Stuff You Should Know - Student Loans: UGH!

Episode Date: April 2, 2020

Student loans can be pretty complicated. Luckily Chuck and Josh are here to wade through the financial muck for you. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

On the podcast, Hey Dude, the 90s called, David Lasher and Christine Taylor, stars of the cult classic show, Hey Dude, bring you back to the days of slip dresses and choker necklaces. We're gonna use Hey Dude as our jumping off point, but we are going to unpack and dive back into the decade of the 90s.

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Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple Podcasts, or wherever you listen to podcasts. Welcome to Stuff You Should Know, a production of iHeart radios, How Stuff Works. Hey, and welcome to the podcast. I'm Josh Clark. There's Charles W. Chuck Brown over there.

There's Dave See, the guest producer extraordinaire. That's right. And this is Stuff You Should Know about, wait, don't go anywhere, student loans. No, really don't go anywhere. Yeah, this is pretty dry. I mean, we'll add our funnies. I know we won't.

Okay. We'll add our funnies, like we always do, but there's no getting around it, that this is one of those Stuff You Should Know episodes that sort of falls under the banner of PSA. Sure. A little public service announcement for people to learn about something that they may not get,

but it's just not scintillating. Right. How's that to drive people away? I really think you hooked them, for sure. No, listen for the funnies, and hey, man, if you're out there and you don't understand student loans, don't know what you're getting into, if you're a high school student.

Yeah, or if you're already drowning in debt. Already drowning in debt, we'll pay that debt for you. Yep, to send us an email with your monthly bills and we'll pay them all off. No, this should really clear up a lot of that stuff though, because it's not complicated, but there's just a lot to it. Yeah, but how we got into this place,

because yes, there's student loans and applying for student loans and what you should know, but then there's also what you should know about after that, when you join this 45 million student loan debt holders or debt oweers who owe like $1.6 trillion worth of debt. And like a lot of that, about a trillion of it, I think, a little less than a trillion, has been generated since like 2010.

Yeah, I mean, there are a lot of progressives in this country that say you wanna really kickstart the economy in a long, permanent way. Just forgive all these student debts. Yeah, and other people say you're a communist. Some people do, yeah. You know, I should go ahead and preface this with my personal experience.

I did not get a student loan. I went to school and college. You were a little behind me, but it wasn't as big of a thing back then. No, I saw in the 90s the average student loan debt for a bachelor degree, not a year, not a minute. A bachelor's degree was nine grand. Yeah, college used to be a lot cheaper.

State universities are still not the most expensive, but when I was going to University of Georgia, dude, it was like tuition for a full load for a quarter was something like $600. Yeah. It was not that much money. You could pay it in like pot, especially at Georgia. So when my parents got divorced,

part of the divorce was them selling a couple of things like we had an airstream camper and not like things that clearly the family wouldn't be using anymore. And so they agreed like let's sell these couple of things and Chuck's the last one going through because my brother, of course, had an academic scholarship. Of course.

Didn't have to pay for anything. No. Chuck, he needs that money for school because he's not getting anything. He needs that camper money. I needed that camper money. So they said, let's put that in an account for Chuck to go to school.

That lasted me two or three years, I think. The camper money did? Yeah, because Georgia was so cheap. Man. It was a heck of a camper too. Well, okay. But yeah, Georgia was really cheap and I was in living there was cheap

and books were pretty cheap. So that lasted me a few years. And then after that, I just, I've been working since I was 13 anyway. I was gonna say you had a job throughout to help you with like living stuff, right? Totally. And I just kept paying for my college after that.

It wasn't like some big like, hey, I'm gonna pay for my school starting from now. I was just like, well, that money's gone. So I need to, I'm not gonna ask my parents for it. Like I've been working since I was a teenager. They sold their camper. So I'll just keep working and pay for my remaining education.

And it was not that big of a deal. I live very well in college. You know what that's called is pulling yourself up by your bootstraps 90 style. I don't even feel like it was though. I was just like, hey, I wait tables. I make pretty good money. I can afford that 600 bucks a quarter.

The thing is, is like the idea of being able to live as a college student and pay for college and feel like you're doing fine, waiting tables today. I had tons of money, I know. Is, it's just outrageous, outlandish, out everything. I cannot imagine leaving Georgia with $30,000 to $90,000 of student debt. I cannot imagine that.

And that's, well, that's one of the things that makes all of those people who say like, you winers, you took out these loans, you owe them. We paid off our student loans when we went to school. All those older people who are saying that are missing the point that college has gotten way more expensive than the last 10, about 10-ish years for a lot of different reasons.

But it turns out largely because of an Obama era initiative to make higher education accessible to more people. There were just a couple of safeguards that weren't put in place that really let this thing run rampant. And that if you say like, I paid off my student loans with no problem, why can't you? You're missing the point that it's different. It's a different world now, things are different.

And it used to be before when you had your first real piece of lifelong or long-term debt, it was a mortgage for a house. You were paying for that house and you were virtually guaranteed that at the end of that mortgage, that last mortgage payment, what you paid for that house was going to be less than what the house was worth then. It was an investment.

Now we're putting out teenagers into the world who have, in some cases, mortgage-level debt without having any income yet whatsoever. And when they pay off that last bit of debt, there's nothing that was of value necessarily associated with it because they had to get a college degree just to try to get a job. Whereas before it was like you got a college degree

and you automatically were going to get a good paying job or certainly a better paying job than you would have gotten with the high school diploma. It's a different world now. Definitely. You probably didn't get a student loan either, did you? No, I luckily didn't need them. They had the, what was that grant

that the lottery paid for? Yeah, I think when you came along, that was in place. That started right as I was leaving. I think first year for me. Was it the Pell or was it the Georgia Lottery pays for it? Man, I can't remember. I can't remember the name of it either, but it was a kind of grant that like, yeah,

you had basically a free ride in school if your GPA was high enough at an in-state school. That's right. Great deal. Yeah, and if you are a student now. Hope grant, hope grant. Hope, that's it. Hope scholarship.

