Welcome back to the Net Worth Podcast.
Speaker 2: This week we are diving into a really crucial topic.
Speaker 1: It impacts countless financial futures, how to smartly tackle student debt, and maybe even use it as a powerful lever for your net worth growth.
Speaker 2: We’re drawing insights from some recent deep dives from our team, specifically looking at strategies from crushed student debt and how it links to net worth growth.
Speaker 1: Check out the full edition on our website.
Speaker 2: wearenoyack.com.
Speaker 1: Okay, so let’s unpack the student loan thing for so many of us They just feel like this mm-hmm this huge weight right massive financial commitment But what’s really interesting and what this addition highlights is that it’s not just about paying it off How you approach it can fundamentally change your whole net worth picture exactly It’s fascinating because people usually just focus on you know getting rid of the full stop But it’s much more about optimizing that process how you strategically free up capital Reduce those liabilities on your balance sheet and actually boost your overall financial standing.
Speaker 1: It’s about making that debt repayment work for you, not just against you.
Speaker 2: That’s such a key shift in thinking, not just elimination, but smart elimination.
Speaker 1: So, OK, where do we even start?
Speaker 2: If someone’s listening, thinking, all right, I want a strategy, what’s the very first thing they need to do according to this addition?
Speaker 1: Well, the absolute first step, the foundation really, is knowing exactly what kind of loans you have.
Speaker 2: It sounds basic, maybe, but it’s critical.
Speaker 1: because your eligibility for almost all the good stuff, forgiveness programs, flexible payments, it all hinges on whether they’re federal or private.
Speaker 2: Right, and this is where it gets really, really important for potentially saving big money or wiping out debt entirely.
Speaker 1: Only federal loans get you access to those forgiveness programs we hear about, like PSLF and the income-driven repayment plans, the IDR plans, private loans.
Speaker 2: don’t have those government options, but like this edition points out, refinancing might be a really strong play there.
Speaker 1: Precisely.
Speaker 2: Knowing the difference is foundational.
Speaker 1: And think about the net worth impact.
Speaker 2: Federal loan forgiveness, that can literally just erase a liability from your net worth calculation.
Speaker 1: Boom, equity goes up.
Speaker 2: Right.
Speaker 1: No extra payment needed on that forgiven part.
Speaker 2: Private loans, where forgiveness isn’t really a thing, refinancing to cut your interest rate frees up cash flow.
Speaker 1: And that freed up cash isn’t just savings, it’s capital you can now redirect towards investments, potentially accelerating your net worth growth much faster.
Speaker 2: Two very different paths.
Speaker 1: so immediate action item for everyone listening, like right now.
Speaker 2: Log into studentaid.gov.
Speaker 1: It’s simple.
Speaker 2: It’s definitive.
Speaker 1: It tells you if your loans are federal or private.
Speaker 2: Don’t guess.
Speaker 1: Don’t assume.
Speaker 2: Just check.
Speaker 1: Please do.
Speaker 2: It’s like step zero.
Speaker 1: You can’t build the strategy without knowing the materials you’re working with.
Speaker 2: All right.
Speaker 1: So let’s say you’ve done that.
Speaker 2: You log in and great news.
Speaker 1: You’ve got federal loans.
Speaker 2: Now what?
Speaker 1: This edition dives into forgiveness, right?
Speaker 2: This could be huge.
Speaker 1: Yeah, this is where things get exciting for some people.
Speaker 2: So who actually qualifies for these and what are the details?
Speaker 1: Let’s start with the big one.
Speaker 2: Public Service Loan Forgiveness, PSLF.
Speaker 1: This is primarily for folks working in government or for nonprofit organizations.
Speaker 2: Think teachers, healthcare workers, social workers, military.
Speaker 1: The deal is you make 120 qualifying monthly payments.
Speaker 2: That’s roughly 10 years while working for a qualifying employer and being on an income driven repayment plan.
Speaker 1: After that, The remaining balance, forgiven, tax free.
Speaker 2: Wow.
Speaker 1: Tax free forgiveness after 10 years sounds amazing for someone in public service.
Speaker 2: But there’s a pretty significant catch or maybe a commitment that this edition warns about.
Speaker 1: Oh, absolutely.
Speaker 2: It’s a major commitment.
Speaker 1: The warning is crucial.
Speaker 2: If you leave your qualifying public service job before you hit those 120 payments, you lose eligibility for PSLF going forward on that loan.
Speaker 1: So you really need to be confident you’ll stick with that career path for the full 10 years to get the benefit.
Speaker 2: It’s powerful, but it requires dedication.
Speaker 1: oh so PSLF is specific.
Speaker 2: What if you have federal loans, but you’re not in public service or maybe you don’t want to commit to 10 years?
Speaker 1: What’s the next big federal option?
Speaker 2: Then you’re looking at income driven repayment or IDR forgiveness.
Speaker 1: This is much broader.
Speaker 2: Basically, any borrower with federal loans can enroll in an IDR plan.
Speaker 1: There are several versions like save, payee, repay, IBR.
