Young Scrappy Money Podcast Ep. 028: Smashing Your Student Loan Debt with Travis Hornsby of Student Loan Planner

Bona fide student loan expert Travis Hornsby joins me for an episode on one of our nation’s biggest crises, including why student debt is such a huge issue today, how borrowers can find out and understand their loans, and how to balance paying debt with longer-term financial goals.

Resources from this episode:

• StudentLoanPlanner.com, home to Travis Hornsby’s work as one of the nation’s foremost experts on the student loan crisis. Be sure to check out his podcast and learn more about how he and his team help borrowers figure out their student loans!
• The Young + Scrappy Facebook group, where you can connect with other people who are on a journey to improve their finances
• The National Student Loan Data System, where borrowers can get the lowdown on all the Federal student loans that they might owe.
• Heartland ESCI, home to student loans issued by the Department of Health.
• AnnualCreditReport.com, which allows consumers to download one free credit report per year from each of the three main credit bureaus (Equifax, Transunion, and Experian). It’s not well-designed, but the site is legitimate!
• Travis’s rad article on the 12 Best Banks to Refinance Student Loans in October 2019 (with a $300 to $750 Cash Bonus), in case you need a resource for refinancing and getting a lower rate on your student loans
• The Young Scrappy Money Academy Digital Subscription Service
• Young + Scrappy, home to Michelle’s work as a financial advisor and financial coach
• Jesse G, my editor. If you ever need audio/video editing work, give him all your love and money

Full transcript:

INTRO: [00:00:00] Hello. And welcome to the Young Scrappy Money podcast. I’m your host, Michelle Waymire. And each week, I’ll be bringing you tips and tricks to help you take control of your finances as well as interviews with people who made big financial changes in their own lives. So join us. And we’ll help you get your financial s**t together.

MICHELLE: Hello, everybody. Welcome, welcome to another episode of the Young Scrappy Money podcast. Today, we are talking about one of the biggest topics on everybody’s minds. And that is student loans.

You may not know this. But I do run a personal finance Facebook group. If you look up Young and Scrappy: A Fresh Approach to Finance, you’ll find us on Facebook. I posted a question the other day: If I could wave a magic wand and get rid of one source of financial stress in your life, what would it be?

The number one answer that people replied was debt— and most specifically, student debt. This was actually consistent not just on my LinkedIn, but when I asked on Instagram, when I asked on Facebook, LinkedIn, all of the channels had the same response. Overwhelmingly, there is a real struggle with student debt in this country. And if you are young and scrappy and listening, chances are this applies to you. 

Luckily for you, I have with me today Travis Hornsby, who founded Student Loan Planner after helping his physician wife navigate ridiculously complex student loan repayment decisions. To date, he’s consulted on over $450 million in student debt personally— more than anybody else in the country. He is also the host of the Student Loan Planner podcast. This is a dude who knows his s**t when it comes to student loans. So I’m really excited to have him on. Welcome, Travis.

TRAVIS: Thanks. Great to be on, Michelle. 

MICHELLE: It’s a delight to have you. Um, so we know that this is a crisis. People have called this a student loan crisis for more than a little bit now. I wanna start with some statistics. What does the current student debt crisis look like in this country? 

TRAVIS: Well, it’s 1.6 trillion overall. But that doesn’t do a really good job of explaining what that actually looks like at a human perspective. So the price of college for undergrads has basically quadrupled since 1980. 

So a lot of— you know, our parents will say something like, oh, well, when I was in college, I worked hard. And I knew what the value of a dollar was. And, you know, and I— I paid my way through school. Well, it’s like, oh, congratulations. Because today that would be totally impossible. Right? 

Or at least it would be a lot more difficult than when, you know, our parents went to school. If you look at when our grandparents went to school, instead of just our parents, you know, they paid even less. And so why is this happening? 

So, you know, one wonderful thing that’s happened over the past, say, 70, 80 years is college has become a lot more accessible. But with college becoming more accessible, the price of college has skyrocketed. Because the schools have realized that they’ve been able to get away with it. Right? 

