I can’t tell you how many times I have read an article and thought, I wish I could coach this person. And I would name it something like “Unsolicited Coaching.”
An opinion piece in the New York Times finally got me to do it. And yes, I’m calling it “Unsolicited Coaching.” I am doing this because I genuinely want to offer the author some free advice. But others may be in a similar situation might find some of my ideas helpful.
Unsolicited Coaching #1 is based on the New York Times op-ed headlined, I’ve Spent $60,000 to Pay Back Student Loans and Owe More Than Before I Began
Unsolicited Coaching: Student Loan Debt Edition
Here’s the story: Molly Webster, a senior correspondent for WNYC’s “Radiolab,” had $78,000 in loans when she came out of graduate school 14 years ago. She hasn’t always had a steady income, so her loans have occasionally been in forbearance. Forbearance for federal loans is available during times of financial stress, typically up to 12 months at a time, but interest accrues during that time and is added onto the loan balance once payments can be resumed.
As the headline explains, she has paid $60,000 so far on these loans (mostly federal loans). Her balance, meanwhile, has ballooned to $100,000. Ouch!
If you have federal loans, interest and payments have been paused from the original CARES Act since for the last year because of COVID-19. This pause extended at least through September 2021. So there is no need to pay.
Here’s a quick coaching tip: every month, put aside what you would pay into a high-yield savings account, let them accumulate, and educate yourself on options once payments resume.
What’s especially bad about Webster’s “federal” loans is that they exist under the Family Federal Education Loans program. It’s no longer active, but it was a kind of federal/private hybrid. And unfortunately, those loans are not paused, either interest or payments. Just like private student loans.
She calls these loans “Goldilocks loans”: “not quite federal, not quite private, not quite right.”
She proposes that the Biden administration “includes the millions of us with Goldilocks federal student loans in the CARES Act.… Until then, we Goldilocksers are caught in a loophole, with no help in sight.”
So her story is dreadful, no doubt. And that amount of student loan debt sucks. But to correct what was probably an editor’s mistake: help exists., and “Goldilocksers” are not “caught in a loophole.”
I have some ideas.
Disclaimer:
Obviously, I am not Molly Webster’s coach (but feel free to reach out!) and I am not your coach, unless you are a client of mine. So of course you should take action only once you have done your own homework and consulted your own providers.
Also, what I say may not work for you, or does not resonate. I often listen to a podcast or read an article where various well-respected, solid personal finance people recommend things, and I think, nope. I would give very different advice. I’m not wrong, but neither are they. There is not one way to be good with money. The more you learn, the better you will get at it.
I am genuinely not trying to troll her, but to offer ideas, which is what I do with my clients! Clients make their own decisions and take the action—I just give them ideas to ponder.
I write this as if I am talking to Molly as if she were a client. So, Molly:
1. I Could Have Been You
First, I could have been you. Well, other than the work-at-Radiolab part. You are clearly very talented and good at what you do.
I am much older than you, but I, too, had grad school student loans. In today’s dollars, I had the equivalent of about $40,000 in debt. But I honestly knew nothing about it—were they federal? private? I had no idea and still have no idea.
But this isn’t “I paid off my student loans, so you should too.”
That I paid off my loans isn’t relevant here, because everyone’s situation is different. The key point: we all start out not knowing anything about money, and that can lead to costly mistakes.
2. Abandon the Sunk Cost Fallacy
Molly, I am going to ask you to consider abandoning the “sunk cost” of: a. what you’ve paid on your loans so far and b. the concept of loan forgiveness.
The sunk cost fallacy? When people add more time, money, resources, or energy to something that they have already spent time, money, resources or energy on. Living with the sunk cost fallacy can actually make a situation worse.
It’s also known as “throwing good money after bad.” Just because you’ve spent money, time, or other resources on something—an item, a movie, an experience, does not mean you will get “paid back” if you use it up.
If you go to a movie and you hate it, does it make any sense to stay in the movie? No, even though you have spent money on the ticket that you can’t get back. You will not get that money back, and staying till the bitter end of the movie will not make it better. In fact, it is the opposite.
