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Today we're talking about student loans and we're finding that it affects their whole life
and even their emotional lives so we wanted to learn more about the subject
so today we invited an expert, Christopher T. Lawson is a well-known speaker
author and director of planning for Financial Evolution Group
which is a Los Angeles-based financial planning firm that helps
college grads and mid-career level
professionals who are drowning in student loan debt.
Chris has been in the financial services industry for nineteen years
and he's also the author of the book School Loans Gone and
he holds the Chartered Retirement Planning Counselor designation from the
College for Financial Planning and
he also serves on the board of directors for the Los Angeles Chapter Financial
Planning Association,
volunteers for the South Florida Junior Achievement
He is also responsible for Financial Evolution Group dot com web site
Chris
welcome to our video.Thank you for having
me Gary.
In a couple emails that we had traded earlier, you know we were talking about
our concerns
with student loan debt
and the possible bubble that we're facing in student loan debt
and you mentioned that there's two common concerns that you see over and over
with
your clientele. Could you tell us a little bit about their that please?
Sure. Absolutely.
The biggest concern that I really hear all the time is that
my classes are really afraid that they're not going to be able to retire because they have
so much student loan debt
and that's something that a really comes in number one
is one of the biggest concerns that I hear and that concern and also comes in
with other competing objectives
like buying a house, things like a taking vacations, things
other types of things that really are competing objectives to
the way that they spend their income.
What are some of the
first things that people should do if they are concerned that they
won't be able to pay off their student loans, that it is going to have a significant
impact on their finances?
And that's really the big question.
What's the first thing to do. What I
talk about a lot when I'm doing a planning for my clients is I talk about
getting a breath of fresh air,
that's the biggest thing because I see in this, it's almost like an
albatross around their necks
and my clients are typically they are
middle age individuals, lot of people when they find out what I do they
say
"oh, it's so great that you are working with these kids" when in actuality those I work
with usually have had
their student loans for over 10 years so when I'm working with someone,
the biggest thing is, even though they've had the loan for so long,
they've never really sat down and gotten organized in terms of
really looking at their finances and looking at it from the perspective
of putting together their balance sheet, putting together their income statement,
putting together a proper debt payoff
order spreadsheet. Because the biggest thing that is,
the biggest problem that I see that people have, is that they
aren't really clear on how long it's going to take to
pay the debt off and they're also not clear on
what specifically they should pay up first. There's always a lot of confusion
around well, you know, should I put a little extra towards this loan this month or a
little bit extra towards that loan this month
and we have some credit cards. Should I put a little bit extra towards that.
And so what the planning becomes is a mishmash a different things.
What I find is that when people get really clear
on what their financial situation looks like, and they get really clear on what
the specific order of debts that they have are to be paid off,
it takes an enormous burden and
lifts an enormous weight off their shoulders and helps them to get really
back into you living their lives again
and gives them a level of confidence that provides momentum.
Yeah I can see where going from a position where you really aren't planning
you are just kind of stabbing in the dark
to knowing what the road map looks like would be quite comforting.
I know there are some people that really are under a lot of pressure,
is there any way for them or are there some tools that they can use
to try to get their lives back?
Absolutely.
The biggest thing that we look at, we look at the options that are available to them
through the type of loans that
they have. Of course the two big types of loans that people have, they have the
public loans and the private loans.
The private loans as many people already know,
there aren't as many options available with the private student loans as there are
with the public student loans and a lot of this will
really hinges upon the initial,
the terms of the actual loan. You can find those in the original loan documents.
One of the things that does work out very well for people who have the
public loans is looking at a situation where they can take advantage of
income based repayment or income contingent repayment
or the pay-as-you-go program.
All of these programs allow borrowers to reduce the amount of payments right
away
based upon their income and these are all programs are based on financial hardship
and for the majority of these programs its
continue to make sure that you
qualify for these programs. It's a little bit different for the
pay-as-you-go program. Once you're in the program you
continue to be in the program but each year
your payments can go up or down depending on
your level of income. But that's a good way to immediately get a breath of fresh
air and reduce the payments.
It's not a cure all though because what
tends to happen is once those payments go down substantially,
interest continues to accrue so that's gonna be
you know, that will be a situation where you may end up paying more interest
overall. But if you have the other documents, you have your income statement
and you have your balance sheet together, you can see what the impact is on your
overall financial health.
