Money Management Edition
To be successful, you must go to university. Particularly, you must finish a degree from one of the top universities. If you do, you’re secured to land a great job in a prestigious company. Maybe even in Silicon Valley.
These are the myths that we usually believe. We’d land that job that pays an outstanding amount of money. But where would that money go? To pay for the student loan debt that came with our diploma.
According to the recent data from the U.S. Department of Education, about 42.9 million Americans have federal student loans, which means about one in eight Americans carry around student debt. The total outstanding debt is roughly 1.59 trillion dollars.
Not only does it put you behind in your path to financial freedom, but it also has a lot of psychological effects. A person can feel trapped, crushed, and hopeless that they’ll never pay off hundreds of thousands in student loan debt.
For Attorney Joshua Cohen, there is a more smart and effective way to deal with your student loan debt. He was seen in Fox News, Bloomberg TV, and is the author of The Student Loan Lawyer’s Guide to Understand the Student Loans in Plain English.
Today’s episode will be filled with great information to make fresh grads, current students, and their parents understand the best way to deal with student loan debt. With hosts, wealth manager Lee Michael Murphy and career advisor Sergio Patterson, tune in to this week’s episode of The Free Retiree Show.
What You’ll Learn:
- Changing your perspective about student loan debt
- Various options to deal with student loan debt
- Why you need to understand the loan system
[00:00:00] Lee Michael Murphy: Hello. Hello. Welcome in to your favorite podcast. The free retiree show your go-to pockets for all things, career money, where we help you avoid the big mistakes. And we’re we learn from people that have done amazing things. I’m your host wealth manager, Lee, Michael Murphy, and Bennelong SAS. A common value bet.
An interview coach. Sorry, yo Patterson. What is up everyone? Welcome into a money management edition of the free retiree show. For today’s episode, we have a wonderful topic. We’ve had a lot of people request this and we’ll be talking about how to overcome student debt. So Sergio your friends, my friends, family members loved ones, student debt.
What’s your thoughts on this? I mean, it’s terrible.
[00:00:50] Sergio Patterson: Like we came up, we both graduated, I think in like, oh 8 0 7 0 8. Student loans was just a thing you did, right? Like you just got student loans and you just go into this crazy [00:01:00] amount of debt and you’re 18, 19 20. Yeah. I think it’s one of the biggest detriments to people, right?
It literally cripples people’s financial well-being they can never be free. I think it’s just a terrible thing. I think they’re predators, student loans are a nightmare, but I know it’s crippling society, but I’m hoping we can educate the next crop of kids that come up when they don’t need to go into that much debt.
It’s not worth it, but to arm them with the resources, to help them figure out how to, uh, navigate it.
[00:01:29] Lee Michael Murphy: Yeah. So according to the recent data from the U.S. Department of education, about 42.9 million Americans have federal student loans, which means about one in eight Americans carry around student debt.
Total outstanding debt is roughly 1.59 trillion with a T dollars. Maybe you don’t have student debt, but I think we all have someone, we know a friend, a loved one that is getting crushed by students. And not only does it put you [00:02:00] behind the eight ball in terms of your financial picture? It has a lot of psychological effects to Serge.
I don’t know about you, but I know people that have described the, as feeling trapped, crushed, depressed, without hope. It’s bigger than the financial piece. I mean, how have you seen that too? Yeah,
[00:02:18] Sergio Patterson: it’s a good call out. I got some friends who are doctors, you picture doctors being these like super wealthy, rich, and they’re shit’s together.
But then they have like $500,000 in student loans and they’re just like, Dying on the inside. So I think it’s just sad. I know this is Friday. I said, I think we said happy Friday at the beginning, but, uh, it’s tough, man. It needs to be talked about more.
[00:02:39] Lee Michael Murphy: Exactly. So if you ever wondered how to manage student debt, overcome student debt, build wealth despite student debt and had to have your debt forgiveness.
This episode is for you. And we actually, we have some very important news that our guest speaker will talk about. That’s just recently come out that might help people [00:03:00] that have student debt. So you have to tune into this episode. But for our episode, we have one of the best experts on the planet. In terms of student debt, attorney Joshua Cohen, he’s been seen on Fox news, Bloomberg TV.
He also wrote the student loan lawyer’s guide to understand the student loans in plain English. So he’s a phenomenal resource and you guys are going to get a ton out of this episode. So if you haven’t done so yet, make sure you like our show. If you have a question about student debt, you can send it to Joshua Colon or contact us through the free retiree firstname.lastname@example.org.
We kind of take a quick break, but when we’re back, when we’re sitting down with Joshua Cohen, Welcome back into the free retiree show. We’re sitting down with Turney, Joshua Cohen, Joshua. How are you doing this morning?
[00:03:49] Joshua Cohen: I’m doing great. Thank you. Lay yourself.
[00:03:52] Lee Michael Murphy: We’re delighted, man. We have you on here. You’re a world-renowned expert on this topic and a student dead man.
It’s [00:04:00] one of those things that seems to play almost everyone and people feel lost despair, like we were talking about at the beginning, but what would you say to people that feel like they’re trapped with their student debt? And there’s nothing that they
[00:04:12] Joshua Cohen: can do. One you’re wrong. There’s always something that we can do, but really when it comes down to is a change in perspective.
And I’m not saying I want to take your student loan bill and do a lit up with flowers and stuff and make it look better. I’m talking. We really need to think about it. Student debt in a different light. And that all starts when you realize you’ve got options. And obviously it depends. Are we talking a federal student loan or are we talking to a private student loan that vastly changes the landscape?