Speaker 2: These plans cap your monthly payment based on your income and family size.
Speaker 1: usually around 10, 20 percent of your discretionary income, which can make payments much more manageable.
Speaker 2: Then after making payments for 20 or sometimes 25 years, depending on the loan type and the plan, whatever balance is left gets forgiven.
Speaker 1: 20 or 25 years.
Speaker 2: Well, it’s a long haul.
Speaker 1: Does that forgiveness also come with a catch?
Speaker 2: It does.
Speaker 1: And it’s a big one, often overlooked.
Speaker 2: Unlike PSLF, the amount forgiven under an IDR plan might be treated as taxable income in the year it’s forgiven.
Speaker 1: So you could get rid of, say, $50,000 in debt.
Speaker 2: But then you might owe income tax on that $50,000.
Speaker 1: It’s often called the tax bomb.
Speaker 2: Oof.
Speaker 1: Yeah, that’s a critical piece of planning right there.
Speaker 2: You need to prepare for potentially owing a big chunk to the IRS down the line.
Speaker 1: Exactly.
Speaker 2: It doesn’t necessarily mean it’s a bad deal, especially if the payment relief helps you now.
Speaker 1: But you absolutely need to factor that future tax liability into your long-term financial plan and net worth projections.
Speaker 2: Gotcha.
Speaker 1: Are there other notable federal forgiveness paths?
Speaker 2: Yeah, a couple others mentioned in this edition.
Speaker 1: Teacher loan forgiveness is one.
Speaker 2: It’s faster for teachers in low-income schools, up to $17,500 forgiven after just five years of service.
Speaker 1: Important note, though, you generally can’t double-dip and count those same five years towards both teacher loan forgiveness and PSLF.
Speaker 2: You usually have to pick one for that period.
Speaker 1: And then there are more specific ones, like borrower defense if your school misled you, disability discharge, and some programs for military and AmeriCorps service.
Speaker 2: So it really seems like if your career or your situation lines up with any of these federal programs, pursuing forgiveness is a very direct way to boost your net worth.
Speaker 1: You’re just cutting out a liability without having to pay it all back.
Speaker 2: That directly increases your equity, your overall net worth number.
Speaker 1: Absolutely.
Speaker 2: And don’t underestimate the psychological boost, too.
Speaker 1: Getting rid of that debt burden frees up mental energy, which can honestly help you focus better on other wealth building activities.
Speaker 2: OK, let’s shift gears.
Speaker 1: What if forgiveness just isn’t in the cards?
Speaker 2: Maybe you have private loans, maybe your income is too high for low IDR payments, or your career path doesn’t fit.
Speaker 1: This edition talks about refinancing as the other major strategy.
Speaker 2: How does that work for net worth?
Speaker 1: Refinancing can be really powerful, especially for saving money.
Speaker 2: The basic idea is you take out a new private loan to pay off your old ones, hopefully getting a lower interest rate or maybe better repayment terms.
Speaker 1: This is often most appealing if you have high interest private loans to begin with, or maybe federal loans, but your income and credit score have improved a lot since you took them out.
Speaker 2: We’re talking usually a credit score of 650 plus Cedar and stable income.
Speaker 1: Getting that lower rate means less money goes to interest each month, freeing up cash.
Speaker 2: Lower payments sound good.
Speaker 1: Seems like a no brainer if you qualify for a better rate.
Speaker 2: But again, this edition throws up some pretty big warning signs, right?
Speaker 1: Who should definitely not refinance?
Speaker 2: Yes, this is critical.
Speaker 1: The biggest warning, the absolute deal breaker for many applies if you have federal loans.
Speaker 2: If you refinance federal loans into a private loan, you lose all the federal benefits and protections, permanently.
Speaker 1: All of them.
Speaker 2: Like what specifically?
Speaker 1: Everything.
Speaker 2: Access to PSLF, gone.
Speaker 1: Access to IDR plans and that potential long-term forgiveness, gone.
Speaker 2: Federal options like forbearance or deferment, if you hit financial hardship, lose your job, go back to school, gone.
Speaker 1: access to any future government relief programs, like we saw during the pandemic, gone.
Speaker 2: Wow.
Speaker 1: OK, so you’re essentially trading that government safety net and potential forgiveness for potentially a lower interest rate from a private lender.
Speaker 2: That’s a huge trade off.
Speaker 1: It’s a massive trade off.
Speaker 2: And this edition poses that really important what if question.
Speaker 1: What if you refinance into a private loan, lock in that lower rate, but then you lose your job?
Speaker 2: Private lenders generally don’t offer income-based repayment options, or the kind of generous forbearance federal loans do.
Speaker 1: You’d likely still owe that fixed payment.
Speaker 2: This really underscores why having a solid emergency fund, like six months of expenses or more, is pretty much non-negotiable before you refinance federal loans.
Speaker 1: You need to self-insure against that risk you’re taking on.
Speaker 2: That makes total sense.
Speaker 1: You’re giving out flexibility, so you need your own backup plan.
Speaker 2: So how does someone decide?
