Color of Money Live (April 20)

Apr 20, 2017

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

“Knowledge isn’t power. The right knowledge is power.”

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So glad you could join me today. It's going to be a great conversation. Got student loans. I've got Mark Kantrowitz a student loan guru. 

And of course always looking for your Thursday Testimonies.

Let's get started!

My daughter is about to finish 10th grade. Starting to look at colleges. When do we prepare the FAFSA, even if because of our current household income we don't have hopes of getting assistance with EFC? And the second question is, will private schools be willing to bargain on the price of tuition for a student who is academically good, but not a superstar?

The Free Application for Federal Student Aid (FAFSA) is filed starting October 1 of the senior year in high school. It is based on the prior-prior tax returns. For example, the 2018-2019 FAFSA will be based on 2016 income. Thus, families should be careful about artificially increasing income starting January 1 of the sophomore year in high school. If you will be realizing capital gains by selling investments to pay for school, it is best to realize capital gains prior to this date.

Institutional policies concerning need-based and merit-based aid tend to be formulaic. Need-based grants, for example, are based on financial need. Any "negotiation" is really an appeal based on information that wasn't previously provided to the college concerning the family's financial circumstances. Merit-based aid tends to be awarded by second or third tier institutions that are trying to recruit talented students. Such merit aid usually requires the student to have minimum high school GPA, admissions test scores and class rank. 

Bluff and bluster will not get you a better deal, because students are effectively commodities. Unless the student fulfills a clear need of the institution, the college will not offer more aid to one student, given that that might mean less aid to another, who might be more deserving of greater financial support.

 

For Mark K. - Academic scholarships often come with conditions - mainly GPA and course load requirements. What can a student with a learning disability do to keep the scholarship if he/she cannot manage a full course load if the school requires it to get the cash? Is there any way to work a deal?

Federal student aid policy does not allow treating part-time enrollment as though it were full-time enrollment for disabled students. It is not considered a "reasonable accommodation." However, a disable student can ask for accommodations such as tutoring or other forms of academic support, note-taking assistance, and so on, to help them maintain a full-time course schedule. I suggest talking with the college financial aid office (and some colleges have an office that specialize in support of disabled students) about your child's specific needs. 

Michelle, have you seen the study going around that argues that financial literacy classes are racist, because they tend to reinforce the idea (among rich people and poor people, people of every color) that people of modest means get into financial trouble because they are irresponsible, rather than that the deck is stacked against them? I get what the authors are saying, but I think this is a case where the thing might mean different things to different people: a financial literacy class can be a huge help to an individual student who doesn't know how to play the game, but it can also serve to feed prejudices among people who aren't necessarily sitting in the classroom. I'm pretty sure I think education programs are worth the price, but I could be wrong about that. What do you think?

My experience has been that most students (and parents) can benefit from financial literacy training, regardless of race, gender or income. Students need to have the skills to interpret the disclosures concerning college costs and financial aid, which can often be confusing. Some ideas, such as double the debt means double the monthly payment, are not intuitive. Financial literacy training (which is best provided as part of the secondary school curriculum) can also help motivate math. For example, summing a geometric series relates to compound interest and loan amortization. 

The paper does have a point, that need-based grant funding is inadequate, and is a larger problem. But, it shouldn't dismiss the value of financial literacy training. There is no single magic bullet that will solve the college affordability problem. But, each of several solutions can have a beneficial impact. 

College affordability depends not just on the price of a college education and the return on investment, but also on the family's financial strength - their ability to pay. A good rule of thumb is that total debt at graduation should be less than your annual starting salary. 

Last night, my husband and I mailed the final check for his student loans! The interest rate was extremely low (2.8%) so it took some gentle nudging by me for him to see the wisdom in paying it off:) We are now debt-free except our mortgage, which we will be going after since we have our 6 month emergency fund and Life Happens fund fully funded. Thanks Michelle for all your guidance and letting your readers share victories! This is a great corner of the Internet:)

WOW!!! If I could I would hug you both. I just know you are glad you got that monkey off your back! 

