The Personal Finance Podcast - Student Loans Just Changed... Here’s How to Pay Them Off Faster (This Year!)

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Starting point is 00:00:59 On this episode of the personal finance podcast, student loans just changed. Here's how to pay them off faster. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew, founder of Mastermoney.com. And today on the Personal Finance podcast, we're going to be talking about your student loans. If you guys have any questions, make sure you join the Master Money newsletter by going to mastermoney.com slash newsletter. and you can respond to any of those newsletters that come out every single week,

Starting point is 00:01:48 and I read every single one of them. And don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever podcast player, you love listening to this podcast on it. And if you want to help out the show, consider leaving a five-star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Can I thank you guys enough for leaving those five-star ratings and reviews? Now, first off, before we dive into this episode, I just want you to know that down below in the show notes,

Starting point is 00:02:13 We created a free guide that you could follow along on this episode in addition to all the steps that we're going to be talking about in this episode on how to pay off your student loans faster. We're going to be talking about negotiation tactics and ways that you can negotiate your rates. I give you scripts in that free guide that's going to show you exactly how to negotiate some of these different things that we are talking through in addition to emails and templates and all these different things. And so if you have student loans, if you're looking to pay off your student loans faster or just navigate the craziness of student loans right now. I want you to make sure that you check out that

Starting point is 00:02:47 free guide down below. Now, as we start to dive into this episode, one big thing that a lot of people are struggling with right now is student loans. And the default rates are at their highest because a lot of things are shifting within this landscape where some people thought they were going to get forgiveness and some people thought that they were going to have a bailout. And then all of the sudden student loans came crashing back down. And now we have these payments that we have to deal with. So the number one thing I want you to focus on is the thing that you can control, meaning that you can focus on what you have to pay currently, and we're going to focus on how we need to think about paying these loans down.

Starting point is 00:03:21 And specifically, if you have a high interest rate loan, we want to get rid of those loans as fast as we possibly can. Now, I know for some people out there that income is tight, meaning you're living paycheck to paycheck. It is a difficult world to live in right now when it comes to your financial situation. And so I'm going to try to help you navigate through that in this episode, so that we can go through this entire process. But first, before we dive into the tactics that we're going to talk about in this episode,

Starting point is 00:03:45 I want to dive into some of the changes that are happening right now so that you are informed as to what may be happening to your student loan as well. And so we're going to dive into those changes first. Then we're going to get into how to pay off your student loans faster and some tactics and things that you can use to pay off those loans faster this year. And then lastly, we will have those scripts available for you. and I'm going to go through a bunch of rapid fire questions on student loans at the end. So, this is an action-packed episodes without further ado.

Starting point is 00:04:16 Let's get into it. All right, so first, let's talk about some of the changes that are happening to your student loans. First, is there is an elimination of save, pay, IBR, and ICR for new borrowers that is going to be eliminated July 1st of 20206. So what does this mean? These were all income-driven repayment plans where your monthly payments, were going to be based on a percentage of your income with forgiveness after 20 to 25 years. So the way that these were structured is that they looked at your income and said, okay, these payments are going to be based on a percentage of that income in this given year.

Starting point is 00:04:52 And then after 25 years, if you truly can't pay these back, they will be forgiven. So these were governmental loans that were in place based on that. So starting July 1, 2006, none of these plans will be available for new borrowers. And so the government is consolidating options into just two, which is that. the standard plan. And the standard plan is going to have fixed monthly payments over 10 to 25 years. And then the repayment assistant plan, which is one to 10% of discretionary income with forgiveness after 30 years. And so the previous plan was a little better. And so anyone borrowing new federal student loans on or after July 1st, 2006, this is going to impact you. And so if you already

Starting point is 00:05:33 have loans, you're safe. Nothing is going to change. You can keep your current plan. They're going to honor your current plan. But if you're starting school soon, try to take out the loans before July 1st, 2026 to preserve access to IDR plans like IBR. Now, just so you know, at the top of the show, I just want to say this up front. If you can avoid student loans, I would try to avoid them at all cost. Don't take out student loans if you don't need them. And it is really important to make sure that you do that. If you go through life without having student loans, you are going to have a much easier time financially than someone who has to take out student loans. But the reality is, Privilege is very real and some people are privileged to have folks who can help them through college.

