Student Loans

Student Loan Forgiveness

Apply For Student Loan Forgiveness

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The White House has announced that the Department of Education (DOE) will cancel a portion of student loans. DOE will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE. Up to $10,000 in debt cancellation will be provided to non-Pell Grant recipients. Again, this is for loans held by the DOE. There are stipulations to qualify for this student loan forgiveness. Student loan borrowers must have an individual income of less than $125,000 ($250,000 for married couples). To facilitate this student loan relief, the pause on federal student loan repayment is being extended through December 31, 2022. As such, federal student loan repayment will begin in 2023. But how do you apply for student loan forgiveness?

This post will not address the fairness of loan forgiveness and will only provide information as to the latest announcement.

Who Will Get Student Loan Forgiveness?

This student loan forgiveness is very targeted in view of those who are eligible to take advantage of this program. According to the White House, current estimates is that nearly 90 percent of relief will go to people earning less than $75,000 and that roughly 20 million borrowers could have their debt completely canceled. The United States is estimated to have a population of 350 million people, so essentially almost 6% of the population will have their student loans completely forgiven. 

The DOE estimates that, among borrowers who are eligible for relief, 21% are 25 years and under and 44% are ages 26-39. More than a third are borrowers age 40 and up, including 5% of borrowers who are senior citizens.

Pell Grants

A specific provision of the federal student loan forgiveness plan is that those who received Pell Grants my have up to $20,000 of their federal student loan debt forgiven. What are Pell Grants? Federal Pell Grants are typically awarded only to undergraduate students who display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree. Unlike a loan, Pell Grants do not have to be repaid, except under certain circumstances.

According to estimates, 7 in 10 college graduates with federal student loans also received a Pell Grant, and Pell Grant recipients have on average an additional $4,500 more debt than other college graduates.

Applying For Student Loan Forgiveness

The White House has noted that applications for federal student loan forgiveness will be made available earliest in about a month to two months. As such, the application is expected in or about October 2022. Once the application is rolled out, borrowers are advised to apply by November 15, 2022. This will allow balances to be lowered or eliminated before the student loan payment pause ends on December 31, 2022.

While some borrowers will need to apply for federal student loan forgiveness, others will not. About 8 million borrowers, whose income is already on file at the DOE will have their loans automatically forgiven without having to apply. For those for whom the DOE does not have a record of their income, they should  sign up on Studentaid.gov to be notified when the federal student loan forgiveness application form goes live.

New Proposal

In additional to federal student loan forgiveness, the DOE is also proposing a new income-driven repayment plan. This plan will cap monthly payments for undergraduate student loans at 5% of a borrower’s discretionary income. This would be half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers. 

Conclusion

The White House has announced that the DOE will cancel a portion of student loans. DOE will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE. Up to $10,000 in debt cancellation will be provided to non-Pell Grant recipients. Again, this is for loans held by the DOE. There are stipulations to qualify for this student loan forgiveness. Student loan borrowers must have an individual income of less than $125,000 ($250,000 for married couples). To facilitate this student loan relief, the pause on federal student loan repayment is being extended through December 31, 2022. As such, federal student loan repayment will begin in 2023. Sign up on Studentaid.gov to be notified when the federal student loan forgiveness application form goes live.

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praying for student loan forgiveness

Is Student Loan Forgiveness Fair?

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It does not matter how much is forgiven and it really does not matter the reason. Forgiving student loans is a divisive issue. There is one main group that will directly benefit from student loan forgiveness. This group includes those for whom student loans are forgiven. On the other hand, there will aways be a number of groups that will be aggrieved. This group of the aggrieved includes at least those who have paid off their student loans, those who never took out student loans and those who did not have the opportunity to take out student loans because they did not attend college.

Student Loan Forgiveness

There is a student loan problem. Some students were victims of predatory lending from opportunist institutions. In some cases, students were given loans and then obtained worthless degrees. In some cases, the institutions were not up to par academically. For some, the college was closed down and students were stuck with student loans but no degree. For others, student loan terms were not clearly explained and students now owe more than they borrowed. In all cases, for those affected, it is likely that they are stuck with a mountain of student loans and no true path to ever pay off the borrowed amount plus the accruing interest.

On balance, should these students have done their due diligence? Should these students have read the fine print and better understood what they were signing up for? Also, should there have been more government oversight to prevent institutions from selling these subprime student loans to vulnerable students? Something to think about.

Students Who Paid Back Their Student Loans

There are some students and adults who have now paid back their student loans. Essentially, they made it a priority to not take out more than they needed during their school years. Many of these individuals did not attend their dream school because of the cost. Instead, they settled for a less expensive option. They may have also worked extra jobs. Some did not take fancy spring break trips while in college. Others have forgone buying nicer homes or cars. Instead of spending, these students were cost conscious. They buckled down and payed back their student loans.

How would you feel if you were one of these students when you hear of others getting student loan forgiveness? You will likely feel robbed. You have made the sacrifices and paid back what you owed. Now, you are being penalized for your diligence, being proactive and responsible. Would you view this a being fair?