Thank you so much for sharing the joy! 

https://www.washingtonpost.com/news/where-we-live/wp/2017/04/19/new-program-offers-down-payment-assistance-for-montgomery-county-home-buyers/?utm_term=.0e4bd6897abd Michelle - After reading your compelling argument for all debt being bad debt, I wonder what you think of this program to promote home ownership in Montgomery County? Almost everyone will have to borrow money for their first house so if you're able to get $40K interest free, why not? Am I missing a major downfall here?

No I agree. So many people misunderstand my views on debt. I don't mean to say ALL debt is bad. In fact, I argue debt isn't good or bad. It's just bad (Although the headline on a recent column probably didn't help the whole good debt vs. bad debt). But if you read what I wrote, I acknowledge that people have to borrow to own a home. I did. 

But I HATE debt as a psychological way for me to steer clear of unnecessary debt. It makes me pause before I borrow. It made me stop getting car loans. After just two rounds of car loans in my early adult years, I just saved up for a car by making a car payment to myself over the 10, 12, 15 years I hold onto cars.

So to answer your question, sure an interest free loan can be ok, as long as you are using that "free" loan to still borrow for more house than you can afford. 

Hi Mark and Michelle, I have a bright two-year-old. Right now I am not putting a huge amount into her 529 as I am still paying off my own loans for grad school, but I will start to save more aggressively in 4-5 years. I'm looking at the college cost calculators and much like retirement savings, there are so many variables: rate of return, rate of increased costs, state school vs. private, grad school or not. She's likely to be my only child and I am lucky to have a high paying job. I am committed to her not being saddled with debt like me and having many options. Is there such a thing as saving too much for college? Do you recommend an alternative to 529 that's more flexible for what may turn out to be the excess savings?

The sooner you start saving for your children's college education, the more of your saving goal will come from earnings. For example, if you start saving from birth, about a third of the college savings goal will come from interest. If you wait until high school, less than 10% will come from interest and you'll have to save six times as much to reach the same college savings goal. Your greatest asset is time. I started saving for my children's college education before they were born.

That being said, the interest rate you pay on student loans is usually higher than the interest rate you earn on savings, so paying off your student loans quicker will yield more money overall in the end. But, try to start saving for college no later when your child enters kindergarten. (Of course, it is never too late to start saving, since every dollar you save is a dollar less you'll have to borrow.)

As to alternate savings vehicles, some people recommend a Roth IRA. A return of contributions is tax-free. However, there are limits to the amount that can be saved per year ($5,500) and any distributions will count as untaxed income on a subsequent year's FAFSA, which reduces aid eligibility by as much as half the distribution amount. This makes a Roth IRA a less effective means of saving for college if you will need to use the money while the child is in college. On the other hand, you could wait until the child graduates to take a distribution to pay down student loans. (With the switch to prior-prior year, you can take a distribution sooner without affecting aid eligibility, provided that the child will not be going on to graduate school.)

Michelle, I watched the video of your daughter and just want to say Amazing!!! You, your husband, and your daughter are wonderful people. I grew up in an affluent household in a community where everyone projected that they could afford that lifestyle, even though I realize now that some most certainly could not. I was very blessed that my father earned a high income and could afford to send me to college without debt. My parents always lived below their means and set a great example for me in that regard. So you would be proud of them! However, my parents differed from you and your husband in a BIG way - the way they talked about money. They didn't. Like you say, kids are sponges so I knew what they were doing, but I just thought that was the norm. I literally did not know until I was in college that car loans were a thing, and when I learned that people would actually borrow for a car, I thought that was something that was only done by the truly hard-pressed. In some ways, I actually still benefit to this day - I am wildly debt-averse and I still find myself amazed that using credit for EVERYTHING is so common - it just doesn't compute. We're doing some home improvements and the contractor is talking about credit, and I was like seriously?! No way. Same thing with student loans - I never gave them a thought, nor did I ever think about how much my parents were saving for college. This is a true shame because I did not appreciate the gift they gave me at all. Your daughter gets it. I thought that all parents paid for their children's college education, any school they want, in cash, and that parents who did not were either bad parents or extremely poor. Wow. It's embarrassing to type that. I wish I had been exposed to the realities of the struggles people go through to pay for college. I get it now. I realize how much of an advantage I had and still have many years later by having my college education paid for. I realize that there is no point in time when this advantage will stop having an impact. Your daughter said it so well that her ability to graduate without debt sets her up to be able to provide for her family and send her children to school without debt. What a lovely young woman she is! Cheers to you and your husband. That is what I call grace.

