Student loan forgiveness was a hot topic during the 2020 election cycle. With so many outstanding student loan payments, will the government step in to wipe out the debt? While many theorize about this, Robert Farrington takes the opposite angle, urging those who have student loans to prepare for repayment, rather than cancellation. This way, even if your student loans get forgiven, you’re put in a financially advantageous spot.
Robert runs The College Investor , a website dedicated to investing and personal finance for millennials. It comes as no surprise that the biggest thing on millennials’ minds are student loans, especially after two years of repayment moratoriums. So, how does someone strapped with student loans prepare for repayment, especially when so many variables are up in the air? Well, according to Robert, there are some simple steps you can take to make sure you’re paying on time and with as little stress as possible.
Episode note: This episode was recorded prior to the new student loan pause, set to expire on May 1st, 2022. Mindy and Robert record a special intro to update listeners on the new dates set by the Biden Administration. All other topics discussed in the show, especially around repayment strategy, are still viable and accurate for those who have student loans.
Mindy: Welcome to the BiggerPockets Money podcast show number 267.
Robert: You know, having some kind of system for yourself will help you immensely navigating this so that you’re on your right repayment plan. You know that you’re making your payments like you’re supposed to. You know if you’re on a forgiveness program, you’re on track and you’re not going to be one of these people that falls through the cracks. So get organized. It’s crazy, but it’s the easiest way to make sure you’re on the right track.
Mindy: Hello, hello, hello. My name is Mindy Jensen. And today, I am talking to Robert Farrington from The College Investor about the end of the student loan repayment, moratorium, and exactly what that means for you. Well, okay. We were going to talk about how to prepare for the end of the student loan repayment moratorium, which was going to be happening on February 1st. But after we recorded this episode, the moratorium was extended for another 90 days. Rather than scrap the whole episode, which is absolutely still valid except for the date that the repayment starts, Robert Farrington is coming back to record a new introduction to the show to help us with these new updates. So Robert, what is the latest information about the student loan repayment moratorium?
Robert: Yeah. So just like you mentioned, it was originally set to expire on January 31st, 2022. And President Biden extended it another 90 days. So payments are now set to resume on May 1st, 2022. So what does that mean for you? Well, we are still in a state of limbo for your student loans. Everything is still paused. There’s 0% interest. There’s no payments due until May. But as Mindy said, everything we talked about in the show is still valid. You still need to contact your loan servicer. You still need to get ready to resume making payments. It’s just that date has given you a little bit more time, especially with all the craziness that is going to be the start of the year with tax season and everything else. So take the time, get organized. But now you have until May 1st.
Mindy: Okay. And let’s say that somebody was all set to resume on February 1st. In my opinion, now is the best time to be making payments. Because during the moratorium, if you had the ability to continue make payments, paying no interest is better than paying interest, right? I mean, if you were about to start repaying your loans, I would suggest continuing with your plan. Every dollar of payment that you’re making now with this zero interest means that every dollar goes directly to your principal instead of being spread out between principal and interest.
Robert: You know, I don’t necessarily agree with that. I think that people that haven’t been paying their loans should not necessarily start paying their loans early.
Mindy: Oh. Wow. Okay. Why?
Robert: Well here we go, because here’s the thing. It could get extended again. So we weren’t expecting this extension. The Department of Education made it very clear that January 31st was the final extension. And yet here we are, and it got extended until May. And the president does not have the ability to cancel student loans by executive order. But one interesting thing that he could do is continue to extend this repayment pause out over and over again, as long as there is still a state of emergency for the COVID-19 pandemic. So that’s what he’s doing. And I’m not here to prophesize that he could do it again or not do it again, but it’s a potential thing that could happen. Right? So I don’t see a reason why you should make a loan payment that you don’t have to make. I think you should be taking that money and putting it towards other loans that aren’t paused. Maybe you have credit card debt. Maybe you have an auto loan. Maybe you have other things that you can better your financial situation. And I think that’s a much more valuable use for your extra dollars than going towards your student loans early. Or invest it, shoot. Put it towards something that could start making you money in the future. Right? So use that with your extra student loan dollars. I don’t think you should pay down your student loan debts any earlier than you have to. Remember, it’s also 0% interest. So by not making these payments, it’s not hurting you in any way either. So I’m the kind of guy that wants to say hold off, let’s see what happens April. I don’t think it would be extended again. But we live in a really kind of crazy world right now and it definitely could be. So yeah.
Mindy: Okay. I think that is a fair argument that you have made. So I will say that once again, personal finance is personal. And if you agree with me, yay. And if you agree with Robert, yay. And just choose your own adventure that allows you to sleep at night.