But that's the biggest part of getting that breath of fresh air is taking advantage
of some of those programs that are already out there.
I also wanted to say just a couple words about
some other options everybody, pretty much everybody is familiar with
deferment options are deferment options are when you're in school and
you're not paying on the student loans.
There are also deferment options for unemployment and other
circumstances, so deferment is one
of the other options. We also take a look at, for parent options.
Forbearance, you are still accruing interest but it gives you the opportunity
to
get back on your feet so to speak if you are really in that dire situation
and you can skip over some payments while you're
getting back on your feet. And then there are also some forgiveness options
and forgiveness is probably one of the best things you can take
advantage of
if you qualify, so forgiveness is when actually
all or a portion of your student loans can
basically be eliminated because of some specific
program that you take advantage of. So just as an example,
if you're a teacher in education, if you go to some
disadvantaged areas or some underserved areas and
agree to work there for a certain period of time, you can get all or a
portion of
your student loans forgiven. If you're a doctor
the same thing applies. There are for different categories
lots of different ways that you can take advantage in this program and
forgiveness options as well.
And there are also, if you Google forgiveness programs,
and then you input whatever profession you're in,
you can pull up very quickly a list
of different ways that you can take advantage of forgiveness programs.
Now are there some ways to speed up the time it takes to pay off
student loans? Because you talk about people being in middle age
I mean, when we're
a 20-year-old undergraduate, we never consider that we could still be paying
off student loans when we're 35 or 40 years old.
Is there any way when you're heading down that path to speed up the process?
Absolutely, there is. The biggest way to speed up
the process is to get very clear on the
order of the payoff of the student loans. When I guide my clients through,
I guide them through a process that's called
the debt payoff order spreadsheet and
I use a pretty sophisticated spreadsheet, but actually in my book,
School Loans Gone I actually show people how to do it themselves with just
a simple Excel spreadsheet,
but what people don't realize a lot of times
is that if you have, if you pay off debts in a specific order,
you can actually reduce the amount of time it takes to pay off the debts.
You have to have a discipline strategy and if you pay off the debts in a certain
order,
it works out better and the way that I mean is
many people will focus primarily on interest rates.
And they'll think okay, well you know I've gotta pay off this high interest rate
loan before I pay anything else off,
and that's the way they go at it, but
there's actually, there's a mathematical
and a behavioral aspect to this as well, and the behavioral aspect is
when you start paying off are a loan, it's very large in the beginning
and you're not making much progress on it. The mind almost says
"what's the point?" So there's a momentum, a feeling
momentum that's also important so when we are paying off student loans
any extra money that you can come up with should, could
go towards your number one pay off debt.
And then you just use that to accelerate the pay off of the other debts as you go,
and this isn't, you know this isn't a brand new strategy.
This strategy goes by many names, from debt snowball to debt acceleration
to
many many types of names that it goes towards.
But when you get really focused and you're paying off debts in the certain order,
and you're paying them off consistently, it can dramatically reduce your pay off
order.
I see clients that come to me,
when I look at the way that they're paying off their debts and we run it
through the spreadsheet
I'm able to save my average client twenty-seven thousand dollars in
interest payments
and shave eleven years off the debt repayment schedule.
And that's without finding any additional money in their existing
budget. It's just by changing the way that they pay off their student loans.
So it's very important to have a good plan in place.
Now of somebody wanted to find out a little more, where would they find your
website Chris?
They can find me www.financialevolutiongroup.com
and it's spelled just like it sounds.
and there they can find a blog posts on paying off debt,
getting a getting a breath of fresh air, everything we've talked about
on this particular video and they can also get a copy for free of
my book School Loans Gone. I'm giving it away for free on my website.
It watches through the entire process of setting up your own debt
repayment schedule and accelerating that debt payoff.
Fantastic. Well, Chris we want to thank you for joining us here today.
I'm Gary Foreman, again at the Dollar Stretcher.com.
Where we feature all kinds of ways to stretch your dollar get the most for
your money.
And if you have any suggestions for future
broadcast, please send it by email to
gary@stretcher.com. Chris, thanks again and we look forward to talking to you
again soon.
Thank you Gary, it's been a pleasure.