 

Here's the video from Michelle's Facebook page: https://www.facebook.com/MichelleSingletary

Thank you so much! And can I add something. I didn't post the video to brag. Truly. 

I just want to encourage people to save what they can so that their child doesn't have to start off their adult life in debt with student loans. Of course we have talked to our daughter about the dangers of debt but she had never shared her testimony about what it's like for her to soon walk across the stage debt-free. I was crying because I recall ALL the fights we had when I wouldn't buy her stuff because of the "college fund." I was crying because I remember denying myself stuff I wanted and instead toss any extra money I earned into her college fund. I was crying because she can now pursue her dream of working in the field of education without being stressed out that she will earn a good but relatively modest salary. 

I share. I fuss. I push. I'm dogmatic because I don't want you guys or anyone to carry that debt monkey on your back whether is a mortgage, car loan, credit cards or a student loans. 

 

Just wanted to throw out there, but last year after years of steady autopayments over the minimum $, I said goodbye to both student loans and my car payment! I also paid off 2 credit cards (and keep them open with a couple auto charges/payments). (Tell me why one time I paid off a credit card and kept it as my emergency card... but then they cancelled it for inactivity!?)

Testify.

And forget the lender who kick you to the curb. You are so much better off. They don't deserve you!

My utterly amazing parents scrimped and saved for years to make sure my siblings and I got out of college debt free. After college I took a low paying job that I loved but could never have taken if I had to pay back loans. This job gave me endless opportunities to add impressive achievements on my resume which helped land me higher paying jobs when I was ready to move on. By living at home for a couple of years, I was able to save up enough money to backpack around the world for a year and come home with enough funds to support me until I found my higher paying job. I got it because of my experiences from my low paying job and my experiences traveling. I am now in a job that I love, that pays above industry average. Because I am accustomed to living at a much lower salary, I am able to put 35% of my gross salary into savings and retirement and still have a healthy travel fund without feeling deprived. No debt gave me the freedom to figure out what I want in career and the freedom to indulge my wanderlust. That freedom means everything to me, makes four years of a frugal college experience more than worth it. Besides, I had a blast in college.

Congratulations on avoiding student loan debt. Student loan debt has an impact on choices made after graduation. For example, students who graduate from undergraduate school with no debt are much more likely to go on to graduate school.

I sometimes joke that one of the best ways of avoiding student loan debt is to choose wealthier and more generous parents.

I consolidated my student loans years ago, so they're no longer called "Direct" loans. I've worked for a university for almost 10 years now, but do I have no chance of loan forgiveness since my loan isn't a Direct loan? Thanks

To be eligible for public service loan forgiveness, the borrower's federal student loans must be in the Direct Loan program and the borrower must make 120 monthly payments in an income-driven repayment plan (technically, standard 10-year repayment also counts, but doesn't yield any forgiveness) while working full-time in an eligible public service job. The monthly payments must have been made since October 1, 2007. 

Borrowers whose loans are not in the Direct Loan program, but in the FFEL program, can move the loans into the Direct Loan program by consolidating their loans into a Federal Direct Consolidation Loan. They can do this even if they previously consolidated their loans in the FFEL program. However, only payments made after the loans are in the Direct Loan program will count toward forgiveness. 

I just wanted to weigh in on this question. My son has autism and for just this reason we didn't worry too much about scholarships for him because of the added pressure. Thankfully we've saved in a 529 plan so we don't really need the money. But we also have saved extra because we know it will take him a bit longer to finish.

We also talked about him starting off at community college. But he wanted to try the 4-yr school first. So we let him. He's at University of Maryland Baltimore County. And I'll be honest it was a struggle first semester. But the school has been FANTASTIC  in offering assistance. We told our son to take it slow.

I say all this to say, be careful to still save even if you think your kid will get scholarships. It's a lot of pressure, especially if they play sports. What if half way through they just get burned out? Just have a Plan A and Plan B. 

I think you meant ... an interest free loan can be ok, as long as you are NOT using that "free" loan to still borrow for more house than you can afford

I didn't say that?

Oh my, typing too fast. Thanks for the copy editing.

