How much do you own? And what’s your plan for paying it back?
Student debt is in the news almost daily. However, when Robert Farrington started his blog, CollegeInvestor.com, the topic felt personal. But as he started talking about his journey, he realized he wasn’t alone.
In this episode of “The John Chapman Show,” Robert and John talk about Robert’s own experience with student loan debt and how that led him to becoming one of the leading experts on this topic. They talk about what brought about the student loan crisis, which is currently almost $1.6 trillion, and strategies for repaying your loans after college. He is the resource you need, whether you are sending a child to school or going to college yourself.
Listen in for specifics all about student debt and how to handle it successfully.
Welcome to the John Chapman Show, where we talk about the path of a wealthy millennial, uncovering the truth about building and protecting your nest egg. Join us on this journey as we hear the stories of millennials and mentors alike to help you plan, manage, and protect your wealth. John is an employee of WorthPoint, LLC. All opinions expressed by John and podcast guests are solely their own opinion and do not necessarily reflect the opinions of WorthPoint. This podcast should not be relied upon for investment decisions and is for informational purposes only.
John Chapman (00:32):
Hey everyone. John Chapman here. Today on the podcast I interviewed Robert Farrington, who runs the collegeinvestor.com website. We talk about his background and his experience dealing with student loans after he graduated from college and how that led into him starting this website and blog, which is now just an amazing resource. Robert is really the number one go-to guy when it comes to student loans and understanding all of the ins and outs. So we had a great discussion. If you’re at all interested in either sending a child to college at some point in the future or you’re living with student loans and you’re early in your career, this is a terrific episode. So hold onto your hats and without further ado, we’ll bring on Robert Farrington. Hey Robert Farrington. Thanks for coming to the podcast. How are you today?
Robert Farrington (01:10):
I’m great. Thanks so much for having me. I’m excited.
John Chapman (01:23):
You are the founder of the collegeinvestor.com and America’s student loan expert. So I’m pumped to have you here. This is a major topic of course for anyone who’s reading in the news. So you know, we really need to start talking about some of the myths that are out there today and debunk some of the headlines. But before we go too far in there, this is a conversation that you’ve been having for over 10 years. You started this website in 2009. I’m surprised you haven’t gotten tired of this yet, but give us some perspective, Robert, of your background, your personal situation, and why this is such a meaningful topic for you.
Robert Farrington (01:58):
Yeah. So I started the collegeinvestor.com when I was done with college. I actually really wanted to talk about investing and other money topics. But then I was one of these student loan borrowers that started having issues. So I had $43,000 in student loan debt when I was done and my loan servicer started misapplying my payments. So, I was on auto pay and then all of a sudden I got an email, I didn’t check it, and I got another email one day that said you are behind, you’re late on a payment. And I was like how is this even possible? Because it was set up to auto pay. And so I had to go into this whole customer service battle and get it fixed. And I wrote about my horror story with it and this was about a year and a half into my blog and it was one of the first articles that everyone was sharing and saying like this was happening to me too and this is a real problem.
Robert Farrington (02:52):
And this was eye opening. This was before you saw the headlines today, like student loans weren’t very talked about and I started just diving in more and responding to comments and learning about these topics myself. And it just opened this whole can of worms about all the different issues and problems and then all of these programs and options to help people, but how complicated they are in some ways to apply for. So I just started educating myself and learning and writing and just diving into this topic so much. And so here we are today like fast forward and I know a lot more about student loans than I probably should, but I also enjoy helping people navigate this complex situation. It’s not easy. There’s a lot of options, but at the same time, because there’s so many options, it almost makes it more confusing because you get like analysis paralysis, right? Like am I doing the best? Is this the best for me? And so that’s where we are and it’s, it’s tough. It’s, it’s making the news, you know, however you feel about the politics of it. I do appreciate that people are talking about the issue more and there’s a light being shined onto this whole situation.
John Chapman (04:02):
Yeah. Yeah. Um, one of the things I wanted to just get your perspective on as somebody who’s lived it and then been in the game over these past 10 years is just some perspective on how we got here. Some statistics for today in 2019, well over a trillion dollars in outstanding debt. It’s almost close to like $1.5 trillion, which is insane.
Robert Farrington (04:23):
By the time this goes live, we’ll be at 1.6. I mean, just racking it up, right?
