MoneySmarts U: Penny’s Loans

MoneySmarts U: Penny has too many loans

Penny took out too much student loan money and now it’s sitting in her bank account. Find out what we told her to do next.

Podcast transcript

JASMIN: MoneySmarts U is brought to you by IU MoneySmarts.

PHIL: Arguably, the most important years of your financial life are your college years. The decisions you make in college can make or break your first few years in the workforce. This is exactly why you need to be money smart. Enter MoneySmarts, Indiana University’s financial literacy program for students. To begin, it’s free! Now that makes financial sense. At moneysmarts.iu.edu, you can learn how to budget, how to deal with your credit, living expenses, and student loans. You can learn how to leverage summer earnings to help you reduce your student loans. Indiana University MoneySmarts, creating a financially smart culture one student at a time. Visit us online at moneysmarts.iu.edu to learn great ways to maximize your money and wreck your debt.

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PETE: All right, buddy. We’re back again here on the MoneySmarts U podcast. Lots going on this week. We’ve got a young lady who has taken on some student loan debt, but is kinda just sitting there.

ALEX: Yeah, and it’s not very much right now. She’s an interesting situation, because we figure out as we go, she may have to take some on later especially as she realizes what she wants to do later in her collegian life.

PETE: Yeah, right now it’s pretty sweet though, right.

ALEX: Yeah.

PETE: She’s hanging in there, hasn’t incurred a lot of expenses, the student loan she does have, she’s not using. The money’s just sitting there on the account, so we got to make sure she’s legit and not doing anything crazy there. I like this one.

ALEX: Yeah, she kinda reminds me of myself a little bit because-

PETE: I like her, and then you’re like

[LAUGH]

PETE: She reminds me of me.

ALEX: Yes.

[LAUGH]

ALEX: I’m 22 and I’m already saying that phrase. I feel like I should wait until I’m at least 40 to start doing that.

PETE: You remind me of myself. I really care for you.

ALEX: Yeah, that’s a little bold, just [CROSSTALK]. But no, just because she has some morphing lifestyle changes as she moves through college, and she has some goals we’ll discuss that she wants to get to. And she might have to make sacrifices as far as the student loan front to get there. So it definitely reminded me of the situation, the decisions I made in college.

PETE: Every time I see someone that does something really smart, I’m always like, reminds me of me. Anyway, here’s Penny.

PENNY: As far as paying for college, I’m actually doing pretty fine right now. I got a lot of financial aid, and I didn’t have to take out any loans. Well, I took out a loan that I was under the impression that I needed. But I ended up not needing it. So I just saved it for a time that I might need it, but financially, I’m pretty stable right now.

PETE: How much is that loan, Penny, that you took out?

PENNY: I took out, it’s $1,750.

PETE: Okay, I assume $1,750, not $17.50? That’d be a weird loan.

PENNY: Yeah, yeah.

PETE: And then where are you keeping it? Are you keeping it in a coffee can buried in your back yard, or in your checking account, what are you doing with it?

PENNY: Yeah, it’s in my savings account.

PETE: Is your savings account linked to your checking account?

PENNY: Yes.

ALEX: Okay, so I definitely have some questions in that regard, but to go along with that. You said your tuition is covered by financial aid and you’re good to go there. Do you see that changing throughout the time you’re in college? Or are you confident that your tuition’s gonna be good for all four years?

PENNY: No, I’m not necessarily confident that it’s going to stay the same. I mean things can always change. So I want to make sure that, I’m filling out scholarships, and making sure that I get as much aid as I can. So I don’t have to take out significant loans. But yeah, I mean, I’m sure that things will change.

PETE: You’re living at home, which makes your expenses pretty low and you’ve got some part-time work, are you babysitting? What are you doing part-time here?

PENNY: Yeah, no, I’ve been babysitting all through high school and I’m still babysitting now. I mean, it pays okay. But I’m looking also for another part time job to help with car insurance, health insurance, my phone bill, things like that.

ALEX: So what, let’s talk about first your living situation. Are you going to be living at home all four years during college, or do you plan on living in an apartment or student housing, anything like that?

PENNY: No, I don’t plan on living at home all four years. I wanted to this year, because as of right now, I live super, super close to my campus. And I didn’t see a point in paying the extra money. And then I would have had to take out quite a few loans in order to pay for housing. But yeah, I don’t plan on living at home for all four years.