Robert: Yeah. Whatever your adventure is, just realize that at some point in time, the payment pause will. And and please be ready. Just be ready.
Mindy: Yeah. And when it does finally end, in the next few minutes, Robert will tell you exactly how to prepare so that it is a smooth process. Okay. So without further ado, let’s jump back into the episode that we had recorded before they pushed back the moratorium and screwed us all up. So, okay. Robert, thank you so much again.
Robert: Thank you.
Mindy: Robert, welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.
Robert: Hey, thanks so much for having me. I am excited to be here.
Mindy: Robert, let’s jump into this with both feet, because we have a ton of stuff to cover. In March 2020, all federally held student loan payments were put on halt. What did that actually mean?
Robert: Yeah. So this is an unprecedented program where all federally held loans, so this is direct student loans and a small amount of Perkins and FFEL loans had 0% interest, no payments required, and no collection activity. So if you were in default, all that stuff was paused so that people did not have to make their payments for almost two years at this point in time. It’s crazy.
Mindy: Wait. Even if you were in default, you didn’t have to make payments?
Robert: No. So all collection activity during this time was paused. So that means people that had not paid their student loans were not getting their wages garnished, were not getting their tax refunds garnished. So it’s been an unprecedented 22 months now of this where nobody had to make payments on their federally held student loans. There were a small amount of private student loan borrowers that still had to make payments. There were a small amount of FFEL loan borrowers that still had to make payments. But for almost 40 million Americans with student loans, no payments were needed for the last two years.
Mindy: Okay. Well sorry, but that’s ending. Now we’re in January of 2022, and the student loan payment moratorium is the end. At the end of this month, well I guess at the beginning of next month, you are going to have to start making your payments again. What does this actually mean for borrowers?
Robert: Yeah. So for the first time in 20 months, borrowers are going to have to start making their student loan payments again. Right? It sounds pretty simple, but there’s a lot of changes that have taken place. I mean, just think of all of our lives over the last 20 months, right? Things are different. Incomes are different. We have the great resignation. People are changing jobs. The world is in a very different place. We have pre-COVID, post-COVID. I don’t know how you want to describe it. But for student loan borrowers, it means a lot of change, right? So they’re going to have to resume their student loan payments. For some borrowers too, this might be their first student loan payment. Imagine if you graduated college in the last two years, right? So you’ve never even had to make a student loan payment. So these borrowers need to get with their loan servicers, start planning out what February of 2022 is going to look like. It means that you need to log in, see what your loan servicer has, what your payments are. If you had an auto debit, let’s say you were paying your student loans before the pandemic. Well guess what? All those payments, they’ve been stopped. The government doesn’t know if they should still draw from that account. So you need to log in, reset up your payments, know what your payments are, and be ready come February 2022. Sometime in that month, you’re going to have to make your first student loan payment for the first time in a long time.
Mindy: Now there was talk of student loan forgiveness, something like up to $50,000. What actually happened with that program?
Robert: So it’s important to know that this was a campaign promise from President Biden, right? He said that he supports Congress for giving up to $10,000 in student loan debt. And members of Congress have thrown out all kinds of numbers. $50,000 was a number. $10,000 was a number. Some of them are like, “Hey, forgive it all.” But all these were campaign promises. And in all of the legislative packages that have happened over the last year, none of them have included any type of student loan forgiveness. And what you’ll see right now is members of Congress and other people are saying, “Well, he could do it by executive order. He could just wave a pen and forgive student loan debt.” And honestly, that’s not the case. There is really no executive power that Biden has to forgive student loans en masse, or blanket forgive, or just wipe everyone’s debt away. He does have certain powers though, that he can do. And you might have seen some of these headlines lately where he’s automating certain repayment programs, right? And the rule that Congress has set out is that says that the president has the power to forgive student loans for any program that’s already been by Congress. So what you’re seeing right now is Biden is streamlining the bureaucracy, which I think is a good thing. So he’s forgiving payments for people that have total and permanent disability. Well, think about it. These people might not even be able to fill out paperwork because they are disabled. But the Social Security Administration and the VA already know they’re disabled. So why are we making them do this crazy bureaucracy of filling out forms and all this stuff when it’s like we know they’re disabled. Let’s just forgive their student loans. And the same is true with Public Service Loan Forgiveness, right? The IRS knows where you work. They know if you have a nonprofit job, right? The Department of Education knows if you’ve made payments. It’s not hard. We have the greatest data scientists in the country that work here. You can put two and two together and see if people qualify for these programs without having crazy government bureaucracy. So when you’re seeing these headlines of Biden forgiving student loans, that’s what you’re actually seeing. He’s actually taking existing programs that are already are in effect, and he’s just streamlining the bureaucracy so that people that have already qualified are getting the forgiveness they deserve. But, we’re not going to see any blanket student loan forgiveness. I’m sorry. I don’t want to be the bearer of bad news on this show. But you shouldn’t plan on it. You should plan on resuming your student loan payments in February when the student loan payment moratorium ends.
