Student Loan Solution with David Carlson
I was fortunate and privileged to have my college education funded by my parents and, 23 years ago when I started college, I knew that was a big thing. I remember watching my college roommate go off to work-study and feeling thankful that wasn’t me. Then we graduated, got similar jobs at Bank of America, and shared an apartment, and she had an extra $500 a month in student loan payments that I didn’t have. Fast forward to me starting the Financial Gym and I feel like all we see, day in and day out, are people trying to figure out student loans and live their best lives possible while doing so. I’m thankful to have my friend David Carlson back on the show to chat more about student loans and the book he’s written to help with them, Student Loan Solution: 5 Steps to Take Control of Your Student Loans and Financial Life.
What Are We Drinking?
David — Rum and Coke
Shannon — Grapefruit Schweppes with Vodka
Podcast Notes
David was on the podcast three years ago, when he wrote his first book Hustle Away Debt. This is one of Shannon’s favorite books and it is in the Financial Gym library. In this book, he list pages and pages of ways to make extra money.
Shannon’s first side hustle was writing for David’s blog, Young Adult Money, and she made $25 a post.
David recently wrote a new book called Student Loan Solution: 5 Steps to Take Control of your Student Loans and Financial Life.
David was pretty sure he wasn’t going to write a second book, because of the sacrifice and time commitment. It becomes all consuming.
He wrote the first book, started his blog, and became obsessed about side hustles, because of his and his wife’s student loans. The minimum payment on their 10-year loans was $1,000 a month combined.
Approximately 60 percent of college students don’t know what types of loans they are getting and how interest accrues.
David and his wife started dating in college and they didn’t know what they had - out of sight, out of mind. At that point they were still in the mindset of anything is possible and they expected they would get jobs making more than enough money to cover the expense.
David’s wife is a therapist and she had to go back to school to get a masters degree. She just finished last May and started working full time.
David considered going back and getting an MBA and decided against it because of the cost.
The most shocking statistic is the number of people in student loan default. There are eight million borrowers who are in default, and about a quarter million new borrowers every three months go in default.
There is no way to discharge these loans in bankruptcy and there is no statute of limitations on when the federal government can collect on these loans.
It felt like the right topic for David to focus on for a second book, since paying off student loans has been a big focus in his life.
The first issue is the government has $1.5 trillion in outstanding student loan debt that has been incurred and the second is, long term, what do you do to actually affect the amount of debt being taken out.
David hasn’t seen much action being taken to lower tuition and the amount of debt being taken out. It probably will not change any time soon.
The price keeps going up, because colleges can keep raising their tuition and because the supply of student loan debt keeps matching the increased prices. Every time colleges raise their tuition, lenders keep stepping in. Shannon had this conversation with Andy from Student Loan Hero on the podcast in 2015. This will stop when companies stop requiring four-year degrees and instead accept certificates or courses on certain subjects and recognize the potential of the people that apply.
Other than a handful of degrees with specific requirements, like medicine and law, you learn the skills on the job. You need basic writing, communication, and technology skills. Some degrees don’t keep up with trends and the skills are learned outside of classrooms.
Shannon didn’t have student loan debt, but her ex-husband was still paying off his student loans in his 30’s when they got married.
Some of these student loans last 20 or 30 years and at that point you aren’t even using the information you learned.
David was motivated to offset the $1,000 payment by making that amount outside of his job, so he could be more on par with his peers.
One of the bigger issues is there are some families can pay the full amount of college and others that can’t and it causes a big divide in society. The cycle continues when those students have kids that go to college.
About 65% of students graduate with student loan debt.
One of Shannon’s first pro bono clients had $250,000 in student loan debt and made $50,000 a year as an attorney. She said she felt unlovable and unmarriable because of all of the debt.
In the book, David talks about student loans, money mindset, relationships, and mental health.
Mental health is becoming a bigger issue with the student loan problem.
Not only do Shannon’s clients worry about their student loans, they worry about their childrens’ student loans. You can finance college, but you cannot finance your retirement.
Many parents who pay for their kids’ college are the least able to. Many of the parent plus student loans have the least number of benefits.
Shannon interviewed a financial planner a few years ago who said paying for college 20 years ago was like buying your kids a car, and now it is like buying your kids a house.
For parents, paying for college is not something you need to succumb to. Have your kids take out the loans themselves. You can always help them pay for those loans later, if you are able to. There are other ways to help your kids after the fact, but it doesn’t have to be prioritized up front.
Average student loan debt is $50,000 and it keeps going up. Most people won’t pay that off in 10 to 15 years. A lot can happen in retirement, because people are living longer and medical costs are outpacing inflation.
Shannon doesn’t advise paying for kids college expenses, unless parents can pay cash. She had to tell a couple to stop putting money in a 529 plan, because they had credit card debt and hadn’t been able to put money away for their retirement.
There is a lot of negative press around public service loan forgiveness. A single person who makes $40,000 a year and goes into $125,000 debt needs to understand the benefit of the loan forgiveness program and how to navigate it.
Student loan refinancing makes sense for some people, as it will save thousands of dollars in some cases, but as soon as you refinance the debt, you lose all of those other federal benefits like public service loan forgiveness. Pause before you refinance and investigate your options before refinancing, because the loan will be a private loan and you will have less flexibility.
Federal loans go with you to the grave, but private loans are due upon death.
An extra percent or two of interest may be worth it for the flexibility.
Murder, treason, environmental crimes, and student loan debt default are the only crimes that don’t have a statute of limitation.
It is about 16 or 17 percent to finance getting out of default on top of your private loans.
If you are not paying your federal loans, the rehab process is pretty flexible. Contact your student loan servicer and work out what you can pay. You have options.
If you already have private student loan debt, if you can get a lower rate, keep refinancing to get the percentage as low as possible.
At the Financial Gym, trainers promote a balanced financial life. What happens often is clients have an emotional tie to their student loans and want to pay them off as fast as possible and don’t save up an emergency fund.
A $1,000 emergency should not be a surprise. The only surprise should be what the emergency is.
You need to build an emergency fund to avoid going into credit card debt when an emergency happens.
David recommends at least three to six months of expenses, because you never know what is going to happen. You need that flexibility.
David has seen recently that without an emergency fund, you may not be willing to take the same career risks if you did have that cash on hand. You may end up stagnating in your career and not speaking.
Having the cash in your bank account gives you more confidence to be yourself and changes how you approach your life decisions.
Student loans are a part of your financial life but they shouldn’t consume your life.
You need to understand what type of loans you have, your repayment options, and the pros and cons of refinancing. Understand your debt, and the implications of it, and build a plan.
TAKEAWAY: My biggest takeaway is to remember that student loans are debt but not a death sentence. Paying them off is more like a marathon than a sprint and you will have a much more fulfilling and balanced lifestyle if you proactively manage your debt while working toward other important life goals.
Random Three Questions
What is a show you like to binge watch?
What is a food you did not like as a child and do you like it as an adult?
If you were a professional wrestler, what would be your entrance theme song?
Connect with David
Website: Young Adult Money
Book: Student Loan Solution
If you’d like to get financially naked with my team, and work through your student loan situation, I hope you’ll reach out to us at the Financial Gym. My trainers have literally seen it all so nothing will surprise us. We don’t care how you got here, we just care about getting you where you want to go.
The great news is that Martinis and Your Money listeners get 15% off Financial Gym services. So if you’re ready to manifest your dreams of tackling your student loans while also managing your mental health, head over to financialgym.com to get signed up today.