 

Michelle, I thought you would like to hear about my 17yo son who was admitted to two good schools with full tuition. He decided against the faraway college his best friend attends, which would have cost ~$50k in room and board, in favor of the local university, which he can attend while living at home. He does not want to take on debt because he wants to be free to start a business.

Oh how I love that!!! You raised him with some good money smarts!

 

Why should none consider long term health insurance? The companies know that if they stall payout, the insured may die before seeing any benefit. My mother is 96 years old and blind and cannot dress herself. She paid her premiums for over 25 years. She is in assisted living and we have been trying to trigger the policy. The company responds to our plea that she cannot even see the food on her plate, that if she can feel the food with her hands and put it in her mouth like a baby, she does not need assistance eating as that term is interpreted in the policy. Thank God I never bought long term health insurance. Instead I saved my money each year in my government TSP and have enough saved for care into my 90's. In my view this insurance is a rip off.

Your situation is so unfortunate. But I would recommend you contact your state to complain. The reasoning they are giving seems so suspect! 

But there are people for whom the policies have worked. I still think they can be a safety net for many people. You just have to be careful about the company you choose and really read the terms in the policy. 

 

I take out car loans, but have had a total of three cars in my 27 years of owning cars. I do pay them off early, however. I will never understand people who buy a new car as soon as the old one is paid off, or people who lease cars, but hey, that's just not my bag.

Not my bag either. 

Me, I just hate debt and love not having a car payment even if I did pay them off early. Hate. Hate. Hate. Hate. Hate. Hate. Hate.Hate.Hate.Hate.

DEBT!

Thank you! This is great.

You are so very welcome.

My daughter is graduating high school and going to college next year. After scholarships, aid and work study, her approximate student loan per year would be $18,000 with $5,500 of the being from the federal direct subsidized and unsubsidized loans. She is aware of her responsibility to repay these loans, and takes that very seriously. Should we as parents opt for the Parents PLUS loans (and have her pay those after she graduates) or have her obtain private loans? Also, if we (the parents) can afford to do so, should be pay the interest on these during her time in school? Thanks! Claire

Aim for her to have total student loan debt at graduation that is less than her annual starting salary. If total debt is less than annual income, she should be able to repay her student loans in 10 years or less. That's a good definition of affordable debt. 

If she borrows $18,000 a year, she'll have $72,000 in debt by the time she graduates, assuming she graduates in four years. If the interest that accrues during the in-school and grace periods is capitalized (added to the loan balance), her debt at graduation will be about 20% to 25% higher. So, she might end up with $85,000 to $90,000 in debt. That's a lot of debt for an undergraduate degree, where the average starting salary is about $45,000 to $50,000. Depending on her future occupation, she might struggle to repay that much debt.

The maximum a dependent student can borrow in federal Stafford loans over four years is $27,000. Students who need to borrow more are probably over-borrowing for their education and may be enrolled at too expensive a college. 

Students who have exhausted the Federal Stafford loan limits may need to turn to private or parent loans to finance the rest of their college costs. But, parents should be careful to avoid putting too much of the debt on the students. 

With private student loans and Parent PLUS loans, the parents are on the hook, either as the cosigner or borrower. If the student is borrowing too much money, they might default, leaving the parents responsible for repaying the private student loans and parent PLUS loans. It might be better for you to contribute from savings or income to help her pay for college, rather than assuming that she will be able to afford to repay a very large amount of debt. 

Mark pretty much said it all. I would not advise she take on that level of debt. 

What are the specific requirements for being eligible to have some of your student loans forgiven if you have been a teacher for over five years in low income communities? There appears to be so many caveats that disqualify many who apply.

The U.S. Department of Education publishes some information about the Teacher Loan Forgiveness program on its web site at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher. It is best to make sure in advance that your service will qualify. Talk to the HR department at the school to make sure they are eligible and confirm with the U.S. Department of Education's list of schools.

I'm 49 and know plenty of college-educated people who could use it. I had a friend that didn't start contributing to her 401k until I pointed out that not doing so was basically passing on a 5% raise (match) from the government.

Child the stories I could tell you!