John Chapman (04:30):
Yeah. A quick Google search tells me that in 2008 there was $140 billion and a big number, but we’re 10X of that, the amount of student loan debt. I mean it’s totally exploded. What are some of the main drivers? I could probably come up with some, but for you that’s actually lived alongside this, what are some of the drivers that have moved us for however you know, just in just such a short period of time, to this explosion of student loan debt.
Robert Harrington (04:56):
It’s been compounding over the last 30 years. It all kind of came to a head in the great recession where, you know, college was a really viable option and more people went to college and more people went to trade schools and more people went to alternative for-profit schools and didn’t necessarily see the ROI. They were borrowinging a lot more and they didn’t have jobs. So they’re also borrowing for living expenses and other things. And, and that was one of the big turning points. But you know, it’s been a problem growing since the ‘90s, maybe even the late ‘80s, and the reason is it’s the cost of education has risen, right? And you can ask yourself why, but it kind of goes down to competition and America’s drive to send everyone to college, right? So college students are customers of colleges and colleges compete for this, right?
Robert Harrington (05:48):
So we’re going to have like equity, we’re going to go like on, you know, macro economics.
John Chapman (05:54)
Yeah. It really is. I mean these laws of economics actually, right?
Robert Harrington (05:59)
But like back in the early or the ‘80s and ‘90s competition for colleges was based on academic quality and you know, like the how, how that program ranks, right? Nationally. And so how do you rank a program? You hire great faculty and staff and researchers and stuff. And it was basically personnel costs and personnel costs in the big scheme of things are cheap, right? You can pay a professor $200,000 and give him, you know, a couple of, you know, student aides and like he might be happy to come to your school and boost your program. But then, you know, as these top schools all had great programs, what’s the next level of competition? Well then it becomes facilities and facilities are expensive.
John Chapman (06:39):
Expensive. Yeah. Libraries and dorms and uh, yeah, facilities. It’s just, that’s probably so expensive. Right?
Robert Harrington (06:45)
And so then they start borrowing these huge bonds and you know, passing debt and then they pass that cost onto students. And so that’s when you start seeing the big rise because now like let’s just say you’re a top tier student and you’re comparing three universities. Well, if they all have top-notch programs, well then the next criteria you’re grading them on is what are the dorms like and what are the eating facilities? Right. Right. And so that’s where these colleges invested in that. And they knew because of the rules of student loans that, you know, college students could pay for any cost. So if they raised the tuition by $1,000, it’s not going to change their applicant flow because the students could get a student loan to borrow that.
Robert Harrington (07:26):
And so I’m actually a big proponent of limits on borrowing. Um, you know, there’s definitely pros and cons. It’s not a one size fits all solution, but you know, when you limit the amount of federal borrowing, you also limit students’ ability to pay for inflated costs. And so colleges would have to make fundamental choices on where they’re going to allocate their dollars and how they’re going to do that. So in the big scheme of things, it should theoretically lower prices, but you know, you also could potentially, you know, harm lower income individuals and prevent them from getting into certain schools. Like there’s definitely cons, but if you want to control the macro economic costs of colleges, you also need to limit that borrowing because as long as there’s the ability to borrow limitless dollars to pay for college, colleges can raise the price to pay for things and pass that cost onto students.
Robert Harrington (08:18):
And they don’t, you know, and that’s kind of how we got here, but that it didn’t happen overnight. Right. It was every year since like the ‘90s tuition has gone up $500 but over 20 years now that it’s gone up $10,000, right?
John Chapman (08:33)
Maybe we can break this into two chunks. I want to speak to people that are living with student loan debt. They’ve graduated, they’re in their working career, but I actually want to first speak a little bit, maybe more to like parents that have young children. I mean I’ve got three little kids and you’ve got two kids as well. So, let’s first think about parents approaching this; they’ve got kids either in junior high or high school, they’re going to go through an application process. Give me just some of your feedback. If you were speaking to a room of parents with young kids before they go to school, how can they wrap their head around what is available and what are some do’s and don’ts for their situation?
Robert Harrington (09:11):
Yeah, so first off, have these conversations early. Middle school is great. Like you should be talking to your kids about your family budget and your money and your savings. You know, age-appropriate ranges, but by the time they’re in 9th or 10th grade, they should have a clear picture on what mom and dad are going to pay for college and what’s expected of them. Because if you’re not having this conversation until they’re applying for college, like there’s going to be broken hearts and tears and a lot of family drama. And so it’s like, set expectations early and know what it is. But I think the big thing is, too, is that one of the myths I guess we can start debunking is that you don’t need to borrow the full cost of college. Right. Okay. I like to view the paying for college conversation as a pie and there’s a lot of different pies slices and have your parents can save, the kids could save, you know, they made, they get gifts from grandma every year.
