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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ALEX: Welcome back to another week on the MoneySmarts U podcast. My name is Alex here, alongside Pete as always. And today, two special guests have decided to join us in studio.
PETE: Phil and Morgan from MoneySmarts there at IU, hello, Phil and Morgan.
MORGAN: Hello.
PHIL: Hello.
PETE: You should be a music group, Phil and Morgan. Or what sounds better, that, or Morgan and Phil?
ALEX: It’s like the next generation of Sonny and Cher. Is that a terrible reference for this show? That’s a terrible reference for this show.
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PHIL: That’s a terrible reference anywhere.
PETE: Terrible. That’s a really bad reference. And I’m usually the king of bad references. Yeah. [LAUGH] So of course, Phil and Morgan are here. Alex, we’re talking about a very misunderstood topic today, a topic that people butcher all the time, and that’s student loan forgiveness.
ALEX: Which sounds great to me, I would love some student loan forgiveness.
PETE: I’m always looking for forgiveness, whether it’s student loan or otherwise. [LAUGH] All right, so of course Alex is a recent IU grad. What do you know on the very surface level about student loan forgiveness?
ALEX: Not a ton, to be perfectly honest. What I’ve heard from student loan forgiveness is a lot about people who are public employees, in teaching and things like that, who can qualify for it. But honestly, that is pretty much the base level of what I know about it.
PETE: Morgan, you speak a lot and you’re instructing people quite a bit about student loans and all aspects of their financial life. Would you agree there’s a lot of misconceptions out there about student loan forgiveness?
MORGAN: Absolutely, that’s probably the number one thing that I say when I speak about it, is that you wanna make sure that you’re at least a little bit informed if you’re trying to take advantage of forgiveness plans that are out there.
PETE: Phil, you understand the intricacies of how the plans work. The public service student loan forgiveness plan is arguably the most popular, or the most well-known.
PHIL: I think it’s the most well-known or it’s at least the one that makes their ears perk up the most. Just because the idea behind it, I can have my student loans forgiven, makes people interested in it and want them to get involved in it. But, as you kind of said, there’s all these misconceptions about it. I think people misunderstand that, really, this is designed for people that want to go into those careers. They’re probably gonna be low paying to begin with, and that’s not a way to have your loans be forgiven, just so you can have them forgiven. It’s a way to get those people that are gonna be in those low-paying jobs to be able to pursue their passions in those fields without having their loans play a role in whether or not they can actually take those jobs.
PETE: I believe the average student loan balance upon graduation in 2015 was something in the $30,000 range. Just above for the number you work with, or what do you do?
PHIL: The number always fluctuates. The last number I heard was 28,400, but I’ve heard slightly above $30,000 as well. So I mean, in that high, upper 20s to low 30s number is where we’re working.
PETE: And if you work in public service, as a teacher, or a social worker, or various aspects of serving your community, you naturally qualify to some degree. You have to go through the program, you have to make sure you’re making your payments correctly. And I guess what happens, you make the right payments for ten years, and whatever balance is remaining is wiped out, it’s forgiven, right?
PHIL: Yes, so Morgan and I are probably gonna tag team this one a little bit. But the important thing is if you’re making standard repayment plans, if you’re under the standard repayment plan for all those ten years, then you’re gonna make ten years of payments and then your loan’s gonna be gone anyway. So you’re not gonna have anything to be forgiven at that point.
MORGAN: Yeah, but there are a number of repayment plans to help you out along the way. So if your income doesn’t allow for you to meet those standards under ten year payments, there are a number of income based repayment plans that are out there. That some of which, I believe, also have forgiveness attached to them.
PETE: It is a confusing realm. And I think, Phil, your point that, well, hey, if you’re making your payments for ten years anyway, you don’t need forgiveness cuz they’re paid off. I mean, Alex, I know that with you paying your student loans now, number one, I know you hope it doesn’t take you ten years.
ALEX: Absolutely not. Yeah, and I think that’s one of the big possible misconceptions with loan forgiveness is people are going to think anyone could get forgiveness. But, forgiveness is gonna be there for those who need it. And it’s not just gonna be forgiveness for anyone who might want it. And I think that’s something that people should know going in. But yeah, it’s an interesting topic, especially with the income based for me. Because for me, it’s like that sounds great, completely dependent on if it’s a percentage of income and what that percentage is. If it’s 10%, fantastic. I’d sign up for that probably all day.