Students Who Did Not Take Out Student Loans

Let’s face it, we live in an unequal society. There are a group of students who attended college and did not have the need to take out student loans. This could have been a result of their parents saving over time and allocating funds specifically for college. For others, their parents were in the position to pay their tuition as they went through college. Still, there are many who simply worked during college and were able to make enough to pay their costs or obtained scholarships.

For those who prepaid for college, those who worked multiple jobs to pay their tuition, and those who studied and obtained scholarships, how is student loan forgiveness viewed? Will they view student loan forgiveness as a penalty? Why work hard during college and forgo all the parties, why prepay for college, why work hard and obtain scholarships when the student loans will be forgiven anyway? 

Those Who Did Not Attend College

Of the groups that will likely view student loan forgiveness in a bad light, those who did not attend college will likely be the most upset. They are the most likely to be upset because as tax payers, they may view student loan forgiveness as paying for something they did not have the opportunity to part take in. These individuals are essentially paying for someone else’s college education or mistake. They may also see student loan forgiveness being applied to college educated citizens as causing a further divide between the have and the have nots. Some who will be helped by student loan forgiveness, where they attended reputable colleges, may end up earning more than those who did not attend college. So in effect, as a tax payer, those who did not attend college would be further subsidizing these individual’s lifestyle. For many, this will be viewed as being unfair. 

The Greater Good

No matter your stance on student loan forgiveness, one thing to consider in this student loan forgiveness debate is the greater good. Will forgiving a portion of student loans help the overall society in general terms. If citizens are not buried by student loan payments, will this translate into increase economic activity as more funds will be available to spend. If this works perfectly, all of society will benefit. However, will this affect personal responsibility and the motivation to live within ones means if there is a possibility that your debt will be forgiven?

Whatever the decision with regard to student loan forgiveness, one thing is for sure, the debate will continue.

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Video Summary

Net worth

Do You Know Your Net Worth?

Money Maroon

We are often hung up on how much someone is making, the car that they are driving and the house that they are living in. Rarely do we consider their net worth, or ours for that matter. This may be because net worth is much harder to determine from just looking at someone. The fact is, the most flashy among us typically have the least wealth. If you know and focus on your net worth instead of material things, you will make decisions to ensure that your net worth gradually increases over time. Knowledge is power!

Know your net worth
Know your net worth!

Do You Know Your Net Worth?

On a basic level, your net worth is equal to your assets minus your liabilities. Unsurprisingly, the younger you are, the more likely that your net worth will be zero or below. But this does not mean that you should keep the full picture of your financial situation in the background. Knowledge is power!

If I asked what is your salary, it is likely that you would be able to provide the answer. If I asked you for an estimate of your credit card debt, mortgage balance or student loans, I am certain that you can provide an estimate. What happens if I asked about your net worth? Could you provide an estimate? I figure the answer is likely no.

It is important to know your net worth because with this information, you can knowledgeably plot your financial path forward. If you do not know what your current financial situation is, how can you plan your financial future? How can you determine how and where to allocate funds? The fact is, you cannot plan your financial future without knowing your net worth. 

What Happens When You Do Not Know Your Net Worth?

Have you ever heard the following scenario: A family having the largest home on the block, having two or more luxury cars and who goes on vacations yearly, goes broke in view of the smallest of financial hiccups. How does this happen?

It is always a shock to see someone with the largest home on the block, who has the best suits, the luxury cars and the yearly vacations go broke when they lose their job. This is surprising but it should not be. You see, the people who are watching and growing their net worth are not spending big on cars, homes and vacations. It is really not the case. If you are spending so much on these things, it is much harder to grow your wealth. You are more likely to grow your debt. With increase debt, your chances of living pay check to pay check increases, no matter how much money you are making.  This is where the house of cards related to a fake wealthy facade will begin to crumble. 

Eventually, the debt will overcome your take home pay. If you are unlucky enough to lose your employment, the house of cards will fall at an accelerated pace until you go into foreclosure, lose your cars. At some point, the facade of being fake wealthy will disappear.

Focus On The Big Picture

The problem with not knowing your net worth is that you are likely not making informed financial decisions. You are making financial decisions based on an incomplete view of your finances. For example, the problem we all typically run into is our focus on salary. We all aim to maximize our salary but may not be paying attention to the costs that potentially goes with it. Think about it this way, if your salary is $100,000 with no retirement contributions from your employer vs a salary of $95,000 with $10,000 automatic contributions to your retirement by your employer. Which do you choose? Are you seeing the bigger picture?

Further, in some instances, it may be beneficial to pay off debt based on the interest that is accruing rather than investing/saving. But without a complete picture of your finances, are you making the right decisions? Knowing your net worth provides a constant check and awareness of where you are financially. Knowledge is power!

Conclusion

We are often hung up on how much someone is making, the car that they are driving and the house that they are living in. Rarely do we consider their net worth, or ours for that matter. The fact is, the most flashy among us typically have the least net worth. If you know and focus on your wealth instead of material things, you will make decisions to ensure that your wealth gradually increases over time. Knowledge is power!

See your complete financial situation and make decisions that will provide financial security.

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Compounding interest

Compounding Interest, It’s Magic!