But there’s always something that can be done. What I love about money in general and the attitude that people have with it is it’s my money. I want to be in control of it. And so when we talk about student debt, it’s how do I put you the borrower in control of both your [00:05:00] wallet and your student loan debt?
I hope you guys liked this analogy.
I compare student loan debt to being on the Titanic. The sucker’s going down, whether you like it or not, and you can have two different ways looking like, oh God, I’m going to die. Which is how the majority of us look at it. Or, you know what? It’s going to take three hours for the boat to sink.
[00:05:21] Joshua Cohen: I’ll sit on a deck chair, I’ll enjoy the view, light brown there. I’m going to head out over to it. And it’s different with federal loans. I actually have a light brown. They’ve got a safety net, private loans. Wow. That’s going to be really cold water, but you know what? You’re not the only person in there.
And hopefully someone’s going to show up and realize we better do something. The thing’s going down. So yes, the Titanic there’s the iceberg, but we can do stuff.
[00:05:51] Sergio Patterson: It’s perspective, right? Like with everything
[00:05:54] Joshua Cohen: that’s exactly. It is perspective. Uh, and I not to quote the eighties, but you know, I’m not just the [00:06:00] president.
I’m a client too.
[00:06:02] Lee Michael Murphy: There you go. I mean, we’ve always been told that there’s nothing you can do when you have student loan debt. It is what it is. It’s not like credit card debt, or you could get rid of it, student loan debt. It’s there forever. It’s going to play you for the rest of your life. So if you did it, when you were young and dumb and racked up all this debt, you’re screwed.
And you’re saying that’s not exactly
[00:06:24] Joshua Cohen: true. It’s absolutely not true. So parsing it out federal versus private federal loans. Options back. We have nine different payment plans. So what actually, what happened with federal loans is we get analysis paralysis. We’re looking at nine plans and we barely know how to use a calculator, especially if you’re a lawyer, why we went to law school.
We don’t know attorney Matt all the way, but really it’s okay. That nine different payment plans you’ve got services that are supposed to help you, FYI. Servicers have no obligation [00:07:00] to help you. Their obligation is to make sure you don’t fall off the ship, fall off the track to make sure you don’t default.
It doesn’t matter how you do that, which is why they’re happy to give you a forbearance bearings when you call them. Hey, I can’t pay. Would you like a forbearance? Okay, fine check. Done. That’s not a long-term solution. So with these nine payment plans, we’ve got four of them that are regular amortization.
Just like when you buy a car, you expect to pay the car off those four. You’ve got either a 10 year term or a 25 year term. And within those, you can do a graduated payment plan where it starts low and steps. So you got a tenure graduated a 25 year graduate. Now the average undergrad graduates with about 32,000, want to know why that’s the most they can have.
Let’s face it. If you’re in a store and they say, take as much as you want. What do you do? You fill up the car. We go to undergrad, we fill up the card. We got 32,000. If you go for [00:08:00] five years, you might get a little bit more, but you got about 30 2030, 2000 payable over 10 years. That’s not so bad. That’s a car loan and luckily cars can’t be financed for 10 years because most of them don’t last 10 years, but you’re alone.
You get 10 years, not a big deal. My undergraduates, not the problem. When you go to grad school and you can borrow 20,000 a year. That means as a lawyer, you’re coming out with 60,000, just for law school. As a doctor, you’re coming out with 80,000, just for that. Plus the 32, you borrowed for undergrad, you’re getting close to six digits.
Now it becomes a problem. Are you going to pay six digits in 10 years? Most of us are not. So then we look at the other five payment plans. They’re called IDR income driven repayment, ready for the five. Why five? Ed likes us to have choices. I have no idea income contingent repayment, which has been around since the nineties.
Most people don’t know that you’ve got income based. [00:09:00] Repayment came out in 2009, you’ve got pay. As you earn it came out under the Obama administration in 2012. Then you’ve got new IVR, which is like new Coke. They couldn’t think of a better name that came out in 2014. It’s only for people that were in school in 2014 or later it’s class of 2018 or later.
So most of us don’t have it. None of us here. And the last one that came out December, 2015 was called repay, revised pay. As you earn almost anyone can have repay. So the point is you’ve got five different plans that are income driven, which means it’s based on your family size. And your adjusted gross income.
Now, if you’re self employed, you know how to control your adjusted gross income with your profit and loss statements with your write-offs with the CPA who does this for a living or a financial counselor. So there are ways to make this all work. The whole point of IDR is it’s always flexible based on where you are.
The [00:10:00] funniest comment I ever heard from a servicer, oh, this person doesn’t make enough money for ideal. No, no, no, no, no, no. That’s backwards. The whole point of IDR is because you don’t make enough to pay an emiratisation. If you’re unemployed, your payment is zero. If your income is small, based on family size, you can have a $0 payment.
So let me ask you this question. How do you default if your payment is zero. Did you forget to send your check for $0? No, it’s because one of the problems with IDR, it has to be renewed every year. And if someone forgets to renew it, boom, you put back on the ten-year plan and now you’re paying them. It’s why a lot of my senior folks.
They didn’t realize they had to renew. They forgot they had to renew something happens. Their seniors are the ones that annoyed me the most.
