Episode 72: How To Handle Student Loans Between Now And 2021

This week, I am going to talk about a topic that I haven’t yet talked about, but is very popular today. I am going to be discussing student loans, and the important things that people need to consider as we enter a new presidential term. At the time of recording, the president has not yet been chosen, so this conversation is relatable no matter who wins.

Justin (00:49):
And I have benefited immensely from it. I’m not sure how it’s going to work in the virtual space, but I did register. I’m really excited. And maybe I’ll see you there in a virtual meeting in a couple of weeks, some of the past guests, even of the show that I’ve met have been incredibly generous with their expertise, dr. Nirmal, Abraham, dr. Gary Schwartz, dr. Jay rider and others. I first interacted with Asmara so highly recommend that you check that out. As far as today’s discussion, we’re going to be talking about student loans. I was going to dive into the tax implications of the election, but before I do a deep dive on taxes, I want to make sure we know who the president is going to be. So today we’re going to talk about student loans and other sort of financial implications of our new president.

Justin (01:34):
If there is a new one is going to come, hopefully in the coming weeks, it’s hard to believe that I’ve gotten 70 plus episodes into this podcast without doing a topic on student loans and, and talking meaningfully about this student loans are a very important topic to me as we’re dealing with them in my own family, with my wife’s med school loans. In addition, I’ve talked to two people in the last probably 16 hours whose student loan debt exceeded half a million dollars. And for whom it was just a massive mental load that they were having to deal with as they’re becoming attendings and transitioning and practice. There’s this statistic out there that says the average med school debt is something like 180, $190,000. And my experience is, has been that it’s quite, bi-modal many physicians I talk to, well, I should say some physicians don’t have any loans, either.

Justin (02:28):
They second career as in medicine where they had some, you know, family money or something like that, or they owe three, 400,000 or more. So for a huge swath, it’s a really massive issue. And we’re going to talk about some of the unique strategies and things to be aware of right now as we’re coming up on year end coming up on the end of coronavirus, forbearance and all that. But before diving into that and into the nitty gritty there, I wanted to share a podcast I recently listened to which is it’s an interview that Tim Ferris did with Seth Godin. I really appreciate Tim Ferris long form interviews. And I like how he draws out the people whom he speaks with and get you really get a flavor for what makes those people tick. And I, and I really like it for that reason.

Justin (03:16):
But in this interview with Seth Godin, who is a entrepreneur author has done a lot of very diverse things. He now has like a virtual MBA course, that’s not accredited, but it’s for people who you know, are either creators, business people, others who have you know, artists or who have their own dream that they’re trying to express in their life. But Seth has this powerful idea. It’s in some ways what I would call truth with a capital T we’re not merely talking about a fact that he observes, but a principle that is fundamental in different domains of life and can be applied in different places. One of these things that once you learn it, you see it everywhere and you can’t unsee it. And, and this principle that he describes is about working with generosity, doing the work that you do, your vocation, the stuff you do every day to serve humanity, to do it with a spirit of generosity.

Justin (04:14):
And this has like a technical definition for Seth. And he talks about when you work with generosity, it unlocks the joy of work because you’re doing it specifically as being emotionally invested in others, caring about the outcome, carrying them, caring about other’s, well-being caring about the specific challenges that they face and wanting to throw your weight behind helping others to address those challenges, whether you’re solving a medical issue, whether you’re painting someone’s house, whatever it is, you can work with generosity. And that has a way of unlocking the joy of your vocation. This is something that really resonated deeply with me and an idea that I really loved and certainly tried to cultivate in my own you know, financial planning practice, as well as with this podcast physicians, obviously more than many others, physicians have an opportunity to work with generosity. I would say to a unique extent.

Justin (05:09):
That’s why one of the reasons I feel so lucky to work with this group of people is because of the inherent investment in others, that physicians so frequently just have as part of their DNA. But the reason I bring up this story about the importance of working with generosity about really being emotionally invested about caring about others and letting that bleed into your work brings it all the way back to student loans and someone who has been formative in my understanding of, and exposure to student loans, Travis Hornsby. And I want to just talk about Travis for a minute. And his expertise in this area, Travis is a friend of mine, formerly from Philadelphia. Well, it used to be from Florida. I think now he lives in the Midwest. He’s also a physician spouse. He’s also like a mathematical savant, I would say, and money nerd, which is probably why we get along so well, starting a few years ago, Travis saw that his situation with his wife, student loans for med school, as he was trying to solve this problem, not only was it challenging and there wasn’t good information out there, but it was a common problem.

