Student Loans: UGH!

funnies like we always do. But uh, there's no getting around it that this is one of those stuff you Should Know episodes that sort of falls under the banner of p s A a little public service announcement for people to learn about something that they may not get. But it's just not scintillating. How's that to drive people away? I really think you're you hooked him for sure. No,

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

lot to it. Yeah, but like the how we got into this place, because yes, there's student loans and applying for student loans and you know what you should know. But then there's also what you should know about after that when you join this forty five million clubs student

loan debt holders or debt owers. Um. Who oh, like one point six trillion dollars worth of debt and like a lot of that, about a trillion of it I think a little less than a trillion has been generated since two Yeah, I mean there are a lot of progressives in this country. That's a you want to really kick start the economy in a long, permanent way, just forgive all these student debts. Yeah, and other people say you're a communist. Some people do. Um, yeah, you know.

I should go ahead and preface this with my personal experience. I did not get a student loan. I went to school and college. You were a little behind me, but it wasn't as big of a thing back then. No, I saw in the nineties that average student loan debt for a bachelor degree, not a year, not a minute, a bachelor's degree was nine grand. Yeah, college used to be a lot cheaper. Um. State universities are still, you know,

not the most expensive. But when I was going to University of Georgia, dude, it was like tuition for a full load for a quarter was something like six dollars. Not that much money in like pot, especially at Georgia's. So when my parents got to worced that part of the divorce was them, uh selling a couple of things, like we had an airstream camper and not like things that clearly the family wouldn't be using anymore. Uh. And so they agreed, like, let's sell these couple of things.

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

so cheap. It was a heck of a camper two Okay, but yeah, Georgia was really cheap and I was in living there was cheap and books were pretty cheap. Uh So that lasted me a few years. And then after that, I just, um, you know, I've been working since I was thirteen. Anyway, I was gonna say, you had a job throughout the yeah, totally. Um, And I just kept paying for my college after that. It wasn't like some big like, hey, I'm gonna pay for my school starting

from now. I was just like, well, that money's gone, so I need to I'm not gonna ask my parents for it. Like I've been working since I was a teenager. They sold their camper, so I'll just keep working and pay for my my remaining education. And it was not that big of a deal. I live very well in college. You know what that's called is pulling yourself up by your bootstraps nineties style. I don't even feel like it was though. I was just like, hey, I wait tables

and make pretty good money. I can afford that six hundred bucks a quarter. The thing is is like the idea of being able to live as a college student and pay for college and feel like you're doing fine waiting tables is it's just outrageous, outlandish everything. I cannot imagine leaving Georgia with thirty thousand dollars of student debt. I cannot imagine that. And that's well, that's one of the things that makes all of those people who say like whiners, you took out these loans, you owe them.

We paid off our student loans when we went to school. All those older people who are saying that are missing the point that college has gotten way more expensive than the last ten about tennis years for um a lot of different reasons, but it turns out largely because of an Obama era initiative to make higher education accessible to more people. There were just a couple of safeguards that were put in place that really let this thing run

rampant um. And that if you say, like like I paid off my student loans with no problem, why can't you, you're missing the point that that it's different. It's a different world now. Things are different, and it used to be before. When you had your first real piece of life long or long term debt. It was a mortgage

for a house. You were paying for that house, and you were virtually guaranteed that at the end of that mortgage, that last mortgage payment, what you paid for that house was going to be less than what the house was worth. Then it was an investment. Now we're putting out teenagers into the world who have in some cases mortgage level

debt um without having any income yet whatsoever. And when they pay off that last bit of debt, there's nothing that was a value necessarily associated with it because they had to get a college degree just to try to get a job. Whereas before it was like you got a college degree, and you you automatically, we're going to get a good paying a job. Are certainly a better paying job than you would have gotten with the high school diploma. It's a different world now, definitely, you probably

don't get a student one either. Did you know, I luckily didn't need them. They had the Oh what was that the lottery paid for? Yeah? I think when you came along, that was in place. That started right as I was leaving. I think first year for me, was it the pel or was it it was the Georgia

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

parents saying you better not lose that Hope grant. I think it was like it was at three point or something, three point to something like that, because something definitely attainable. So uh, I mean our first bit of advice, We're gonna pepper some advice in here as old old dudes. Oh, so I should say shout out to my dad. He once I inevitably lost the Hope grant, he stepped in and helped pay for college for me. Yeah, the herbal Elvis. So uh, we want to give out a few pieces

of advice here and there. Um, avoid taking student loans if you can. Yeah, try and get as much free money as you can, grant scholarships. What I don't get is why so many parents of these children didn't set them up for college. What do you mean start saving for college? Like by the time my daughters graduating high school, all her college is going to be ready to go.