Because I just remembered all of the parents saying, you better not lose that hope grant. I think it was like, was it 3.0 or something, 3.2? Something like that. Couldn't fall. Something definitely attainable. Yeah. So, I mean, our first bit of advice,

we're gonna pepper some advice in here as old dudes. Oh, so I should say, shout out to my dad. He, once I inevitably lost the hope grant, he stepped in and helped pay for college for me. Yeah, the herbal Elvis. So, we want to give out a few pieces of advice here and there. Avoid taking student loans if you can. Yeah.

Try and get as much free money as you can. Grant scholarships. What I don't get is why so many parents of these children didn't set them up for college. What do you mean? Start saving for college. Oh, I see. By the time my daughter's graduating high school,

all her college is gonna be ready to go. So. If she wants to go to college. Right. One of the things that this Obama era initiative to expand higher education, one of the purposes of it was to make it so that people lower income families had an easier opportunity

to go to college. Yeah. So, they basically said, come all who want to borrow money to go to college, regardless of your ability to repay. Well, go finish, but I want to amend my statement. Okay. But go ahead.

So, a lot of people who started to go to college, their families didn't have any money to put them through school. Yeah, yeah. So, I think for people whose parents had been planning for it, very little changed. But it was that an entire tranche of Americans that hadn't really had much access to higher education,

all of a sudden did starting in 2010. Yes. To be crystal clear was not talking about those people. You weren't pulling. Why didn't their parents just set them up? The Mitt Romney thing, right? Remember when he said that? No.

Oh, he was like, why don't you just go borrow the money from your parents? Oh, that's right. He was... Binders full of women. Right. Was that Romney who had binders full? Oh, yeah.

Yeah. Forever. No, I'm talking about the tranche of kids whose parents could afford to save money for their kid's college and did not. Yeah. Because that is a tranche. I don't know.

I think one of the other things, maybe there are a lot of parents who are like, you know what, this is your education, you pay for it yourself. I think there are also a lot of selfish people in that generation of parents. Sure. I think there's a lot of narcissists who did not

plan for that stuff for their children. Right. Because they were busy taking care of themselves. They blew it all on pot. Hey, I don't know, man. I'm not saying that, but I just want to make it clear. I was not talking about less fortunate people that are now able to go to school.

I think that was good that you amended that. Okay. But if anybody didn't know that you weren't saying that, they haven't listened to stuff you should know very well. That's true. Everyone started this podcast. I know, man. It's gonna be three hours long.

No, we'll blaze through this. There are different types of student loans. The main two big groups are federal student loans and then private sector student loans. And so, again, after you've exhausted all chances for grant, scholarship, any kind of free money. Grandma. Then you turn the loans.

Right. The first ones you want to turn to are the federal governments because the loans you get from them are top quality as far as being a borrower is concerned. That's right. And there are a few different kinds of those. There are direct subsidized, direct unsubsidized and direct plus, plus is capitalized all the way across.

Subsidized, direct loans. The Department of Education is your lender. I didn't know any of this stuff. Well, it's new. Yeah. I mean, I was just surprised at some of the stuff. It's not, it's not, I'm sorry. It's not new.

Remember Stafford loans? Yeah. That's what they used to call direct loans. Okay, I remember those. So it's basically the same thing, but it's just radically expanded since 2010. Okay, so I don't feel as old as I thought. No, there you go.

So, the Department of Education is going to cover the interest under a few circumstances. And the interest is you're going to hear that word a lot. That's a big deal with any kind of loan or credit that you get. That's where they get you. And this is specifically the direct subsidized loan that they will cover the interest on.

That's right. If you were in school, at least part-time, that is one, during the first six months after you leave school, don't you have to graduate? But you've either graduated or disenrolled or whatever. Unenrolled. You've been dishonorably disenrolled.

Or if your loans are in deferment. Only undergraduates can get these. They are based on financial need. And the school is going to say how much you can borrow. You can't just say like, yeah, tuition's 10 grand, but I'd really like 30. Well, even if you could do that, these things are capped because the interest is covered by the Department of Ed

like you were saying, which is a big deal. So if you go to school full-time for four years and get your bachelor's degree, that whole time you are not accruing a penny of interest. Yeah, and that's a big, big deal. Huge deal. But there's a cap on the amount that you can borrow. If you're a dependent student, meaning that your parents

still claim you as dependent on their taxes and they could conceivably help you out or whatever. They don't have campers to sell. Exactly. Or they've sold all the campers and now they're tapped out. You can conceivably borrow $3,500 and have it be subsidized. Correct.

And I think over the course of your college career, it's something like $23,000 or something. No, I'm sorry. It's $31,000 for a four-year degree that could possibly be subsidized, which as we'll see is not enough to cover a four-year degree basically anywhere these days. No.

I didn't tell you what the second thing they sold though, by the way. What? We had a food truck. What? This is pre-food truck. It was a trailer. They didn't even call it a food truck.

You know what it was called? What? The food factory. What kind of food? So my dad and my mom would go to these arts and crafts festivals and set up and sell like hot dogs and hamburgers and popcorn and stuff. And they still got a divorce after that

kind of experience together. Some might say it had a direct correlation. You could burn the popcorn again. So they sold the air stream and the food factory. Wow, so would they sleep in the air stream and the food factory would tow the air stream? No, no, no, these were just local things. Oh, okay.

So you just set up for the weekend at the Biela Daisy Festival and sell hamburgers all weekend to rednecks. Did they do it for fun? No, they did it to make money. My dad was always trying to make extra money. He always had these, I don't know about get rich, quick schemes, because they weren't.