Money Maroon

Do you like free money? What about increasing your wealth over time by doing absolutely nothing? I figure that your response to both is yes and yes. Well, I am here to tell you about the so-call eighth wonder of the world, “compounding interest.” It is simple, very logical and does not take much to understand or implement as part of your financial toolkit. In many cases, it is automatic. It is the reason why you should start saving and or investing early, and the reason it is never too late to get on the right financial track. By understanding compounding interest today, you can be financially secure tomorrow.

What Is Compounding Interest

Compounding interest is the addition of interest to the principal sum of a loan or deposit. In the context of saving, this is the reason why it is so important to start saving and or investing early. In its simplest form, it is interest upon interest. It is a beautiful thing when you are saving and investing. However, compounding interest can be detrimental if you are in debt.

Compounding Interest As An Asset

As an example, if you earn 8% return on your savings/investment on a yearly basis, after the first year you will have a total of your initial amount plus 8% of that initial amount. If you began with $100, you will have $108 at the end of year 1. However, look at what occurs over time. At the end of year two, you will have the amount at the end of year 1 plus 8% of that amount. Essentially, you have earned interest upon interest. In our example, you would now have approximately $116 at the end of year 2. At the end of year 3, 4 and 5, you would have approximately $126, $136 and $146 respectively. In 5 years, you would have earned $46 just by saving/investing.

Imagine if over that 5 year period you continued to save and or invest to grow your principal. Your return would be significantly more. Compounding interest is the reason why someone who saves and or invest at the age of 25 to 35 and stop will likely have significantly more for retirement than those who invest significantly more from 35 to 55.  Compounding interest is the reason for a number of sayings, for example “it is not timing the market, it is time in the market.” With compounding interest, time makes all the difference.

To drive this point further home, in our example, in 20 years your $100 principal would turn into $466. If the total after 10 years is not impressive enough, in 50 years, your return would be a whopping $4,690. This total is from having $100 growing without contributing anything additional. Crazy isn’t it? Check out the US securities and exchange commissions’ Compounding Interest Calculator. Play around with the numbers, and see what happens when you not only save/invest, but also continue to do so over time.

Compounding Interest

Compounding Interest As A Liability

In the context of debt, compounding interest is the reason why it is so important to eliminate debt early. It is the reason why your student loan balance increases while you are still in school or in forbearance. It is also the reason why you hear so many stories of folks who have been paying down debt for years and have made no progress. How do you pay minimum payments on a debt for 10 years and still owe more than the original amount? The answer is simple, the answer is compounding Interest. 

The interest rate on your debt matters, and so does the time that you take to pay it off. Compounding interest is why you are typically advised to pay more than the minimum payment on debt. The faster you pay off your debt, the less time there is for the interest to compound, the less total debt you will have to pay.

Your Advantage

Now that we have tackled the issue of what is compounding interest, to have compounding interest work to your advantage, pay down debt and begin saving and or investing today. The sooner you begin to save, invest, and pay down your debt the better financial position you will be in. Compounding interest is often called the eighth wonder of the world because once the momentum begins, it is hard to stop. For better (when you save and invest) or for worst (when you are buried in debt).

Our discussion should give you the imagery of a snow ball building in size. The snow ball begins small. When small, the snowball is insignificant and can easily be stopped and disposed of. However, over time, as the snowball continues to roll downhill and  adds layers, it becomes a monster that cannot be controlled or stopped. That is compounding interest, use it to your advantage and achieve your financial goals.

Begin small, be consistent, and build over time to become financially unstoppable.

Conclusion

We all love simple and beneficial concepts that can be easily integrated into our life. Compounding interest is simple, very logical and does not take much to understand or implement as part of your financial toolkit. In many cases, it is automatic and works like magic. It is the reason why you should start saving and or investing early, and the reason it is never too late to get on the right financial track. By understanding compounding interest today, you can become financially unstoppable tomorrow. Journey to financial independence.

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Debt Free

Need A Total Money Makeover?

Money Maroon

Today, debt has become one of the tallest life hurdles to overcome. Now more than ever, for many, debt accumulation begins during the college years or earlier. The culprit is often student loans, and depending on one’s circumstances, it is a matter of when and not if credit cards will become a part of the total debt. How can this trend be stopped? First, we must understand the issue: more often than not, debt starts to accumulate in view of lack of financial education. A possible solution is education and a total money makeover.

We Act Only When Necessary

Like most issues in life, it is best to understand debt before it becomes a problem – preventative care. However as humans, we typically wait until we have a full blown problem before we attempt to remedy a situation. With regard to debt and our financial health, we approach preventive care for finances in the same manner. Unfortunately, many delay the pursuit of financial education until they already have financial issues. 

Debt, The College Years

If we look specifically at those in college, due to the lack of financial knowledge, debts are usually ignored until graduation. Upon graduation, most students are happy to reflect on what they have achieved. Years of study and hard work is rewarded with a degree, friends, memories and a mountain of student loans. The hope is that aside from the degree, new graduates have chosen a career path that allows them to financially support the life they seek. We know that this is hardly the case. For those who seek employment, getting the first job is exciting, but the salary may not be as exciting.  The average salary for an individual holding a bachelor’s degree is about $45,000-$50,000 depending on the degree and area of study. 

