April 19, 2021
Listen to Podcast Episode:
This podcast is a special Suze Sunday School about Student Debt. You’ll learn about the two different types of repayment plans, what kind of relief may be on the horizon and more.
April 18th, 2021. Hi Suze. Good morning my dear KT. You know what today is? Sunday, Sunday. You know what else it is, Gary's birthday. My brother Gary's birthday. So happy birthday to you, dear brother. Miss you Gary. Yeah, know that we send love. But I also before we get into Suze school, which all is all about student loans right now. I just want to tell all of you something, coming up on April 22nd at 6 p.m. I will be giving part three of: you can heal your financial life webinar. Where tens of thousands have already registered to be there and I want you to be one of them. So, to register it's absolutely free. All you have to do is go to Suze, suzeorman.com/webinar and register their, it's on April 22nd which is coming up right around the corner. It's this Thursday, I'm also going to be talking about a new course that I've created called the three-step reset so that you can heal your financial life, you can reset things in your life that really maybe aren't going right for you and it's really fabulous. So, I hope you all join me Thursday 6 o'clock PM East Coast time. You're going to be there, KT? Absolutely, I'm excited. Wait I just have to tell you know what KT does when I do these things. She sits there, tell them what you do about my hair. Come on, just tell them. We'll be on the island when she does this live. And I want you to notice something about not only your hair, I sit there, I sit across from her so I'm sitting there and I'm staring into a little computer screen with a camera on it and you know and I'm just talking into it like I'm talking into a tv camera and out of the corner of my eye KT is watching me and she's sitting there and I see her right arm constantly going like this. What she's going to describe as funny, I have very, very short hair white hair and I go like this on my forehead pushing my hair back and there's no hair there. But it's my signal to tell Suze, get the strand of hair out of your eyes because when she's on live doing her webinar I'm not able to go up to her and fix her hair. So, I sit there and I do this big motion of like push your hair back and she just totally ignores it. But it drives me crazy. But it's all right. But you'll like it, I'm changing our set a little bit on the island and probably going to put some new flowers because it's spring. So, take a look everyone, we will see what happens. But anyway, all right, let's now do Suze school. Okay, here we go. So, I want to do a Suze school today on school student loans. Oh, that's really important. And because so much is changing with it and I just want to make sure that we're all up to date and we're all on the same page right now. So first of all, all of you know, or all of you, I hope you know, that if you have a student loan and then you graduate and it has to be repaid back. That the proper way or really not the proper way, but the most cost-effective way to pay back a student loan is under what's called the standard repayment method. And the standard repayment method simply is they take whatever amount of money that you owe them at, whatever interest rate you happen to have been assigned and you have 10 years to pay that student loan back in equal installments every single month. But then in 10 years it's totally gone. It's over. The problem is most people don't have the money to pay it back in 10 years. If you had a $50,000, student loan payments could be 400 or $500 a month, that is a lot of money. So, most people, when you can't afford to pay a student loan back under, the standard repayment method, you following along so far, I was going to ask you a question. I had a feeling. What is, do you know the answer to this, what's the average student loan? $47,000? Oh my God, really? Yeah. Used to be 35, I think it's now 42,000. There's no way they can pay it back in 10 years. Wait, a lot of people do, but the majority of people really can't. So here you are, you're in a situation where you have a student loan, it could be a parent plus loan. A parent plus loan is where parents just signed for a loan for their kids, but the parents are responsible for it. But regardless of who's responsible for it, the real question becomes, what can you do when you cannot pay back the student loan under this standard repayment method? So, to combat that, KT years ago they came up with income-driven repayment programs and there's three or four of them, they don't really matter what they are. The main thing about them is, that you pay your monthly payment according to your income, according to what you can afford. And they put you on rather than a ten-year repayment period, it's usually 20 or 25 years. They meaning, the government or the federal government. But there we have a situation where for those of you who are just on income driven repayment plans and you're not part of the public student loan forgiveness program. KT's eyes are rolling. Wait, go back a step. When you graduate college, you have many ways that you can pay back your student loan. One, as I just said, standard repayment method. Besides the standard repayment method, most people who can't afford to do that, go under what's called an income driven repayment method, which simply means that your repayments are based on your income. So, if you don't have any income, guess what, you don't have any payments. If your income is little and maybe you would owe $500 a month under the standard repayment method and all you can afford based on your income