But to be fair this financial stuff is tough. For many people this is not their gifting so it takes a lot of effort to manage their money. I get that, which is why if that is YOU. Get thee to a financial class, program, etc 

Find an accountability partner like the person who posted this comment. What you did for your co-worker is just what folks should do. Would you believe years ago I was talking to a reporter right here in the Post business section and he hadn't signed up for the 401 (k). I made him go right then and there to HR. For real!

I do feel pleasant when I make my mortgage payment. I feel good that my kids have a roof over their heads in a nice neighborhood. I feel good that I am very slowly building equity, so that when I sell, even if I sell in a down time, I will have something to show for it, as opposed to spending it all on rent. In fact, I feel better about the mortgage payment than I do about the property tax bill or the water bill. It's probably something about the emotional association between mortgage and ownership, whereas the emotional association with the water bill is about how long those darn kids spend in the shower. But I don't feel really bad about any of them, because they're all tied to my nice house.

 

Read Michelle's column: Yes, all debt is bad debt

I'm glad you're happy. 

But I probably am scarred from the many, many, many people who I help who are not happy about the mortgage debt that is strangling them. 

Michelle, I felt oddly unsettled when my retirement adviser of the past six years moved to a new firm - one that does not follow the fiduciary rule, unlike the old firm. He told me "he would hold himself to the rule," but it's a much bigger firm, and why should I believe it? Still, it seems to be the practice that FAs take their clients with them, like hairdressers do. Am I entitled to ask for presentations on my situation from both him and from a different person at the old firm? He probably wouldn't have access to my information, but he should remember if it's not that complicated, which it isn't.

You are entitled to look after yourself. You should act in your best interest, which may be to stay at the firm where you are now. But certainly have them pitch to you. And I would want an adviser who is following the fiduciary rule, which means he or she is acting in your best interest.

At a certain point does it make sense to stop putting money into a 529 plan? My inlaws are putting in $26K/child every year. At the rate things are going they're going to have over $500K each for college - which is a nice problem to have, but I'm wondering if at a certain point it would make sense to put that money into a different vehicle...

It could very well be too much even factoring in graduate school. Talk to your kids and as best you can get a sense of where they want to go, etc. If they think they might go to graduate school. Also check the maximum limit for the plans where the money is being invested. 

Finally, remember the money can always be rolled over to another beneficiary. So your kids' kids could benefit.

But if there is too much money, also keep in mind that if the money is withdrawn and not used for qualified educational purposes the owner of the accounts has to pay a 10 percent penalty and income tax on returns. 

I am a 55 year old woman who took out a few student loans when I was young (I graduated in 1988). My parents and I paid off my loans completely in the late 1980's. I know this to be true not only because I wrote the checks, but also because I had to prove this while buying property in 1990 (one came up as being unpaid, and we had to show proof that it was). Now, I am being told that I owe one student loan, and given that my parents are both deceased and it has been almost 30 years since they were paid off, I no longer have paperwork proving payment. What is insane is that I used to work for the US Department of Education in the early 2000s--I NEVER could have worked there had I defaulted on any student loan. This has come directly from bad servicers in the 1980s-90s that kept faulty records. Do I need an attorney for this, or is there some avenue I can pursue, because NELNET and the Ombudsman are no help at all. Thanks!

Borrowers should maintain proof of payment of student loans indefinitely, as sometimes these loans will resurrect themselves (e.g., when a lender reloads an old backup tape). Unfortunately, there is no statute of limitations on federal student loans, ever since Congress eliminated it in the Higher Education Technical Amendments of 1991. (There is a statute of limitations on private, non-federal student loans, ranging from 3 to 10 years depending on the state.) 

Your situation is a great example of why there should be a statute of limitations on federal student loans, since it is often very hard for a borrower to prove that loans were paid off.

There are a couple of suggestions for dealing with such zombie student loans. First, demand proof that the debt is owing. Insist on a copy of the signed promissory note. If they can't prove that you borrowed the money, they will not be able to get a court judgment against you. Second, ask for copies of the complete student loan history, showing all payments. If you receive a wage garnishment order, insist on a hearing. If you are sued to recover the debt, show up in court, as otherwise the lender will get a judgment against you. Contact your bank, to see if they can retrieve copies of your paid checks; you might have to pay a fee for this. Provide the lender with as much evidence as you can that the debt was paid off. Document the time period during which you worked for the federal government, as that would be good evidence that the loans were not in default. (Defaulted borrowers can work for the U.S. Department of Education, but a portion of their pay will be offset to repay the debt.)