PETE: But I think it’s much higher than that. Isn’t it like 22% or something.
MORGAN: I don’t know the percentage off the top of my head, but I think it is.
PETE: It’s higher than you think it is, to Alex’s point. And I guess the other way to look at this is let’s say you graduate, you establish your life, you establish your expenses, and then you try to retroactively fit an income based repayment into there, you’re in trouble.
MORGAN: Well, I mean, the hope is that your loan servicers will work with you to make sure that it does align with whatever your financial situation is. So even if 10% is tough for you, kind of figuring out sort of a happy medium, if that exists when it comes to loan repayment.
PETE: It probably does.
PHIL: And the other thing to throw out there too, is as you’re mentioning loan services, you have to keep in mind that the public service loan forgivenesses only qualifies for federal loans and not private loans. Cuz we’ve seen a lot of people make those mistakes too.
PETE: That’s a really important point.
PHIL: And then one other point I’m gonna throw out, cuz this is something I learned after the fact too, any money that you have forgiven at the end of all this is considered taxable income.
MORGAN: Yep.
PHIL: So you have to pay taxes on what’s ever forgiven too. So there’s a lot of intricacies too, and so it’s not just great that you’re gonna have all this money forgiven. You’re still gonna have financial obligations as a result too.
PETE: Let me take a slightly different approach to wrap back around to forgiveness. And Alex, I’ll start with you. Do you think people in today’s day and age select their industry, their field of study, their career path based on the amount of students loans that will be created versus the income that will be generated to pay off the student loans? Do you think that most people make that calculation in the year 2016?
ALEX: Most, no, I would say income is definitely a big part of it. But I would say the student loans isn’t as much. More so in the dentistry fields and the medical fields where that’s an absolutely huge deal, with lawyers and things like that. But for, I don’t wanna say general population, but for those not specialized high-income fields like that. And I think generally, it’s more of people make it based on income, and how much they want to be able to make afterwards, but I don’t think they really. I never thought about how much loans I would have going in.
PETE: Morgan, what do you think from what you’ve seen?
MORGAN: Well, one, I think my hope would be that people aren’t making their decisions based on how much they think they’ll make once they graduate, which tends to be inflated in a lot of cases too.
PETE: Right.
MORGAN: But in terms of what I’ve seen, you’re asking about kind of comparing how much the income will be, versus how much they take out in loans. I don’t think most people think about it in that way, unless there’s a very strategic, I’m going to grad school, I’ll be paying it off, those sorts of things, but I don’t think that’s a high consideration.
PETE: Phil, what’s been your exposure to that?
PHIL: I think the same thing, I don’t think students are really concerned about that. I guess the ratio between the two, and throw that in there too. I don’t think students are considering the benefits packages as well. And so there’s another aspect and you think about as the total value of their employment package and not just the income. And even more so, I’ve seen more companies recently, or at least I’ve heard of a few, that are starting to offer some student loan repayment incentives for being hired at their company.
PETE: Which is great.
PHIL: Which is fantastic. And it’s another form, I guess, of loan forgiveness in a way.
PETE: Alex, we don’t offer that here.
ALEX: Loan forgiveness?
PETE: Yeah.
ALEX: Darn, I was really hoping for it. So I wanted to make one quick point though. I think this conversation, to that specific point, absolutely changes if you’re talking to juniors and seniors who are thinking about grad school.
MORGAN: Mm-hm.
ALEX: Then student loans I think are much a bigger part of the conversation.
PETE: Can I play devil’s advocate for a moment? Let’s say someone has no idea what they wanna do. And that’s a tough problem for people who are in that situation. And it’s not as easy as, well, just figure out what your passion is. That’s great advice, but if you’ve ever been in that position before, that advice doesn’t actually help, right? So what are we to do for the student, or what are we to suggest to the student that doesn’t know what they wanna do? There’s no field of study that is particularly interesting. They maybe get a general studies degree, or a degree that can go into a lot of different fields. At that point in time, I would argue that picking a field that can sustain your student loan payments actually does make a lot of sense, and it is very prudent. As opposed to making your default choice something that has nothing to do with money, that is more passion driven. I mean, how do you get your head around that?
