If Only Twelve Days Was All You Needed

Its that time of year again folks! Time for my annual repost of my version of the Twelve Days of Christmas. May your holidays be bright, and the new year bring you happiness, peace and security.


On the first day of Christmas my true love gave to me a fund for emergencies

On the second day of Christmas my true love gave to me a budget for expenses and a fund for emergencies

On the third day of Christmas my true love gave to me a maxed out retirement, a budget for expenses and a fund for emergencies

On the fourth day of Christmas my true love gave to me a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the fifth day of Christmas my true love gave to me a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the sixth day of Christmas my true love gave to me full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the seventh day of Christmas my true love gave to me insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the eighth day of Christmas my true love gave to me a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the ninth day of Christmas my true love gave to me a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the tenth day of Christmas my true love gave to me a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the eleventh day of Christmas my true love gave to me a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the twelfth day of Christmas my true love gave to me, a pledge to be mortgage free, a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

Happy Holidays Everyone!

Photo by Clem Onojeghuo on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Is the PSLF the Government's Biggest Bait and Switch?

Student loan debt is a crippling burden for much of a generation of college graduates. It puts them behind the curve when it comes to building their financial security through retirement savings and home ownership. Some found a grain of hope in the Public Service Loan Foregiveness program (PSLF). But this program may be the biggest bait and switch the government has ever perpetrated on it’s citizens.

The PSLF was created in 2007. The promise was simple. Take a job in the public sector or with a non-profit, and if you made your required student loan payments on time, in ten years your remaining loan balance would be completely forgiven. The first opportunity to receive the long awaited loan forgiveness came in 2017. However, all but about 280 of the first 28,000 applicants were denied. All tolled, more than 80,000 individuals have been denied since. The travesty is outlined in a New York Times article.

The program is overly complex. Only certain employers are eligible. Many individuals don’t have the right type of loan. Others didn’t select the right kind of repayment plan. Some have been denied due to processing errors. About a quarter of the applications processed by the single loan servicer dealing with them had errors.

Regardless of the issue, thousands are facing a future with debt they had expected to go away. Unfortunately, the only true test of whether you’ve done everything right comes when you apply for forgiveness, ten years after you begin making payments.

If you have been counting on the PSLF to provide some relief for your student debt, you must ensure you have met, and continue to meet, all the requirements as soon as possible. You can’t apply for forgiveness until the ten years have passed, but you can build your case along the way. You can find the requirements on the Federal Student Aid website. The following are the important highlights.

  • Make sure your employer is a qualifying employer. Verify this annually, even if you don’t change employers, when you file your employment certification form.
  • Ensure your loans are qualifying loans. Only William D. Ford Federal Direct Loans qualify. If you have Federal Family Education Loans or Federal Perkins loans, they do not qualify. You can consolidate these loans into a Direct Loan, but none of your prior payments will be counted toward the PSLF, even if some of your loans were for Direct Loans included in the consolidation.
  • You must be on a qualifying repayment plan. All income driven plans are eligible.
  • You must make 120 qualifying payments. A qualifying payment is made under an income driven repayment plan, for the full amount shown on the bill, no later than fifteen days following the due date and while employed full time by a qualifying employer. The payments do not have to be consecutive.

In response to the large number of rejections under the PSLF, congress passed a temporary relief bill in 2018 that expanded the number of repayment plans that qualified. If your repayment plan was a graduated repayment plan, extended repayment plan, consolidated repayment plan or a graduated consolidated repayment plan, and your payment was at least as much as it would have been under an income based plan, your payments may be eligible under this temporary extension. Applicants aren’t having much better luck with this though. Only about 4 percent of the available funds have been used.

The PSLF held out hope of debt relief for thousands of teachers, healthcare workers, law enforcement professionals and other public servants. But the program’s complexity and execution have made it largely a failure. If you are counting on your loans being forgiven through the PSLF, it is possible, but you have to stay on top of it. The only friends you have in this process are your own diligence and good record keeping.


Photo by Nathan Dumlao on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Can Helping Your Kids Hurt?

