At the beginning of the COVID-19 pandemic, the CARES Act paused interest on federal student loans. Legislators have been discussing additional student loan relief as they work on the next piece of stimulus legislation. Travis Hornsby, founder of Student Loan Planner, says it’s important for borrowers to keep an eye on these changes so they can plan for their futures.

“Student loans are super complicated. That’s good and bad. Because they’re complicated, there’s more loopholes, and you have more upside potential. If you hire somebody who knows what they’re talking about, you can save some money.” 

Travis’s firm, Student Loan Planner, has consulted on more than $1 billion in student loan debt and plans to consult on much more, especially as borrowers face potential policy changes after the November election.

Listen here:

ABOUT THE GUEST:

Travis Hornsby is the founder of Student Loan Planner. He started his firm after helping his physician wife navigate complex student loan repayment decisions, and to date, the firm has consulted on more than $1 billion in student loan debt. Travis is a Chartered Financial Analyst and brings his background as a former bond trader to the world of financial planning.

Social, website, book link:

www.studentloanplanner.com
Twitter: @StudentLoanTrav

EPISODE HIGHLIGHTS:

• The CARES Act stopped all student loan interest on all direct federal loans and on FFEL loans owned by the U.S. Department of Education, which affected around 35 million people in the U.S. If you are able to continue to pay your student loans, it may actually be better to save your student loan payments rather than to pay down your debt right now.
• Student loan forbearance is not supposed to affect your credit during the pandemic. But some loan servicers have reported borrowers for nonpayment to credit bureaus.
• Travis is curious about how the pandemic will transform student loans, particularly physician student loans. Joe Biden has proposed reducing student loan payments from 10% of your income to 5% of your income. In that environment, Travis says, the incentive for borrowers to avoid debt will almost vanish. WIth another Donald Trump term, Travis predicts some reform around how much borrowers can borrow, and potentially the elimination of PSLF for future borrowers.
• Currently, if you make 120 qualifying payments on your student loans and you work for a non-profit, your student loans are forgiven tax-free. If you’re on an income-based repayment plan and make payments for either 20 or 25 years (depending on the plan), the remaining amount can be forgiven, but it is taxable. Anjali calls this the “tax bomb.” Travis thinks the tax bomb will be eliminated because “Congress doesn’t have the stomach to actually charge it” when they begin to hit in the mid-2020s.
• Currently, Travis is talking to clients about the “double debt loophole,” which applies to two-physician households in which both partners are pursuing PSLF and both file their taxes as married filing separately. The person with more debt relative to their income can make Pay As You Earn (PAYE) payments based on their income alone, and the person with a higher income can make proportional payments on a REPAYE plan. In total, the household could save thousands of dollars per year.
• For couples with widely divergent incomes, Travis highlights the “breadwinner loophole.” If you and your spouse file taxes separately, the larger income can be split in two, resulting in tax and student loan payment savings.
• Student Loan Planner has started offering pre-debt consultations so students and their families can better understand how to take advantage of student loan rules.
• Travis used to tell people to refinance federal loans only if they were in the private sector. But now, he’s beginning to tell people to refinance once their debt is below what they earn.
• Travis is beginning to tell clients to wait until after the November election to refinance their federal loans, since interest is paused until September and the election follows closely after, so they can respond to changing political winds.
• Pausing student loan payments is costing the federal government $50 billion, Travis estimates.
• In Travis’s experience, people tend to overestimate how much they are likely to earn in the future. As hospitals make staffing cuts and reduce pay for some physicians, Travis encourages physician families to plan conservatively.

WORDS OF WISDOM

“Politically, it’s going to be really impossible to take away [public service loan forgiveness] for a long time after everything that physicians and nurses and healthcare professionals have done during this pandemic.”
“Student loans are super complicated. That’s good and bad. Because they’re complicated, there’s more loopholes, and you have more upside potential. If you hire somebody who knows what they’re talking about, you can save some money.”
“Student loans aren’t going anywhere. Unfortunately. They’re going to be there for you when this is all over.”
“Private student loans can always be refinanced and should always be refinanced if you can find a lower rate. But for federal student loans — we forget that federal student loans are not subject to any other constraint other than the federal political process.”
“A lot more physicians should be pursuing forgiveness than are. I see a lot of primary care doctors, a lot of lower-earning specialists that have $300,000 in debt from med school, that think they should refinance and pay it off. And that’s not the right strategy for a whole lot of people.”

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If you loved this episode, here’s another I know you’ll enjoy too: Episode 14: What You Should Know About Student Loan Planning with Travis Hornsby