Starting point is 00:06:09 And some people are not so privileged and they have to take out student loans in order to make sure that they can pay for college. Now, the second big change that is happening right now is interest resumes on save plans starting August 1st, 2025. So this episode is coming out after August 1st, 2025. And so this is something where save was the most generous repayment plan available and it eliminated unpaid interest for low income borrowers. So any unpaid interest, it was eliminated. But as of August 1st, interest starts to accrue again, meaning even if your payments are low, your balance might grow again. So anyone currently enrolled in the save plan,

Starting point is 00:06:46 you need to go and log into your servicer account and check out how much interest is building. And if your balance is growing, consider either making extra payments every single month or switching to IBR if your income has gone up. And then comparing cost projections under save and wrap. Those are three of the things that I would do first, and then you can figure out what to do next.

Starting point is 00:07:04 Number three is there is going to be a forced transition to the repayment assistant plan where a lot of people call this RAP by July 1st, 20208. So everyone's still on save or older income reddriven payment plans will be automatically enrolled in RAP by July 1st, 20208. Now, rap is a new plan that requires payments between 1% to 10% of your income and has a $10 a month minimum and forgives your balance after 30 years of payments. Now, anyone who is using save, pay, IBR, or ICR, you're going to be moved over to RAP at July 1st, 2028. But if your income is low enough, there is a $10 per month minimum. Now, don't wait to be auto enrolled. You can lose forgiveness progress or end up with higher payments.

Starting point is 00:07:48 And so if you're pursuing PSLF or IBR or another strategy, it's time to switch now. And then if RAP is your best long-term option, review how those payments are calculated and plan accordingly. Number four is wage garnishment and collections restart? in August 2025. So during COVID, collections on defaulted loans were paused. And as of August 2025, those projections are gone. So if you're in default, 270 plus days behind, the government can either garnish your wages up to 15%.

Starting point is 00:08:17 They can seize your tax refund or they can report you to credit agencies. And so borrowers who are in default on these loans, they need to make sure that they enroll in something like the Fresh Start program, which gives you a one-time chance to get out of default and restart some of those payments. and then contact your loan servicer via student 8.gov to apply and do this before your wages or refunds are impacted. You need to do this beforehand. Don't do it after and wait too long. Do it now.

Starting point is 00:08:43 This is one of those things that you can focus on that you can control. You need to do this now. Otherwise, they're going to start taking cash out of your paycheck and you don't want that to start to happen. Number five is new borrowing caps for grad and professional students. So borrowing limits have been tightened to curb runaway student debts and grad students are 20,000, $500 a year or $100,000 total. And professional students are $50,000 a year or $200,000 total with a lifetime cap of $257,000. I like this. I think this is helpful for a lot of people. If you are spending way too much on student loans, it is really hard to recover. I know a lot of doctors,

Starting point is 00:09:19 I know a lot of lawyers who are like, oh, I'm going to be able to make enough money to recoup all this and get by. And a lot of times what they realize is life happens once you start to make money. it is not as easy as you think to pay off debt when it is this big. And if you have a $200,000 debt, for example, it is very important to make sure that you are paying it down quickly because it is very, very difficult to pay it off depending on what that interest rate is. Now, this affects anyone who is starting graduate or professional programs after July 1st of 2025. And it is something that I think is honestly positive for a lot of people. Now, number six is employer paid student loan help is now permanent. So this is a great thing.

