Can You REALLY Get Public Sector Loan Forgiveness?

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Fears about the long-term viability of the Public Sector Loan Forgiveness (PSLF) have surrounded the program ever since it was established in October 2007.  In fact, we’ve discussed these concerns on the blog before!  But since we last discussed the future of PSLF, the initial round of forgiveness data seems to validate a lot of the concerns I last discussed in 2017, as the vast majority of applications for forgiveness were rejected in 2018.

That being said, most of this fear is misplaced.  There are three primary requirements you must meet in order to achieve loan forgiveness under PSLF – and unfortunately, the “fine print” is confusing for each of these three requirements, and the needed information historically hasn’t been clearly communicated by federal loan servicers.

At the end of the day, PSLF is a viable option for you – as long as you make sure you meet the three requirements, to the letter.  And despite scare tactics put out by companies that make money when you refinance your student loans – which, incidentally, will disqualify you from PSLF – borrowers who are currently in repayment are not threatened by any future changes to the PSLF program.

If you’d like to learn more about how to make sure your loans are on track to qualify for PSLF, download our free Student Loan Guide to learn more!

What is Public Sector Loan Forgiveness?

Before diving into the loan forgiveness provisions of PSLF, I want to give you some background on the Public Sector Student Loan Forgiveness program as a whole. This program was created to encourage citizens to pursue government jobs in exchange for loan forgiveness –the main selling point being that working in one of these jobs for 10 years would qualify you for complete loan forgiveness.

Unfortunately for the government, the PSLF program has essentially been too successful; not only did individuals in many different fields pursue these types of jobs in government in search of the benefits this program offered them, but a growing number of graduate and professional students accepted jobs at teaching hospitals and other non-profits seeking forgiveness for 7+ years of student loan borrowing.  The government didn’t intend to open this program to the volume of people currently seeking loan forgiveness, which has prompted several proposals to change the program over the years.  Critically, though, these changes will only affect future borrowers. If you are currently repaying loans seeking PSLF forgiveness, this should not be a cause for concern.

What Problems Face the PSLF Program?

When this program was first launched, the specifications and requirements for forgiveness were very vague and poorly communicated.  Additionally, Congress and the Department of Education have made significant changes to student loan policy several times over the past 15 years.  All of these changes were well-intentioned, but they made it hard for borrowers to keep up to make sure they had the right loans to qualify for PSLF forgiveness, and that they were on a qualifying repayment plan.  This particularly affects borrowers who had taken out student loans prior to 2010.

Unfortunately, the changes in student loan policy and poor communication of the requirements to applicants meant that almost 100% of people were rejected for forgiveness the first year it was offered.  And the fact that loans only started to be forgiven over the past year and a half is enough to raise concerns about the program by itself, at first glance. It is important to note, however, that this program began in October 2007. Because of the 10-year forgiveness requirement period, the first round of applicants eligible for forgiveness only submitted their applications a little over a year ago. To potential applicants for the program, seeing that the rejection percentage was so large and the total number of people who have had loans forgiven was so small, it’s completely understandable that  individuals are afraid to count on the application process altogether simply because they associate the program with failure.

But, here’s the catch: the PSLF program is not a failure, and it won’t be for anyone currently seeking loan forgiveness who reviews the detailed program requirements  PSLF is still in its early stages and there are many reasons to expect that the program will be successful for you in the coming years:

  • This is a blessing and a curse, but the government has only rejected applicants because their loans, payments, or jobs did not meet the requirements for forgiveness. Unfortunately, due to the poor communication about the program requirements, many individuals who thought they were eligible for PSLF actually were not. But the good news is that if you do make sure you comply with the “fine print” requirements for PSLF, you can expect loan forgiveness. With my help, we can ensure that you are meeting all the requirements for eligibility and are set up on the right path towards success.
  • Many people experience issues with the student loan servicers that process the payments. These companies often make a lot of mistakes processing loans that can incorrectly calculate your monthly payment or put your eligibility for forgiveness at risk. For the average millennial, it’s very difficult to identify and fix these potential issues.  With the help of a student loan planner (like me), this can be much more manageable.
  • I expect the number of accepted PSLF forgiveness applications to increase significantly in the coming years.  As I mentioned, the government did a terrible job getting people the information they needed to know how to qualify for the program.  That has gotten better over time, and it’s much easier for students who entered college in 2011 or later to have loans that automatically qualify for the program.  Just because so many people have been rejected in the first year or so of forgiveness applications doesn’t mean this will continue.
How Can I Make Sure I Get Loan Forgiveness?

Despite what you may have heard, qualifying for PSLF can be MUCH easier than many think… you just need to do your homework. Student loan policy has developed over time, and the changing options mean that additional steps may be required to maximize your likelihood of forgiveness.  If you focus on meeting three key requirements, you can feel good about your chances of achieving loan forgiveness.

As long as you make sure you are on track through each step, attaining forgiveness through this program is possible. I have laid out the three major steps you need to take right from the start to optimize your possibility of public sector loan forgiveness:

  1. Make sure your loans are eligible. The biggest myth around PSLF, that gets the most people into trouble, is assuming that every federally-issued student loan qualifies.  Not every type of federal loan qualifies for Public Sector forgiveness, so you should review your loan documents to verify. If the loans you currently have were distributed before 2010 (these type of loans are classified as “FFEL loans”), or are categorized as Perkin’s loans, you will need to consolidate them through the federal government to make them eligible for PSLF.  For those of you who have not yet started repaying your loans, be sure to check that your loans meet the eligibility requirements
  2. Make sure you are on an eligible payment plan. Often, individuals don’t realize that the payment plan they are on may be hurting their chances of loan forgiveness or reducing the amount that will be forgiven. Critically, you won’t get credit for any time where any of your loans are in deferment or forbearance.  While the Public Sector Loan Forgiveness program is often associated with a forgiveness time period of “10 years”, the real requirement is represented as 120 monthly payments.  If you make one payment a month for 10 years, this gets you to the required number of payments… but if you skip payments or place your loans into deferment or forbearance, you need to “make up” that payment in the future before you can apply for PSLF.  Additionally, “graduated” or “extended” payment plans won’t qualify as PSLF-eligible payments, either.  If you are seeking PSLF, you should make sure you are either on an Income-Driven Repayment plan or the standard 10-year repayment plan.  (And as a side note, you should make sure you are on the right Income-Driven Repayment plan.  In my experience, student loan servicers often put you on sub-optimal plans unless you specifically request the “right” one for you!)
  3. Make sure your job is qualifying and eligible. This loan forgiveness plan offers benefits to a wide range of professions, but it is important to confirm that your position qualifies. To be more specific, qualifying jobs include working for one of the following types of organizations:
    1. The Government
    2. A 501(c)3 Nonprofit
    3. The AmeriCorps or Peace Corps
    4. A Public Service Organizations.  Generally, non-profits as a whole will qualify.  But, there are a few exceptions.  Specifically, even if you work for a non-profit, jobs that are political in nature or labor union jobs are not eligible for forgiveness.

Once you understand these three criteria and confirm your eligibility, you can feel confident that you are on track for PSLF.

What is the Future of Public Sector Loan Forgiveness?

As I mentioned, a lot of the fear around PSLF has to do with future changes to the program.  And to be candid, this program is likely to see tweaks to it in the future. Congress has already tried to make changes to this program since the Obama administration, and I believe some new changes will come to fruition in coming years. Both Presidents Obama and Trump have discussed putting some type of limit on how much can be forgiven by the program.

Currently, Republicans in Congress has introduced the Prosper Act, which would completely eliminate PSLF altogether.

However, this is not a cause of concern for people who currently have student loans. This change would only affect new borrowers, not those who are already pursuing forgiveness. These forgiveness provisions are often written into borrower’s loan agreements; it will be a massive legal fight for the government to take these provisions away from current borrowers, and there is strong legal precedent for changes in student loan policy to only affect future borrowers.

So, if you or someone you know is considering going back to school with the goal of achieving loan forgiveness through PSLF once you graduate, this should be a legitimate concern. But otherwise, there is no need to fear.

The Key Takeaways

From all this information, there are two big takeaways:

  1. Public Sector Loan Forgiveness is very attainable as long as you do your homework and stay on track. Take the time to make sure that your loans, payments, and job qualify for the program.  And each year, you should recertify your income and file the Employment Certification Form to prove you work in a qualifying job.
  2. Recognize the conflicts of interest in the student loan industry.  As I mentioned at the beginning of this post, I was inspired to discuss the fears about the future viability of PSLF am discussing this topic mainly because of an article sent to me by a private student loan refinancing company.  Ultimately, this is a pretty good overview of the program, but the section in the middle calling PSLF into question is misleading and intentionally stokes fear about the future of the program.  Remember, this company is a private student loan lender, meaning they make their money by taking loans eligible for PSLF and refinancing them into ones that aren’t. As long as you follow the PSLF program requirements, there is no need to be concerned about achieving forgiveness through the program.  And above all, if you’re seeking PSLF forgiveness, don’t refinance your loans!
What’s the Next Step?

If you would like to learn more about this program or your eligibility, I encourage you to download my Student Loan Guide to give you some help in determining whether or not you are on track to qualify for PSLF. I am also more than happy to set up an introductory call to walk through any questions you may have!

Why Budgeting Doesn’t Work For Most Couples (And How To Make It Work For You!)

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Visa card example of why budgeting doesn't work

When most people think about trying to improve the state of their finances, “budgeting” tends to be one of the first words that comes up.

And that’s a shame.  Really.

I’m not sure I’ve ever met anyone who actually likes budgeting.  And there are a few good reasons for not liking traditional budgeting:

  1. Most of us think that “budgeting” means at best, being cheap, and at worst, cutting our spending on things that we like to spend money on.
  2. Budgeting isn’t easy. In fact, the way most of us try to make budgets for ourselves, it takes effort to consistently make it work.

What happens when we make something that isn’t fun difficult as well?  We don’t actually do it.

Which is why I like to approach budgeting with a very different mindset.  In this video, I discuss how to approach budgeting in a way that will make you more aware of where your money is going each month. We also discuss ways to align your budget with what’s actually important to you, in a way that’s easy to maintain.

Most people make it easy to spend a lot of money, and hard to save.  In the video below, I’m going to show you how to make it hard not to save money.

To download a FREE copy of the Newlywed Money Checklist that we discuss in this piece, click here to grab it!