And so as the path to the middle class really kind of seems like it has to run through college, the colleges have realized that our pricing power is way, way higher than we have previously charged in the past. So if you wanna kind of think about the core reason why we have a student loan crisis in America, you know, you can think about it a lot of different ways. But I like to think of it as, you know, colleges instead of kind of acting like nonprofits, they’re really kind of acting like ruthless businesses in a lot of cases. And they’re just charging what they can get away with instead of just charging, you know, a probably more fair price for what they’re providing. 

MICHELLE: Yeah. Oh my gosh. I love that you started out mentioning the— the phenomena, we’ll call it, of well-intentioned baby boomers saying, well, I did it, and so can you. Um, because I think that’s a real— a real issue. 

There’s kind of a stigma against student loans and a sense of, if you have them, if you had to pay for your education this way, which so many, so many people do, that that’s a problem. So why is this such a big deal? Like what impact is this having on people’s decisions in the household as well as the overall economy? 

TRAVIS: Well, people are definitely delaying marriage. They’re delaying buying homes. They’re delaying starting families, uh, taking entrepreneurial risk. So there’s all kinds of mindset problems that are created from student loans basically being this big stress point and big source of anxiety for people. 

And it actually doesn’t have to be that way. Uh, most people that have federal student loans don’t even realize all the options they have available to them is— is my experience. And then, you know, for private student loans, yeah, maybe you have this big required payment that’s in some cases bigger than a rental payment that you have to make. But there’s ways to even restructure that. You know, you can put things on 20-year plans or look at different refinancing options. 

Um, so there’s just a lot more flexibility than people realize that can really significantly reduce their stress level. So that’s what I would encourage people to do is, you know, you really need to seek out solutions to try to reduce your anxiety around this. Because it’s just not worth it, all the bad decisions people make because of it.

[00:05:00] MICHELLE: I like that you mentioned stress. That’s definitely something I’ve encountered in my clients who have a lot of student loans as well. There’s— there’s a lot of anxiety attached to debt in general.

And even student loans, which— I mean, at least in my case, for the most part I would consider that as one of the better forms of debt. You know, a student loan is not a credit card debt. It’s not an exorbitant personal loan. It’s— it really is to finance a career and an education in most cases. And so, um, it’s— it’s better than a lot of debts, as far as I’m concerned.

Um, but you mentioned stress. And I have a kind of a follow-up question there. I think the mindset piece is really important. And it’s easy to get down on yourself for having student loans. Um, do you have any recommendations or tips for sort of dealing with that mindset before we get into any of the actual tactics?

TRAVIS: So you have to realize that for federal student loan debt, at the worst-case scenario, it’s a tax. So just realize that you’re paying a percentage of your income on federal student loan debt. That’s the worst-case scenario. So if you’re paying a tax on your income, then by definition that’s always affordable. You just have to learn how to budget better.

Um, now, I mean, some people might not agree with that. But— but in reality, like if you’re paying 10% or 15% of your income for your debt, then you’re basically kind of like a German citizen. Right? German citizens pay higher taxes for free healthcare, free education, those kind of things, or at least discounted education and healthcare.

So if you think about it, the government basically agrees to cover your education in exchange for a percentage of your earnings. And what’s more is if you don’t like that trade, then you can actually get out of it. Because you can just refinance your loans and try to pay them off.

So for— for federal student loan debt, you know, the problem is we look at it on a page, and we think about that kind of debt with all of the baggage that’s associated with it. So when you look at student loan debt, you think credit cards. You think car loans that are gonna get repossessed.

You know, you’re gonna lose your vehicle. You’re gonna lose your house. That’s what people think when they think student loan debt. But it’s actually not nearly the same thing as almost any other kind of debt out there

MICHELLE: Yeah. That’s true. They can’t take away your degree. Joke’s on them.

TRAVIS: Yeah. Your brain’s not for sale.

MICHELLE: I m— I hope not. That’s a whole nother— whole nother podcast episode. I like that mindset shift though. Because, I mean, at least in my case, I personally would gladly pay more in taxes if I knew that more education was covered, and so kind of reframing it mentally to say, yes, this is 10% or 15% of my income. But if I would gladly pay, you know, 10% of my income for a better educational system, why wouldn’t I also pay 10% for my own improved education?

TRAVIS: Yeah. And that’s really what’s gonna happen at some point is you’re either gonna see, you know, higher education kind of become devalued a little bit probably and have a lot more pressure on prices and caps placed on the amount of money you can borrow— that’s one path that could happen. And the other path that could happen is— right now, only the people who actually borrow the debt are having to pay a percentage of their income. Right? Because income-based repayment— that’s literally what it is— is like you paying taxes in exchange for the government paying for education.