Starting point is 00:09:57 So employers can now contribute up to $5,250 per year to your student loans and won't pay income taxes on it. And so employers also get a tax break. So this is a win-win situation. So any borrower, especially those at larger or progressive companies, should make sure that they actually have this available. And in our guide, our free PDF guide that we're talking about, I'm going to give you an email template to send over to your company to see if they will offer this. And they will kind of be able to explain the benefits of this so that they can. get that tax break in addition, you can possibly get $5,250 per year going towards your student loans. And so that is a great, great benefit. And so what you should do, though, is ask your HR department,

Starting point is 00:10:38 and we'll talk more about this in the episode. If they don't offer it, request it. See if you can request this as part of your package. This is a great thing to throw in during your salary negotiations is to see if they will offer this. Because this is something where if you're not going to get the salary you want, well, this could give you a $5,000 boost somewhere else that can give them a tax deduction, in addition, help you with your student loan payments. That is a great, great win-win situation. I love utilizing this as a negotiation tool, and it is something I think most people need to be asking for, and I would ask for it frequently. I wouldn't just ask for it one time. If they say no, don't take no for an answer. Keep on asking in different ways. All right. Number seven is

Starting point is 00:11:14 easier access to IBR.BR. So in the past, you could only enroll in income-based requirement if you qualified as having financial hardship. That requirement is now gone. So the financial hardship requirement is now gone, meaning anyone with eligible loans can choose IBR. Now, borrowers who were previously blocked from IBR due to high income can now actually apply for this. And so what I would do is I would use some of those student loan calculators to compare IBR versus rap versus the standard payment. And if you're seeking long term forgiveness but don't qualify for PSLF, IBR may be your best option. And so these are the seven changes that we're going to be talking about now. So for most of you out there, these are going to impact your student

Starting point is 00:11:53 loans. And so you need to understand how these work and making sure that you have this in place is going to be very, very important and choosing the best option for you. So next, what we're going to get into is how to pay off your student loans faster in 2025. All right. So we're going to talk about how to crush your student loans in 2025. Student loans can be crippling to a lot of people in their financial situation. I know how difficult it can be. When my wife and I first got married, that was the first debt that we attacked. She had about $20,000 in student loans. And so immediately, the first thing I did was I got after those student loans and made sure that we paid those off. And eventually, we were able to pay those off in just over a year making very modest salaries.

Starting point is 00:12:39 I was making about $30 something $1,000 per year at the time. And she was making probably just a little bit more than me at that time, right around $45, $50,000 per year. And so because we had these entry-level jobs, we attacked these student loans. So we didn't have those payments. anymore, got rid of those student loans, and then from there decided we want to start to build wealth. And that's where our big journey started, it was getting rid of those student loans. So I want you to know that no matter what your income is, you can do this. And I'm going to teach you how to figure out a plan to pay off your student loans faster. And that is our entire goal is to just increase the speed at which we pay off our student loans. Now, if you have a really low income and you look

Starting point is 00:13:17 at some of these repayment plans and you think it's going to be forgiven over the course of 30 years and you just want to make those minimum payments short term, then you can do that. But as your income rises, those repayment plans are going to shift and you may end up paying off the balance anyways. And so talking through this, we're going to start to look through how to get rid of our student loans. Now, anybody who is thinking about going to college or going back to college, again, the number one thing that you can do is avoid student loans altogether. Is avoiding them is the number one thing because debt is crippling to our financial situation, especially high interest debt. and the rates right now are not very good.

Starting point is 00:13:52 And so making sure that we avoid some of this crippling debt is step one, because it is very difficult to get out of these situations. I know people in their 50s and 60s who are still paying off their student loans. And so there's going to be a lot more of those folks in the future because student loans really started to accelerate with the millennial generation, my generation, that's when they really started to accelerate. And so let's talk through how to get these paid off faster, get it off your plate so that we can start to work towards some of the

Starting point is 00:14:19 big impact things like growing our wealth so we can achieve financial freedom. This is part of those steps to achieving financial freedom because once you get these extra dollars back, you could take those extra dollars, put them towards your freedom fund, invest them so they can grow over time so you don't have to work that job you hate any more. And so that is what we want to do is make sure that we are working towards this. So step one is I want you to really have a good understanding of your student loan. The biggest thing to note is that when you get a war with someone, you want to understand your enemy inside and out. It's very important to understand that. And your student loan right now in this situation, that is your enemy. And so I want you to know what you owe

