Welcome to out of money.
I'm Joel and I am Matt.
Yes he is, and today we're talking about the impending student loan cliff.
That's right, buddy, we are talking about student loans, and it's there's a good reason for us to talk about this because there are changes on the horizon. Even though
I personally am not affected, I am actually fortunate. Either Kate nor I were fortunate enough some would say privileged enough to not have any student loans by the time we are we know ever, but certainly when we graduated, Emily and I we both had student loans, and we're currently paying cash for her grad school, so we've paid for education over here, but it's paid a little bit of a little bit of interest on your your higher education.
I will say we were lucky when when we graduated, rates words were crazy, crazy low on the student loans. So it but there's a lot of good news for people who have student loans. If you're like the erabous about what's coming this fall, yes there's a cliff coming, but that cliff has been I don't know, there's like a soft pad at the bottom of the cliff for a lot of people, given kind of all the changes that are that have occurred. We're going to discuss all that today.
It's like one of those blow up mattresses the firefighters, but right there's a jumper where they're like, as long as you land within the circle exactly, we think that there is a maybe a soft landing ahead for you.
But Matt, before we get to that, I just wanted to mention really quickly that one of my tenants, they reached out for the email and they said, Hey, we're thinking about changing the way we pay you every month. Is that okay? And I was like, well, we can pay you in pennies. What's you thinking? That would be messed up?
Pay you in greasy pennies? Coded and motor oil I did. It was a story we talked about like three yeah, two three years ago.
I made a bet one time with a friend and he about whether or not one one player was going to make the All Star Game. I won the bet and he paid me in pennies. You're so man, but what you get right? But so no, my tenant was like, Hey, I think I'm gonna pay with this this thing called the built master Card. And I was like, I'm so.
Proud of them I know about the built card.
Ye talk about that all the time. I was like, this is going to add one small extra hassle every week or every month right when I collect rent, because now I have to actually like take a picture of the check and deposit it. But still not really that big of a deal. And the tenant now gets the rewards. And I've never I haven't been on the receiving.
End yet someone using it. Sure can't you enroll in within the belt program the platform and then it gets sent directly to you? Is that?
Is that not correct? Oh? As a landlord? Yeah, dude, I should have thought of that, and I don't. I haven't even thought of that now, So I don't know. I haven't.
Like obviously we've talked about all the show and I know something about it, But like, do you actually get rewards too, like as as the receiver, No.
I don't think so that's just the pay. But it's just a good reminder too, you have boom. You don't need to keep your iPhone after all, you don't need that. Nicer Cameron, No, that pictures of the checks the pixel camera was just fine, but it's important mentioned to to people out there who are renting. This is the built Master card. It's the only card out there that rewards you for paying your rent with a credit card. And so obviously, as Matt and I always say, be responsible
with your credit card. If you can't pay the balance off on time and in full every month, it's not for you skip it, but it's mortgage can yeah, and mortgage payers they don't get the same perk, but but renters do. So the built Master Parts School, We've got a review. We'll link to that in the show notes. But I was like, I was just so proud of my tenant earning rewards on that payment, like.
A proud parent. Do you have like a sense of like a paternal sort of feeling towards your tenants in a certain way.
Not really, I mean there's sometimes I can, Like I told him, I was like, oh, dude, because I want some congrats.
But I want them to do well and when they're making the right financial decisions, because like you get to know them and their finances a little bit in the screening process. I'm rooting for them, but I try not to bring it up as a topic. You know, I don't bring it up. But when they, for instance, are paying on time, and when you know that maybe they had an issue with that, or or maybe they had
a bunch of debts in the passing. Granted, I don't know how caught up they might be now like at the time I knew where they were when it came to screening. But even still, the ability to not only sometime paying on time, but even paying slightly early, it all, it just it bodes well, right Like it makes me think that, Okay, I think they're doing a good job over there, makes me feel feel good about what it is that they're up to. But cool man.
Yeah.
Again, We'll make sure to link to that built card review if you are looking, if you are interested in getting one of those, we'll link to that there in the show notes. Let's introduced the beer that we're going to enjoy during this episode. Buddy, This is an IPA and I know that because on the can here from Japan it says beer I PA.
It's literally the only thing you can read.
And there's a bunch of Japanese on there, and actually I looked it up, and so we know the actual name of the brewery of the brewery now, but I'm not going to try to say it it's a total mouthful except for people what they want to hear. So waku wako that's I'll say that part. But you sound like Fozzy from the Muppets right now. Waka waka waku waku tezukori farm kawakita.
I guess this is a very good I think I'll give you an A plus one.
That's again from Julia. We're looking forward to uh enjoy do I just maybe did you ever watch the wedding singer back in the day?
Julia? Julia?
Gulia, Uh, Juli. We're not making fun of your name, unless I guess your last name was Gulia, which I don't think it is. But we will let everyone know our thoughts on this beer at the end of the episode.
For sure. I always fun to have something a little, a little out there from the other side of the world. So literally, you would have to go to Japan in order to try this beer, which is here. We are in a shortlist of places to visit. By the way, for real, I want to catch a baseball game in Japan? Is that going to be our next the next couple's trip? Maybe maybe next year. That's so, that's an expensive flight. They got a great coffee culture over there too, do they? Yeah,
Oh my god, you don't know about this. No, oh, you got a good coffee culture. There's a YouTube rabbit hole you can go down there.
