Color of Money Live: Your student loan debt

Sep 12, 2019

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

You can submit your questions or comments by using the ‘ask now’ link. Although this isn’t required, I would like to know your pronoun as well as your city and state.

Why? I will often address an unanswered question in a future column. Knowing a little more about you helps me tailor my answer. Thank you!

Did you know: "Knowledge isn't power. The right knowledge is power." So, stay informed.

Read & share Michelle Singletary’s Color of Money Column on Wednesdays and Sundays.

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So glad you could join me today. Looking forward to your questions, comments and as always your Thursday Testimonies. 

Let's get started. 

Two other causes of high student loans that are really societal: (1) requiring a bachelor's degree for jobs that really don't require one. For example, almost all of the new administrative assistants at my job have a BA. You really don't need one to answer phones, coordinate schedules, and file papers. But because most people now require it, the folks who would do well with those jobs without a degree have to spend the $$ to get a degree to get the job. It is so maddening. (2) Not providing support for lower income students who do get to college. They (often) are not used to budgeting, so when they get a lump sum at the beginning of the year for their loans, they have no idea how to budget that for 6 months. They also (often) come from poorer performing schools and don't quite have the skills they need for that first year in college. That year is hard for everyone, and figuring out how to balance it with work study, stuff going on at home, and classes can be really hard for kids that don't have a lot of experience with it and don't have anyone else in their family to turn to for advice/help. Some schools do far better in supporting these kids, but many just leave them out to fail. Then they've got loans for school, but no degree, so they aren't earning enough to pay the loans back.

I agree with you completely. Except the part of poor budgeting skills in lower income students. Many students -- from rich, middle-income and poor backgrounds -- can't manage money. 

In case you missed the newsletter today: There seems to be no end to the rise in student loan debt


 

I am working with a loan officer to refi a property. This loan officer told me that the best way to boost my credit score would be to leave a small balance on my credit card every month. According to her, if I pay off the credit card in full every month, the credit card companies see a net zero transaction and therefore don't report anything to the credit bureaus. Since the reporting history doesn't change, my credit score doesn't decrease, but it doesn't increase either. It just stays the same. She says the best way to increase your score quickly is to pay off mostly everything but leave a small balance every month. Also, as part of the refi, I want to put more money down in order to have 20% equity on the property, which is easier to do now that the value of the property has increased. I wanted to do this in order to cancel the mortgage insurance (MI) I am paying monthly. However, she advised against this too saying that eliminating the MI would actually result in an increased interest rate, and that it is better to keep the mortgage interest in order to keep the interest rate low. She advised putting down 19.5%, keeping the MI, and then paying the other 0.5% after the closing to eliminate MI. I'm not sure why putting down 20% would increase the interest rate, but she says that's just how the financial institutions work. Both of these pieces of advice seem really counter-intuitive to me. Are these actual financial "rules" that I was unaware of? Or is my loan officer taking me for a ride?

You need a new loan officer ASAP!

She is totally wrong about leaving a balance on the card. What the top two things the credit scoring models look at is do you pay your bills on time and how much outstanding debt you owe. So having a zero balance on your credit card does not hurt you. It helps. As long as you have been charging things and paying in full on time that is going to boost your score. 

Further, mortgage insurance is for the lender not you. So the lender benefits when you carry it because it protects them if you default. When my husband and I purchased our last home we did not have PMI and it did NOT increase the interest rate we got. Plus, it's not as easy as she says in getting rid of PMI. It's a process and you have to ask the bank to remove it and get an appraisal, which cost money. 

Please look around for another lender or loan officer. You are getting bad advice.

Just in case you miss this column: Average FICO credit score hits new high — which is good news for borrowers and the economy

Did you see the Post article today on Warren's tax plan?

Instead of $97 billion, Microsoft founder Bill Gates would now have $36.4 billion, according to the figures. Rather than $44.9 billion, Walmart heiress Alice Walton would be sitting on $15 billion. Instead of $160 billion, Amazon founder (and Washington Post owner) Jeff Bezos would have $86.8 billion.

Poor babies! Only $15 billion! I have no idea what I'd do with $15 million, much less billion. I mean, I could probably spend $15 million if I tried, but I really can't imagine making a dent in even $1 billion.