And the— the thing that’s gonna happen is, you know, with all these forgiveness programs out there, the money the government’s bringing in is really not enough to cover what they’re going to forgive. It’s actually probably a really big gap. And so, you know, either they’re going to have to make it so that there’s a lot more kind of caps put on borrowing and potential limitations to access, or you’re gonna see this move towards having just a wider tax base that’s, you know, gonna come on everybody’s tax bill to try to cover some of these ballooned costs of education.

MICHELLE: Yeah. So I think this is starting to segue a little bit into some of the tactics involved in understanding student loans and really figuring out the best way to pay them down. I mean, you mentioned income-based repayment plans. There’s a ton of other options out there. So how do people kind of get started understanding their student loans? Like what are some key things to look for when pulling debt information together?

TRAVIS: Yeah. You wanna go to the NSLDS database. So that’s nslds.ed.gov. And if you go there, you’ll be able to, um, basically type in your login information. And you can reset your password if you forgot it pretty easily. And then you’re gonna get access to a summary, a table summary, of all of the federal student loan debt that you currently have. 

The only catch is that debt does not include private loans that you might have refinanced or taken out with a private lender. And it does not include loans from the Department of Health and Human Services. So this is something that, you know, dentists and physicians will sometimes miss.

So they will sign up for, you know, basically loans through the Department of Health. You know, they’re called health profession student loans. And you can actually have them not show up on your federal database. And so you’re actually able to consolidate those and turn them into an eligible loan for forgiveness. But a lot of people don’t know that.

[00:09:55] Um, so I would just say the three places to find your student loans like, you know, with pretty much 100% certainty, if you google like free annual credit report and don’t click on any of the ads, there’s this website that gives you a free annual credit report once a year. And you can get it from each of the three bureaus if you want. So some people do it every four months. 

So you can go get a report showing all of the places that you might have private student loans. So that’s— that’s the place for private student loans. For federal student loans, it’s the NSLDS website. 

And then the last bit is there’s this company called Heartland ECSI. Generally speaking, if you have any loans from one of these random places, it will be there. So if you just try to login to nslds.ed.gov, get your credit report to look if you have private lenders, and then go to this Heartland ECSI website and see if you have an account there, you’ll find everything that you owe. 

MICHELLE: Awesome. For those of you listening, uh, if you’re driving, if you’re doing something, and you wanna come back to this later, just as a reminder, I do always put the resources mentioned in our episodes into the show notes on the website. So if you go to youngandscrappy.com/blog, you can find all of our episodes, all of the full transcripts of everything we say, and all of the resources that get mentioned. So I’ll be sure to link out to those three places to get your student loan information together.

Um, that way, you can try this at home. So when you’re in those three places, um, and you’re getting all your information together, what types of things do you wanna take note of? I’m— the thing that people tend to focus on is the outstanding balance. But what else do you recommend people look at? 

TRAVIS: Well, you wanna look at what you’re actually paying on a monthly basis. Um, a lot of times, people are paying something that’s too much. So one example is if you are on something called IBR, income-based repayment, you’re probably paying too much money on your student loans.

Now, people tend to use IBR, uh, you know, as the way people use Kleenex. Right? Everybody talks about getting a Kleenex when you need to blow your nose. But a Kleenex is actually a specific brand, and there’s actually a lot more different kinds called tissue paper.

MICHELLE: Yeah. 

TRAVIS: So it’s kind of similar with IBR. IBR is a specific repayment plan. And everybody always talks about how they’re on an— on the IBR plan. But there’s actually a lot of different plans, and IBR is just one specific plan that everybody just knows. So they just talk about that’s the plan they’re on. 

So we see this with our clients all the time, where they’ll think they’re on IBR. And sometimes they are. But a lot of times, they’re not. So the thing that I would tell somebody to do is figure out what repayment plan you’re actually on. 

You know, because it can be pay as you earn. It can be revised pay as you earn. It can be IBR. And those plans have different implications for how much you’re paying. So as a general rule, if you know what you made on your tax return last year, if you’re single, then, you know, the payment that you’re gonna make on your student loans is going to equate to— it’s basically supposed to be 10% of your discretionary income, which basically means about 8% of your taxable income. You know? 