So if she wants to go to college. Um. One of the things that this this Obama era initiative to expand higher education, one of the purposes of it was to make it so that people lower income families, um, had an easier opportunity to go to college. Yeah. So they basically said, come all, who want to borrow money to go to college, regardless of your ability to repay, well, go finish. But I want to amend my statements to

go ahead and so so. Um. A lot of people who started to get to go to college, their families didn't have any money to put them through school. So um, they I think for people whose parents have been planning for very little change. But it was that an entire tranche of Americans that hadn't really had much access to higher education all of a sudden did starting in two thousand ten. Yes, to be crystal clear, was not talking about those people. Did their parents just set them up?

Romney thing right, remember when he said that. No, he was like, why don't you just go borrow the money from your parents? When he was binders full of women. Uh, was that Romney who had binders. Um, now I'm talking about the the tranche of kids whose parents could afford to save money for their kids college and did not. I don't know. I think one of the other things, maybe there are a lot of parents who are like, you know what, this is your education, you pay for

it yourself. I think there are also a lot of selfish people in that generation of parents, narcissists too. Uh, did not plan for that stuff for their children because they were busy taking care of themselves, but they blew it all on. Hey. I don't know, man, I'm not I'm not saying that, but I just want to make it clear. I was not talking about less fortunate people that are totally now able to go to school. I

think that was good that you amended that. But if anybody didn't know that that you weren't saying that, they haven't listened to stuff. You should know very that's true. We haven't even started this podcast. It's gonna be three hours long. No, we'll we'll blaze through this. Uh. There

are different types of student loans. The main two big groups are federal student loans and then private sector student loans and so so again, after you've exhausted all chances for grant scholarship, any kind of free money, and you turn to right the first ones you want to turn to, or the federal governments, because the loans you get from them are top quality as far as your being a borrower is concerned. That's right. And there are a few

different kinds of those. They are direct subsidized, direct unsubsidized, and direct plus plus is capitalized all the way across subsidized direct loans. Um, the Department of Education as your lender. I didn't know any of this stuff. Well it's new, yeah, I mean, I was just surprised at some of this stuff. But it's not I'm sorry, it's not new. These member stafford Stafford loans. Yeah, that's what they used to call direct loan. Okay, I remember, it's basically the same thing,

but it's just radically expanded since two thousand ten. Okay, So I don't I don't feel as old as I thought. So, Um, the Department of Education is going to cover the interest under a few circumstances. And the interest is you're gonna hear that word a lot. That's a big deal with any kind of loan or credit that you get. That's that's where they get you. And this is specifically the direct subsidized loan that they will cover the interest. That's

right if uh, you were in school at least part time. Uh, that is one during the first six months after you leave school. Don't you have to graduate, but you've either graduated or disenrolled or whatever unenrolled been dishonorably question rulled or if your loans are in deferment um. Only undergraduates can get these. They are based on financial need and the school is going to say how much you can borrow. You can't just say like, yeah, tuition's ten grand, but

i'd really like thirty. Well even if even if you could do that, these things are capped because the interest is covered by the Department of Ed, like you were saying, which is a big deal. So if you go to school full time for four years and get your bachelor's degree, that whole time, you're not accruing a penny of interest. Yeah,

and that's a big, big deal, huge deal. But there's a cap on this on the amount that you can borrow if you're a dependent student, meaning that your parents still claim you as dependent on their taxes and they could conceivably help you out or whatever. They don't have campers to sell exactly, or they've sold all the campers and now they're tapped out. Um, you can conceivably borrow UM thirty five hundred dollars and have it be subsidized. And I think over the course of your college career

it's something like, uh twenty three thousand dollars or something. No, I'm sorry, it's UM thirty one thousand dollars for a four year degree. UM that could possibly be subsidized, which, as we'll see, is not enough to cover a four year degree basically anywhere these days. I didn't I didn't tell you what the second thing they sold though. By the way, we had a food truck. What this is pre food truck. It was a trailer. Didn't even call it a food truck. You know what it was called?

What the food factory? What? What kind of food? So my dad and my mom would go to these arts and crafts festivals and set up and sell like hot dogs and hamburgers and popcorn and stuff. And they still got a divorce after that kind of experience together. Some might say it had a direct correlation burned the popcorn again. So they sold the airstream in the food factory. Wow, we so would they sleep in the air stream and the food factory would tow the air stream? No? No, no,

these were just local things. She goes set up for the weekend at the Yellow Daisy Festival in sal hamburgers all weekend to rednecks. Did they do it for fun? No, they did it to make money. My dad was always trying to make extra money. He always had these, Uh. I don't know about get rich quick schemes because they weren't but make a just enough money to cover the cost schemes. Yeah, he was great schemes. Yeah, it's funny.

