August, 2021 | Live a Life By Design

College Loan Confusion

Posted on August 26, 2021August 26, 2021 by Ashley Stieb

College students have steep learning curves. In high school, they were tasked with doing well academically, participating in extracurricular activities, complying with the rules of their parents’ homes and, possibly, having a job. At college, they must decide what to study, how many credits to take, and other important decisions, while adapting to a new environment and learning to manage time, communicate with professors and administrators, network with peers, and manage finances.

A key aspect of finances for many college students is student loans. When scholarships, grants, income, and savings are not enough to cover the cost, students often borrow to pay for college. In fact, student loan debt just became the second highest consumer debt category, passing credit cards but still lagging mortgages. In 2020, student debt passed over $1.56 trillion. As part of the Covid-19, relief the government passed numerous student relief programs, but student loan debt continues to grow as the average student loan debt of the 2018 graduating class was roughly $29,200. On average, student loan debt in the us tops out at $32,731, with roughly 10.8 percent in delinquency or default.

At graduation, accumulated debt may include:

Direct subsidized loans (the government pays interest while students are in school)
Direct unsubsidized loans (students owe interest while in school)
Direct PLUS loans (for parents and graduate students)
Perkins loans
State and private loans (usually co-signed with an adult)

Different types of loans offer different interest rates and repayment schedules. The federal government finances some loans. Private lenders finance others. Some loans are need-based, while others are not. One option available now is to consolidate student loans on the private market. Companies have emerged offering lower rates to borrowers, but this comes with tradeoffs like giving up certain federal protections.

There are a lot of details to understand and track when students borrow. That’s one reason many colleges and universities require student borrowers to attend loan counseling sessions before receiving loans. Unfortunately, the survey found few students retain much of the information presented:

94 percent of students did not know their repayment terms
93 percent were uncertain what type of loan they held
92 percent did not know their current loan interest rates
75 percent understood how interest rates work

A Brookings Institute study found about one-half of students underestimate the amount of debt they have and one-third cannot provide an accurate estimate of their debt. The survey concluded:

“It is clear from the analysis presented here that enrolled college students do not have a firm grasp on their financial positions, including both the price they are paying for matriculation and the debt they are accruing. Without this information, it’s unlikely that students will be able to make savvy decisions regarding enrollment, major selection, persistence, and employment. Without knowledge of their financial circumstances, a student with a large sum of debt might be unprepared to compete for the jobs that would pay generously enough to allow them to repay their debt without having to enter an income-based repayment program.”

Unfortunately, student loan confusion doesn’t end with college. In large part, that’s because there a multitude of repayment options for college graduates. The Department of Education’s Federal Student Aid website offers an overview of the eight repayment options for Direct Loans and Federal Family Education Loans. These include:

Standard repayment plan (fixed payments)
Graduated repayment plan (increasing payments)
Extended repayment plan (fixed payments over 25 years)
Income-based Repayment Plan (income-based repayment)
Income Contingent Repayment (income-based repayment)
Income Sensitive Repayment Plan (income-based repayment)
Pay As You Earn Repayment Plan (income-based repayment)
Revised Pay As You Earn Repayment Plan (revised income-based repayment)

Of course, the choices available for repaying private student loans are different and vary by lender. In addition, marketplace and peer-to-peer lending platforms make it possible to refinance and consolidate student loan debt, sometimes at lower interest rates.

Tax implications may also play a role into loan repayment decisions. Interest paid on student loan debt may be tax deductible. Earlier this year, Forbes suggested it could reduce taxable income by as much as $2,500 for some Americans. However, this article cautioned monthly loan payments could limit the ability of many young Americans to save for financial goals like starting a business, buying a home, or retiring from work at a reasonable age.

A college degree is almost a necessity today. Pew Research Center has reported, “On virtually every measure of economic well-being and career attainment – from personal earnings to job satisfaction…young college graduates are outperforming their peers with less education.”

When a degree confers so many benefits, borrowing to pay for college appears to be a reasonable choice as long as students make sound repayment choices. In a world where so many repayment options are available, graduates may want to work with financial professionals to accurately determine which repayment programs may be the most beneficial.

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Millennial Perspective: The Most Important Investment

Posted on August 19, 2021 by Ashley Stieb

Millennials, many of us are nearing the end of our 20s and we will all be 30 or older in a short five years. If you haven’t done so already, be sure to make time to invest in yourself as we enter this new era of our lives. There are plenty of ways to do this and I will list them shortly, but they all center around self-care. Self-care is not something that our generation is unfamiliar with, so it should be easy, right? Let’s find out.