But make just enough money to cover the cost schemes. Uh-huh. Yeah, he was always- Break even schemes? Yeah. It's funny, my brother's kind of the same way, but he's actually smart. Right.

And it does make money on the side. Sure. And he spends it on pinball machines. I said way too much. Direct unsubsidized- I know, our Wikipedia page is gonna really expand soon. So annoying. These unsubsidized direct loans,

you can get undergraduate and graduate students. They're not based on your financial need, even though the school is still gonna say how much you can borrow. It can't be more than the cost to attend the school, obviously. And the interest rate is probably pretty low, but you are gonna pay interest, and they are accruing interest

over the life of the loan. Right. That's a big deal. It's basically like, like you're still accruing interest, so it's like a regular loan. But what makes it so much more attractive than say like a private loan, which we'll talk about,

is that the interest rate is fixed, and it's low. So the government's like, we're not trying to like screw you over or anything like that. We're gonna loan you money, it's still a loan, but we're gonna make the terms pretty good. Right, so just spend over and we'll make a deposit. You're still going to, wow, we, there are like teens getting ready for college

listening to this with their parents right now. They get it. Yes, kids ask your parents what Chuck just meant. They get it. Okay, so there's direct subsidized, there's direct unsubsidized, and then there's the one that comes from the federal age that most resembles like a regular private lender,

a bank loan, and that's the direct plus loans. Do you know what plus stands for? No. I should have looked that up. This is a House of Works article, by the way. Yeah. Very thorough. I wasn't telling you.

I want to know though now too. All right, so you look that up, but rare in show, look up. Best in show look up. Federal student loans, these are the direct plus. They are federal student loans borrowed by your parents, or if you're a graduate student or a professional student, let's say. I've got it.

What is it? Parent loan for undergraduate student. Oh, well there you have it. Okay, but it doesn't really make sense in a second. Really? What am I missing then? No, just go ahead. Okay.

If your parents are eligible, it's just gonna be based like a regular loan on their credit score and that kind of thing. And the cost of attendance where you're gonna be going to school or enrolling in school is gonna set that limit again, kind of like the other ones, but your parents are just taking this loan. And these are unsubsidized, so.

They're unsubsidized, you can also borrow for an entire education, and you can also use them, not just for undergrad, but for graduate school too, which is why it doesn't make sense because the grad plus loan means graduate, parent loan for undergraduate students. Somebody didn't think that one through. Thanks Obama.

But with the plus loans, that cost of attendance is a really big deal, and it's true with any loan. Every school you go to has a cost of attendance, and every year they calculate how much it costs for everything, for tuition, fees, books, transportation. Room and board. Room and board, everything. How much it will cost the average person.

Little beer, little weed. Sure. It's not to go to the school for a year, but the problem, and you can borrow up to that amount. You can't borrow pass, but you borrow up to that amount so you can say, I'm borrowing, and I don't need to spend a penny other than what I borrowed. The problem is, is it may cost you less

to go to school than that average amount. Yes. And so you've borrowed up to that amount, which means you're paying interest on money you don't need. And when you get these loans, there's a lot of different things, a lot of different processes that it's going to go through, but the upshot of all of them is it doesn't come to you.

It goes to the school. Never knew that. I didn't either, but the school says, okay, let's deduct for this and this and this, and oh, they have the scholarship, so we can take that out. They have this grant, we can take that out, and let's say that there's some money left over. Then they will send you a check

or deposit it directly into your account. That's right. And when they do that, you would be very wise to say, no, no, no, you guys hold on to this. I'm going to use it for next year. Yeah, you can just roll that right on over. That's the best thing you could do with a bad situation. The reason it's a bad situation

is because you have borrowed too much and now you're paying interest on money that's just sitting there for a year in the school's coffers. They're actually making money off of that interest. You're paying interest on that money you're not using until next year. So the best thing you can do is really try to calculate as best you can down to the penny,

how much money you really need to borrow and borrow that amount and not just borrow the cost of attendance because it might be less than that. Yeah, is the school really making money on that? Sure, yeah, anytime any institution has money that they're holding, they make interest off of it. I didn't know if it was like an escrow situation. I don't know.

I don't know, that's a good point. So that's a great point. Oh, I thought you were, you said you knew for sure, you just were thinking, hey, they got the money in the bank, they're making some money on it. Basically, yeah, like Tony from Jersey would think. So here's the deal, if you, some private schools are really, really expensive.

You might not be able, even if you max out, you may not be able to cover the cost of your school. Take it or leave it, here's some more advice from your uncle Chuck. Don't go to one of those schools. Yeah? Just don't do it. Go to a school you can afford.

Yeah. Because you know what, that doesn't matter. The one thing I saw. You get that college degree. Right. How many people have been like, oh, well, I mean, there are some prestigious schools, sure, where that really does matter, but 90% of them,

I don't think it really matters. I think it's more the networking that's available to you at those schools. That's what they say. Than is necessarily a degree these days. I think, but the thing is, they go to a big state school with so many more students and such a bigger net.

Right. The thing I saw that was like the most foolish thing you can do is to go to a state school that's out of state for you. Because the education you get at that state school is going to be virtually identical to the education you get at the in-state school, but you're paying three to four times

as much for that same education. But your parents don't live an hour away. I guess so, I guess so. But surely there's another state school, four hours away or two hours away or whatever. I get wanting to be with your parents or whatever. I totally get that. But figure out another way.

Like going to a different state school is not a good idea. Agreed. And you can just flush all this advice down the toilet kids. But what you really shouldn't do, I think, is go to that super expensive private school that has like 1200 students. Because the networking opportunities there are so slim.