Yes, yes, Okay, dude, like I don't spend enough on uh coffee coffee paraperialia us.
All right, well let's get to the topic and hand Matt, we're talking about the impending student Luan Cliff, and it made me think, Yeah, I'm guessing there's some how to money listeners out there, myself included, who have had a health issue that maybe they chose to ignore for a little while, maybe there was like a mole on their back, and they're like, eh, I'll get a checked out at some point in the future. And you know you should go see a dermatologist. Right, So it's the ABC's right.
You look for what is it, asymmetry, the border and the color. I still know that I remember from dude.
It was all those days of sitting in the dermatologist's office as a teenager with all my zits. All right, well, now I'm reading the skin cancer. Now I could run my skin issues by you before I go see a pro. ABC's asymmetry border and color. If you got some irregular irregularities there, buddy, you might want to go and get that thing looked at it. Right Well, no, I'm fine right now, at least as far as I know. I mean, have you had Emily look you over. We have, It's
the end of the summer. You just spent a lot of time outside.
I'll ask her tonight. I got your back, okay. Well, And the truth is, some of those little things could be like, not a big deal. It could be completely it could be not a problem. You might be overanalyzing, overthinking. You're like, it's regular old mole, literally just a mole. Get not a big deal. Sure, but you could be risking something though by doing nothing. And the longer we kick the can down the road, the bigger the problem
can become. It can negatively affect your health and then your finances because now you're paying for, you know, a bigger procedure to get that resolved, and a skin issue that could have maybe been resolved with a quick in office visit. Now it's like you got to see the
surgeon or something like that. And you know, we might have given this episode an intense title, but the truth is, tens of millions of folks feel like there's this impending cliff coming in October when payments resume, like they're walking the plank or something like that. To take it back to kind of the I just finished reading Treasure Island, so I guess I have Pirates on the mind. That's a good one. It's just revisiting some of the classics, is
what I'm doing. But we're going to talk about that and the impending reality, basically what to do about it so that you can have a plan and so that you can rest easier, maybe maybe see that giant patting at the bottom of that cliff and sure not feel as daunted by what's coming.
Yeah, you might still lose your lunch as your folly, but the actual impact isn't going to be what you thought it would be. But the biggest problem, man, is that, honestly, like a lot of folks, they just didn't use the payment pause as the financial catalyst that it could have been. Instead, we kick the can down the road. Instead of getting that mole checked out, you just keep waiting and boom, all of a sudden, Yeah you got to go under
the knife. It's something that we've just a lot of folks have avoided is paying any attention to their student loss, and not only just on borrowers' behalf, Like not only on you know that is this something that they did, but the government did as well. This is something that kept getting prolonged, which only cemented the out of sight, out of mind sort of mindset that I think a lot of folks took towards their student loans.
People started to think, oh, sure, payments are going to resume, because like by the fifth kick the can, you're like maybe again, And especially when we were talking about forgiveness and all that kind of stuff, and I think people just assumed understandably, so, hey, guess what these student loans, somebody else is gonna take care of them.
Yeah, but it's honestly, it's something that we have been recommending for folks to do, you know, like not having to make any payments for three and a half years. It could have been massively helpful, and honestly it was for some We've heard from a ton of how to money listeners who made hay while the sun was shining right they saved up a massive nest egg to pay off a big chunk all at once, or even to eliminate those loans altogether. But that wasn't the case for everyone,
as you might imagine. A recent survey found that one in three borrowers spent money instead of saving it because they thought that they wouldn't have to actually pay their loans back, because all.
The messaging was telling them that it's going to be true.
Yeah, those forgiveness attempts by the government, they actually hurt people financially because they ended up counting their chickens before they hash.
Right.
It makes me think one of our favorite quotes from Morgan Housel, which is save like a pessimist and invests like an optimist. And so we're looking at the saving like a pessimist side of that quote, and folks did the exact opposite. They spent like optimists. They spent like this was going to continue. It just only reinforces like recency bias, where you're only looking at the past, like just the recent period of time, and you're thinking that
things are going to continue like they have been. There's another another paper from the University of Chicago, and they found that borrowers whose payments were paused, and this is regardless of their income, they took on more credit card. They took on more mortgage and auto loan debt than borrowers whose payments weren't on hiatus. It's clear that there are a lot of folks who did the exact opposite thing that they should have done, and there's it's almost
like there's a reckoning. But the good news is that there are some things, like you said, that are going to help lessen the fall as we approached that cliff.
Yeah, and so we'll get to that. That's that's really we're going to talk about here in just a bit. That the Save Plan is what it's known as, and there's a whole lot of stuff to talk about on that and how it's going to change your life if you're a student loan borrow Really it's going to change your finances in a big way. But at that same paper you just referenced, the one from the University of Chicago, it said that American households live in hand to mouth fashion.