So that’s because you get a deduction before they calculate your payment. So I guess that’s— that’s maybe a little bit too specific for some listeners. But— but, you know, my goal would be that you would look at what you’re paying. Because if you’re paying, you know, 3,000 or 4,000 a month, and you make $80,000 a year, then there’s probably something broken. 

MICHELLE: Yeah. That’s a great litmus test. Um, so, yeah, folks, if you’re— if you’re looking at your income, and you’re looking at your payments, and it’s more than— what?— 8% to 10%, then that’s potentially an opportunity to make some changes.

TRAVIS: Right, exactly. 

MICHELLE: So the things that you mentioned there, um, income-based repayment plans, they all have forgiveness of some sort at the end. So I’m wondering if you can walk through kind of what that looks like. And then how do you decide whether to try and actually pay your loans off or shoot for that forgiveness? 

TRAVIS: Yeah. So the different income-based plans allow you to forgive your debt in 20 to 25 years. And there’s no kind of requirements. You don’t have to be employed. You don’t have to be in a certain industry. It’s just 20 to 25 years’ worth of payments under one of these plans, and the debt’s wiped away. 

And the catch is you have to pay income taxes on the debt when it’s forgiven. So for example, you have $100,000. You pay based on your income for 20 years. At the end of those 20 years, your 100,000 has grown to 200,000. Because you’ve been paying a small amount in payments. And then you have to pay a bonus tax, basically as if it was a one-time bonus, on 200,000 of income all at once. So that’s— that’s the broad loan forgiveness that’s available to everybody. 

The kind of loan forgiveness that’s available only to public servants and government workers is something called public service loan forgiveness. So you sign up for the same exact payment plans as the broad one that’s available to everybody except that, you know, you just send in this certification form every year just to prove that you’re employed, and you’re on a qualifying plan. And then after 10 years’ worth of service, while making payments on one of these income-driven plans, your balance is wiped away tax-free. So the most common kinds of forgiveness are either a 10-year kind of forgiveness where it’s free, given tax-free, or, you know, the kind after 20 years where you have to pay income taxes on the forgiven balance, which is available to literally everybody. 

[00:15:03] MICHELLE: Yeah. And so the— the public service loan forgiveness, that’s really for, um, teachers, nonprofit employees, government employees. Am I missing anybody? 

TRAVIS: Well, the funny thing is it’s really for doctors and lawyers with high incomes, um, you know, I mean, just to be transparent. The PSLF program was initially kind of targeted towards that population. But, uh, what ended up happening is there’s all these loopholes in it. Right? 

And so the vast majority of physicians are employed at not-for-profit hospital systems, or at least a lot of them are. Right? And so you can make a huge amount of money and still get your loans forgiven tax-free. And, uh, you know, that is not necessarily, I think, what Congress intended when they passed this law. 

So I would see the potential for this program to change drastically for future borrowers. So for current borrowers, you’re probably in good shape. But for future borrowers who have not yet taken the debt out, you know, I would think that some of the reforms that might happen would make the forgiveness a lot more easily accessed by teachers and, you know, the public servants of like a lower income level. 

Um, you know, just to give you an example of this, right? So teachers, you know, tend to get bachelor’s and master’s degrees and might have $30,000 or $40,000 worth of student loan debt. Right? Maybe like 50, 60, if you have a lot. 

So there’s this very deceptively named program called Teacher Loan Forgiveness. And if you work for five years, they forgive somewhere between $5,000 and $17,000 approximately. So everybody tends to sign up for the thing that’s called Teacher Loan Forgiveness. Right? 

But the problem is— is if you’re going for that program, you cannot also be working towards that PSLF program. So what happens is all these teachers sign up for the wrong program because they’ve got 50,000 in debt. They only get 5,000 of it forgiven. 

And meanwhile, those five years that could’ve counted towards the 10 years they need to wipe the debt completely, they have to start over again. So this— the student loan system in America is super messed up, like super messed up. And—

MICHELLE: Yeah. 