ALEX: Okay, and then as far as your monthly expenses, right now while you’re living at home still. You mention car insurance, a phone bill. Do you have a number of what those numbers are monthly or do you just kind of take it as it comes?

PENNY: I just kind of take it as it comes. My phone bill isn’t really that fixed. Sometimes it goes up some months. Which I don’t necessarily like, but that’s partly my fault. But no, I just kind of take it as it comes.

ALEX: Okay so do you have a car payment as well, or is the car paid off?

PENNY: No, the car is paid off.

ALEX: Okay, cool, so your main expenses right now are basically the phone bill, car insurance. Do you pay for food at home, or is it just kind of your social expenses beyond that?

PENNY: No, it’s just kind of my social expenses.

ALEX: Okay, so I guess where I would like to start with this, and Pete could give some particular advice. From my opinion if you don’t need student loans as someone with student loans I would rather not have them at all and only take out what I need. So it sounds like if you’re saving and you have that money, from my perspective, why not just pay that back and get that loan gone. If you have to take out loans later then you can do so, but just to not have that money there where it’s at risk of you spending it especially if it’s connected with your savings and checking. So Pete what do you think on that?

PETE: Yeah, there’s another way to approach that. I think it attacks the same thing. So Penny, here’s what I have to do, I’m a dumb animal. I have to separate my savings and my checking account because if I don’t, the temptation to press a button to transfer money over is just too great and too easy.

PENNY: Right.

PETE: I think you can get away with you know you’re using the $1,750 as a back up plan. But we don’t want to turn it into a yeah, I’d like to do this plan.

PENNY: Right.

PETE: And so what do you think about taking that $1,750 and putting it in a savings account at a bank which you don’t have Internet access to and you don’t have ATM access to? That way, if there truly is an emergency, you do have to break the glass by getting in there and withdrawing the money.

PENNY: Right, yeah, see, that’s something that when I first took out the loan and I figured out that I didn’t need all this money, whatsoever. I didn’t know whether or not, if I should just pay the loan back or keep it and save it. And I had some people telling me, well, you should just save it. Just save it, just in case you need it. Well, I don’t and I think that’s really a good idea. Just to go to a bank and then set just a separate account for that so I’m not tempted, because at times I am. I mean, I’m not gonna lie. I mean, I’ve got $1,700 sitting in my account that I could probably use, but.

PETE: I get that. And I think throughout all of our lives, like the temptation to make a mistake often leads to the mistake. I don’t keep chips in my house because I love to put chips in my face. I love to eat them, so I don’t put chips in my house because I don’t wanna eat a bunch of chips. So I think in this example, you probably just need to separate that money off. Now, you said you aren’t always gonna live at home while you’re in school despite the fact that it’s working in an amazing way. Why mess with that?

PENNY: Right.

PETE: Is that about the social experience then?

PENNY: Yeah, I mean I’ve still made friends in college, even though I’m living at home, and not in a dorm. But I still want that experience just because I think living in a dorm, you really kinda get that college experience. Just living on campus and making more friends that way when you’re in your dorm and I mean it is working out really well for me. I’m saving a lot of money living at home. But I really want to experience that.

ALEX: That’s something I can totally empathize with. I lived away from home the total college experience. So from my point of view we’re talking about finances right now, but that’s something, my point of view, if you wanna do it then you should be able to do that.

PETE: You’re paying back tens of thousands of dollars of students loan debt in the now, right now.

ALEX: Right, currently, yes.

PETE: So was it worth it?

ALEX: Totally.

PETE: Okay, cool, that’s fine.

ALEX: Yeah, I would not have traded my college experience for anything. And I believe if that’s worth it to you, where you would have to take out some student loans to get that full college experience. Then you know what, maybe you just have to kind of live your life to a certain extent. Obviously don’t be stupid. But-

PENNY: Right.

ALEX: From my point of view that’s a huge part of going to college and having that full experience, personal opinion. As far as how many loans you think you might have to take out when you move out, is that something where you get a more steady part-time job to be able to cover some of those costs and things like that? Or are you pretty confident that you would have to take out some loans?

PENNY: Well I’d absolutely, if I had to take out, if I moved out and went to a dorm, I would most likely have to take out some loans. But I would most definitely get a part-time job and do some work study. And-

ALEX: Okay.

PENNY: Just try to have some money coming in so that I can maybe even save some of the money that I make to go towards paying it off. Cuz that’s something that I’ve always really worried about college is how many student loans am I gonna have to take out? And how much is it going to accumulate to and am I really going to be able to pay this off?