Is what they said. They just spend whatever comes in, which, in my experience and from what we see, isn't terribly far from the truth. Right, three quarters of the people in the survey you just mentioned said they were confident that debt relief was coming. They believed it was coming, and so they spent like it was bound to happen. And now fifty eight percent of folks say they're unprepared for student loan payments to resume. And we again, we
totally understand why people feel this way. It kind of felt like the wol was pulled over your eyes. You were told something that didn't end up being true. The confidence with which student loan forgiveness was proposed and almost implemented, it led a lot of people to believe that they weren't going to be on the hook for the remainder of their loans, or that a big chunk was going to be forgiven, which was going to give you more
breathing room. They planned based on the confident assertions and promises of elected officials, and then they were let down. And this isn't the first time politicians let somebody down, but it almost feels like it's even more of an injustice because it caused people to believe something that wasn't true for so long that they're in a worse position now than they would have been had that promise never even been made in the first place.
Yeah, Yeah, it made it worse. And the fact is, if you would have been listening to the show, you would have heard us in telling you about this basically like heads up, and you might not have liked what we said over the past, you know, three plus years about preparing for student loans to resume and the unlikeliness of forgiveness to actually become reality. But we did end up being right in this case. And it's a I've told you some moments why I'm not going to say it.
I'm not going to say it, but we do want encourage folks to listen to the show. We don't want to dwell on the past, but it is important to mention that that political promises are a dime a dozen. And if money from the Feds comes your way, sure that's great and we're going to talk about it. But banking on the government to come through in the clutch, it's a poor financial strategy. And of course folks didn't. They did the exact opposite of banking that money. They
just they spent it. Yeah, exactly. They took those promises as fact when they weren't facked yet. And it makes me think of Matt. Let's say, your kid's gonna be less disappointed if you don't get them a pony for their birthday, if you didn't promise it in the first place.
But if you told them you're getting a pony for your birthday and then you end up pulling the rug out from under them, how disappointing is that, Like it's even more their hopes and dreams to that actually happened, right, and so because why you always set the barlow right, Daddy loves you, but probably not get anything, and then you get something and then their thrilled boom.
Yeah, parenting hack exactly. If you want to save money as a parent, that's the way to do it. But that's you know, we try to stay away from politics on the show, but we're very much in campaign season right now, and so some of these promises that you're hearing, they can sound so nice from people on both sides of the aisle, by the way, but keep a healthy
degree of skepticism when you're hearing those things. Hopefully not a disbelief and positive change, But know that many of the campaign speeches we hear are even if they're well intentioned, they're unlikely to result in sweeping change. Even people that I may be a politician that I gravitate towards, or that I like or that I respect. I have to keep take everything they say with a grain of salt, because I know that there's a decent chance a lot of things they want to do they can't actually.
Get done and not actually going to be able to implement. They might have the right ideas, but what's the reality of that actually coming to fruition. But so let's also talk about just like the larger impacts, like the macro impacts of student loans resuming. And first of all, this could help calm inflation even more than we've seen it
come down over the past few months. I know it's not quite the silver lining that you're looking for if you have a four hundred and fifty dollars payment that is exiting your spending account every single.
Month, cold comfort something, shut up, Matt.
But the financial constraints that student loans will create, oddly enough, it could be good for the economy as a whole. It's like the exact opposite of Semischek's which were a big reason obviously, I mean, why we were in this current inflation situation again, though we have seen it subside a little bit but this will also cost taxpayers a pretty penny. As we've been saying, this is actually more generous than the actual the straight up forgiveness that the
administration Biden administration was going for. In the New York Times, they recently confirmed that and over the next decade, this could be a trillion dollar wealth transfer program. Yeah, it's a lot of money.
It could be like what in the first ten years, something like four hundred and fifty billion, But over twenty plus, I mean, yeah, we can get to that trillion dollar market. So this is going to cost more, in our likelihood than that straight up forgiveness amount that people were so excited about. Well, this could be this can make a bigger impact, but it's also going to have a bigger impact on people, you know what, the federal government are.
Folks aren't as excited about it though, because it's not the sexy sure, Like people aren't patient, right, and so the basically saying that, like, over the course of time, this will be better for you, people don't want that. They want the they want the whatever the sexy option is.
Forgiveness sounds so much better, But the truth is this is kind of like forgiveness under another name, because it's just gonna dramatic lower the amount that people have to pay towards their student loans, a good portion of people, and so for a large swath of people without standing student loan debt, it's going to have a bigger impact. Yes, a bigger impact than that blanket ten or twenty K worth of loan forgiveness that you were hoping for. And
so that is how big this Save Plan is. It's going to cost a lot of money, but it's going to have a big impact. And so the biggest cost center of the Save Plan is those lower payments that it's going to create for most people, for tens of millions of people really. So we're going to talk about the SAVE plan next, how it works, how much you might save, and some of those gory details for how impactful it can be for you. We'll get to that right after this.
All right, we're back from the break talking about the Specifically, we're going to talk about the SAVE Plan. What does it stand for? Again, Saving Americans valuable valuable education. Yeah, like that again, it's the acronym. It's political, doesn't really matter what it stands for. It's the Safe Plan. It's just it's branding, right, and branding gets used by companies all over the place, but it also gets used by the federal government and politicians. Stud you got to sell
these ideas. A quick note, I wanted to mention, we're talking about federal loans here. By the way, this does not go towards private loans. Those are very different. Those don't come with the same opportunities and these federal benefits plus the forgiveness opportunities that we're going to describe here. So if you have federal loans, we would encourage you to think long and hard before you even consider refinancing
with a private lender. It did make more sense for a bigger chunk of folks years ago, but it makes very little sense for almost anyone these days. That's particularly true given the generosity of the safe plan, which is what we're going to dive into now.