Bezos is my boss. . .

But you said what you said, which, just between us, is right on the money.) 

What always puzzled me with student loans is that they are giving you the maximum amount you could get in your situation (based on your income, where you are studying, if you are staying at home or on your own) and not asking you for an estimate of how much you would need to cover your needs. When I was applying for student loans, they were giving me 11,000$ to 13,000$ per year based on their estimates while I only wanted 5 to 6 to cover my needs in case I was having bad misfortunes during the year (like losing my teaching or research assistantship in the winter semester). I ended up with almost 40,000$ without really needing that much. Luckily I was putting all the loans I didn't need in a high-saving account and I was able to pay off all my debt in the first year after finishing my Master's. I just think it's a recipe for disaster for those that don't have good budget or financial skills.

I agree. Every semester, I get a note from the schools my daughter and son attend asking me to approve the PLUS loan they have for me. BUT...this comes AFTER I've already paid their tuition, room and board bill for the semester. So why would I need a loan? 

SMH

Has anyone looked into why it is that only 1% of participants in the PSLF program actually qualified for forgiveness of their student loans. I am currently a participant in the program (for a few years) and I would like to know what I can be doing right now to guarantee that I'll be successful when I apply for forgiveness. Particularly since my payments go up every year from participation in this program (almost doubled). If I'm just going to be denied the forgiveness after 10 years, then I'd rather opt out of the program and have cash in my hand in the short term to live on. Why is no one publishing information on what distinguished the successful 1% of applicants from the unsuccessful 99% of applicants. We deserve answers. Thx

Actually, we've done quite a bit of reporting on why people are being denied. Here are a few stories. 

Read: 

Seeking forgiveness: The dizzying journey for public servants with student debt

GAO study says confusing terms of a temporary program for student loan forgiveness resulted in high denial rate

And I mentioned it in this column, which came from a question in this chat forum: Student debt forgiveness isn’t worth a toxic workplace

Basically, you have to make sure your employer is qualified (public service, the right kind of non-profits, etc.), you are making on-time payments (120), you have a direct loan AND you are in the right type of repayment plan. 

Question: Is the loan officer or lender getting a commission for selling mortgage insurance? Could that be what's going on there?

I'm not sure (Any bankers out there). But one thing for sure, this loan officer either is being deceptive or doesn't know what she's doing. I would be gone just on the credit score advice and definitely trying to get the person to pay PMI when it's not necessary. 

I just paid off all my credit card debt! I've put a plan in place to make sure any future expenses on it get paid off every month, and I'm looking forward to not looking at my budgeting software with fear all the time!

Debt defeater: I'm so proud of you!

Thanks for sharing.  

...are due to those for-profit colleges, which fleece unsuspecting students (and rip-off veterans' GI Bill benefits)? I wonder if a lot of the student loan problems couldn't be solved by returning to non-profit colleges only.

Yes, many, many for-profit colleges are fleecing students. But there is a lot of debt being accumulated at the non-profit schools as well. 

I think your article missed an important point: The lack of guidance many people have when they choose to go to college or when choosing the college itself (looking at you, for-profit industry!). I was a first-generation college student with a useless high school guidance counselor. I went to school believing I had to figure it all out myself because that's what I had always done. I really didn't start making use of campus advisers until my now-spouse, a 4th generation college graduate, encouraged me to do so. Those college advisers actually have valuable information and saved me money more than once! Aside from that, plenty of 20 year olds don't really know what they will want to do with the next several decades of their lives. I still see people in their 40s that I work with turning to college as if it's a magic ticket out of entry-level work but also still lack a good grasp of whether the sort of field they're pursing is really a good fit for them. Real world work /= classroom work. If they knew the right questions to ask, I'd be willing to weigh in but it seems to me, lots of us don't know we even need to ask those things. This is one of the things that gets people into debt they can't afford to pay back.

I didn't miss the point. That column had a different objective. Keep in mind folks that I only have so much space. I can't cover every aspect of every issue in each column or newsletter. So, I carve things out and try to focus. 

