On this episode of Financially Naked: Stories from The Financial Gym, two of our trainers sit down to Gymsplain student loans. Mike, Level 2 Certified Financial Trainer, is joined by Joy, Head of Trainer Academy and Certified Financial Trainer.
The general consensus around The Financial Gym: student loans are really no big deal. Common feelings surrounding student loan debt are often fear, anxiety, and shame. Joy and Mike hope to demystify these loans and provide some tips for your debt payoff journey. You don’t have to scale the mountain of student loan debt before enjoying your life.
**Please note this episode was recorded before the government’s decision to extend student loan payment pause through May 1, 2022. For more information on this check Federal Student Aid website. The advice still applies!
Podcast Notes
- There are two main types of student loans:
Federal Loans - provided by the government based on your FAFSA results
Private Loans - provided by a private lender like a bank or company
FEDERAL LOANS:
- there are a few different types of federal student loan options.
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- Subsidized: government pays the interest while you are in school
- Unsubsidized: You’re responsible for the interest accrued while in school
- Parent Plus: Loans your parents take on your behalf
- Grad Plus: For graduate students based on a federal aid package
- All of these federal loans have various repayment options.
Standard, income-based, and gradual repayment plans are some examples. - Income-based repayment plans all come with loan forgiveness later down the road (20-25 years).
- Public Service Forgiveness is available if you are employed by a U.S federal, state, local, or tribal government, or not-for-profit organization. This is a 120-month or 10-year program.
- The Federal Government put an administrative pause on federal loans the last two years as part of COVID relief efforts, which is a huge benefit of federal loans.
- You can apply for your own deferment or forbearance if you are personally experiencing a hardship.
- Federal loans can be consolidated into one big federal loan. This opens up other repayment options and can simplify your payments.
- You can refinance your federal loans into private loans, if you wish. Though it is rarely recommended because you lose the flexibility and benefits that come with federal loans.
- Unlike other collections, student loans don’t go away. You do have the option for loan rehabilitation. It’s important to be prepared and organized for this process because you only have one chance with this program. A trainer can help get your ducks in a row.
PRIVATE LOANS:
- Typically supplemental funds families take out if they don’t have enough federal aid to cover the cost of school.
- They can be used to cover living expenses and fees and other school-related costs.
- These are more similar to a traditional loan because they are held by a private lender, bank or company that handles only student loans
- They are under no obligation to honor and forgiveness or other programs the government is offering with federal loans
- One perk of private loans is it is a competitive industry, so there are options for refinancing as your income and credit score increase.
OVERALL THOUGHTS ABOUT STUDENT LOANS
- When it comes to student loans, the goal doesn’t always have to be ‘get the balance to 0’
- Student loan payments are money you can’t get back once you pay it.
- Instead of paying student loans off early, there are other financial priorities to focus on, depending on your situation. It could be high-interest debt, saving into an emergency fund, or investing for retirement.
- Student loans don’t need to be an emotional burden or cause you stress.
- Federal student loans came about during the cold war. They wanted to encourage a population full of people with higher education to keep them competitive in the space race and other global affairs.
- Because there are no regulations around the cost of school, the price has gone up astronomically. There are a lot of issues within the workings of higher education and we carry that burden on our backs through these loans.
- It is absolutely okay to just pay the minimum. The government prefers you pay the minimum and use your money to stimulate the economy. Doing things like saving for retirement, buying a home, shopping at local businesses.
Meet The Trainers
Meet Joy Liu, Head of Trainer Academy and Certified Level 2 Trainer
Meet Mike Poulin, Level 2 Certified Financial Trainer