[00:10:55] Sergio Patterson: I think that’s just like in general, the circumstances
[00:10:58] Joshua Cohen: that they’re in annoyed [00:11:00] me the most. Okay. Most of the seniors that I have are living on social security and I don’t know how one does that.
And now when they default on their loan, the government takes 15% of their social security. What happens when you take 15% away from that? You have even less than nothing. And yet we know that the regular payment is zero. How did these people default? It is indicative of a system that has failed. So, okay.
I want a little tangential there, but the point is nine different payment plans. One of them should work for you.
[00:11:34] Sergio Patterson: Yeah. I was curious, you mentioned the system, right? Like I know your job, right. It’s a good thing. Like you’re in business, you’re helping. In those situations or hiring you as a lawyer, but what about the system that’s been created that has been detrimental to the people?
Like how do we, what are your thoughts on that?
It’s hard to fix a system, but what can we do to help young people? Not did any situations.
[00:11:59] Joshua Cohen: [00:12:00] So it’s one reason I wrote my book and the book had been in planning for a long time. In fact, I wrote it over many, many, many years because I could never sit down to actually write it.
I wrote it during my few plane trips whenever I was teaching a workshop, that’s when I wrote it.
And really the whole idea was student loans really is a DIY system. You should be able to do it yourself. In fact, the department of education on their websites. You don’t need to pay for professional help.
[00:12:16] v2 answer
[00:12:26] Joshua Cohen: Actually, you do. The only reason I exist is because the industry doesn’t do what it’s supposed to do. If it did, I wouldn’t be here. Necessity is the mother of invention. If it worked the way it was supposed to, I wouldn’t be here. Why do we have mechanics? Because the car doesn’t work the way it’s supposed.
Okay. So I’m here. I’m not the only attorney that does this. I’ve trained 400 different attorneys. I keep four 50 now. And there are people all over the U S that do this. So back to your question, I think the biggest thing kind of ironic, but
the biggest thing you need for [00:13:00] education is to be educated. About how student loans work.
[00:13:03] Joshua Cohen: And it’s really the whole point of my book. And so I don’t have you as a client. I really don’t want you as a client. That’s the weirdest thing for a lawyer to say, but no, I really don’t want you as a client. I have enough work. I understand how the student loan system works. Understand the payment plans that I just talked about.
For instance, one thing that is getting bad, press deserved, public service loan forgiveness. The program does work. If you’re paying attention to all of it, the reason why it’s failing. In my opinion is because of the details. Public service loan forgiveness is for anyone that works for a government, be it federal state county town, or any 5 0 1 C3 nonprofit.
And there are thousands of them. As long as you are full time, or you could have two part-time for different companies, average 30 week. [00:14:00] If you do that and you pay your loan on an income driven repayment plan. And it is a direct loan. Get to that in a minute. You do that for 10 years. Anything not paid is forgiven tax free.
Done. That includes all your doctor, friends that work in hospitals. Their residency, their own payroll making 60,000, which for some people is a lot a doctor that’s chunking and their IDR is down on the floor. So take advantage of those for years that you’re doing the residency, finish it out. Do your meatball surgery at a hospital that maybe you don’t like making less money than you would appear in private practice.
But after that 10 year chunk your $300,000 a day. Is gone. Now you can go into private practice with no student loan debt. It works for doctors, nurses. It doesn’t matter what you do. It matters that your employer qualifies. So even the admins at the hospital qualify the custodians, the mail guy, the guys that work in the kitchen, all of them get [00:15:00] public service, loan forgiveness.
So when you talk about how do we avoid this for younger people? What is it that you’re going to college for? That’s a loaded question. I admit, I didn’t know why I was going to college. As far as profession goes. I knew I needed to get out of the town where I was living because I was in Vermont and I knew I wanted to go this way.
What was I going to do? I don’t know, but there are a large swath of students that do know what they want to do, learn how that career trajectory can affect your ability to forgive your loans early. If you’re going to be a public school teacher, 10 years, your loan is done. There should be no question there.
You want to be an administrator at a school that still counts because public school is there’s government. You want to do nonprofit work. You want to be a social worker. I love social workers. They have to, yeah. Masters, which means their loan balance is $150,000 for a $40,000 a year job. It is a thankless job.
I don’t know that, but if you, what you love to [00:16:00] do, and in 10 years, that 150 is forgiven. Doesn’t that make life better to know that there’s a pot of gold at the end of the rainbow, and you’re doing what you love to do. If there’s one thing that I tell people, I understand the student loan stock, no one knows more than I do.
You got to do what you love doing. If you do it just for the money. Now it becomes even worse because now you’re working for the money and you’re never going to pay it off. And you’re on this track. And if you’re not, not doing public service loan, forgiveness, these IDR plans, income driven come with a 20 or 25.
That’s a long time to work, a job that you hate, just so that at age 45 or 50, now you’re done with the loan. You can enjoy what 15 years of work before you retired. That’s how that is not what student loans are for. In fact, I always say we go to school to learn. We took out loans to live. We don’t live to pay the loan.
[00:16:57] Lee Michael Murphy: Yeah,
[00:16:58] Sergio Patterson: Josh love it. Just [00:17:00] thinking back. I think what you’re getting at is that education piece, right? When you’re 1927, whatever 21, like really understand what am I signing up for? I know back when I did it, I had no idea. I just signed the paper and I think that’s what a lot of people do. And I think what you’re saying is like, do some research.