TRAVIS: You know? And so just— I mean, like I want all of our clients who are physicians to get PSLF because, you know, it’s a contractual thing. And they planned on it. And they’ve put in the time. And they made career decisions in a lot of cases to go for this. So I don’t think it’d be fair to pull it away for the people who are currently working towards it. 

But, I mean, certainly there’s all kinds of inequities in the system, just really bad inequities. Like, you know, for example, dentists do not get any kind of special loan forgiveness. But physicians do. You know, veterinarians, who make a lot less money than physicians, get no special loan forgiveness at all. You have to work 20, 25 years to get the forgiveness and pay the tax bomb, whereas physicians do get that benefit. Right? 

So it’s just a— it’s a real kind of a weird system. Um, you know, somebody’s doing IT in a private company that helps customers, you know, plan their vacations. They don’t get loan serv— they don’t get loan forgiveness. But an IT worker who’s working for, you know, some sort of government agency or something, they do get the loan forgiveness. So it’s just— it’s a really confusing system that exists today. 

MICHELLE: Yeah, definitely. 

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MICHELLE: For folks who know that they are not eligible for public service loan forgiveness, if they’re working for-profit, and they just know that’s always where they’ll be, do you have a good litmus test for those folks to try and figure out whether they should get forgiveness, sort of the— we’ll call it the long way? 

TRAVIS: Yeah, yeah. I mean, if you owe more than 1.5 times your income, you probably need to go for the income-driven forgiveness 20-, 25-year options. So for example, you have 100,000 of income, and you owe more than $150,000. Right? That’s the kind of person that needs to go for the long-term forgiveness. 

I used to say two to one. I used to say that you needed to have a debt-to-income ratio over two to one to go for that path. But I’ve— I’ve kind of changed my mind a little bit just because I think that there’s a lot of things that people can do if your debt-to-income ratio is around 1.5 to 1 or higher, like save for retirement, potentially reduce your hours at some point, take care for family members or kids or elderly parents. Um, you know, there’s all kinds of things that might impact your taxable income over the next 20 years, where if you have a debt-to-income ratio that’s above 1.5 to 1, it’s a little risky deciding to just go ahead and try to pay all the debt off.

MICHELLE: Yeah. That’s— that’s definitely a gray area. That makes sense. Um, what about somebody who maybe has the one to one ratio or lower, so the person making $50,000 a year with $40,000 of student debt or $30,000? 

That’s still daunting for a lot of people. I’ve seen that cause a lot of stress and anxiety, even if the debt level is not in six figures. What advice do you have for those folks to try and stay organized and stay on top of those loans?

[00:20:00] TRAVIS: Yeah. So if you have 50,000 of income and 40,000 of debt, then you should— if all your debt is federal, then you should still be able to sign up for the revised pay as you earn program. So, you know, your income’s 50,000. They’re gonna give you about a $20,000 deduction.

So you’ll have 30,000 of income left over they’ll take 10% of. So that’s about 3,000 per year or about 250 a month. So a $50,000 income person could reasonably expect to be paying, you know, $200 or $250 a month on their $40,000 student loan debt. So that’s, you know, not too bad of a situation in terms of that monthly payment.

It’s obviously not— you know, it’d be better to— it’d be better to have zero obviously. But if you think about a $200 a month payment, you know, that’s basically a car loan. And, you know, Americans are pretty in love with getting car loans. Right? And they make the payments usually. And they don’t let the car get repoed.

MICHELLE: Yeah.

TRAVIS: So, um, you know— so that’s probably one path is the repay program. Again, it’s always a percentage of your taxable income. The only reason you can’t afford that is because you have a budgeting problem.

And then the, you know, counterpoint to that is you could’ve also moved that $40,000 loan into a 20-year refinancing term. So for example, like, you know, our sites, a lot of them have a minimum of 40K to get a cashback bonus. But say you have like, you know, 41K. Right?

You could refinance and get a $500 cashback bonus, uh, and then get on a 20-year term. And so the payment’s probably around $250, $300 a month. And you have a fixed monthly payment that’s not changing based on your income anymore. So there’s all kinds of options for that person where they don’t have to struggle.

Um, in some cases, like somebody with 40,000 of debt will have some federal and some private. And people have a really hard time making both of those payments. And so I will sometimes tell people, you know, hey, forbearance is not something I ever like to recommend. But you can do forbearance so that you can focus on knocking down your private debt to give yourself some breathing room. You know, so there’s all kinds of options out there for people, even if you only have a typical sort of undergrad level debt.