My brother's kind of the same way, but he's actually smart and uh and it does make money on the side, I said, way too much direct unsubsidized Our Wikipedia page so annoying. Uh, these unsubsidized direct loans you can get undergraduate and graduate students. Uh, they're not based on your financial need, even though the school is still going to

say how much you can borrow. It can't be more than the costs to attend the school obviously, Um, and the interest rate is probably pretty low, but you are going to pay interest and they're accruing interest over the life of the loan. Um. That's a big deal. It's it's basically like like you're it's you're still accruing interest. So it's like a regular loan. But what makes it so much more attractive than say, like a private loan, which we'll talk about, is that the interest rate is

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

So there's direct subsidized, there's direct unsubsidized, and then there's the one that comes from the federal as that most resembles like a regular private lender bankload. That's the direct plus loan. Do you know what plus stands for? No? I should have looked that up. This is a house stuff Works article. By the way, very thorough. Um, I wasn't telling you I want to know to Uh, all right, so you look that up, but rare in show look up, Um,

federal student loans. These are the direct plus. They are federal student loans UM borrowed by your parents or if you're a graduate student or a professional student. Let's say, what is it parent loan for undergraduate student whether you have it? Okay, but it doesn't really make sense in a second, Uh, really what am I missing? Then? Just

go ahead? Okay, Um, if your parents are eligible, is just going to be based like your regular loan, on their their credit score and that kind of thing, and the cost of attendance where you're going to be going to school or enrolling in school is going to set that limit again kind of like the other ones. But your parents are just king this loan and these are unsubsidized,

so they're unsubsidized. You can also borrow for an entire education, and you can also use them not just for undergrad but for graduate school too, which is why it doesn't make sense because the grad plus loan means graduate parent loan for undergraduate students. Somebody didn't think that one through. Um, Thanks Obama, but with with the with the plus loans um, that cost of attendance is a really big deal. And it's true with any loan. Every school you go to

has the cost of attendance. And every year they calculate how much it costs for everything, for tuition, fees, books, transportation, room and board, everything, how much it will cost the out of the person pot um to go to the school for a year. But the problem and you can borrow up to that amount. You can't borrow pass to each borrow up to that amount. So you can say I'm borrowing and I don't need to spend a penny

other than what I borrowed. The problem is is it may cost you less to go to school than that average amount, and so you've borrowed up to that amount, which means you're paying interest on money you don't need. And there's when you get these loans. There's a lot of different things, a lot of different processes there that it's going to go through. But the upshot of all of them is it doesn't come to you. It goes

to the school. Never knew that. I didn't either, But the school says, okay, let's deduct for this and this and this, and oh, they have the scholarship, so we can take that out. They have this grant, we can take that out, and let's say that there's some money left over there. Then they will send you a check or deposit it directly into your account. But when they do that, you would be very wise to say, no, no, no, you guys, hold onto this. I'm gonna use it for

next year. You can just roll that right on over. That's the best thing you could do with a bad situation. And the reason it's a bad situation is because you have borrowed too much and now you're paying interest on money that's just sitting there for a year in the school's coffers. They're actually making money off of that interest. You're paying interest on that money you're not using until

next year. So the best thing you can do is really try to calculate the best you can, down to the penny, how much money you really need to borrow, and borrow that amount and not just borrow the cost of attendance because it might be less than that. Yeah, is the school really making money on that? Sure? Yeah. Anytime any institution has money that they're holding, they make interest off of it. I didn't know if it was like an s grow situation. I don't know, alright, I

don't know. That's a good point. So that's a great point. Oh I thought you were You said you knew for sure. You just were thinking, Hey, they got the money in the bank. They're making some money. Basically, like Tony from Jersey would think. So, Uh, here's the deal. If you some private schools are really really expensive. Uh, you might not be able even if you max out, you may not be able to cover the call of your school. Take it or leave it here some more advice from

your uncle Chuck. Don't go to one of the schools. Yeah, just don't do it. Go to a school you can afford. Because you know what, it doesn't matter. The one thing I saw, get that college degree. How many people have been like, oh, well, I mean there are some prestigious schools, sure where that really does matter that them. I don't think it really matters. I think it's more than the networking that's available to you those schools. That's what they

say is necessarily a degree these days, I think. But the thing is they go to a big state school with so many more students in such a bigger net the thing I saw that was, like, the most foolish thing you can do is to go to a state school that's out of state for you, because you get at that state school is going to be virtually identical to the education you get at the in state school, but you're paying three to four times as much for that same education. But your parents don't live an hour