I recently saw a Pew Research study on financial independence among young adults. The study found six in ten parents of people aged 18 to 29 had provided at least some financial help to their children. In many cases the support was for regular monthly bills like groceries, rent or car insurance.

Of course if your young person is not working, they may need that support. But how long is it reasonable to continue to support your kids if they are not actively seeking an education and are working full time. It’s a question every parent has to answer for themselves. But it is important to understand whether you are setting your kids up for financial failure.

In one of my favorite books, The Millionaire Next Door, Thomas J. Stanley and William D. Danko, contend that it’s easy for a financial boost for your kids to become financial enabling. The support you provide increases their ability to spend on things they otherwise could not afford. With high rents and big student loan bills, life can be financially difficult for those just starting out, and it can be hard to know where to draw the line.

I did not draw the line in the right place. Last May, I wrote about how my daughter financially crashed and burned in How to Go From Happy to Desperate in Six Weeks or Less. Following the crash, to help her get back on her feet, she was living with us. Her budget was meant to be similar to what she would have to pay if she were living on her own with a roommate in our area. She gave us money for her non-discretionary expenses, like rent, utilities, groceries, car insurance, etc. We put it in savings for her. What was left had to cover everything else.

Except her medical costs. She doesn’t make much money. She has a government job with great health benefits but pretty low pay. I didn’t want her to skip getting the care she needed because she couldn’t afford her out-of-pocket expenses. So we agreed that we would pay for her medical expenses, and she didn’t need to include those in her budget.

Toward the end of that year, she had some tests done, and the medical bills came to around $500. No big deal for us, and we were happy she was getting help. She was actually doing really well with her budget. She was covering her “pretend” bills, and saving money beyond the money she was giving us. She had really embraced the idea of assigning a job for every dollar she had.

The problem was, she was assigning money that should have been earmarked for medical expenses, had we not been paying them, to pay for a tatoo. While we laid out $500 for her medical bills, she spent $500 on said tatoo. It was totally my fault. She had saved for it. She didn’t have to spend the money on anything else. But it bugged the heck out of me.

We made it possible for her to pay for a tatoo, because we were paying for an expense that was legitimately a part of her cost of living. And that is where the flaw in providing support to your kids lies. It masks their true cost of living, and as a result, they make decisions based on the inaccurate picture.

I want Kaye to understand her cost of living. She will make long ranging decisions such as where to live, whether to go back to school or change careers based on what she thinks she can afford, and I want her to make those decisions with all the clear-eyed facts.

Today, Kaye covers all of her expenses on her own. She includes saving for out-of-pocket medical costs in her monthly budget. Similarly she sets aside money for car maintenance and repairs. Of course we will help if something big and devastating comes up. But she is fully living within her means and saving for her needs as well as her wants – including her next tatoo.


Photo by Cory Woodward on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

How Close are You to Your Money?

I’ve heard more times than I can count “I don’t know where all my money goes.” People carry little cash. Heck, some stores don’t even take cash anymore. Few families keep a check book. It’s no wonder it’s hard to keep track of where your money goes. Without the tangible activity of pulling cash from your wallet or subtracting from your bank balance, there is little connection to your money.

This idea hit home several years ago. I’ll never forget the time when I was grocery shopping with my daughter. She was about six at the time. I had just checked out, paying with my credit card as always, when I realized I had forgotten the bread. Thinking it would make Kaye feel like a big girl to go through the check stand on her own, I gave her some cash and the bread and urged her to get in line for the cashier.

She looked at me like I was speaking a foreign language, and panic began to creep into her eyes. She held up the money and asked what she was supposed to do with it, and shouldn’t she have a card?

I was stunned. I didn’t realize that she didn’t understand what cash was, or that paying with cash or a card were essentially the same. Without that understanding, she couldn’t know that spending using a card was ultimately constrained by how much cash was in the bank.

Our family pays for everything with a credit card. It’s a tool. It has never made me feel less connected to my money. I am viscerally aware of every dollar I spend, whether it’s cash or card, and we pay off our credit cards every month.

But we are unusual. Only about a third of Americans pay off their credit card balance every month. A credit or debit card or payment app obscures the feeling of giving up money in exchange for whatever is bought for most people. That makes it emotionally easier to let your money go, and that can be a recipe for overspending.