You’ve Got Mail

Whether or not gainful employment is obtained, within 6 months of graduation the grace period for student loans will end. The debts accumulated during college, in short, can no longer be ignored. The bills will literally be in your mailbox. Do not worry, even if you do not provide an updated address, the student loan servicers are typically very good at tracking you down to collect. 

Six months following graduation when the bills begin to hit college graduates’  mailboxes, it is a terrible time to begin learning about money, and money management. For those who could not obtain gainful employment, you could not select a worst time. Yet, when the first bill to student loan borrowers turns up in the mailbox, this is the time when many millennials usually decide to learn about money management. Not by choice, but by necessity. 

The Total Money Makeover

Graduation removes  the luxury of student loan ignorance and the steady supply of play money. Graduation brings financial reality. This reality is beginning to force many millennials to address their financial situation head on. The financial reality is so stark that many millennials are not only aiming to address their student loans, but many are taking steps to be debt-free. For many, Dave Ramsey’s total money makeover has been a go to guide. The total money makeover is a complete mind makeover and a great start to making lifelong financial changes. 

Total Money Makeover Principles

The total money makeover works by forcing you to be  aware of your finances. This includes listing your debts from smallest to largest regardless of interest rate. Below is a short summary of the method:

  • Step 1. Save $1000 for a starter emergency fund.
  • Step 2. List your debts from the smallest to the largest regardless of interest rate. Make the minimum payments on all your debts except on the smallest debt. On the smallest debt, pay as much as you can. This is the debt snowball method.
  • Step 3. Save 3-6 months of living expenses. 2020 has shown us how important it is to have at least 6 months of living expenses saved. 
  • Step 4. Invest at least 15% in a retirement account.
  • Step 5. Save for children and college. 
  • Step 6. Pay off your home 
  • Step 7. Build wealth and be generous. 

Your Situation Is Unique

As we can see with these steps, using the total money makeover, the majority of individuals after graduation will be stuck at step 2 – getting out of debt using the debt snowball method. This is completely okay because the goal is to be debt-free. Also, because you are paying off debt does not mean that you should not contribute to a 401K. This is true especially if your employer is providing a match. The total money makeover is a guide and it is best to apply it based on your situation.

The Goal To Be Debt Free

Be Debt Free - Total money makeover

Ultimately, the goal is to become debt free and pursue financial independence. Focusing on paying off debt is important, as interest payments are a detriment to wealth accumulation. How liberating would it be if you were not tied to student loans and/or credit card balances? What would you do if money was not driving all your life choices? What if you could make decisions based on your happiness and not the financials? Your freedom can be achieved by applying a method that you will adhere to over time. Try to apply the debt snowball method to your debts. Find an extra income source and put all extra income towards paying down debt. Build your emergency fund and march toward financial independence. 

Being debt free and achieving financial independence requires sacrifices. While you implement the total money makeover, for a while, you may experience no vacation, no eating out, skipping the coffee run, decrease subscription services, and may even have to cancel plans with friends. But this is a start to building the foundation for wealth accumulation. This is a journey that requires consistency. The end goal is to be financially free and financially resilient. Will you allow a night out with friends or your coffee habit get in the way of your financial progress? I think not.

Conclusion

Today, debt has become one of the tallest life hurdles to overcome. Now more than ever, for many, debt accumulation begins during the college years or earlier. The culprit is often student loans, and depending on one’s circumstances, it is a matter of when and not if credit cards will become a part of the total debt. How can this trend be stopped? First we must understand the issue: more often than not, debt starts to accumulate in view of lack of financial education. A possible solution is education and a total money makeover. Journey to financial independence with a method that works for you and your ever evolving financial situation.

Co-Authored by Paigemera A.

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Student Loan Forgiveness

Your Student Loan Forgiveness Options

Money Maroon

There is an on going debate with regard to student loans and student loan forgiveness. Some are asking for partial student loan forgiveness. Others are calling for a total forgiveness. Some would like to reform repayment options. While many are of the belief that changes to the current system are unwarranted. This article will review current student loan forgiveness provisions as they stand today.

Student Loans

Current Student Loan forgiveness

Before we review the different student loan forgiveness programs, it is important to know the difference between student loan forgiveness, cancellation and discharge. According to the U.S. Department of Education, if you are no longer required to make payments on your loans due to your job, this is generally referred to as student loan forgiveness or cancellation. On the other hand, the U.S. Department of Education notes that if you are no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called a student loan discharge. 

Now that we have an understanding of the differences between student loan forgiveness, cancellation and discharge, below is a general review of available programs.

Public Service Loan Forgiveness (PSLF)

The PSLF program is generally available to those who are employed by a government or not-for-profit organization. The PSLF program allows for the forgiveness of any remaining balance on Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. While the requirements may appear simple, it is important to ensure that you satisfy the requirements of this program. Ensure that your payment plan, payments and employer satisfy the requirements of this program. For further information on how to apply and related qualifications with regard to the PSLF program, please click here.

Teacher Loan Forgiveness

Teacher’s loan forgiveness may be available for those who teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or education service agency. Under the Teachers Loan Forgiveness program, you may be eligible for forgiveness of up to $17,500. Specifically, forgiveness may be for your Direct Loan or FFEL Program loans. For further information on the Teacher Loan Forgiveness program, please click here.