(Bill’s Note: This video, and the lightly edited transcription below, was originally recorded as a Facebook Live broadcast on January 29, 2018.)

Introduction:  How Can I Make My Budget Stick?

Welcome, everyone! Welcome to our weekly Facebook Live chat. We broadcast this at 8:00 PM Eastern time every Monday.  Today, we’re doing a little bit earlier because I’m going to be in a meeting with a client at 8:00 PM.

Today, I want to talk a little bit about budgeting.  And specifically, why I think budgeting tends to not work for people.  And we’ll share some strategies to get around this.

I got a question from someone today who follows the page- let’s call him Eric. (I typically don’t use people’s real names because I know money is a sensitive subject for people. And so, I try to respect everybody’s anonymity for these questions.)

Anyway, I got a question from “Eric”.  It says, “Hi Bill, I’m a big fan of the new video series and have a question that I’d like your opinion on. I recently downloaded your Newlywed Money Checklist and I’m currently working through it with my wife.  We got to the section that discusses creating a budget and we got stuck with it. We’ve tried a few things in the past related to budgeting and they never seem to really work for us. How do we make a budget for our family that actually sticks?”

Amen, Eric! That’s a great question.  One that I get quite a bit actually.  First off, congrats on not only your recent marriage, but taking a step forward and downloading the Newlywed Money Checklist.  And not only just downloading it, but actually working through it. That’s awesome. It’s a big step.  If anyone wants to grab this checklist and follow along as we go, click here to download it.

Most Budgeting Strategies Are Difficult to Maintain

So let’s get to the heart of the question. Budgeting really and truly doesn’t work for a lot of people. And the reason for this is that we make it so difficult for ourselves to actually do it and stick to it.

I’ve seen a lot of different strategies that people have used over the years to try to manage their budget.  Everything from creating spreadsheets- literally typing in all different ways that they spend their money.  Or, using a tracking site like, where you sync your credit cards and they pull in your transactions for you.  Sometimes, people try a strategy where they literally only spend cash as a way to really try to prevent yourself from overspending.  And even a derivative of this, which I actually like a lot, called the Dollar Bill Savings Method. I’ll probably talk a little bit about that strategy on another Facebook Live because I do think it’s kind of an interesting strategy for people who are struggling with trying to save.

But ultimately for most people, however you do it, budgeting means keeping track in detail of where your money is going each and every month.

There’s a reason why that doesn’t work and why I don’t like to think about budgeting in this way. It’s really two-fold.

Budgeting Highlights our Weaknesses

First and foremost, I think we tend to overlook it, but most people I talk to have some sort of anxiety, or shame, or even guilt about how they handle their money. It’s not something we’ve ever been taught, and it’s not something we’re inherently good at. We need to practice how to handle our money over time. Most of us are far from perfect in this regard, and we tend to not like to pay close attention to things we’re not perfect at.  As a species, this is something that all of us struggle with.

Here’s the thing- paying close attention to our budget tends to emphasize these weaknesses, or are these things that we’re unhappy with.  And as a result, people just don’t like to pay attention to their budget, which I think is perfectly understandable. But ultimately, it doesn’t help solve the problem

Traditional Budgeting Methods Are Hard

And secondly and probably most importantly, it’s a lot of work. We make it really, really hard for ourselves to actually track our budget.

If we’re using spreadsheets, we need to update them manually.  If you’re using Mint, you actually have to remember to log on to see how you’re doing.  And then once you get there, a bunch of your transactions are categorized incorrectly, so you need to go in and fix those. And finally, they don’t track your cash spending at all on these platforms. So, you have to actually manually input all the different ways you spend your cash.

Budgeting sucks. Plain and simple. It’s not easy. It’s not fun. And if you make it hard on yourself to do something that’s not fun, guess what?  It’s not going to happen. Like most New Year’s resolutions, you start budgeting, you’re excited about it at the beginning, it lasts a couple of weeks, but as soon as things get busy, it’s the first thing that we tend to drop because it’s something that we don’t enjoy and it’s hard.

Introducing… Two New Ways to Think About Budgeting

Which is why I like to think about budgeting in a completely different state of mind. To me, budgeting isn’t about only spending $20 at Starbucks this month. (And if you spend $21, that’s BAD, and Mint’s going to send you a nasty email calling you out on it!  Give me a break.) That’s not healthy. I don’t think that’s the way we should be doing budgeting.

Instead, budgeting is about two “A” words. Awareness of where your money is going (and awareness is never a bad thing, right?)  And aligning your money with what’s actually important to you.

So let’s walk through these one by one, starting with awareness.

Budgeting = Awareness

If you want to start budgeting, this is what I recommend, particularly for people who want to be saving more and find that they’re having a hard time doing it. I want you to do this:  before you start breaking out the spreadsheets or syncing all of your accounts to Mint, walk through this exercise.

This is something that, full disclosure, is not something that I’ve developed myself. For those of you who have followed the page for a while, you’ll know that I consider myself to be a “disciple” of Carl Richards. Carl is a two-time New York Times bestselling author of books about how to manage money.  (If you are serious about making improvements to the way you handle your finances, they are must-reads.  You can find them here and here.) He also writes a weekly column in the New York Times about money that I highly recommend. This is an exercise that he does and I think it’s really instructive here.

If you’re having a hard time budgeting and want to get started, do this for me over the next two weeks. Whenever you go to spend money, no matter what it is, no matter where it is, no matter what you’re spending it on, whether it’s necessary or whether it’s just for fun, do the following.  Whenever you spend money from today until two weeks from now, stop for a minute. And just think about it.

Actively try to think about how you’re spending money. Say to yourself, “Hmmm. I just went to the store and bought $125 worth of clothes. Isn’t that interesting?”

“I just spent $45 a bar… Isn’t that interesting?”  Just stop to think about it for a minute. Literally think about it. There’s no judgment, but whenever you spend money, just stop and be mindful about it for a second before you start rushing to the next thing.

You might be surprised, if you actually stop for a couple of seconds to pay attention, about the trends that you start to notice with where your money goes. You know, I frequently hear from people who do this who didn’t realize how much they were spending in particular categories of expenses that they didn’t actually really care about.

They spend money on whatever it is, they just do it, and it’s habitual. But when they actually stopped to think about it, they started to catch on to some of these trends.  So before you start putting yourself through a ton of work to track your transactions manually, stop and reflect on what you spend money on.  And see what you notice.

If it doesn’t work for you, then move on to the second piece that we’re to talk about, but give it a shot.

Budgeting is about bringing alignment between what your say is important to you financially and where your money actually goes.
Aligning Your Money With What’s Actually Important To You

The second strategy, the other way I want you to try to think about budgeting has to do with aligning where your money goes with what’s actually important to you.  Putting your money toward the things that are important to you, FIRST. This is my preferred method because I think it probably is the easiest one and it’s the fastest way to get results when it comes to your budget. There are a few steps involved.

First and foremost, I want you to figure out how much money is coming in every month, and I’m not talking about your annual salary divided by twelve. I’m talking about how much money actually gets deposited into your bank account every month.  After taxes are taken out, after your 401(k) contributions- how much money is coming in every month?

How Much Do You Actually Need To Save?

The second piece is a little bit harder. And it involves figuring out how much money you actually need to be saving to make sure you’re able to do the things that are important to you.

Never mind what you should be saving. What do you actually need to save?

Look, this is a complicated step.  It’s not easy to calculate how much you need to be saving to retire when you want to 30 or 40 years from now. It’s not easy to figure out how much you need to be saving to pay for a child’s college several years in the future. But you need to actually sit down and do this, first and foremost.

If you need help with that, reach out. I’ll help you figure out what those numbers are for you- but however you do it, you need to figure them out.

To recap this budgeting method so far: step one, how much money is coming in? Step two is how much do you actually need to save?

Automate, Automate, Automate

And then once you have that, I want you to login to your bank and schedule an automatic transfer coming out of your checking account every month to either a savings or an investment account for that dollar amount.

If you go through step two and find that you need to save $2,000 every month, I want you, tonight, to go ahead and set up a $2,000 transfer from your checking to your savings account every month.

And that really is the key here. We make it hard on ourselves to save.  For most people, when money comes into the checking account, we spend it and then whatever’s left over, we save it… if we actually remember to log in and transfer it to your savings account.

I want you to set this transfer up automatically. Make it hard for yourself not to save.

Remember, this isn’t permanent. If there are some months where you have higher expenses – if a car breaks down, if you just want to spend a little bit more money that month – that’s OK. You can always go to your savings account and transfer money back to your checking account.

But make that the hard step.  Pay yourself first, and then, if you actually need a little bit more money, you can pull a little bit out of savings. I’m giving you permission to do that.

But don’t make it easy for yourself to just spend that money. Actually put it away and make it so you actively have to think about taking it out. And if you do that, you’re going to be much, much more likely to actually make your budget work for you.

Spend the Rest, Guilt-Free!

And once you do that, once you set up the transfer for how much you need to save every month, spend the rest however you want. I don’t care.

If you’re able to save as much as you need to in order to accomplish the things that are important to you, I really don’t care where the rest of your money goes. And frankly, neither should you.

As long as you’re actively putting money toward the things that are most important to you, do whatever you want with the rest. Don’t worry about it, and don’t feel guilty about it. You’re saving as much as you need to. It’s really that easy.

It’s Not Always That Simple

Now, there’s one caveat. If you tend to actually spend more than you have left after putting money into savings, that’s when this strategy can get a little bit more difficult. And then, and only then, is when I want you to just start thinking through budgeting in the “traditional” sense. At this point, you’ll need to look to cut spending from particular places.

If we’re able to save as much as we need to save and you have a little bit of money left over, you don’t need to worry about it. But if you find that you’re having a hard time saving what you want to be saving, this is when we’re going to start trying to find ways to cut back.

And from there, here’s what I would do, in order, if you’re looking to solve this problem.

There Are Two Components to Budgeting.  Start with the One that Nobody Ever Talks About

First and foremost, when we talk about budgeting, there’s two components to it. There’s the income side and the spending side.

Most people tend to only focus on the expenses, but if you really are having a hard time saving as much as you need to every month, I want you to actually start by looking at the income side. Are there ways you could grow your income? From putting your money into investments that actually pay you income that could help potentially close that gap, to negotiating a higher salary at work if you think you’re underpaid and can back that up, to even starting some sort of side hustle. You might not actually need to cut your spending at all.

