Welcome back to the Net Worth Podcast.
Speaker 1: This week we are diving into, well, something really crucial, the connection between mastering your student loans and actually growing your net worth.
Speaker 2: You can check out the full edition on our website, wearenoyack.com.
Speaker 1: That’s wearenoyack.com.
Speaker 2: Look, student loans are super common, right?
Speaker 1: They can feel like this huge weight.
Speaker 2: But they absolutely don’t have to stop you from building wealth, seriously.
Speaker 1: Understanding how to manage them strategically, that’s actually a massive step towards a better financial future.
Speaker 2: OK, let’s unpack this a bit.
Speaker 1: When we talk net worth, yeah, we think investments, savings, maybe real estate, assets.
Speaker 2: But debt, especially student loan debt, it can be this huge silent dream just quietly pulling down your potential.
Speaker 1: It really can.
Speaker 2: And what’s fascinating, or maybe alarming, is just how stark the difference is.
Speaker 1: Our analysis in this edition of Noyack Wealth Weekly showed millennials with student loans.
Speaker 2: Their net worth is around, say, 25,000 to 29,000 USD.
Speaker 1: Compare that to their peers without that debt.
Speaker 2: They’re sitting on about 114,000 USD on average.
Speaker 1: Wow, that’s a huge gap.
Speaker 2: It’s massive.
Speaker 1: So this isn’t just about paying off a loan.
Speaker 2: It’s about a fundamental delay in building wealth right from the start for a whole group of people.
Speaker 1: And here’s where it gets really interesting or maybe concerning.
Speaker 2: It connects to what the addition calls life delays, wealth delays.
Speaker 1: We found over 90 % of borrowers with substantial debt, like $60,000 or more, they’re putting off major life stuff.
Speaker 2: Buying a home, starting a family, it’s not just numbers on a spreadsheet.
Speaker 1: These loans can literally put your life plans on hold.
Speaker 2: Exactly.
Speaker 1: And why does that happen?
Speaker 2: Because that money is tied up in debt payments instead of, a down payment or investment.
Speaker 1: So when you delay buying a house, you miss out on potential appreciation, right?
Speaker 2: Building equity.
Speaker 1: Or if you put off investing, even small amounts early on, you lose the power of compounding over years, decades even.
Speaker 2: Right.
Speaker 1: It’s not just the interest costs, it’s the opportunity costs, what you could have been building.
Speaker 2: Precisely.
Speaker 1: It really impacts your whole long-term financial picture.
Speaker 2: Which brings us to the important question.
Speaker 1: How do we flip this?
Speaker 2: How can you turn this situation around?
Speaker 1: OK.
Speaker 2: So what does this all mean for you listening?
Speaker 1: Well, the good news is this edition lays out a pretty clear roadmap.
Speaker 2: And it starts with the absolute basics.
Speaker 1: Understanding your loans.
Speaker 2: Yes.
Speaker 1: This is foundational.
Speaker 2: You absolutely have to know if you’re dealing with federal loans or private loans.
Speaker 1: They’re different animals.
Speaker 2: OK, break that down.
Speaker 1: Federal versus private.
Speaker 2: Sure.
Speaker 1: Federal loans, these come from the government.
Speaker 2: They generally have more borrower protections baked in.
Speaker 1: Think flexible options like um income driven repayment plans or IDR.
Speaker 2: There are also forgiveness programs, which we’ll get into, and usually fixed interest rates so your payment doesn’t suddenly jump.
Speaker 1: Predictability.
Speaker 2: OK, that sounds pretty good.
Speaker 1: What about private?
Speaker 2: Private loans come from banks, credit unions, online lenders.
Speaker 1: They often have higher interest rates, sometimes variable rates, which means they can change.
Speaker 2: And crucially, they have fewer protections, less flexibility if you hit a rough patch financially.
Speaker 1: But the potential upside is you can often refinance them for a better rate.
Speaker 2: Gotcha.
Speaker 1: So knowing which type you have dictates the strategy.
Speaker 2: Absolutely.
Speaker 1: It’s step one before you make any moves.
Speaker 2: All right.
Speaker 1: So once you know you have federal loans, This edition outlines the repayment options.
Speaker 2: What are they?
Speaker 1: Well, there’s the standard plan.
Speaker 2: Pretty straightforward.
Speaker 1: Fix payments over 10 years.
Speaker 2: It usually means you pay the least interest overall because you pay it off fastest.
Speaker 1: Simple enough.
Speaker 2: Then there’s the graduated plan.
Speaker 1: Payments start lower and then increase, usually every couple of years.
Speaker 2: This can be good if you expect your income to rise steadily.
Speaker 1: Right, helps ease you in.
Speaker 2: Exactly.