[00:17:20] Joshua Cohen: and no. What you’re signing up for. Right. And this is actually a great segue, whether you meant that or not into private loans versus federal loans. I’m not saying I like any debt and this line of, oh, federal loans, your good debt. What is good debt, unless you’re leveraging it and making interest to pay off the debt.
I’m not getting there. It’s not what I do. Better than private loans, because I talked about those payment plans that are flexible. You can add forgiveness, federal loans, you can get them out of default. If you mess up and it screws up and you get charged off, or it goes, go sour, federal loans by law, you can rescue [00:18:00] it and do that with anything else, except for maybe a mortgage and the whole tarp program, which I’m not anymore.
But you can say to your car, If you’re six months behind in your car, what’s happening, you’re waiting for the repo man. You’re six months behind on your credit card. You’re waiting for a settlement or you’re filing a bankruptcy or you’re just letting it go. Federal loans. Yes. They chase you until you die, but you can resurrect that at any time.
Get onto that income driven repayment plan. Start that 10 20, 25 year clock. I mean, imagine a alone at 15. And you’re a public school teacher. You can still be done with the loan by 60 and still retire. Debt-free that’s a win private loans. Don’t have anything we just talked about. They have two payment plans pay or don’t.
I don’t know how option, but that’s, I mean, that’s a gun to your head, really it’s pay or don’t pay what makes private loans so dangerous are two things. One, they have [00:19:00] bankruptcy protection. If you file a bankruptcy with a private loan, you’re probably not getting it discharged on the spot. There are some case laws I want to bring up in a minute.
Please remind me later. But the vast majority of private loans are not dischargeable unless you fight it. The second problem with private loans is many times because you’re 18, 19 20. When you get the loan, what do they want? A co-signer who’s the co-signer mom or dad. How the hell does mom or dad retire?
And when they got 20, 80, $150,000 co-sign oh, don’t worry. You’re a very smart child. You do well, not everyone does well. And what’s the definition of, well, Okay, without doing math in my head, the payment on an $80,000, private loan is how much over a 10 or even a 20 year amortization at five. If you’re lucky, 5%, I’ve seen people with private loans are 13%.
Oh, wow. Okay. [00:20:00] So you’ve got a co-signer. So you’re bringing your parent down. So even if you land a job at 60 or 70,000, what’s the payment on uneven, a $50,000 loan. That’s a lot. And if the student can’t make the payment, where are they going? They’re going to the cost side or mom or dad and mom guesses, but I’m trying to retire or worse.
I’m already retired. I’m on social security. That’s good. Social security is untouchable or private road, but you’ve got this headache. And what is your credit look like? Cause if they’re not paying it and you’re not paying it, you know how bad credit, but I didn’t even go to school. No, but you signed up.
Here’s the analogy I use for private loans. Okay. This is extreme because of what I see my clients average 75 to $150,000 in student loan debt. On average, I see way more. I see a few, a lot less think about. Okay. So let me paint the picture. When we go to school as a freshmen, we’re given some federal loans, [00:21:00] $5,500.
What does that buy a textbook two textbooks. And you’re given some grants and some work study, and then you have this huge budget and the budget, which is room and board and health insurance, and transportation, all that stuff. It could be upwards of 50, 70, 80,000 a year. And your federal loan is 5,500.
Okay, well, maybe your parents are doing okay and they pay a part of it, but maybe they need a private loan. It’s not unusual to see a private loan for 10 to 20,000 thousand a year. That doesn’t sound bad, but it takes you four years to get your bachelors multiply that 10 by 20 by four. That means you’re spending 40 to $80,000.
On average. Now, ask yourself this question. Do you buy your 18 year old, an $80,000 Mercedes. Probably not going to sign on the line for education. Now, obviously the return on a Mercedes is different. You’re not buying it as an investment. That’s going [00:22:00] to extend your grandkids to college. Maybe you are, I don’t know, but college is an investment.
I don’t want to say it’s not, but you’re playing the odds that are worse than Vegas. Now everyone thinks their child is a genius. There are some somebody there to say, no, he’s not. And he really shouldn’t be in college. Okay, fine. But you are in bed with your child when you co-sign. You’re you’re on the hook.
And if anything, if life it happens, it’s why we call them accidents. We don’t call them on purpose because they’re accidents, life happens. And if life happens to your child, are you fully prepared to pay back that 40 to 80,000? There is no. Well, I just signed it so they can get the loan, but I didn’t really mean to pay it.
That’s actually the legal definition of fraud. So. Private loans are dangerous. I’m not going to say don’t take them, but I am going to say, think very carefully. Look, if you’re a plastic surgeon and you’re pulling in six digits a year, [00:23:00] fine. If you’re pulling in 50,000 a year and you’re eyeballing retirement, why are you signing for another $50,000 in debt?
Well, then my kid can’t go to college. Yeah. I mean, look. So I’m going to stop there. I can keep going. You talk about the system to me. You fix the system by allowing these private loans to be dischargeable again, because when they’re dischargeable now there’s credit risk. When there’s credit risk underwriting pays closer attention.
Maybe they won’t give all these loans. Maybe these kids can’t afford college. What happens when there’s a glut of kids that can’t afford college? Now, colleges don’t. They don’t get filled up. Now you see marketing Librium supplying to me. And the
[00:23:47] Sergio Patterson: same thing with the housing market that happened. They were giving out loans to every single person, no matter what they made.