Mindy: Okay. So it sounds like I’ve been reading some click bait headlines, and I need to actually click onto those articles and read the actual content instead of just saying, “They’re going to forgive up to $50,000 of my student loans.” It also sounds like if I’m getting a student loan forgiven, I would know about it.
Robert: You would because you would already qualify for a program. So like I said, total and permanent disability was one of the big ones. Another one was borrower defense to repayment. So these are people that were defrauded by their schools. So these are the ones that went to for-profit schools. The schools misled them, made them take out a bunch of crazy student loan debt, and now they are now not able to repay these loans. And Public Service Loan Forgiveness. This is one of the most popular programs that the media likes to criticize. Because frankly, the government really screwed up the execution of this program. So what you’re seeing today is ‘fixing’ what should have already taken place over the last few years of getting people the forgiveness that they rightfully deserve, under the law that exists today. These aren’t new laws, these aren’t new programs. These are existing programs that have been around since 2007. It’s just they’re 10 year programs, and they were mismanaged for a decade.
Mindy: Okay. So bottom line on that sounds like there’s nothing new.
Robert: There’s nothing new except the fact that people are actually getting what they deserve and they should have gotten for years and years now. And they’re making the system and bureaucracy a little better, which is a win. Because honestly, for Public Service Loan Forgiveness specifically, millions of Americans qualify for this program. If you have student loans and you work in public service for 10 years, you are legally entitled to get your student loans forgiven, 100% of them, right? All you have to do is make 120 payments, which is 10 years of payments, right? And work in public service. It’s a really easy program to qualify for, but you just have to follow the rules, certify that you work in public service, and send in your forms. And that’s why I love this program. But on the flip side, it’s been very mismanaged. And a lot of people that are entitled to loan forgiveness, teachers, firefighters, government employees, people that work in hospitals. We’re not talking doctors, anyone that for nonprofits or public service entities. From the accounting team, to the office team, to the actual teachers that are in the classroom. All these people are entitled to these programs. And we just need our government to actually process the paperwork like they’re supposed to.
Mindy: Yeah. These programs have been fraught with problems. It sounds like things are changing. I know personally, now I’m trying to think who do I know that applied for the program or applied for the repayment and was turned down? What do you do in that situation?
Robert: Well, that’s what this thing of Biden’s waiver has come into effect. So if you’ve been denied Public Service Loan Forgiveness, what you need to do is you need to reapply for Public Service Loan Forgiveness, send in your employment certification form. You could upload it on fed loans website or the department studentaid.gov, or you can mail it in the old fashion way. But you need to get that form in by October of next year. And the Biden administration is manually reviewing every single application for it to make sure that people that are legally allowed to qualify for it are getting the loan forgiveness that they deserve.
Mindy: Do you have anything on your website that talks more about this student loan forgiveness? Because that seems like a very important topic. But also, kind of going to go off on a tangent. And I have a lot more question for you about the student loan repayment, which is more timely.
Robert: Absolutely. So you can go to thecollegeinvestor.com/studentloanforgiveness. I have the complete list of every student loan repayment plan there. And we can go down this rabbit hole. There’s over 80 of them. And I know some of these big ones that make all the headlines are what people like to talk about, but there might be one for you too. You got to see if you qualify. So check that out, and let’s continue with the student loan repayment pause ending. And we can talk about that.
Mindy: Yeah. So if you’re a public employee, thecollegeinvestor.com/studentloanforgiveness. And I’ll have that link and all the other links that we’re going to talk about at biggerpockets.com/moneyshow267 which is the show notes for this episode. Okay. So let’s get back to student loan repayment moratorium lifting. You recently survey 1,200 student loan borrowers. 71% of them said that they are financially ready to resume payments. But that still leaves 29% of people who aren’t ready. What do you do if you don’t have a job or you’re not financially ready to continue your payments again, and the student loan repayment moratorium ends?