When we think about budgeting traditionally, we tend to only focus on the spending piece. But we really should be taking a look at the income side as well. So first and foremost, let’s start there.

Find the Easiest and Most Impactful Ways to Trim Spending

If that’s not enough, or if growing your income isn’t an option for you for whatever reason, the next step is not to start nickel and diming on your coffee every month.  That’s the hardest way to actually do this.  Instead, what are your top three or four categories of expenses every month? Where does most of your money actually go?

Now, for most people, this is some sort of combination of your rent or mortgage payments, student loan payments, transportation costs, food or even clothing. Pull all that stuff together in those big categories and ask yourself, what’s the easiest and least impactful cut that you can make to your biggest areas of expense?

In other words, if the goal is to cut your spending by a certain dollar amount every month, what’s the easiest way to actually do that? For most people, that’s not going to be coffee, right? Start with the biggest areas of expenses.

So maybe it means that it might make sense for you to move to a cheaper apartment the next time your lease is up. Or taking the bus or subway a little bit more rather than taking Ubers. Or if you have student loans, trying to switch your student loan repayment plan might be a good idea (if you have federal loans).  If you have private student loans, maybe trying to refinance them is a good idea. Or trying to cook a little bit more at home might be a good idea if you spend a lot on food.

The point is, there’s a lot of different ways to do this.  And each one is different, depending on what you actually need to be doing.

Make That Your Goal.  Not Just Budgeting

But only if you need to, write and make that your New Year’s Resolution. Don’t just make budgeting your resolution, but actually find the easiest and most impactful areas to cut if you need to. And when you do that, you’re going to find your budget tends to just come in order.

Make it as easy as you can on yourself. Make it hard not to save for yourself and from there, only if you need to cut spending, cut the pieces that are the easiest and most impactful for you to cut.

But ultimately, if you take anything away from this video here today, recognize that if you’re struggling with traditional budgeting and you feel like it doesn’t work for you, you are not alone.

Make Budgeting As Easy As It Can Be

The best thing you can do to make your budget work is to figure out how much you need to save every month and set it up to save that amount automatically. Move it from your checking to your savings account without thinking about it, without actually going in and doing it every month, and make the rest of your spending revolve around that. If you need to pull some of that money out of savings for whatever reason, you always can do that, but make that the hard part.

It doesn’t take a lot of time to do this. But you should be making it easy for yourself to save rather than the other way around.

Anyway, I hope this was helpful. Thanks so much to “Eric” for sending in this great question and working through our Newlywed Money Guide.  You can download that guide here if you’d like to learn more.

And again, if you have any questions about figuring out how much exactly you need to be saving every month, reach out and I’d be glad to help you out however I can. Thanks so much for joining us, and I hope you have a great day.

The Unintended Consequence of the Tax Reform Law for Student Loan Borrowers

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tax reform law
Executive Summary

When married couples with student loan debt go onto an Income-Driven Repayment plan, there’s a choice to be made:  is it better to file your taxes jointly (but base your income-capped student loan payments on both you and your spouse’s income) or to file taxes separately (and only count your income when calculating your student loan payment)?

Although it didn’t address student loans directly, the passage of the Tax Cuts and Jobs Act of 2017 has a big unintended consequence for these student loan borrowers.  This decision around whether to file taxes jointly or separately when on an Income Driven Repayment plan should be made by comparing the amount of money you’d save on taxes by filing jointly with how much more you’d need to pay each year on your student loans.  Since the tax reform law cuts taxes for most people, the difference in the amount you’d save on taxes by filing jointly versus separately will shrink for most people.  Which means that you’re now more likely to be better off filing taxes separately and saving money each month on student loans than you were under the old tax code.

Download our free student loan guide to learn more about Income Driven Repayment plans.

(Bill’s Note: This video, and the lightly edited transcription below, was originally recorded as a Facebook Live broadcast on January 9, 2018.)


Hello and welcome!  Happy New Year to everybody.  Today I want to have our very first weekly chat that we’re going to have on the Pacesetter Planning Facebook Page (and will be published here every Thursday).  Normally we’ll broadcast live at 8 PM Eastern time on Mondays.

Each week, we’re going to do a deep dive into a financial topic.  Typically, these will be driven by questions that people either ask me in person while I’m out and about in Philadelphia, or are submitted through the website or our Facebook page.  And I’ll share my response to these questions here.

So, if you have an idea, anything you’re curious about hearing, shoot me a message or leave a comment on this video or post, and I’d be more than happy to talk through it. I already have a few questions that we’ll be covering over the next few weeks.

Tax Reform and Student Loans

But for today, I want to talk about something that I think is timely, given current events, and that is the potential side effects of the passage of the recent tax reform law that was enacted before the holidays.  There’s a new opportunity that I think is out there for student loan borrowers, particularly borrowers who are on an Income-Driven Repayment plan (IDR).

To give you a heads up in advance, this is going to primarily involve people who are on an IDR for their student loans who are married.  Now, if you’re not married yet but you’re on one of these plans, and you see yourself potentially getting married over the course of your student loan payments, stick around and you’ll pick up on some things that will help you someday down the road.

Before we dive into exactly what this effect is, I think it’s worth pausing to make a quick note.  We did a deep dive into the Tax Cuts and Jobs Act right after it was passed in December 2017.  We’re not going to rehash that today, but just to reiterate:  there were NO direct effects on student loans in the law itself.

There were a lot of rumors going around through the legislative process that there were going to be some changes made to student loan policy, particularly to your ability to deduct student loan interest.  None of that actually happened.  So, everything in that light is exactly the way it was before.  If your income is below a certain threshold, you’re still able to deduct up to $2,500 in interest paid on your student loans from your taxes every year.  Nothing’s changed in that light.

Income-Driven Repayment Plans

What has changed, though, is the ways that we calculate student loan payments under these Income-Driven Repayment plans- or at least it has the potential to change, depending on your circumstances.

What do I mean by that?  The starting point needs to be: what is an Income-Driven Repayment plan?

For those of you who aren’t on one of these plans already, typically when you borrow student loans, you have a six- to nine-month grace period before you need to start making payments.  Your student loan servicer typically puts you on a standard, ten-year repayment plan.  They’ll tell you how much you owe based on how much you borrowed and the interest rate.  You make the monthly payment that they tell you to make, and ten years later it’s completely paid off and you’re good to go.

But for most student loans (note: not all of them, but most student loans will qualify), if you have a particularly high amount of loans compared to your income, you have a few options.  And one of them is going on an Income-Driven Repayment plan.  There are a wide variety of IDRs, but we’re going to treat them all as the same today (even though they are not the same).  There are some pretty substantial differences between them- if you want some more information on this, go ahead and download our free student loan guide. It’s about thirty pages long and it’s the most popular giveaway we’ve ever posted on our site.  It will walk you through exactly what you need to know about all of these different repayment plans, what they consist of, and will help you identify which one is right for you.  Click the link to download this guide.

But generally speaking, these IDRs tie the amount you owe every month on your student loans to your income level.  If you aren’t making a lot of money, or you have much higher levels of student loan debt than your income, it essentially allows you to scale your student loan payments back to a reasonable level based on your income.

How Do Married Couples Calculate Their Income for IDR Repayment Plans?

The question, though, is what actually counts as your income? Now if you’re single, this is pretty straightforward.  Your income itself is your income.  Whatever you make at your job, any other income you have, that’s what they base it on.  Nothing too complicated.

But, when you get married, it’s a little bit more complicated.  You have your personal income, and if you’re spouse works, they have income as well.  So- what does your student loan servicer base your payment on?  Is it based on just your salary, or is it based on you and your spouse’s?

Obviously, if your goal is to lower your student loan payment, you want to have the payments based on a lower amount.  So ideally, you’d just count your salary.

The answer to the question of how student loan servicers treat your income is that they actually let you choose which one to use.  You can either report just your income, or you and your spouses income- you have the choice.

So, that begs the question, why is that not a no-brainer?  Like I said, if you have the option to pay your loans based on a lower salary or a higher salary, your monthly payment is going to be lower based on just your income.  So, why wouldn’t you do that?

Your Tax Filing Status Determines What Income They Count

Unfortunately, there definitely is a catch to it.  And the catch is this:  however you decide to report your income (to base your student loans payment on), you need to file your taxes the same way too.  In other words, if you want to report just your income to lower your student loan payment every month, you need to file your taxes “married filing separately” from your spouse.  Or inversely, if you file your taxes “married filing jointly”, your loan servicer will look at both of your incomes when they calculate what you owe on your loans every month.

For most couples, you’re going to save more on taxes by filing jointly rather than separately.  There are a few big exceptions (we wrote on the blog last year a list of some of those particular exceptions), but particularly for most young couples, you’re going to find that you save more on taxes by filing jointly rather than separately.  But- that means that you’re going to owe more on your student loan payments if you’re on an IDR because you’re filing jointly and they’ll base your payments on your combined incomes.

You can think of this like a balance scale (like the ones we used back in school) where you weigh one thing against the other.  On one hand, we have the amount of taxes you’re going to owe.  If you file jointly, that’s likely going to be a lower number and if you file separately, it’s likely going to be a higher number.  On the other side of the scale, you have your monthly student loan payments.  And that works the exact opposite way:  if you file jointly, you’ll probably save on taxes, but you’ll owe more on your student loans.  And vice versa, if you file separately, you’ll probably owe more on taxes every year but you’ll save on your monthly student loan payments.

You can imagine that there’s a point at which these things will balance out.  For example, let’s say that if you file taxes jointly with your spouse, you’re going to save $2,000 more on your taxes every year than if you filed separately.  But, doing so might cost you an extra $2,000 in student loan payments across the whole year when you add up your monthly payments.  If this is the case, it doesn’t actually matter what you do: you’ll save $2,000 on taxes, and pay $2,000 extra toward your student loans every year.  It washes out.  (Technically, under this scenario I’d recommend that you file jointly and pay more on your student loans, since this method will cost you less in the long run!)

How Does the Tax Reform Law Change Things?

But typically, it doesn’t balance out.  There’s typically a better answer for you whether you should file separately and reduce your loan payments, or file jointly and pay more every month.  Usually, there’s going to be a clear cut answer.

And that brings us back to the tax reform law.

Because what this law has effectively done (it’s not intentional that it worked out this way, but it is the effect if you’re one of the IDR plans) is that the way you calculate your student loan payments hasn’t changed – your income is still the same, the options are still the same – but they’ve reduced  the other side of the scale for most people.  Most people are going to have tax cuts under the new law, which means the gap between how much you’re going to owe if you file jointly vs separately is less than it was under the old tax law for most people.  They’ve taken the equilibrium point between the two and threw it off a little bit.