Justin (06:15):
And a lot of his friends and his wife’s peers had this same issue. It was part of a broader epidemic with many causes. But one of the effects is that we have a massively indebted cohort of professionals with physicians being near the top of that list. That starts off hundreds of thousands in the whole, in many cases, in addition to obviously taking a decade potentially to pursue training and, and advanced skills. Anyway if I was a betting man, I would say that it’s possible. There was no person in America that has labored with greater perseverance and has developed a preeminent expertise in student loans and who has done such an excellent job of taking that specialized knowledge that Travis has and creating an invaluable compendium of resources for student loan borrowers, then Travis Hornsby. And I consider myself as a friend of his as well as a a little bit of a co-worker super lucky that for the past couple of years, I’ve been able to do student loan consulting with his company, student loan planner, student loan, planner.com.

Justin (07:19):
And I’ve had the chance to do, in addition to doing a many hundreds of student loan analyses there, I’ve gotten to have many conversations with Travis about what he thinks, what he sees, what he expects with regards to how student loan is going to develop in the coming days and the impact to student loan borrowers, many of whom are in this audience. So I am very grateful for Travis and, and his work of generosity in doing a lot more than trying to build a business around helping people solve student loans. But the way that he works at it is clearly with emotional investment and with an empathy and with a drive and a mission that transcends him just running his company, which is an excellent company by the way. But I’ve been a huge beneficiary and I know countless others have as well.

Justin (08:14):
So shout out to Travis, Travis, if you’re listening, you can turn it off now because I’m just going to talk about a bunch of things that you already know. But before I dive into the meat of the student loan conversation, one other tidbit from this podcast, I mentioned with Seth Godin, he takes this traditional life question and turns it on its head, as it relates to thinking about endeavor and vocation. And I think in, so doing, he makes it much more impactful. He takes this question. What would you attempt to do? If you knew you wouldn’t fail, which is great. It’s aspirational. You’ve probably heard that before. And he turns it around and he says, what would you attempt to do? If you knew that you would fail? And I love this reframing because it takes the meaning and it, it forces you to evaluate the worth of the endeavor and the worth of the effort and enjoying the journey for the journey itself, rather than a destination that you may or may not get to.

Justin (09:10):
And I know Travis well enough to know that this is precisely how he would answer this question is trying to help student loan. Borrowers is worth it. Even if whatever dream I have about an ideal future, doesn’t come to fruition. The impact in people’s lives is real and actual and meaningful and awesome. And I feel precisely the same way about what I do and equipping and empowering anesthesiologists and pain management physicians in key areas. So something to think about for yourself, you know, what would you attempt to do if in failing to do whatever you’re trying to achieve, you could still step back and say that was worth it. That was worth the sacrifice, the perseverance, the effort, even though my dreams didn’t come to fruition in the way that I wanted. So let’s talk about student loans without lengthy aside. What do we know right now, even though the election, as of the date of this recording is still hanging in the balance.

Justin (10:04):
Friday, November 6th at 11:00 AM Eastern Democrats have had very borrower friendly policy proposals. We can think all the way back to when the presidential race was just ramping up. And some of the proposals coming from the then nominee hopefuls were very favorable. Everything from, you know, feeling the burn carte blanche, forgiveness for everyone to more moderate versions of that with Senator Warren and others. We do know that Democrats have been very interested in trying to help borrowers with their student loan debt and trying to make forgiveness more and more accessible specifically. As of the time of this recording again, Joe Biden is looking like the favorite. Travis did an excellent write-up about Biden’s student loan proposal, which we’ll link to in the show notes. I’m not going to go over the whole thing, but would encourage you to check it out. If you’re curious about some of the things that Joe Biden’s been thinking about with regards to student loans, specifically a couple high sort of highlights would include expanding PSLF accessibility.

Justin (11:10):
So as many of you probably know right now to get PSLF, you’ve got to work 10 years and a qualifying institution beyond a qualifying payment plan. You need to certify your employment annually to say, I hereby solemnly swear I’m working for the right type of company. And then you got to send that to your servicer. And you got to rinse and repeat for for 10 years, 120 cumulative payments. At which time you get tax-free forgiveness of whatever balance remains for physicians. This can be a good deal, especially if you have extended training residency plus fellowship plus fellowship. You know, if you’re an anesthesia for your residency, and if you sub-specialized further, you might be five or six years into a payment plan, making smaller payments based on your resident salary, before you have to start making those higher payments based on the attending salary.