is $50 a month, you pay $50 a month. But there is a catch everybody. And the catch is this if you owe $500 under the standard repayment method and under the income driven method, your payments are $50. The difference between the two or $450 in this case gets added onto the back end of your loan, plus interest. And everybody would say to you, well don't worry about it because in 20 or 25 years, just depending on which loan you took out, it would be forgiven. So, whatever money you owed would be forgiven. And here's the catch is that whatever amount of money would be forgiven would also be taxable to you as ordinary income in the year that loan was forgiven. So, if you are hardly paying anything on your income driven repayment plans and you go all the way through, it is possible that rather than going $50,000 you might owe 100 or 125,000 because of the money that was added on the back end plus interest. Are you following me KT? Yeah, I have a question. Uh huh. Okay. So, I'm a student. My dad signed for that loan. My dad cannot pay it back. So, I've accrued all of this back end plus interest fees or additional loan and then my dad passes. Do I assume that loan? No, so that's a different question, believe it or not. But if you have a federal student loan and you are a student and you die and you took out a loan, it goes away. If you took out a parent plus loan for the child and the child dies, the loan goes away. The loan also goes away if the parent who took out the parent plus loan dies. A private student loan in many cases, do you remember we had this case in Boston with this woman who was an Avon representative. I'll never forget this as long as I live, took out a private student loan for her son and her son died and she still was legally liable for that loan and her payments were $800 a month. And that's when Suze Orman went to work and somehow, we got the private student loan company to forgive it. But it was really sad. So, but but now we're off topic here. So what everybody, she's rolling her eyes. Why are you rolling your eyes? Listen if I don't understand something, ask a question as soon as I ask a question, everybody KT's in the corner with the dust cap. No. Alright so it used to be, I'm going to go back to this again. If you're on an income-based repayment program, an income driven repayment program at the end of the period of time it used to be, did you hear me say “Used to be”? Once the loan was forgiven, you would owe income tax on that money. So that was a big deal. Which is why I would always say to you had to do a standard repayment plan, you had to do that. You had to do this. Now obviously I just want to put one thing else out there. Many of you were on the income based or income driven repayment plans. You went into public service and all you had to do is that if you worked in public service, you had a direct loan after 10 years, they would forgive it and you did not owe taxes on it. But a lot of public service forgiveness loans did not get qualified for that. So that's a whole other story. But here's why I wanted to do a Suze school today. Forever like I said, I've been telling all of you, you've got to do a standard repayment method if you can. You don't want to get stuck later on in life owing all those income tax as well. Part of the AARP program that President Biden signed into law on March 11th, 2021. Remember the American rescue plan? That's why I call it AARP, stated that student loans under the income-based repayment methods, income-driven repayment methods, will be tax free until December 31, 2025. So, if you're one of the people right now right now and your loan is coming do right now. Let's just say you owe $100,000 on the student loan, it's forgiven you do not owe income tax on that money. So, that's something that I want you to think about now. You have to remember that these programs, these income-based repayment programs didn't even come into consideration or into being in many cases until 2009. And so, what's interesting about that is that many of you, when your loan comes due will be passed, the 2025 deadline that's currently in place. Here's what I want to say to all of you. I have a really great feeling that this is going to be one provision that they are going to extend past 2025. So, if you really cannot afford the standard repayment method on a student loan, take out an income-driven plan and don't be afraid of at the end, being stuck with having to owe income taxes on it because I have a feeling you are going to see them start to change that to last longer than 2025. But, all of you need to check this out before I go out and say everything you want to say. I wish Teddy Kennedy could hear you right now. And why is that? He loved that you were fighting with him against these outrageous student loans. Should we tell the story? So, this was when you know you had answering machines and everything. You know we have now is cell phones, we don't even have a landline. But we came home and I saw on the answering machine, will you ever forget this? That the light was flashing? There was a message and I listened to the messages and it went like this hi Suze, I can't do a Boston accent, can you? Hi Suze. This is Teddy Kennedy and that is my doggy barking in the background. Remember his dog he was barking and he had invited me to testify in front of the Senate Finance committee on student loans. And when you testify in front of a committee like that, you need to write your comments so they can see what you are going to say and make sure it fits the agenda, I guess. I'm not exactly sure why but you're supposed to do that. And I think they prepare it also for the media and for everyone