If you order a meal at a restaurant but you dislike it when it comes, are you actually “getting your money’s worth” if you eat it all? Of course not.
But it is super easy to fall into the sunk cost fallacy, and people do it all the time! We have all done it from time to time. And let me propose that you may be falling into it right now.
Yes, you’ve spent $60,000 so far paying off your $78,000 loans, and your balance is $100,000. That sucks. But you will never get that money back, nor does it have any bearing on how you manage to pay off the $100,000. Unless you use your prior experience to formulate a better plan for it.
I highly recommend you forget about the money you have spent so far paying off the loans. That is water under the bridge. Spending any more time on that number is not helpful.
You write that the Biden administration should cover FFEL loans under the CARES Act. Could that happen? Maybe. But it is not likely. If you really think it could be a possibility, I would spend some time talking to the local office of your congressional representative or senator to see if it is. If it wouldn’t happen within six months, consider another option.
You do not say outright, but you may hope that the talk of federal student loan forgiveness would be on the horizon. The most that is realistically considered is $10,000 per borrower. That wouldn’t really make that much of a dent in your situation.
Leaving those concepts behind—abandoning that sunk cost— might be helpful in moving forward with your situation.
3. Gather your information: credit score, loan info, and more.
Credit report: you can visit annualcreditreport.com to get a free credit report from one of the three bureaus who offer them. This will help you see if there are any errors on your credit report.
Credit score: You can also find out your credit score from a credit card online bill. Most credit card companies offer this as a service, and knowing your number will be helpful in estimating what kind of interest rate you could have for refinancing.
This article goes over some specifics about credit scores and credit reports.
Loan information:. Start a simple document on paper, or create a Google Sheet, to list of all of your loans, their interest rates, and any other information. This will help you run the numbers to see if refinancing could accelerate your loan payoff and get this behind you.
4. Consider refinancing into private student loans.
You may be in a Goldilocks situation—without the benefits of either federal or private loans, but nothing prevents you from refinancing your student loans and getting better interest rates.
When you refinance, you lose some protections offered by federal loans, such as deferments and forbearance. But forbearance may the reason that your loan balance has ballooned over time. It may be time to consider a different strategy.
And since FFEL loans are not covered by the Public Service Loan Forgiveness (PSLF) program, you aren’t giving up that valuable benefit if you work at a non-profit or other qualifying employer. (If you do have regular federal loans, read this helpful overview of PSLF .)
The article mentions at least one of your federal loans has an 8.5 percent interest rate. Unless your credit score is bad, you should be able to refinance those into a much lower interest rate, saving you tons of money.
Warning! For anyone reading this who has FEDERAL student loans, do not refinance at this time. See below. (NOT for those with federal student loans as all payments and interest are paused until Sept 2021).
Reputable sites like Student Loan Planner have tons of free information about tacking student loan debt. You can also consult with professionals at Student Loan Planner and others to get the best plan for you. Take advantage of that!
Pro tip: You can refinance your student loans as many times as you can, and whenever you can get a better rate. You probably should not do this more than once every two years, as the process of refinancing can temporarily hurt your credit score.
5. Don’t put off your present or your future
This is really my number one tip, so I saved the best for last. I implore you to not put off your present or your future, including retirement savings and other goals.
The article is unclear about whether you are saving for retirement, but since you work at a large employer, there is a good chance you may have access to a 401(k) plan, and perhaps with an employer match.
Even if you have debt, you should take advantage of this, at least to the max of the employer match. You get the “free” money offered by your employer, and you also get tax breaks.
If you do not have access to an employer plan, you can easily open an IRA and Roth IRA with Fidelity, Schwab, or Vanguard, all respected low-cost brokerages. “Future You” will be glad that you both paid off student loans and saved for retirement at the same time.
While you should implement plan to pay off your student loans, that should not come at the expense of your life and future goals.
You could consider setting and beginning to fund some short-term, medium-term, and long-term goals. Things like travel (once we can all travel again), other experiences, buying or improving your home, and countless other goals can fit here. I have found with myself and with clients that the more intentional the goal, the more likely it is to happen.
Your Turn
I hope this helps. What do you think? Unsolicited Coaching yes or no?