Robert: Definitely. So the first thing to do is actually even know what your student loan repayment is. Log into your loan servicer, track down your student loans, and see what you owe. Because honestly, it’s been two years. A lot of people’s financial situations have changed. Your own situation might have changed. So that’s where it starts. Part two is there’s multiple different student loan repayment plans. And some of them are income-based. So let’s say something didn’t work out, you don’t have a job right now, or your income is lower than it was pre-pandemic. Well, you can re-certify your income right now in January, February. And your payments will reflect your income. And they could be as low as $0 per month legally, assuming that you have a very low or no income. You could also apply for an unemployment deferment. This isn’t as good as re-certifying your income, but it’s an option. If you think it’s only going to be a short term that you’re unemployed, you can opt to defer your student loans for another six months. But remember, interest is going to start accruing other things. So it’s usually better to get on a payment plan, even if it’s only a few bucks a month, than it is to defer. But you can also defer your student loans because of your unemployment.
Mindy: And I’m sorry. How long can you defer your student loans?
Robert: Well you can do it for up to three years, but it gives you in six month increments. So you can defer for unemployment in six month increments. And if you’re still unemployed, you can say that you’re still unemployed and push it down the road a little bit. But again, if that’s really the case, it’s better to be on an income based repayment plan where your payment could be $0 a month if you’re actually unemployed and have no income. So that’s a better thing because you’re in repayment at $0 versus having your interest and stuff accrue. And you’re not really in repayment, you’re in deferment.
Mindy: Okay. Since we’re talking about repayment and this is a big deal, this is going to be in the news, are there any repayment scams that people are going to need to be on the lookout for when the repayment plan opens back up again?
Robert: Oh my gosh. I’m sure if anyone out here has student loans, they’ve received that robo call that says, “We can lower your monthly payment,” or, “We can offer you student loan forgiveness.” So all these things are scams. What they’re trying to do is they’re trying to get you to pay them money sometimes up to $1,200 for them to potentially enroll you in one of these repayment plans that we just talked about. So I think it’s important for people to realize what a legitimate student loan help looks like. So everyone with federal student loans can do everything with their student loans for free with no cost by going to studentaid.gov. Government website, that’s actually a really good government website. And you can go in, log in, and see all your student loans right there. A second option that’s free is you simply call your loan servicer. Now I know a lot of us hate our own servicers, and you see the headlines. We like to rag on how they’re not competent. But honestly, for a lot of these basic questions, they’re really good. And you can call fed loan, or Navient, or Sallie Mae. Call your loan servicer and be like, “Hey, I want to change my repayment plan. What are my options?” And they will help you again for free. Any of these companies that are promising you loan forgiveness or a lower payment, if they’re charging you money for it, it’s a big red flag. You should probably not do it. Because what I see happen too many times is people pay these companies money. And guess what? They don’t do anything for you. And you might think your student loans are being handled. Well, guess what? They’re not. And now you’re not making payments and other things. So not only did you pay $1,200 to a company. But your student loans might go delinquent or in default, hurt your credit, yada, yada, yada, right? Or part two is you pay $1,200. And this company filled out the same form that you could have filled out in about five minutes and sent in, or done on their website and sent in. And maybe they did the right thing for you, but you paid $1,200 for something that would’ve taken you about five, seven minutes to do for free on studentaid.gov. So don’t need to pay for help. There is a difference though if you’re working with a certified financial planner or something like at. Because this person is going to look at your student loans as a whole financial picture. And this is for more advanced cases. Maybe you have a whole need for a financial planner and want to talk to a financial planner. Well, a real good financial planner should look at your student loans as well as your whole entire financial picture. So that’s different. They also have a fiduciary duty to you. But if you’re responding to a website advertisement, or a text message, or a voicemail if someone that says they’re going to lower your student loan payments, don’t fall for it. They’re not going to help you. You’re just going to pay money for something that you don’t need.
Mindy: Okay. So on the flip side, I know that there are legitimate companies out there like SoFi is a legitimate refinancing company. What does a legitimate offer look like?
Robert: Yeah. So what you just mentioned is student loan refinancing. So first off, let’s talk about student loan refinancing. When you refinance your student loans, you are taking out a new at student loan to replace your existing loans. That could be existing private loans or your existing federal loans. And the reason why you might want to refinance your student loans is simple. You save on interest, right? So you might see an offer from SoFi, or Earnest, or LendKey, or any of these companies. And they say, “You can get 2% on your student loans.” And you might be looking at that and being like, “Wow, that’s like half of my rate.” Right? But the problem is, is when you refinance into a private loan, you lose a lot of benefits, right? So when you have a federal student loan, you got to have your payments paused for 22 months. When you have a federal student loan, you qualify for the loan forgiveness programs that we were just talking about. When you have a federal student loan, you get unemployment deferments, you get other hardship options. You get these income-based payment plans. You don’t get any of that with a private loan. So it does make sense for some people that are going to pay off their student loans in maybe three years, and are high income, and aren’t going to qualify for any these programs. But it’s our estimation that about 90 to 95% of federal student loan borrowers should not refinance, even if you can save on interest.