MICHELLE: I’m wondering, while we’re on the topic of refinancing, can you— can you define refinancing just in case folks who are listening are not as familiar with that? And then when is that a good option? And are there cases when refinancing is most certainly a bad option?

TRAVIS: Yeah. So refinancing just means transferring your loans from one lender to a new lender in exchange for a lower interest rate. So the most common reason somebody does this is because they obviously wanna pay down their loans to zero. And they wanna pay as little interest as possible so most of it goes to the principal balance instead of the interest costs.

So, you know, that’s refinancing in a nutshell. So refinancing student loans is a heck of a lot easier than refinancing anything else, in my opinion. Because refinancing student loans has zero transactions fees. There’s no prepayment penalties.

It’s very easy to apply for. Because there’s no mortgages or homes to appraise their value. Right? So usually it’s literally like a two-minute process of getting a rate check and then uploading your paystubs or your tax returns to prove you actually have an income. And then they’ll disperse the loan within weeks, you know, and pay off your old loan.

And now you owe this new company. And you’re paying them instead. And the reason you’re doing this is because it saves you money on interest. Because they give you a better credit— a better interest rate because you’re a better credit risk than what the government’s charging. So that’s, you know, how it works.

In terms of, you know, who should and shouldn’t do it, um, you know, the people who need to pay down their debt to zero should probably do it unless you have some sort of major like financial instability that could be coming in the near future, then in which case it’s much better to be on one of those income-driven options, like repay. So if you feel pretty comfortable— you have an emergency fund. You could easily afford to pay at least 1% of the balance, of your loan balance, every month. Then refinancing’s kind of a no-brainer. 

You know, in terms of when not to do it, if you’re a government employee or a public sector worker, or you might wanna be, uh, then refinancing takes away all the forgiveness options that you have. Right? If you’re not super stable, where you’re maybe, say, in a cyclical industry where you could easily lose your job, then refinancing’s probably not a smart thing to do. Um, if your debt-to-income ratio’s really high, like you owe double your income or more, then refinancing does away forever with those options to pay based on your income and get forgiveness for that long-term version. 

So that’s, you know, a clear problem. Uh, so refinancing can definitely cause some pain. But it can also save people interest that need to pay it off. Um, so I think that, you know, the last point I’d make is there’s a lot of lenders out there that put stuff on the internet about refinancing. 

And just, you know— I mean, we have— we have the cashback bonuses on our site. So I think, you know, you wanna try to make sure you’re getting a few hundred dollars in addition to a lower interest rate when you refinance. Because a lot of places just take that commission, you know, and just kind of keep that commission for their own profits basically. 

MICHELLE: I’ll make sure to also link to this in the show notes, that resource on your website about, um, potential cashback options for refinancing. That’s a great resource. Thank you.

[00:25:00] TRAVIS: Yeah. Thanks. 

MICHELLE: For people who are looking to maybe balance student debt repayment, I mean, you mentioned this, uh, earlier, that there’s like some type of person likely who wants to pay down student loans. But chances are we’ve all got other goals going on— so tackling potentially credit card debt, debt that’s more expensive, um, building up an emergency fund, starting a family, investing. I mean, the list goes on and on. How do you recommend people balance their student debt repayment plans with all of that stuff? 

TRAVIS: Well, actually, all the things you mentioned are all more important than paying your student loan debt. 

MICHELLE: I love that. 

TRAVIS: Um, so—

MICHELLE: Can you say that again, like proudly, so that people who are stressed out and panicked can hear that? 

TRAVIS: Yeah, yeah. So all of the things Michelle just mentioned, press the rewind button on your podcast app, you know, and listen to that again. Because all of those things that Michelle just mentioned are more important than paying off your student loan debt. Um, and let me explain why. So I don’t mean that you should let your student loans go into default. Please don’t hear that. 

What I’m saying is is that, you know, you have three years’ worth of forbearance on federal student loans that you can literally pause payments completely. And it doesn’t crush your credit score. It doesn’t cause you to default. 

The worst-case scenario is the interest is gonna compound while you’re in forbearance. OK? So that’s a 6% to 7% interest rate. You know, that’s not great to let that compound. But it’s also not 15% or 20%. 

