On today’s episode of Ask Gregory Podcast, Gregory discusses the impact of President Biden’s Student Loan Forgiveness Plan and what implications this may have for borrowing money in the future.
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Gregory Ricks 00:00
Hey welcome. I’m your host Gregory Rick’s a financial advisor here to answer your questions and help you win with your money.
Podcast Intro / Outro 00:09
On today’s episode of the Ask Gregory podcast, Gregory is going to be discussing the impact of President Biden’s student loan forgiveness plan, and what implications this plan may have for borrowing money in the future. Also, we’ve got a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast99 Again, that is gregoryricks.com/podcast99 .
Gregory Ricks 00:34
Let’s talk about Biden’s plan. On Wednesday, President Biden announced his student loan forgiveness plans Americans with annual income of 125,000 or less would have $10,000 in federal student loans forgiven household under 250,000. With a Pell Grant, which are typically given to low income students will have 20,000 of debt canceled, this proposal comes after months of debate around how to solve the student loan crisis. They were talking about as much as forgiving $50,000 I believe the average student loan debt is probably around 33,000. Undergraduate. And here’s where the debt comes in and gets really big as graduate school studies. And continuing school, you know, like the masters or MBA ‘s or other degrees following up the basic degree and it just really piles up the money. So those with student loan debt often have to delay major financial decisions like buying a home or saving for retirement. That’s the biggest impact I talked about last week of millennials. That’s the poorest generation right now, your US Bureau of Statistics gave us and why it’s because their debt on average is over $100,000 pretty good percentage of them regret actually regret borrowing money to go to school. Part of the problem is young people mostly are not wired for these decisions. They’re they don’t think about the impact. They don’t have the information life experience to judge the impact of creating a lot of debt early on, you know, those with student loan debt have to delay major financial decisions. And that’s across all age groups out there. Why do I say that? It’s just not a young person’s problem. Older Americans are taking on student loan debt even faster than younger counterparts. 2.7 million Americans aged 62 and older, oh 98 billion in student loans. So it’s not that they all have a mortgage. A lot of they have mortgages too, but now they’ve got student loan debt. There are social security eligible and they owe student loan debt resources from all those points that CNBC USA Today, Forbes. So how much is once again going to be forgiven one? Here’s a question I get Greg, how much is this costing? Well, we’re basically wiped off about 320 billion in student loan debt. This 10,000 per person, as far as what’s it going to costs the country somewhere around 300 billion to 980 billion over the next 10 years. Sources USA Today. Well, how does it cost that much if we’re wiping off 321 billion Well, there’s more to this as well. And I know what’s gotten all the attention is the 10,000 forgiven here’s here’s another part to this that’s not being talked about. It’s the student loan system more manageable for current and future borrowers fixing the existing loan repayment to lower monthly payments the administration is reforming student loan repayment plans to both current and future, low and middle income borrowers will have smaller, more manageable monthly payments. Yeah, we’re having to absorb absorb that as well. The Department of Education has the authority to create income driven repayment plans, which Cap what borrowers pay each month and based on a percentage of their discretionary income. Most of these plans cancel a borrower’s remaining debt once they make 20 years of payments. But the existing versions of these plans are too complex and too limited. As a result, millions of borrowers who might benefit from them do not sign up in the millions who do sign up are still often left with unmanageable monthly payments. So that is being changed. To address these concerns and follow through on Congress’s original version of the income driven repayment, the Department of Education is proposing a rule to do the following. And that’s for undergraduates to cut in half the amount borrowers have to pay each month from 10 to 5% of discretionary income. And here’s a big part of that raise the amount of income that is considered non discretionary income and therefore is protected from repayment guarantee in that no borrower earning under 225% of federal poverty level, about the annual equivalent of about $15 a month minimum wage for a single borrower will have to make a monthly payment. Here’s a question from the winning at life app Susan asks if I go borrow money will this program helped me so it’s basically the question so if I take a school loan out this year, will it be forgiven? You missed that window and here’s here’s a nother question that I’m getting is well, how come everybody’s excited about it? Should I take out a loan? Well, it is kind of the reason they’re excited but because they’ve already borrowed money they’re getting some forgiveness subject to household income, they already have a loan here’s the warning for you. Going forward I would not go borrowing money they can they’re going to forgive it or to borrow Well, I’m gonna go at least borrowed $10,000 Where you know, there’s expenses to say, Well, I just want to do it in case they