Closed School Discharge

Some are in the unfortunate position of having their school close while they are enrolled or soon after they withdraw from the school. Thankfully, these individuals may be eligible to discharge federal student loans accumulated during time at the school. The closed school discharge program is available for Direct Loans, FFEL Program loans, and Perkins Loans. For further information on the Closed School Discharge program, please click here.

Perkins Loan Cancellation and Discharge

The Perkins Loan Cancellation and Discharge program is available for Federal Perkins Loans only. You may be eligible to have all or a portion of your Federal Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions) under this program. This also includes Perkins Loan Teacher Cancellation. For further information on the Perkins Loan Cancellation and Discharge program, please click here.

Total and Permanent Disability Discharge

Direct Loans, FFEL Program loans, and Perkins Loans may be discharged if you are totally and permanently disabled. You may also be eligible to have your Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation discharge if  you are totally and permanently disabled. For further information on the Total and Permanent Disability Discharge program, please click here.

Discharge Due to Death

In the unfortunate event of death, federal student loans may be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out. Discharge due to death is available for Direct Loans, FFEL Program loans, and Perkins Loans. For further information on Discharge Due to Death, please click here.

Discharge In Bankruptcy

Student loan holders in rare cases may discharge Direct Loans, FFEL Program loans, and Perkins Loans in bankruptcy. Note that this process is not automatic and we stress, rarely can you discharge student loans in bankruptcy. For more information of student loan forgiveness and cancellation, please click here.

Borrower Defense To Repayment

The Borrower Defense to Repayment program is available if you took out loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for. This program allows you to discharge your federal student loans based on borrower defense to repayment. The requirements for this program is very specific. Note that the specific requirements to qualify for a borrower defense to repayment discharge vary depending on when you received your loan. For further information on the Borrower Defense to Repayment program, please click here.

False Certification Discharge

For those with Direct Loans and FFEL Program loans, you may be eligible for the False Certification Discharge program. The False Certification Discharge program is available under a very specific situation. You may be eligible for discharge of your federal student loan if your school falsely certified your eligibility to receive the loan. For further information on the False Certification Discharge program, please click here.

Unpaid Refund Discharge

The Unpaid Refund Discharge program is available for a specific situation. If you withdrew from school and the school did not make a required return of loan funds to the loan servicer, you may be eligible for discharge of the portion of your federal student loan(s) that the school failed to return. In particular, this program is available for Direct Loans and FFEL Program loans. For further information on the Unpaid Refund Discharge program, please click here.

Conclusion

There is an on going debate with regard to student loans and student loan forgiveness. Some are asking for partial student loan forgiveness. Others are calling for a total forgiveness. Some would like to reform repayment options. Still, many are of the belief that changes to the current system are unwarranted. Whatever your thought on the current situation, we can all agree that student loans can be a detriment to financial independence. Knowledge is power, if you have student loans, know the programs that are available to you.

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Paying Off Student Loans Is The Key To Freedom

Paying Off Student Loans Is The Key To Freedom

Money Maroon

Let’s face it, in the current education climate, student loans are here to stay. While there are some talks of reforming higher education in the United states, it is unlikely that post-secondary education will be cheaper over time, or free. While there may be some loan forgiveness in the future, a complete forgiveness of all student loans is unlikely. If you have student loans, know that there is a light at the end of the repayment tunnel. Paying off student loans can be the key to freedom.

Student Loans Are Here To Stay

In today’s world, no matter your level of education above high school, whether an associates degree, bachelor degree or a professional degree, it is highly likely that you will graduate with student loans. It has become a fact of life. This is why it is so important to think about paying off student loans. Do not fall into the trap of thinking about your student loans only following graduation. It is important to be well aware of the costs and benefits of taking out student loans before you borrow a dime.

Be Strategic

If you are strategic with your education experience, your student loans can represent the ultimate investment in yourself. It may potentially be a way to a higher paying job and life long experiences. However, student loans can be a life changing burden and a huge economic cost. Student loans can be a detriment or an accelerant to a great financial future.

Once you have accumulated your loans and have graduated, one of your biggest expenses going forward will be the monthly cost to repay your student loans. For some, this will rival mortgage costs or a car payment and can be financially crippling. In many cases, your student loans will be the barrier to freedom. Freedom to choose where you want to work and the type of work you will be doing.

Paying Off Student Loans 

With regard to your job after graduation, having a mountain of student loans can limit your decisions and opportunities significantly. Do you take a job that will help in paying off student loans at a very fast rate, take a job that pays less but is what you want to do, and if you are lucky, you will be able to do both (the perfect job). For most, the perfect job that is high paying and also focused on what you want to do is a rarity when you leave school. So the decision is frequently, (a) do you take the high paying job that may not be in your specific area of interest, or (b) earn less but enjoy your job.

Paying Off Student Loans  – Short Term Pain For Long Term Gain

While I do believe that life is short and you should enjoy your time on this planet, I would not advocate for taking the lower paying job, if it pays significantly less. Taking a high paying job that speeds up your time to freedom could be beneficial. Financial Independence takes time, the earlier you start the faster you will get there. Taking the job that accelerates paying off student loans should be considered in view of the future implications.

