Written By Travis Hornsby, CFA®, CFP®
To help combat the doom and gloom that is the coronavirus, I’m bringing you some positive energy. I invited Meagan McGuire to talk about some good news regarding student loans.
McGuire is a Certified Student Loan Professional™ and has her own financial planning business called Financial Coach Meagan.
In her consults, McGuire has seen that borrowers are still saving money on their student loans.
Some of them are saving in a big way. We’ve saved borrowers over $6 million just counting the consults our team has done in April. That’s an average of more than $40,000 per person.
Student loan debt can be a significant burden. McGuire shares some of the more uplifting, “stories from the trenches,” she’s encountered during her consults to show that having a good life is possible for borrowers.
Changing strategies to pursue PSLF
Public Service Loan Forgiveness (PSLF) is a powerful repayment strategy. If you’re eligible, you want to compare costs to see if it’s the right plan for your situation.
“I worked with a couple who were eligible for PSLF,” said McGuire. But they weren't pursuing it.
“I think some of the media outlets scared them away from even trying to pursue PSLF.”
But they both worked for nonprofit entities and had the right type of loans. That means a few qualifying payments had already been counted toward the 120 they need.
Since they weren’t actively pursuing it, we needed to clean up their student loans and get all of the pieces in the right place.
“We started to run the numbers and looked at jumping on an income-driven plan for both of them with PSLF,” said McGuire. “We cut their payment in half.”
When we did that, all of the loans moved to FedLoan. The couple was able to eliminate their multiple payments to multiple services and simplify their finances.
By reducing their student loan burden, the couple was able to open up cash flow to put more money toward their credit card balances. “They are now credit card debt-free,” said McGuire.
Repayment for people nearing retirement age
McGuire has noticed an uptick in consults for people who are nearing retirement age. “I think it may be because of this time of uncertainty we’re in,” said McGuire.
One case McGuire had recently was a woman who paid for her daughter’s college. She’s a single woman, nearing retirement age, and still has a six-figure balance on her loans.
She was a perfect candidate for the double consolidation loophole.
With double consolidation, you consolidate your loans with two different servicers to change the loan code. Instead of being a consolidated Parent PLUS loan, “we’ve created a consolidation that consolidated two direct consolidation loans,” said McGuire. “It wiped out the Parent PLUS Loan code.”
And that opens the door to REPAYE. Now the borrower can pay 10% of her discretionary income instead of 20%. Her remaining loan balance after 25 years of payments will be forgiven.
The double consolidation is key because her income is about to drop as she enters retirement.
“We saved money on cash flow in general, we made sure the payment was as low as we could possibly get it, and we saved her from being trapped in a plan that continuously increased over time throughout her retirement years when cash flow is very important,” said McGuire.
The problem with financial aid exit counseling
A recent graduate with $200,000 in student loans scheduled a consult to find out which repayment plan was best.
She had just completed exit counseling with the school and left feeling confused about which repayment plan she should choose.
“The counselors aren’t going to answer those questions,” said McGuire. “They’re not planners; they don’t have a finance background, typically.”
Her mom was very adamant about completely paying the loan off completely. The problem is that the borrower was making about $50,000 per year, and probably wouldn’t earn more than $90,000 at the peak of her career.
“I like the mentality about not having consumer debt and having a good approach toward your finances,” said McGuire.
But she adds, “Federal student loans are not traditional debt.”
The difference in the two plans she was looking at – the traditional repayment plan vs. the income-driven plan – was $1,000 per month.
“I asked her what she could be doing with that $1,000 if it wasn’t going toward student loan debt,” said McGuire. “That’s the opportunity cost because you could save that or invest it or put it towards retirement.”
How much could you save on student loans?
Even during the pandemic situation that we’re in now, there are numerous ways to save on your student loans. These are just a few of the loopholes we’ve seen that can help reduce the burden of your student loan debt.
Keep in mind that none of these strategies are time-dependent. The short-term freeze we have on student loan interest and payments because of the CARES Act does not impact your long-term repayment plan.
The sooner you get a plan, the more money you could save on your student loans. You might be making a small mistake that costs you a few thousand. But you could be making a huge mistake that might end up costing you $50,000 or more over your repayment term.
If you have student loan debt between $0 and $200,000 and want to set up a consult with Meagan McGuire, she’s available Mondays and Fridays. You can book a time with her using this link.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