Starting point is 00:14:58 and I want you to know who you owe it too. You have no idea how many people I talk to who have no idea who they owe their money to with their student loans. Before anything else, I want you to get clear. So log into student a.gov and I want you to go see your loan types. I want you to know your interest rates and I want you to know your balances. You need to know those three numbers that is very important. And so again, go to student a.gov, see your loan type, your interest rate, and your balances. And then I want you to make note of who your loan servicer is. Maybe it's Navient or Mohella or Nelnets. There's a bunch of them out there. Just understand who that is. And then I want you to do one thing. If you have multiple student loans, maybe you have some federal student

Starting point is 00:15:38 loans, but you also have private student loans, I want you to separate the two out and figure out what we're going to do because the repayment strategies are going to differ between those two types of student loan. So say, for example, you got a student loan with SOFI. In addition, you also have some of the federal student loans. Well, those are going to be something where we are going to think through this. Now, if your loans are in default, I want you to make sure you pay attention to step 11 as we go through this, because that is going to be a place that is going to help you the most. Now, step two is I want you to choose the right repayment plan. This is the time where you can change the structure of your repayment plan, and I don't want you to default into the wrong one. And so this is going to be

Starting point is 00:16:16 very important for us to think through. So your repayment plan determines how fast that you can pay off this debt or how long it's going to linger for some of you in these situations. And so if your goal is speed, you can choose the standard 10-year repayment plan because this is the fast track and this has fixed payments. The payments are going to be the same. Every single month you know what to expect. And this is going to fast track you to get those paid off in 10 years or even less if you make extra payments, which we'll talk about in a second. If you need flexibility, but you still want progress, which flexibility is everything when it comes to paying off debt. I really like flexibility and having the ability to be flexible,

Starting point is 00:16:52 then you could consider things like IBR or the repayment assistant program or a wrap based on your income. So you can do this based on your income. If you're worried about your income in your situation, if you're in an entry-level job or you don't make a lot of money currently and you're just struggling to pay your bills as it is, then that might be the way to go for you. And if you're still on save, review your plan now. It's less generous with interest starting again.

Starting point is 00:17:15 And so making sure you review your plan if you're on save is going to be really important. Now, there's something at student a.gov called the loan simulator. And it compares monthly payments and total costs across plan. I think that's a really great tool for you all to use when you're comparing these plans so that you can look at this based on your financial situation. And so looking at that loan simulator at studentate.gov is really, really helpful. Now, step three is I want you to automate your payments. And I want you to automate these payments biweekly if you can. So instead of paying once a month, I want you to split your payment into two and pay every two weeks. What's going to happen here? Now, here's why this works. There are 52 weeks in a given year.

Starting point is 00:17:56 And so because there's 52 weeks, paying every two weeks means that you are making 26 half payments. Well, if you're making 26 half payments, that means you're making 13 full payments every single year. So you have one extra payment that you're making just by changing this to buy weekly payments. Now that extra payment is actually going to go to reducing your principal. So it is a principal-only payment. And it's going to reduce the interest over that time frame and it's going to shorten your loan terms. So let me give you an example of this. Let's say, for example, you have a $30,000 loan and your interest rate is 6.5%. And so your standard monthly payment is $341. And in that situation, over the course of 10 years, you'd pay about $11,000 in interest over 10 years. I know it probably makes your stomach turn.

Starting point is 00:18:44 It is one of the worst things in the world. This is why debt is so crippling. That's at a 6.5% interest rate. But if you make biweekly payments, you're still going to pay $340 per month overall, but you're going to make those 13 full payments each year instead of 12. And you'll pay the loan off 10 to 11 months faster. So it'll be about nine years. And you'll save about $1,200 on interest.

Starting point is 00:19:08 So that's if you just do this one simple thing. You'll save yourself over 10. 10% in interest alone. And the cool thing is, it's automatic, it's low effort, and accelerates payoff by almost a year. And so that is what we're trying to do is accelerate that payoff. Now, you can pay even more than the minimum. And this is the next thing I'm going to talk about. Every dollar that goes towards principle, not interest, is really, really powerful. So if you add $25 to $200 per month extra to your current payments, you're going to be able to pay that off even faster. See, these things are going to start to compound. So let's say you make the extra payments.