Do the math, if you did not have a student loan payment, how much money would you need per year to be able to live comfortably? I am not talking about living in a lap of luxury, I am talking about having a home for your family and being able to take care of your necessities and  reasonable wants. I can almost guarantee that the amount is significantly less than what you may have thought.

Conquer the ball and chain of student loan that is holding you back

By obtaining employment that allows you to pay off your student loans at a faster rate, you are able to decrease your time under the thumb of a student loan payment. Whatever method or tricks you use to pay off student loans, your future will be the winner. By paying off student loans, you are able to achieve freedom, not  total financial freedom, but the freedom to move from a high stress job to one that you like and find fulfilling. The freedom to get your time back. The freedom to move locations, because a high paying job is not needed for you to survive.

Be Proactive

Instead of waiting on what the government may do with regard to student loans, be proactive and make progress in removing the ball and chain that is student loans and conquer life’s challenges. In any case, if you are aggressively paying off your student loans, if a certain amount is eventually forgiven by the government, that forgiveness will only accelerate your time to freedom from student loan debt.

Conclusion

Let’s face it, in the current education climate, student loans are here to stay. While there are some talks of reforming higher education in the United states, it is unlikely that post-secondary education will be cheaper over time, or free. While there may be some loan forgiveness in the future, a complete forgiveness of all student loans is unlikely. If you have student loans, know that there is a light at the end of the repayment tunnel. Paying off student loans can be the key to freedom.

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529 Plan

529 Plan: Contribute Today For Your Child’s Tomorrow

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It is important to secure your financial future first, before turning to your children’s. However, once you turn to the financial future of your children, a 529 plan should be on the top of the list. 529 plans allows account holders to put away funds for a beneficiary, typically a child or other loved one.

529 Plan
529 plan, a plan for your child’s future

Overview: 529 Plan

529 plans are authorized by Section 529 of the Internal Revenue Code and were designed to encourage saving for future education costs. When first instituted, 529 plans were limited to covering the costs of post-secondary education. Overtime, qualified education costs covered by 529 plans were expanded to also cover K-12 education in 2017 and apprenticeship programs in 2019. In view of the rising costs of education, if you have children, a 529 plan should be apart of your financial tool kit.

Types Of 529 Plans

Generally speaking, there are two types of 529 plans. A prepaid tuition plan or an education savings plan. According to the SEC, most all States and the District of Columbia sponsor at least one of the two types of 529 plans. Additionally, some private colleges and university may also have similar plans. Note that Wyoming is the only State that does not offer its own 529 plan.

Prepaid Plan

The prepaid 529 plan allows account holders to purchase units or credits at participating colleges and universities (usually public and in-state) for future tuition and mandatory fees at current prices. As such, you are locking in today’s prices. This can be a significant benefit in view of costs savings when taking into consideration the consistent rise in education costs over time.

Savings Plan

529 savings plan allow an account holder to open an investment account to save for the beneficiary’s future. The saved amount can then be used to pay for qualified expenses. Such qualified expenses include tuition; room and board; mandatory fees; and, books, and computers.

With regard to the investment account, in ways similar to a brokerage account, the account holder can chose from a range of investment options (target date funds, ETFs, Mutual funds) that is offered by the respective State or vender used by the State to carry out the 529 program. As such, prior to selecting a fund to invest in, it is important to carefully review the options available and the associated fees.

Taxes

529 plans are often referred to as a tax advantage account because of the associated federal and State tax advantages.

Contributions

Many States offer tax benefits for contributions to a 529 plan. These tax benefits typically include a State income tax deduction up to a certain limit contributed. Usually, these tax benefits are limited to residents of that State. For example, if you are a resident of Maryland and have a Maryland 529 plan, you would be able to deduct a certain amount of your Maryland 529 contributions from your Maryland State income tax. On the other hand, if you are not a resident of Maryland, and have a Maryland 529 plan, you would not be able to deduct your contribution from your home State’s income tax. 

Unfortunately, unlike the State tax deduction, on a federal level, the money you contribute to a 529 plan is not tax-deductible for federal income tax purposes.

Withdrawal

With regard to withdrawals for qualified expenses, 529 earnings are not subject to federal income tax and, in many cases, State income tax. However, if 529 account withdrawals are not used for qualified expenses, the funds will be subject to both State and federal income taxes and an additional 10% federal tax penalty on earnings.

Growth

Another benefit of 529 plans is the tax-free earnings that grow over a period of time. Growth of funds in your 529 account are not taxed. Therefore, the longer your money is invested in a savings plan, the more time it has to grow and the greater the tax benefit. The upshot here is a simple one. Although contributions are not deductible from your federal income tax, earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for qualified expenses. 

Conclusion

It is important to secure your financial future first, before turning to your children. However, once you turn to the financial future of your children, a 529 plan should be on the top of the list. 529 plans allows account holders to put away funds for a beneficiary, typically a child or other loved one. A 529 plan is an easy way to get your child off on the journey to financial independence.

For your convenience, we have provided a chart below with links to the related State 529 plan. Continue on your journey to financial independence. 

