Public Service Loan Forgiveness (PSLF) and Buyback
What is the latest news regarding the PSLF buyback program?
Well, we got the latest numbers. Basically the backlog got bigger. They processed more applications. So technically if you know you are in the buyback line it is now around 27 months instead of 35 months. So it’s still been over two years and as I repeat, the number of rejections is increasing. And I expect that to continue because I think a lot of people are going to be impacted by PSLF in a general way even before they’ve completed their buyback process.
How soon from the 120th payment should I apply for forgiveness and apply for buyback?
You cannot apply for buyback until you cross the 120 mark. Not before, crossed it. And so, honestly, for you, the buyback is going to be controversial. I wouldn’t even consider a buyback. Now, if by some miracle they clear the 27+ month backlog and get caught up, then there is no harm in applying, but honestly plan to do PSLF in the normal way.
Do you have to work at a PSLF-qualifying job for the full 10 years, or only at the time of application?
They actually treat each of the 120 payments as individual. Every one. And you must meet all the criteria for each individual payment. Direct loans, qualified repayment plans, qualified employment, and then you certify all of it, every single one.
Do payments made during “school suspension” count toward PSLF?
No, they don’t. And you come up with a great reminder. Do not make payments while you are in a moratorium or hold status. Don’t pay interest while you’re in school. Most people spend their own money which can be used for other purposes. If you think you got extra money when you were in college and you want to do something with it, invest it.
How does one get out of student loans other than paying them off?
So about 50% of borrowers qualify for loan forgiveness programs. Assuming you work in public service. Any remaining balance from your student loans is forgiven. The other secondary benefit is that you are on an income based repayment plan for those 10 years, this is the lowest monthly payment you can make. And it also has levers you can pull to hack it, right? You can contribute more to your 403B and you can contribute to an HSA and contribute to a traditional IRA. And you can reduce your taxable income by saving and investing for yourself.
Income-Driven Repayment (IDR), IBR, and SAVE Plan
How come my Save Plan says my next due date is 2028, but now they are asking me to change the plan?
Because as we have been saying for the last one and a half years. That date is a placeholder date. This is not your actual date. Inside the ancient Excel spreadsheet that is our student loan system, they had to put a date in there and they had to pick a date that they didn’t have to update every month. That being said, how can they change it for you? Well, Congress passed a law and then saved rules that weren’t laws. Those were just executive orders that were struck down by the courts. I’m sorry to say that you will have to choose a new repayment plan.
I was on SAVE and filed my taxes separately. When is the best time to switch to IBR?
As soon as your tax return is processed, it will automatically pull it and you just apply at studentaid.gov and it goes from there. The biggest thing is to make sure it’s processed and then move on from there.
Why does interest on IBR increase so quickly?
The big thing you need to understand is that when you’re on IBR, your monthly payments are based on your income. It’s not based on your loan balance, your interest rate, anything like that. Most people are on IBR because they want the lowest payment because they are going for some type of loan forgiveness, right? Or financially, you can’t afford the standard plan payments. I think the big thing I should say is that if you want to pay off your student loans, standard plans are the way to pay off your student loans. However most people are on IBR because they cannot afford it.
How do I submit alternative income documentation if I am going on disability or are unemployed?
When you go to studentaid.gov and it asks you like on the first screen it says, ‘Do you want to link your tax return?’ You scroll past that and select ‘Skip’ at the bottom and then select ‘I want to upload an alternative document’, and then you can upload. I always say things like: Write a little letter over there and say like I’m on disability right now. This is my only income and you can have a small copy of it. Show your disability check and you’re good to go. If you’re unemployed, same process: ‘I’m unemployed, this is my unemployment compensation, this is all my income right now.’ Done.
Is IDR for married couples based on both incomes?
Yes. If you are both married and you both have a loan, you will count your payments as married filing jointly. What this does is it divides your loan proportionately so that your overall loan has equal payments. File separately. It uses your income. File jointly. It uses your combined income.
I am going to Germany. Do I need to pay off my student loans?
Of course you do. But. I talk about how you can reduce your student debt to zero or very little by moving to Germany. And that’s because you can get the Foreign Income Exclusion Tax Credit. So what I want to say is that you have to deduct $130,000 of this year’s foreign income from your taxes. So you can effectively zero out on your US tax return. What else? You can use that zero on your US tax return to prove your student loan payments are zero and now your student loan payments are zero.
Parent Plus Loan
I have Parent PLUS loans that are deferred or nonpayable. What should I do?