Well, they say that people who borrow for a liberal arts degree typically have the hardest time repaying it. Even if they come from the socioeconomic class that is more likely to repay it, that could repay it. Because the wages don't pan out to be anything that can really pay off a really, so you have a really expensive education.

And then you sit in a coffee shop reading poetry. Yeah, that doesn't pay very well. And it's not all about money. Totally, I totally get that. Chuck gets that too. That's not the point. It's not the answer to everything. Money's not the answer to everything.

No, but having lifelong debt, you will never get out from under. That's crippling. It's hard to fathom at age 17. And so hopefully your parents are worried about this and saying like, hey, you need to be thinking about this. You shouldn't do that and giving you good advice. But if they're not, please, please,

seriously sit there and consider whether what you're going to spend an astronomical amount of money on is actually worth it. Yeah, because it's not just about money, but having that mountain of debt at 21 years old really narrows your opportunities in life. Yeah, and if you- You might think it broadens opportunities

to have gone to this school, but if you've got $90,000 in student debt, it narrows your opportunities. It just does on not opportunities, but on the paths that you might be able to take. Right, well, you're probably going to be in a situation where you don't have the luxury of saying, I'm going to wait for a better job offer to come along.

You're going to be like, just give me a job. Please, I'll take whatever. And you're going to be very unhappy. What's more, there's a really high likelihood that the more astronomical your debt and the lower your wages, that you're going to default on that, which we'll talk about later.

But once you start defaulting on loans, then you really are on a hard path because credit opportunities are closed to you. You get harassed all the time. There's just, it's a lot, it's a bad jam. Bad things can happen if you owe people too much money, even the federal government. All right, we should take a break,

but it's really occurring to me how smart we are and how every child in America needs to be listening to us right now. All right, we're going to come back right after this. Letting things get junk and junk, all the things that you should know. Back into the decade of the 90s. We lived it, and now we're calling on all of our friends to come back and relive it.

It's a podcast packed with interviews, co-stars, friends, and non-stop references to the best decade ever. Do you remember going to Blockbuster? Do you remember Nintendo 64? Do you remember getting frosted tips? Was that a cereal? No, it was hair.

Do you remember AOL Instant Messenger and the dial-up sound like poltergeist? So leave a code on your best friend's beeper because you'll want to be there when the nostalgia starts flowing. Each episode will rival the feeling of taking out the cartridge from your Game Boy, blowing on it and popping it back in

as we take you back to the 90s. Listen to, Hey Dude, the 90s called on the iHeart radio app, Apple Podcasts, or wherever you get your podcasts. Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough or you're at the end of the road.

Ah, OK, I see what you're doing. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. This, I promise you. Oh God.

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each week to guide you through life step by step. Oh, not another one. Kids, relationships, life in general can get messy. You may be thinking, this is the story of my life. Oh, just stop now. If so, tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never, ever have to say bye, bye, bye.

Listen to Frosted Tips with Lance Bass on the I Heart Radio app, Apple Podcasts, or wherever you listen to podcasts. Man, you just made me really nervous. All right, kids. We're going to catch some heat for this, aren't we? We're going to, nah, we're going to talk because I've guaranteed there are parents that are going

to be like, hey, you should listen to this. Yeah, you won't listen to me. Listen to Josh and Chuck. You stupid heroes. You want to go to Sarah Lawrence? Listen to these guys. Yeah, don't blow it all in pot. All right, so now we're talking about private loans.

Where is Sarah Lawrence? Is that Massachusetts? It seems like a Massachusetts. Probably every school's in Massachusetts, isn't it? Yeah, a lot of them are. Yeah, they are all in Massachusetts. That's one of the great spinal tap jokes, is when they talk about canceling a Boston show,

they say, oh, it's all right, it's not a big college town. Dave liked that one. And you finally saw it, right? I've seen it before, yeah. I don't know why you can't take this kernel of information and subsume it into your general awareness. It's subsumed. So private loans, there are a bunch of little bells

and whistles that a private lender can offer you that a federal government loan will not. They can be like, hey, we'll knock off a little quarter of a percentage point if you sign up for auto pay. If you refer people, you might get a little kickback. The guys they send to your house to break your legs are usually really well-dressed and polite. If you pay on time, you might get a little discount

along the way. So they're little fun things like that that they can do that the federal government does not do or can't do maybe. Sometimes they say you can defer this until you graduate six months after. We'll talk about deferments in more detail in a minute. But it's also a private lender. So the only thing they care about is taking your money.

Sure. And they know how to lend it and they know how to get it. That's right. One of the other things, the other cons about going to a private lender for a loan is like, they might say, no, you can't have it. Sure. That's a huge distinction from a federal loan.

The federal government analyzes your ability to pay. As a kid, they're just gonna say, yes, fine, come on in. Here's your money. If it's a plus loan and your parents are on the hook, they don't look at your parents' credit score. They don't look at your parents' debt-to-income ratio, meaning essentially their ability to repay the loan. I think they do look at their credit score.

They look at their credit worthiness. Oh, well, sure. And there's a big difference. Basically, they look to see, do your parents have any negative reporting on their bank? Have they defaulted on other ones in the past? No? Great. We don't need any other information.

Yeah, I see what you mean. Not, no, they pay their bills, but they also only have 5% of their income left after the bills are paid, and this is a horrible hardship for us. But please lend us the money anyway. A private lender's gonna be like, your parents' debt-to-income ratio's too high.

We're not gonna give you this. Or- I hate to break it to you, 17-year-old, but your parents are in a really bad financial situation. In case you didn't know. They had to sell the food truck and the airstream to put you through college. That's right.

So the private lender may turn you down. That's another con, too. Yeah, you can get a co-signer, of course. This is when you get usually one of your parents on board or something. They're, of course, on the hook for it, just like it is their loan. But lenders offer a couple of different things.