Society is moving away from cash, and there are positives and negatives that come with that. If the negative for you is that you don’t know where your money is going consider approaching your spending differently.

Create a plan with a specific goal in mind. Before you spend any money from your next paycheck sit down and decide how every dollar is going to be spent. Be realistic. You need a plan you can stick with. But cover all of your bases. Make sure you are including money for expenses that don’t show up as regular bills, like car maintenance or celebrations.

The only way to keep your connection to your money is to be intentional with it. Cash may no longer be king, but you can stay in control. Rather than letting your money decide what you will do, decide what you will do with your money. Your financial security and your goals require you to make a plan, and understand where every one of your dollars goes.


Photo by Daniel Jensen on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Talking Paying for College

With school having just started, many homes with teenagers are starting to get serious about preparing for college. Some seniors will be taking early acceptance by November, while juniors are mulling their options. So it’s time to get real with your kids about how you’ll pay for college.

You want the world to be your child’s oyster, and no one wants to talk about expenses when dreaming about the future. College is expensive no matter where your child chooses to go, but some choices will set you back farther than others. The following chart shows the average cost of college for the 2017-2018 school year from the College Board.

While most parents want to send there children to college, only about 57 percent of them save for it. The average household savings for college was only $18,135, according to Sallie Mae. That won’t even cover a single year at a four year school. So, that means the money must come from somewhere else. The following chart shows how America pays for college, also from Sallie Mae.

A full 27 percent of the cost of college will be paid for with loans. The average student loan debt per borrower from the class of 2017 was $28,650. At the current Federal Direct unsubsidized student loan interest rate of 4.53% for undergraduates, over the standard 10 year repayment period, payments on loans of that amount will be about $297 per month.

That can be a significant piece of a new graduate’s entry level job income. It’s no wonder that 30 percent of college graduates with student debt move back in with their parents. With money like this on the line, it is important to sit down with your future college student and cover the facts.

Here are five things to discuss with your child before she chooses a school.

  • Tell your student how much you will be able to pay. This includes what you have saved and what you are willing to commit to out of your income. The converse of this is how much should she expect to pay.
  • Outline options for raising the extra money. In addition to student loans and scholarships, your student may be able to raise some money through part-time or full-time work. Taking a gap year to work and save up for school is a reasonable approach.
  • Help your student understand the implications of their choices. Private and out-of-state public four year schools cost nearly twice as much as in-state public institutions. Student loans may be hard to avoid, but they can certainly be minimized if you understand your trade-offs. You can calculate the monthly payments given different loan amounts on the Federal Student Aid web site.
  • Provide context for the information. Estimate the kind of monthly salary your student might earn given her career interests. Payscale’s College Salary Report is a good place to start. It wouldn’t hurt to also talk about average living expenses. Nerd Wallet has a cost of living calculator. Don’t forget to show the impact of taxes. How much of her take home pay will be left after student loan payments?
  • Consider starting school at a community college. The average cost per year at public two year colleges is only $3,570 assuming your student can stay at home while she attends.

If you don’t have enough saved to pay for college, think carefully about the impact of paying for school out of your current income. It can put you behind in your efforts to save for your own future. And avoid taking on your own debt to pay for college for the same reason. If you are behind in saving for your own retirement, paying for college should not be your top priority. Your child has time to recover from the expenses of school. You do not.

A college education can substantially improve your child’s ability to earn a living. But taking on a lot of debt to pay for it can weaken her financial stability. Help her understand that her choices have implications for her lifestyle after school. Before she makes her final decision, she should know what she’s in for.


Photo by Tim Gouw on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

When to Go for a Clean Slate

Over the last several years I’ve spoken to a lot of people, and some of their stories are heart breaking. Several have had crippling amounts of debt, and it was difficult to see a reasonable path forward for them. In all of these cases, they felt morally bound to pay off their debts, which is a testament to their character. But there are times when it may make sense to wipe the slate clean.