I guess so. I guess so. But surely there's another state school four hours away or two hours away or whatever. I get wanting to be a your parents or whatever. I totally get that, but like, figure out another way, Like going to a different state school is a not a good idea, agreed, And you know you can just flush all this advice down the toilet. Kids, But um, what you really shouldn't do, I think, is go to that super expensive private school that has like students because

you're not. The networking opportunities there are so slim, you know. Well, they say that people who borrow for a litteral liberal arts degree um typically have the hardest time repaying it, even if they come from the socio economic class that is more likely to repay it, that could repay it because the wages don't pan out to be anything that that can really pay off a really so you have a really expensive education and then reading poetry. Yeah that

that that that doesn't graduate well. And it's not all about money totally. I totally get that. Chuck gets that too. That's not that's not the point, and it's not the answer to to everything. Money is not the answer to everything. No, But having lifelong debt you will never get out from under is it's it's hard to fathom at age seventeen. And so hopefully your parents are worried about this and saying like, hey, you need to be thinking about this,

you shouldn't do that, and giving you good advice. But if they're not, please please seriously sit there and consider whether what you're going to spend an astronomical amount of money on is actually worth it. Yeah, because it's not just about money. But having that mountain of debt at twenty one years old really narrows your opportunities in life. And if you might think it broadens opportunities to have gone to the school, but if you've got nine thousand

dollars in student debt, you it narrows your opportunities. It just does. I'm not opportunities but on the paths that you might be able to take right, well, you're probably going to be in a situation where you don't have the luxury of saying I'm gonna wait for a better job offer to come along. You're gonna be like, just give me a give me a job please, They'll take whatever,

and you're gonna be very unhappy. What's more, there's a really high likelihood that the more astronomical your debt and the lower your wages, that you're going to default on that, which we'll talk about later. But once you start defaulting on loans, then you really are on a hard path because credit opportunities are closed to you. Um, you get harassed all the time. There's just it's it's there. It's

a lot. It's a bad jam. Bad things can happen if you owe people too much money, even the federal government. All right, we should take a break. But it's really occurring to me how smart we are and how every child in America needs to be listening to us. Now. All right, we're gonna come back right after this. And you just made me really nervous. All Right, kids, we're gonna catch some heat for this, aren't we we're gonna Nah, we're gonna talk because I've guaranteed their parents that are

gonna be like, hey, you should listen to this. Yeah, you won't listen to me. Listen to Josh and Chuck your stupid heroes. You want to go to Sarah Lawrence. Listen to these guys. Don't blow it all on pot alright, Lawrence. So now we're talking about private loans. Where is Sarah Lawrence? Is that Massachusetts? It seems like a massachuse every schools in Massachusetts, isn't it. A lot of them are, Yeah,

they are all. That's one of the great spinal tap joke is uh when they talk about canceling a Boston show, they say, oh, sorry, it's not a big college down so uh and you finally saw it, right, I've seen it before. Yeah. I don't know why you can't take this kernel of information and subsume it into your general's awere and subsumed. So private loans um you there are a bunch of little bells and whistles that a private lender can offer you that a federal government loan will not.

They can be like, hey, we'll knock off a little quarter for a percentage point if you sign up for auto pay. If you refer people, you might get a little kicked back. The guys they send to your house to break your legs are usually really well dressed and polite. If you pay on time, you might get a little discount along the way. So they're they're a little fun things like that that they can do that the federal

government does not do or can't do. Maybe uh, sometimes they say you can defer this until you graduate six months after UM. We'll talk about defermance in more detail in a minute. But it's also a private lender, so the only thing they care about is taking your money, sure, and they know how to get They know how to lend it, and they know how to get it. One of the other things the other cons about UM going to a private lender for a loan is like they might say, no, you can't have it. That's a huge

distinction UM from a federal loan. The federal government analyzes your ability to pay UM. As a kid, you're they're just gonna say, yes, fine, come on in, here's your money. If it's a plus loan and your parents are on the hook, they don't look at your parents credit score. They don't look at your parents debt to income ratio, meaning essentially their ability to repay the loan. I think they do look at their credit score. They look at

their credit worthiness, and there's a big difference. Basically, they look to see do your parents have any negative reporting on them? Have they defaulted on other ones in the past. No, great, we don't need any other Yeah, I see what you mean. Not No, they pay their bills, but they also only have five percent of their income left after bills are paid. And this is a horrible hardship for uce. But please

lend us the money. Anyway, a private lender is gonna be like your parents that the income ratio is too high. We're not gonna We're not gonna give you this or I hate to break it to the seventeen year old, but your parents are in a really bad financial situation. They had to sell the food truck and the airstream put you through. That's right, So the private lender may turn you down. That's another con too. Yeah. Um, you

can get a co signer, of course. This is when you get um like usually when your parents on board or something. Um there of course on the hook court, just like they it is their loan, But lenders offer a couple of different things. You can get a fixed loan, you can get a variable loan. Those variable ones, you know, if anyone learned anything from the housing UH crisis, they can be very dangerous because they're based on a couple of things. The lib or London Interbank offered rate UH

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

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

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

that's what the federals. Um, federal government loans offers a fixed rate, almost always lower than what you're going to get from a private lender. Right, So if you're going to a private lender, you're probably going because you have exhausted the money that you got from the federal government. Um. The private loans are still going to disperse the money to your school, which I didn't know as well. Um. Yeah, everybody's just going around you. That's that drives me crazy.