Which means that there’s going to be more people that are going to be better off filing taxes separately and taking a lower student loan payment every month going forward than there was under the old tax law.  The balance point has shifted, which means that more people are going to better off filing taxes separately than there were before.

To be clear, for most people you’re still going to owe more on taxes filing separately than you would if you file jointly.  That hasn’t changed.

But what has changed is the magnitude of the difference.  If the overall dollar amount of your taxes is going down because of the way they drew the brackets, for most people the gap between what you’d owe if you file jointly vs. separately has shrunk- by a real dollar amount.

Which means, for more people than there were before, you’re going to be better off filing separately and reducing your student loan payments every month.  Not for everyone– there will be still people who are better off filing jointly and paying more on your student loans.  But, you need to go back and revisit the math, because the math has fundamentally changed as of January 1, 2018.

Not Too Late To Change

Now the good news is that you have the ability to decide this every single year.  If you’re already on one of the IDR plans and have been filing your taxes jointly and reporting the higher income number, you can change that every single year.  Every year, you file your taxes and you have to recertify your income level- if you’re already on one of the IDR plans, you’ve gone through this before.  So, I’d invite you to revisit this.  Try to figure it out on your own- are you still better off doing what was right for you under the old tax law, or has it changed?  Because there’s a very real chance that it could have potentially changed.

So, if you’re on an IDR and you’re filing jointly now, take a hard look at this to make sure it’s still the right option for you.  And if you qualify for an IDR, and just haven’t gotten around to signing up for one, there could be a higher benefit to you than there was before.  It might be a little bit more of an attractive option now than it was under the old tax law.  I’d invite you to take a look at this.

A Few Important Details: Other Factors You Need to Consider

Now, a couple quick details that I think are important to note before we wrap up.  I’ve tried to keep this at a fairly conceptual level, but there are some details you need to be aware of.

As I mentioned before, there are several different types of these Income-Driven Repayment plans.  Primarily, there are five different types.  You need to be aware that one of these five main types of IDRs actually doesn’t give you the choice to separate your income from your spouse’s.  We’ve spend this time talking about how you have the choice to file separately or jointly and report your income likewise, but if you’re on one particular type of IDR, you unfortunately don’t have the ability to make this choice.

The plan in question is called the Revised Pay As You Earn plan (you’ll usually see it abbreviated as “REPAYE”). If you’re on this plan, you unfortunately don’t have the option to split your income up- you need to report you and your spouse’s income jointly.  Which means that if IDRs are something that you’re looking into – like I said at the top, if you’re single now but you’re envisioning getting married down the road while you’re still making student loan payments – you might want to think twice about choosing REPAYE.

Now, there are some unique benefits to REPAYE- it’s not worth forsaking it altogether – but it is something you should take into account.  Under REPAYE, you won’t have the ability to separate your income (which might be a more attractive option now than it was under the old tax law).

(Note:  to be clear, the plan is question is REPAYE.  There’s another IDR called “Pay as You Earn”, or “PAYE”, that does give you the ability to separate your income from your spouse’s.  Congress has really mucked up the student loan policy over the past decade or so, with some assistance from the Department of Education.  There’s a lot of different types of IDRs, they all sound the same, but we’re talking today about REPAYE, not PAYE.)

Second key detail:  this principle of weighing the two sides of the balance scale is the right idea, but be aware that the calculation is a little bit more complicated than this.  There’s one other factor that you need to take into account before you decide to file separately and lower your student loan payments.

And that is that when you file separately, you lose the ability to claim the student loan interest deduction that I mentioned up at the top.  Right now, you can deduct $2,500 in student loan interest that you paid over the course of the year from your taxable income.  You can do that if you file jointly, as long as your income doesn’t exceed relevant thresholds.  But if you file separately, you lose the ability to do this.

The concept of balancing the two sides of the scale is the same… but you can almost think of the loss of the student loan interest deduction if you file separately as a “thumb on the scale” in favor of filing jointly.  It makes filing jointly a little bit more appealing.

The principle stands: more people today are going to be better off filing separately and reducing your student loan payments than there were under the old tax law.  But, there is a separate factor that you need to factor into your decision.

Student Loan Analysis is Complicated

To wrap up, this is complicated stuff.  Like I said, the way that we’ve come to the current student loan landscape doesn’t really make sense.  This is something that I help my financial planning clients with on an ongoing basis.  I help my clients do this sort of analysis to help figure out what steps need to be taken.

But, I actually offer a separate, standalone Student Loan Analysis service.  For people who don’t want, can’t afford, or don’t have any interest in doing Comprehensive Financial Planning, I offer this as a separate service.  We would meet via a video conference for 45 minutes to an hour, I’d collect your individual student loan data so we can understand what you specifically qualify for, discuss your goals for your student loans- are you trying to minimize your monthly payment, or are you trying to pay them off as quickly as possible?  Those are two good answers, depending on your circumstances, but they’re completely opposite strategies.  We discuss all of these things, and within two days I’ll send you a list of recommendations for what to do with your loans.

If this is something you’re interested in or would like to learn more about, I do offer free consultations.  Click here to set up a no-obligation, free strategy session to talk through this issue we’re talking about today, or any other issue when it comes to your loans.

In closing, I think there’s a very real, unintended consequence that came about from this change in tax law that really is an opportunity for a lot of people- if you decide to take advantage of it.  I encourage you to do so.

Again, Happy New Year!  We’re going to be holding these chats on our Facebook Page, usually live at 8 PM on Mondays.  If you have any questions or things you’d like me to cover, shoot me an email or leave a comment on this video.  Thanks so much, and have a great day!

Don’t Panic About Proposed Public Service Loan Forgiveness Elimination

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Executive Summary

Public Service Loan Forgiveness (PSLF) is a specific student loan payment strategy for individuals with high student loan debt who work for the government or a registered non-profit.  This includes government employees, employees of traditional non-profit entities, teachers, and even doctors and nurses who work at teaching hospitals.  Under this program, if you make 120 student loan payments on certain types of loans loans under a qualifying repayment plan, the remaining balance is forgiven after 120 payments.

Originally created under the Bush administration, there have been many rumored changes to PSLF program over the years.  In 2012, the Obama administration proposed putting some caps on the loan amounts that can be forgiven.  And recently, a proposed internal budget memo was leaked indicating that President Trump’s Department of Education is proposing eliminating the program all together.

In this video, I discuss the proposed threats to the PSLF program, and why I don’t think there’s any need to panic about these changes yet.  Ultimately, I believe that the chance that this proposal could become law is incredibly low both in its current form and in the current legislative climate in Washington DC.  And even if it does become law, it almost definitely would need to apply to future borrowers only.  If you’ve already taken out student loans and are counting on PSLF, you very likely have it in writing in your promissory notes that your loan servicer will honor PSLF in the first place!  Which would create massive legal challenges if the government were to revoke that at this point.

Nevertheless, it’s absolutely critical that you pay careful attention to the PSLF fine print if you are counting on this forgiveness.  To make sure you qualify for the program, you need to do a very detailed loan-level review to make sure your loans qualify for the program in the first place, since many of them don’t.  You also need to make sure your loans are on a qualifying repayment plan to be eligible for PSLF.  Finally, you need to submit an Employment Certification Form annually to your loan provider.  Ultimately, remember, this is on you to make sure you qualify!  For more information on qualifying for PSLF, click here and download my free student loan guide.

(Bill’s Note: This video, and the lightly edited transcription below, was originally released as a Facebook Live broadcast on May 18, 2017.

Finally, click here to grab a copy of the FREE 30 page student loan guide mentioned in this video to learn more about how to qualify for Public Sector Loan Forgiveness.)

Pacesetter Planning Facebook Live Transcript

Welcome, everyone!

I was in the process of filming some things that will be going live at later today when I noticed the news that came out yesterday about the potential changes to the Public Sector Loan Forgiveness (PSLF) program by the Trump administration.  Particularly, the proposed elimination of the Public Sector Loan Forgiveness program.  I wanted to share a few quick thoughts on this.

Trump Administration Proposes Elimination of Public Sector Loan Forgiveness

In case you missed the news, the Department of Education’s internal budget memo was leaked yesterday to the Washington Post.  And it looks like that this proposed budget will essentially eliminate PSLF.  For those of you who don’t know, this is a specific student loan program that allows people who work for non-profits, or the government, or even some hospitals to be eligible to have the balance of their student loans forgiven after 10 years.  And, essentially, it looks like the Trump administration is going to try to eliminate this program.

Interestingly, that’s not the only thing that was actually proposed in this document.  They also proposed some changes to the Income Based Repayment plans that are available as well.  Those [repayment plans] are typically for people who are either pursuing loan forgiveness or those who don’t have the necessary monthly income to pay their “standard” student loan payment every month.  Under these programs, you have the capability to peg your monthly student loan payments as a percentage of your current income.

The Washington Post leaked that the Trump administration will be changing some of the specific percentages of your monthly income that would make you eligible for this program, as well as the length of some of these income based repayment programs.

There’s nothing new in that particular proposal.  Actually, I wrote on the blog back the week that Trump was elected about that specific change in policy.  It’s something that he campaigned on.  And, I wrote about it on CNBC’s website as well a few months ago. So, there’s nothing new there.  The real news is that this Public Sector Loan Forgiveness program may end up being eliminated.

This isn’t Something to Panic About… Yet

There’s been a lot of panic about that, and justifiably so at first glance, but I wouldn’t panic about this yet. And there’s a few reasons for that.

This Proposal Needs to Go through the Standard Legislative Process to Become Law.  Good Luck with That

First and foremost is that this is not an actual budget that was released.  This is not the law of the land.  If you go back to your 8th grade social studies classes (Schoolhouse Rock, and all that good stuff!), any budget bill has to be originated in the House of Representatives, passed through the Senate, and then signed into law by the President.  So just because the Department of Education has released this as their blueprint or vision for the future, doesn’t mean that it’s actually policy. And in fact, I think it’s probably unlikely that, in its current form, it will ever become policy. I’m not a legal expert, obviously I’m not in government, but based on what I’m seeing right now, I don’t see how that the elimination of PSLF really could possibly be eliminated as they’re proposing.  At least in its current form.