Ditto on what Mark said. Fight back. I'm betting the debt collector doesn't have ANY of the proof!

Just watched your daughter's video about graduating without student debt. You and your husband clearly did an awesome job raising a daughter who's not only lovely and smart, but grateful to her parents! YEA!!!!!!! I was right there with ya, boo-hooing as she spoke.

Thank you. And the part that really tears me up is that she really gets it. She talks about how now she can pay it forward by saving for her kids to create generations of debt-free students!

That's been our hope all along, that our kids see the value in giving and helping others because they were helped. 

Now let me say this. I totally understand that there are many, many people who are just scraping by.  But anything you can save, even if it's just for books helps. 

I saw this article on WaPo yesterday and thought "Somewhere, Michelle Singletary is smiling." https://www.washingtonpost.com/news/soloish/wp/2017/04/19/why-some-couples-skip-the-engagement-ring/?utm_term=.cd5d06e129eb When Vipond-Brink got married a second time in 2015, she wanted her finger bare of an engagement ring. “I would much rather put the money toward the wedding or the honeymoon or our bills or whatever,” she said. “Anything seems like a better expense than a ring.”

Lol!

Yup say no to the engagement ring.

But I encourage a wedding band. Because my husband is SO FINE and I don't want any woman wondering whether he's taken!!!!!

See a band? 

Back it up. Back i up!

The last chat started a conversation on tipping, and while I'm sympathetic that many of these people are some of the least paid, at some level I'm paying for a service and the price is the price. I'm also not sure why the customer-facing workers are the only ones getting the tips when, for example kitchen staff, are even more poorly paid than the wait staff. While they have as much an effect on my customer experience as anyone else. I accept that tipping your servers and bartenders is convention and I go with it (even over-tipping). But I'm confounded by the labyrinthian array of rules for who & how much folks in other jobs are tipped. I'm so rarely in these other situations, when I find myself there I have no idea what to do. Until a couple years ago, I didn't even know tipping hotel cleaning staff was a thing. I really hoped the tip-free restaurant trend had taken hold, but that seems to have foundered.

I so feel you. And I do hope wages rise so that we don't have to feel that guilt of leaving anyone out.

I've received postal mail, emails, and seen online where companies say they can slash my student loan bill in half. Are these real claims? Are these companies worth talking to? Thanks!

Never pay a fee to reduce your loan payments or obtain forgiveness. You can pursue these options (alternate repayment plans, student loan forgiveness) on your own, for free. It is pretty easy to do. Several state attorneys general have shut down several such companies, as it is illegal for them to charge up-front fees. I discuss this in greater detail at https://www.cappex.com/hq/articles-and-advice/financial-aid/student-loans/Six-Signs-of-a-Student-Loan-Scam. 

Why oh WHY do people buy homes that are WAY bigger than they need when the mortgage could end up strangling them? Especially when they have retirement on the horizon but buy an even bigger house with a 30-year mortgage? I just...why?

That darn Jones family!

Michelle: Have you ever witnessed a 76 year-old woman doing a Happy Dance in front of a teller’s window as she waited for a cashier’s check that would pay off her mortgage 14 years early? I was that woman last week, and I am still floating on “cloud nine.” My husband (81) and I (76) decided that we needed to be “pro active” with our large savings account since the interest rate was much, much lower than the interest rate on our mortgage. We won’t be house poor because our living expenses are less than our pensions and we have an emergency fund, a life happens fund, excellent health care (retired military) and long-term care insurance. We didn’t have to sell any of our investments, which would have raised our Part B Medicare premiums to the highest level (yikes). We will set up our own escrow fund to pay our annual insurance and semiannual property taxes and build up our savings again from the rest of the money we would have been using to pay our monthly mortgage payments, or invest it. Thank you for encouraging us to get rid of debt!!

What? And you didn't call me so I could witness this dance? Shame on you. Did you film it? Take picture?

Oh well, I forgive you.

Because I so love it! And can't wait to do my happy dance too. And I am going to film it!

After all the praying, preaching, nagging and worrying, our adult child maxed out the first Roth IRA from the first full-time job out of college job!!! Sometimes they do listen and they watch what you do. Keep up the good work!!!