So— or and it’s always not losing 100%, like when you don’t do your 401(k) match. Right? So like talking it in terms of the order, your 401(k) match is 100% return. That’s always gonna be a 25% credit card interest rate, you know, loss. 

And it’s gonna be a 7% student loan interest rate. Right? So your getting your 401(k) match is like actually probably the most important thing, in my opinion at least. And then second would be to, uh, get like some minimal level of cash in the bank. Like you are talking like a couple thousand dollars, just something where you’re not going to a payday lender when you have a flat tire. Right? So, you know, a couple thousand dollars, the second. 

Third is get rid of all your short-term bad debt. So that’s credit card debt. That’s personal loans. That’s like any of that. You get rid of that next. Once that’s gone, then you get your emergency fund up to where it needs to be. So where it needs to be is six times what your spending is. 

You know, if you don’t know what your spending is, make an account with mint.com or, you know, youneedabudget.com and try to figure out what that monthly number is. So you multiply it by six and figure out what your emergency fund should be. I think most people have said that probably should be around $20,000 or $30,000. 

And then after that, I like to tell people you need to put aside something for nonretirement investing. Because a lot of people, what I’ve found is they never get past that hump about retirement. Like that’s the only place they ever put assets. And that’s actually kind of a disaster a little bit. 

Because that means you have no option but to keep working until you’re 60 years old. And I like people to have the option to potentially not have to work until they’re 60. So that means putting, you know, 100 bucks or something like that into some sort of Vanguard or robo-advisor like Betterment, you know, something like that. Right? 

And then the next step after that is maxing your retirement accounts, putting more money away into your investments. And then what I like to say is like once you’re maxing your retirement accounts, that’s a good time to have that conversation of, should I pay more than the minimum on my student loan debt? You know? Because, you know, when you’re starting to get into investing outside of retirement versus putting the money into student loans, like if you need to pay off your student loans, I probably would rather you just pay off your student loans and be done with it. You know? 

And then the goal is you follow through those steps. And I think that all those steps are real doable on your own. You know, you just have to be motivated. And then once you get through those steps, like you’re kind of at the point where, you know, you might even work with like a fiduciary financial planner. Or, you might— you know, you might be able to be an attractive client for somebody to help advise so they can get you to that next rung of financial freedom on the ladder. 

MICHELLE: I love it. That’s really encouraging to hear. I hear so many people who are just terrified of student loans and, again, getting back to this idea of guilt and anxiety and like so many negative mindsets associated with it. I see folks who are terrified to put money into retirement because they’re too busy pounding away at student loans. 

And certainly, you know, there’s a solution that makes you sleep better at night. But I think the other piece of it too is really understanding your own behaviors and understanding what makes you tick and doing the work to say, it’s probably not in your best interest— I mean, obviously, um, everybody’s cases are different. Um, but it’s not always in your best interest to pay it off quickly. 

So do the mindset work. Save for retirement. And like prioritize what you need to prioritize. I think that’s really useful. 

TRAVIS: Yeah. I think— I think part of the issue is I’ve never seen somebody that knows how to max their 401(k) and is doing it that isn’t also rocking other areas of their financial lives. So I see a lot of people that are just doing their 401(k) match and paying off their student loans. And then when they get done with their student loans, then they’re like, OK, great, now I can go take that vacation. Or, I can go, you know, put my money in my savings account earning 1% interest. Right? 

[00:30:03] Like they don’t really have any of those financial muscles developed at all. Like those— those muscles are nonexistent when they pay off that student loan debt, even though they have extra money. So that’s kind of why I like to prioritize people saving money in their retirement is because if you do that, you know, you’re really going to start learning a lot about finance in general. 

And you’re probably gonna have a higher savings rate than other people. You’re probably gonna have extra money to throw at your student loan debt. Because you’re gonna be more aware. You know? 

So I don’t know. It’s just amazing to me. Like when we do these surveys of our readership, you know, so few people understand what a nonretirement investment account is. It’s actually like pitifully small. And I wonder sometimes if, in the financial industry, just like we’re to blame for just making it so complicated. 

Like people don’t care, I don’t think. Like stock, ETF, mutual fund, like they don’t even understand that stuff in a lot of cases. Right? Like we just need to do a better job explaining to people how important savings is. 

