…Get it cause Biden is trying to save everyone from Student Loans. I will see myself out
This post is 2,164 words, a 10-min read
TL;DR
If you have student loans, the new SAVE plan by the Biden Administration is now allowing sign-ups. According to CNBC, this new plan can reduce some borrower's monthly payments by 50% and most borrowers will be able to save $1000/year with the new rules
Details: Go to https://studentaid.gov/idr/ and follow the signup directions. It takes about 10 minutes to complete the process. You will need:
A government-issued ID
Income Information like Tax Return
My Takeaway: If you have student loans, click that link and GET TO WORK!!
Background on the SAVE Plan
A new student loan payoff plan went into effect last Tuesday. It is called the Saving on a Valuable Education aka SAVE Plan. It is a revised version of the income-driven repayment option aka REPAYE (Revised Pay As You Earn Repayment Plan). This is the Biden Administration's way of helping federal student loan borrowers after the Supreme Court hit them with NOPE on the $10,000 Student Loan forgiveness that was pushed earlier this year.
What's In It?: The SAVE Plan raises the income limit for paying nothing from $22,000 to $32,805. This will allow about 1 million more Americans to qualify for $0 monthly payments.
Unpaid Interest does not accrue on the loan balance even if the monthly payment is $0 (THANK GOD!!)
Beginning in 2024, Loans of $12,000 or less will be canceled after 10 years of payment
Every $1000 above that would add another year to the cancellation
For example, a $20,000 would take 18 years to pay off
Years to Forgiveness = (Your Total Loan - $12000)/1000 + 10
Undergraduate loan payments will be limited to 5% of discretionary funds from 10%
Opposition: The SAVE Plan is estimated to cost between $138-$361 Billion over 10 years. However, we all know businesses do not like their money getting played with. Republican lawmakers especially do not like helping anyone who is not a corporation. 60 Republicans are already looking for ways to challenge this new plan in court. Fortunately, there are similar repayment plans that exist and they have never been challenged successfully. Let's hope that remains the case
Takeaway: It is wonderful to see the Biden Administration trying to find alternatives to their original loan forgiveness to help people struggling to make payments. As expensive as it may seem, this is actually great for the economy as a whole. We saw over the last three years how the economy gets a major boost when people have excess cash to spend on things rather than on debt payments. It helps GDP grow and creates jobs. This repayment plan is also very targeted rather than a broad stroke.
My Takeaway: Really think about if you want to be on this plan. It is not for everyone and it is not a permanent solution. I see it as a temporary option for the hard times. I prefer for you to take destiny into your hands. I would rather you find ways to upskill yourself, make more money, and then pay off the loan faster and get started investing ASAP. However, use this option to your benefit to have flexibility while you are on your journey.
I do love the fact that interest no longer accrues. I have always argued against interest on student loans. Why should the government be profiting for the betterment of society? The benefit for the government is in the much higher tax revenue they will generate from a richer society. You can put the interest rate to prompt people to pay their loans back but there should be workarounds for those who actually pay off their loans. Also, colleges need to be held liable for the loans they give out. If students cannot pay off the loan, colleges have to be held accountable as well.
How to Pay Off Student (Any) Loan or Debt
1. Know Your Numbers
Have you ever driven at night when a thunderstorm is raging?
You have limited visibility. You feel like your car is no longer in your control. Your sense of distance is messed up.
It can be very scary. Especially, when others are not taking the same precautions (Atlanta drivers UGH!!).
It's the same feeling most of us have when it comes with our money. Because most of us are constantly driving not just in a thunderstorm but in a hurricane. We have no idea what is coming in or going out, and just the idea of trying to face it sends shivers down our spine (but congratulations if this is you and you are reading this you have made progress).
Ramit Sethi says
"To be CONFIDENT with your money
You have to be COMPETENT with your money."
Knowing your numbers, no matter good or bad, provides a sense of control for you. It provides a framework for you to begin making concrete decisions about your money. With that being said I have two resources for you:
Ramit Sethi's Conscious Spending Plan
This is to help you set up a vision of what you want your money to do for you
It focuses less on cutting things out and rather spending on things you want
Quote from the site: I believe in using my money to build a Rich Life TODAY, not make it smaller! And I want to show you how to do it, too.
What if you could make sure you were saving and investing enough money each month, and then use the rest of your money guilt-free for whatever you want?
Well, you can — with some work. This is what Conscious Spending is all about.
Humble Dollar's Two Minute Check Up
This gives you an idea of general basic goals to aim for
From the site: THE TWO-MINUTE Checkup is designed to give users a quick assessment of their finances based on just nine pieces of information, the sort of things most of us know off the top of our heads.
I use both of these here is an example of my Conscious Spending Plan
**INSERT PIC OF CSP
Enough driving in a hurricane. It is time for us to stop, reroute, and take a safer path.