Robert Harrington (10:03):
Right. And, and all these pie slices, they might not grow into huge amounts, but every little bit helps. Right? So a kid can, the child can start working and saving and they could also work during college and have some of that earnings go right to the um, you know, tuition bill. The parents are likely still working and so they could, you know, put some other income that’s current income toward this. Right? And so they’re, you know, like just without even touching loans, we’ve already knocked out four or five different ways to pay. Then you do have like your college savings plans, then you do have scholarships, then you have grants and you have work study programs and fellowships. Then we finally get to like looking at borrowing and student loans. And then you should definitely do the federal loans first and then private loans. But when it comes to borrowing, it’s a big ROI discussion.
Robert Harrington (10:52):
Okay. So you probably think of ROI a lot in the new investing world, right? But college is an investment and we just start thinking about it as such. So if you buy a house and you borrow too much for that house, it’s a terrible investment. You find yourself underwater. The payments are too much, you can’t afford it. You know? And that’s what happens when you borrow too much to pay for school. You know, the student loans aren’t bad. Like they’re not this general bad thing. I mean, they can be, if you spend $200,000 and all you wanted to do was art history, like not gonna work out. But you know, if you think about how much you’re borrowing and you borrow an appropriate amount for the career you want to do or the reason you’re going to school, um, you know, it can be a great investment and boosting your lifetime earnings.
Robert Harrington (11:39):
So that’s what we have to think about. And that’s where it’s, if you have these conversation when your child’s a freshman or sophomore in high school and you start getting them, think, getting them exposure to different careers and different choices and have them get a good feeling about what they want to do, you could have rational conversations about how much you can spend. And the cool thing is, is we have Google and Glassdoor and I mean you can type in any career and get a good salary estimate right now, right? So you can know if you want to be a teacher, you know that in your state, the, you know, average starting salary is $40,000 a year. So don’t borrow $100,000, right? Like, but if you’re going to go be a computer science engineer, you know, the average starting salary in X, Y, Z state is $58,000.
Robert Harrington (12:26):
You can probably borrow more because you’re going to have a higher starting salary and you need to have these conversations about what that looks like and how that goes. And you know, parents need to be okay that maybe college isn’t the option for everybody. That’s a scary thought.
John Chapman (12:50)
I think there’s the, the social impact of that feels weightier than um, you know, maybe people want to admit.
Robert Harrington (12:55)
It is, but the real social, like social, like you know, the, what your neighbors and your family thinks is, I just want your child to be successful. And I think college is appropriate for, you know, 40, 50, maybe 60% of individuals. But I also think that other types of education or other career choices are appropriate for most. Like there’s kids that just don’t want to work an office job. But on the flip side, every high school in America now doesn’t teach auto shop or wood shop or any of these trades.
Robert Harrington (13:19):
And they’ve replaced all those in most schools with computer tech and things like that. And so what kids were exposed to when you and I were going to high school. And you know, even our, our parents, they don’t get exposed to that anymore. Yeah. So unless there is a family member or a parent that’s like in one of these alternative, non-college bound careers, you know, that child might not realize that, you know, you can go be an electrician and work for your local power company and make $180,000 a year within 10 years and have no debt and have all your training paid for and get like union healthcare that costs you nothing. And so like when you look at these outcomes at 28, you know, you could have a college graduate that overextended themselves with student loans and is struggling financially at 28 or you could have someone that decided to go to trade school, become a lineman at their local power company and has zero debt, great healthcare, and you know, maybe has been putting away $5,000 or $10,000 in their bank account every single year.
Robert Harrington (14:22):
And at 28, they have a $100,000 net worth, whereas the other student has a negative $100,000 net worth because of their loans. Right? And so like, it’s all about outcomes of what we really want as a parent. We just want happy, healthy, you know, positive outcomes.
John Chapman (14:39)
So awesome. I love that because I think some of this too is I’m putting color and meat on the bones of what the career path could look like. And I think that’s probably the responsibility of the parent. And, um, and that takes a lot of work, but it’s incumbent upon the parents if they really want the best outcome to say, you know, working an electrician’s job for a construction company or maybe an industrial income, like real estate company could be a terrific career path. I mean, it needs to be fulfilled by somebody, so, right. And all I have to be this, uh, you know, IT computer tech.
