke. 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