Interestingly, the Obama administration a few years ago actually did try to make changes to the program.  Rather than allowing your entire loan balance to be forgiven in 10 years, they were proposing to put some caps on it as a cost savings device, and that didn’t get through.  So, if that didn’t happen a couple of years ago under the Obama administration, particularly under the legislative climate that we’re in today, I just don’t see this actually happening right now.  Which is good.

This is Unlikely to Affect Borrowers who Already Have Student Loans

And even if it does, there’s a second piece of good news for all of you out there who took out these loans, are in public sector jobs, and are counting on this loan forgiveness.  And that is, that, quite frankly, it is against all precedent in student loan policy that, if this change were to go into effect, it would affect current borrowers.

Going back through all of the different changes in student loan policy over the past 15-20 years, I can’t think of a single one off the top of my head where people who already had loans originated now were affected by the changes. Typically, when these changes go into effect, they are for new borrowers. The good news, is that if you have loans in existence right now and are on track for loan forgiveness, I would just be shocked based on the precedents that have been set and the way these things work, if this were to actually affect you.

In fact, I’ll even take it a step further. For many of you, if you go back to the promissory notes that you signed when you were 18 or 19 years old and took these loans out (you probably didn’t even understand half the stuff because they do a terrible job walking you through it…), the PSLF program is often enshrined in those documents.  So literally, for them to eliminate this program right now, in my opinion (and some of the legal experts I’ve followed since this has come out), I don’t see how they could legally do this.  And in fact, I think this would create a lot of legal programs, if they were to eliminate the program for people who have already taken out these loans and are on track for loan forgiveness.

I think it’s more likely that they might eliminate the program for future people, which certainly could be a problem for folks, but it’s certainly not at the crisis magnitude that cancelling it for people who have all this debt and are really counting on this program being around at this point.

So, I think that a lot of the panic I’m seeing, while it might be justified at face value, really doesn’t justify panic just yet, to be honest.  Because first of all, it’s not on the books. It’s not even close to being on the books at this point. And I think that it would create so many legal headaches for the government to cancel this program that they’ve promised people in writing over the past 10 years, that I just don’t see it happening.

But, You Still Need to Pay Attention to PSLF

That being said, if this is something that you’re counting on, there are a few critical things that you need to do.  And that’s really why I wanted to talk about this today while this topic is in the news.  While I would continue going forward expecting this forgiveness program to be in place until we see anything different (and if we do, we’ll talk about it), if you’re on track for it now, you need to be doing a few things to make sure you do qualify.

Part of the reason that people are so scared about this is because, well, let me ask you- if I was to ask you how many people have qualified for PSLF over the past several years… the answer would be zero.  Because, the law was passed in October 2007.  So, it hasn’t even been ten years since it went into effect.  So, nobody has been eligible to qualify yet. That’s going to be changing later this year and early next year [Note: the application for forgiveness was released in early September 2017, as predicted in this video].  The very first group of people who are eligible for this program are really reaching the end now. But because it’s never been actually implemented, there’s a little bit of uncertainty here.

And so, what I wanted to do was talk through some of the things that, driven by this uncertainty, you should be doing to make sure you’re being taken care of.

You Need to Make Sure Your Loans Qualify for PSLF Under the Current Law

First and foremost, you need to make sure you actually qualify for the program.  We know that you need to hold a public sector/nonprofit type job, but you also need to make sure that your individual student loans qualify.  Because, one of the biggest misconceptions and mistakes that I’ve seen since I founded Pacesetter Planning is people who think they’re on track for PSLF and don’t even qualify for forgiveness in the first place because their particular student loans don’t qualify.

Over the past ten years, student loan policy regulations have changed every few years.  So, you really need to do a deep, loan-level analysis to make sure that you actually qualify.

I’ve made it as easy as I can for you to do that.  Click here to download a free student loan guide that walks you through the steps you need to take. Everything you need to make sure that you can qualify for this program under the current law as it exists, is detailed in that guide.  So, I highly encourage you to download that guide (it’s free, no cost for this!) and do the analysis that is listed there to make sure that your student loans qualify for this program. Because if they don’t, that’s going to be a whole other conversation.

You Need to Make Sure You’re on a Qualifying Repayment Plan

Second of all, this is a little less common of a problem, but make sure you’re on a qualifying repayment plan. If you’re on a standard 10-year repayment plan, it’s very likely that you’ll have paid off your loans by the time 10 years is over. So, double check with your loan servicer what type of repayment plan you’re on, and specifically make sure that this payment plan makes you eligible for PSLF.

This is particularly an issue, I’ve found, with people who have graduated medical school, who are residents but aren’t yet “full doctors”. For those of you who don’t know much about the medical industry, people who graduate medical school typically have over $250,000 in student loan debt, then they go into three (or four, or five, or six or seven) year residency and fellowship programs, where they make a fraction of what they’ll make as full doctors.  Because having a nonprofit hospitals jobs would qualify for PSLF, what I see happen a lot is people who defer their loans while they don’t have a big income during residency, but count that, in their head at least, as counting toward that ten year PSLF qualification.

Just to be clear, that’s not going to work. Because technically, it’s not ten years that qualifies you for PSLF, its 120 payments.  You need to make 120 payments on your student loans in order to qualify for this program.  So, it’s really not enough to go into residency, put your loans on deferment, and start counting the time.  Because if you’re not actually making the payment, it’s not going to count for you. So again, make sure that you know if your payment plan is going to qualify you, and that every payment you make is going to count toward that 10 year (120 payment) goal.

You Need to File an Employment Certification Form Annually

And finally, last thing, unfortunately this is on you to make sure you qualify for this.  Your student loan servicer and the government are certainly not going to be looking out for you to make sure that you’re doing what you need to do in order to qualify.

So, the last piece I recommend is that for people who are in qualifying jobs (working for a nonprofit or the government or things like that), you need to be filling out an employment certification form.  Every year. And submitting it to your student loan processor.  It basically shows that you hold a job that will qualify you, for all the payments you are making this year, toward those 120 payments that would qualify you for PSLF.  If you don’t have that form, click here or send a Facebook message to the Pacesetter Planning Facebook page, and I will send you a copy of that form. But you absolutely need to be filling it out every year.

The Government Accountability Office (GAO) released a study recently that said that 4 million people are “qualifying” for PSLF, but less than 1/8 of them are actually filling out that form.  I think that’s a huge mistake.  And other than having loans that don’t qualify in the first place, which I already talked about, not filling out that form and proving to the government and your student loan servicer every year that you qualify, is the number one mistake I see people make that could potentially lead to problems for them down the road.  So, definitely make sure you do that. I have no issues whatsoever with sending you this form if you send the Pacesetter Planning Facebook page a message.  I’ll make sure we get the form to you.

Conclusion: Worry About Complying with the Current Laws around PSLF, Not About Proposed Future Changes

Anyway, that’s about it.  Like I said, potential scary headlines about the future of this program.  We don’t really know what’s going to happen yet.  But based on the reasons that I detailed, I don’t think there’s any reason to panic yet.  I think it’s definitely something to keep an eye on. But, like I said, this is not law, it’s not part of the budget at all (in fact, we’re many, many months from even getting to that point). I don’t think this is likely, in fact it’s been tried in some ways before and it hasn’t gone through. Particularly with the climate in Washington DC right now, I just don’t see it happening. And more importantly, it’s against all precedent in student loan policy to affect current borrowers. If they were to eliminate the program, I think it’s much more likely that it would be eliminated for people who are taking out loans in the future, not people who are already on track.


You need to make sure, if you’re counting on PSLF, you have to make sure you’re doing everything you can to qualify. You need to make sure your student loans qualify in the first place, you need to make sure you’re on the right repayment plan for those loans, and you need to filing an Employment Certifiction Form indicating that you work for a nonprofit or government agency, every year, for ten years to show that you’re qualified.

Again, if you have any questions about this, I highly encourage you to either send me a Facebook message on the Pacesetter Planning business page, or download that free student loan guide.  There’s a ton of detail in it and it’s going to give you just about everything you need to know.  Thanks for taking the time today- have a good day!

How to Take Control of Your Finances after Graduation

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[Don’t miss the free giveaway in this post! Click here to download our comprehensive student loan guide!]

Congratulations to everyone graduating this semester! If you are finishing your undergraduate career this month, welcome to the working world!  If you are finishing a masters or professional degree program, congratulations on finally (probably?) being done with school!  And if you didn’t graduate this year, stick around anyway- I have some information here for you, too.

As the excitement of your graduation weekend ends and you begin to take the next steps on your journey, whatever they may be, I recommend that you take a step back and take an assessment of your current financial landscape.  Your life is changing (for the better!), and as such, you should take some time to reflect and take action to set yourself up for financial success in your new endeavors.

There’s a lot to take in here – if you have any challenges in any of these areas, I recommend that you reach out to schedule a free consultation.

Congratulations again, and let me know how you are doing as you progress through this list!

Negotiate Your Salary

If you’re still working on lining up your first job out of school, make sure you prepare yourself to negotiate your salary before you accept a job.  If you already have a job lined up, file this one away for your next performance review.

I’ve discussed this in much more detail before, but it’s absolutely critical that you negotiate your salary when starting a new job.

Over 60% of millennials aren’t negotiating with employers at all regarding their salary.  And the worst part?  Three out of four employers have room to negotiate salary by as much as 10%- but only if you ask for it.  And, truthfully, hiring managers and HR are expecting you ask for it.

I know it’s uncomfortable, but you have to do it.

Set a Student Loan Paydown Plan

The bad news? T-minus six months until your first student loan payment is due.

The worse news? The vast majority of millennials are told by their loan servicer how much they owe and automatically start paying the bill, without double checking to make sure they’re paying down their loans in the smartest way possible.

The good news?  You have the power in your hands to make sure you’re handling your student loans with the care they deserve.

I highly recommend downloading my free guide on managing student loan payments. In it, you will learn:

  • How to review each of your student loans and determine what payment plans each is eligible for.
  • How to know if you are eligible for a loan forgiveness program, and what you need to do to qualify for the program under current law.
  • When you should refinance your student loans, and when you absolutely should NOT refinance your loans.
  • How to set goals around your student loan payment strategy (i.e., should you try to pay down your loans as fast as possible, or should you try to minimize your monthly payment?)
  • … and much, much more!

Go ahead and grab your free copy of “13 Steps to Take Before You Make Your Next Student Loan Payment” today.  It will be worth your while to work through the guide in order to set you up for success with your student loans.