Justin (11:55):
So PSLF in those instances can be immensely valuable right now, you’ve got to be 10 years in, in order to get any benefit, any type of forgiveness. One of the things that Joe Biden has proposed is do like a five and five do a, you know, you get half forgiven after five years and the other half after 10 years. So that it’s, you know, you don’t have to, it’s not an all or nothing proposition. You could conceivably do fellowship after an anesthesia residency and then be at your five years and then get half your loans drop off and then go into private practice and be in a very different situation with a lot more flexibility. So that’s one thing that has been bandied about as well as automatic enrollment for qualifying employees. So there’s not the, this problem that people have had of, Oh, I didn’t know how to enroll or that I should have if I, if my employment qualifies.

Justin (12:47):
And there’s other changes that will be haggled over if Republicans end up controlling the Senate, it’s gonna be a lot of hammering things out and bargaining and all that check out Travis, his article for full detail there. It, it is an unprecedented really interesting time in student loans, not only because of the, you know, the changing administration potentially changing dynamic of our congressional houses potentially, but also because of the you know, coronavirus and a growing, I’ll say a growing congressional awareness of the, the, the epidemic that student loans represents financially for a huge cohort people in our country. At the current time, with regards to the coronavirus question specifically at the current time, it looks like interest is going to kick back in, in January. Travis thinks this is likely. So I basically just tell Travis to, I asked Travis what he thinks.

Justin (13:40):
And then that’s what I think is usually the best approach when it comes to student loans, the cares act, which was implemented on March 13th of this year or, or I should say cares act a little bit later, Donald Trump through executive order on March 13th, suspended all interest on student loans, suspended, all required payments through the end of September. Congress, then extended that through the end of the year. At the current time, if you have federal direct loans and some FFL loans, you have no interest accruing. You have no payments due until December 30. First of 2020 Congress has been going around and around on, should there be more stimulus, more helicopter money to help Americans? Should we do some sort of like you know, another round of paycheck, protection plan type of bailout or something to try to keep people economically afloat. It’s looking more and more like that may not happen before year end.

Justin (14:32):
Student loans could have been a part of that extension, but now that we’re post-election now that nothing has gotten done on that front, it’s looking more and more likely that interest may kick back in and payments may resume starting in in January of 2021. So what does this mean for student loan borrowers? What should you be doing and thinking right now, a couple of things to be aware of, first of all, this entire time from middle of March to the end of December, as part of the cares act the the this time it does count for PSLF meaning it doesn’t matter who you work for, or whether or not you’ve certified at this point, this, this timeframe you’re going to get nine months of PSLF credit, right? Whether or not you have a job or experiencing other difficulties. So that’s one thing to be aware of right now, if you have private loans, private student loans, that means not with the federal government, but rather sofa, credible earnest land, key Laurel road, or one of these other banks.

Justin (15:35):
Then your situation is different interest rates right now, we’re at an all time low. I mean, we’ve been saying this for a while because they’ve continued to basically bounce along the bottom of the potential interest rate range. But right now, if you have private loans this is the time to consider refinancing again. If, if you haven’t done it recently there’s generally no cost to refinance student loans. It’s not like a mortgage where you’ve got to pay a few thousand in closing costs with student loans. There’s, there’s no cost. So if you can improve even, you know, a small amount on your interest rate, it’s generally worth it. In addition, there’s sometimes what I would call reverse closing costs, which is you’ll get a cash back bonus in order to refinance your loans, which is almost always worth it. As long as you can, again, improve your interest rate.

Justin (16:24):
I think there’s actually some kind of deal through the ASA with sofa, where you get a 25 basis point reduction. See if we can find that link and drop it in the show notes. There’s plenty of other places where, you know, if you shop around would encourage you to shop around so you can get you the best rate. See if some companies are offering cash back refinancing deals. That’s definitely worth looking into to see if, if you have private student loans to see if you can further reduce the the interest rate on those loans. If you have federal direct loans right now, this is your sort of in the most interesting position with the most optionality. Right now, if you have federal direct loans, you’ve got $0 interest or $0 payments and zero interest through the end of the year that may get extended.

Justin (17:07):
It may not. But what that means is there’s no sense in refinancing right now. Why would you go from a 0% loan to a 4% loan? If you can just keep the zero. Right. so right now there’s you know, it’s, it’s important to realize down the line. It may, it may make more sense to consider refinancing in the future, especially if you’re not interested in PSLF, if you’re not interested in forgiveness, you want to just aggressively pay off your loans and you want to lower the interest rate while you’re doing it, then definitely refinancing is worth considering right now, if you have federal direct loans, there’s just so many variables, not only with what Congress might do with and cares act 2.0, but you know, if Joe Biden gets elected or even if he doesn’t and Congress has some sort of bi-partisan you know, bill to address and perhaps simplify the student loan landscape in a borrower or friendly way, then you will be a primary beneficiary of any future loan changes there’s been.