States of the United States of America
and Washington, D.C. 529 Plans		Abbreviation
AlabamaAL
AlaskaAK
 ArizonaAZ
 ArkansasAR
CaliforniaCA
 ColoradoCO
 ConnecticutCT
 DelawareDE
FloridaFL
GeorgiaGA
 HawaiiHI
 IdahoID
 IllinoisIL
IndianaIN
IowaIA
 KansasKS
KentuckyKY
 LouisianaLA
MaineME
 MarylandMD
 MassachusettsMA
MichiganMI
 MinnesotaMN
Flag of Mississippi ("New Magnolia Flag").svg MississippiMS
 MissouriMO
MontanaMT
 NebraskaNE
 NevadaNV
 New HampshireNH
 New JerseyNJ
 New MexicoNM
 New YorkNY
 North CarolinaNC
 North DakotaND
 OhioOH
 OklahomaOK
 OregonOR
 PennsylvaniaPA
  Rhode IslandRI
 South CarolinaSC
 South DakotaSD
 TennesseeTN
 TexasTX
 UtahUT
 VermontVT
 VirginiaVA
WashingtonWA
 Washington, D.C. (District of Columbia)DC
 West VirginiaWV
 WisconsinWI
 WyomingWY

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Crushing student loan payment

Student Loan Payment: Attack And Pay Off $200,000

Money Maroon

Once you graduate, you typically have six months before the first student loan payment is due. If you are close to graduation or a recent graduate, it is time to pay attention to what you owe. If you are already into your student loan payment period, it is time to take control. This is a guide to paying off $200,000 in student loans. In this post we assume that you are not participating in the federal loan forgiveness program. We further assume that you want to turbo charge paying off your student loans.

Student Loan Payment: You Do Need A Job

First, secure a job that pays a living wage. Following graduation, you typical have six months before beginning the student loan payment journey. As such, securing a job that pays a reasonable wage will reduce the financial stress associated with student loan payment. Keep in mind that although you have six months to begin student loan payment, you may begin paying back your loans early.

As an example, while in school, you can work and pay down your student loans as you go. This can save a tremendous amount of money as you are able to cut down the interest compounding on your student loans. If you are able to pay down the principal of your student loans while in school, this will further reduce your debt load. For those who are employing or who have employed this tactic, great job. If this ship has already sailed, let’s move on to knowing what you owe.

Student Loan Payment: You Must Know What You Owe

Before graduation, shortly thereafter or now,  begin to review all your student loans. Take a look at how much you owe and the interest rate for each loan. Let me rephrase that, know how much you owe and the interest rate for each loan, write it down. Order your loans from highest interest rate to lowest interest rate. In doing so, you are identifying the loans that will cost the most. The aim here is to attack and pay off the loan having the highest interest rate first, thus reducing the total cost of the loan. The first step is to identify the target loans.

Student Loan Payment: You Must Know Your Minimum Payment

To take control of your student loan debt, you must appreciate your monthly payment. Note what your minimum student loan payment will be for each loan per month for the term of the loan. Next, add together all your minimum payments per month. This is the minimum payment due for your entire student loan debt load per month. Know this number. Ensure that you have structured your life in such a way that you are able to make these monthly payments. It is important to note that the plan is not to pay the minimum student loan payment for the standard 10-year period. However, it is good to know early what these minimum payments are.

Debt Avalanche

Now the plan. Now that you have reviewed all your student loans and you know the total minimum student loan payment per month, it is time to implement the plan. Attack your loan having the highest interest first. Look at your budget, and determine how much additional money you can dedicate to your student loans each month. This amount will be a sum above your minimum payments. The aim is to dedicate this amount (additional money) to your highest interest rate loan while making the minimum payments on your other loans each month. Once your highest interest rate loan is paid off, you can thereafter dedicate the additional money + minimum payment of the highest interest rate loan you just paid off to the loan having the second highest interest rate while maintaining minimum payments for your other loans.

Implementation And Example

As an example, if you have 3 loans, loan 1 having an interest rate of 5%, loan 2 having an interest rate of 4.5% and loan 3 having an interest rate of 4%. Using the above method, you would pay your additional money to loan 1 each month. For loan 1, you would pay loan 1’s minimum monthly payment + the additional amount. For all other loans, you would pay the minimum monthly payment. Once loan 1 is paid off, your additional amount + the minimum monthly payment for loan 1 + minimum payment for loan 2 would be paid to loan 2 while maintaining minimum payments for loan 3.

Using this method, mathematically, you would be paying off your debt more quickly and with less interest.

Additional Tip

Additional  tip,  most loans provide a reduction in interest rate if you sign up for automatic payment. Prior to signing up for automatic payment, ensure that you are able to afford the payment amount. If you are, sign up for automatic payment. This will also reduce your total payment and reduce your payment timeline.

Conclusion

No matter where you are with regard to your student loan payment, it is time to take control. By reviewing what you owe and attacking your student loan having the highest interest rate, you will pay off your student loans more quickly and with the least interest cost. By taking control of your student loan situation, you can turbo charge your student loan repayment and pay off $200,000 in student loans. 

Paying off debt is essential on the journey to financial independence. Start attacking your student loans today.

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Stacking Money JoToFi.com

High Earners And High Debt

Money Maroon

When we see someone driving a nice car or living in a big house in the nicest of neighborhoods, we often assume that these individuals are for better or worst higher earners living the dream, living the easy life. But are they?