ALEX: There’s a lot of intangibles, for sure, right? I mean, my hope would be, it’s okay if you’re just figuring out what you wanna do. There is nothing wrong with not knowing. I would say the number of people who don’t know, are very high. That’s the large number. But it’s about how productive are you actually being with your time in college. Are you making the effort to try out different fields and things? Because I think, and again, that’s something you can’t really measure very well. It’s like, well, I tried this and this. Well, did you really dive in and try it? There’s a lot of in-betweens, but you can’t fault someone for wanting to try different things.
PHIL: And that’s a great loaded question you threw out there.
PETE: No, it’s really loaded.
PHIL: It’s tough, but I think you’re right on point by saying trying to pursue something that might be able to help them cover their student loans. Because, certainly, that would be one aspect of their post-graduation life that would cause them stress. And so even if their job is causing them a bit of stress, if they can get rid of their loans, then that’s gonna help them out as they continue to try and find themselves. And maybe by the time they have their loans paid off, they can actually go out and they’ll know who they are and what they wanna pursue. And at the same time, I mean, this is part of the reason why career services offices exist on higher ed campuses, because they’re there to help you out and try and figure out what it is your passion is. Or at least help you make the best educated guess.
PETE: Another way to ask that question though is, what is the price of finding yourself, right? Because isn’t that a big part of it?
ALEX: I mean, that’s the big scary question. You’re paying to go to college, and if you do get a general studies degree, would that specific degree help you get a job? And is it okay to take on the loans for that experience? To be able to-
PETE: And, to be fair, full disclosure, cuz we’re a full disclosure show. When I say general studies, I have no idea what I’m talking about.
MORGAN: Liberal Arts.
ALEX: Liberal Arts degree.
PETE: Okay, I have a Liberal Arts degree. Is that general studies?
PHIL: More or less.
PETE: I went a liberal arts school. Does that matter?
PHIL: So did I.
PETE: I didn’t know what liberal arts was, just fyi, until I was like a sophomore.
PHIL: It’s just taking a bunch of different classes on a bunch of different subjects.
PETE: Hey, listen everybody, I have a general studies degree. It’s worked out pretty well.
[LAUGH]
PHIL: What is the price of finding yourself? Just sounds like a good tag line too.
PETE: It seems like I should walk on hot coals and inspire 20,000 people. What’s the price of finding yourself?
ALEX: Only four payments of-
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PETE: You can use easy pay, though. Anybody have anything else to add to the sort of the student loan forgiveness equation? Because where I was going with that, as we begin to wrap, is, like Phil said, it’s not like we want people to select their industry and career path based on the idea that your loan could be forgiven. That doesn’t make a lot of sense. I don’t know, what do you have to add? Does anybody have anything they wanted to wrap with?
MORGAN: Yeah, I think there are a lot of decisions, and certainly unknowns, that can put you in a position that can hurt you in the long run. So Alex, back to your point about making the most of what you’re doing while you’re in school is a big thing. Especially if you are going to school for general studies, liberal arts. There’s a lot of stuff out there of students who say that their universities have failed them because they can’t pay their loans, they can’t get jobs and things like that. But if you’re not making the most of what you’re doing while you’re there and doing your research to make sure that you understand a lot of some of the stuff that we’re talking about, can make a huge difference.
PHIL: Kinda what you were saying, Pete, I feel like I want the public service loan forgiveness for people that are enrolled in that program, I want it to be a coincidence, that their field aligns with that and not the reason why they’re doing it. And so that’s what people should take into consideration. They should not be gravitating towards it because it sounds great. They should be doing it because it just so happens to work out with what they’re trying to do.
ALEX: I like that a lot. Don’t depend on it.
PHIL: Yep.
ALEX: If it ends up working out for you, that’s great.
PETE: Yep.
ALEX: But don’t depend on it. I like that. Well, thank you very much for listening, and thank you very much for joining us.
MORGAN: Thanks for having us.
ALEX: It’s always great to have you guys in the studio.
PHIL: We love being here.
ALEX: It’s fantastic.
PETE: And we’re Phil and Morgan at moneysmarts.iu.edu is where you can learn more about what the MoneySmarts team can do for you, to help you understand money better. Is that a good way to say it?
ALEX: Fantastic.
PETE: It felt really good.
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ALEX: They’ve got a lot of great stuff on there. Calculators, blogs, these podcasts, all over the place. Tons of different content for you guys to help you out with your financial lives. But I think that’ll wrap it up for this episode. Thanks to Phil and Morgan for joining us, and for Pete, this has been Alex. You’ve been listening to MoneySmarts U. Thanks for listening.
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