Set Financial Goals for the Next Five Years

I remember graduating college like it was yesterday.  The last thing I wanted to do was to try to imagine what the future was going to be like.  I just had the best four years of my life, and was scared to face all of the responsibilities that I knew would fall on my shoulders in the real world.  If you had told me back then to spend some time setting goals for my first few years in the working world, I probably would have laughed at you.

But, I wish I had taken that advice.  I’ve improved my own personal financial situation significantly after I started setting financial goals for myself. (Not too long after I started my first job, luckily!)  And I recommend you do the same.

Take some time and imagine what you want your life to be like in one, three, and five years from now.  Will you be going back to school to get a graduate or professional degree?  Do you want to buy a new car or, a little while down the line, a new house? Are you gunning for a quick promotion at work, or maybe even thinking about launching a business or side hustle someday?

All of these things are great, and they are much more likely to happen if you (literally) put pen to paper to clearly articulate what you want your life to look like.  And, once you have done this, you can manage your finances accordingly to begin to make progress against these goals.

Set Up Your 401(k)

It can be easy, in the flurry of paperwork that accompanies a new job, to accidentally forget or neglect to set up contributions to your 401(k).  Don’t forget, it’s critically important.  At a minimum, you should contribute at least to your firm’s matching point.

So, if your firm matches up to 3% of your salary, you should contribute, at a bare minimum, 3% to your 401(k).  Not contributing up to your firm’s matching point is, quite literally, turning down free money.

And unfortunately, it’s not enough just to set up how much you want to contribute to your 401(k).  You need to choose how you’d like to invest the money you put into your retirement plan, too.

Unfortunately, firms usually give very little guidance to their employees on how to do this.  Which is why I’ve written about how to choose investments in your 401(k) in more detail on this blog.

…And If You Can, Save Beyond The Minimum for Retirement

Retirement might be a long way away (spoiler alert: it is a long way away), but that doesn’t mean you shouldn’t start saving aggressively for it now.  In fact, due to the beautiful thing that is compound interest, the more you save for retirement in your early working years, the much better your retirement picture will be.

There are other things you should be saving for as well (we’ll get to that in a bit), but if you have some discretionary income, I can’t recommend highly enough that you put some of that into a retirement account.  What type of retirement account – either increasing contributions to your 401(k), opening a Traditional IRA, opening a Roth IRA, or even a nonretirement investment account – can vary significantly depending on your circumstances. This is probably something we should talk one on one about, if you have questions.

Build an Emergency Fund

Like I said, retirement isn’t the only thing you should be saving for.  It’s critical that you gradually build an emergency fund so that if you were to lose your job, you have a way to support yourself during the transition.

The rule of thumb is that you should have enough saved to support yourself for six months (living on reduced expenses, of course – you probably won’t spend as much as you are today if you don’t have an income, after all).  But, when you’re first getting started, I think it’s silly to dwell on six months of savings.  That’s a pretty big and intimidating number for most people.

So instead, start by trying to save up to cover one month of your minimum living expenses.  Once you’ve saved that much, make your next goal to be to save an additional month of living expenses.  And so on, until you’ve hit that six-month goal.  By breaking it up into pieces like this, it gives you a very clear way to take small steps, starting now, to work your way up to this major goal in the future.

Keep Your Living Expenses at College-Level For As Long As You Can

If you’re like me, there’s a good part of you that’s sad to be leaving college.  College is hard, sure, but it’s fun!

Do you have that same bittersweet feeling I did about leaving school behind as you enter the real world?  Good!  Hold on to it.  Embrace it.  And channel it into how you manage your finances.

Simply put, if you had a blast in college living on a minimal income, there’s no reason to change that up now that you have a salary.

Sure, you can have some peace of mind that you have some discretionary money at your disposal if you ever were to need it. And there’s certainly nothing wrong with splurging every now and then.

But, since you’re used to keeping your living expenses low, you should continue to do that as much as possible.  Have friends in your new hometown?  Try to get them to sign on as roommates!   Have some more free time on the weekends now that you’re not constantly writing papers and completing homework?  Spend a little of that time learning how to cook so you don’t need to order takeout seven or eight times a week.

Simply put, it’s much easier to maintain your current standard of living today than it is to increase your standard of living, realize you’re overspending, and then try to cut spending back.  You’re better off keeping your monthly spending where it is today, and saving the rest, rather than allowing your lifestyle costs to rise with your income.

And Speaking of Spending…

Yes, you need a budget for yourself.

I’m not the type of person to go through my clients (or my own) spending with a fine-toothed comb, analyzing every little expense here and there.  It’s not fun; it’s not productive; and it’s not an effective, long term, healthy way to manage your finances.

Instead, you should set budget parameters for yourself to make sure you know where your money is going, and track against those.  A free tool like is great for this.

You don’t need to worry if you go a dollar or two over any particular budget category each month.  But, you should pay close attention to your biggest spending areas, and try to find ways to cut back on these highest impact spending areas first, if you’re having a hard time finding the money to save for retirement and build your emergency fund.

Budgeting should be a common-sense driven exercise.  Don’t drive yourself crazy with it, but know your budget numbers and stick to them as best you can.

Increase Your Available Credit (But Don’t Use It)

It can be hard to build your credit score while you’re in college.  After all, most financial institutions aren’t in the business of giving huge lines of credit to college students who have a minimal, if any, income.

But now that you’re out of school, that changes in a big way.  As soon as you have documentable proof of income, you should open up a credit card and use it wisely to start to build your credit score.

Whatever the bank gives you for a credit limit, always keep your credit card balance below 30% of this limit.  Always pay off your bill every month.  In other words, don’t rely on your credit card to bail you out if you don’t have the cash available to make a purchase.  Instead, use it as a tool to begin to build your credit history as an excellent manager of credit.  When you’re ready to buy a house several years down the line, you’ll be happy you did.

An even better way to do this?  Find a credit card that offers some great perks. If you like to travel, find a card that gives good points toward airfare or hotel stays.  If you’d rather just have the cash, find a card that pays you cash back bonuses when you use the card.  There are a lot of options out there, and some of them are fantastic.  If you want to get some more ideas on great credit cards to use, give me a call.

This Isn’t a One-Time Thing

As you can tell, there’s a LOT here.  As you transition in the workforce, it’s ultimately on you to set yourself up for financial success.

Start today by downloading my free student loan guide.  Create a budget, open a credit card, and manage your cash flow (both income and spending) wisely.

But ultimately, most of these things aren’t just for when you make the transition from school to a job.  You should periodically review each of these items to make sure you’re still on track.  Set up a free call with me to talk through how we can implement a system to address each of these items, and more.

How to Allocate Your Money Effectively

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Ever since I founded Pacesetter Planning, I’ve worked with my clients on a wide range of financial topics.  I’ve gotten a variety of questions from clients and potential clients, and while everyone’s situation is a little different, generally they fall into the following categories:

  • How do I manage my finances with my husband/wife/fiance/significant other?
  • How much do I need to buy a house?
  • How much should I be saving for retirement?
  • How do I select investments?
  • Should I put extra money toward my student loans or should I direct that money elsewhere?

As you may have noticed, I’ve addressed a good number of these topics at a high level on this blog already (and will continue to do so).  But, you may have picked up on something else.

All of these Questions are Interconnected

It’s hard to make financial decisions in a vacuum.  Often times, the hard part isn’t answering these individual questions, but finding the right answer to them all at the same time.  It often isn’t practical to increase your saving for retirement and buy a house and pay extra on your student loans all at once.  These decisions need to be made together, and there’s usually not a clear right or wrong answer.

That, of course, is where I come in.  I help my clients develop plans to manage their finances, prioritize their goals, and help them allocate their money accordingly.  We set targets and track progress against these goals, updating as needed.

You Need a Framework to Make these Decisions

While everyone’s circumstances are a little bit different, I use a strict framework and process to help clients make these decisions.

And I’d like to share it with all of you.

On Tuesday, March 7 at 8 PM EST, I’ll be hosting a free webinar called “How to Organize Your Finances and Create A Roadmap Toward Financial Freedom”.

On this webinar, we’ll discuss:

  • How I recommend clients structure their accounts to keep track of their finances
  • How to implement a system to manage your income month to month to pay yourself first
  • How much money you’ll need to retire, and what it will take to get there
  • How to balance your everyday spending with your short and long term financial goals
We Face Greater Financial Challenges than our Parents and Grandparents.  Plan Accordingly.

Sometimes I get pushback when I say this, but I truly believe that millennials face much greater challenges than previous generations.  Think about it for a minute.

Most of our grandparents worked 40 years at the same job, retired and received a pension from their company to fund their retirement.  They have Social Security.  When they were our age and looking to buy a home, housing prices were about twice the average annual salary.

Many of our parents may have had multiple jobs over the course of their careers, but most of them only had one job at a time.  Some of them may still have a pension, but all will (barring some sort of catastrophe) receive Social Security.  And again, the average home price when they were in their twenties was around twice the average annual salary.

Now?  The average millennial changes jobs four times before turning 32. More than 1/3 of millennials have a side job.  The average price for a home has jumped to about 3.5x the average annual salary. Most of us have some type of student loans.

Pensions? Social Security?   ¯\_(ツ)_/¯

We have some big challenges ahead of us.  The good news is that these challenges can be beaten.  But, you need a method and a plan to get you there.  I’ve got it for you.

I Want to Teach You Everything I Know

I didn’t get into financial planning to only work with rich clients.  My goal is to help make all of my clients wealthy someday.  The more people I can help, the better.

Rising Interest Rates and Student Loans- What’s the Impact?

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Interest rates are going up.  In December 2016, the Federal Reserve announced their decision to raise interest rates by .25%.  Not only that, but the Fed also indicated that they intend to raise rates three times in 2017.

For most student loan borrowers, this will not make a huge impact on your payments.  However, it’s critical to review your loans for any privately-issued student loans that have variable interest rates.  In a rising interest rate environment, variable interest rates translate into owing more on your loans.

Make a plan to address this gap on your own, or schedule a free consultation here.  It’s your call.  But if you have variable rate loans, the time to revisit your student loan payment plan is now.

Generally, Rising Interest Rates are Good

The Fed’s decision to raise rates, broadly speaking, is a good thing.  The Federal Reserve raises interest rates when the economy is gaining strength.  Rates have been held at historically extreme lows ever since the recession in 2008-2009.  Increasing them is a great sign that unemployment is low, jobs and wages are expected to grow, and that we are finally getting back on course following an unusually slow recovery from the recession.