Mindy: Okay. So this leads me to another question. How do I know that it’s a good idea for me to refinance my student loan out of the federal into … because it sounds like if I have a private student loan, there’s not really any benefits to staying with the higher rate. I should refinance that into a lower rate whenever I can. Strictly talking about federal student loans, when is it a good idea to refinance my federal student loan?
Robert: Definitely. So I have a few criteria of when it makes sense to refinance your federal student loans into a private one. First off is you are going to pay off the loan in less than five years. Okay? Pay it off. We’re not talking about loan forgiveness or anything. Second off, you are never going to leverage any type of student loan forgiveness program. You don’t qualify, yada yada yada. And number three is you’re not going to need any hardship options, or deferment options, or things like that. So the reason I say that is because the lowest interest rates that you’re going to see on your student loan refinancing offer are going to be on five year or less variable rate student loans. Some of those loans are down to 0.89%. They’re super low. But once you start getting past the five year mark and going to the 10 year mark, you’re still looking at a four, five, 6% loan. Which is very close, if not the same as a federal student loan. So why are you going to give up maybe half a percent interest, but lose all of these benefits that you get with your federal student loan? Plus the longer you’re paying on a loan, the longer you could end up wanting a hardship option, or needing to change your repayment plan, or potentially qualifying for loan forgiveness. So again, there’s risks here. The shorter, more concrete loans could totally make sense to save on interest. But beyond that, the benefits that you get that aren’t interest rate, right? But the benefits are huge on federal student loans.
Mindy: Okay. You used the term variable rate. Are all student loans variable rates, or are there fixed rates as well?
Robert: So all federal student loans are fixed rates. All right? And as if you took out a student loan two or three years ago, your fixed rate is like 2.78%, super low. If you took out a student loan when I did about 20 years ago, we were about 6.8%. And this was in the early 2000s, which honestly is still not that bad. But the rates have continued to de increase. So honestly, most borrowers over the last 10 years or so are going to see student loan rates in the 4%, 5%, maybe even as low as 2% range. And that’s why when you refinance, you’re not going to see much of a difference. Variable rate student loans are what you see in the private sector. So most private lenders offer variable and fixed rate loans. The variable rate ones are the ones with the really good looking interest rates that you see, because they’re offering you an introductory rate at 1.5%. But it’s a variable rate five year loan. So this is a loan that the rate can change every single month throughout the duration of your loan. Now, we are in low interest rate times. So that could work in your favor, but honestly, we’re also in inflationary times. So interest rates could be rising. So you are taking a little bit of a gamble when you take a variable rate loan that your loan interest rate could rise over the next few years. But it’s a math question, right? Do you think the savings you’re going to get up front is going to you money? And that’s why the longer you go with these loans, the better the federal loans just are looking. Fixed rate, lots of benefits, things like that.
Mindy: Yeah. I keep waiting for rates to go up. Rates have been so low for so long. I keep waiting for them to go up. And I didn’t realize that they were variable. My oldest daughter’s a freshman in high school. So I’m not quite into the learning about student loans yet, but we will be bringing you back to talk about how to pay for college in a few months, because that’s going to be something that I’m going to have to start learning about. So thanks Robert.
Mindy: Let’s go back to your survey. You said 65% of borrowers know what their payment is going to be. That leaves 35% of borrowers who don’t know what their payment is going to be. So first of all, why would you not know what your payment is going to be? Is that because your interest rate has changed or because … why would you not know what your payment is going to be coming up?
Robert: Well yeah. I mean first off, it’s been almost two years. So you have a good chunk of borrowers, probably about two to 3 million borrowers that this is their first student loan payment. So they’ve never even had to make a student loan payment before because they graduated college right now during the pause. And then the second group of people are people that are on income driven repayment plans. So we touched on this a little bit earlier, but about 30 to 40% of all federal student loan borrowers are on income driven repayment plans. And these are repayment plans where your monthly payment is set every single month based on your income. So these borrowers need to re-certify their income every year based on their tax return, or you can do alternative methods like giving them a pay stub, or even writing a letter that says I’m unemployed. And that will set your payment up for next 12 months. Well since it’s been almost two years, these borrowers haven’t recertified their payments in a long time, and the data is out of date. So right now before the student loan payments resume, this cohort of borrowers need to give the government or give their loan servicer their most recent income so that their payments can be calculated based on their current income. And they’ll know exactly what they’re going to pay. It’s a little complex and confusing. But on one hand, these payments are hugely beneficial because income driven repayment’s based on your income. You can always afford your student loans. But on the other hand, going into this repayment restart, there’s lot of gray area because people don’t necessarily know what their payment is going to be exactly. And that can give a lot of fear and doubt in student loan borrowers’ minds.