[00:23:54] Lee Michael Murphy: That’s exactly
[00:23:55] Joshua Cohen: it. So step one, get with a private loan bankruptcy protection, [00:24:00] so that banks have real risk. Oh, well then lower socioeconomics can’t afford college. I don’t have an answer to that, except that when the pressure starts mounting on schools, then the price has come down. Naturally middle-class was getting crushed.
That’s my theory. But economically speaking, I think it makes sense. They talk about, well, maybe private loans should be linked to what your major is. How many people do, you know, are actually working in their major unless they went to grad school like medical school or law school. How many people do you know?
I went to law school that I don’t have a lawyer. Well, I went to medical school that aren’t doctors, number one, there’s a bell curve. What’s at the bottom people that aren’t going to do well, that’s statistics. So you can that chunk of people that just aren’t going to do well, no matter what, but just because you majored in whatever you did doesn’t mean you’re going to do it.
And besides that, what is a major in philosophy? What is a major in English? What does a major in psychology do a bachelor’s [00:25:00] in psychology gets you nothing. How do you know? Cause I have a bachelor’s in psychology. I have a bachelor’s in psychology to the next day. I can go get a master’s in psychology so I can vary that bands around the hospital.
And you don’t have a PhD in psych or very advanced degree. You’re not doing anything with a BA in psychology. That’s right. A bachelor’s is a doorstep. It’s what a high school diploma used to be now. It’s do you have a college degree? Yes. Good. So it’s the education for parents? It’s putting your foot down saying I’m not going to co-sign.
Oh, but I really want to go to the school. Why? Because they have good parties. No, I mean, cause they have a good program. The other thing is what is your final trajectory? If it’s grad school, your undergrad reputation may not be as big a deal. If you’re going to go to law school, the law school you go to might matter the undergrad, you just gotta pass the L SAB.
And I, there was nothing wrong with community college. There’s nothing wrong with state schools, a hundred percent. You don’t [00:26:00] need a name brand
[00:26:01] Sergio Patterson: kids. Like if they want to do the junior college more power to them, like I don’t see the, I don’t see
[00:26:07] Lee Michael Murphy: the downside.
[00:26:08] Joshua Cohen: I joke with one of my kids. I’m like, what else?
Don’t you love doing? Welding is great. Or like being electrician. There’s nothing wrong with trades. Great job of talking about this, the Congress, and you know what trades are in demand, be an auto mechanic. You like working on cars? I think that’s great. There’s nothing wrong with. Maybe take a course or two of business, so you can run your own Raj, but I think people really need to sit down and go, what’s the value of college.
You want to be a doctor? Yes. You’re going to college. You want to be a mechanic? Take a business course. That’s all. Josh, you did an
[00:26:41] Lee Michael Murphy: excellent job of talking about the dangers of signing up for college and taking out all that debt. And that’s, it’s something that society really needs to do a better job at before they make the big mistake.
But let’s just say we’ve made the big mistake it’s done. We’re trying to pick up the pieces. We’re [00:27:00] trying to get out of this hole. You were talking a lot in the beginning about income based repayment. To some people that’s gonna, they’re gonna think, well, if I’m not making any money, how am I building wealth?
Can you kind of elaborate on that? Like how is one supposed to do that? That’s actually
[00:27:16] Joshua Cohen: a great question. And this is about, again, this is a change in mindset. I have hung out with individuals that are all about you, give them a problem and they’ll tell you how to make money. Right. That’s just how they are.
I met people I met someone’s like, yeah, I bought my first house while I was still getting my bachelor’s and I invested, I did. That’s great. But the average American doesn’t have that mindset. Their mindset is that 25 cents in my wallet, I need to buy dinner. And then you throw a student loan at them. The point of the income driven repayment plan is to make manageable cash.
And then what are you doing with that cashflow? I don’t care that you owe 200,000 or 50,000. If your payment comes out, because maybe you’re a family of five and one of the [00:28:00] spouses doesn’t work for whatever reason, maybe they’re home because daycare is too expensive. That was their stay at home. Mom or dad.
God, I wish I could have been a stay at home dad. Um, and, and so you’re living on one income of maybe 50,000, 50,000 income for a family of five doesn’t get far, but what it gets you for an income driven repayment is close to like $50 a month or less. Now think about what that’s doing for the rest of your cashflow.
You’re managing your student loan. You’re in good standing. You’re not going to pay off the amount of the debt. We don’t care. You’re going to get forgiveness. It’s what are you doing with the rest of the money in your pocket? Don’t let it burn a hole. Talk to financial planners.
I think more middle income folks should be working with financial planners because they’re the ones that have to learn how to properly budget.
[00:28:47] Joshua Cohen: And what are you using those rainy day pennies for? It doesn’t mean you have to invest in stocks. I’m not, that’s not what I said. I sell student loan payments and how to make it manageable, but you need a holistic approach. [00:29:00] Now, your student loan payment is manageable. You’re going to get forgiveness. Oh, what about the tax bill?
That’s in twenty-five years, we have no idea what legislation’s going to be. And right now there is ready. Uh, it passed a few months ago. Student loan forgiveness through 2025 is non taxable. If that permission never sunsets and they keep rolling it, there will never be a taxable event on student loan forgiveness.
But a financial planner can look at those and go worry about that later. Here’s what you got now. Here’s what we can do with it. We can take your $10. We can plant it in the ground and you’ll have 20 in a month. You’ll have 30, whatever it is. That’s where I think people, that’s why I say it’s a change in perspective.
