The issue today is that there seem to be so many conflicting stories and so much misinformation about student loans, people have become frustrated.
Student loans are a major problem for most of our listeners and the nation. Not only are they unaffordable but they are also dragging down all consumers with higher prices, and they have created a large number of borrowers who have no choice but to stay in limbo, not knowing whether to pay their loans or how to do so when penalties and other roadblocks are built into the system.
People just want to know how they can know what their options are without being scammed or sold something.
Today we talk about the student loan limbo and ways to get out of it.
Transcript
Steve Rhode: [00:00:00] You’re listening to the, get out debt guy show we’re back again. This is Steve Rhode. The get out of debt guy and Damon day, DamonDay.com. Damon, do you have a moniker today? The other day you were pinch a
[00:00:14] Damon Day: [00:00:14] I don’t. I was creative right now. It just says Damon; I didn’t even put my last name.
[00:00:19]Steve Rhode: [00:00:19] It’s that kind of day just,
[00:00:21]Damon Day: [00:00:21] Yeah. I can go by.
[00:00:22] Steve Rhode: [00:00:23] yeah. Listeners of the podcast can’t see that you’re wearing a shirt that says, dad, I’m actually wearing one that says twin peaks police. It was a good show, a fine piece of pie. Today, you are picking the topics, which is like a birthday present for me. So Damon, what
[00:00:42] is on your mind?
[00:00:44]Damon Day: [00:00:44] Yeah, I did. And I spent several hours. If it makes you feel better last night, trying to find the topic because I was not wanting to always talk about student loans and debt, elimination stuff, and debt settlement. I just wanted to do something that was different than the typical topics that we do.
[00:01:02] So I spent hours searching. For the perfect subject to talk about today. And after all those long agonizing hours, I picked one.
[00:01:12] Steve Rhode: [00:01:12] Okay.
[00:01:13] Damon Day: [00:01:13] and what I picked was student F in loans,
[00:01:18] Steve Rhode: [00:01:18] my
[00:01:18] God. It is a hot topic, and it’s very nuanced. So there the lots of different niches and variations on the subject. So what part of student loans attracted you after hours of searching?
[00:01:31]Damon Day: [00:01:31] It was hours of surfing for something money-related, but different than the typical stuff. But the reason I ended up on this topic was because I actually did a consult yesterday, and I had some clients that were confused and just wanted some direction. And it really is something I think a lot of people could get some value out of, which is what the hell to do with federal student loans.
[00:01:54] Right now there’s so much. Crap going on. There’s so much this information, we’ve got this moratorium on student loans that may get extended, may not get extended. We’ve got every single politician talking about forgiveness, not forgiveness, this much forgiveness, that much forgiveness.
[00:02:12] We’ve got other politicians talking about bankruptcy reform and letting people go bankrupt.
[00:02:17]Steve Rhode: [00:02:17] There’s one more piece of that we need to stick in. We need to
[00:02:21] add in that there are also all those government programs that promise all sorts of things that don’t work either. So I think your point is what can people count on?
[00:02:32]Damon Day: [00:02:32] That’d be a short show if we tell them what they can count on that the government’s providing right now. But I think the point of the whole show is there any hope I think we can, maybe you between you and I, we can try to make some predictions and give people at least something. That they can do if they have federal student loans right now and try to help them navigate all these different things that are swirling around.
[00:02:57] Steve Rhode: [00:02:57] Okay. All right. Yeah. Even trying, just to predict. Something as simple as I want to lower my payment on federal student loans the answer seems to be obvious, like an income-driven repayment plan, but then the answer is not obvious because while your payment is lower, your balance is going up. So there’s no perfect magic wand solution.
[00:03:20]Damon Day: [00:03:20] Yeah. And then people can say I don’t want my balance to go up, but then you have to take a step back even further. And we have to first figure out well, overall, what is your strategy? The payment is not a strategy a payment is part of a strategy. And if your strategy is to cross your fingers and hope the federal government eventually forgives your debt, either on a public service loan, forgiveness, or an IBR or something like that, then it might not be a huge deal.