But I have on many occasions written about the point you are making, which is that we should not leaven in the hands of a 17, 18 or 19 year old where to go to school and the decision to take out loans for a career goal the will likely change many times while he or she is studying. 

A column from the past: Studying the purpose of college

Tuition, room and board are "direct" costs, but PLUS loans can cover indirect costs such as textbooks, transportation, school supplies, living expenses, etc. Sure, it's better not to -need- loans for this, but textbooks and supplies can cost well over $1,000 a year; not everyone can pay for that out of pocket.

But the point the poster was making and that I was trying to make is no one from the school even asked? 

Why approve the loan first? 

Ask?

Plus, I think a lot of people take the money and could figure out a way to pay for those items. Or, dare I say, figure it out before the kid goes to college. So if transportation is going to be an issue go to a school close to home, live at home, go to community college, etc. 

Time and time again I talk to students and parents who only start to panic or even think about how to pay for college when in high school. That's too late. 

Some mortgage articles say that you can afford a house up to 2.5x your salary. For two people earning a combined $200k a year, that would mean a $500k house. But if you run a mortgage calculator based on paying 28% of gross income, ($4,500/month for our hypothetical couple), it suggests you can borrow almost twice that. Which one is a more realistic guideline? (she/her, DC)

This is the guideline I use. Keep your monthly housing costs to no more than 36% of your net monthly income. Now, having said that I know fully well that there are a lot of high-cost areas where that may not be possible. But look at your net and if you are spending more than 40% of your pay every month on housing that is going to make it difficult to cover other expenses and save. 

Our youngest of 3 is a senior in high school and a very good student. Has a high GPA and ACT score. Our plan all along has been for an in-state college, which will be very inexpensive with our state's college assistance plan. However, he has recently become enamored with a college across the country, and the out of state tuition would make this choice not doable for us. We make too much for any financial assistance, so that is out. His idea is to go to that state for the first year to live and work and establish residency, then apply and go with in-state tuition. I hate the idea of doing that! He doesn't need a year to mature, and I hate the thought of leaving him so far away just living and working without the structure of a college. Please help me with other reasons this is a poor idea. While I agree this sounds like an excellent school for him because of the major that he is interested in and the excellent track/ cross country team, he is just fixated on it. We have looked at the available scholarships for out of state students, and while they would help they won't get it down close to in-state tuition. Thanks for any ideas I haven't thought of!

First, your son should be very careful to double check the rules for establishing in-state residency. Some schools may require two years of residency. Additionally, the school may require that you -- his parents -- live in the state. He may have to prove he's financially independent. 

I think your instincts are right on this. And please remember you are the parent. You get a say. You get to put your foot down. So much could go wrong with this plan and cost you and your son a lot of money. 

I refused to take so much. I took just what I needed. Just say: no, I don't want that much. That's all. They cannot force you to take it. I laughed when they would give me 25k and all I needed was like 5k (tuition was only $600 a semester , yes this was a few years ago, and I also had a job). When I went back for a little more, it was there.

Agreed. Just say, "no."

They're just guidelines, and if you look straight at the 2.5 or 3 x your salary, you're not considering other fixed costs you have, like loan payments, child support, retirement savings that come out pre-tax/pre-paycheck, and so on. I think it's much better to look at what you CAN pay from your monthly take home, and determine your housing amount based on that, rather than your theoretical average salary.

Exactly. For example, my husband and I did not buy as much house as the lender said we could. Because their affordability measures didn't include the fact that we were taking care of my disabled brother or that we wanted to save for your children to go to college. All nonnegotiable in our budget. 