Mindy: How long does it take to process this information?
Robert: So it usually takes about 30 days. But, I like to put this asterisk out there. Since we are restarting loan pay payments for 43 million Americans, I could see timelines taking a little bit longer. And the Department of Education says if you’re on an income based repayment, they’re probably going to give you a grace period of up to six months for both you to re-certify your income, but also for them to process everything. Because this is a lot of people all at once. Usually you had everyone re-certifying all throughout the year at different times. It wasn’t a big deal. Now you’re going to have every single borrower trying to do it all at once. I think it’s going to cause a little bit of a paperwork log jam at these loan servicers. And that’s why I recommend you do it online. You can go to your loan servicer’s website, or you can go to studentaid.gov. You can find the little link on studentaid.gov that says certify my income, and you can do it on there. And that will help expedite everything on the backend so that your stuff gets re-certified so your first payments are accurately reflective of your income. But I would encourage everyone do it sooner rather than later. Don’t wait until right before the deadline so that you get good payment data.
Mindy: Okay. In your survey you also ask, “Do you know what repayment plan options you qualify for?” What are the different repayment plan options?
Robert: Yeah. So when you get your student loan for the first time, you default what’s called the standard 10 year plan. And this is a standard 10 year fixed plan where every payment for 10 years is fixed at the same dollar amount. And typically for most borrowers, this is also the highest monthly payment because it’s amortized over 10 years. It’s fixed. So that’s what you default into. Beyond that, there are the graduated repayment plan and the extended repayment plan. And the extended repayment plan is very similar to the standard 10 year, except they extend it out to 25 years. So you have a fixed payment for 25 years. The graduated plan is like it sounds, it graduates and starts low. And then every year, it re-certifies a little higher, a little higher, a little higher for up to 10 years. So you’re still paying off your loan in about 10 years. But it’s low upfront, higher on the back end. And then, you get into this bucket of income driven repayment plans. And there’s four of them. Three of them are the main ones. You have income based repayment, pay as you earn, revised pay as you earn, and income contingent repayment. And I knew I just threw a ton of variables out at you. So you can find this in the show notes, link to my site as well. But all four of these plans will set your monthly payment as a percentage of your income each month. And these are great options if you have low income, uncertain income, and it changes every month. But also, almost every student loan forgiveness plan requires you to be on an income driven repayment plan. So if you want to qualify for loan forgiveness, you also want to take advantage of the income driven repayment plans, which could also set your payment at $0 a month if your income is low at enough. So there’s a lot of benefits to these plans, even though it sounds scary that you might not be paying enough to amortize your loan, don’t. Pick the monthly repayment plan that you can afford every month, because that is going to be the savviest way, you’re going to pay off your student loans over time.
Mindy: Did you just say there’s a 25 year repayment option?
Robert: Yes I did. There’s actually a couple 25 year repayment options. Here’s a scarier stat though. The average time it takes for someone to repay their student loan in America these days is 18 to 21 years, depending on your loan type, graduate school, things like that. So that’s average. So you see that there’s these 25 year repayment plans. A lot of them are actually 20 year repayment plans. Yeah. That’s why we’re here today.
Mindy: But we don’t need to work on changing college and how much it costs. There’s no problem there.
Mindy: That’s a story for another time. Okay. This has been super helpful. Let’s say we have a listener who has taken advantage of the moratorium. What steps do they need to take right now before the program ends to make sure that they don’t miss a payment, they don’t negatively impact their finances, etc.? Let’s make a bullet point list that we’ll include in our show notes.
Robert: Definitely. I think the key here is to get organized, right? So it’s been two years. Log into your loan servicer’s website. Well first off, let’s back it up. If you don’t even know who your loan servicer is, let’s find your student loans. Go to studentaid.gov and log in, or you can pull your credit report if you have private student loans, and you can see all your loans listed there. You can go to free annualcreditreport.com. Right? You can get your credit report once a year from all three bureaus. So get your credit report or log to studentaid.gov. Find your loans. Step two is to get organized. Make sure your name, address, email address are all up to date so you don’t miss your first statement. Because let’s be honest. A lot of us took out our student loans when we’re in college. Maybe you used your college email address that doesn’t even work anymore, right? It got deactivated. Maybe you put your address of your parents when you took out your student loans, and you don’t live there anymore, and you need to have your address updated. So the key is don’t miss a statement, a letter, a correspondence from your loan servicer. Update your information. Name, address, phone number, email, all those contact forms, right? Step three is to make sure that your auto debits and anything that you want automatically done are updated. So like we touched on before, the government turned off everyone’s auto debit when it comes to student loan repayment. So if you had automatic payments set up before the pause, you’re going to need to log into your loan servicer’s website and put in all your banking information again so that your payments automatically get pulled out on time. You don’t miss a payment. There’s a lot of reasons why they did this, but we’ll keep it simple. They did it. This is what you got to do. Step four is update your income. If you’re on an income driven repayment plan, you need to re-certify your income. And the sooner you do that, the better so that your payments reflect your current income sooner. And then step five is if you qualify for any loan forgiveness programs like Public Service Loan Forgiveness, you certify your employment for the last two years. Because all of your paused payments for the last two years do count for student loan forgiveness programs, but you still got to make sure you fill out the paperwork to show, “Hey, I was employed in public service. I had a job, yada, yada, yada.”