You can get a fixed loan, you can get a variable loan. Those variable ones, if anyone learned anything from the housing crisis, they can be very dangerous because they're based on a couple of things. The LIBOR, London Interbank Offered Rate, and the Prime Rate, and that's when, if you have the best credit in the world, you're gonna get that rate.

Right. But the variable rate can vary, and so three years into school, you could be paying a different rate. Yeah, because those rates change. That Prime Rate and the LIBOR rate change, and so they're taking that as the base rate and then adding to it percentages

based on your credit worthiness. That's right. And then that's the interest rate you pay. And because those base rates change, your interest rate changes, and if those go up dramatically, your monthly bill goes up dramatically. From month to month, it can just kind of swing wildly,

and that's not good for the old ticker when you open those envelopes or get that email with your monthly bill. Yeah, we dodged a bullet with that with our house loan because we had one of those variable arms, and it just didn't bite us in the butt. Oh, that's good. We just got kind of lucky.

I remember hearing about that with the subprime mortgage debacle, people were getting these loans, and the first four years, it was easy street, and then year five would come, and the payments would just balloon. Boing. So yeah, that's variable rate. You can also get fixed rate,

although it's usually higher than what you're signing it for, but you know exactly what you're getting through the life of the loan. And that's what the federal government loans offers a fixed rate, almost always lower than what you're going to get from a private lender. Right, so if you're going to a private lender, you're probably going because you have exhausted

the money that you got from the federal government. The private loans are still going to disperse the money to your school, which I didn't know as well. Yeah, everybody's just going around you. That stuff drives me crazy. It's like, I'm borrowing, give me the money. But they're like, no, I guess because they're like, you're 17. There he goes with this spindle bag.

They're like, you're 17, you can't be trusted with $30,000 check, you know? It's not the worst thing in the world to maybe do that. Agreed, it would still drive me crazy though. So repaying these loans, there are a bunch of different ways you can structure these. With private loans, you got a few different options. Full deferral, and deferral means while I'm in school,

I don't want to work, I don't want to pay off this loan. So just give me the money, give it to me, and I'm not going to work, I'm not going to pay anything until six months after I graduate. And they say, we'll give it to your school instead. And you go, fine. And they'll say fine, but you're going to be paying that interest, that's still accruing the whole time.

Right, you're not making any payments whatsoever until after you graduate or leave school six months after sometimes. Right. But like you were saying, the interest is accruing and like. It's going to be a bigger payment in the end. It's going to be an eye-popping payment

when you start finally making payments. Right, depending on how much money you make when you graduate and start paying, you can deduct some of that interest on your taxes about up to $2,500. Currently, yeah. That's nice. Right.

Immediate repayment means you're in school, you get this loan, but you start paying every month just while you're in school because you're smart. Got a job at Mexicali Grill? That's right. Start making some payments. Yep, start making those payments, at least on interest.

You have an option, I think, whether to pay interest or not. Yeah, there's interest-only payments too, which is basically like I want to pay just the interest on my loan so that I know exactly what I'm paying when I finally start paying off the principal after I graduate, or you can even make partial interest payments,

which is just, you're just keeping it from being this title wave of interest when you finally start making payments. Also, I think, and this is just a little bit for me, just getting in the habit of making payments, even if it's just a little bit every month, has got to help ease that transition when you finally do start attacking it after college.

Yeah, we should have a little bell in here to ding every time we give a little personal nugget. No, you know what we need? We need an arm extender, so we can pat ourselves on the back loudly every time we give one of these. That's a good idea. They make those, the little robot arm grabbers.

Oh, yeah. I also, I think we should just say, bear saying one more time, even though our school was paid for it ourselves, we don't have student loans, we totally sympathize with anybody who's struggling with student loan debt. Like that sucks and like that's,

we don't want you to feel like we're talking down to you by giving you this advice. Not at all, that's a very nice thing to say though. Federal loans, it's a little bit different with the repayment structure. You can, just like with the private loans, you can have that option of full deferral if you want, but federal government has this deal

where between like 10 and 30 years, they say you can repay this thing in a standard way or the extended way. I think standard is 10, extended is 25, but if you consolidate loans, it can go up to 30. Yeah, in the private lending world, consolidation is called refinancing. It's basically taking all of your loans

and combining them into one new loan. Well, it's also called loan consolidation. Sure, yeah. But in this case, from what I saw, it's like the government calls this consolidation, the private lenders call it refining. Go, really? Yeah, okay.

Swear to God. What's that? But when you're consolidating the federal loans, you're not saving money, you're just making it easier on yourself. That's right. When you refinance the private loans or with a private lender,

you're probably going to save money because not only can you consolidate or refinance your private loans, if you have federal loans, you can consolidate them with the private lender. That's right. They go in, pay off your loans to the federal government and they say now you pay us,

but maybe it's at a lower rate, maybe it's at a fixed rate. Who knows? If you're doing that, you're probably doing it to make it so that you're paying less every month or over the course of the loan. That's right.

If a federal loan, if you go the graduated repayment route over that 10 years, repayments start low monthly and then they increase over time with the supposition that your salary is increasing over time. Right.

Which makes sense. And so I think the standard one or the graduated one, those are the default setting when you start repaying your loan. But what a lot of people don't realize is that the federal government on their loans offer what are called income-based repayment plans. Yeah, income-driven.

They make a lot of sense. They're a really good idea. I saw, I read a really great article from Brookings, I believe, basically saying like here's all the ways that the student loan situation is just totally broken. But it's based on some really good ideas.

It just needs to be fixed in some ways. It was written by Adam Looney. It's called, A Better Way to Provide Relief to Student Loan Borrowers. Really interesting stuff on Brookings. But one of the things he says is like, the default should be a repay income-based repayment. The R-E-P-A-Y-E revised pay-as-you-earn type.