there. But Suze Orman is not a scripted talent. I don't ever write out what I'm going to say. I can give a talk to 200,000 people and I'd have a clue when I walk on that stage. And so I went, I don't do that. And essentially the message came down, well write whatever you want and then say what you want. It's all right. So, we wrote up something, I don't even remember what we wrote up something, simple and just sent it to him. They needed something for protocol, that's all. Anyway, so now we're there and it's my turn and I let it, wait, wait, wait, what? The room was packed, oh my God, packed to the brim and in front of the senate and the committee Ted Kennedy sat in the middle. He was so proud and waiting with like an anxious kid to introduce his Suze Orman. Suze to the rescue and all the media and all the cameras were sitting on the floor and the student loan committees. My goodness. Well Suze got up, she said nothing close to what they had written and she just let it rip big time. She blasted all of these institutions and how dare you, you know, treat education and our students in this manner blah blah blah blah blah. They went crazy. And Ted Kennedy is sitting there with this grin on his face, holding back not saying anything. And then afterwards I'm sure you could all find it on C span somewhere. But afterwards all the student loan companies that I obliterated. Oh my God will you remember that day Suze was surrounded, surrounded saying how can you say that? It was like I just stood my ground. So anyway, it's a little side every time I think of student loans I wish he could see how far we've gone. We've come a long way. But the next thing though that I do want to talk about is this, you have President Biden and you have Senator Warren and you have two people who really, really want to dismiss student loans. One the president $10,000. Senator Warren $50,000. Obviously, it would be income based and everything like that. But for the first time ever I have a feeling that is going to happen and what I love about that is that it will be a tremendous equalizer for all the inequality when it comes to student loans and colleges and the cost of it, it would really, really do so much good. I can't even tell you. However, with that said, do not go out there and get yourself more student loans, because you know that those loans are going to be forgiven. Don't do it, don't do it, don't do it. With that said, especially if you're strapped for money right now, I really am for the first time ever talking about, it's okay to do an income-based repayment plan if you really don't have the money to do a standard repayment plan. But I think there is hope on the horizon. I think it's a great thing that could be happening and these are just a few things that I wanted you to know. Can you change a student loan lending if you take a student loan out let's say an A plan, can you change it to B plan? You can change things. Yes, and not only can you change it, but you can also refinance a student loan. So, there's just one last thing that want to say about student loans, that I think you all need to know, and that is the interest rates of the student loans. Now. You need to understand that student loans are based on the highest yield of the 10-year Treasury note that happens in May, which is next month. And then what happens is those loans are set July 1st, for all the federal student loans. But it's based on what happens in May. And it's very easy to predict based on what's happening right now, what's going to happen with the interest rates of student loans. Now from 2020 to 2021, on May 12, I'm trying to give you an education. Now. The high yield of the ten-year treasury that student loans were set on was .70%. Right. 0.70%. Right now, that means that if you had taken out a student loan last year, a Stafford student loan would have been 2.75% for an undergrad. A graduate would have paid 4.30% and apparent plus would have paid 5.3% and all of you were so happy with that. That may be great. But I just want to tell you that's not going to happen again this year. So, what we're seeing right now as I'm talking to you, the 10-year auctions are at about 1.5% to 3% which is .832% higher than it was a year ago. So, what does that mean, KT, you have to give it to me in dollars. I don't know. I'm not giving you it in dollars. Here's what it means. It means if you now are going to for the year 21, 22 apply for a Stafford undergraduate loan, it's going to cost you 3.5%. If you apply for a graduate loan, it's going to be 5.0% and if you take out apparent plus loan, it's going to be 6.0%. So essentially KT, interest rates for student loans that people are going to take out for the year 2021/22 are going to be at least a half a percent higher than they were last year. Now, why does that matter? Because we are trending up in interest rates. So, if you are planning to take out student loans at a specific interest rate to get yourself or your kids through school, you have to plan it at the correct interest rate or what's happening with interest rates. So, interest rates for student loans are going up and that is just something I want you all to know. So, what were the three things I talked about today, KT? Different student loan plans, there could very well be a reset of the repayment or forgiveness in 2025, and hopefully if we're all lucky fingers cross, we'll have a reset of that and will continue. And then the third is that beware everybody interest rates are going up. Like I nailed it kind of, I did. Right. So just to recap everybody, is that income based driven repayment plans, the interest at the end is being forgiven through 2025. Hopefully that will extend. You got that right. Student loan forgiveness may happen. 