I get so many people that call me and say, oh, but my loan is 9%. I don’t care if it’s 50%, you’re never going to pay it anyway. Pay attention to what counts. Don’t oh, but my neighbor lands a 2%. That’s great. Is your neighbor paying it off or are they in the same boat as you? I love that you, you walk out to the end of your driveway.
You [00:30:00] look up and down your street, who’s driving what? Get over it. Right. If you have a car and it gets you to your job. I love reading the stories of the billions there’s that still live in the middle income houses and the regular five bedroom house. And there were, there were the entire town, but nobody really knows it.
That’s a perspective change and there’s only so much I can counsel my clients on because I only have a bachelor’s in psychology. It’s really, it’s a change in perspective, you pay what you pay. Look, I do the exact same thing. Unless I get a really nice settlement from a lawsuit. I’m going to have student loan debt, just like my clients.
I’m in the same boat. I’m doing exactly what I preach.
[00:30:41] Lee Michael Murphy:
So what about the people that think, well, I won’t be able to build wealth. Like, how am I going to, if I have this debt title, I a house, how do I it’s good.
[00:30:51] Joshua Cohen: I wanted, I actually, what I want to talk about is marriage and houses because I have people I can’t get married.
I. We all have [00:31:00] debt. Hell, sometimes you don’t find out about the debt until you’re married. Like, Hey, surprise is sometimes the income driven repayment plan is tied to a joint tax filing. There are ways to get around that, whether you file separately or do you want to talk to me about how you can sometimes split it?
There are ways to keep that payment manageable. And if you’re going to get public service loan forgiveness, you’re in the pool for 10 years, that’s it. So, number one,
don’t ever let this stop you from getting married or having kids. Okay. As for the mortgage. And again, I can tell you from personal experience, income driven repayment plan is acceptable people.
[00:31:23] Q3 answer
[00:31:37] Joshua Cohen: Well, I owe a hundred thousand 200,000. How can I buy a house? It’s not about how much you owe. Oh, it’s about your monthly payment is called debt to income ratio DTR. And what they’re looking at is how much money are you spending a month out of your paycheck? And what do you have left to pay me the mortgage?
What they also want to know is, are you in trouble with your loan? If you’re in [00:32:00] default, they want to know who’s in line to get your money before me, as long as your federal loan is not in default, you can get an FHA loan. Here’s the secret. If you are looking at buying a house, you go talk to the underwriter.
If you’re talking to a broker or a banker or whatever, the first question out of your mouth, do you accept an IDR payment on my federal loan? The only thing you’re allowed to accept as a yes. If they say no, walk out, if they say maybe no, I need a definite answer. Why? If they don’t accept the IDR income driven repayment, they replace it with a one or a 2% number based on the size of your loan.
That’s where a six digit loan kit kills you. What’s 1% of a hundred thousand, a thousand dollars. So they’re going to compute your DTI. Yeah, that’s incubation. I’m sorry. Yeah. Your DTI too, with a thousand dollar payments that you’re obviously not making because you’re on an income based repayment of maybe 50 or two 50.
Okay. If [00:33:00] the underwriter can’t tell you, find someone else there are underwriters that do it. I know. FHA programs, excepted income driven repayment. The only time in income driven repayment as a problem is if your payment is zero, they don’t like zero. You got to pay something. Maybe you switch into a regular pan plan just for three months while you’re doing your closing switch back to IDR.
As soon as you close on the house. There’s a lot of different ways to make it work, but I do not accept. I can’t get it the house because of my loans. There’s always a way to do it. Now, what I have is the reverse. I have people, well, I didn’t get a house because my loan and I looked at him like, no, you can’t get a house because you, me, that’s different you.
Or maybe you just need to get your financial house in order. You’re spending 800 a month on a car. Maybe it’s time to downgrade. There’s nothing wrong with it. Yourself. If you can find, that’ll learn how to work your budget, which is beyond what I do. I love financial planners because the first thing they [00:34:00] do is go, okay.
It’s about perspective. So back to your question,
how do you build wealth for me? It’s getting your student loan payment down to something manageable based on whatever IDR payment it is, increase your cashflow, and then talk to a professional about what do I do with this free cap? Is it pay down my other debt, snowball methods pay off a car.
[00:34:23] Joshua Cohen: What are we doing, insurance shopping it. I don’t do that. There are professionals that this is what they do. And they’re really good when you can go into that professional and say, Hey, I shrunk my student loan payment down to a hundred a month or whatever it is, their eyes balls. Because number one, they’ve never heard of this before.
And number two, they know you’re working in. So, yeah, that’s it, but it all starts up here. It’s all perspective. Yeah,
[00:34:47] Lee Michael Murphy: man. Cause it’s like, we’ve always been told like from all these gurus, they’re like, oh, you got to get that student debt down. If you can’t do it, your life is ruined. You will not have a life.
They will not make [00:35:00] any wealth. And I’m all about like, if you can get, if it’s a manageable number, Kill it in a short amount of timeframe do it, but that’s just not the reality. That’s just not the reality anymore with you see all these kids that are coming out of school now and what they’re paying. It’s like, man, you have to think outside the box, you have to be smart and yeah.
We all think that it’s going to ruin your life, but that’s not true. If you think critically like Josh is saying and think outside the box, there’s ways that you can still cumulate wealth and make it have a very fruitful life. Even with the
[00:35:33] Joshua Cohen: student debt.
It’s actually funny. I find that the people that have a problem accepting the income driven repayment plans are those that are financial savvy.