While the Fed raises interest rates when the economy is good, the flip side is also true.  They cut interest rates when the economy is shrinking to encourage consumer spending. We should be cheering rising interest rates now to allow for this to happen later.  When the economy does inevitably turn south again sometime in the future, the Fed needs to be able to cut interest rates to help spur growth.

Quite frankly, the Fed kept rates so historically low for the better part of the past decade that many experts were concerned about the possibility that if another recession were to strike soon, the Fed wouldn’t be able to cut rates any lower.  Raising the rates now, while the economy is growing, will protect us in the future.

And finally, higher interest rates will (eventually) mean higher interest rates in your savings accounts.  While it’s true that the first rates to go up will be on loans and mortgages, eventually the bump in interest rates will carry over to your savings.  If you’re sick of earning next to nothing in your bank accounts, there’s some good news ahead in the coming months!

…But Not for New Borrowers or People with Variable Rate Loans

Of course, just because something is good for the economy as a whole, doesn’t mean it will necessarily benefit you.  And rising rates are a great example of that.

For starters, people who take out new mortgages or student loans will have higher rates in 2017 than if they had borrowed in 2016, assuming the Fed proceeds as advertised.  New loans are issued in accordace with the new interest rates.  So, borrowing the same amount of money will cost more this year than it would have if you borrowed last year.

But more importantly for this article, borrowers who have variable rate student loans will be impacted as well.  When I say “variable rate” loans, I am referring to student loans that have their interest rates tied to the current market rate.  As in, a loan whose interest rate will fluctuate over time depending on decisions made by the Fed.

Most student loans, and all loans backed by the federal government, are fixed-rate loans.  For these loans, the decision by the Fed will have no impact. (Although, as previously stated, a new federal student loan borrowed in 2017 will have a higher rate than one borrowed in 2016, all else equal).

But certain privately-backed student loans are issued with variable interest rates.  And if you have these loans, you will be paying more in interest as a result of the Fed’s decision.

There’s no rhyme or reason as to whether your private student loans are fixed or variable rate.  You need to grab a copy of your statement, or Master Promissory Note, and check.  I’m here to help with this step, if you need it.  But you absolutely have to check to determine whether you are impacted.

What to Do If You Have a Variable Rate Loan

Ultimately, there’s no one-size-fits-all solution here.  But there are certain options you have to address this scenario, the most common of which is to refinance the loans.

Through refinancing, you are in essence exchanging your current loan for a new one.  You still owe the same amount left on the loan, but the issuer who lends you the new loan will subject you to different terms than your previous lender.  This can include a different loan term and repayment options, but the key one here is that your loan will have a new interest rate.

This new rate largely depends on your credit score.  Has your credit score improved since you originally took out your student loans?  Then great news, you can (probably) qualify for a better interest rate.  What’s more, you could qualify for a fixed interest rate, rather than a variable rate.

Which means, through refinancing your loans into a new, fixed rate loan, you’ll no longer be subjected to the rising interest rates that the Federal Reserve has indicated are coming in 2017.

Of course, things change.  If economic conditions change later this year, the Fed could decide to hold off on the raise.  But all signs at the moment point to multiple interest rate increases this year.  If you have variable rate loans, the time to review your plan is now.

If you want more information on whether this might make sense for you, let’s schedule a free consultation.


This is critical. Be very careful in evaluating your options before deciding to refinance your loans.

For the most part, refinancing privately-issued student loans won’t do you major harm.  But keep your overall goals when it comes to your loans (are you trying to pay them off as quickly as possible, or minimize your monthly payments?) before you decide to refinance.  Review the new terms for the refinanced loan carefully before you accept the offer.

But most importantly, think two, three, four, five times before refinancing any federal student loans that you have!  While you may be able to get lower interest rates on private loans if you have a great credit score, keep in mind that refinanced federal loans in most cases will lose all the flexible benefits associated with them.  For example, refinanced student loans aren’t eligible for Public Sector Loan Forgiveness or for the various income repayment plans that are available for federal loans.

In short, it can be a big mistake for certain borrowers to refinance.  Student loans are much more complicated than they appear at first glance.  If you want a second opinion, reach out and let’s talk.

What Student Loans Aren’t Eligible for Public Service Loan Forgiveness?

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Student loans are back in the news again. The Government Accountability Office (GAO) released a report earlier this month detailing that the federal government is expecting to forgive over $100 billion in student loan balances in the coming years. While there are many loan forgiveness programs, the Public Service Loan Forgiveness program is one of the most common.  If you’re interested in this program (or any of the others) download our free 30-page student loan guide to learn the ins and outs of each of these programs.

Doctors working in nonprofit hospitals, teachers, government employees, and more can all be eligible for Public Service Loan Forgiveness (PSLF).  But, there’s a catch, and it’s one that many people don’t find out about until it’s too late.

Only specific types of student loans will qualify for PSLF.  Many loans aren’t eligible for the program at all.

Unfortunately, your student loan servicer will not notify you of this.  It’s on you to make sure you are eligible for PSLF, and the sooner you take action, the better.

What is PSLF?

Public Service Loan Forgiveness (PSLF) is available to individuals with specific kinds of federal loans who work for the government or a 501(c)3 Non-Profit, including charities and non-profit hospitals, among others.

It’s important to note that it’s your employer that determines whether or not you are eligible.  If, for example, you teach at a for-profit school, you wouldn’t be eligible for PSLF.  So, make sure your employment qualifies before pursuing PSLF.

In order to obtain forgiveness under this provision, you must fulfill two provisions.  First, you need to make 120 payments while on an Income Repayment Plan.  Note that this is not the same as having the loan for 10 years! You must actually be making the payments in order for a month to count toward your total.  At the end of 120 months where you have made a qualifying payment, you are eligible for forgiveness.  Secondly, of course, you must make these payments while holding a qualifying job.

There are many more important details about PSLF that you should review if you seek to pursue this forgiveness plan.  You need to be sure you are on the right type of repayment plan, as I mentioned above.  While not required, you should file a form indicating that you hold a qualifying job with your servicer each year.  To get more information on these other items to consider, schedule a free introductory call or download my free student loan guide.

For now, the important question I want to highlight revolves around what types of loans do not qualify for PSLF.   And, of course, what can be done to fix the situation if you have these loans.

Which Loans are Eligible, and Which Loans Are Not?

Any Federal Direct Loans are eligible for PSLF.  Common types of Direct Loans include Direct Stafford Loans (subsidized and unsubsidized), Direct PLUS Loans, and Direct Consolidation Loans (more on that last type in the next section).  Typically, the information on your monthly statement may not always be enough to determine the specific loan type you have.  Not to keep tooting my own horn, but you can find a step by step approach to confirming what types of loans you have in my free student loan guide.

Unfortunately, not all loans are eligible for PSLF.  If your loans were issued by a private lender, this may come as no surprise.  Regrettably, private loans have very few of the flexible “perks” that federal loans have, and that includes forgiveness provisions.

More subtly, there a few types of federal loans that aren’t eligible for PSLF, either.  One of the most common mistakes I see around PSLF is individuals who have been making payments for years while holding a qualifying job, but aren’t actually eligible for forgiveness at all.  Solely because of the types of federal loans they have.

The main types of federal loans that are NOT eligible for PSLF are:

  • Federal Family Education Loans (FFEL)- Federally-backed loans issued by private banks. The government discontinued this program in 2010, so this typically only affects people who graduated college in 2014 or earlier.
  • Perkins Loans- The federal government funds these loans, but your individual college distributes the funds. Perkins loans aren’t quite as common as Direct Stafford loans, but many colleges include them in financial aid packages.

If you are pursuing PSLF, review your loans to confirm that you don’t have either of these types.  Unfortunately, the current PSLF plan does not allow forgiveness of these loans.

What to Do if You Have FFEL or Perkins Loans and Want to Pursue PSLF

Thankfully, you still have options if you have FFEL or Perkins loans and want to work toward forgiveness.  There is a way to qualify these balances.

In order to do so, you must consolidate the other loans through a Federal Direct Consolidation Loan.  In this process, you can combine the federal loans you currently have, including Perkins and FFEL loans, into one direct loan through the federal program.

The purpose of getting a Federal Direct Consolidation Loans isn’t to cut your interest rates.  The rate for the new consolidation loan is a blended average of all the loans you consolidate.  Instead, a major benefit of consolidation is that all of your consolidated loans are eligible for PSLF.  So, if you roll your Perkins or FFEL loan into a Federal Direct Consolidation Loan, the balance may now be forgiven through the program.

Two important caveats, though.  First and foremost, there are a number of unique benefits for Perkins loans specifically that do not transfer over to the new consolidated loan.  If PSLF is a high priority for you, this may not matter, but it is something to consider before deciding.  Work with a financial planner who specializes in student loan planning to review the pros and cons before taking action.

Second, and most importantly, consolidating your loans in this way will “reset” your 120 payment counter for forgiveness on any direct loans you are consolidating with the Perkins and FFEL loans.  The US Department of Education says it best (emphasis added):

If you have both Direct Loans and other types of federal student loans that you want to consolidate to take advantage of PSLF, it’s important to understand that if you consolidate your existing Direct Loans with the other loans, you will lose credit for any qualifying PSLF payments you made on your Direct Loans before they were consolidated. In this situation, you may want to leave your existing Direct Loans out of the consolidation process.

That’s a very critical point.  Consolidation has huge benefits for PSLF because it can qualify balances originally issued under Perkins or FFEL loans.  But, if you have other direct loans as well, make sure you only consolidate the needed loans if you have already begun payments to avoid resetting your 120 payment count.

Student Loans Are Complicated

There are many different types of student loans, and all of them are eligible for different benefits, including PSLF.  Even in a 1300+ word blog post, I wasn’t able to touch on all of the potential complicating factors.  Download my student loan guide to learn more, and if you are contemplating pursuing PSLF, consolidating your loans, or making any other adjustments to your particular loans, it’s never a bad idea to get a second opinion.

Should I Pay More Than the Minimum Toward My Student Loans, or Should I Save More for Retirement?

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Should I Pay More Than the Minimum Toward My Student Loans?

[Interested in testing out some of these strategies for yourself?  Click here to download our free student loan guide!]