Mindy: Awesome. That is going to be super helpful for people who have taken advantage of this program. Now at the same time that they paused student loans, they also offered a mortgage moratorium. If you took advantage of the student loan moratorium, did this negatively affect your credit?
Robert: So it wasn’t supposed to.
Mindy: That sounds like there’s more to that story.
Robert: There’s a lot to this story. So it wasn’t supposed to. And honestly, everything should be fixed by now. But when they paused payments that very first month, the loan servicers did not change their programming in their system. So they did report a lot of borrowers delinquent to the credit bureaus for that very first month back in March and April of 2020, however your payments lined up. Because this was unprecedented. They’ve never turned off everyone’s payments. So I think they’re on the back end. There’s a lot of technical stuff you got to do. It’s not just like pause payments, right? So they worked hard. They should have corrected this all. But if you are seeing any negative marks on your pay out your credit report from the payment pause still, you can dispute it with the credit bureaus. And I know that’s annoying. And you got to send these letters and certify it, but it should not negatively impact your credit at all. This is actually even a benefit. If you were in default on your student loans before the forbearance or the payment pause started in March 2020, all collection activity for the last 22 months has been ceased. So this actually is a real benefit. And hopefully people took advantage of it, because you can get your loans out of default, back on track. And you actually have a 22 month history of non-collections on your student loans, which hopefully would actually benefit some people’s credit if that was your situation.
Mindy: Okay. So I get a copy of my credit report. I look, and I see that this has been reported as non-payment. So then I dispute it. Hopefully you are getting a copy of your credit report every single year. But if you haven’t, do that now. Like you said, annualcreditreport.com is the free credit reporting service that the three major credit reporting companies are required to provide you a copy of your report every single year. Make sure that you don’t have a negative report. If you do, file a dispute. There’s a really easy way to file the dispute with them. I believe it’s on their website. If you see something that’s incorrect, file a dispute here, click here and file it. And get that taken off of your credit report because they should not have done that. That’s very interesting. I didn’t realize that that wasn’t smooth as silk, although it shouldn’t come as any surprise since this is actually a government program. And while I would like to hope for the best, it doesn’t always actually work so smooth. Enough about that. Enough about that. We’re not getting political. Okay Robert, is there anything else that I should be asking you about student loans, student loan repayments, and all of the stuff that we’ve talked about today?
Robert: I think the big thing to just remember for everybody out there is the key to navigating these, whether you’re talking about student loans at normal times or student loans right now when the payment pause is ending is to get organized with your student loans and your money. The average student loan borrower actually has five student loans, right? You took one for every year of school. Freshman year, sophomore year, junior year, senior year, plus fifth year, summer semester, right? So you might have five different student loans. Now granted, they all might be in the same place on the same monthly statement and you don’t think about it, but some people are unlucky and have them in two spots or different things. So the key to navigating this is to get organized. We had the step-by-step list we just talked about. But whether it’s using a tool, or writing down where your loans are and all your income and expenses, and having some kind of system for yourself will help you immensely navigating this so that you know you’re on your right repayment plan. You know that you’re making your payments like you’re supposed to. You know if you’re on a forgiveness program, you’re on track, and you’re not going to be one of these people that falls through the cracks. So get organized. It’s crazy, but it’s the easiest way to make sure you’re on the right track.
Mindy: I love that advice. And I’m going to throw in a little bit of my own. Just because you don’t know where your student loan is, doesn’t mean it’s not there. So if you’re not paying attention to it, you’re doing that ostrich thing where you’re hiding your head in the sand, it’s still there. It’s still accruing interest starting February 1, right?
Robert: Yeah. February 1, interest kicks back on right?
Mindy: Figure out where your student loans are and start repaying them. Robert, this has been so much fun and so informational. I really appreciate your time today, but we are not finished. I have my famous four questions. Are you ready?
Robert: I’m ready. Let’s do it.
Mindy: Okay. Robert, what is your favorite finance book?