forgive in the future. Well, you know, there’s origination costs there’s interest there’s future obligations, there’s going to be payments made I would not expect this to help them again. I doubt then they’re not going to go forgive the system. So tell me how this works. They forgive but they’re still loaning money you know what they’re creating if they if they go forgive this again, then there’s going to be even more borrowing go on. Buy even those that don’t need it to get it forgiven. Yeah, do not go borrow money in anticipation author. They’re gonna do this again. They’re going to wipe out everybody’s dead. What I’m, I’m hearing what I’m reading is, is that’s a no, this is probably a one and done deal regarding that. So if you have some questions you can call 504-260-0995 or email info at Gregory Rick’s or you can reach out to us through the winning at life app through that app. You can text email, or call the show. If you have questions, you don’t want to do it on air. Well email me or call the office. The website is Gregory Rick’s dot com. Now, as I was reviewing this adjustment of income is looking at it as this possible income then now looking at it as discretionary income and therefore the discretion the non discretionary income and therefore protecting from repayment. So let me repeat it again, raise the amount of income that is considered non discretionary income and therefore, the Protect protected from repayment guarantee in that no borrower earning under 225% of federal poverty level about the annual equivalent of $15 minimum wage for a single borrower, we’ll have to make a monthly payment. And forgive loan balances after 10 years of payments instead of 20 years. So, I think that I think the bigger parts of this that’s actually going to him and pack the Treasury or government debt or tax payers that are ultimately funding this is the reduction in payments or the way they’re looking at non discretionary income. And the forgiving of long ballots is that 10 years instead of 20 years, so means we’re forgiving a larger amount of the debt as a country. So forgive loan balances after 10 years of payments instead of 20 years for borrowers with original loan balances of 12,000 or less. The Department of Education estimates that this reform will allow nearly all Community College borrowers to be debt free, within 10 years, also cover the borrower’s unpaid monthly interest. So that unlike other existing income driven repayment plans, no borrower’s loan balance will grow, as long as they make their monthly payments, even when that monthly payment is zero. Because their income is low. These reforms would simplify loan repayment and deliver significant savings to low and middle income borrowers. I’m gonna give you a few examples here of that. This is one I gave when I was on WWL. The other morning. That’s WWL. TV. To be clear, typical nurse making 77,000 a year who is married with two kids would pay only $61 a month on their undergraduate loans compared to the $295 they pay. Now, under the most recent income driven repayment plan. That’s an annual savings of more than $2,800. Let’s look at one other a typical single public school teacher with an undergraduate degree making 44,000 a year would pay only $56 a month on their loans compared to the $197. They pay now under the most recent income driven repayment plan for an annual savings of nearly $1,700. There. That’s why I think this is a big impact. Yeah, it’s gonna cost the country more. But your that is a big impact when you’re taking that month, that gosh, that’s meaning. They can save some money, they could pay down other debt that they probably created because they’re having to live paycheck to paycheck or they’re negative. In doing that they have to borrow to make ends meet and being impacted by inflation. So for each of these borrowers, their balances would not grow as long as they’re making their monthly payments and the remaining debt would be forgiven after they make the required number of qualifying payments. So essentially, we’re giving them a route to have more forgiven in the future. So if you’re going to borrow money and you’re planning to stay low income, then yeah, maybe there’s a route for you there. I just would not go about borrowing money, and you should only borrow money to help with the cost of the tuition. You shouldn’t be borrowing money for living expenses for pizza on the weekends or date nights. Or to buy a car or take a trip up, you, you need to live like a pauper while going to school and really work to not increase debt, because you’re going to find it as a problem, especially if you’re not going to stay low income to get these help reductions and forgiveness is is our goal to go to school and then remain low income going forward? I hope not. Not what the opportunities this country has. You should be metal to upper income should be the goal. If you’re getting an education is that education leading you to better opportunities if that degree filled Jurian you’re not seeing that you should look at what it’s so easy to figure out. What’s your study and what what income do they make? What are you thinking about going to study? What what is the median income there that might tell you like nah, this ain’t gonna work. 40% of people that borrow money and start school don’t finish of those that finish 40% are not working in their degree fill block. Why is that? What went wrong and you’re carrying debt people are in their 60s or carrying college debt. We’ve got to change that thinking. We got to save money. We got to compound our money.
Podcast Intro / Outro 16:50
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