[00:03:44] If your balance goes up, except for there’s a potential tax liability at the end of that rainbow.
[00:03:50] Steve Rhode: [00:03:50] Yeah.
[00:03:51] and the loans might not be forgiven at all. And the funny thing here is that the best way to repay your student loans in the fastest time and pay the least amount of interest overall is the standard 10 year payment plan. If you want to pay for 10 years, it will be done in 10
[00:04:10] years and you’ll pay the least amount of interest, everything outside of that. I’m afraid to say it’s pretty much a gimmick. And you’re talking about people being in limbo and not knowing what to do. I, Hey, I agree with your clients. I agree with you. It to quote myself from the other day, it’s a dumpster fire.
[00:04:29]Damon Day: [00:04:29] But, and that’s good advice for somebody that’s thinking about going into college. These are things to think about when you’re trying to decide how much you’re willing to invest to get whatever degree you’re going for, but for somebody that’s already graduated or worse yet hasn’t graduated, but is done with college and still has the debt.
[00:04:46]It’s easy to say. It’s the best-case scenario is just, pay it off on the ten-year program and just be done with it. But if you’re, can’t find a job in your field and you owe $200,000 in federal loans and you’re making $35,000 a year. You can’t just say I’ll get on the ten-year program.
[00:05:01] That’s the smartest option, right? So you get, they get trapped in these different programs and then they start getting all these phone calls from these debt relief companies and they’re promising low payments. And the whole thing is just a mess. So I say, we start with the thing that I think is front and center right now, which is the federal government going to extend the COVID forbearances.
[00:05:24]Federal student loan payments that currently are set to expire at the end of September.
[00:05:29]Steve Rhode: [00:05:29] My prediction is maybe,
[00:05:33] Damon Day: [00:05:33] How very Nostradamian of you.
[00:05:36]Steve Rhode: [00:05:36] The most logical answer is yeah, they’re just going to,
[00:05:39] Damon Day: [00:05:39] actually, that, that is about as a straightforward prediction is Nostradamus is predictions where if you’ve ever looked into any of his predictions and it’s like Nostradamus predicted dah, and then you look at what was actually said, and they call it a quad train or whatever. And it’s that’s not actually what he said.
[00:05:55]You could really interpret that any way you want, but I think that’s a great prediction. Maybe
[00:06:01] Steve Rhode: [00:06:01] Maybe
[00:06:01] Damon Day: [00:06:01] we’re done. Show’s over.
[00:06:03] Steve Rhode: [00:06:03] because the problem is, and this is why it’s such a complex subject because the problem is logical. Doesn’t make a whole lot of sense for student-loan debtors. It’s more of a PR political decision to leave these things on forbearance because you and I have talked again and again, that the biggest problem is not that the loans are on forbearance.
[00:06:26] The biggest problem is people have expanded their budget. They fill the vacuum left by the student loan payments. They’re not making anymore. And what are they going to have to give up or cut when those payments come back to that’s the surprise.
[00:06:44] Damon Day: [00:06:44] Yeah. So I from my prediction for whatever it’s worth, I’ll go on record as saying they are going to extend. forbearance now again, don’t make any plans based on that. Cause that’s not based on any insider information I have. It’s just based on actually what you just said where you were talking about, it’s the easy thing for the politician to do at the moment, right?
[00:07:07] Just. Because then most people are happy. The hard thing to do would be to say, Nope, I’m sorry, we can’t keep this going any longer. We need to start making payments and here’s what we’re going to do to fix it. So I think it’s going to get punted. It’s going to get extended. Cause that’s the easy thing to do.
[00:07:24]And honestly just looking at what’s going on, especially when you. You start looking at what we talked about the other day with fed loan servicing and granite state, basically tapping out and saying, screw this crap. I’m not doing it anymore.
[00:07:35]Just from a logistic standpoint, imagine right.
[00:07:39] About the same time you’ve got at least one major servicer and then one lesser servicer tapping out and that the whole fiasco of the other servicers having to absorb all of those accounts. I’ve read several articles where services have said we’re not ready yet because we are so ramped down on staffing over the last year and a half of not really collecting on these loans that we need to like, really ramp this thing up.