John Chapman (15:08):
And I think that that’s, I’m so glad you brought up that real-world example and that really hits home. That’s super helpful.
Robert Harrington (15:16)
Exactly. And it’s hard because like you said, like I think we’ve had this mindset that like, everyone needs to go to college, everyone needs to go to college, everyone needs to go to college. And it’s like, if college is the right thing for you, go to college. But you know, if you don’t know, don’t go spend, you know, $50,000 to find yourself. Go work for a year or two because I promise you the colleges will always take your money. So if you decided 22 to go back to school, they’re not gonna reject you, right?
John Chapman (15:40)
Oh, that’s such an important point. Yeah. You don’t need to go and spend all that money to find yourself. I think taking a part-time job or a gap year or something like that might be, or maybe even just community college first for crying out loud..
Robert Harrington (15:52):
And so that’s the other thing is let’s just talk about these alternatives too because let’s just say you want to be a teacher and let’s just say mom and dad don’t have a lot of other pie slices. And so student loans are going to be a big factor. And if you look at the cost of a four-year school, you might suddenly be at like $60,000 in debt and you’re like, this doesn’t work out well, looking at something like a community college for your first two years, knock out your general education credits. Like I promise you like freshman college English is the same everywhere you go. Like you know, freshman algebra and college are the same. And then here’s the other interesting statistic is community college transfers are actually the highest graduation rate from a four-year college, by like that 10% more. So if you go from high school to college, it’s like a 68% graduation rate. It’s a little scary, right?
John Chapman (16:35):
I mean incredibly low. It’s so much harder than I thought it would be.
Robert Harrington (16:41):
But a community college transfer is almost 78% graduation rate because they put in the work, they’re really vested. If you’re going to community college, you probably are dealing with some social shame maybe and other things. But on the flip side, you’re also going to have economic benefits, and you have a higher success rate if you succeed. So you know you’ve got to weigh these options and it’s hard because the math and the statistics are what they are, but there’s so much more psychology to the story and family relations. I say it’s like student loans and paying for college is like what every family dreads because it’s family dynamics, it’s money, it’s keeping up with the Joneses and social stigma, it’s potentially taxes. It’s like basically every taboo subject at Thanksgiving dinner is like what paying for college involves.
John Chapman (17:36):
Right. And I think that’s probably where it breaks down a lot coming this way. And speaking as a financial planner, that’s where it all breaks down is the social pressure keeping up with the Joneses. It’s talking with parents, maybe parents are divorced or maybe there’s a strain with the grandparents. So it seems right. It’s all that one. One thing I want to just pivot to is maybe a little bit on FAFSA. The application for federal loans, and then like one thing the EFC, the expected financial contribution. So I think maybe one concern is like parents not understanding or maybe like, you know, not knowing ahead of time of what the FAFSA application process is like. Is that something that you feel like you can speak to a little bit to give again, young parents and expectation?
Robert Harrington (18:23):
Yeah, I mean it’s not hard. It’s just, it’s, it’s paperwork. It’s tedious. So if you want to get eligibility for any type of scholarship, financial aid, you have to fill out this FAFSA and the FAFSA that calculates this magic number called your expected family contribution, which honestly, anyone who’s ever seen an expected family contribution, it’s a kind of a joke number. Like they expect these families to contribute a lot of money and that’s not always realistic, but what the FAFSA does unlock is it unlocks your ability to get student loans, it unlocks your ability to get Pell grants. And then most colleges and universities use your FAFSA to calculate any potential scholarships, grants, work study and financial aid that could be offered directly from the college. So every single student should apply for the FAFSA. You do it, you know, when you’re applying for school, so like your senior year of high school, and then you do it every single year when you’re in school, even if you don’t plan on getting financial aid. Maybe you make too much if you’re taking student loans, you need to, but I recommend you do it just so at least you have the options.
Robert Harrington (19:23):
Like you’ll get that award letter every single March. You’ll be able to see what your options are and you can decline the options, but at least you know what your options are. So take the time, fill it out. The online thing is actually pretty easy. What it does is you log in and do it and then it links to the IRS website. You enter your code, it pulls all your tax data in and it’s pretty seamless. But I think it’s a hard thing for a lot of parents to swallow because it’s like your children are applying for this, but then they need the parents’ tax and income information; that can be scary if you haven’t had these conversations like we just talked about when they were freshmen in high school, sophomore in high school. And so like that’s why they’re going to know one way or another. So have the conversations early so the expectations are set and so you have a good idea of what’s going to happen when they are applying for school and they’re doing the FAFSA and they need your, when they’re like, what’s your AGI mom and dad. And it’s like, here’s a conversation.