In our culture, bankruptcy is still considered a terrible thing. If it weren’t, we would have all sorts of other issues, like higher interest rates and a much harder time getting credit. However, the tool is there for a reason, and if you are struggling to make your debt payments and keep food on the table, it may be worth considering.

First, what is bankruptcy? Bankruptcy is a legal process that either discharges or reorganizes your debt, depending on the form you use. Chapter 7 bankruptcy eliminates your non-exempt debt but at the cost of giving up most of the valuable things you own. Chapter 13 essentially reorganizes your debt, allowing you to pay it off over three to five years. Depending on the type of debt you hold, you may wind up paying less than the total outstanding amount.

Not all debt can be eliminated with bankruptcy. Student loans are a big category where filing bankruptcy won’t do you any good, except in rare cases. Others include tax debt and spousal or child support. There are 19 categories of debt that cannot be discharged in bankruptcy. You can find a summary at NOLO.com.

However, medical debt, credit card debt and several others can be discharged or made more manageable by filing for bankruptcy. These types of debt can mount quickly if you have a serious illness or injury and/or find yourself out of work.

If you have little in the way of valuable property, Chapter 7 bankruptcy may be a reasonable choice. You will turn over most of what you do own to the courts, and it will be sold to pay as much of your debt as possible. But there are exceptions. Your personal belongings like clothing and furniture are mostly exempt. A vehicle that is required to get you to work, and any tools required for your trade are also likely exempt. In some cases, your home equity may be excluded as long as you make the mortgage payments. Savings in tax-deferred retirement accounts, like 401(k)s and IRAs are exempt.

For those with a steady income that will allow you to make payments on your debt, Chapter 13 may be a better choice. You will not have to give up what you do own, and your debt will be restructured and consolidated into a single payment which you will be better able to afford. When the payment period is over, you can be mostly back on your feet.

Bankruptcy is not a cure-all. It has downsides, and should only be considered if you are committed to turning your finances around. It will devastate your credit score initially, though over time that will recover. You will not be able to get additional credit for a year or two, but eventually that will open up for you too.

If your debt is suffocating you, it may be time to think about getting some relief. Obviously, its much better to avoid a mess like this in the first place, but that doesn’t help once you’re there. And sometimes stuff happens that makes it hard to avoid. Bankruptcy is not the first tool that you should reach for. But it is a reasonable last resort.


Photo by JESHOOTS.COM on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

I Want it All

GrubHub has a new TV ad that features the song lyrics by Queen “I want it all and I want it now.” This ad seems to sum up our consumer culture and precisely why so many people with good incomes can’t seem to get a grip on their financial situations.

Americans of all income levels struggle with unexpected expenses and debt, and, as a result, find it difficult to even have financial goals, let alone achieve them. Just this week, it was reported that the famous lawyer, Michael Avanatti, is accused of embezzling nearly $2 million from a client’s settlement to pay for his “own expenses and debts.” How can a guy like that run out of money?

A 2015 study by the Center for Retirement Research found that of those in the top one-third by income, one in three reported having difficulty covering regular expenses. I’ve seen it myself. I recently spoke with a couple making $400,000 a year, but going further into credit card debt with each passing month.

This couple seemed confused. They made so much money but couldn’t understand why they weren’t getting ahead. Eating out twice a day, designer clothes, and weekend getaways had something to do with it, but they hadn’t tallied their expenses. They also weren’t paying their debt down, which caused them to wrack up extra interest charges, and their careless approach to paying their bills resulted in unnecessary late fees. They simply weren’t paying attention.

It could be that high income people like these simply believe they don’t have limits. They make enough money, they shouldn’t have to worry about how they spend it. They want it all and they want it now. But that mindset is a trap. It can keep you on a treadmill of always needing to make more money, or in the case of Avanatti, to steal it.

There is always a limit. No matter how much money you make, if you want financial security, you actually have to do something about it. You must always pay attention to how you spend your money, and save for your financial goals. And you don’t even need to make a lot of money to do it.

Alan Naiman, a Seattle social worker who died last year at the age of 63, managed to save enough to give a small fortune to charity when he passed. By living an extremely frugal life, he was able to save and invest enough to have several million dollars in his own estate, and to his own savings he added his parent’s estate. All tolled, he donated $11 million.