Because what it is, it says, okay, what's your income? Every year you file a new income report. And then they say, well, they take 150% of the poverty limit, whatever the government says the poverty level is. They subtract the two and you pay 10% of that. That's your payment.

Right. Okay, so it actually is set up so that as you start to make more money, your payments go up. But if you don't ever really start to make more money, you pay about the same. So the whole idea behind all the income-based repayment solutions is that if your diploma is paying off,

great. If it's not, we're not gonna treat you like the people who are benefiting from the college experience that they had. Right, you with the philosophy degree, bless your heart. Go start thinking about existential risk. That's the best thing you could do. There are other different kinds of income-driven repayment options.

You talked about revised, pay-as-you-earn. There's also pay-as-you-earn, income-based repayment, income contingent repayment. And they're all just tweaked versions of sort of the same idea. Where in you're figuring out how much you can pay out of your discretionary income. Or rather, they're figuring it out for you.

Exactly. It can be between 10 and 20 years to pay off. It can be 10% of your discretionary income. In the worst case, it could be 20% of your discretionary income. But yeah, it's a set amount and its income, it reflects the amount of money that you make. So it's pretty cool.

The other great thing about these with the federal government that you are not going to get from a private lender is after the term of your loan, right, 10 years, 20 years, whatever, 30 years, I think if you get like the super duper extended version. They say, okay, well, you tried to pay it off. This amount that's left over, we're just going to discharge.

You don't have to pay it. What's going to be forgiven. Oh, are we talking forgiveness? I think so. All right. Do you want to take a break first? Yeah, let's take a quick break and we'll get more specific about forgiveness

right after this. We'll call it a cliffhanger. Letting things with jock and jock, shining on the face that you should know. On the podcast, Hey Dude, the 90s called David Lasher and Christine Taylor, stars of the cult classic show, Hey Dude, bring you back to the days of slip dresses

and choker necklaces. We're going to use Hey Dude as our jumping off point, but we are going to unpack and dive back into the decade of the 90s. We lived it and now we're calling on all of our friends to come back and relive it. It's a podcast packed with interviews, co-stars, friends, and non-stop references

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So leave a code on your best friend's beeper because you'll want to be there when the nostalgia starts flowing. Each episode will rival the feeling of taking out the cartridge from your Game Boy, blowing on it and popping it back in as we take you back to the 90s. Listen to Hey Dude, the 90s called

on the iHeart radio app, Apple Podcasts, or wherever you get your podcasts. Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough, or you're at the end of the road. Ah, okay, I see what you're doing.

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Oh, not another one. Kids, relationships, life in general can get messy. You may be thinking, this is the story of my life. Just stop now. If so, tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass

on the iHeart Radio app, Apple podcast, or wherever you listen to podcasts. All right, so you teased forgiveness. Teased it so hard. You're the one who said bend over and I'll make a deposit. I don't want to hear it from you. I'm sorry, again, parents with children listening. That's right.

There is a plan called the public service loan forgiveness plan that what you were talking about under certain circumstances, if you, they will forgive your remaining balance. If you have been paying for that 10 years or 120 qualifying months, you are working full time for a qualifying employer, which is a government or nonprofit that is a true nonprofit.

So you can't like go work for the Democratic National Committee or something like that. Yeah, it has to be a nonpartisan nonprofit. That's right. But it can literally, from what I saw, any 501c3 organization that isn't partisan or involved in labor unions, it would qualify. Yeah, but here's the thing is these got a bit of a bad rap

when that first wave came through because 99% of these relief applications were rejected. But then other people pointed out that some of these people didn't make those 120 payments. Some of these people filled out things incorrectly on their applications. They weren't eligible. They didn't work for a qualifying employer.

So all the things you said you had to do, a lot of people didn't do these. So I don't know if we have a real good percentage number. I don't think they were just rejecting people. Like just for fun? Yeah. No, we'll have a better, I guess, better view of it next year or the next couple of years.

But the point of it is to drive people into careers like being a cop or a firefighter or working for a nonprofit. Because again, after 10 years, just 10 years of making payments, once you've made that 120th payment, they say, thanks for the memories. You don't have to pay anymore. It's not bad.

Your loan is gone. Sometimes tens of thousands of dollars is gone. And you still get to keep that degree plus your 10 years into a career that you hopefully are really happy with. That's right, because that's how it works. Exactly. Here's the thing, though, is loan forgiveness. There's something called a tax bomb.

And it works a little something like this. You eventually will get taxed because whatever they forgive, you have to count as income. And then you are taxed on that income. Right. They always got their hand out. So this is not for. You think you've gotten away with something.

This is not for that 10-year one. The 10-year one, did you say, is called the public service loan forgiveness plan? That's right. OK. That one, the tax bomb doesn't apply. This is for the forgiveness for just regular federal student loans, where somebody's been paying for 20 years or 25 years.

Whatever's left, the federal government says, you know what? You did it. You faithfully paid this stuff off, but you just never made enough money to really pay it off. So we're going to forget about it. It's clear that you're not going anywhere in life. But that amount that's left over, we're going to count that as income on your income tax.

So you have $30,000 left. If you're a high income earner by that time, you could pay. You probably aren't, though, if that's. Right, exactly. But let's say all of a sudden you just had a huge uptick in your salary two years before that 20th year of payments came along. And you just still had a big amount left over.

You could be paying 37% on that. So if you had $30,000 left over and you're in the highest earner bracket, you would owe $11,000 in taxes on that debt forgiveness. The thing is, some people who know about this stuff say, there's no way the federal government's actually going to do this to people. Yeah, because we're not there yet.

No, we've got about 10 years before the first people who are eligible for that will come. We'll be able to test that. Yeah, and we should also point out that it's all relative. If you are not in a high tax bracket, it could still be a big burden on you because you're not making that much money.