It's like, I'm borrowing, give it to me the money, but they're like no, I guess because they're like they're like, you're seventeen, you can't be trusted. With check. You know, it's not the worst thing in the world to maybe do that, agreed, It would still drive me crazy though. So repaying these loans, there are a bunch of different

ways you can structure these. With private loans, you gotta few different options, um full deferral, and deferral means, you know, while I'm in school, I don't want to work, I don't want to pay off this loan. So just give me the money, give it to me, and I'm not gonna work, and I'm not gonna pay anything until six months after I graduate. And they say we'll give you to your school instead. Fine, And they'll say, fine, but

you're gonna be paying that interest. You know, that's still accruing the whole time, Right, You're not making any payments whatsoever until after you graduate or leave school six months after sometimes, But like you were saying, the interest is accruing, and like it's gonna be a bigger payment, and it's going to be an eye popping payment when you when

you start finally making payments. Right, depending on how much money you make when you graduate and start paying, you can deduct some of that interest on your taxes about up. So that's nice immediate repayment means you're in school, you get this loan, but you start paying every month just while you're in school because you're smart, got a job at MEXICALI grill that's right, are making some payments. Start making those payments at least on interest. UM. You have

an option, I think, whether to pay interest or not. Yeah, there's interest only payments to which is basically like, I want to pay all just the interest on my loan UM so that I know exactly what I'm paying when I when I finally start paying off the principle after I graduate. Or you can even make partial interest payments, which is just you're just keeping it from being is this tidal wave of interest when you finally start making payments. But also I think, and this is this is just

a little bit for me. Just getting in the habit of making payments, even if it's just a little bit every month, has got to help ease that transition when you finally do start attacking it after college. We should have a little bell in here to day every time we give a little personal nugget, you know what we need. We need an arm extender so we can pat ourselves on the back loudly every time we give one of the that's a good idea, they make those a little

robot arm grabbers. I also, I think we should just say saying one more time, even though our school was paid for, paid for it ourselves, and were we don't have student loans, we totally sympathize with anybody who struggle student loaned that like, that's that sucks, and like that's we don't want you to feel like we're talking down to you by giving you this advice. Not at all. Okay, that's very nice thing to say, though. Uh, federal loans,

it's a little bit different with the repayment structure. Um. You can just like with the private loans, you can have that option of full deferral if you want, um, But federal government has this deal where between like ten and thirty years, they say you can repay this thing in a standard way or the extended way. I think standard is ten, extended is twenty five. But if you can solidate loans, it can go up to thirty. Yeah.

In the private lending world, consolidations called refinancing. It's basically taking all of your loans and combining them into one new loan. Let's so called loan consolidation. Sure, but in this case, from what I saw, it's like the government calls this consolidation. The private lenders called refining. Yeah really yeah, okay, swear to God. But um, with the when you're consolidating the federal loans, you're not saving money. You're just making

it easier on yourself. When you refinance the private loans or with a private lender, you're probably going to save money because not only can you consolidate or refinance your private loans, if you have federal loans, you can consolidate them with the private leander. They go in, pay off your loans the federal government, and they say, now you pay us. But maybe it's at a lower rate, maybe

it's at a fixed rate. Who knows. Um, If you're doing that, you're probably doing it to make it so that you're paying less every month or over the course of the loan. That's right. If a federal loan, if you go to graduated repayment route over that ten years, repayments start low um monthly and then they increase over time with the supposition that your salary is increasing over time, which makes sense, And so that's I think the standard one or the graduated one, those are the that's the

default setting when you start repaying your loan. But what a lot of people don't realize is that the federal government on their loans offer UM what are called income based repayment plans of sense, they're a really good idea. I saw I read a really um great article from Brookings I believe, basically saying like, here's all the ways that the UM, the student loan UH situation is just totally broken. But it's it's based on some really good ideas. It just needs to be fixed in some ways. It

was written by Adam Looney. It's called a Better Way to Provide Relief to Student Loan Borrowers. Really interesting stuff on Brookings. But UM. One of things he says is like the default should be a repay um income based payment, the r e p a y E revised pay as you earn type, because what it is it says, okay, what's your income every year you you file a new income report UM, and then they say, well, they take a hundred and fifty percent of the poverty limit whatever

the government says the poverty level is. They subtract the two and you pay ten percent of that that's your payment. Okay, So, um, it actually is is set up so that as you start to make more money, your payments go up. But if you don't ever really start to make more money,

you may you pay about the same. So the whole, the whole idea behind all the income based repayment solutions is that if you if your diploma is paying off, great, If it's not, we're not gonna like, we're not going to treat you like the people who are benefiting from the college experience that they had you with the philosophy degree. Bless your heart. Go start thinking about existential risks. That's the best thing you could do. Uh. There are other