Of course, these stories are extremes. You are probably not spending your way to bankruptcy despite a top 1% income, nor are you willing to hold your shoes together with duct tape in order to reach your financial goals. But they do illustrate the possibilities and what is required. While it may be true that you can have anything you want, you can’t have everything you want. You will always have to make choices. Choose wisely.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Photo by freestocks.org on Unsplash

This is Not Us

One of my favorite shows on television is the NBC series “This is Us“. It tells the story of three siblings, two of them twins, the third adopted, coping with life under the backdrop of the death of their father twenty years earlier, when they were teenagers. It’s one of those emotional roller coasters of pain and elation as the characters face and overcome heart wrenching challenges.

But I’m worried about the characters’ finances. They live lavish lifestyles with seemingly no regard for where their next dollar will come from. For two of the siblings, Kevin and Kate, there may be plausible explanations for the way they live, but they are a stretch. The one I’m really concerned about is Randall.

Early in the show, Randall worked for a hedge fund as an weather derivatives trader. He had a nervous breakdown after the death of his biological father with whom he’d recently reconnected, and wasn’t able to return to work. His wife, Beth, was a city planner, but was laid off.

They have a large home in Alpine, New Jersey. A Zillow search suggests a home like their’s in that area would be worth at least $1.6 million and probably as much as $3.5 million. At $1.6 million, with a 20 percent down payment, their monthly mortgage would be over $6,000. At $3.5 million, the payment is over $13,000 per month.

For much of the second and third season, neither had a job. Meanwhile they bought an apartment building in Philadelphia, which required a significant investment for maintenance and repairs, and Randall ran for city council there. We’re not sure where the money came from for that.

So while the two were finding themselves, we can only assume they were burning through their savings like mad. Though neither seems to be worried about money. Randall’s new gig as a city council member will at most pay $150,000, or $12,500 a month. That means the mortgage payment alone will eat up two thirds to more than all of his take home pay.

Beth recently took a job as a dance instructor. That job pays about $25 an hour in New Jersey. That will give her $2,000 to $3,000 a month in pay, depending on how many hours she works. Maybe they’ll be able to cover the mortgage between the two of them. But who knows how they’ll pay their other bills.

The lifestyles of our favorite TV characters, like Randall and Beth, can distort our ideas about what is a “normal” lifestyle. The characters’ implied spending can be far above what families in similar income brackets can really afford. That world is simply not the real world, and trying to live up to it can be a dangerous trap.

While it’s natural to compare yourself to others, don’t do it. Instead consider a different comparison; where you stand relative to your savings goals. Having a savings goal and working toward it can be an effective way to overcome your concern that your lifestyle is somehow not up to par. Keeping track of your progress and comparing where you are to where you were is much more satisfying than comparing what you have to what someone else has, especially if they aren’t real.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

The #1 Tool For Getting Help Paying for College

March is nearly here, and the end of the school year is in sight. If you have a high school senior at home, that means you have just a few short months to figure out how you’re going to pay for college.

A little more than half of parents of eighteen year-olds have saved for college. The average savings for those who have it is $28,000, about enough to cover the full cost of one year at a public university. Most students will turn to debt to pay for at least some of their education.

Debt among eighteen to twenty-nine year-olds is at a ten year high, thanks mostly to growing student loan debt. Yet many students are missing out on valuable financial aid because they failed to file the Free Application for Federal Student Aid, or FAFSA.

About a third of students who don’t file the FAFSA are eligible for Federal Pell grants, which is financial aid that doesn’t have to be paid back. Of those who would have qualified for the grant, half could have gotten the maximum amount, which was over $6,000 for the 2018-2019 school year.

Nearly half of private student loan borrowers could have qualified for lower cost federal loans had they filed the FAFSA. And the FAFSA isn’t just for federal aid. State and college financial aid programs and many private scholarships rely on information from the FAFSA.

The biggest reason sited for not submitting the FAFSA was that families thought they weren’t eligible for aid. Some form of financial aid is available to anyone with an annual household income of $250,000 or less. Only about 5 percent of American families don’t qualify for any form of financial aid.