Justin (18:12):
I don’t remember seeing a proposal that got any kind of traction that wasn’t better for existing borrowers right now. So if basically, if anything changes, if anything happens, you’re going to be better off. If you have direct loans, if you refinance, even if you do it in, you know, January and February, I can actually make a case that maybe you should wait a little longer or wait until, you know, if there is a switch in administration, wait till Biden build some momentum and see if there’s any student loan legislation action. Because if there is, you’re probably going to benefit if you refinance, then you probably won’t benefit because whatever the department of ed or the fed does, or, you know, whatever plan they put together, they’re not going to be able to, you know, touch your loans if they’re with sofa at that point.

Justin (19:01):
If you have a mix of direct and FFL loans, that’s federal family education loan. That’s like the older version of the direct loan. Somebody who went to med school and Oh six Oh seven Oh eight, maybe has some FFL loans, it gets more complicated. So I would just encourage you to make sure that you have a plan, make sure that you’re enacting that plan on purpose. If you have any specific questions, I’m glad to be a resource for you. Obviously Travis has blog, student loan, planner.com is amazing. You’ll probably get everything you could possibly need there. And then, you know, again at a high level, you want to make sure that if, and when you enter repayment in January with your student loans, that you have a plan in general, it makes sense to do one of two things. If you’re going for forgiveness, whether it’s PSLF or longer-term taxable forgiveness, usually taxable forgiveness, I’ve never seen it makes sense for an anesthesia, for an anesthesiologist or pain management physician because they, their earnings is significant when they become attendings.

Justin (20:04):
And generally it makes sense to just pay off the debt. But if there is a, you know, a PSLF opportunity and you say, yes, PSLF is the best thing for me, what you want to do is make sure you pick the payment plan, the lowest possible payment proactively reduce your AGI by maxing out a 403 B or four 57, or HSA, or any other types of tax advantaged accounts, and then make the smallest payments. You can pay the least to the government as possible. That’s probably no surprise. You want to pay the least possible and get the biggest forgiveness benefit possible. That’s how you max the benefit of PSLF. On the other hand, if you’re going to go for full repayment, which is basically everyone else, then you want to reduce rate probably by refinancing and just aggressively pay down your debt as quickly as possible.

Justin (20:53):
Those are essentially the two pure economic paths that you might take now in the real world. Sometimes, sometimes you might jump back and forth between them, depending on how your career unfolds. And that is a more nuanced discussion, but this is a perfect time to say, like, do I know, am I going for PSLF? Yes or no? Am I going for full repayment? Yes or no. And if so, what is my plan to get there in an optimal fashion? So that’s definitely something to keep in mind. I just did a PSLF analysis for a physician literally this morning that resulted in a net savings versus the full repayment option of about $170,000 over five years, for someone who just did plan to stay in academics. That means they’re going to get, you know, hundreds of thousands of tax-free forgiveness. And the savings of that approach above and beyond full repayment was about 170 grand.

Justin (21:48):
So the stakes are pretty high. It’s easily a big six-figure number in many cases. So thoughtfully approaching this question is certainly worthwhile, and here’s one other final consideration. This is not a time in my opinion, to close doors or to burn bridges. If there are any changes in the next year, they’re likely going to help you. So refinancing federal loans, unless you have a really specific reason is probably a bad idea, consolidating your loans. If you don’t have a specific plan and a specific reason, maybe a bad idea especially if you’re already have been in practice for a few years, switching from an uncapped, from a capped plan, like income-based repayment or pay as you earn to an uncapped plan like repay. If you don’t know why is probably a bad idea. So here’s the point do what you’re doing on purpose. If you’re not sure get some help student loan planner.com, you can also email me Justin at anesthesia success.

Justin (22:49):
I’d be glad to be a sounding board for any questions that you have. There’s a few, I’ll call them the big rocks of financial health with physicians. And generally it’s like the contract you sign slash the practice that you make, that you’re operating in. It’s your housing and it’s your student loans. Those are the big three. If you knock it out of the park on all three, then you’re going to be well on your way to financial independence. If you’re a physician and you mess up on one of those, or maybe even two of those, usually as long as you catch it early enough, you can still do very well just because you’re going to have a healthy income, but student loans are definitely part of this sort of the foundation of financial health. So this is a perfect time. Reevaluate. Do I have a plan? Yes or no? Do I know what I’m doing? Do I need more information? And yeah. That’s

Justin (23:58):
And that’s all I got for this week. So as always, thank you for tuning in, it’s been a pleasure speaking with you today and hope everybody stays safe out there. And maybe by the time you hear my voice we’ll know who the president’s going to be. Have a great week.