different kinds of income driven repayment options. Um you talked about revised pay as you earn. There's also pay as you earn, income based repayment, income contingent repayment, and they're all just tweaked versions of sort of the same idea, where and you're figuring out how much you can pay out of your discretionary income, or rather they're figuring it out for you exactly. It can be you know, between ten and twenty years to pay off. It can be

ten percent your discretionary income. In the worst case, it could be of your discretionary income. Um. But but yeah, it's it's a set amount and it's income. It reflects the amount of money that you make. So it's pretty cool. Um. The other great thing about these with the federal government that you are not going to get from a private lender is after the term of your loan, right ten years,

twenty years, whatever, thirty years. I think if you get like the super duper extended version, they say, okay, well you tried to pay it off. Um, what this this amount that's left over, We're just going to discharge. You don't have to pay it. It's going to be forgiven. Oh are we talking forgiveness? I think? So all right, do you want to take a break first? Uh, yeah, let's take a quick break and we'll we'll get more specific about forgiveness right after this. We'll call it a

cliffhanger things and chuck and chuck stop. All right, So you teased forgiveness so hard. You're the one, he said, bend over and I'll make a depot. I don't want to hear it from you. Um. Sorry again, parents with children listening, that's right. There is a plan called the Public Service Loan Forgiveness Plan that what you were talking about. Under certain circumstances, if you they will forgive your remaining balance, um, if you have been paying for that ten years or

a hundred and twenty qualifying months. Um. You are working full time for a qualifying employer, which is government or nonprofit that is a true nonprofit. So you can't like go work for the Democratic National Committee or something like that. Yeah, it has to be a nonpartisan nonprofit, that's right, but it can't literally, from what I saw, any five oh one C three organization that isn't uh partisan or involved

in labor unions, it would qualify. Yeah. But here's the thing is, uh, they's got a bit of a bad rap when that first wave came through because uh of these relief applications were rejected. But then other people pointed out that, you know what, some of these people didn't make those add twenty payments. Some of these people filled out things incorrectly on their applications. They weren't eligible. They

didn't work for a qualifying employer. So like all the things you said you had to do, like a lot of people didn't do these so I don't know if we have a real good percentage number. I don't think they were just rejecting people like just for fun. Yeah. No, we'll have a better I guess better view of it next year, the next couple of years. But the point of it is to drive people into um careers like being a cop or a firefighter or working for a nonprofit.

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

loan forgiveness. There's something called a tax bomb, and it works a little something like this. Uh, you eventually will get taxed because whatever they forgive you have to count as income and then you are taxed on that income. Right, they always got their hand out. So this, this is not gotten away with something. This is not for that ten year one the ten yere one did you say, is called the Public Service Loan Forgiveness Plan. That's right, Okay,

that one the text bomb doesn't apply. This is for the forgiveness for just regular federal student loans where somebody has been paying for twenty years or twenty five years, whatever's left. The federal government says, you know what you did it you were you faithfully paid this stuff off, but you just never made enough money to really pay it off. So we're gonna forget about clear that you're

not going anywhere in life. But but that that amount that's left over, we're going to we're going to count that as as income on your income text. So so you have thirty thou dollars, like, if you're a high income earner by that time, well we should pay Probably are right exactly. But let's say let's say all of a sudden, you just had a huge uptick in your salary and two years before that, twentieth year of payments come along, um, and you just still had a big

amount left over. You could be paying thirty seven percent on that. So uh, if you had thirty grand left over and you're in the highest earner bracket, you would owe eleven grand in taxes on that debt forgiveness. The thing is, some people who know about this stuff say, there's no way the federal government is actually going to do this because we're not there yet. No, we've got about ten years before the first people whom are eligible for that will come. We will be able, we'll be

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

If you default on federal student loans, they take your your tax refund. So who knows, maybe they will charge people with that tax bomb at the end. Maybe m So defaulting that means, well, it could mean a few things. If you're a day late, you're delinquent, doctor short, if you're if you're three months late, you're ninety days late. Then they're going to report you to the credit bureaus. Um, if you don't make a payment for two hundred and

seventy days, then you're finally considered in default. And uh that you don't want to do that. You don't want to default on any loan in life, because it's the wrong thing to do if you can help it at all. Um. I know sometimes life happens in such a way that you can't, but if you can avoid defaulting on that loan, please don't. Yeah. The thing is is like when people are calling you every day, right when? Um? No, yeah, man, that took a second. Um, people are calling you and

harassing you every day. Um. Apparently the federal government uses a company called Navigant, who are particularly despicable when it comes to some of the stuff they'll do. I think they have like five federal lawsuits filed against them in one year, and like the second largest competitor to them had like forty. So yeah, they're not very well liked, but they they they When they're calling and harassing you multiple times a day, the last thing you want to do is reach out to him and say, hey, how