Hi Michelle, My husband and I have always shared finances but I've largely controlled everything because I like doing it and he takes care of other responsibilities in the house instead - this has worked well until recently. You know how they say "mo money, mo problems"? I think we have hit that. We are making more money now than ever and ironically, it's causing more fights now than ever. I think he has a hard time thinking in aggregate and this is compounded now because he thinks we have tons of money. While it is true we have more than we used to, we're now suddenly millionaires. Here is the fight "Babe, I see you spent $X on [something], remember we're trying to be careful for the rest of this month?" Response: "Why are you always obsessed with this, we have plenty of money!" "Yes, but remember we had to spend $A on fixing our garage door opener, $B on the car, and we spent $C on flights to see your parents at Christmas this month so we only have $D left for the month" And then somehow it devolves from there. So, it is clear that he doesn't want to be nagged and I don't want to nag. I think the solution is we have separate accounts and put in equally for expenses into a shared pot. That way, he can light his own money on fire for all I care - the expenses are covered and the rest is his to play with. His own lack of money will enforce the limits, not me. Except he's totally against this. I admit that it does feel weird and it's not ideal, but neither is fighting. I have said he either needs to trust me(and not push back) at face value when I say we're close to hitting the limit or he needs to look at the numbers himself. He doesn't like either and doesn't have a solution. I'm feeling frustrated. Any advice?

This is a common problem when money isn't an issue. I know, crazy right. 

But it often stems because one spouse doesn't have full command of all the money and financial responsibilities because he or she isn't the treasurer. 

So, one solution could be make him the treasurer. Then he can see what you see. Or, for some time have him sit right with you as you move money around to cover all the things that need covering.

I don't think the answer is separating the money. I doubt that would work because his financial decisions still impact the household as a whole. 

If changing financial positions don't work try talking to a marriage counselor. Because often the root cause is something more than the money -- or the abundance of it. 

I'm the poster with the potentially shady loan officer. This is what she told me: "Interest rate is directly linked with LTV. IF LTV goes up interest rate goes up as well. If it goes down MI gets removed and without MI rates go up again." I countered saying that I thought my interest rate was locked in at the rate she had told me previously. She responded: "[The] rate sheet is locked but based on LTV it will move up and down on that same rate sheet." I asked for the rate sheet but she said it is proprietary and cannot send it to me. She has a solution: To keep the same low interest rate, increase the loan amount by $100, which will give an LTV of 80.1%. Then, after one month payment, I can request to have the mortgage insurance removed. This seems ridiculous to me (wouldn't it be less time and work to just put the loan at 80% in the first place?) but I'm okay with that. Can others confirm? Unfortunately, I already put down a non-refundable deposit for the closing so I have to stick with this bank for now, but I will stay way from them with a 10 foot pole in the future!

I'm not a real estate expert so this is above my head. I can only go on my experience and not paying PMI always saved us money. It is not easy getting rid of PMI, even if you're only over by $100. The one time we had PMI many, many moons ago we had to jump through a lot of hoops to get rid of it. 

Keep negotiating for the best rate possible. If it were me, I would not pay PMI. Period. 

Read this: 6 Reasons to Avoid Private Mortgage Insurance

There are a number of on-line resources that deal with that question. One factor is "domicile," that is, your legal residence, which might not be the same as the place you actually live. Another factor is why you moved to the state. If you say, "To get in-state tuition," that can be the kiss of death. You have to prove, or at least claim, you moved there to take a job, fulfill family responsibilities etc. If this was so easy, more people would do it.

Exactly. Thanks. 

I told my loan officer I have ALWAYS paid my credit cards off in full every month and I have a credit score of 800+ (her response: well, it must have taken a long time to do that!)

I have a perfect 850 on various credit score models. I pay my cards off EVERY month. The loan officer is wrong, wrong, wrong on this. 

You advocate for community college as being a great way to save loads of money before transferring to a traditional 4-year university. Did any of your children attend their local community college for a couple of years before transferring to a state school? I ask this because it seems while people advocate this as a great way to save and to get the general courses out of the way, I find that people aren't willing to put their own children in community college before transferring to a state flagship university. The thousands saved could've been used to pay extra towards the mortgage....

Fair question. My children did not go to community college but not because we weren't willing. My son was slated to go to Prince George's Community College. But he got accepted at his No. 1 choice the University of Maryland Baltimore County. It's a STEM school with an AMAZING president Freeman A. Hrabowski. 

Here's the thing. We have the money for him to attend after saving for 18 years. So we had a choice. He had a choice. 

 

But, and I guess you will have to trust me on this, had we NOT had enough his hind pots would have been at the CC. Same with our girls. In fact, my youngest took classes at the CC while in high school. 

So, saving gave us a choice. Without it we would have absolutely sent all three to CC first. I try hard to practice what I preach. 