Yeah, be federal or private loans, they definitely restrict some of those some access to two awesome things like these repayment plans. You might get a lower interest rate, but the almost nobody should can mate it now, yeah, right, and you might not as much these days, right with like where rates are going seven or eight years ago it made sense for some people, not so much anymore. And one other thing to mention too, Matt before we get into all the details of the SAVED plan. There's
a lot to cover. But just like we're start with all our some caveats, I mean, just like with the forgiveness attempts, legal challenges are going to try to prevent SAVE from coming to fruition. They don't want some people don't want to see this plan come to come to the light of day, come to the rescue of student loan borrowers. But we would say from where we're sitting, not legal experts or anything like that, but there's less
credibility to those attempts. We knew from the very get go there was a distinct, meaningful challenge to the student loan forgiveness attempt and that that could easily be overturned. But it's unlikely to happen in the same way to this repayment plan because similar repayment plans currently exist in the Department of Education. Clearly, from what we've read, has the oversight to be able to make changes to those repayment plans and make them a little more generous. And so those challenges.
Which is what's happened. As opposed to the blanket forgiven rights. They're modifying the terms of repayment, which has stood in the past.
Yeah. Yeah, so the challenges they're unlikely to be successful, but it's still possible that save might not ever see the light of day. And so it's a good idea to be preparing for full payments to resume, which means you'll maybe have saved more than you needed to write. But that's that's a better downside than the alternative, which is not not being prepared, not having enough on hand. Sure.
And then i'd also say too that the safe plan it doesn't fully go into effect until next summer, and so when the payment restart happens, you won't have these newer lower payments quite yet.
But which, like you've already mentioned, like the campaign promises but doesn't. Isn't the timing uncanny? Like I can already hear the campaign slogans ahead of the presidential election in November of next year talking about student loans and just the different from both sides of the island.
It's like, don't you love that newer, new lower payment and don't you want to vote for me? Sure? Correct? There's a lot of politics a wash in this too, but.
It's simultaneously like, yeah, we live in crazy times and you never know, like what actually might happen to this. So there is like a small sliver of a chance that something does happen, that it's challenged legally, that it gets white from the books, but it does not seem nearly as likely as the forgiveness attempt, which literally folks were saying, oh, yeah, yeah, you can't do that.
Right, Okay, since since the signup form is live now, Matt, since people can actually go to the Department of Education website and they can you know, I guess the signup form was live for student loan forgiveness and a lot of people signed up for it even you know, before it was struck down. But the signup form is live. So let's talk about what SAVE is planning to do and what the likely changes are going to be for people.
Some of the changes, because we've talked about how student loans resuming, how it might impact the economy, the macro environment as a whole. So now we're going to kind of dive into the micro for for a second. Here, we're going to dive into the personal because it's not going to be easy to reincorporate those payments after so
much time off from having to make them. Some borrowers have even said that, like it feels like a this is I think from a Wall Street Journal article, but it feels like a distant memory after all this time, like they don't hardly even remember making payments.
Probably do I have student loans, I don't even remember anymore.
I think it's true that the payment restart, it's gonna be a rude awakening, but it also it's going to feel less like this year Cliff that it would have been had the safe Plan not been implemented. This will change the ball game for student loan borrowers, making it less onerous than it would have been otherwise. Some estimates have figured that when the payment resumes, though, it'll feel like a five percent pay cut, which I don't know.
It depends on how you look at all. One hand, I think I want to earn five percent more, yeah, But on the other hand, it's just like, okay, five percent, that's you know, that doesn't seem like a massive upheaval to the way that you have been spending your money. When it comes to your week to week, month to month expenses, but so much of it depends on your income and specifically the amount of student loan debt that you're in.
Surprise, you don't think five percent is a big deal. I think for most ordinary Americans, five percent of their budget is a massive deal.
I guess when you think about the different changes like tax practs for instance, Like you see a change to a tax bracket and you're like, oh, cram okay, and I've got to pay three percent more in tax. It's not like the end of the do I want that three percent back? Absolutely, like one hundred percent. I wouldn't
want to have to pay an additional five percent. But being able to save five percent, and we're going to dive into that here in a second, is what a lot of folks have basically sure felt is if they have been thinking about it through the lens of what terms were previously in effect, things look a lot rosier than these two. Yeah.
I think a lot of student loan borrowers are going to find that that it is a big deal to that extra five percent. And then so a lot of people said it's going to be more impactful than a year of crazy inflation was for a lot of people's personal finances. But yeah, because of that out of sight, out of mind factor, now it's coming back into their lives unexpectedly, even though it shouldn't have been unexpected, it feels like it is unexpected for a lot of people.