Starting point is 00:19:39 But in addition to the extra payments, you got a little bit of extra cash that you can put towards making sure you get this paid down even faster. If that's the case, you can add a little more, $25, $50, I don't care, $200, $400.400, if you're a high earner, you should be adding a lot more to this if it is high interest. And so because of that, you can tell your servicer to apply the extra payments to your high interest loan, not just the next due date. And this is going to help you when you're looking at paying this off faster. Now, step five is you have two options here. You have something called the debt snowball and the debt avalanche. The debt. debt avalanche is going to make sure that you can pay off your loans slightly faster.

Starting point is 00:20:15 But the debt snowball, if you have a lot of student loan debt and if you have a couple different carriers, then the debt snowball may be the better option for most people psychologically because you get those wins. Now, the difference between the two is very simple. The debt snowball, you pay off the lowest balance first, then you move on to the second lowest balance, then you move on to the third lowest balance until you reach to that largest balance and all those payments from the previous balances are then going towards the largest Now, when you're paying off the lowest balance first, you're making minimum payments on all the rest of your debt. And so because you're making minimum payments on all the rest of your debt, you're at least making sure that those are up to date, and then you're attacking that lowest balance.

Starting point is 00:20:54 Now, once that lowest balance is paid off, then all the money that you were sitting towards that lowest balance goes towards the second lowest balance, and then you're making minimum payments on the rest of your debt. And this helps you get those wins and keeps people motivated. Now, studies have shown that the debt snowball, even though mathematics, it may not be the best option is psychologically the best option for most people and they stick with it way longer. And so this is something where if you are someone who needs the motivation to stick with it longer, the debt snowball is probably for you. Now, if you're someone out there who loves the hard numbers, you love the math and you just want to get there as fast as you possibly can, the debt avalanche, or what we used to call the debt wrecking ball because like Miley Cyrus,

Starting point is 00:21:36 you come in on that debt like a wrecking ball. That is probably the optimal one for you. And so between these two, just thinking through which one kind of fits your personality is going to be really, really important. You can start with the debt avalanche if you want. And if you're like, this is tough, I just want to get some of these small loans out of the way so I can take this extra money and move it towards the bigger loans, then that may be the better option for you on the debt snowball side. So avalanche, snowball, both of them are really good. And honestly, the end result is not going to be much different depending on how much debt you have. I really like the debt snowball for the psychology effect. But the debt avalanche is mathematically,

Starting point is 00:22:10 the faster way to pay this off. Step six is if you get raises or you get financial windfalls, I want you to utilize those windfalls to help you take money and put it directly towards your loan. So this is tax refunds. Don't just go blow that tax refund on a vacation and a visa. Take half of it. Put it towards your student loans and get those paid down.

Starting point is 00:22:29 Second is bonuses. If you get a bonus, take half, put it towards your student loan debt. Get that pay down faster. Third is pay increases. When you get an increase, increase the amount that you were paying down. on that student loan to get it paid off faster. Most people take the increase, commingles in their checking.

Starting point is 00:22:44 They don't make differences when it comes to building wealth. Instead, if your number one goal is to pay off that loan, then taking those increase and paying that down. Also, side hustles. So I've talked about this

Starting point is 00:22:53 a number of different times when it comes to student loan debt. I don't like side hustles like Uber Eats or DoorDash, but those are great side hustles if you got a big goal that you're trying to accomplish really quickly. So if you have student loan debt and you're trying to get out an extra 100 bucks

Starting point is 00:23:07 and 200 bucks a day doing DoorDash or Uber Eats, it may be honestly an awesome option for you while you are in the student loan phase. Get that thing paid down first. And then after that, then we can worry about everything else. And so ensuring that we get that debt paid down is going to be a really, really powerful thing for most people. And then birthday or holiday or gifts, those types of things. I mean, for most of you, I'm not going to make you take your birthday money or your holiday money and just throw it at your student loans. But if you are really motivated and want to do that, not a bad idea. And so again, when it comes to,