Earlier this year we paid off the mortgage on our investment property. One of my banks had been reporting me at a perfect 850, like Michelle. Now 830. I don't care. We are debt free. Fully funded elsewhere. Maxing out 401k. Not planning to borrow money. Let it drop.

Yup, doesn't matter after a certain point. I only wrote about it because people ask all the time whether it's possible to get a perfect score. 

Read:

How I got a perfect 850 credit score

No, you don’t need a perfect 850 FICO score to be an exceptional borrower

 

We could not request removal of our PMI until at least 2 years from the start date of the loan. Double check the removing after 1 month if you decide to go that route.

Thanks for this. 

In many places, students -cannot- qualify for in-state residency unless their custodial parent lives in the state, until age 24, emancipated, married, and/or in graduate school. To be emancipated, they need to be self-supporting and not dependent on their parents, including using parents' health insurance, or being listed as a dependent on their parents' tax return. So the poster's son's plan is just not possible (in most states). The college's website will have details on in-state tuition eligibility.

Thanks for sharing. As I thought! 

 

Another possibility is to keep your shared money for expenses, but give each of you a monthly sum to do whatever you want with. He can buy [something] with his, or light it on fire, or whatever.

I do like the allowance option. 

The poster needs to find a new lender quickly. I get that likely means another pull on the credit report, but that's just way too fishy. Whoever asked about the officer getting a commission on the PMI has to have hit it on the head. Loan officers can make plenty of commission on the loan by itself.

I think there's something fishy too. If nothing else about the way it's being explained. 

It was relatively easy to remove our PMI. My bank sent me notice that we had paid off 80% of our loan. I called them, and they confirmed the criteria and took it off. One call, less than a hour. It varies by bank. However, the OP needs to get a second opinion. One of my co-workers had a situation where she'd paid down to 80% within a year, but couldn't cancel the insurance because the loan was too new. I don't remember the specifics, but be careful.

Always double check. Yes. Thanks.

I'd like to find out how often people with lots of student debt don't really think about the impact of it on their paycheck. They always seem to want everything right away and not wait till you can afford it. For example, when my daughter wanted looked for her first apartment (at 22) she wanted a 2-BR and no roommates. Huh? It took a while for her father and I to get her to understand that you don't get your parent's lifestyle overnight. It took us 40 years to reach this point. She is starting at year 1. Ultimately, she grasped what we were saying. Now she tells me how lucky she is because her friends are overspending and complaining about their student debt. Her suggestions to save money (make your lunch and don't buy it) don't go over well. So she just recommends your book.

This money stuff is all very complicated really. People don't understand the impact for a number of reasons, often because they weren't taught as you are teaching your daughter.

 

Hi Michelle - Would you be open to asking the chatters how much they put into non-retirement investment accounts each month? After years of struggle and schooling, husband and I have solid salaries with a $5k+ monthly surplus. We’re modest spenders; emergency/life happens/retirement/car funds are in good shape. Our only debt is a mortgage that we aren’t eager to pay off as we may relocate, and we’re early 40s. Do people really put $2-3k/month in the stock market? We’ve received varying advice from advisors. Our families and friends are in different situations, either due to income or spendy-ness, but I imagine there are like minds amongst your readers. Thanks for all you do! I appreciated your encouragement during our rice and bean days, and still find these chats informative and inspiring.

Putting the question out there. Even after the chat, you can respond. 

I know it doesn't "matter," but how -do- you get and keep a perfect score of 850? Mine hovers between 820-830. I pay everything on time; everything that can have automatic payments, does. I pay my credit cards off in full every month. I did have an issue or two in the -distant- past: a debt was forwarded to collection company when, during a relocation, my final cable bill sent to wrong address and never forwarded (I was told that I paid off the balance when I turned in the equipment, so I wasn't looking for a bill). I paid it as soon as I learned about it, it was at least 15 years ago, and it didn't damage my credit score at all at the time (it remained in the high 700s). Is it just that by debt-to-income ratio is too high? My only real debt is my mortgage; I paid cash for my cars. I don't want to carry around large amounts of cash, and it's safer to pay by credit card than by debit card, so if those are the problems I probably won't do anything about it, but I'm just really curious.