[00:08:04] And then on top of that, you’re going to throw how many millions of
[00:08:07] Steve Rhode: [00:08:07] Actually it’s almost 10 million.
[00:08:09]Damon Day: [00:08:09] So just from a logistic standpoint, How are they going to start those payments? And then at the same time, that’s going to happen. You’re going to get 10 million accounts shifted over, and then you’re going to get millions of people panicking and freaked out when they get their bill in October if you don’t extend it.
[00:08:25]And like you said, their budgets have expanded. They’re not used to paying the $500 a month or whatever it was. They haven’t been setting that money aside because of the other reasons, trying to pay their rent and things like that. And they’re going to be panicked. The servicers who are already going to be overwhelmed, trying to ramp up the staff and they’re going to be calling with, Hey, what are my options?
[00:08:46] What can I do? I can’t afford the $500 payment. So I just think from a logistic standpoint, a the politician’s easy answer is extended B the current administration, really campaigned on, forgiveness and helping people with student
[00:08:59]Steve Rhode: [00:08:59] Some
[00:08:59] Damon Day: [00:08:59] their foot.
[00:09:00] Steve Rhode: [00:09:00] not total forgiveness.
[00:09:02] Damon Day: [00:09:02] but some PR, but forbearance is like an easy backdoor way of forgiving some debt at the moment. You get the feel-good. You get the feel goodness of it.
[00:09:11] Steve Rhode: [00:09:11] Forbearance is like kissing your sister. It doesn’t
[00:09:13] end up with anything legal.
[00:09:15]Damon Day: [00:09:15] I know, but I’m buying, I’m playing devil’s advocate from I’m a politician. I want to make people happy with the least amount of pain and blowback. And so I think just because of the logistical side of things and the fact that it’s an easy thing to do, and I think they’re going to wait till the last minute, just like they did on the.
[00:09:33]Moratorium on the evictions, right? They wait until a couple, which is sucks because, and then you get people in limbo, and then three days before that’s supposed to kick in, they’re like, oh, push it out. So I’m, if I’m abetting man, I’m saying September early September, we’re going to get some kind of a, oh, we’re going to push it out a little bit.
[00:09:51]That’s my prediction could be totally wrong, but that’s my prediction.
[00:09:56] Steve Rhode: [00:09:56] So the other problem here also is as all these accounts get shifted and you have this uncertainty about what’s really going to happen. People are going to be calling their student loan services, as you said, but in the last couple of years, I think one of my favorite quotes from a student loan servicer had to be an ongoing lawsuit against Navient, where they came out and said, Hey, it is not our job to provide good advice. We’re a contract debt collector for the department of education. We have no obligation to provide for people. Factual and accurate advice about what’s best for them. So now we’re all these 10 million people are going to go when their budgets explode and cause eventually whether or not it’s the September or December or January or whatever, eventually these things are going to have to come off forbearance because I see no chance, no snowball chance in hell that all these federal student loans are going to get forgiven.
[00:10:53] And even if they were, that has nothing to do with private students.
[00:10:57]Damon Day: [00:10:57] Oh, yeah. They’re eventually going to have to come off for bears. I’m just arguing the fact that they’re not going to come off in September, where are they going to go? They’re going to go to all these, this mass increase. It seems like the extended car warranty sales outfits have now.
[00:11:12] Slid by the wayside a little bit. And we’re starting to see a lot more federal student loan relief. They just switched gears in the
[00:11:18] Steve Rhode: [00:11:18] Phone calls.
[00:11:19] Damon Day: [00:11:19] calling about your warranty. Last month are now calling you about, this great, what’d you call it Biden student loan forgiveness.
[00:11:25] So what’s going on is you’re going to get the ramp-up all these calls, you’re eligible for forgiveness. So when these people are trying to call their servicer and they can’t even get through or can’t get good advice, it’s going to leave the door wide open for these people that are calling salespeople, leave a message, call us, we’ll fix it.
[00:11:39] That’s where they’re all going to go. And there, they’re just going to start that whole, snowball again, of getting onto these debt relief programs that are just the same programs and, getting their 15 dependents listed on there. And then just keeping the dumpster fire going is all we’re doing here.