First things first, remember to value your loved ones. This can be biological family or a family that you chose. Lean on them when you need to and listen to what they have to say about life and growing older. There is a chance that they have gone through similar experiences as you and they may be able to help guide you through them. After all, they have helped us get to this point, so if it’s working why change it?

Next, learn something new. Have you ever wanted to learn a new language or start making pottery? Do it! What is stopping you? There’s nothing better than exploring new things and learning new skills. Now is the time to take advantage of the things we either didn’t have time for before or were too afraid to try.

Make smarter money choices. This doesn’t mean that you can’t spend your money on things that you enjoy, like avocado toast and iced coffee. This just means you should start looking at getting serious about that 401(k) you hear HR talk about all the time and working on a budget. This can be a big task to tackle, so do not be afraid to seek professional help. This isn’t something that your friends and family can always help with because we are all in different financial situations. You need to find something that works specifically for you and seeking the advice of a fiduciary and/or CERTIFIED FINANCIAL PLANNER™ can help.

Go wardrobe shopping. This is my favorite one, of course. However, don’t get carried away, remember the last tip? I mean invest in functional pieces that still express who you are and will last for years to come. My rule of thumb for this is to make sure to buy things that can be worn in multiple settings. Can you wear this shirt to work and to brunch and still feel like yourself? If so, get it! I used to only buy “work clothes” and “casual clothes”, but I quickly ran out of space in my closet, and I found that I rarely got to wear my casual clothes because I worked most of the time.

Declutter your space. This one ties into the last one for me, but I don’t just mean clothing. Sometimes we can accumulate so many things that we don’t even use, so why keep them around? If it still has a good use, just not a good use for you, donate it. It may be just the thing someone else has been looking for. Take some time at least every couple of years to go through your things and free up some space. This task can be very cathartic.

Talk to someone if you need to. Millennials are probably the first generation that openly discuss and support mental health care. If life starts to feel like it is weighing on you, do not hold those feelings in and just hope that things get better, and don’t be ashamed to ask for help. Everyone struggles every now and then and it is okay to not be okay. Talk to someone. A mentor, a therapist, your best friend, it doesn’t matter as long as you are comfortable opening up around them.

Spend time with yourself. Some people love alone time and others can’t stand it, but a little alone time can go a long way. Sit down and read a good book, write in a journal, binge watch a series on Netflix in one weekend. If you are really daring, go see a movie by yourself or eat alone at a restaurant. Take this time to really find yourself. We can often get caught up in the day to day and lose ourselves. It is important to take some time to yourself to decompress occasionally.

Last, but certainly not least, do not be afraid to fail. The word failure has been stained with negative connotations, but sometimes it can be a great thing. Sometimes our failures help us learn something new and, often, better. It presents an opportunity to rise from the ashes and take flight. Learn to embrace your failures and grow from them. Also remember that you can’t compare yourself to others. We are all on our own journey and we may fail where others succeed, but that does not mean they haven’t failed before or that you will not succeed.

As you can see, self-care doesn’t always mean developing a good skin care regimen or getting a massage. Though those things are still important. The main point to take away from this is to really invest in yourself. Our time to grow and have fun doesn’t just stop when you turn 30. Life would be pretty miserable if that were the case. So, as much as we would all love to be a twenty-something forever, life carries on. Besides, I heard that 30 is the new 20.

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Primed and Ready to Spend

Posted on August 12, 2021August 12, 2021 by Ashley Stieb

For the past year-and-a-half, scientists raced to develop effective COVID-19 vaccines and governments and companies worked to make vaccines available. Today, seven vaccines are approved in 176 countries. More than 2 billion doses have been administered, and about 14 percent of the world’s population has been vaccinated. It’s a remarkable achievement.

While there is a lot of work left to do, the Centers for Disease Control offered new and more lenient guidance for fully-vaccinated people in May, and restrictions across the country are being lifted. The result has been a surge in social activities we used to take for granted. According to the latest Axios-Ipsos Coronavirus Index:

“…Americans’ reemergence is moving full steam ahead. A majority have dined in a restaurant or visited friends and relatives in the past week – and these numbers continue to climb each week…At the same time, Americans are reporting small improvements to their mental and emotional health.”

