Student Loans 2022 (Should I Pay Off My Student Loans or Invest??)

August 29, 2022

The Biden Administration has promised to relieve up to $20,000 in student debt per borrower.

Today we are going to highlight the important things you need to know and for those who still have debt whether you should pay it off or invest.

Should I Pay Off My Student Loans or Invest?

Resources Mentioned:

Full transcript:

SPEAKERS

Alex Okugawa & Matt Calcagno

Alex Okugawa 0:00
The Biden Administration has promised to relieve up to $20,000 in student loan debt per borrower. Today, we’re going to discuss what you need to know. And if you’re still going to have some debt after this relief, what to consider, should i pay off my student loans or invest?

Hey, there, it’s Alex and Matt from One Degree Advisors. If you’re new here, we are Certified Financial Planners that help folks with all things tax, retirement, and investment related. So Biden tweeted this out announcing the long anticipated campaign promise to relieve student loan debt. And so I think let’s quickly touch on based on the information we have so far, who does this apply to?

Matthew Calcagno 0:45
Yeah, and let’s be frank, here, this, this feels kind of like a political move. I mean, the economy has been a little bit rough this past year and might be used as somewhat of a poker chip. But I want to make it clear, we’re not here to cover the politics today, we’re just going to the facts. We’re going to cover the facts, how it relates to you the highlights, and then ultimately, for those people that still have debt, you know, that decision whether you should start paying it off or investing?

Alex Okugawa 1:10
So I think one of the things here, people might have questions about is, when we talk about the student loan debt relief of $10,000, I’ve seen stuff swirling around $20,000. But how do people know if they are eligible or not? For the debt cancellation or debt relief?

Matthew Calcagno 1:29
So basically, what we don’t know now is whether that income is going to base on 2020, 2021, or 2022. That’s not specifically clear, what we do know. And a lot of this information is gonna be the link that we’re going to put below with more details. We’re not trying to cover every single part of it, because there’s a lot, but it’s going to apply to people, for student loans, and also graduate loans, for those who have income under $125,000 for individuals, and $250,000. for married couples.

Alex Okugawa 2:01
Now, again, there is a difference here, if you have it says you have a Pell Grant and college and you meet income thresholds, you might be eligible for up to $20,000 in debt. So I think a lot of people might be wondering, well, like what is a Pell Grant? Did I get one? I’m not really sure. How can people find that out?

Matthew Calcagno 2:16
Yeah, and a Pell Grant is something for somebody who had exceptional financial needs. And the way you can figure that is when you’re logging into studentaid.gov. And you know, you navigate to the “My Aid” section, it should clearly show right there, whether it’s you were eligible for that Pell Grant or not. Okay.

Alex Okugawa 2:32
Now, again, another question. And then we’re gonna get into three things to think about if you should pay off your debt or invest. But I think a lot of people are wondering, when is this going to kick in? Can I log in tomorrow? And I can expect to see my balance drop by $10,000 or $20,000. When can people expect to see this?

Matthew Calcagno 2:49
Yeah, not tomorrow. I don’t know. I don’t think tomorrow. But I think there’s going to be an uphill legal battle with this thing. It’s not clear when exactly this is going to kick in. So again, we put that link in the description to get updates from the US Department of Education. But first and foremost, what we know is that interest has been delayed for the final time to the end of the year.

Alex Okugawa 3:08
The final time, we’ve had a couple of “final times” a few times, maybe this will be the final time. All right. So again, all this information will be in the description, there are still a lot of moving pieces that will be based upon income, whether or not it’s based on your 2020, 2021, or 2022 tax return. That’s unclear, there are still some things that need to be worked out here. But I think a lot of people are still going to be under the threshold and will qualify. But so for people that are going to have their balances wiped out, it’s a great thing for people that are still going to have a balance even after let’s say $10,000 or $20,000 is wiped out, what we’re going to do is walk you through three things to consider of whether or not you should pay off the debt or invest because it is a very personal decision. But the first thing we have here, something that you need to do is simply get organized because a lot has changed since the pandemic era, student loan relief policies. Yes,

Matthew Calcagno 4:01
yes, loans have been transferred back and forth to different companies, you know, really, it’s nonnegotiable, you need to have that login, and you’ll be able to log into studentaid.gov or with your loan provider and have access to that information. In that also follows you need to know your balance, what is your loan balance is some of that wiped out is all of it wiped out, log in and figure it out. And then also what your anticipated monthly payment is going to be? Come December, right? And they announced a new rule that’s going to require borrowers to pay no more than 5% of the discretionary income monthly on their loans. And I’ll pull this up right here. That’s, that’s good for borrowers, it used to be a lot higher.

Alex Okugawa 4:41
The income-driven payment plan can be a benefit for folks. But let’s talk about the second thing here, which is you have to consider your cashflow in the decision of should i pay off my student loans or invest

Matthew Calcagno 4:55
Yeah, exactly. So there are two things really to consider if you’re going to pay off debt or invest #1 Are you getting that 401k match, right? That’s free money that you don’t want to leave on the table, you want to be able to take advantage of that. And #2 I think it’s a good idea to start building those good habits and taking advantage of compound interests, especially if you’re young, especially if you’re investing early and you’re able to make that still make a minimum payment. If you take example, take a look example of compound interest over time, someone starting to save at $6,000 a year at age 25. wind up with more than twice as much money by age 65, compared to someone who waits till age 35 to start investing.

Alex Okugawa 5:38
Yeah, and again, I think this goes back to it doesn’t always have to be like a black-and-white decision, right? Because you want to if you have the opportunity to get a match from your employer like you said, that’s free money, take advantage of that. But getting money in the market at an early age is really important. That’s why you know, we’ve said it before, you know, timing the market is hard. And that’s not as important as time in the market. Again, this is a great illustration of why time in the market is so important. The third and final thing here to consider is whether or not you choose to pay off the debt and put all your money towards that or whether or not you choose to invest. Both situations are both choices are productive uses of money.

Matthew Calcagno 6:21
Yeah, you don’t want to end up in paralysis analysis like Oh, which one? Which one should I do? What’s the most optimal way to do it all the time? Because both circumstances are very productive uses of money. You’re on the right track. You’re thinking you have the right mindset if you’re thinking those two things.

Alex Okugawa 6:37
And now let us know what you think. Do you believe that relieving student loan debt was a good idea? And for those of you that have already paid off your balances, do you feel like this was a fair opportunity for everyone? Let us know your thoughts in the comments down below. And if you enjoyed today’s video, please like and subscribe for more. Thanks for watching.

Transcribed by https://otter.ai

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