[00:35:35] V3 – The Loan is Supposed to be an Investment for the Lender
[00:35:43] Joshua Cohen: Because who in the world would accept a payment that’s negative amortizing. That’s less than your interest. Think about that. We’re all business professionals. Would you loan your friend a hundred dollars and say, listen, just pay me in back a nickel a month, Nicole, a year. And after 20 years, I’ll just write it off.
Whatever you haven’t [00:36:00] paid, who in their right mind would do that because the loan is supposed to be an investment for the lender. Granted, there’s a philosophical thing. You should do loans be that, but put the idea that we allow millions of borrowers to pay less than interest is so indicative of a failing system that nails it right there.
Any business person going, who did this Congress the opposite of progress? Okay. But if you really want to think about building wealth, this is how really wealthy people do it. They don’t always pay off their debts. They leverage the debt. If you can borrow money at 2% and get a 5% return, you don’t speed.
Pay the 2% you use the money to get your 5% return. Now, granted student loans have a higher interest rate, but don’t look at that. Look at what is your ideal. Now you’re getting a very small percentage, really to leverage that debt, you could be leveraging it by paying down your credit card, [00:37:00] paying off your cars or.
Maybe invest. I don’t say that. I think you should be paying some of your low back, but as a self-employed person, they’ve got the biggest ability to leverage that. That’s why I say talk to them. Financial professional. When after you handle your loans,
[00:37:16] Lee Michael Murphy: I wanted to kind of put a scenario out there. I know we talked about some of the ways that we can get the debt forgiven if you’re working for nonprofit public system, but.
Let’s go to the person that’s not in that sector. Maybe they’re on the private side. They’ve worked for a company their whole life, and they did the IDR. Maybe they came out with a couple of hundred thousand dollars in student debt. They were able to put their money towards investments by their house, and they actually fast forward 30 years down the road.
They have good amount of assets. What is their student loans look like at this point in time, though, if they’ve only done like the income driven repayment
[00:37:55] Joshua Cohen: plan, you say, because it’s all based again on income and family size. So they were making [00:38:00] six digit salary, probably had a sizable income driven payment.
It might’ve been three to 500 a month. Could be more, it’s all relative to the size of their loan as well after 25 years, which by the way, hasn’t happened yet. The forgiveness started in two nine plus 25 is 2034, still 13 years out. It is supposed to be an automatic for forgiveness. So what does it mean?
Look like hypothetically, I’m looking at some people where they’ve been on an income driven repayment plan for children, a thousand dollars, and they’re going to have 300,000. For three 50 at the time of forgiveness, what it really all hinges on is legislation. Isn’t going to be taxed. If it’s not taxable, then the answer is it’s going to look like zero.
It was like a big old donut. That’s a win if it’s potentially taxable, which I really don’t expect for the first few years of forgiveness until Congress realized, oops, we got a tsunami. Then it’s a tax debt and tax debt is so much easier to deal with. Then a [00:39:00] federal loan. And I say this a little bit from experience, but just the IRS, they work with people because they know you can’t get blood from us.
Now, if you’re hiding assets, you’re in trouble. I don’t want to work with you, but you know, if you’re the common American and you did your time and you owe tax debt, which you didn’t expect, but it happened, you could work with the IRS on it. Here’s a secret, which isn’t so secret. Taxes are actually dischargeable in a bankruptcy.
If you do everything the way you’re supposed to, if you file on time and you work with the bankruptcy attorney, they very well could be dischargeable. Now, do we really care how much it’s forgiven? I don’t want to file a bankruptcy, but Hey, if they’re telling me I owe a hundred thousand, I might file and you still get to walk into retirement.
Debt-free your credit? Isn’t ruined by bankruptcy. In many cases, it’s actually better. You don’t know anybody. I mean, that’s a philosophical debate too, but you know, and I’m not advocating that people rush and file bankruptcy, but if you don’t mind, I’m [00:40:00] going to use this as a quick segue. About some very recent news.
A bi-partisan bill was proposed in the Senate that would allow federal student loans and even some nonprofit loans to be discharged in a bankruptcy. If they have at least 10 years of payments. Now, imagine you’re on an income driven repayment plan and your employment just wasn’t working. So you’re paying zero, maybe $50 a month for the past 10 years.
You’d be able to file a simple chapter seven and walk out with no student loan debt. That’s a huge win it’s bi-partisan. It’s got legs. It’s got big names behind it. If you’re listening right now, call your congressional representatives and tell them to back it up. This is a win. Well, what if I don’t want to file bankruptcy?
Then you have income driven repayment. I do not expect people to rush, to bankruptcy, to get rid of their loans. Bankruptcy has implications. If you want a [00:41:00] home, maybe bankruptcy doesn’t work. Maybe it does. Maybe you need to save your home too. But for me, this is a bonus. This isn’t a draw into bankruptcy.
Little bit. It’s more of, Hey, I’m here. Anyway, I’m saving my car. I’m saving my house. All we’re going to get rid of your federal student loan. I don’t know how many people actually have 10 years of 10 years of repayment on their student loans. So, but that bill is out there right now. The judiciary committee has put it forward.
So that looks like it’s going to happen. There’s also a separate bill that has been introduced that would allow private student loans to be dischargeable in bankruptcy. You put those two together, you got a powerful fix. What’s also interesting and might be a small hangup here in that bankruptcy bill for federal student loans, the colleges have skin in the game.