Over 40% of people under 30 are currently making student loan payments.  That’s a staggering number.  And while we often think of how these payments affect our current financial picture (I certainly know how it feels to see that withdrawal come out of my account every month!), the effect on our financial future is very much overlooked.

Simply put, how will our student loan payments affect how much we save for retirement?

Well, that’s not a hard question to answer.  If we can’t save as much now, we’ll have less later.  Thanks for that, Bill.

Fair enough.  Let me rephrase the question.  Say you are at a point in your career where you have some flexibility in your budget.  Even after you’re making your loan payments, you’re still able to save for retirement each month.

The question then becomes- is it better for you to pay down you loans quickly by making more than the minimum payment, rather than putting that money into a retirement account?

That’s a much more interesting question.  Let’s take a look.

Research Says…

Earlier this year, HelloWallet (a Morningstar-affiliated company) produced a report on the relationship between student loan debt and retirement.  The results, while not unexpected, were alarming.  They found that student loan balances directly correlated with having less money to spend in retirement.

HelloWallet even puts a number on it- for every dollar in student loan debt you owe, you’ll have $0.17 less in retirement.  Financial guru Clark Howard (one of my biggest influences) extrapolated from the report that because of the negative effects student loans have on retirement balances, “… in most circumstances, it’s better to save more for retirement than pay extra toward your student loans…”

Generally speaking, they’re right.  If we are just looking at two goals- paying off your debt versus saving for retirement-  most borrowers will come out ahead in retirement if they make the minimum student loan payment every month now and put their excess savings toward retirement, rather than trying to pay off the student loan ASAP at the expense of retirement saving.

It’s All About Compound Interest

What to do with the money you save each month comes down to the rate you earn and the length of time you are saving.  Investing more for retirement early in your career has exponential benefits to the money you’ll have available at retirement.

Take a look at the numbers.  The chart below shows how much you’ll have at age 65 if you start saving $100 a month at certain ages, assuming a 6% growth rate:


Notice anything?  Take a look at the difference in retirement values if you start saving at age 25 versus age 30.  For the 25 year old, over 25% of the account value at retirement comes from the $100/month invested between ages 25 and 30!

This idea of compound interest clearly illustrates the perils of paying down student loans at the expense of your retirement savings.  The earlier you start saving for retirement, the exponentially better off you will be when it comes time to retire.  The degree to which your student loans impact your saving will directly impact your retirement picture.

Let’s take a look at an example.

Meet Sarah

Sarah is a 25 year old lawyer who is hoping to retire at age 65.  She has a total of $25,000 in loan debt (point taken, after 3 years in law school, she probably has a lot more than that, but let’s keep the numbers easy to work with, OK?) and is on a standard 10 year repayment plan, paying $265.16 each month.  Her loans have a 5% interest rate.

On top of these loan payments, she’s able to save $200 extra per month to put toward retirement.  Once she’s done paying off her loans in ten years, she will put that extra $265.16 toward retirement as well, increasing her total monthly retirement savings to $465.16.  Sarah’s retirement savings earns 7% a year (about what the stock market has historically made on average).

Sarah is wondering whether or not she should continue to save $200 dollars per month for retirement now, or whether it might make sense for her to, say, put $100 of that money each month as an “extra” payment on her student loans to pay off the loan faster, and keep contributing the remaining $100 toward retirement.

What’s Sarah’s Best Option?

In the first scenario (saving $200 a month), by the end of her 10 year loan payment period, the loan is paid off and Sarah has ~$35,000 saved for retirement.  She then increases her payment amount as scheduled, and by the time she retires, her retirement accounts are worth $853,399.48.  Not too shabby!

But, what happens if she uses half of her monthly savings to pay off her loan faster? She is able to pay off her loan in just over seven years, and the second she pays off her loan, she increases her retirement savings per month from $100 to the full amount of $465.16.  Even though she’s able to contribute more over the first ten years in this example, take a look at her retirement account value.  She only has $823,844.59 at retirement this time.


This is a great example of the power of compound interest.  The more Sarah starts to save for retirement today, the more she’ll have at retirement.  Even if she has to pay a higher amount on her student loans.

Some Caveats

Again, there are a lot of factors at play here.  Not everyone is in the same position as Sarah.  This example doesn’t take into account a few points:

  • If your situation is an outlier, I’d recommend crunching the numbers to evaluate the strategy before you make a decision. What do I mean by outliers?  Cases where one of the factors we are looking at is either very high or very low.  For example, If you have a very high student loan balance, or very high interest rates, or are a very conservative investor (ie, you might not want to invest in a way that will lend itself to a 7% annual growth rate as identified above), carefully evaluate these factors before making a decision.
  • Of course, in this post we’re only looking at two goals: paying down student loans and retirement saving. If you have multiple goals you’re trying to save for at once, a more detailed plan is needed.  In particular, if you are weighing paying down student loans quickly versus a more near-term savings goal (ex: buying a house in five years), this decision is much less clear cut and needs to be evaluated.
  • This whole exercise assumes that you can afford to save beyond your monthly budget. If you can’t, definitely make the minimum payments on your loans.  In addition, you should review whether an income repayment plan may be a good fit for you.  Finally, review your budget to see if there are any ways to trim back on spending or increase your income.
  • We haven’t even addressed that most employers offer a match on funds that you invest in your 401(k). If your employer matches, putting extra money toward your loans at the expense of retirement saving becomes even costlier.  Employer matches on 401(k)s are the closest thing out there to free money, after all!
  • Most importantly, Sarah in the example above is incredibly disciplined financially. Not only is she diligently saving $200 a month (either in her retirement account, or split between retirement savings and making payments on her loans), but she also has the discipline to redirect her entire student loan payment amount into her retirement savings the second her loan is paid off.  This is much harder to do in practice than it is on paper, so it’s important to plan ahead and hold yourself accountable.

A Word on Interest Rates

Interest rates on student loans vary wildly.  Some can be as low as 2-3%, others can be in double digits.

Like I mentioned earlier, the average return in the stock market has historically been about 7%.  If your student loan interest rates are higher than this, it’s not a bad idea to prioritize payments to pay down the high interest rate loans first.

Particularly if these high interest rate loans are private loans, refinancing into a lower rate loan is a great option for those who have good credit scores.  For more information on this, sign up for my newsletter to download a free copy of my eBook on student loans.


There’s some good research out there that recommends to usually save for retirement before making extra student loan payments.  Don’t take that as the gospel truth, but generally speaking, this approach is the correct one.  In most cases, the benefits of having money in your retirement account to compound in value over time will outweigh having to pay your student loans a little bit longer.

Carefully look at your personal budget, student loan balance, interest rates, and retirement goals to make these decisions.  And don’t be afraid to reach out to an expert for a second opinion.

[Interested in testing out some of these strategies for yourself?  Click here to download our free student loan guide!]

Trump’s Proposed Student Loan Policy Changes

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Politics is way, way outside the scope of this blog.  But now that the 2016 Presidential Election is behind us, I wanted to quickly highlight some significant changes that President-Elect Trump proposed during the campaign regarding student loans.

Student loan repayment plans are one of our primary focuses at Pacesetter Planning.  As such, I wanted to share an update on some of the changes possible in a Trump administration.

A New Income Based Repayment Plan?

Currently, borrowers who have federal loans are automatically put on a standard 10-year repayment plan after graduating.  However, there are several alternative payment plans that allow borrowers to adjust their payment term and monthly payment amount based on the borrower’s income.

I won’t rehash all the details regarding who qualifies for which plan here since I outline each of these options in detail in my FREE eBook, “13 Things to Do Before You Make Your Next Student Loan Payment”.  Subscribe to our newsletter here and I’ll send you a free copy today!

Mr. Trump proposed a new version of these income based repayment plans in a policy speech in October.  Essentially, the president-elect argued to allow borrowers to cap payments on federal loans at 12.5% of their monthly income.  Even more, Mr. Trump proposes to forgive all debt for borrowers making these capped payments after fifteen years.

To repeat, payments capped at 12.5% of income, and forgiveness for any remaining federal loan debt after 15 years.

Comparison to Current Policy

It’s a mixed bag, but overall, this proposal compares very favorably to the existing options.  While some of the current plans are limited based on your income level and when you borrowed the loans (again, download my eBook for more details), generally speaking the existing policies allow borrowers to do one of two things:

  • Cap borrowers’ payments at 10% of monthly income, and offer forgiveness after 20 years, or
  • Cap borrowers’ payments at 15% of monthly income, and offer forgiveness after 25 years

How does President-Elect Trump’s proposal compare?  Partially, it depends on your strategy around student loan payment.  For borrowers who want to minimize their monthly payment at all costs, one of the existing income repayment plans will probably be a better deal for you, since they cap payments at 10% of monthly income rather than 12.5%.  But, for people looking to earn loan forgiveness, Mr. Trump’s plan could be a huge bargain.

Cutting the forgiveness window from 20 or 25 years down to 15 years is a big deal for borrowers.  By slightly increasing the monthly payment amount but reducing the payment timeframe by five or ten years, many borrowers will be able to save thousands of dollars in repayment costs over the life of their loans.


Of course, none of this is official policy yet.  As such, there are still many things we don’t know about this proposal.

  • Will the proposal apply to all borrowers? Some of the current income repayment plans allow for individuals regardless of income level to sign up.  But many others restrict eligibility to only those who either have a low income level, high loan balances, or both. We don’t yet know how wide-reaching Mr. Trump’s proposal would be if it goes into effect.
  • Will the proposal only affect newly-issued loans? Or, to put it another way, will this proposal only apply to loans borrowed after it goes into effect?  Trump has not offered details yet on whether or not borrowers who are currently in the process of repaying federal loans would be eligible for the 12.5% monthly income payment cap and 15-year loan forgiveness.
  • Will the proposal actually go into effect? As we all know, and we certainly don’t have to rehash here, President-Elect Trump campaigned on many issues with more passion than he did regarding student loans.  Will this be a high priority item for him?
  • If so, will the plan need congressional approval? In the past, President Obama issued changes to student loan repayment terms without needing to go through Congress.  Will the future President Trump seek to do the same?

We will provide updates on President-Elect Trump’s student loan plans throughout the course of his administration.  But, in the wake of a divisive national election, I wanted to quickly highlight this important proposal and its potential benefits to hundreds of thousands of student loan borrowers across the country.

To learn more about how to implement your own student loan repayment strategy, click here to download a free copy of my eBook, “13 Things to Do Before You Make Your Next Student Loan Payment”.