Speaker 1: This edition suggests asking some key questions.
Speaker 2: Yeah, it boils down to a few things.
Speaker 1: First, do you work in public service or for a nonprofit where PSLF is even a remote possibility?
Speaker 2: If yes, refinancing federal loans is probably a bad idea.
Speaker 1: Second, is your income high and crucially stable?
Speaker 2: Do you feel very secure in your job and earning potential?
Speaker 1: If yes, you might feel comfortable giving up flexibility for savings.
Speaker 2: Third, how much do you value that flexibility?
Speaker 1: Do you need the option of lower payments if things go south, or is your emergency fund robust enough to handle bumps?
Speaker 2: Your honest answers to those really point you towards whether forgiveness pads or refinancing is the better fit for your specific life and risk tolerance.
Speaker 1: Okay, bringing it all back to the main theme, let’s explicitly connect to these strategies.
Speaker 2: How does each one specifically move the needle on your overall wealth?
Speaker 1: All let’s connect the dots.
Speaker 2: Forgiveness, as we said, is the most direct boost.
Speaker 1: It eliminates a liability from your balance sheet, often without full repayment.
Speaker 2: That directly increases your equity, your net worth.
Speaker 1: It’s especially powerful maybe for public service folks whose income might not skyrocket.
Speaker 2: But that debt relief is huge.
Speaker 1: A direct subtraction from the owed column.
Speaker 2: Makes sense.
Speaker 1: And refinancing.
Speaker 2: How does that translate to net worth growth, assuming you manage the risks?
Speaker 1: Refinancing works differently.
Speaker 2: By lowering your interest costs, it frees up cash flow now.
Speaker 1: That extra money isn’t just vanishing.
Speaker 2: If you take that savings, say it’s $100, $200 a month, and you consistently invest it maybe in index funds or use it to pay down other higher interest debt.
Speaker 1: That’s how it accelerates net worth.
Speaker 2: It’s about optimizing your current cash flow to fuel future growth through compounding or eliminating other drags on your wealth.
Speaker 1: It requires discipline to actually use the savings wisely.
Speaker 2: one strategy cuts the liability directly.
Speaker 1: The other boosts the asset side or cuts other liabilities by freeing up cash.
Speaker 2: What about doing nothing or just sticking with whatever plan you defaulted into?
Speaker 1: Oh, inaction.
Speaker 2: That’s often the silent killer of net worth growth when it comes to debt.
Speaker 1: Just sticking with a suboptimal plan means you might be paying way more interest than needed or missing out on forgiveness you qualify for.
Speaker 2: That student debt just sits there, draining your monthly cash flow, reducing your capacity to save, invest, buy a house for each other goals.
Speaker 1: It actively slows down your ability to build assets and increase your net worth over time.
Speaker 2: It’s an opportunity cost.
Speaker 1: So the big message from this edition seems clear.
Speaker 2: Your financial future, your net worth trajectory.
Speaker 1: It really hinges on making an active, informed choice.
Speaker 2: A choice that aligns not just with the type of loans you have, but your actual career, your income reality, and what you want long term.
Speaker 1: It’s personal.
Speaker 2: Absolutely.
Speaker 1: It’s about taking control.
Speaker 2: OK, so this has been incredibly insightful.
Speaker 1: It’s not just about theory, though.
Speaker 2: This edition emphasizes taking action.
Speaker 1: What are those immediate next steps people should consider?
Speaker 2: Right.
Speaker 1: If forgiveness seems like a potential path, definitely use the PSLF help tool.
Speaker 2: on studentaid.gov to check employer eligibility.
Speaker 1: And if IDR is the way, get enrolled in a plan sooner rather than later.
Speaker 2: Time is ticking on those payment counts.
Speaker 1: And if refinancing looks more promising, then it’s time to shop around.
Speaker 2: Use comparison tools.
Speaker 1: This edition mentions credible or earnest calculators as examples to see what rates you might qualify for from different private lenders.
Speaker 2: And good point here.
Speaker 1: You can usually pre-qualify with several lenders using a soft credit check, which doesn’t hurt your credit score.
Speaker 2: So you can explore options without penalty.
Speaker 1: Definitely get multiple quotes before you commit.
Speaker 2: And just to echo the final thoughts from this edition of Noyack Wealth Weekly.
Speaker 1: Remember there really isn’t one single right answer that fits everyone.
Speaker 2: The best strategy truly depends on your unique situation your goals your risk tolerance.
Speaker 1: Yeah the key takeaway really feels like be proactive.
Speaker 2: If you qualify for forgiveness seriously explore taking advantage of it.
Speaker 1: That’s a direct net worth boost.
Speaker 2: If refinancing genuinely saves you significant money and you fully understand the trade-offs, especially losing federal protections, it could be the better move to accelerate savings and investments.
Speaker 1: But the worst thing you can do, ignore it.
Speaker 2: Don’t let student debt just happen to you.
Speaker 1: Take control, make a smart decision for your situation, and watch how that positively impacts your net worth over time.
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com.
Speaker 1: That’s wearenoyack.com to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