John Chapman (20:16):
Maybe you haven’t thought about it ahead of time. Yeah. And exactly those conversations. That’s really interesting. And I want to, I want to jump to the other side of the fence. Let’s just, uh, kind of put together a hypothetical situation. Um, but you know, for somebody that’s coming out of school that’s maybe 25 and they’ve got the average amount of student loan debt of like $30 or $40,000, I think this is where the rubber meets the road because as a financial planner, people are asking me, how do I prioritize my cashflow into paying for rent, paying for my, for putting contribution to my 401(k), paying down my debt? Do I defer my debt or do I, um, consolidate or something like that into some other type of loan. Um, so help walk through the, the 25 to 30 year old, how you start thinking about the prioritization and some of that.
Robert Harrington (21:08):
So you just said like the magic words of this whole problem. You mentioned deferment and repayment plans and like forgiveness, like there’s so much jargon and so much complicated stuff and this is where it gets scary, right? And so the number one thing that you need to do, you graduate college, get organized with your loans. I can tell you that 99.9% of everyone that emails me reaches out to me and says, I’m struggling with my loans, cannot tell me how much debt they have. They cannot tell me what their monthly payment is. They don’t know where all their loans are. Everyone that struggles with their debt is just not organized with their debt. So it starts there and it’s hard though. The average graduate has five loans and it makes sense. You get one your freshman year, your sophomore year, your junior year, your senior year plus most people either take a fifth year or they have like a summer semester or something, right?
Robert Harrington (22:02):
So you get five loans, you likely don’t live in the same place you started in freshman year. You probably lived at home when you filled out the FAFSA or the loan application or maybe you were in the dorms or an apartment. So like the lenders might not have your current information to get your statement and all this stuff. So you’ve got to just lay it all out, make sure all the contact information is updated, like you’re getting your statements. So that you can even remake a rational decision on your loans and there’s cool resources if you’re really struggling to find it. Literally Google how to find my student loans and you can find the national student loan data system. Maybe you can link to it, but like you type in your information there and like it’ll pull up all your federal loans and if you have private loans you could pull up your credit report and all your private loans will be listed there as well.
Robert Harrington (22:50):
So it’s a little more challenging if you’re not organized but you’re not out of luck, you can still find all your stuff, make contact, get your information updated so that when you lay it out, you can decide the next steps and the next steps is picking how you’re going to pay these things back. Right.
John Chapman: (23:07):
Got it. Okay. Yeah, I think I’m getting organized like this. This is a challenge, but how many times do you still get mailed to your parents’ address because that was where you lived when you first signed up for whatever this is. So that’s such a little small thing that can go unnoticed. But that’s an important reminder.
Robert Harrington (23:33):
It is. And it’s like literally the number. I only bring it up because it is the number one problem. Everything else kind of falls into place once you know what ya got. And so the next step is just really picking that repayment plan that works for you. And so this can be a tough pill for people to swallow, but the best repayment plan is the one that you can afford to make the payments on every month without fail. Now, why this is a tough pill to swallow is that that could be an income-driven repayment plan where your monthly payment every month isn’t even paying the balance. And so every month you see your loan growing, even though you’re making payments. And that’s, that can be a mental challenge for some people. They’re like, I’m making no progress and I’m paying all this money and stuff, but the alternatives are so much worse. So if you don’t pay your student loans, first off, let’s just say you’re like, ignore it because you feel like you can’t afford it. Uh, you’re automatically going to see your student loan balance grow by 30% on the nine-month mark.
Robert Harrington (24:25):
They’re going to tack on collection costs and accrued interest. It’s just, boom, 30% growing your loan. And they never go away. So, you know, when we talk about loans, loans have collateral. We talk about a mortgage. The collateral is the house. You don’t pay your mortgage, they take your house and car loans, same thing. Well, the collateral that most people don’t talk about with student loans is the collateral is your ability to earn and your earnings. And so if you don’t pay your student loans, they’re going to garnish your wages, they’re going to seize your tax returns. They will even take disability payments. And if you kick this to retirement, they’ll take your Social Security payments. So literally, if you have the ability to earn money, the government is going to take their cut of your money as like effectively repoing your house.