can I get back on track to paying you? Guys? You just wanted to go away, right, But like, that's the opposite of what you should do. If you find that you can't pay your bill, you should get in touch with your lender and say, I can't pay my bill. I need to make this more manageable. What can we do. The problem is one of the first things they'll offer is something called a forbearance, and that is just, hey, take a little time, you don't make any payments, get

yourself together. Yep, maybe you need a couple of months, maybe you need a couple of years, who knows, but we're gonna put you in forbearance. So you're not delinquent on your account, you're not in default. But the problem is that you're still accruing interest and that's actually not the best solution that you want. You're like, yeah, so you turn the interest switch off, right, And they're like, oh no, no, no, we don't have to know how to do that. There is no switch, Like, oh sorry,

couldn't hear you buy? Yeah, um, so you're not you're not in Uh, you're not in default, but you're still accruing interests. You're just not making payments. And the problem is apparently these um the servicing companies that actually make the collections on the loan payments for the government or for for private lenders. Even too, it's way more expedient to be like, hey, we don't want you to be

in default anymore. How about a forbearance. Okay, we'll get you in the program by and it sounds really good to you exactly like, oh great, I could use six months or a year, but if they would take five more minutes, they would say, actually, if you're a federal loan um borrower, there's all these income based payments that are going to make it way more realistic for you.

Rather than just kicking the can down the road and having to face this in six months when your forbearance is over, we could put you in one of these income based plans and you'll be better off. And a lot of people don't know that. So the forbearance does seem like a great basically gift from God all of a sudden, when actually it's a it's a it's a bite in the in the bottom, but from the horse

God that you aren't expecting. That's good. Uh. We talked about consolidation, that is um can be a very good idea. Uh We what we haven't talked. Is rehabilitating your account. If you through a period in life where you default and you're like, screw it, I can't or won't or refuse to make my payment. Um, you can pick up a year later and say like, jeez, is it too late, and you know what they'll say, Oh no, calm yeah, get out that checkbook. You can rehabilitate that account, which

is a really good thing. Start making payments again. That's all you have to do. Uh. And it's and if you couldn't afford that payment before, they'll even restructure that back to what you were talking about, to your income. Like if you let's say I have a salary reduction in life, and that's why you defaulted in the first place, pick up the phone. They will just answer the phones. They're gonna be calling you, uh, and rehabilitate it and say listen, well let's let's talk this through. Um, I'm

a good person. I really want to pay this, and they'll say, great, well can you afford Let's look at your numbers and then you start paying it and then all of a sudden, if you've paid nine payments over ten months, then you're considered current. Your default status is removed. Credit bureaus think you're a great person again, and uh, you only get one shot at this though, right that

rehabilitation you get one chance. Um, and that's just with federal loans, right, I believe, So I'm pretty sure that's federal. So um yeah, ultimately you want to stay out of that. There is a second chance with the federal government, but it's not necessarily easy to do. Um. So with one of the things that happened with all of the student loan there's like a student loan debt bubble that a lot of people are worried about because there's like one

point six trillion dollars out there right now. Which is good in one way because with student loans, the system is set up so that the people who are benefiting from it now, people who are borrowing to go to college, are paying back into it later to benefit the people who need to borrow, they are coming behind them. Okay, so it's actually pretty interesting, good system. But the problem is with that much money out and as many people at risk of defaulting on these loans, a lot of

people are worried about it. One of the reasons that people are worried about being of the risk of default. Among a large section are what UM some people call sums, people who have some college educations. You see that. Yeah, people who went to college and like didn't graduate basically. Yeah.

And one of the problems from that Obama initiative to expand UM higher education was to say, oh, yeah, online colleges we've never heard of before, Sure, come on in, UM, barely accredited colleges, come on in, UM, like basically scams, come on in and take all this money. I won't very prominent, No, we can't. Okay, I looked it up. That didn't apply, not even accredited. Yeah, um. So uh so.

The the fact that this that the country was awash in easy money for college education and that no one was watching the sharks who were coming to soak it up, means that a lot of people went to schools that they got zero benefit from but walked away with a lot of money that they owed. And so these are the sum So basically these people would have been better off with just a high school education, because to an employer, a little bit of college doesn't doesn't help. You have

to go graduate. Yeah, you don't walk in and say, well, it's spent three years and so close, Jim, Jim, Can I call you Jim? So close Jim. What's called the sheep's can affect, which is the actual increase in wages that you can typically expect from a college diploma. There's no proportion to it. If you get three years of schooling, you don't get three quarters of the sheepskin affect. It's all or nothing, and you only get it when you graduate.