2. Paying the Debt
If not knowing your numbers is like driving in a storm with limited visibility.
Having High Interest Debt is like driving through that storm at night, with sunglasses on, music blasting, and children screaming in your backseat.
Just think about how terrible that would be. You would not be able to focus at all. Your entire body would be in a state of constant anxiety. At any point in time the wrong blow of the wind would completely destroy you.
This is what it is like living with constant rotating high interest or bad debt in your life. When I say high interest, I mean anything with an an interest rate over 6%. It is also debt that removes money from your pocket. Some examples:
Credit Cards: average interest rate is 20%
Buy Now Pay Later: false belief you can afford more than you can
Auto Loans: Depreciating asset
Personal Loans including for weddings, parties, etc.
These kinds of debts are crippling. Every time you think you are moving forward, these kinds of debts pull you back. The worst thing about these debts is how easy it is for us to rack it up. Through various advertising and sales tactics, we easily fall for more is better. Read my post called Don't Fall For It, on how businesses use our human nature against us. My advice is like my dad says:
Cut your coat by your cloth
The American way to say this:
Live on Less Than You Make
If you can do this, you are well on your way to winning with money. If you don't, everything else is a waste of your time, cause it will be like your car is stuck in a quick sand. You hitting that accelerator but you ain't gonna be making much progress.
Now the other side of this is paying off the debt you already have. There are two ways you can go about this: The Snowball Method or The Avalanche Method:
The Snowball Method - in this debt pay off method, you focus on paying your smallest debts first and paying the minimum on everything else. So if you had:
$3000 - Credit Card
$2000 - Car Loan
$20,000 - Student Loan
You would focus on the Car Loan first then move to the credit card then finish out with the Student Loans.
This method is great for anyone who needs quick wins for motivation as they pay off their debt
This was my preferred method to recommend but over the last year I have changed my mind
The Avalanche Method - in this payoff method, you focus on paying off your highest interest loans first, and make minimum payments on everything else. This helps ensure you do not pay too much in interest. So using the same debt amounts above:
$3000 - Credit Card
$2000 - Car Loan
$20,000 - Student Loan
Unlike the snowball, this information is not enough to make the decision on which one to pay off first. You need to get the interest rates as well
Credit Card - 25%
Car Loan - 8%
Student Loan - 4%
Based on this, your number 1 target is the Credit Card, then the car loan, then the student loans.
Getting rid of that Credit Card fast will make a MUCH bigger difference on your pockets because of how high that interest rate is.
It takes a bit more work and result will take a big longer but it is worth the extra effort.
3. Protect The Downside
Continuing with our driving analogy.
Protecting the Downside is you leaving early for your trip because you do not know what you might encounter on the road. So even when the storm shows up suddenly, you can take your time driving through it. Even stopping if the storm gets too rough for you to keep driving.
In your finances that is your EMERGENCY FUND.
This gives you the ability to take on trash situations without you ending up in the trash. As Money With Katie calls it, "An emergency fund is what I affectionately refer to as the “oh, shit.” fund."
Morgan Housel says it best:
You can save just for saving’s sake. And indeed you should. Everyone should.
Only saving for a specific goal makes sense in a predictable world. But ours isn’t. Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.
This provides you with a little sense of freedom and confidence, knowing that if certain things come up. YOU WILL BE FINE!
It is one of the best feelings to know that life can go full life and you can literally brush it off. This removes so much anxiety that we all deal with on a day to day basis. This allows us to take risks in other areas of our life.
Okay enough of my excitement of why I love Emergency Funds. I think everyone gets the idea. But the next question we all have is "How much should I save?"
Answer no one likes: It depends
But here are three ways to determine your amount:
Start with having enough to cover your deductibles for your insurance
Typically this will be anywhere from $2000-$5000 (depending on if you own a home or not)
If you just want an easy answer (this is Kelechi's personal savings numbers)
Single and does not own home and can live with parents: $5000
Single and does not own home and cannot go back to parents: $8000
Single and owns home: $12000
Married without kids and no home ownership: $10,000
Married with kids and no home ownership: $15,000
Married with kids and home ownership: $20,000
3-6 Months of Core Expenses. What you should actually be using
If you know your monthly expenditure, this will be extremely easy to figure out
Tip: This is core expenses meaning strip out all the luxuries of your expense. This is the minimum you need to survive
How to Save
Open a separate High Interest Savings or Money Market account.
My favorite is Ally
Runner Up Marcus by Goldman Sach's
Don't get bogged down trying to pick an account. Just pick one and move on
Make it automatic
If you have direct deposits at work, select an amount that automatically gets sent to the Savings Account
I know these numbers seem crazy and way out there. Plus, it is that much harder when you are literally saving for no reason at all. But I promise getting to the point where you can do this makes all the difference. Getting over this hurdle is like giving yourself the ultimate lay up for the part