Sure, but when you reach that, right, yeah, you're right. But hopefully, some observers are saying, they won't do that to anybody. Other people say, I don't know. If you default, which we'll talk about in a second, if you default on federal student loans, they take your tax refund. So who knows?

Maybe they will charge people with that tax bomb at the end. Maybe. So defaulting, that means, well, it could mean a few things. If you're a day late, you're delinquent. Dollar short? If you're three months late, if you're 90 days late, then they're going to report you to the credit bureaus.

If you don't make a payment for 270 days, then you're finally considered in default. And you don't want to do that. You don't want to default on any loan in life. Because, hey, it's the wrong thing to do. If you can help it at all, I know sometimes life happens in such a way that you can't. But if you can avoid defaulting on that loan, please don't.

Yeah, the thing is, is like when people are calling you every day, when, no. Please avoid defaulting. Man, that took a second. People are calling you and harassing you every day. Apparently, the federal government uses a company called Navient, who are particularly despicable when it comes to some of the stuff they'll do.

I think they had like 500 federal lawsuits filed against them in one year. Really? And the second largest competitor to them had like 40. So yeah, they're not very well liked. But when they're calling and harassing you multiple times a day, the last thing you want to do is reach out to them and say, hey,

how can I get back on track to paying you guys? You just want it to go away, right? But that's the opposite of what you should do. If you find that you can't pay your bill, you should get in touch with your lender and say, I can't pay my bill. I need to make this more manageable. What can we do?

The problem is, one of the first things they'll offer is something called a forbearance. That's right. And that is just, hey, take a little time. Don't make any payments. Get yourself together. Yep. Maybe you need a couple of months.

Maybe you need a couple of years. Who knows? But we're going to put you in forbearance. So you're not delinquent on your account. You're not in default. But the problem is, is you're still accruing interest. And that's actually not the best solution that you want. Yeah, so you turn the interest switch off, right?

And they're like, oh, no, no, no. We don't know how to do that. There is no switch. They're like, oh, sorry, I couldn't hear you bye. Yeah. So you're not in default, but you're still accruing interest. You're just not making payments. And the problem is, apparently, the servicing companies

that actually make the collections on the loan payments for the government or for private lenders even, too, it's way more expedient to be like, hey, we don't want you to be in default anymore. How about a forbearance? OK, we'll get you in the program by. And it sounds really good to you. Right, exactly.

You're like, oh, great. I could use six months or a year. But if they would take five more minutes, they would say, actually, if you're a federal loan borrower, there's all these income-based payments that are going to make it way more realistic for you, rather than just kicking the can down the road and having to face this in six months

when your forbearance is over, we could put you in one of these income-based plans and you'll be better off. And a lot of people don't know that. So the forbearance does seem like a great, basically, gift from God all of a sudden when actually it's a bite in the bottom from the horse god that you aren't expecting. That's good.

We talked about consolidation. That can be a very good idea. What we haven't talked is rehabilitating your account. If you go through a period in life where you default and you're like, screw it. I can't or won't or refuse to make my payment, you can pick up a year later and say, jeez, is it too late? And you know what they'll say?

Oh, no. Come, brother, come, sister. Yeah, get out that checkbook. You can rehabilitate that account, which is a really good thing. Start making payments again. That's all you have to do. And if you couldn't afford that payment before, they'll even restructure that back to what you were talking

about to your income, like if you, let's say, have a salary reduction in life. And that's why you defaulted in the first place. Pick up the phone or just answer the phone. They're going to be calling you. Yeah, they'll be calling you. And rehabilitate it and say, listen, let's talk this through. I'm a good person.

I really want to pay this. And they'll say, great, what can you afford? Let's look at your numbers. And then you start paying it. And then all of a sudden, if you've paid nine payments over 10 months, then you're considered current. Your default status is removed.

Credit bureaus think you're a great person again. And you only get one shot at this, though. Right, that rehabilitation, you get one chance. One chance. And that's just with federal loans, right? I believe so. I'm pretty sure it's just federal. Yeah, that's just federal.

So yeah, ultimately, you want to stay out of that there is a second chance with the federal government, but it's not necessarily easy to do. Right. So one of the things that happened with all of the student loans, there's like a student loan debt bubble that a lot of people are worried about, because there's like $1.6 trillion

out there right now, which is good in one way, because with student loans, the system is set up so that the people who are benefiting from it now, people who are borrowing to go to college, are paying back into it later to benefit the people who need to borrow that are coming behind them. So it's actually a pretty interesting good system. But the problem is with that much money out,

and as many people at risk of defaulting on these loans, a lot of people are worried about it. One of the reasons that people are worried about the risk of default among a large section are what some people call sums, people who have some college education, do you see that? Yeah, people who went to college and didn't graduate, basically.

Yeah, and one of the problems from that Obama initiative to expand higher education was to say, oh yeah, online colleges we've never heard of before, sure, come on in. Barely accredited colleges, come on in. Like, basically scams, come on in and take all this money. I won't mention a very prominent. No, we can't. OK.

OK. I looked it up that didn't apply. Oh, OK. Not even accredited. Yeah. Wow. So the fact that the country was a wash in easy money for college education, and that no one was watching the sharks

who were coming to soak it up, means that a lot of people went to schools that they got zero benefit from, but walked away with a lot of money that they owed. That's right. And so these are the sums. So basically these people would have been better off with just a high school education,

because to an employer, a little bit of college doesn't help. No. You have to go graduate. Yeah, you don't walk in and say, well, I spent three years. And so close, Jim. Jim, can I call you Jim? Yeah, sure.

So close, Jim. What's called the sheepskin effect, which is the actual increase in wages that you can typically expect from a college diploma, there's no proportion to it. Right. If you get three years of schooling, you don't get three quarters of a sheepskin effect.