Starting point is 00:23:39 to windfalls, we talk about the 50-50 rule. I want you to take 50% and enjoy your life. The other 50% I want you to put it towards wealth-building activities and paying down debt is going to increase your net worth. Hence, it is a wealth-building activity. And so really, really important stuff if you want to make sure you get this paid down fast and you are sick of student loans taking away some of your earning power. Next, we're going to jump into step seven. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post

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Starting point is 00:27:18 Because this can be something that can be huge for you and your benefit in terms of making sure that you get some of this stuff paid down faster. So again, at the top of the show, we talked about this. But as of 2025, employers can contribute up to $5,250 per year tax-free towards your student loans. Now, why this matters is that you get free money towards your loans. And so this is just like getting a 401k match. You're getting a 100% rate of return on your money, meaning they're just giving you this money. Your employer gets a tax deduction.

Starting point is 00:27:48 So that's the benefit to them as they get this tax deduction. And it's a win-win and cost them less than a salary raise. It's going to cost them less than a salary raise for you. And so you can even ask for this. instead of a raise in some scenarios. But again, if you don't have a massive amount of student loans, it's not always the best option. But if they won't give you a raise, asking for this, if they don't already offer it, can be a great, great perk. And so we have a script to send your HR representative so that you can send this over to them in a chat version. And we also have it in an

Starting point is 00:28:17 email version in the free guide that is down below in the show notes. And so making sure you look at that, we have that available for you so that you can make that request. You can tell them what the benefits are. And you can adjust that any which way that you think fits. your voice. But we have those two scripts down below to help you with that. Now, step eight is to consider refinancing, but only if it makes sense and it's smart. So if your interest rate is above six percent, refinancing may lower your interest rate in those lower interest rate environment. So if you're listening to this and you're in a lower interest rate environment, this could help you dramatically. But there are some reasons to refinance and there's some reasons not to refinance.

Starting point is 00:28:52 Only refinance if you have a stable income and good credit. Okay. So usually 700 or above so that you can actually get a good and decent enough interest rate. Secondly, do not refinance if you're pursuing forgiveness. So if you want to have forgiveness over the course of 30 years, not worth it to refinance. And if you don't need federal protections like deferment or income-based options, then you can consider refinancing. But if you want the options to have deferring your student loans or income repayment options, then that's probably not something you want to refinance to a private loan. Instead, you want to make sure that you are looking at some of those other loans. But if you are We have a script in that guide that's going to show you, hey, here's the question that you ask

Starting point is 00:29:32 the refinancer to figure out what exactly they can offer you. And so it's going to be things like what rate can you offer based on my credit and income? Are there any origination fees or prepayment penalties? Can I select between fixed and variable rates and what happens if I lose my job or have a financial hardship? So in that script or that email that you can send over to the refinancing company, we have a little email there to help you through that process as we do this. Now, step nine is to dedicate a side hustle to student loan payments. So even a small side gig, if you are willing to take on side gigs, putting 100% of those side gigs towards your student loans to pay them off faster can be really, really powerful.

Starting point is 00:30:10 So let's say, for example, you want to do gig work. So you want to do Uber Eats or DoorDash. And so you start to do that and you make $100 every time you do it for a half a day. Well, let's say, for example, you want to do it one week and a month. Well, that's $400 extra dollars per month that you can put directly towards your student loans. That's really powerful. Or maybe you want to walk dogs, and every dog you walk is $30,000, and you put that towards your studio loans every single time that you go and walk a dog because you're really

Starting point is 00:30:34 motivated. That is another really powerful thing that you can do. So if you think about it this way and you think about those side hustles as something that is reducing your debt liability, it can help you stay motivated to keep doing that over time. And I think it's really powerful. You're never going to regret being like, gee, I wish I didn't pay down that debt so fast, especially high interest debt.