10,000 if its President Biden, and 50,000 if its Elizabeth Warren. That very well may happen, but don't count on it. And three, interest rates for student loans are going up. Let’s go back to number two, when will we know? You'll know shortly. Here. You can tell she's on Senator Warren's on it. She's on she is on it. And I truthfully hope she gets it I think will help many, many disadvantaged students big time. All right, So, you know what it's time for, right? I do a quizzie? We only do quizzies on Thursday. Oh, you're right. We don't do quizzes with me on Sunday. I have such a good quizzie. Is it about a student loan? No, no. Then forget it, ask me a student loan quizzie. Really? Yeah, I was so excited to do a quizzie with you. Thursday, save it for Thursday, but then you can't look at it. Wait, stop. She's cheating everybody. All right. Ask me is it as quizzie about students or loans or anything? No, but because we were talking about student loans and for some reason I thought ask Suze KT anything hour, you're getting to me. It was about somebody who doesn't have any student loan debt, but she wants a grade from me. She essentially wants me to grade her, give it to me. Are you sure? Give it to me? Come on. All right. So, we're going to have a Sunday quizzie. I'm not going to do Thursday. Yes, you are. All right. So, this one's from Rachel. All right, go for it. Now. I want all of you to listen closely to this one because what Rachel is asking is what financial grade would I give her for? What she has going on in her life, financially speaking. And this comes from a segment of the Suze Orman show how am I doing and you know, and then people would write in, they would come on the show and I would say no, I give you an F but here is your way to an A. So, she's asking me if I don't have an A. I want to know the way to that A. So, now that we've been a little bit educated over the past few months in the past years that you've been listening to the 20 years, right, the question is, what grade would you give her? All right, Rachel let's hear it. All right. And this is for all of you, you all should be writing these down. And what grade would you give Rachel, first of all? She wants this for her upcoming 35th birthday. So, this is your birthday present for you Rachel. She says my husband and I live in Florida. We have two beautiful babies, a seven-year-old and a three-year-old. They have all their must-have documents done. That means everybody, they have a will, a trust, an advanced directive, a durable power of attorney for healthcare and financial power of attorney. They have no student loan debt whatsoever. Their house is appraised at $210,000 and they owe $159,000 on it at 2.3% fixed for 15 years. They own 12.5 acres that they paid for with the livestock that's on it and that's valued at $180,000. They own two vehicles, outright. They have no consumer debt. They have an 8-month emergency fund. They have $300,000 in combination of a Roth and the traditional IRA. And they both have $750,000 in term insurance. All right, what grade would you give them? B plus, I'd give them a B Plus. There's one thing missing in this plan. What is it? What is it everybody emergency fund? No, they have an emergency from eight months. All right. So, but they have enough. That's fine, it could go to 12. They have 300,000 in Roths and IRAs do you think that what might be missing with the seven-and-three year-old is to have a 529 plan. Oh my God, she wait. This is kind of in keeping with our theme today. Now, you know why I chose it as quizzie, but there was something missing. So, there you go. You gave me a little hint. I was looking at the seven-year-old should have a 529 plan. So, given that you're doing so great, really Rachel with everything, everything is so perfect. Except for why not, if you have extra money, why not have a 529 plan for the kids? So, as they get older, maybe they don't have to take out any student loans. If you had done that, you would have had an A. So that is your way to an A but girlfriend, you are doing so, so incredible and I'm being very particular here really, you're. You're great, 35 years old, I'm proud of you. You know, you should be so, so proud of yourself and we wish you a happy birthday and that's your grade. There you go. Go open that plan, get a plan back and we'll give you an A for the birthday. And the best place to research them, by the way is savingforcollege.com and look at them. But that's what that's the only thing missing. The only thing missing in your life, financial life at this time. All right, Miss Travis. That's the end of a Sunday. That was a nice one. What are you gonna do with Colo today? Well, Colo is busy working. He's doing some work at Lynn's house, my sister. I think I'm just going to probably maybe mosey on over and see how they're doing will take a little ride. What have you made him? Did you make him anything special to eat today? I'm not going to tell everybody because then you'll tell then you'll tell them that all I do is cook for him and make him fat. Well, sausages and spaghetti, angel hair pasta with a really delicious spicy sausage red sauce. And is that for his breakfast or his dinner? No, that's for dinner, dinner. All right. Okay. All right. Everybody. I hope you enjoyed Suze School today. I hope you enjoyed the impromptu quizzie and most of all remember to stay safe and happy. Talk to you soon. Bye everybody.
Join Suze’s Women & Money Community for FREE and ASK SUZE your questions which may just end up on her podcast!
To ask Suze a question, download by following one of these links: