GMB Ep #93: Managing Student Loans When You’re Over 50 With Erik Kroll

 

Having outstanding student loans at the age of 50 versus earlier in your career will have a very different impact on your financial status. In today’s episode, we have a distinguished guest who specializes in helping people over the age of 50 to repay their student loans. Erik Kroll, Certified Financial Planner® and the owner of studentloansover50.com joins us to explain different strategies to manage your student loans, as well as how that approach changes with time. 

 

 

Show Notes

[02:02] Student Loans Over 50 – We start the conversation with a brief review of Erik’s background, the work he’s doing as a financial planner, and what lead him into specializing in student loans. 

[04:45] Age and Student Loans – The differences between having student loans as a fresh graduate versus having student loans at the age of 50 and how our life priorities in come into play. 

[08:28] Forgiveness – Erik dives into important considerations for student loan forgiveness, including different options, qualification criteria, and taxation. 

[15:12] Accumulating Debt – Common patterns for individuals over 50 with student loans, including Parent Plus loans, post-graduate education, and career changes. 

[22:03] Double Consolidation – Erik explains the process of utilizing consolidation and other strategies to reduce monthly loan payments. 

[29:10] Rehabilitation – The path to rehabilitation and qualifying for forgiveness after your loans have gone to debt collection. 

[34:18] Student Loans Over 50 Playbook – Erik shares his thoughts on what led him to create his eBook and what readers can learn from it. 

[37:11] Recent Developments – Erik shares his take on some of President Joe Biden’s recently proposed loan forgiveness provisions. 

[41:07] Private Loans – The pros and cons to a private refinance, and important things to consider when making this decision. 

 

Resources

Connect with Erik:

LinkedIn: linkedin.com/in/erikkroll
Website & Ebook: studentloansover50.com

Past episodes on Student Loans: 

Episode #34: Why College Is So Expensive & How to Pay For It With Robert Farrington
growmoneybusiness.com/podcast/why-college-is-so-expensive-with-robert-farrington

Episode #90: This is Exactly What to Do With Your Student Loans
growmoneybusiness.com/podcast/this-is-exactly-what-to-do-with-your-student-loans

GMB Ep #90: This is Exactly What to Do With Your Student Loans

 

With roughly 44 million borrowers that collectively owe nearly $1.7 trillion, student loans, the second-highest consumer debt category, has become something that’s pervasive for young people in the United States. We dedicated this episode to exploring some of the ways borrowers can make their student loan repayment manageable. Throughout the episode, Grant dives into how the interest rates and other characteristics vary depending on the lender, repayment options, income-based repayment, federal student loan forgiveness, and more. Stay tuned until the end of the episode, where Grant shares some strategies to reduce your monthly payments by suppressing your adjusted gross income.

 

 

Show Notes

[01:43] Background – The pervasive nature of the U.S. student loan programs and why they have become pervasive.

[05:10] Who Lent You the Money – Grant explains how the interest rates and repayment options may vary depending on the institution that is underwriting a student loan.

[07:38] Repayment & Refinancing – Once students have graduated and their forbearance period has finished, it’s time to paying back the student loans. Grant explores some of the options available for students at this point and how to decide whether to refinance with a private lender.

[10:19] Staying in the Federal System – Although it might make sense in some cases to refinance with a private lender, staying in the federal system has its own benefits. We talk about what these benefits are and how students can take advantage of staying in the federal system.

[13:07] Income-based Repayment – How the income-based repayment programs work, requirements for eligibility, and how they help people make their monthly payments manageable.

[18:13] Forgiveness – One of the features in income based-repayment is being able to get your debt forgiven after a certain number of years. Grant dives deep into how debt forgiveness works, how taxation comes into play at the point when the debt is forgiven, and what to consider when deciding whether to pursue forgiveness.

[22:32] Administrative Forbearance – As a part of the stimulus package introduced under the CARES Act, an additional forbearance period was introduced for student loans. Grant shares his thoughts on how to take this into consideration when making decisions about student loan repayment.

[27:15] Strategy for the Federal System – Grant shares some strategies for those who are in the federal system to make loan payments manageable by suppressing their adjusted gross income.

 

Resources

Episode #34: Why College Is So Expensive & How to Pay For It With Robert Farrington:

https://podcasts.google.com/feed/aHR0cHM6Ly9ncm93bW9

Episode 48: The Three Golden Rules of Investing

Episode #47: Mailbag! What Grant is Doing With His Kids’ 529 Plans, Spousal vs. Survivor Social Security Benefits, and Whether Value is Dead

This week on the Grow Money Business podcast we have another mailbag episode. Grant covers four questions from our listeners about Social Security benefits, the future of value investing, distribution strategies for retirement, and saving for your kids’ higher education.

If you have more questions you’d like us to cover, visit growmoneybusiness.com, and drop your questions in the Mailbag section. Grant will answer your questions in a future episode.

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Paying for College With Your 401k: Can You? Should You?

Paying for College With Your 401k: Can You? Should You?

Believe it or not, we’re already in “back to school” season.  And to continue our recent series of posts on paying for college, today’s covers a question I’m sure will resonate with many readers:

Should you raid your 401k to pay for your kids’ college?

There are a lot of moving parts to this question.  First, can you even get money out of your 401k to pay for college costs?  Are there early withdrawal penalties for doing so?  And aside from the logistics, is it even a good idea to?  This post will cover whether it’s possible…and whether you should.

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Using a Roth IRA for College Savings: What You Need to Know

Using a Roth IRA for College Savings: What You Need to Know

If you’re in a position to put some money away for your childrens’ future college costs, a 529 plan is typically the most popular home for your savings.  There are some tax advantages, you could get a deduction on your state’s income taxes, and heck, the accounts were created for college savings.  But the knock on 529 plans is that they can be inflexible.  Take money out for anything other than qualified educational expenses and you’re probably looking at a 10% penalty on the account’s earnings.

As an alternative, some people prefer to use a Roth IRA for college savings instead.  You get great tax benefits, and many people don’t realize that you can withdraw funds before retirement age penalty free if they’re used for qualified educational expenses.  So given the limitations of 529 plans, are Roth IRAs really a superior vehicle for college savings?

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College Tuition Tax Credit: A Consolation Prize to Big Tuition Bills

College Tuition Tax Credit: A Consolation Prize to Big Tuition Bills

If you’re a parent, I’m guessing that at some point you’ve freaked out thought about the cost of your child’s future college tuition.  College costs are rising about 7% per year here in the U.S., and don’t look to be slowing down any time soon.  Most conventional advice we hear about ways to afford college costs has to do with starting to save early, or scouring the earth for potential scholarships.  What many of us forget is that we already have saving opportunities build into our tax code, in the form of a college tuition tax credit.

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How to Afford Rising College Tuition Costs

In general I’m a pretty big nerd when it comes to all things financial.  I love a good spreadsheet, and really enjoy analyzing a solid set of statistics.

Since I do a lot of this in my day job, it’s rare for me to be truly surprised by individual statistics.  But I came across a few recently that really boggled my mind, and they all have to do with college planning:

  • Student loan debt in the U.S. has increased 510% over the last 10 years
  • Across the country, we’re taking on $2,701 in student loan debt every second
  • 16% of student loan borrowers are currently in default, and another 27% are either delinquent or in postponement

These are some pretty astounding numbers.  You may have already heard that tuition costs are going up 7% each year, or that as a country we now have more student loan debt than we do credit card debt.  But a 510% increase over ten years is astronomical.

Since saving for & affording college is relevant to the majority of parents, I thought it’d make a great post on the blog.  So, today’s post covers affording college & need based financial aid.

To get to the bottom of the issue, I’d like to welcome Melissa Ellis to the blog.  Melissa is the founder of Sapphire Wealth Planning, a CERTIFIED FINANCIAL PLANNER, and a subject matter expert when it comes to education planning.

Welcome Melissa!

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Saving for College: 529 Plans vs. Everything Else

Saving for College: 529 Plans vs. Everything Else

If you’re a parent or a grandparent, chances are that at some point you’ve woken up in a cold sweat thinking about college tuition costs.  College tuition is rising 6-7% every single year, and given the astronomical amount of student debt that current grads are facing, it’s enough to make you shiver.

As you may know, my wife and I now have a beautiful baby boy at home.  As I write this he’s about six months old.  And given that I’m a total financial nerd, I’ve been spending some time recently thinking about how best to save for his college tuition costs.  Popular opinion will tell you that 529 plans are by default the best choice for this purpose.  But since to date all my posts on college costs have to do with student loans, I figured it was high time to cover the “other” end of the equation: saving for college before incurring any debt.

So today we’ll review the most common types of college savings accounts, and try to determine whether 529 plans are really your best choice.  As you compare and contrast college savings vehicles on your own, be sure to incorporate how financial aid plays into the equation.  Financial aid is awarded based on both you and your kids’ income and assets.  Savings in some types of the accounts we’ll cover are included on the FAFSA (Free Application for Federal Student Aid) form, while others are excluded.

Students that have more assets to their own name won’t end up receiving as much financial aid as those who don’t.  Every school operates a little differently, but if they think your kid is independently wealthy rest assured they won’t receive any financial aid.  Your income and assets count as well, just to a far lesser degree.

Here’s the rundown.

 

529 Plans

529 accounts have been around for quite a while, but became really popular after the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).  The EGTRRA of 2001 expanded the tax benefits from the account, by exempting qualified distributions from income tax.

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Wiping the Slate Clean: The Ins & Outs of Student Loan Discharge

Wiping the Slate Clean: The Ins & Outs of Student Loan Discharge

One of the murkier areas of student loans is the various ways you can get rid of them without actually paying them back.  As you might know, there are pretty helpful forgiveness options in the federal student loan system.  But what about getting your loans discharged in other extenuating circumstances?  Can you shed your loans by declaring bankruptcy?  What if you become disabled?

This post will cover the lesser known “out-clauses” (also known as dischargeability) for both federal and private student loans.

 

Federal Student Loans

You may have heard before that the federal student loan system is actually quite accommodative to borrowers.  This is true.  The federal student loan system has several different repayment options to make life easier on borrowers, like extended repayment periods and income driven repayment schemes.  But on top of the various repayment options, the federal system gives borrowers a good number of “outs” where your debts will be erased under certain conditions.  This includes both forgiveness, like PSLF, and dischargeability, if you were to become disabled or die.

Here’s the breakdown:

Wiping the Slate Clean: The Ins & Outs of Student Loan Discharge

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The Doctor's Handbook on Student Loan Forgiveness

The Doctor’s Handbook on Student Loan Forgiveness

It’s no secret that most doctors graduate from medical school with mountains of student loan debt.  $183,000 on average in fact, according to the AAMC.  And while its easy to assume that you’ll make plenty of money to repay student loans once you become an attending physician, there are many forgiveness and repayment assistance options available to help.

This handbook is a comprehensive review of student loan forgiveness options available to doctors.  Even if you expect to have the capacity to repay your loans, forgiveness and repayment assistance can help you get there faster, with less pressure on your bank account.

 

Public Service Loan Forgiveness

Many doctors these days are pursuing public service loan forgiveness (PSLF).  And for good reason.  By working at a qualified employer for 10 years, PSLF forgives your federal loans – tax free.  Only federal direct loans qualify for PSLF though.  FFEL, Perkins, and private loans do not.  For this reason, if you’re considering PSLF make sure you consolidate any FFEL or Perkins loans right after you graduate, since federal consolidation loans do qualify for the program.  Private loans are simply not an option.

The common misconception about PSLF is that it only applies to teachers or social workers.  It’s actually far wider reaching, and depends only on who you work for – not what type of work you do.  You can qualify for PSLF by working full time (at least 30 hours per week) at:

  • Any government organization at the federal, state, or local level
  • Non-profit organizations that qualify for tax exempt treatment under 501(c)(3)
  • Other types of non-profit organizations that provide certain types of public services

For doctors, this means that work in a tax-exempt hospital or medical school will likely qualify.  To find out, you can submit an Employment Certification Form with the Department of Education.  Rather than working for ten years and hoping your employment qualifies for forgiveness, the DoE will verify your status with this form.  The form requires the signature of someone  familiar with your service record.  Since tracking down the signatures of old bosses can be a major pain, best practices are to submit it every few years or whenever you change employers.

Technically you’ll need to make 120 qualifying monthly payments while working at a qualified employer in order to receive PSLF.  A qualifying payment is one made under an income driven repayment plan.  The standard 10-year repayment option does qualify for PSLF, but after making 120 payments there wouldn’t be anything left to forgive.

If you’re interested in PSLF, run the numbers on the various income driven repayment options and find the one where you pay the very least out of pocket over the next ten years.  Once you make the 120 qualifying payments, you’ll need to submit a an official PSLF application in order to receive forgiveness.

 

The Doctor’s Loophole

The combination of PSLF and several of the income driven repayment options creates a nice “loophole” for doctors. Pay As You Earn (PAYE) and Income Based Repayment (IBR) calculate your minimum monthly payments based on a percentage of your discretionary income.  Residents earning around $55,000 per year with $183,000 in debt from med school certainly qualify.

The catch with PAYE and IBR is that there’s cap on monthly payments.  Even though your income will jump significantly as an attending, your monthly payments will never be more than what they would have been under the standard 10-year repayment plan when you entered the program.

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