Stressed

Many high earners spent years in school to get where they are. Most high earners work in high pressured professions and live in broken homes as a result of the long hours required to advance their careers. No wonder high earners tend to have high rates of suicides and elicit drug use.

Pay Check To Pay Check

This may be surprising to many, it is not atypical for high earners to live pay check to pay check. Simply put, those nice cars carry a nice car payment and a nice cost for insurance coverage. Those nice homes comes with a nice mortgage and nice costs of up keep (insurance, heating, cooling, landscaping, house keeping).

What about the family? Private schools for the little ones, those lavish family vacations and those social expenditures. You must keep your social status if you want to be in certain social circles.

 But with those high salaries, they can afford it, right? As we tend to do at JoToFI.com, let us use examples. 

Doctor And Lawyer

University

Let us look at the financials of a doctor and a lawyer. At about the age of 22, both our future lawyer and doctor will graduate college. 

For all costs, let us use 2019 numbers for a rough estimate. Again for simplicity, we will use the average costs of public and private education. We will also assume only public or only private education from university to professional school for our estimates.

  • Average public university cost per year: $10,116 
    • Average public university cost to graduation: 4 x $10,116 = $40,464
  • Average private university cost per year: $36,801
    • Average private university cost to graduation: 4 x $36,801 = $147, 204

Interest

Let us assume that our doctor and lawyer took out loans for school, for simplicity we will use the cost to graduation as their debt. For simplicity, we will not include interest charges. However, keep in mind that typically, interest accrues from the day the loan  is disbursed. Interest continues to accrue until the loan is paid off. Further, this interest is capitalized. Currently, the interest rate is about 5% annually.

Professional School

After obtaining top grades and racking up debt at university, our future doctor and lawyer must now attend professional school. 

For our lawyer, that is three additional years of law school education:

  • Average private law school cost: $49,095
    • Average private law school cost to graduation: 3 x $49,095 = $147,285
  • Average public law school out-of-State cost: $40,725
    • Average public law school out-of-State cost to graduation: 3 x $40,725 = $122,175
  • Average public law school in-State cost: $27,591
    • Average public law school in-State cost to graduation: 3 x $27,591 = $82,773

Our doctor on the other hand has four additional years of medical school:

  • Average private medical school cost: $52,515
    • Average private medical school cost to graduation: 4 x $52,515 = $210,060
  • Average public medical school cost: $32,495
    • Average public medical school cost to graduation: 4 x $32,495 = $129,980

Now, keep in mind that this debt accrues interest at about 5%-8%

Employment – Lawyer

For most lawyers this is it, at the age of about 25, they must now find a job. If you are aware of this profession, you will understand that the legal profession is bimodal. Meaning, at the top, a select number of law school graduates from top schools can earn a starting salary of $190,000 per year. Whereas at the bottom, the vast majority of lawyers earn a starting salary of less than $50,000 per year. In fact, the average salary for law school graduates is $72,500.

We will assume that our lawyer had amazing test scores, attended one of the top law schools in the country and was able to obtain a position with a starting salary of $72,500.

Employment – Doctor

For our doctor, residency follows medical school. Residency is a minimum of 3 years (based on your speciality) and an average salary of about $57,000 is paid.  During residency, our future doctor will toil day and night. For many residents, the salary provided during residency is simply not enough. As such, our doctor’s loans will continue to accrue interest during this period

Following residency, let us imagine that our doctor foregoes a fellowship, it is time to find a job at about 30 years of age. With an average salary in the range of $160,000 – $200,000, absent the present debt load, our doctor has a bright financial future.

The Math

For our lawyer, with a starting salary of $72,500, without counting the accrued interest, if he attended: 

  • Private schools, he owes about: $147, 204 (University) + $147,285 (Law School) = 294,489
  • Public schools, he owes about: $40,464 (University) + $122,175 (Law School – in State) = $162,639
  • Public schools, he owes about: $40,464 (University) + $82,773 (Law School – out of State) = $123,237

For our doctor, with a starting salary of between $160,000 and $200,000, without counting the accrued interest, if he attended:

  • Private schools, he owes about: $147, 204 (University) + $210,060 (Medical School) = $357,264
  • Public schools, he owes about: $40,464 (University) + $129,980 (Medical School) = $170,444

With the accrued interest added, these numbers would be significantly inflated. This is especially true for our doctor due to the added year of medical school and added years of residency.

Now, is our doctor and lawyer living the dream, living the easy life? If anything, they have loan payments added to the lifestyle that they are expected to lead. Professional Stress + Financial Stress.

High Earners, High Debt

For high earners starting their careers, the debt loads are high. As high earners navigate their way through their careers, in addition to student loans, add the added cost of purchasing a home, getting married, having a family, life style inflation, and our consumerism culture. It should now be clear why so many high earners live pay check to pay check.

We are not telling you to feel sorry for high earners, especially those who live above their means to maintain social status. Our aim with this article is to give you an insight into the life of those who we typically view as “rich.”

Conclusion

Whether you are a high earner or not, your journey to financial independence includes living below your means, saving and investing. Journey on.

In this article, the use of “he” is intended to be gender neutral.

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