So if you don't eduate, you got nothing from that that increase in wages, and you actually owe money through student loans. So there's a big problem associated with student loans and a lot of people are kind of worried about it um And one of the things that there that is causing worried to our people have figured out how to take a bad situation to make it even worse. Because some lenders, and I think the federal government's among them,

take student loans, package them up and sell them as securities. Crisis. It's exactly like the housing crisis, with one big difference that subprime mortgage crisis. Even if somebody defaulted on a loan, there was still a house that could be taken and sold. And I that sounds extraordinarily heartless. But I'm saying from an investor's point of view, there's collateral with the student loan, there's nothing backing it. If the person defaults, then you

just lost everything from this investment. But the idea that people are like, oh, they're a student loan bubble, let's figure out how to turn it into an investment that is really ill advised. That's what I think. Something like a two hundred eight billion dollars of that one point six trillion is securitized. I think Mark Cuban one of his big deals as student loan, uh like paying it off, for relieving it, trying to help solve the problem. Yeah, I think he's one of the ones that's kind of

been shouting like there's a big problem coming. There's a huge problem coming. I think a lot of people know it, but very few people know what to do about it. There's one other thing. There's a proposal by Rand Paul that was brought to committee on December third, nine, and it basically says you can get like fifty sid bucks out of your four oh one k penalty free and tax free if you use it to pay off your student loans. Yeah, that's a tough one. Uh, it's a

math problem, Like, just do the math. Uh, it's sort of like robbing Peter to pay Paul. You're not gonna have that money later on, right exactly. But um, depending on how the numb first workout, it could benefit you. It could benefit you in the short term. But what some people are saying is like, no, dude, we were going to have a big enough problem with a lot

of people not prepared for retirement thirty years. We should not be encouraging those same people to take whatever money they have saved a way for retirement to pay off their student loans. It's not a good idea. It's not for everyone. It could be for some people. It depends on how your life goes well. Yeah, Plus a lot of people are like, I don't have five grain in my four oh one k. What's a four oh one K? All I can think about is my student loan debt.

It's a it's a it's a bad situation. I'm very curious to see what happens. Yeah, me too, And uh, go to go to school where you want to go to school, kids, But I'm telling you, try to make it someplace you can afford and really, really, really look at the benefit and the and and that that outweigh is if it's worth it you think to spend all that money? Just just think more about it. Well, you want to know one thing that's really despicable that came

across that I did not understand, Chuck. The federal government is not allowed to share data on outcomes from schools. So like if you went to a private school and you just got a wash in debt and you make ten grand a year, there's no way to share that with prospective students who say, oh, I want to stay away from that school. I want to stay away from that. To Sarah Lawrence, the average salary is agoing senior is blank. Like,

they don't share that. So the what we're advising people to do, it's very tough to do because the federal government is barred from sharing that information. I think, have you got anything else? Nope, this is a big one. We could talk about this forever. This one, Chuck, may have broken a record. I had sixty four tabs open on just student loans today. I believe it sixty four too many tabs. It's a lot of tabs. Okay, since I said it's a lot of tabs and Chuck said

something horrid about deposits. It's Sime for listening mail. I'm gonna call this to listener mails because they're both pretty short and both uh corrections. Hey guys, been listening a long time, Really love the show. I finally have some info that I can share with you regarding a recent episode. Listening to the Coyotes episode and Josh was searching for a word, uh for something that is active at dawn and dusk, and I'm here to tell you that word

is crepuscular. It sounds like a pete and pete kind of word. It does. The crepuscule is another word for twilight or dawn and dusk, So crepuscular means of the twilight or an animal that is active at that time. Hope that helps at your next tribute night. That is Sarah from Wisconsin. And now we're gonna read one from Bethany a correction uh for my pronunciation of tagalog. Hey guys, listen, we got a few of these. I listen to your show every day during work and love listening to what

you have to offer. Because of my frequency of listening, I know you're always looking to improve pronunciation and want to be respect cool of other cultures. I'm currently on your latest short stuff on the murder of Tera Cita Bassa and our Bassa, and wanted to point out the correct way to pronounce the Filipino language. Chuck said, tagalogue, it's actually to galug you're thinking of those little Debbie cookies or no Girl Scout cookie. Now, I just didn't

know that's how I pronounced it to Chuck. I just wanted to help where I can say thank you for continuing to produce awesome content year after year. Once again, it's to galag to to go long, I think, well, this is g a h g u A somebody else ad g u h. Boy, here we go. That's from Bethany, Thanks a lot, Bethany, uh and from Sarah to to

listener mails to top notch ones. If you want to try your hand at sending a top notch listener mail, wrap it up, spank it on the bottom, and send it off to Stuff podcast and i heeart radio dot com. Radio Stuff you Should Know is a production of iHeart Radio's How Stuff Works. For more podcasts for my heart Radio, visit the iHeart Radio app, Apple podcasts or wherever you listen to your favorite shows. H