Money Rehab with Nicole Lapin - What the Supreme Court Ruling Means For Your Student Loans

Episode Date: July 5, 2023

Last week the Supreme Court rejected President Biden's student loan forgiveness plan. Here's what this decision means for your loans. For all things student loans, click here: https://studentaid.gov 

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to it's time for some money rehab. The Supreme Court finally released its decision on student loans. It feels like we've been waiting for this decision forever now, but it was the last case the court heard at the end of the term. So it makes sense that this was one of the last rulings to be released. What the next step is and how the Biden administration will handle the ruling is a little up in the air at the time of this recording,

but we do know what happens next and we can speculate about what this means for all of us. To kick things off, let's talk about what this ruling means if you don't owe the federal government any money for student loans. You might think this case has nothing to do with you, and hopefully you'd be right. But there is a chance that this ruling and restarting student loan repayments could factor into a recession. It might not, I never want to panic you, but we've known for a long time now that we're in a precarious economic landscape, and so far we've gotten really lucky and skated across some very thin economic ice. But there have been huge bumps along the way, and I don't want to minimize the

suffering that inflation and the housing market have caused. But so far, we've avoided a hard landing into a recession. So first, let's break down who owes what when it comes to student loans. What age group do you think owes the most in student loans? You're probably thinking Lappin, duh, recent graduates. But actually, the vast majority of debt is owed by Americans between the ages of 35 and 49. The current number is $634.2 billion in debt for that age group alone. This means it's the same as the GDP of Massachusetts, which is ranked 11th nationwide for GDP. Much of that is old debt that has grown due to interest, so debt that people have been struggling to pay off for decades now. Many Americans have

already been sliding into a more precarious economic situation as a result of inflation, so people have less money in savings and have been taking on more debt. Potentially, the restart of student loan repayments could push many folks over the financial brink. Even if it doesn't, the average monthly student loan repayment is estimated to be $400. So if they can afford that, it's still $400 extra a month that won't be going back into the economy. We still don't know what that impact will be, but it's possible that 44 million people who suddenly have to pay $400 extra a month could cause a financial shift. Now, what if you're one of those people whose loans have been on hold? What does this mean for you? First of all, let's

take a deep breath. I'll do it with you? First of all, let's take a deep breath. I'll do it with you. The repayments don't start tomorrow. On June 30th, the 60-day countdown to repayments started. So you have a little time to get your financial ducks in a row. Do you remember who your student loan service provider was? If you don't, you can go to the federal student loan website and look up your provider. It's linked in our beautiful show notes. federal student loan website and look up your provider. It's linked in our beautiful show notes. Make sure that you can log on to that website and know what you owe. I know it can be tempting to just hide out and not look up this information. Maybe they'll never find you and maybe you'll never have to pay back this money. I wish that were the case. I promise. Unfortunately, that

little monster known as interest will catch up with you and make the debt grow bigger and bigger and bigger. Delaying starting up payments will just cost you more money. And if you're in a position to start paying before the deadline, I would do that. This is your final chance to pay down the principal on that debt while it's not earning interest. To all of our money rehabbers who have paid down or even paid off their debt during this pause in interest rates, podcast high five to you. Way to rock it. Now, once you've logged in and identified the company that you'll be processing your

student loan repayments with, set up or update your account with them. If you're doing automatic bill pay, make sure you link your bank account, even if you had an account linked in the past. You want to make sure that all of this is set up before September 1st. If even a small percentage of the 44 million people who will be restarting their payments need help re-enrolling, or in the case of young borrowers enrolling for the first time, the processing companies could be easily overwhelmed by calls. After you've enrolled, you can calculate how much your monthly payments will be. If you were making payments before the pandemic, your payments will remain the same. If you haven't started making payments yet, you can calculate your

monthly payments by going to the student loan simulator on the studentaid.gov website. Here, you can calculate how much you'll owe every single month. Using that information, you can create a budget and begin to save or scoot things around to get used to paying off student loans again. If you can't afford student loans, you have a couple of different options. You can apply for an income-driven plan where payments are 15 to 20% of your discretionary income and recalculate it each year to account for any changes in income or family size. If you haven't paid off your loans in 20 years, they will be forgiven. If you were enrolled in one of these plans before the pandemic, you are still enrolled, but you have six months to get them your updated income and family information. If you don't qualify for an income-driven plan, you can look into the

graduated or extended repayment plans. These allow for a longer timeline to pay off your debt, although because of the interest, you'll end up paying a lot more in total with those plans. If you do qualify, though, you can always apply for the public servant student loan forgiveness plan. If you're a public servant like a teacher or if you work for a nonprofit and you've made 120 payments on your qualifying loans, you can apply for the rest of your debt to be forgiven. This program has historically, though, been difficult to navigate, so if you think you'll qualify, start the paperwork ASAP. Look, I know this is hard. The Student Loan program always at best was a band-aid to a giant

social problem. School is the best path to financial success if and only if it works. But if you go to a scam school or if something interrupts your education, suddenly you're left with huge debts that you have no real hope of paying off. And I can help you make a budget, but the core problem is beyond me. Currently, two out of three jobs require a college degree, yet college is more expensive than ever before. In 1990, you could make minimum wage, work a full-time job during the summer and part-time job during the school year, and still make enough to pay off an entire year of education at a state school with in-state pricing. Now, to pay off an entire year's in-state tuition, making even above the federal minimum wage, say $9 an hour, you would need to work a full-time job and a part-time job 52 weeks a year. And that is

just not feasible while going to school. Yet you need a degree to get ahead, leaving so many people stuck taking out these loans. Student loan forgiveness never addressed that underlying issue, and we still haven't as a country. For today's tip, you can take straight to the bank. If you have a kid or a family member looking at colleges right now, consider attending community college for a year or two, or attending the satellite campus of your

state university. They usually cost less than a half of what the flagship schools do. And you can transfer to the flagship school for your last two years, which will be the school that actually issues your degree. And that can knock off tens of thousands of dollars from your final price tag. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video

content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.