But let's talk about specifically the Save Plan how much it's going to help people save. The administration, the Biden administration estimates that a typical graduate of a four year public university is going to save like two thousand dollars a year or forty thousand dollars over twenty years, which is why that headline number we mentioned. It could cost a trillion dollars over a couple of decades, and some
people are going to say more than others. But that smaller monthly payment amount well, is going to mean less constraint for most borrowers than before. So people who aren't making much, they're going to see their payment reduced to nothing at all, especially if you're not making much and you've got a couple of kiddos, because they take into
accounts your family size at the same time. But then in addition to that, something else, another perk of the Safe Plan is that the balance that you owe, it's not going to balloon. It's not going to go up because capitalized interest is gone. It's being removed from the equation. And so as long as you make your required monthly payment amount, even if what's required is just a tiny amount, now your balance won't crow. So let's say the federal
government says, hey, you're your your loan payment. Before under the Repay program, which was the predecessor to Save, was two hundred twenty dollars, and now under the Save plan it's forty nine dollars. As long as you make that payment, you you're not going to see your balance grow, whereas before people were seeing their balances grow even when they made their payments in full and on time exactly.
And because of the cap which I'm about to get into is in place too.
That keeps the.
To say, like, you've got the cap, but your actual amount owed was beyond what that cap is. That additional interest oftentimes got added on to the principle, and so even at the were you to make the payments on time, at the end of that term, you were tax on that forgiven amount, which ballooned. So in effect, that's how those balances got to be so large, But like I hinted at, there is an actual cap to the amount
that you're gonna have to pay every single month. And if you're wondering how much you'll you're going to owe each and every month under the new plan, the new Safe plan will link to a helpful calculator, But the monthly payments are going to be capped at five percent of borrowers discretionary fund.
Which begs the question, what's discretionary funds? Matt, Yeah, so well, first of all, this is cut in half from the current repayment plans, right, so prior to this it was ten percent of your discretionary income. Basically, the SAVE program it increases the income exemption from one hundred and fifty percent to two hundred and twenty five percent of the federal poverty line. So in this way, it's doubly generous, like you are benefiting from multiple angles, from multiple facets
of the SAVE program. The easiest way to figure out what your discretionary income, though, is to take your total income minus thirty two thousand, eight hundred dollars that's essentially the minimum, that's the floor, and then just multiply that by zero point zero five in order to get that five percent, Individuals earning less than that they're going to pay they got a grand total payment of zero dollars a month, and then families of four with an agi
of less than sixty seven, five hundred dollars, they're also going to have a zero dollar monthly payment as well. Yeah, so your family size matters, your income matter. But then once that's factored in, it's a greatly reduced amount because of the new more generous way that discretionary income is considered.
Right, Yeah, so it's not even, yes, it's more than even just doubly. I just covered three different ways. Yeah, that this is my last point that this is more attractive to borrowers than the previous plan.
Yeah. And on top of that, so there's even more room for generosity under the new Save plan. While the blanket forgiveness plan was struck down, like we've said so many times this on this show, even on this particular episode, the Save plan still offers a path to full forgiveness for some people. Loans with an original balance of twelve thousand dollars or less, they can be canceled with just
ten years of on time payments. And I believe if your original loan balance was like thirteen thousand, then you can you can have forgiveness in eleven years. It's like a grand every additional thousand dollars you borrow it tax on an additional year to how long it's going to take to receive forgiveness. Kind of convoluted, I know, but this in particular is going to help Matt a lot
of community college grads out. Some estimates say that eighty five percent of community college graduates are going to be able to have their loans forgiven under this new save plan, and that's far more generous than the current soon to be irrelevant income based or payment methods.
Yeah, that's right, and hopefully listeners out there to how the money are more ready than the typical student loan borrower for payments to begin again. But just in case you aren't, it's important to note as well that folks who aren't able to make payments, they're not going to be considered delinquent. They're not gonna be placed into default until next fall again, when the plan actually goes into effect. And so what does this mean as to what you
should be doing in the meantime. This does not mean that you shouldn't start paying if you can, but it is important to note that you're not going to be penalized if you can't in the meantime.
Right exactly. And so I think that's like a it's a grace period ethical tightrope that we're kind of walking here where it's just like it's not like a license to just do whatever it is that you want to do.
You still should, but this is yeah, like you said, it's a great period.
There's a period.
Here where you do have a little bit of time to get your stuff together.
And since these new lower payments they're not gonna you know, they're not gonna start happening until summer of next year, until July. I think this is the way to kind of help people who are stuck with higher payment than they can afford right now, to say, hey, guess what if you can't actually afford to make those payments, it's okay, Like we're not going to ting your credit. You know, you're not going to get in trouble necessarily for not
making those payments. And then hopefully once July rolls around, you see a massive production to the payment that you owe, and by then hopefully you don't have any problem making those payments on time and infull every single month in perpetuity. That's right.
That's why we're talking about this now to give you plenty of heads up. But that being said, you might be wondering, how is it that I can apply for this sweet new save program that you guys are talking about.
It'll hold out on me, let me know how do I get the good stuff?
If you are already in the repay plan, there's actually no need for you to do anything. You will be automatically enrolled in the Save plan once it launches. By the way, this feels like a lot of alphabet soup, I know it is. There's the original pay plan pay as you are, and then then with the revised pay as you are in repay. Now there's the safe plan, and so it is a little bit confusing.
IBr What's that? Is that a disease?
Right? Should I get that checked out by my dermatologist? Maybe you should if you want to save your life and save some money. We will link to where it is that you can apply for this, though, if you are not enrolled in repay. But say it's not going to be officially launched until nextra life it is still a good idea to get the ball rolling now, to start thinking ahead. How it is the new plan is going to impact your payments.
Yeah, that lower payment doesn't come around till extra life, but I think some of the things that we've mentioned do come about a little bit earlier. So enrolling in this plan, making sure that you're on the saved path before October hits is wise.
Yeah. So we've kind of detailed some of the details, some of the specifics of the Safe Plan and what it entails. But we will next talk about how it is that you should that folks out there should be approaching student loans. Maybe we've got some younger listeners or even and some parents out there who have high school seniors or juniors and colleges in your future. How should you approach student loans? What's the healthy approach? Will get to that right after.
This, Matt, Let's keep talking student loans, and when the facts on the ground change, you and I were not afraid to change our opinion. And the truth is that this Safe Plan, it does a lot to change how we feel about student loans and how we feel about people taking on student loan debt. It does revise kind of the mindset people should have when they're going into
taking on student loans. Taking out student loans. It makes me think similarly of kind of the changes that were made to five twenty nine plans recently that allow you to convert unused money not spend for college to retirement money inside of a row for your kid. And so now with that added flexibility, guess what we like five twenty nine plans a whole lot more than we did before.
Sure, But that being said, I don't think the changes that have taken place with these with the safe Land it's not as drastic as the five twenty nine plan.
It's drastic for people who currently have to have it, but it doesn't necessarily change for future borrowing all that much about how we think about yeah, how people take it onto them exactly.
Yeah, and we'll kind of, I guess, maybe explain how it is that we're thinking about it.
But clearly four hundred billion dollars slashing around that's going to change, right, incentives for borrowers and for the colleges alike. And so what we've said all along is that what SAVE is doing and kind of the the attempt at forgiveness it doesn't do anything to address the root of the problem, which is that college costs a whole lot more than it should and when But here's the thing.
When borrowing gets cheaper and repayment becomes even easier, it incentivizes universities to charge more, knowing that the federal government is going to be footing a lot of the now higher bill and they're less price sensitive than most people are than individuals and families are. So how should you approach, you know, student debt given the new landscape. We've got a few thoughts on how this might change things at least a little bit, that's right.
Yeah, So, as far as folks who have not yet taken on student loans, our advice. You know what we've always said about how much to borrow, it still stands. Don't borrow more than you're likely to make in that first year after you graduate. Ideally you'd borrow even less than that. The smaller you're student loan balance upon graduation, the better. But let's say, for instance, you're planning on
becoming a social worker. Well, the average starting wage is something like forty six thousand dollars, and in that case, forty six thousand dollars, because what that's your absolute ceiling, that is the most that you should borrow. We do not want you to count on like the best case, best possible case scenario happening and saying well, I'll be able to offset, you know, my higher tuition costs because I want to go to this private school, assuming that
everything is going to line up. Unless you know, like if you've got some sort of guaranteed job, then okay, maybe like that's something you consider, But bottom line, it's like a pretty rare situation, very rare. Yeah, the rule of thumb still stands. Do not borrow more than you're going to make that first.
Year after you graduate. Yeah, even though student loans are kind of like a blank check in some ways and you could borrow more, it's just not wise. You're putting yourself in an unnecessary financial hardship upon graduation. And so yeah, that's a really good rule of thumb. And I think that rule of thumb stays in place. It stays the same even with these changes made to how you have to repay back student loans. But Matt, it does kind of make me think of something we talked about on
the Friday flight last week. The new eighty four month car loans from Tesla. And just because you can borrow for seven years, it doesn't mean you should. Right, just because someone will give you a loan for that length of time doesn't mean that it's smart on your part to actually take them up on that offer. And so, yeah, if taking out a longer loan means you would get a bigger portion of that payment subsidized by someone else, especially like the federal government, you would, you know, take
that into consideration. So that is worth thinking through. It's definitely true that it's about to become less risky than ever to borrow money for a higher education, So that is one thing to think through. But either way, it's a good idea to keep borrowing and check for your mental sanity and for your financial solvency too.
Yeah, yeah, it's it's a I feel like this is an instance where you don't want to let the tail wag the dog, because if you go into at the wrong mindset, you could say, oh, why not borrow even more? Because the more I borrow, the more the government is going to subsidize, Like like an equivalent example. It makes me think of as like credit card rewards and you're thinking, Oh, the more I spend on my credit card, the more points I get. If only I could just spend more
and more money, Well, you're not. You're not looking at your entire financial situation, and obviously, as an individual, that's what we need to do. We're not only looking at one small sliver of truth here and how Yeah, in reality, the government could subsidize a high or a very large portion of your college education cost, but that is not how we want folks to be thinking about it.
Or even with a seventy five hundred dollars federal tax credit to buy an electric vehicle. Well, is your current vehicle working just fine?
Yah?
Do you need a new car?
Like, what's the big picture coolizing it? Yeah, the very small incentive or benefit that's.
There, and maybe five years from now, maybe that's when it's time to upgrade. But don't let the Yeah, don't let like you said, the tail wag the dog, like, oh, go some bite a v now because slightly discounted, Well, that'd be short.
Sighted exactly, Yeah, maybe not. We would also encourage folks to shop around when you are looking at specific schools, because where it is that you go to school, it matters a lot. So, for instance, we were reading a journalism degree at Miszoo. It's going to get you into twenty thousand dollars a student loan debt, and it's also going to deliver you a starting salary of about fifty
thousand dollars. And this is specifically for a master's degree. Well, if you went to Northwestern instead, you'd be graduating with much more student loan debt. We're talking about fifty five thousand over twenty thousand dollars, and your salary is actually going to be closer to forty one thousand dollars. It's actually a little bit less than graduating from Miszoo. So it's a good idea. I mentioned this example because we want folks to shop colleges like basically like you would
shop for mortgage rates. And a great resource is the US Department of Education's College Scorecard. You can enter in specific colleges and they've got the average tuition costs as well as average starting salary costs. Once you were to graduate,
you can compare degrees. There's a lot. I feel like there's a lot that the government isn't great up, but they're really good at collecting data, requiring colleges in particular to submit that data, and they have that it's there on hand for you to use as a resource, So be sure to check that out as well well. Linked to that in the show notes well what if you don't already know about it?
When we talk to people who are trying to buy a home at one of the fatal flaws that people often experience is I fell in love with the home and I just have to have it right. And I think the same fatal flaw is true when it comes to choosing a college. It's like, I'm in love with it. I went on campus. This has to be the place I.
Go, even more so than the home, right Because with a college, it's like, but I've watched that football team my entire life, where mom and dad went there. It's something. It's man, it's so ingrained. We're brainwashed to a certain extent when it comes.
To high d and when you're not running the numbers before you fall in love, when you're not making a decision based on value comparing a few apples against each other, you're liable to make a poor decision. You're liable to sign up for a whole lot more student loan debth than you need to and you know you're like you were mentioning there too, your income might not be as high either going to that school, which that's I don't know.
I think that you have to take those things into consideration before you make a choice of where to go to college. And I know that sounds like Debbie Downer, like don't go do something you love or don't go to the place you love.
Stop being such a realist. I think it is like a value based proposition.
It is. So there's a bunch of cool, cool colleges out there, just like there's a bunch of great houses, and falling in love with the one is likely going to put a lot of people into financial difficulty because they didn't think long and hard enough before they made that decision.
Yeah, and here's the thing. I mean, there is a chance that you are the outlier, right like that you actually, well that's just the average. I'm going to make make way more than that. Well, yeah, there's a chance that's going to be the case. But there's a reason that these numbers exist. There's a reason that this is the average because this is what most people do. And so I don't know I don't want people to think too highly.
We want folks to be realistic in what it is that they're likely going to incur, the amount of debt that they're going to be burdened with, but also realistic when it comes to how much that they're likely going to make once they do graduate.
Yeah, all right, And so I think we basically said that one of the things that this new repayment plan that Saved does is it limits the risk for a lot of borrowers. And so there are a lot of people if you do take on too much in student loan debt, let's say, and you don't earn quite the income you expected, well, the SAVE plan is here to kind of be like that trampoline underneath you to ensure
that you're not as screwed as you would have been otherwise. Right, And I think of this matt as enhanced downside protection. Maybe that's what we'll call it. If the decree didn't pan out like you wanted, your student loan payment isn't going to eat you alive in the same way that it would have when you're trying to get your career
off the ground. So I would say, think about these rule changes less as a license to borrow bigger sums to take on a bigger chunk of student loan debt and throwing caution to the win in that regard, and more as kind of like a nice insurance policy, right, some meaningful protection if you lose your job or your earnings aren't growing as fast as you'd hoped.
Yeah, it basically keeps like the worst case scenario from happening. Yeah, and we don't want you to count on it though, right, Like, this isn't like it's not a goal to be able to pay nothing on your student loan.
It's like that's the worst case scenario. It's like, because then your income's not awesome. We want you to grow your incomes.
And it's like it makes me think of like income tax. Oh, here's a trick. Here's a way that you can avoid paying any income tax, don't earn anything. I feel like it could be like the Eddie Murphy meme where it's it's like I want to pay zero dollars in federal income tax, earn no money. It's the same thing with the student loans.
Your job and live in a tent.
Want to not have to make a student loan payment every month earn less than thirty two five hundred dollars. Smart, but that is not the goal. We want folks obviously to be doing much better than that.
Yeah, Okay, I think something else of this does Matt another kind of tweak, another change to the way we can think about student loans moving forward. Is it paying off student loan debt is becoming less advantageous. And I think because of the new repayment rules and that kind of additional downside protection, there's just no need to rush to pay off your loans. To start throwing you know, oh I got a bonus at work, Let me hurl it all towards the student loan and pay that off
as quickly as possible. It's kind of like throwing extra money towards the principle on your two point seventy five percent mortgage. Right. It's like, there are better things you could do with your money. It's not that that's like some sort of financial evil or malpractice or anything like that, but it just doesn't make the most financial sense to start paying off that principle when there's other things you
can be doing. And there's just a lot of Similarly, with student loans, there's a lot of other financial priorities that take precedence given the change to these repayment programs, and so for most folks, it makes sense to pay as agreed to stick dollars towards the other money goals that you've got, like saving for retirement and paying off other debts that that might be worse and then that might not come with and that don't come with some
sort of insurance policy essentially from the federal government. So I would say for a lot of people, yeah, pay the amount you're supposed to pay, but paying more an attempt to accelerate the payoff of that debt just doesn't make as much sense it used to either.