MICHELLE: Yeah. That’s exactly right. I think— I think you’re exactly right. What else should our listeners know about tackling their student loans? I know we covered a lot. But do you have any other, um, important insights or key takeaways for us?

TRAVIS: Um, it’s kind of a scary one. But the current system in America actually provides virtually no incentive to not just take out the maximum. So everybody always says like, take out the minimum of student loan debt. 

Like, you know, I saw this article even yesterday. So TIAA-CREF is this company that advises a lot of not-for-profit and government employees. And they were like— their article about student loans was like, take the minimum possible. Like, budget. Like, don’t take out more than you need. Like, try to be frugal. Like, follow this, you know, key step to taking out less than the cost of attendance or something. 

And I was like— you know, I hate to break it to them. But like the PSLF program right now, it rewards completely profligate behavior. Because there’s no cap on the borrowing at all. Uh, and then there’s no cap on the forgiveness at all for not-for-profit or government employees. And the same is true for people in the private sector that are doing that 20- to 25-year option. 

Now, there’s some bills out there that would eliminate the tax bomb for people completely. And so then you’re just paying a percentage of your income. So you’re paying the same payment if you owe 50,000 or 500,000. 

And so from like a rational standpoint, what do we all think these schools are gonna do? Do you think they’re gonna be careful with like not spending money and trying to keep costs down? Or, do you think they’re just gonna say, screw it? Let’s just run up the country’s credit card and just put it all on the taxpayer’s back, and the students just don’t even have to care because we’re just charging them a percentage of their income anyway? Right? 

So, um— so just realize like that’s the world that you’re in. And so if that’s the world that you’re in, where you’re basically paying a tax for your education, then are you better off with the degree that you’re getting plus paying a tax for that on your future income versus what you would’ve done if you hadn’t done that in the first place? So a perfect example of this is a lot of times like dentists I talked to were super depressed. 

Because they have 400,000 of student loan debt. And they’re making 120,000 a year. And I’d tell them, well, would you rather be making 50,000 a year in a corporate job somewhere with no student loan payment, or would you rather be making 120 and losing 10% of it to taxes basically in the form of income-based repayment options? And they like, well, when you put it that way, it sounds pretty nice. Right? 

So that’s what I would share with the listeners is, you know, worst case, your student debt is a tax. And is it worth it to pay that tax for the degree that you’re thinking about? So that’s the way you wanna think about it ahead of time. And then if you already have the debt, just know that it doesn’t need to affect these big life decisions, like having a family, getting a house, you know, having kids, all these big things. You can make those decisions independently of the student loan debt. 

MICHELLE: Awesome. So I mentioned at the beginning of this podcast that you’ve personally consulted on over $450 million in student debt personally. Um, how can people find you online? 

TRAVIS: Yeah. I mean, just check out studentloanplanner.com/help. That kind of describes what we do. And, um, we also have the— check out the blog. We have all this free content on our website, just hundreds of articles, like for all professions basically. So if you like the free stuff, you can get it there. 

You can also get it at the Student Loan Planner podcast, you know, if you do not have the funds to pay for custom help. And if you do, if you’re like, I wanna hit the easy button, obviously that’s the main part of what we do at Student Loan Planner is make, uh, you know, one-time plans for people to figure out what to do with their huge student debt. So, um, that URL I mentioned is gonna have all the details on that that people can check out.

MICHELLE: Yeah. Awesome. So like I said, I will link to all that stuff in the show notes. If student loans are getting you down, and this is a major source of stress in your life, it might be time to do a little bit of extra research, figure out what your options are, potentially call in the big guns, um, and get that s**t handled. So everybody, thank you so much for listening. It’s been a delight to have you on here. 

[00:34:57] If you enjoyed the podcast, don’t forget to subscribe wherever you get your podcasts. Leave us the stars. Give us the comments. Show us the love. And we will so much, so much appreciate that. Um, thank you again for listening. And have a wonderful day.

END CREDITS: I hope you enjoyed this episode of the Young Scrappy Money podcast. If you want to read about my work as a financial advisor and financial coach, you can do so at www.youngandscrappy.com. That’s www.youngandscrappy.com. Thanks again for listening. 

Made with love by Jesse in Atlanta. [SMOOCHING SOUND]