Robert Harrington (25:13):
Right? Or repoing your car. And so if you just do this and then meanwhile your loan’s growing because they’re not going to take your money for free. They’re charging you collection costs on your loans. And so what most people don’t realize when they’re in default is that none of that money that they’re garnishing really ever goes to your loans. It just goes to pay the collection costs to garnish the money. And it’s like this vicious, nasty cycle. Just pay your loans, even if you feel like it’s going nowhere. That is the best thing you can do. And I promise you, here’s the hard part is when you’re 22 to 25 like we’re talking about maybe 28, you’re also statistically at the lowest income of your entire life. Yes, it will grow. It will get better. You will likely promote up in your career or change jobs or you know, all this stuff.
Robert Harrington (26:00):
And so like you can reassess every couple of years and decide if you’re still on the right track. But the number one is just get on a repayment plan that you can afford. And you know there’s hacks and things that we could talk about later, but like you can, you can play with that a little bit, but that’s the key.
John Chapman (26:18):
So I want to talk about the income-driven repayment plan for a second. What’s the frequency of checking that and what loans or is that available for or no?
Robert Harrington (26:27):
Yeah, so there’s four income driven repayment plans. We can’t, of course, we can’t make it easy with student loans. So there’s income-based repayment, pay as you earn, revised pay as you earn, and income contingent repayment. And the cool thing with these programs is that they base your monthly payment on your loans, not on an arbitrary number, but on a percentage of your income.
Robert Harrington (26:47):
And that percentage is either 10% to 15% on average of your income. And so if you’re struggling, that could actually be $0 a month. Like let’s just say you are unemployed at the six-month mark after college and you guys start making payments and you just couldn’t get a job for whatever reason, right? Don’t defer your loans. Get on one of these income-driven repayment plans. Your payment would still be $0 a month, the same as if you were in deferment. But these income-driven repayment plans also potentially put you on the track for loan forgiveness. Maybe public service loan forgiveness or the income-driven repayment plans themselves include loan forgiveness at the end of them. And so you know you’re on the right track. If you keep deferring, deferring, deferring, there’s no loan forgiveness at the end of that tunnel and so you’re really harming yourself but you’re in the same monthly situation of zero but at least on one track you have a light at the end of the tunnel.
John Chapman (27:40):
At what frequency do they look at your income? Cause let’s say you know, two years into your career you get a promotion and that, you know, percentage-wise drastically increases your income. Is that every tax year or what other frequencies?
Robert Harrington (27:58):
It’s at the 12-month mark of when you started repaying your loan. So every year, but it’s on your loan year, not necessarily your tax year. So that has some benefits, right? If you get a mid-year review or a raise, you’ve got a few months to milk that money before your loan payment is going to adjust higher. But on the flip side, if you lose your job, you can actually recertify earlier and drop your payment. So let’s just say if something bad happens, right, and mid-year through you lose your job and you’re unemployed, well you can recertify your income on zero and get your loan payment to go to zero effectively, midway through the year.
Robert Harrington (28:31):
They won’t raise it through the year at the midway mark, but they will lower it for you if you recertify your income, which is another benefit of these plans. Right?
John Chapman (28:41):
Yeah. Talk, talk a little bit. We were chatting before the recording about, uh, the, the um, the student loan forgiveness and some of the myths that are out there. So just help us understand, uh, what, what is or is not the right way to approach a student loan forgiveness.
Robert Harrington (28:57):
So the one plan that’s in the headline all the time right now is public service loan forgiveness. And the myth that we’re kind of talking about was this 99% of people getting rejected. So first off, it’s a total myth because all the 99% of people that got rejected shouldn’t have applied and never qualified to start with. I mean, you know, there was no expectation that these people would get approved.
Robert Harrington (29:16):
They were just fishing. And that’s sad to me that they somehow thought this. But on the flip side, if I was to say, I’m going to write you a check today for $50,000, wouldn’t you, like understand the requirements to get your $50,000? Yes, there are. There’s four main requirements for public service, loan forgiveness, and the fourth one’s kind of a joke. The first one is you have a direct student loan. So any loan that was made after October of 2007 is a direct student loan. If you have loans before that, your loans don’t qualify. It’s as simple as that. If you have loans after that, your loans qualify. So you could reconsolidate and get a new loan maybe. And if you have an old loan, you can reconsolidate and get a new loan and then your new loan might qualify. But basically that 2007 is the cutoff mark before that.