Starting point is 00:30:53 You're never going to say that. So overall, really, really important stuff. Now, let's talk about the interest rate for a second here on your student loans. Because if you have a really low interest rate on your student loans and you just got lucky and we're in a really low interest rate environment, it may not be something that I'm going to pay off super fast. It may be something. And instead, I'd rather invest those dollars. So if you have a two and a half, three percent, four percent rate on your student loans,

Starting point is 00:31:14 some of those I'm most likely going to invest those dollars first before actually paying them down faster. So I just want to make sure we note that as we're talking through some of this stuff. Now, if you hate debt and you still have a low interest rate and you want to get rid of that debt, more power to you. There is nothing wrong with that whatsoever. I like it. I like that the idea. But for some of you, if you're more investment minded and you want to make sure you're achieving financial freedom as fast as you possibly can, that's the tradeoff that you have to think through. Now, step 10 is to track your progress and making sure you track your total debt balance, countdown months remaining and celebrate every $5,000 milestone is going to be very important for most people. but just tracking how much you are actually paying down in debt is really, really important.

Starting point is 00:31:56 Now, step 11, if you're in default right now, I want you to use Fresh Start now. So you need to act immediately and stop wage garnishment or tax refund seizure. And so enroll in the Fresh Start program at StudentAid.gov. That is the place you need to go. And it removes the default from your credit and get you back into good standing. So getting that default removed is very, very important. You need that off your credit score so that you can have a decent. credit score. In addition, number two, is it means that they're not going to seize part of your

Starting point is 00:32:24 tax return or wage garnishment and instead you get a fresh start. This is a limited time opportunity. So again, make sure you are doing it right now. Step 12. If you're unsure about forgiveness and then you're torn and you're saying, should I pay it off or should I wait for forgiveness? Here's a smart hybrid strategy that I would say that you could consider is continue on your forgiveness plan. So IBR or PSLF or repayment assistant program or wrap, continue on that plan. Then, save extra debt payments in a high-yield savings account, meaning if you think that some way you're going to get this forgiven, you can take the extra payments, put it in a high-yield savings account, which is barely going to keep up with inflation, but at least you have it somewhere.

Starting point is 00:33:02 And then if forgiveness comes, keep the cash. If it doesn't, you can make a lump sum payoff. I would say right now, how likely is it for you to be able to get forgiveness currently? It is less likely than it used to be. I'll just put it that way. But in the future, if you think or hope or just want to make it. make sure before you do anything that you can actually get this forgiven or you want to make sure that you actually didn't just waste your money and you think it could get forgiven for some whatever reason. Maybe you got inside Intel or whatever else. This gives you the optionality without locking the money into your loan. And again, you can make that bigger payment later on in the line. Just

Starting point is 00:33:37 know you're going to be paying more in interest over the time frame. And then again, we give you a bunch of different scripts for folks who want to chat with their lender when it comes to private loans, for federal loans, for private lenders when it comes to refinancing, and for financial hardships all in that free guide. And so just knowing your current score and income and debt income ratio before you enter into some of these conversations can be really, really important. So next, we're going to dive into the top student loan questions, and we've got a bunch of them. I'm going to do this in a rapid fire fashion because we have a number of them here that I want to go through. So I got a bunch of student loan questions. I'm going to try to do this in one

Starting point is 00:34:15 to two sentence answers to make it easier for everybody. All right, the first one is what is the best repayment plan right now? So if you want to pay off your loans fast, the standard 10-year plan is best. If you need income-based repayments or forgiveness, IBR or RAP may be the best depending on your current situation. Number two is the save plan still available? Yes, but the benefits have ended as of August 1st, 2025, and all save borrowers will be automatically move to RAP in 2020, like we talked about the top of the show. Should I wait for forgiveness or just pay off my loans?