We got a lot of dancing going on today.

So you guys have to send me pictures, video of your victory laps and happy dances when you kick that DEBT to the curb!

And yup, if you watch the video of my daughter, you know they are listening. Watch for the part where she talks about how she hated me saying "college fund" all the time. So funny!

But she was listening. 

They are watching. And they are listening.

So keep talking. Keep pushing. Keep nagging. It is for their own good.

Just wondering how quickly you’d advise trying to pay off a private student loan with Navient? It’s only a small percentage of all the total student loans I have, and the interest rate is low, relative to those other loans (but those loans are operated through FedLoan and PSLF eligible). Ordinarily I’d want to wait on paying off the smaller Navient loan to focus on other loans… but honestly I just hate dealing with Navient. And the news about the lawsuits against them just has me itching to be done with them sooner rather than later.

If you are able to make extra payments on your student loans, the optimal strategy is to target the extra payments to the loans with the highest interest rates. That will save you the most money. 

Sometimes borrowers have other reasons for prepaying a student loan, such as dislike of the lender or servicer. 

There are no prepayment penalties on student loans, federal or private, so nothing stops you from paying off a student loan early. 

The lawsuits against Navient concern opportunity cost loans, which were made by Navient's predecessor. These loans allowed colleges to tell the lender to make a limited volume of private student loans to the college's students without regard to the lender's usual credit criteria. In exchange, the lender was listed on the college's preferred lender list. This case is likely to be settled.

The other lawsuit alleges that Navient steers borrowers away from the PAYE and REPAYE repayment plans and toward forbearance. Navient does have a lower percentage of borrowers in these repayment plans as compared with other services, according to federal data, but they have one of the highest percentages in income-driven repayment plans. It looks like this is due to the distribution of borrowers according to when the borrowers entered repayment, since PAYE and REPAYE were not available until more recently. Once a borrower is in an income-driven repayment plan, they tend to stay put, even when a better repayment plan becomes available. So, it would seem that this lawsuit may lack merit.

Is Financial Independence/Retire Early (FIRE) an option for those with student loan debt anymore, or is the problem getting so large that FIRE is less and less a possibility for today's young people?

Regardless of whether someone has student loans, retiring early is usually not an option. Most people do not save enough for retirement. You should save a fifth of your income for the last fifth of your life. Retiring early usually requires saving even more.

Having student loans does not necessarily require delaying retirement, if you borrowed a reasonable amount of debt. If your total student loan debt is less than your annual income, you should be able to repay your student loans in 10 years or less. Of course, if you borrow more or earn less, you might take longer to repay your student loans, as long as 25 or even 30 years. Likewise, if you go to college later in life, you will have less time available to repay your debts.

You should aim to pay off all debt by the time you retire. Once you retire, you have no new income, just assets. If you retire with debt and don't have enough assets to pay off the debt, the optimal strategy might be to reduce the monthly loan payments by stretching out the term of the loans as long as possible. This can include choosing an income-driven repayment plan for federal student loans. Federal loans are discharged upon the death of the borrower, so the goal might be to have the federal student loans outlive you. They won't be charged against your estate, although the debt cancellation might be treated as income which will yield a tax liability. 

A comment: Disability services cannot help a student pay for college. Of course we used the services. My child earned the money by doing well in high school and scoring high on the ACT. There is nothing disabilities services departments can do to help a child take a full course load if that student cannot handle it. Perhaps this is an area that will improve one day. Thanks! I appreciate your answer. We will not be able to reap the rewards for the hard work with aid.

But you know what? Your child will still reap the rewards of his or her hard work. That hard work makes your child better prepared for college. 

It is hard to swallow that you may have to leave money on the table but your child is still a winner for having developed skills that will help with how many courses he or she takes. Please don't be discouraged. When things like this happen I try to put it in perspective. There are many children with disabilities that can't even go to college. 

I just try to be content whatever life gives. 

The first question on FAFSA just made me wonder. We will be paying our son's way through college in a couple years (have saved the money - will not need loans), but he wants to go abroad (not Canada). Do we even need to fill out the FAFSA? I had assumed not. Thanks.