It's all or nothing. That's right. And you only get it when you graduate. So if you don't graduate, you got nothing from that increase in wages. And you actually owe money through student loans. So there's a big problem associated with student loans. And a lot of people are worried about it.

And one of the things that is causing worry, too, are people have figured out how to take a bad situation to make it even worse. Because some lenders, and I think the federal government's among them, take student loans, package them up, and sell them as securities. It's like the housing crisis. It's exactly like the housing crisis,

with one big difference, that subprime mortgage crisis. Even if somebody defaulted on a loan, there was still a house that could be taken and sold. Right. And that sounds extraordinarily heartless, but I'm saying from an investor's point of view. Well, that was a physical thing. There's collateral.

Yeah. With a student loan, there's nothing backing it. If the person defaults, then you just lost everything from this investment. But the idea that people are like, oh, there's a student loan bubble. Let's figure out how to turn it into an investment that is really ill-advised.

That's what I think something like $280 billion of that $1.6 trillion is securitized. Wow. I think Mark Cuban, one of his big deals, is student loan. Like paying it off or relieving it? Trying to help solve the problem. I think he's one of the ones that's

kind of been shouting like, there's a big problem coming. There's a huge problem coming. I think a lot of people know it, but very few people know what to do about it. There's one other thing. There's a proposal by Rand Paul that was brought to committee on December 3, 2019. And it basically says you can get like $5,600

out of your 401k, penalty-free and tax-free if you use it to pay off your student loans. Yeah, that's a tough one. It's a math problem, like just do the math. It's sort of like robbing Peter to pay Paul. You're not going to have that money later on. Right, exactly. But depending on how the numbers work out,

it could benefit you. It could benefit you in the short term. But what some people are saying is like, no, dude, we're going to have a big enough problem with a lot of people not prepared for retirement. 30 years. We should not be encouraging those same people to take whatever money they have saved away for retirement

to pay off their student loans. It's not a good idea. It's not for everyone. It could be for some people. It depends on how your life goes. Well, yeah, plus a lot of people are like, I don't have $5,000 in my 401k. What's a 401k?

All I can think about is my student loan debt. It's a bad situation. I'm very curious to see what happens. Yeah, me too. And go to school where you want to go to school, kids. But I'm telling you, try to make it someplace you can afford. And really, really, really look at the benefit. And if that outweighs, if it's worth it,

you think to spend all that money, just think more about it. Well, you want to know one thing that's really despicable that I came across that I did not understand, Chuck. The federal government is not allowed to share data on outcomes from schools. So if you went to a private school and you just got a wash and debt and you make $10,000 a year,

there is no way to share that with prospective students who say, well, I want to stay away from that school. I want to stay away from that program. You go to Sarah Lawrence. The average salary as an outgoing senior is blank. Like they don't share that. So what we're advising people to do, it's very tough to do because the federal government

is barred from sharing that information. I think I mean more look within. Sure. You got anything else? Nope. This is a big one. We could talk about this forever. This one, Chuck may have broken a record.

I had 64 tabs open on just student loans today. I believe it. 64. That's too many tabs. It's a lot of tabs. OK. Since I said it's a lot of tabs, and Chuck said something horrid about deposits, it's time for Listener Mail.

I'm going to call this two Listener Mails because they're both pretty short in both corrections. Hey, guys. Been listening a long time. Really love the show. I finally have some info that I can share with you regarding a recent episode. I was listening to the Coyotes episode,

and Josh was searching for a word for something that is active at dawn and dusk. Oh, yeah. And I'm here to tell you that word is crepuscular. It sounds like a peat and peat kind of word. It does. The crepuscule is another word for twilight or dawn and dusk. So crepuscular means of the twilight

or an animal that is active at that time. Hope that helps at your next trivia night. That is Sarah from Wisconsin. And now we're going to read one from Bethany, a correction for my pronunciation of Tagalog. Hey, guys. We got a few of these. Listen to your show every day during work,

and love listening to what you have to offer because of my frequency of listening. I know you're always looking to improve pronunciation and want to be respectful of other cultures. I'm currently on your latest short stuff on the murder of Teresita Bassa and wanted to point out the correct way to pronounce the Filipino language. Chuck said Tagalog.

It's actually Tagalog. You were thinking of those little Debbie cookies. Or no, Girl Scout cookies. Tagalogs? Yeah. No, I just didn't know. That's how I pronounce it, too, Chuck. I just wanted to help where I can say thank you for continuing

to produce awesome content year after year. Once again, it's Tagalog. Tagalog. Tagalog. Tagalog. I think. Well, this is G-A-H, not G-U-H. Somebody else said G-U-H.

Oh, boy, here we go. That's from Bethany. Thanks a lot, Bethany. And from Sarah, two. Two listener mails, two top-notch ones. If you want to try your hand at sending a top-notch listener mail, wrap it up, spank it on the bottom, and send it off to StuffPodcast at iHeartRadio.com.

Stuff You Should Know is a production of iHeartRadio's How Stuff Works. For more podcasts from iHeartRadio, visit the iHeartRadio app. Apple podcasts are wherever you listen to your favorite shows. On the podcast, Hey Dude, the 90s called, David Lacher and Christine Taylor, stars of the cult classic show, Hey Dude, bring you back to the days of slip dresses and choker

necklaces. We're going to use Hey Dude as our jumping off point, but we are going to unpack and dive back into the decade of the 90s. We lived it, and now we're calling on all of our friends to come back and relive it. Listen to Hey Dude, the 90s called on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place, because I'm here to help. And a different hot, sexy teen crush boy bander each week to guide you through life.

Tell everybody, yeah, everybody, about my new podcast, and make sure to listen so we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple Podcasts, or wherever you listen to podcasts.