Speaker 1: And then there are the income-driven repayment plans or IDR plans.
Speaker 2: These are really key for a lot of borrowers.
Speaker 1: do those work?
Speaker 2: They tie your monthly payment directly to your income and family size.
Speaker 1: Usually it’s capped at 10 to 20 percent of your discretionary income.
Speaker 2: This makes payments much more manageable if your income is lower or fluctuates.
Speaker 1: Plus, there’s a big potential benefit.
Speaker 2: After 20 or 25 years of payments, the remaining loan balance might be forgiven.
Speaker 1: Forgiven?
Speaker 2: That sounds amazing.
Speaker 1: Is there a catch?
Speaker 2: Well, something important to keep in mind, as noted in the addition, is that the forgiven amount could be considered taxable income down the road.
Speaker 1: That depends on future tax laws, so it’s something to plan for.
Speaker 2: Oh, OK.
Speaker 1: Good to know.
Speaker 2: But IDR plans work really well with public service loan forgiveness, PSLF, because that forgiveness is tax free.
Speaker 1: We’ll definitely circle back to PSLF.
Speaker 2: So IDR offers flexibility, manages cash flow.
Speaker 1: Right.
Speaker 2: It raises that important question for many, especially early career folks.
Speaker 1: How do you balance paying debt with living life and maybe even starting to save?
Speaker 2: IDR helps bridge that gap.
Speaker 1: sense.
Speaker 2: What about loan consolidation for federal loans?
Speaker 1: I’ve heard of that.
Speaker 2: Yeah, consolidation lets you merge multiple federal loans into one single loan.
Speaker 1: One payment, simpler billing.
Speaker 2: It can also extend your repayment term, maybe up to 30 years.
Speaker 1: That lowers your monthly payment, sometimes significantly.
Speaker 2: Lower payment sounds good.
Speaker 1: Again, any downsides?
Speaker 2: Yes, there’s a definite trade off.
Speaker 1: While it lowers the monthly bill, Extending the term usually means you pay more total interest over the long haul.
Speaker 2: Ah, right.
Speaker 1: Because you’re paying for longer.
Speaker 2: Exactly.
Speaker 1: So what’s fascinating here is that balance act, lower immediate burden versus higher long term cost.
Speaker 2: You have to decide what fits your situation best.
Speaker 1: OK.
Speaker 2: Now let’s talk about what many consider a potential game changer, especially for those private loans we mentioned, refinancing.
Speaker 1: Absolutely.
Speaker 2: Refinancing is essentially taking out a new loan, usually from a private lender, to pay off your old student loans.
Speaker 1: It’s most often used for private loans.
Speaker 2: And the goal is?
Speaker 1: Primarily to get a lower interest rate.
Speaker 2: Even a small drop in the rate can save you thousands of dollars over the loans term.
Speaker 1: It could be huge.
Speaker 2: You can also potentially combine multiple private loans into one payment.
Speaker 1: Simplify things.
Speaker 2: And sometimes you can choose a new loan term, maybe shorter to pay it off faster or longer to lower the monthly payment.
Speaker 1: What kind of rates are we talking about?
Speaker 2: Well, this edition noted some examples.
Speaker 1: Fixed rates could be anywhere from, 3.85 percent up to maybe 12 % APR.
Speaker 2: Variable rates might start around 4.7 % but could go up past 13%.
Speaker 1: It really varies by lender and your credit worthiness.
Speaker 2: So shopping around is key.
Speaker 1: Crucial.
Speaker 2: But if we connect this to the bigger picture, securing a lower rate means less money going to the lender, more staying with you.
Speaker 1: OK, but here’s where it gets really interesting.
Speaker 2: And this is a point you absolutely need to remember, The warning about refinancing federal loans.
Speaker 1: Yes.
Speaker 2: This is incredibly important.
Speaker 1: This edition stresses this.
Speaker 2: If you refinance your federal loans into a private loan, you permanently lose all those federal protections we talked about.
Speaker 1: Gone for good.
Speaker 2: Gone for good.
Speaker 1: No more access to IDR plans.
Speaker 2: No eligibility for federal forgiveness programs like PSLF.
Speaker 1: No federal deferment or forbearance options if you lose your job or face hardship.
Speaker 2: Wow.
Speaker 1: OK, so that’s a massive decision.
Speaker 2: You trade potentially lower rates for those safety nets.
Speaker 1: Precisely.
Speaker 2: It raises an important question.
Speaker 1: Are you truly getting the best deal overall?
Speaker 2: And are you fully aware of what valuable protections you might be giving up?
Speaker 1: what are some common mistakes people make when refinancing?
Speaker 2: Good question.
Speaker 1: This edition flags a few pitfalls.