Robert Harrington (30:05):
Before that, don’t qualify; after that, qualify. So that’s qualification number one. Qualification number two is being on the right repayment plan. So these income-based repayment plans we were just speaking about are the right ones, IBR, ICR pay, repay. This is the other one that most people weren’t on the right repayment plan, which is silly because these plans are also the best with in terms of having the lowest monthly payment. But if you aren’t on the right repayment plan, you don’t qualify. Number three is work in qualifying public service and fill out the employment certification form. So it’s just shocking to me that 30% of everyone that applied and got rejected just didn’t fill out the form. So like come on like location puts these stats out and that’s why I get frustrated because you know the headline number is shocking, but when you actually read it, I’m just like seriously?
Robert Harrington (31:01):
Like, if you fill out a job application, you can fill out this form. It’s not hard. But what people do is they skip boxes. So one of the boxes on this form is what is your employer’s tax ID number, right? And you might not know where to look for that. You might not think, oh, it’s on my W-2 I mean we’re in finance. So like we know where to find that. But you know, the average person’s not. And so I respect that, but like come on, fill out the form 100% or else they will reject it. And then the number four thing is you have to do this for 120 payments or 10 years. So you’ve got to do steps one, two and three, have the right loans, right repayment plan, and fill out the form. And you do that for 10 years. And that’s step four.
Robert Harrington (31:40):
And you do that and you get loan forgiveness. And here’s the other thing, why it’s misleading is that since the first time you could ever be eligible for this was November, 2017 right? 10 years like that means you had to follow Congress, know exactly when it was passed and then certify it right away. Like of course nobody did it. The Congressional Budget Office estimated that there would be a hundred people in the first year that would be November and December that would qualify. And you know how many people qualified: 92. Their estimates were spot on because like there was just no way that anyone was going to meet those four criteria starting in month one. Like I mean what are the odds of that? Very low. And so now let’s think of some math here. So the rules went into effect in October, 2007, it’s a 10-year program, but most of these repayment plans we were talking about — IBR, pay as you earn and repay — didn’t come until later.
Robert Harrington (32:40):
IBR actually first came into effect in 2009, and then pay in 2011, and repay in 2012, and so now it’s starting to make more sense. If you were on IBR in 2009 what’s 10 years from that? 2019. Now we’re talking and then if you want to go on to repay 2012 we’re talking 2022, right? And that’s where I think these headlines are misleading. The data exists for this, and I’ll pull it up just to give you the stats. So in 2025, which means you started loan repayment in 2015, there are over 150,000 people on track to get their loans forgiven. The numbers are startling. Even next year, even in 2020, I think it goes up to like 17,000 people. And then in like 2021 it goes up to like 45,000 people; the numbers start growing dramatically. And so it just makes sense.
Robert Harrington (33:40):
It’s math, it’s a 10-year program. And most people won’t even have started this until 2012, 2013, 2014, and also if you’re going to college, right? Like you go to college for four years, you started college in 2010 you go to college for four years, you graduate, you start repayment in 2015, well yeah, you’re not going to get your loans forgiven until 2025; it’s 10 years guys. It’s a long way to go for some of those people. It is and that it’s just frustrating cause people are applying for something that they don’t qualify for. So there’s definitely an education component and we could have done better. But on the flip side, nobody cares more about your money than you. If someone’s gonna cut you a check for thirty thousand, twenty thousand, just read the requirements and follow up. And it’s not like fed loans is hiding it, too.
Robert Harrington (34:22):
So you might’ve seen this with some of your clients, but you upload the employment certification or you send it in and fed loan in your secure mailbox will give you a count of your payments that qualify. So like unless you’re not checking your loans for 10 years, I mean I guess it’s possible. But once again, if you just log into your loan account, you can see what’s qualifying. So there’s no surprises there. Shouldn’t be surprised not to say there’s no surprises. And I don’t want to dismiss the servicing issues, right? There are issues with these loan servicers. You are calling a $10 an hour call center rep in a call center. They’re not your financial planner. Right? And so they’re just trying to get the job done. And then on the flip side, are you even asking them the right questions to get the right answer?