Starting point is 00:34:46 if you're in a program like PSLF or if you're in IBR forgiveness, stick with it. But otherwise, it's most likely smarter to just focus paying off your loans. And for most people, I like to focus on the things I can control and I can control if I get this paid off. So for most of you, I would say, yes, go ahead and pay off your loans. You should never, ever wait for the government to do anything when it comes to your finances. That includes everything from paying off your debt to Social Security. You always want to make sure that you are focusing on what you can control. Is student loan forgiveness still possible this year. Yes, it is, but mostly it's limited to PSLF and IBR forgiveness after 20 to 30 years and targeted programs, but blanket forgiveness for people like people had talked

Starting point is 00:35:28 about a couple of years ago is unlikely. And that's probably not going to ever happen just so you know. And so it's better to just focus on paying them off. Can I lower my interest rate on student loans? If you have private loans, refinancing can lower your rate. For federal loans, auto pay gives you 0.25% discount, but deeper reductions aren't typically available. So making sure you have your student loans set up on auto pay can help you reduce the amount that you're paying an interest. And trying to negotiate your rate on the private side is something you could definitely do. You just need the data to make sure that you understand how to negotiate that. Can I refinance by student loans in 2025? Yes, but only refinance if you're not using federal

Starting point is 00:36:06 forgiveness programs. We just talk about some of those and the considerations to have. What is the difference between IBR and RAP? So IBR capture payments at 10% of discretionary income with forgiveness in 20 to 25 years, while RAP ranges from 1 to 10% with a 30 year forgiveness timeline in a $10 minimum. So that's the difference between the two. How do I qualify for public student loan forgiveness? So if you work full time for a nonprofit or government and you make 120 qualifying payments under an eligible plan like IBR and submit your employee certification yearly,

Starting point is 00:36:40 That's how you can qualify for the public service loan forgiveness program. Now, what happens if I default on student loans? Well, we talk about this a little bit, but the government can garnish your wages, they can take your tax refund, and they can ruin your credit. And so it is not something you ever, ever want to do as defaults on loans. It will ruin your financial situation short term and probably long term if you do not get that stack together. Can I deduct student loans interest on my taxes?

Starting point is 00:37:05 Yes, you can deduct up to $2,500 per year in student loan interest if your income is under the IRS limits. And so what is the IRS limits currently? So at the time I'm recording this, if you're single, the deduction phases out between 75,000 to 90,000, Magi, and married filing jointly, it phases out between 155,000 to 185,000

Starting point is 00:37:25 on your adjusted gross income. So if your income is below those thresholds, and you can claim the full deduction, even without itemizing your return. And typically even like turbotax and some of those things, they will be able to calculate this for you in your CPA. Most of you should have a CPA, if you're a wealth builder,

Starting point is 00:37:41 should be able to claim this for you as well. Will my spouse be responsible for my student loans? Only if they co-signed for a private loan or if you live in a community property state, otherwise student loan debt stays with the current borrower. So that is something like if your spouse co-signed, then that's something different. But if they didn't co-sign,

Starting point is 00:37:59 then no, it's going to stay with just you specifically if something ever happened to you. What if I can't afford my payments right now? So I would contact your servicer and I would ask about switching to IVR or rap, or request forbearance if it's a short-term hardship. So if you just lost your job and it's a short-term hardship and you know you're going to get another job, then I would request forbearance.

Starting point is 00:38:18 That's the thing that I would look at doing. So that's all the rapid-fire questions that we have on student loans for this episode. Again, if you guys have any questions, make sure that you join that Master Money newsletter. And again, download the free guide down below, which is going to be the ultimate guide to paying off student loans faster. I hope that's going to help you because we have those free scripts in there that will help you kind of communicate with your HR department or your loan providers to help you get lower rates and save a lot of money. Again, this is one of those big ticket items that we want to make sure that we are focusing on and getting rid of to have a big difference maker overall.

Starting point is 00:38:52 Listen, thank you so much for listening to the Personal Finance Podcast. And if you guys have any questions, again, join the Master Money Newsletter. And we will try to answer as many of those questions as we possibly can. And again, sometimes we have those questions answer on the show on our Money Q&A episodes. Thank you so much again. And I will see you on the next episode. When a country's productivity cycle is broken, people feel it in their paychecks, their communities, their futures. What does this mean for individuals, communities, and businesses across the country?

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The Personal Finance Podcast - Student Loans Just Changed... Here’s How to Pay Them Off Faster (This Year!)

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