Yeah, certainly, if you're into the numbers, go ahead and crunch them and see how much you actually are going to be paying an interest. But the bottom line is we've just detailed all the different ways that the SAVE program plan is making your payments less painful. It's a lower rate, there's a floor as to how much you need to earn in order before you're making payments at all. There are just multiple ways that SAVE has made it
less attractive to aggressively attack your student loans. And it's also important to note too, that different employers, different companies are offering to help pay your student loans off. Part of why it's becoming more popular is a provision that allows companies to offer up to five thousand, two hundred and fifty dollars in loan repayment as a tax free benefit through twenty twenty five. So it's worth looking to see if that's a benefit that's offered where you currently work.
It could even influence where you decide to apply for a job in the future. The story we were that we came across highlight how Navidia that is microchips or whatever computers.
But they're making all those AI chips now they're so hot right now, their stock was so hot.
But they're paying something in the range of three hundred and fifty dollars a month towards their employees student loans. That is a lot of money. That is a seriously awesome benefit and could have this and some of these different planes do have caps as well as like as far as like the lifetime amount that they're willing to pay towards your student loans, but seriously check that out. I think that could certainly end up swaying, which company you decide to go with.
Yeah, yeah, And the truth is, Matt, student loans remain this kind of oddball products, right, Like we're asking teenagers to make really big decisions that are going to affect them for decades to come. This is where parents come into, Like parents have to help their kids not just say like, yeah, go to the college of your dreams, but like think through the numbers and the burden that that child is going to endure for years to come if they make a bad decision. And so it's you know, because the
federal government is a lender. On top of that, there's no due diligence being done on whether or not the barrower is going to be able to addictally repay those loans. Whereas when you buy a house, guess what they're looking at every single piece of your financial life. That'll get at your credit score, they'll get your debt to income ratio. Hey, what are the assets that you own? What sources of income do you have? They want to know everything about you.
But when you take out student loans, none of those questions that you get asked. And so it's all.
About potential, that's right.
Yeah, it's like seriously, you're going to be a superstar, and so that's why we think you should, you know, take out one hundred kN and student loans and this is likely going to be continue to be a hot button issue, right we'll continue to do our best to address it in a level headed manner. And by the way, if you're still unsettled about student loan payments resuming, we'll link to an article that we just wrote on the site that hopefully can help you think about and start
to incorporate those payments back into your life. But I also hope for a lot of people out there and at this savee plan does help limit reduce the burden of that student loan payment resuming again. And by the way, if you have a question about some of the nuance of this safe plan, oh feel free to holler at us because Great Plug love to take it on an
upcoming ask Htam episode. We know there's like a lot of murky stuff that we went through and hopefully there's a lot of We spoke about it clearly, but I don't know, it's sure, it's a little.
Confusing sometimes I don't say very clearly. But there's a lot of details in specifics too that we didn't cover, so if you have a specific situation scenario, we would love to hear it for sure. All right, man, let's get back to the beer. You and I enjoyed the IPA from the Japanese breery. It's your turn to say it now.
Waku wakuo tza coori farm kawakita.
Eh oh, pretty good. You already heard me say it, So you're right. I would love to live in a world where you're fluent in Japanese and I'm the guy that's Asian and people expect me to be able to speak in my new hobby, learn that guy. It's the it's the white Norwegian guy. He's the one that can speak it. But yeah, this was an ipa. What your thoughts on this beer?
It was more multy definitely not like New England style ipa, super juicy, top bomb any of that kind of stuff. So really like an IPA from fifteen twenty years ago, but also not overly bitter, not West Coast style ipa either, like.
Truly the first versions of American IPAs that showed up on the scene exactly because I feel like so American IPA one point zero was old school multi this like.
An anchor steam Ipa style.
I don't know if that was two point zero were the West coast ones, that's what like tiny the residue beers, some of those flavors came on the scene. And then three point zero the third generation, or in my mind, are the New England New England hazes.
The folks out of you know, Maine and Thistle Brothers, Trillium, Boston Burial, even all the way down to North Carolina.
I mean a lot of folks on the East Coast, a lot of folks everywhere are making the New England haze style now. But this, Yeah, you definitely like roll back the clock. It's like you're sitting down on the time machine and the DeLorean punched in two thousand and five to two thousand and eight. I want to drink an ipa from that period, from that period of time.
Yeah, so super fun, especially since it's again this exotic beer. Always fune to try something new.
It's up privilege to be able to just drink something that you can only get overseas.
Yeah, and that's thanks to Julia. So thank you, super fun Julia for sending this one our way. We really appreciate it. That's right, and matth that's going to do it. For this episode. We'll have, of course links in the show notes up on our website. Let's run out to money dot com, to that calculator, to some of the other resources we mentioned.
College scorecard, the article about student loans in order to dive into the details. You can find all of that up at how toomoney dot com. And that's gonna be it, buddy. So until next time, best Friends Out, Best Friends Out.