A few hundred foreign universities participate in the U.S. Title IV federal student aid. U.S. students who enroll at these colleges are eligible for Federal Student Loans, but not other forms of student aid. These colleges have federal school codes, which can be found on the FAFSA (select "FC" for "foreign country" and search for the name of the college). So, it is still worthwhile to file the FAFSA even if the student will be enrolling in a foreign college or university. 

I would like to expand my family, but am in my mid-40s so biological is out. I'm considering becoming a foster parent, but am curious how my 6 figure income would count against foster kids who then go to college. Do they lose out on financial aid?

Foster parents do not count as parents on the FAFSA. Foster children are usually treated as independent students on the FAFSA.

If you adopt the children prior to reaching age 13, however, you will be considered the child's parent on the FAFSA, and then your income will count against their eligibility for need-based aid.

"kitchen staff, are even more poorly paid than the wait staff" No, that's just not true. Kitchen staff get at least minimum wage. Wait staff get "tipped wage," assuming they will get brought up to minimum by tips. It's a LOT less than minimum wage. (been a while since I waited tables, so I don't know the current amounts.)

Good point. But minimum wage in many areas is still not a living wage. 

Love your informative chats! My question doesn't apply to your chat, however, I was wondering when Happy Hour chat will be back with Fritz Hahn? He hasn't had a chat since March 16, 2017. I'd appreciate any info you can give. Thanks & have a great day!

Hey, chat producer here. I just asked Fritz and the next chat should be next Thursday, same time.

Why stop there? How about no wedding reception (well, maybe cake), no fancy wedding dress, and no honeymoon?

Ok, I'll bite if you are trying to bait me.

Look get the engagement ring, wedding band, cake, car, gold ring napkin holders, honeymoon whatever. 

Just do what you can afford. That's all I preach. 

Michelle, I'm not sure I could share the pic of my husband mailing his final student loan check. There might be a middle finger involved;)

Lol!

My goddaughter's dad made a mistake on her FAFSA - reported his income twice: once as hers and once as his. We didn't find the mistake until last week. She submitted a correction and contacted the colleges who made no or low offers of financial aid requesting reconsideration. If course, most of their funds have now been offered or given to other students. Her options are now very limited as the family can't afford to pay for college. A word of advice: make sure you review the FAFSA and SAR (Student Aid Report) closely as soon as you receive it (not long after you file the FAFSA) and correct any mistakes. Those mistakes can be costly.

Errors on the FAFSA can be corrected by visiting fafsa.ed.gov. The changes must be correct as of the date the FAFSA was filed. 

Unfortunately, as you note, colleges might not have any money left to award. Some colleges have contingency funds for mid-year changes in family financial circumstances (e.g., death of a wage-earner), but some do not. So, it is important to review the FAFSA carefully and to make changes and appeal for more aid as soon as possible. Otherwise, the increase in aid, if any, might be just loans. 

Also, I recommend using the IRS Data Retrieval Tool to complete the FAFSA, since this will help avoid such problems. Unfortunately, the IRS Data Retrieval Tool is offline due to security concerns, but it should be up by the start of the FAFSA season on October 1.

Hi, I have a master's degree but earn very little in govt - I am eight years away from a pension (mid 40's now), but have two toddlers. I want to go back to school for a more lucrative career and work a decade or more longer with the thought that I can make more money to pay for my kids' college. It would require taking on student loan debt. Smart move or dumb move?

I wouldn't really tell you it's dumb to go back to school to help your family.

What I would say is this, don't take on any debt. Try to self fund your continuing education. Also really investigate if you truly need another degree. Or could you find a certificate program at a community college that could boost your skills. Also check to see if your department offers tuition reimbursement. 

Just don't make the loans your first choice. Please. 

Thank you all so very, very much. I smiled so much today with your testimonies. Sad a little about the FAFSA mix up and the family who can't get the insurance company to pay for long term care. 

At any rate thank you for joining me today. Thank you for your time and contributions to the chat. 

And big thanks to Mark. He is the man on student loans. 

Talk to you next week.

“Knowledge isn’t power. The right knowledge is power.” 

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Mark Kantrowitz
Mark Kantrowitz is publisher and vice president of strategy for Cappex.com, a free web site that helps students achieve their college dreams by connecting them with colleges and scholarships.
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