Honestly, I did all that you did. The box for credit scoring isn't open so who knows why I hit that perfect number. But a few more things

-- In any given month I don't charge more than 1% of my available balance.

-- I have had a mix of loans -- car loan (way, way, way back but no more), mortgage, credit card. 

-- No negative information for the last decade -- it stretches back further but the one report said for the last 7 years

-- Credit history of 25+ years

-- A lot of credit lines but almost all closed now. You know had a Hecht's retail card out of college. Applied for various retail cards before I realized each application dinged my credit report. 

But really even if you duplicated what I did no guarantee you would get an 850. 

Really, as I wrote recently if your score starts with a "7" you're going to get good credit deals. 

I read the conversation after the fact last week, and thought I'd mention for those inclined to give this way that the reverend at my church has mentioned he keeps a small number of $1 bills in one pocket, separate from wallet or other cash, for giving to those who ask on the streets. I don't remember to do this too often myself, but it does avoid the worries of pulling out & fishing through a wallet with large bills, credit cards, & anything else you feel unsafe having exposed.

Thank you for reading after the fact and for coming back to offer good advice. 

At a lot of smaller companies, the administrative assistant is more like that of an office manager or an executive assistant. Not only are you going to be in charge of all of the minor clerical duties, but you’ll be working with higher-up executives and taking care of the human resource needs of the company. This means you’re doing everything necessary to keep employers and employees sane. Apart from basic clerical knowledge, administrative assistants working in legal offices have to have an understanding of criminal procedures, technical writing, legal transcription, and court proceedings since they’ll be making sure that documents are all set to go to court. Those who work in healthcare facilities will need to be familiar with healthcare terminology, medical transcription, and the software used in this industry. That said, does it require a BA? Maybe? Maybe not. But they do need some basic training to work in an office (knowing how to write and working on budgets are also pretty basic functions of an AA today).

Good points. Thanks.

Yes, a billion or ten is a lot of money. But people like Gates and Buffett have for years been giving away their wealth to worthy causes. I'm appalled by the income inequality in this country, but can we lose the "Poor babies"-type snark? It doesn't advance the conversation in a positive direction.

Point taken. 

Thanks to your expert advice when I wrote in a few months back, my wife and I decided to pay off our mortgage - this month was the first time in 30 yrs that we didn't make a payment on the 1st of the month and we put that money straight into our retirement savings (we're both 55, probably 7 years from retiring). Will I see a change in my FICO score because of paying it off? will FICO go up? or down? thanks for all you do!

With that debt gone you may see your score go down or may not. But forget about it. You are golden now. 

Thanks for sharing. 

In your column, you note that you and hubby have slightly different (but still great) scores. I always thought that married couples were pretty much one unit for that purpose, and particularly that one spouse can hurt the other's number. What explains the disparity?

Credit scores are based on your individual credit file. You don't have a joint file as a couple. 

Hi Michelle, I heard you on NPRs 1A earlier this week and also caught you on a news show (not sure which one) sometime this past year. It was nice to hear your voice and be able to insert that into your newsletters when I read them. I appreciate your common sense approach to managing money as it closely reflects my own philosophy and beliefs. I will be 62 in December and am planning to retire after I turn 63 next year, mostly because I am just done with working in a job I don't love anymore. This is of course all dependent on what happens with the markets, health care expenses and the political outcomes. I am single, no dependents, have over $1M in combined 401K, IRAs and regular investments. I've already moved to the city I want to be when I retire. I carry no debt except what is left of a small mortgage which I may or may not pay off when I retire. I've had my financial planner run some scenarios and I will be in good shape to wait until 70 to take SS. Despite what one would consider a solid financial situation, I still worry that I will have enough to last me. I think it's just a sign of these uncertain times. I wanted to let you know again how much I appreciate you and to keep doing what you do.

You just made my day. Thank you! 

And good luck with your retirement. I can't wait. 

I love this forum and your participation. Thank you for coming by -- for your questions and comments. 

Off to the next column for Sunday. Please read. It's a good one. On a book about starting a business in your senior years or as a "seasoned senior." 

Take care and see you back next week. 

In This Chat
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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