Speaker 2: One is extending the loan term too much.
Speaker 1: Just to get the lowest possible payment, you might end up paying way more interest.
Speaker 2: Another is overlooking employer benefits.
Speaker 1: Some companies help pay down student loans, but maybe only federal ones.
Speaker 2: Refinancing could make you ineligible.
Speaker 1: To think of that.
Speaker 2: And definitely skipping comparison shopping.
Speaker 1: You really need to get quotes from multiple lenders to ensure you’re getting the best possible rate and terms for your situation.
Speaker 2: Don’t just take the first offer.
Speaker 1: Let’s make this concrete.
Speaker 2: Tell us about Sarah’s story from this edition.
Speaker 1: How did refinancing work for her?
Speaker 2: Yeah, Sarah’s a great example.
Speaker 1: She’s a 32 year old marketing manager, had about $60,000 in private loans at a pretty high 8.5 % interest rate.
Speaker 2: Ouch.
Speaker 1: What was her payment like?
Speaker 2: Around $735 a month.
Speaker 1: That’s a big chunk of change, right?
Speaker 2: made it hard to save for other goals.
Speaker 1: Definitely.
Speaker 2: So what does she do?
Speaker 1: She shopped around and managed to refinance to a 4.3 % fixed rate with a 10-year term.
Speaker 2: Big drop in the rate.
Speaker 1: How did that change her payment?
Speaker 2: Lowered it to $670 a month.
Speaker 1: That’s $118 saved every single month.
Speaker 2: Wow.
Speaker 1: And the long-term impact.
Speaker 2: Over the 10 years, she’d save over $14,000 in interest.
Speaker 1: But even better, she started taking that $118 monthly savings and putting it towards a down payment fund.
Speaker 2: Smart.
Speaker 1: Very smart.
Speaker 2: It helped her buy her first home much sooner than she expected.
Speaker 1: Her credit score dipped slightly right after refinancing because of the inquiry.
Speaker 2: But with consistent payments, it bounced back and actually improved.
Speaker 1: That’s a fantastic outcome.
Speaker 2: Shows the power of a strategic refinance, especially for private loans.
Speaker 1: Absolutely.
Speaker 2: It unlocked major progress for her.
Speaker 1: OK, so refinancing is one path.
Speaker 2: What about those forgiveness programs you mentioned earlier, specifically for federal loans?
Speaker 1: These are really powerful if you qualify.
Speaker 2: The big one is public service loan forgiveness or PSLF.
Speaker 1: This is for people working full time and qualifying public service jobs.
Speaker 2: Think government certain nonprofits.
Speaker 1: How does it work?
Speaker 2: You need to make 120 qualifying monthly payments usually under an IDR plan while working for an eligible employer.
Speaker 1: After those 10 years of payments the remaining balance on your direct loans is forgiven.
Speaker 2: And you mentioned tax free.
Speaker 1: Yes.
Speaker 2: That’s a huge benefit of PSLF.
Speaker 1: The forgiven amount is not considered taxable income by the federal government.
Speaker 2: That’s amazing.
Speaker 1: What’s fascinating here is how strategic career choices, like working in public service, can directly lead to significant debt relief.
Speaker 2: It really can align career and financial goals.
Speaker 1: Then there’s also teacher loan forgiveness.
Speaker 2: OK, specifically for teachers.
Speaker 1: Yes.
Speaker 2: For those teaching full time for five consecutive years in qualifying low income schools or educational service agencies, depending on the subject you teach, like math, science, special ed might get more.
Speaker 1: You could have up to $5,000 or even $17,500 forgiven on your direct or Stafford loans.
Speaker 2: Also very helpful.
Speaker 1: Any catch there?
Speaker 2: The main thing is you generally can’t get credit for both teacher loan forgiveness and PSLF for the same period of teaching.
Speaker 1: You have to choose which benefit works best for you for those years.
Speaker 2: Got it.
Speaker 1: So different paths to forgiveness depending on your career.
Speaker 2: Exactly.
Speaker 1: Worth exploring if you’re in or considering those fields.
Speaker 2: So we’ve talked big strategies.
Speaker 1: repayment plans, refinancing, forgiveness.
Speaker 2: But this edition also reminds us that small, smart habits matter too, right?
Speaker 1: They can amplify the impact.
Speaker 2: Absolutely.
Speaker 1: These are the day-to-day actions that build momentum.
Speaker 2: Like number one, automate payments.
Speaker 1: Why is that so important?
Speaker 2: Two reasons.
Speaker 1: First, it helps you avoid missing payments and getting hit with late fees, which also hurts your credit.
Speaker 2: Second, many lenders offer a small interest rate discount, maybe 0.25%.
Speaker 1: Just for signing up for auto pay.