If the student, and I don’t know if we’ll text them, if the student shows that they didn’t quite make a return, the school actually has to pay back a little bit of the money. [00:42:00] This adds accountability to the schools. Now I’m not going to get into the larger debate of it because I also haven’t read the text.
That part might be sliced out. We don’t know, but the idea that is bi-partisan student loan, discharge, that is huge. They haven’t been dischargeable since 1998 than what? 23 years. How long
[00:42:22] Lee Michael Murphy: did these bills take to go through? I’m not very familiar with the speed of which these bills are pushed through
[00:42:28] Joshua Cohen: our shop.
It’s a little older than you and there used to be a program called schoolhouse rock.
Okay. So this is coming out of judiciary committee and then it goes to the floor and then it goes to the. Committee. And then it goes to the floor and off the top of my head, 60 days, 90 days. But that depends if it’s a bill that they want passed or they don’t, I think there is going to be some lively debate, but again, because of by Bart bi-partisan with some big names backing it.
I think it’s got legs. I think it’ll pass. I’m feeling good. [00:43:00] I also don’t know what the enactment data is. That there’ll be immediate, or if they’re going to phase it in over a couple of months, but yeah, I encourage people. If you ever want to change student loan stuff, this is your chance to be an advocate.
Call your professional rep. Just tell them the bankruptcy build who allows student loans, discharge. That’s it. I don’t ever have it in front of me,
[00:43:20] Lee Michael Murphy: Josh. When does someone reach out to someone like yourself? Who, when did they need to reach out to a student debt lawyer? Was that right? It’s hard to say.
[00:43:28] Joshua Cohen: I prefer that people reach out to me before they go over the car.
Like, oh, goodness. The payments coming due. I can’t afford it. Now at the time to call it’s like medicine, it’s preventative medicine. Do you, most people don’t call the doctor until they’re sick or they’re hacking up blood or whatever it is. And that, yes, that’s a good time to see me, but if you can feel it coming on and watch the flu and then go get a flu shot.
I’m kind of the same way. I mean, my office works like triage. It really does. It’s okay. Are we in the fault? Are we in good standing have payment plans [00:44:00] or co-signer? What is, if you are concerned about your payments, whether you’re in default or not. That’s a good time. If you’re curious about public service loan, forgiveness, if you’re even entertaining the idea and you want to know the facts, that’s a good time to call it’s really?
If you’ve got a question and I entertain questions via email, I don’t like to set up an analysis cause I charged them. I won’t take your money unless I’m really going to offer you something. If you have a quick question, you can email it. My website tries to be up to date and I try to do YouTube videos, but you know, it’s really, a lot of people say, well, I have a sticky situation.
That’s very different. It’s different to you. It’s not different to me actually. And that’s a little bit comforting. I hope as well as no, it’s not really our account, actually, all of them are screwed. It’s that kind of thing. It’s really a marrow. If you have a concern about your student loans, reach out.
[00:44:51] Sergio Patterson: What about for the student? Who’s like just starting out. They haven’t signed it yet. Do you have a program for that person who just wants, is this the [00:45:00] right thing for me to do? Should I sign the dotted line on this
[00:45:02] Joshua Cohen: thing? A lot of pre college counseling, but I’m happy to do it. And I really like it when it’s what the kid and the parent, I liked the kid being responsible, but I liked the parents also here.
So it’s not telephone through their kid. I can’t, I’m not going to say no to a private student loan, but I am going to caution you. I have an MBA, so I know how to use a calculator. So I’m happy to run those numbers with people and go, yeah, it’s only 10 now, but it’s 50,000 when you’re done. Plus you’re talking about grad school.
Oh, by the way, a lot of private loans don’t allow a forbearance while you’re getting your grad school. How do you pay a loan while you’re in grad school? Well, that’s what mom does. She’s the co-signer. And mom’s going, wait a minute. No one. Not. These are the things that we talk about. So I’m happy to do that.
I am debating actually bringing a pre college workshop where it’s just general information. So people know because the more, you know, that’s where I think the
[00:45:53] Sergio Patterson: biggest gap is to be honest,
[00:45:57] Joshua Cohen: I’m hoping the book you can read, even if you’re not in the [00:46:00] pool, it’ll save you from falling in.
[00:46:02] Lee Michael Murphy: So for the people that are thinking about getting a student loan, I would just say. Reach out to Josh. You’re very reasonable and what you charge in the value that you bring. So, uh, these are decisions that could impact you.
You want to get all the facts and you want to deal with an expert. Don’t do it yourself. That’s just my take on it. But Josh, how can someone reach out to you? How can they get ahold?
[00:46:24] Joshua Cohen: Yeah, so you can find me on my website is dubdubdub.de student loan, lawyer.com. Or you can email me directly at J Cohen, C O H E N.
At the student loan, lawyer.com. Again, I also have YouTube videos on my website that the folks are welcome to look. I’ve got a Facebook page, lots of different ways to reach me. I always suggest going to the website first, because you may find your answer there and not need to pick up the phone, but everything you need is through the website.
[00:46:53] Lee Michael Murphy: Thank you for coming on our show today, man. Thanks for giving us hope and clarity in a world that we thought [00:47:00] that was only despair. You’ve changed our perspectives and given the listeners some amazing info. Thank you so much.
[00:47:06] Joshua Cohen: Well, thank you for having me. I appreciate it.
[00:47:08] Lee Michael Murphy: You’ve been listening to the free, free retiree show so long for now.
Dawn. Good job, man.