Robert Harrington (35:09):
So if you call this $10 an hour call center rep and say, I can’t afford my student loans, well they’re going to offer you a loan deferment. They don’t know what you’re on. Or if you’re going for public service, they don’t know your whole story. Like a financial planner or an expert will. Like they’re just trying to answer your question and they’re not like here to help you like they are. But like they’re not here to dive into your personal financial story, look at everything and tell you.
John Chapman (35:38):
And that’s actually so nice to know. That’s not their responsibility. That’s not up to them. You know, they’re just the receiving end of that phone call. And that actually, if you need to dig into what your options are, you have to start with a qualified professional first, then maybe guide you to then make the conversation or the phone call.
Robert Harrington (35:51):
Exactly. And yes, I think there are some systemic issues. I think there are some things they could do better. I think the government could structure their contracts to align their incentives with borrowers that like there’s a whole smorgasbord where this isn’t why they’re getting sued. This is why things are happening. But on the flip side, like everything is black and white. I mean you can Google every form, you can download it online. Like you actually never need to talk to a loan servicer if you don’t want to. Like, and once again, no one cares more about this than you. Like you got to kind of own and have, there’s gotta be a level of personal responsibility. And that’s why I do get shocked because this is a 10-year program. Like you’re telling me in 10 years, like you’re just, you’re shocked, you’re getting rejected and you never took any steps to like figure this out over 10 years. Like I get a little just angry inside because I’m just like, where is this personal responsibility? Like there needs to be some ownership. Like there are issues, I don’t want to dismiss them, but like they’re not unsolvable issues. Like they’re very solvable. And I see him, I see him solid, I’ve seen people get loan forgiveness, I’ve seen the confirmation emails. Like it really does work.
John Chapman (37:04):
I feel like just, you know, in an effort to, to attempt to wrap up a little bit, but just like people are gonna want to know where they can find this information. So, I imagine your website is one of the best that’s out there, but give people an explanation of what resources are out there and where should they start if they need more information.
Robert Harrington (37:22):
Yeah, I mean, so one, we always like to just rag on the government, but student loans.gov is like the Bible of student loans. It’s a phenomenal resource. It has all the language, it has all the laws, like you can find everything from them right there. Then you have websites like mine, the college investor. I try to make it easier to understand. Then we have tools like I created loan buddy. Um, so loan buddy is a freemium tool, but on the free level you can find, you enter all your information, you can find the lowest repayment plan for you. And there’s definitely upgrades there. But you know, like there are definitely ways that you can get unbiased opinions. You can know what the answer is for your loans and you never even have to pick up the phone and talk to a call center rep.
John Chapman (38:08):
Yeah, that’s awesome. I love it, man. Robert, you’re doing a huge, huge service to millions of people in the U.S. so I guess I want to say thank you and I’m honored to show this information is incredibly important. So I hope any of the listeners, uh, just take it upon yourself, take the personal responsibility, educate yourself. It sounds like so much of what Robert has talked about today, the answers are out there and you can come up with the solutions. So Robert, is there anything else that we haven’t covered today that you were hoping to discuss?
Robert Harrington (38:36):
Like the laws are the laws, but your own personal financial situation can be different and there’s definitely levers you can pull and things you can do. And so talking to a financial planner can make a lot of sense. Like if you just need to get your income certified, like you can do that yourself or use a free or premium tool like loan buddy. Um, but if you want to dive into the tax implications of different ways to file married, filing jointly, filing separately and, and like, should I do my 401(k) to lower my AGI and potentially lower my loan payment? There’s so much complexity and levers you can pull, so that’s where I do think a financial planner can make sure you don’t miss out.
Robert Harrington (39:20):
It can be very valuable and that call center rep is not going to help you with that. They can’t, they can’t walk you through that. It’s not their job. It’s not what they are qualified to do. So like there’s, there could be a better answer if you kind of work through it, understand your options and, you know, do a little research on it.
John Chapman (39:40)
Totally. I love it. That’s a good plug. Thanks Robert. Um, definitely get with a good financial planner for sure, who can guide you through some of these conversations, but hey, thanks again. I really appreciate it. Uh, for folks listening, be sure to check out the collegeinvestor.com and Robert, hope you have a great day.
Robert Harrington (39:55)
Thank you so much. I appreciate it.
Thanks for tuning in to the John Chapman Show. Be sure to subscribe on iTunes, Stitcher, or Spotify. We encourage your questions, comments, and feedback. For additional information, check out the John Chapman show.com or look for John on LinkedIn and Twitter. See you next week.
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