ALEX: Totally, and honestly from the situation from what we’re hearing, it doesn’t seem like you would have to take out that many student loans as far as the actual number goes. So in terms of saving, do you have any long-term goals? Do you have stuff you want to do during college or after college that would be something you would have save up for? A specific example would be you want to go to on a trip Europe or study abroad, anything like that, that you have in mind?

PENNY: Yeah, study abroad. Yeah, that’s something that I have always really wanted to do and that is something that I plan on doing in college.

ALEX: Awesome.

PENNY: Yeah, I will definitely have to save some money for that. Yeah, that’s something that I have always wanted to do and that’s something that I do plan on doing definitely.

PETE: And you’re a psychology major is that correct?

PENNY: Yes.

PETE: So I think a big part of this conversation which is often swept under the rug is, what are the jobs that you will be lined up for upon graduation? What are the incomes associated with them and can they justify the amount of student loans you take out? By the way, I don’t know the answer to any of those questions, Penny. I was hoping that you would know some of them. Do you know any of those answers?

PENNY: No, I looked into a couple careers in the psychology field. I’d have to go on and get a master’s, which is fine with me. That’s what I kind of planned on doing anyway. But as far as counseling, marriage and family counselors and things along that line they make about $40,000 a year.

PETE: Yeah, and so as you think of that number, and that’s not to limit you by the way. That is to help you understand-

PENNY: Right.

PETE: How much student loans should you take out. Have you psychoanalyzed either Alex or I so far in this phone call? Do you know anything weird or deep seeded about either of us?

PENNY: No, I’m not that experienced yet with a lot of-

PETE: Whew, I got a lot of problems that’s good.

ALEX: Do you know my zodiac sign is just by hearing my voice?

PETE: I don’t think that’s psychology, Al.

ALEX: Something in there. I don’t know.

PETE: I don’t think it is. But that’s all right. Penny, any other questions before we let you go? And we are really excited, by the way you’re doing this. We think you’re doing it the right way. I would encourage you.

PENNY: Awesome, well thank you.

ALEX: Yeah, our pleasure. I would encourage you to separate your savings that $1,750 out from your bank account now. I would also measure the social experience against the sort of incomes that are be available on the way out.

PENNY: Yeah.

ALEX: Real quick question on your student loans. What type of loan is that? We forgot to ask that earlier. Is that unsubsidized, subsidized, do you know?

PENNY: Goodness, this is the part that confuses me. It’s the one that doesn’t build interest or something. Yeah, it’s that one.

ALEX: Okay, so that’s good then. Cuz if it built interest, I’m not sure if that that would change. That’s probably subsidized, correct Pete?

PETE: Yeah.

ALEX: So that doesn’t build interest which is better than. So you don’t have to worry about that.

PENNY: Right.

ALEX: But I personally feel like you’re in a pretty similar situation to what I was, and the fact that I saved up for a huge trip after graduation. I saved up $8,000 during school, even though I had tens of thousands of dollars in student loans and kinda prioritizing things you want to do versus.

PENNY: Right.

ALEX: Graduating with zero debt. So it sounds like there are some student loans in your future especially if you decide to go back and get a master’s. But if you’re working part-time and you’re minimizing the student loans especially during undergrad. And if you can get some of those savings to be able to study abroad. From a personal standpoint, I think that’s something that is worthwhile to get those life experiences. Especially if you’re confident that you’re not putting yourself in a hole. You seem like you’re.

PENNY: Yeah.

ALEX: You know what you’re doing in terms of making smart decisions. So I would say that’s a pretty safe bet for you.

PENNY: Well great, thank you.

ALEX: Yeah, of course. Well, thank you so much Penny for being on the MoneySmart’s podcast here. We really appreciate. We’d love to hear back from you. We’ll check in as the months go by just to see how you’re doing.

PENNY: Awesome, okay great. Thank you guys so much.

ALEX: So there you have it. Fascinating situation, changing lifestyle as Penny lived through college. We’re really excited to see what she does. It reminded me a lot of myself in terms of wanting to travel and study abroad. The situation of you might have to take out student loans and make some changes to be able to save and get there. So we’ll check in in a couple of months and see where Penny goes from here. If you wanna be on the MoneySmarts U podcast, go to moneysmarts.iu.edu. Fill out the application. Get in touch with us. We would love to have you on and to discuss your financial life. But that’s it for this week for Peter Dunn, my name is Alex. And we’ll see you next time.

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