Robert: I really love I Will Teach You to Be Rich by Ramit Sethi. Honestly, great book. I actually give it to a lot of the college graduates and things I know when they’re happening in their life events. It’s a solid book. Yes. We talked about clickbait headlines. It’s a clickbait headline. But it’s a solid, solid personal finance book.
Mindy: See? No, I don’t agree with you that it’s a clickbait headline. Because if you follow the steps in the book, he is teaching you how to be rich.
Robert: You’re right. You’re right. 100% correct in that one. But to sell it to somebody that doesn’t know the contents of the book, you’re kind of relying on him on that headline, right?
Mindy: Well yes, it’s an eye catching headline. But it isn’t untrue.
Robert: True. I agree.
Mindy: What was your biggest money mistake?
Robert: I think my biggest money mistake was when I graduated college, I felt like I deserved my brand new car. So I went out and bought a $40,000, financed that bad boy. It was an Acura TL. I mean, it looks sweet. I loved it. Great car, so dumb. But you know what? You live and learn. I did drive that thing for like 11 years and whatnot. But anyways, I should not have done that.
Mindy: Yes, I think that’s one of the top answers to that question is I bought a brand new car because I deserved it.
Robert: Because I deserved it.
Mindy: No, you don’t deserve it if you can’t afford it.
Robert: I mean, I could afford it. But I honestly think of all the other things I could have afforded in lieu of it. And that’s really what grinds my gears.
Mindy: Okay. What is your best piece of advice for people who are just starting out?
Robert: I think we just talked a little bit about it, but it’s get organized. Honestly in a decade of helping people, most people that need financial help, just start with getting organized. Most people aren’t organized. What’s coming in? What’s going out? What do you own? What do you owe? And I think part two of that though is do it in your own style. So I’m a tech guy. I like my apps. So I will choose to do an app, but that’s not everyone’s style. There’s spreadsheet people. My sister loves to put on an actual book, and has a journal and literally draws the lines on paper. So the only way getting organized will work for you is if you do it in a style that works for you as well. So I think there’s two parts to that. You’ve got to get organized, but you also got to do it in the style that works for you that you’re going to stick to.
Mindy: Yes. I don’t want to do an app. I’m old. I want it old school. I want it on a piece of paper. But the reason I went on a piece of paper is because then it’s in my face. It is super easy to put the phone down, to put the app down, to put the tech down, and walk away from it. But when that book is in front of my face in the kitchen where I always am, it’s so hard to ignore it. And I don’t ignore it. I don’t clean up the kitchen that frequently. It’s always there. Okay. What is your favorite joke to tell at parties?
Robert: Oh man. Okay. Well, we should do a college themed joke since we’re here. So I’ll tell you, I don’t always study. But when I do, I just make sure my parents notice.
Mindy: That’s awesome.
Robert: I know, it’s a corny one. It’s a corny one, but it works.
Mindy: C’s get degrees.
Robert: Honestly they do.
Mindy: Ask me how I know. Okay. Robert, where can people find out more about you?
Robert: Yeah. So you can find me at thecollegeinvestor.com. If you’re a listener, because I think you are, you’re listening to this show. You can find The College Investor audio show on your favorite podcasting platforms. And if you like to watch content, we’re on TikTok, we’re on YouTube. You can find us at The College Investor on those platforms as well.
Mindy: Are you doing little dances on The College Investor TikTok?
Robert: No, we’re dropping great educational content that’s fun and entertaining in 30 seconds or less for sure.
Mindy: Oh, that’s even better. Do you do a little dance while you do it? Maybe you should.
Robert: I should. Right?
Mindy: Okay, awesome-
Robert: That would get us negative views probably.
Mindy: I know. I told my daughter I was going to start doing TikTok videos. She’s like ew. Thanks sweetheart.
Mindy: So hey, if you are feeling good about yourself, have a teenager. And then that’ll just knock you right down. Okay Robert, this was so much fun. I can’t believe I waited so long to have you on the show. I’m so happy that you had time to come talk to us today. This is really important stuff. I think that a lot of people kind of know that the repayment moratorium is ending. But this solid advice is going to be so helpful for people to get their payments on track, so that they don’t miss a payment, so that negatively affect their credit. And so they can get those student loans repaid and start building their life towards financial independence. So thank you so much for your time today.
Robert: Thanks for having me. This has been a blast, and I hope people take action. You got a couple weeks left. Let’s do it.
Mindy: Get organized and get it going. Okay. From episode 267 of the BiggerPockets Money podcast, he is Robert Farrington from thecollegeinvestor.com. And I am Mindy Jensen, and we’ve got to scoot little newt.
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