If you need access to Income Driven Repayment and Public Service Loan Forgiveness, you need to consolidate and get an Income Driven Repayment Plan and you need to do it today because that window to consolidate and get an Income Driven Repayment Plan closes on June 30th. Starting July 1, Parent PLUS loans that are not consolidated can never take advantage of Income Driven Repayment and Public Service Loan Forgiveness.
For Parent PLUS loans, do you recommend making one payment on ICR and then switching to IBR?
Yes absolutely. Income-based repayment will give you lower monthly payments than income-contingent repayment. So, make your one ICR payment, finish the billing cycle, and then apply for IBR.
Can the government come after a student if parents don’t repay their Parent PLUS loan?
No, parents and debt are 100% your parent’s responsibility. You have no legal liability towards them.
FAFSA and paying for college
What is your best advice for a college student who did not receive any financial aid but still wants to attend?
Choose a college that you can afford. The maximum price for a graduate degree is $80,000. That’s it. So spend less than that, borrow less than that, you’ll be fine. Spend more than this, and you’ll put yourself in financial trouble. I would look into community college. I would look for employers that will pay for a college education. Work at Chick-fil-A, Target, Walmart, Starbucks.
I got into Michigan Ross for $70k or UMass Amherst for $25k. Which should I choose?
Always the cheapest school. There is no difference. They polled Fortune 500 employers and one of the questions they asked was, does it matter to you where you went to college or does it matter to you where applicants go? And in fact if you go to the top 200 schools in America, it’s exactly the same. It doesn’t matter to the employer where you went to school. And so there is no difference. Just go to school as cheaply as you can.
Do you recommend taking a federal loan even if there is money in a 529 plan?
The order of operations I recommend is to make your known payment first. So, eliminate the 529 plan entirely and then supplement. This is because one-third of students who start college do not finish college. You don’t want to keep leftover money in your 529 plan. You don’t want to borrow, take out the loan, and then keep this extra money because not every state allows you to use your 529 plan to repay student loans. So, make use of the 529 plan in advance.
What is the order of operations for taking a loan for medical/graduate school?
Federal loans first reach your limit and then you supplement with private student loans. Honestly, that’s just how you do it. There is not much in it. You just go shopping, get three to five quotes on personal loans and rock out.
What should I watch my 12 year old daughter prepare for college?
Number one is to make sure she can do math. Algebra One. Do everything in your power to make sure Algebra 1 is completed by 8th grade. The reason this is so important is that the PSAT and SAT quiz you on pre-calculus. And if you don’t have Algebra 1 and eighth grade, you won’t be able to complete the trajectory of getting great SAT and ACT scores. If he or she gets good grades, it opens up many doors for both colleges and merit aid. By the time you get to early high school. You have to be completely transparent with the child. You have to tell them how much money mom and dad have.
General Personal Finance and Loan
Would you recommend paying off student loans as soon as possible, even if it means living an inconvenient life?
If you’re one of the 50% of student loan borrowers who can’t get any type of student loan forgiveness, get debt free as quickly as possible. However there is an asterisk. Don’t do this at the expense of 401k matching contributions. HSA matching contributions. You don’t lose free money to get your student loans paid off. So, always try hard enough to get whatever free money you deserve and then yes, spend the rest on it. And living an uncomfortable life. Absolutely. I would rather be uncomfortable at 22, 25, 28 than be uncomfortable at 38 and 40.
I’m 19-years-old and trying to buy a $21,000 car. What percentage should I put down?
The real answer is that you invest 100% and buy the car in cash and if you can’t afford a $21,000 car, you find a car for $5 to $7,000 and then invest as much as you humanly can. And you finance as little as possible. The value of the cars themselves decreases. They are only there to get you from point A to point B. And you are 19 years old. You need that money to work for you. You don’t want to give your money to other people.
My husband and I make $375k but are still making ends meet from month to month. What do we do?
It will really depend on a lot of practical finance questions. I always say look at your big three, right? So, you’ve got your own accommodation, your own transport, sometimes education, and I would even venture, depending on your income level, holidays. However, this will be inconvenient for you. So, you just need to start having those difficult conversations because it’s all psychology at that point. Mathematics is mathematics, but there are going to be inconvenient options like reducing the size of the house, reducing the size of vehicles, not taking holidays.
Once you’ve got $250k in a money market account, should you open another account to make sure it’s insured?
I think there is value in diversifying, but I really have a big question. Why do you have so much cash in the money market? You know, there’s actually a risk to it and that risk is cash crunch in which you’re potentially exposing yourself to a loss of tens if not hundreds of thousands of dollars, maybe millions of dollars, if you hold that much cash and keep it invested. I hope you’re telling me you’ve got a $10 million portfolio because that’s a lot of wasted money, man.