Speaker 2: Free money, basically.
Speaker 1: Nice.
Speaker 2: What else?
Speaker 1: Consider bi-weekly payments.
Speaker 2: Instead of one monthly payment, you pay half every two weeks.
Speaker 1: How did that help?
Speaker 2: Over a year, you end up making 26 half payments, which equals 13 full monthly payments.
Speaker 1: ah That extra payment goes straight to principal, cutting down your interest and shortening the loan term slightly.
Speaker 2: It adds up.
Speaker 1: Clever.
Speaker 2: Little hacks.
Speaker 1: Exactly.
Speaker 2: Also, track your progress.
Speaker 1: Use a budgeting app like Mint or YNA or even just a spreadsheet.
Speaker 2: Seeing that balance go down is motivating, keeps you focused.
Speaker 1: Visual reinforcement, I like it.
Speaker 2: And finally, budget wisely.
Speaker 1: Treat your student loan payment like any other essential bill rent mortgage.
Speaker 2: Make it a non-negotiable fixed expense in your budget.
Speaker 1: So what does this all mean for your net worth?
Speaker 2: How do these strategies and habits actually connect back to building wealth?
Speaker 1: OK, let’s tie it together.
Speaker 2: First, when you reduce your interest costs, whether through refinancing or faster payoff, That’s money that stays in your pocket working for you.
Speaker 1: You can save it, invest it.
Speaker 2: Makes sense.
Speaker 1: Less money to the lender.
Speaker 2: Right.
Speaker 1: Second, when you avoid penalties and setbacks by paying on time, you protect your credit score.
Speaker 2: A good credit score is vital for getting favorable rates on future loans, like a mortgage, which is a huge part of net worth for many.
Speaker 1: Good point.
Speaker 2: Protects future opportunities.
Speaker 1: Third, maintaining flexibility with options like IDR means your payments adjust if your income drops, helping you avoid default.
Speaker 2: which can be financially devastating.
Speaker 1: It keeps you on track.
Speaker 2: Fourth, when you reallocate saved funds, money saved from lower payments or interest red, you free up cash.
Speaker 1: That cash can then go towards investing, saving for a down payment, building an emergency fund, direct wealth building.
Speaker 2: Accelerates other goals.
Speaker 1: Exactly.
Speaker 2: Which leads to the fifth point.
Speaker 1: You can achieve major milestones sooner.
Speaker 2: Less debt burden means you can buy that house, start investing seriously, maybe launch a business.
Speaker 1: all things that build assets and increase your net worth faster.
Speaker 2: so it’s about freeing up resources and reducing drag.
Speaker 1: What about that idea of balancing debt payoffs versus investing?
Speaker 2: Yeah, this edition touches on that.
Speaker 1: It’s a common question.
Speaker 2: Should I put extra money towards my loans or invest it?
Speaker 1: The math suggests if your expected after-tax investment return is higher than your loan’s interest rate, investing might make sense.
Speaker 2: For example, if the S &P 500 historically returns around 7 % after inflation and your loans are at, 4%, Investing the extra cash could grow your wealth faster.
Speaker 1: But there’s risk involved with investing.
Speaker 2: Absolutely.
Speaker 1: Investment returns aren’t guaranteed, while paying off debt offers the guaranteed return equal to your interest rate, and it’s risk free.
Speaker 2: Right.
Speaker 1: Plus there’s a psychological benefit to being debt free.
Speaker 2: Right.
Speaker 1: So that raises an important question for many.
Speaker 2: How do you decide where to put that extra dollar?
Speaker 1: It depends on your risk tolerance, interest rates, and goals.
Speaker 2: Precisely.
Speaker 1: It’s a personal calculation.
Speaker 2: So wrapping this up, The core message seems clear.
Speaker 1: Student loan debt feels overwhelming, but it doesn’t have to define your financial future or permanently block your path to building net worth.
Speaker 2: Not at all.
Speaker 1: It really is about empowerment, taking control.
Speaker 2: If we connect this to the bigger picture, using the right strategies, understanding your loans, leveraging IDR, refinancing smartly where it makes sense, exploring forgiveness, adopting good habits, you can reduce costs, protect your credit, and crucially, free up your money to start working for you through investing and saving.
Speaker 2: It’s about shifting from defense to offense with your finances.
Speaker 1: Exactly.
Speaker 2: It puts you back in the driver’s seat.
Speaker 1: That leads perfectly into the final thought from this edition, which I think is quite provocative.
Speaker 2: Take control of your debt.
Speaker 1: Don’t let it control your net worth.
Speaker 2: Really makes you think about your own situation and what steps you can take next.
Speaker 1: Remember to subscribe to Noyack Wealth Weekly on our website wearenoyack.com to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