And financial aid is available beyond traditional four year institutions. If you have your eye on a community college or certificate program you may still be eligible for financial aid.

Timing is important. Some forms of aid are granted to the eligible that apply first, and when the money is gone, it isn’t available again until the next school year. Some grants and scholarships have early deadlines. But if you haven’t filed your FAFSA yet it isn’t too late. There are still options open.

Applying for financial aid can seem daunting. The FAFSA asks for a lot of information. Often you’ll need to fill out supplementary forms for financial aid or scholarships beyond the aid available from the Federal government. You might think it isn’t worth it.

But if you think in terms of your hourly rate to apply, it might seem more worthwhile. Say you find an opportunity for $1,000 in government or private aid or scholarships. If you put in four hours of work to get it, that’s an hourly rate of $250. Most don’t make that in their professional jobs.

College is too expensive to assume you can’t get some help with it. Fill out the FAFSA annually. If it’s too late to get some forms of aid for this fall, you may still qualify in the following year. Most don’t have the luxury of fully paying for their children’s education, but help is available if you file the form.

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

If You Don’t Do This, You Could be Paying on Your Student Loans for Most of Your Career

In my last post, I demonstrated how taking just $5 dollars per day from spending and putting it toward paying down your debt could have you out of debt in a surprisingly short time. One reader wrote back that she would never put extra money toward paying off her student loans. She wasn’t able to break even with her payments, and she felt paying extra on the them was like simply lighting her money on fire.

I could see both the frustration and despair in her words. And it was clear that she couldn’t see how the extra payments could make a difference.
The huge balances some carry can make it seem like you’ll never get out from under your debt.

Student loans are complex, and the myriad of repayment plans can make it harder to make a dent in your balances. In 2007, new student loan repayment plans were introduced on federal loans to help indebted graduates better afford their payments. These plans are based on a percentage of your income, and extend the repayment period. The payments are lower than the standard ten-year repayment term.

But in some cases, these extended payment plans can have you paying less than the total interest that is accruing on your loan. You aren’t making any progress on reducing your loan amount, and interest continues to grow. That was the case with the reader who wrote to me.

The Consumer Financial Protection Bureau found that half of student borrowers are in their mid-thirties before they begin repaying their loans and 30 percent are not reducing their balances after five years of payments. Unless you want to make payments on your student loans for much of your working life, you eventually need to be paying enough to cover all the interest and some principal every month.

Debt payments take away your flexibility. You must maintain a larger emergency fund, because your monthly obligations are larger. You may find it difficult to do other important things like save for retirement or college for your own children. Your financial security rides on you getting out of debt.

So it is worthwhile to make extra payments on your student loans. If you can’t afford the payments under the ten-year standard repayment plan, and therefore need a longer repayment schedule, pay as much as you possibly can anyway. Your goal is to cover all the interest and some principal.

With each principal payment the next month’s interest will be lower, and your next payment will include more principal. With more principal covered, the next month’s interest will be lower still. It becomes a virtuous cycle that get’s better with each passing month.

If you can direct windfalls, like a tax refund or bonus from work, to pay down your principal, you can give your repayment plan a boost. If you can increase your extra payments over time as your income increases, you can make even faster progress.

You may be thinking, why bother. These income based repayment plans come with debt forgiveness after twenty years. Why should I make extra payments?

Aside from the advantages of eliminating debt payments from your monthly budget, the forgiven loans will still cost you. While the student loan arm of the government may forgive your debt, the IRS will not. The full outstanding balance will be considered income in the year it is forgiven, and you will owe income taxes on the forgiven amount.

There is one exception to all of this. If you qualify for the Public Service Loan Forgiveness program, your loan will be fully discharged after ten years with no tax implications regardless of how much principal is remaining. So if you are in this program and can stay in public service for the full ten years, there is no reason to make extra payments on your student loans.

For everyone else? Pay as much as you can. Take drastic measures if you need to, but cover all the interest and at least some principal with each loan payment. Paying extra is not futile, it is necessary. Your financial freedom depends on you getting out of debt.

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

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