[00:11:55]Steve Rhode: [00:11:55] I’d rather see forbearance be extended. I would much rather again if I was a
[00:12:00] betting man, but I’m not I would love to put a bet on the fresh start through bankruptcy act.
[00:12:06] That was it’s a
[00:12:07] bipartisan bill Senator Dick Durbin, Democrat from Illinois, and John Cornyn, a Republican from Texas introduced this new bill that would allow. Student loans to be discharged in bankruptcy now that I would
[00:12:22] like to see there’s a process already in place. There’s an orderly bankruptcy process. There’s a way to deal with these things. And if people are struggling and having problems, they can
[00:12:33] get relief through the bankruptcy process. And are you clicking? Okay.
[00:12:38]Damon Day: [00:12:38] Yeah.
[00:12:39]Steve Rhode: [00:12:39] Damn squishy ball. You play with anything.
[00:12:43]Damon Day: [00:12:43] Yeah, I get fidgety. I get fidgety hands when I’m and I’m always playing with a Rubik’s cube or clicking a pen. And every time we’re done with our shows seems what the hell were you playing with during the show? I can’t edit that out. Are you typing the whole time?
[00:12:59] Killing me smalls. Put your hands flat on the desk.
[00:13:05] Steve Rhode: [00:13:05] All right. Hey, I’m trying to stay to the 15-minute rule. We’ve blown this every time. It’s read 15 minutes. I have to applaud you. Great job. Picking the topic today. I think that was perfect.
[00:13:17]Damon Day: [00:13:17] But we didn’t give any solution.
[00:13:20]Let me just throw this out there because of people that have the loans. So I, and I know we’re blowing the 15 minutes, but. I put people in, in two kinds of broad camps camp, a is the people that are, that they make a decent income and they’re trying to pay the loans back federal loans.
[00:13:34] And then you’ve got, can’t be the people that don’t have enough money to afford their loans. They’re feeling hopeless and they’re on some kind of a government program or need to get on one. And so what I want to the takeaway would be, what the hell do you do right now? We’ve got this forbearance not forbearance whatever my thing would be.
[00:13:49] If you’re in a campaign and you’re trying to pay down these loans, then forget about the forbearance, take advantage of it while it’s there pay as much money as you can. Every month on these loans, it’s 0% interest. It’s all going to the principal. If they extend it, great, keep paying as much as you can.
[00:14:04] If they don’t extend it, it is what it is. And hopefully, you got. A lot paid down in the last 18 months. If you’re in the other camp where you’re currently on like an IBR, you’re going for public service, loan forgiveness, you’re hoping to you’re not in any kind of position right now to really pay these loans off.
[00:14:19] My advice is just to sit tight. There’s, there’s no point making extra payments to a loan that as Steve said, could potentially be dischargeable in bankruptcy. Granted that’s what, how long is that going to take four or five years for that bill to work its way through and actually,
[00:14:32] the biggest thing is if you’re on a program,
[00:14:35] Steve Rhode: [00:14:35] stay on the road.
[00:14:35] Damon Day: [00:14:35] sit tight and see how it plays out and take advantage of the 0%, but don’t make extra payments that you don’t need to.
[00:14:42] Steve Rhode: [00:14:42] And I think you didn’t intend for this to happen, but you brought it around full circle because as I always say, financial problems and worries And concerns are just math problems wrapped in emotion. And so this is why it’s important to talk to somebody like Damon Day because the answer to your student loan problem may not actually be the student loans. It’s become a distraction. You get worried and frustrated and depressed about those. And you get very focused on and want to make that pain go away. But there are a lot of other alternatives things that you can deal with. And you talking it through with Damon is it’s a perfect brainstorming session on other options and possibilities that you haven’t thought about yet.
[00:15:29] Damon Day: [00:15:29] Absolutely.
[00:15:30] And on that we can end it. Cause that is perfect.
[00:15:33]Steve Rhode: [00:15:33] Alright. See ya.
[00:15:35]Damon Day: [00:15:35] Bye.