One unexpected side effect of the pandemic is Americans spent less and saved more than normal. As a result, credit card balances are lower and personal finances have improved.

You know what they say about money burning a hole in your pocket.

Americans are ready to spend some of their savings. While some remain reluctant to venture far from home, others are ready to travel. The 2021 Summer Travel Index showed:

63% of survey participants planned to take a trip in the next three months
74% planned to travel in the United States
13% will travel abroad
29% have weekend jaunts planned
28% will be traveling for 10 or more days

People who aren’t ready to travel are spending, too. Morning Consult asked Americans what they were excited about doing as the economy reopens and found that 46% were ‘very excited’ to return to a ‘normal’ routine. The list of activities includes eating at a restaurant, socializing, attending parties or weddings, going to the movies, visiting amusement parks or museums, and attending concerts and sporting events.

While having extra money inspires many people to splurge, it’s important to keep a level head. Spending has risen sharply during 2021. According to the Bureau of Economic Analysis, spending increased:

20.6% in January
14.7% in February
27.7% in March
14.9% in April

While the idea of ‘revenge spending’ may be appealing, very few household budgets can withstand sustained increases in spending without significant increases in income. So, as you break free from pandemic restrictions, it may help to keep some basic principles in mind:

Decide which savings habits you’d like to keep. During the pandemic, Americans saved a lot of money. The average household saved about $245 by not going out to eat, $1,400 by not vacationing, and almost $5,700 by not making major purchases, according to the Covid-19 & Finances Survey. Consider whether and how much to continue saving.
Be aware of how much you are spending. When people have extra money saved, it’s just fine to splurge on something fun, especially after a long stretch of missing out on traditional everyday activities. Decide the amount to spend and then track how much has been spent.
Eliminate things that are not needed. During the last year, many people prioritized spending differently. Optional expenses, like dry cleaning, house cleaning, commuting, and happy hours, were eliminated. In some cases, the result was an increase in savings. Review your financial priorities to see if they have changed.

Many people experienced financial insecurity during the pandemic lockdown. As a result, emergency savings accounts and other types of saving have become more important. If your financial priorities have shifted, be sure to talk to a CERTIFIED FINANCIAL PLANNER™. Spending less and saving more may help you build wealth and improve financial security.

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The Millennial Perspective: The Struggle is Real

Posted on August 5, 2021 by Ashley Stieb

You know the feeling when you can never seem to get ahead in life? You feel like you are always a few steps behind and when you feel yourself catching up, it seems like something slowly pushes you back again? Sometimes that’s what it feels like to be a millennial in today’s economy. We are pushed to attend college to get a good job later in life, but is that the reality we find waiting for us once we’ve walked across that stage?

The number of millennials who have graduated from college with a bachelor’s degree and continue struggle financially is larger than you may think. According to a survey conducted by the Economic Innovation Group (EIG), only 35% of millennials feel that they make just enough to cover their expenses and 63% state they would have a difficult time paying an unexpected expense of $500. While only 6% of millennials feel that they make enough money to cover their expenses and have disposable income remaining. This indicates that a good chunk of millennials aren’t saving any money because they possibly cannot afford to for a number of reasons.

This struggle to get ahead of your finances leaves some millennials feeling as though college may not be worth it. Why spend tens of thousands of dollars receiving an education, only to be left with a job that not even be related to your degree and outrageous monthly student loan payments? In the past, having a bachelor’s degree, even if you weren’t working in your preferred field, meant you would make more money. This standard has begun to shift, in many cases, and a master’s degree is the new norm. So, another 2-3 years of school preventing you from working, another tens of thousands of dollars for another degree and you still have no guarantee that you will work in the field you have studied or that you will make a decent wage. Seems pretty unmotivating, don’t you think?

So, does this mean that not going to college and immediately jumping into the workforce is better? This, of course, depends on the type of work you are pursuing. There are a number of jobs that do not require a degree that pay well and allow you to live comfortably. However, at the same time, there are plenty that do not. This means that even if you don’t go to college, you still run the risk of struggling financially even without a student loan payment depending on the types of jobs available in your area.

Of course, nothing in life is guaranteed, and we know this. Though, sometimes, it feels like the odds are never in our favor when it comes to finances and getting started in life when compared to the generations before us. I have no doubts that Generation Z, Gen Z for short, will experience similar or worse issues. All we can do is work towards changing this standard and hoping for the best for our children and so on.