Join Robert Fattington, from The College Investor, and Erin Rosenberg for an in-depth conversation about student loans, qualifying for loan forgiveness, and optimizing your repayment and refinancing strategies. Learn about the ins and outs of loan qualification, repayment plans, and forgiveness programs as a student or a parent. Fattington and Rosenberg discuss the benefits of federal loans’ income-driven repayment, Public Service Loan Forgiveness, and more. 

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Here’s the recap of today’s 15-minute episode: 

• The types of student loan paths available, including FAFSA, private loans, and more.
• Qualifying for student loan forgiveness through your job or school.
• What is refinancing and how to get started.
• Efficient strategies for paying back your student loans.

Listen below or read the transcript that follows. 

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Eric Rosenberg:

All right everyone, I am here with the man of the hour, my good friend Robert Farrington. He runs The College Investor. It’s a great site. You should definitely check it out. And he knows student loans inside out. So welcome to the show, Robert. We’re so glad to have you.

Robert Farrington:

Hey, thanks for having me. I’m excited to be here.

Eric Rosenberg:

So to start, a lot of people don’t know much about student loans. They think it’s just something you get automatically when you go to college, which is not the case. So how would somebody start the process of figuring out if they qualify for student loans and what’s the difference between federal and private student loans?

Robert Farrington:

That’s a great question. I always like to bucket it into the paying for college side, and then you have to pay back these loans. So if you have a family and you are applying to college, one of the key things you need to do is fill out the FAFSA, the Free Application for Federal Student Aid. And this is the key that unlocks your federal student loans. So federal student loans are eligible to everybody. There’s no credit needs, there’s no income qualifications. If you fill out the FAFSA, you are eligible to receive federal student loans to help you pay for college.

Now, there are limits to these federal student loans for undergraduates, and that’s usually one of the biggest problems is that the undergraduate amounts are pretty low. They’re like 5,500, $6,500 to pay for college, which I like it when you borrow less. So please try to borrow as little as possible, but this might not be enough to pay for what you need to pay for college. And that’s where private loans can become an option. So private loans are not the best thing to use to pay for college. They’re the last resort. But these are loans that come from private lenders and they act very much like a personal loan except they’re student loans. So these ones do require you to have good credit. And since you’re probably 17 or 18 years old when you’re applying for them, you probably will need a cosigner to help you qualify for these loans. But these loans will let you borrow up to the cost of attendance.

So you don’t get a carte blanche with student loans. Even with federal loans, you don’t get to borrow whatever you want. There are limits. And the most you can borrow with student loans is the total cost of attendance set by the school, which that could include tuition, room and board, books, supplies, technology items, things like that. But that’s the limit of what you can borrow. So start with your federal student loans and that FAFSA also unlocks free money like Pell Grants and different scholarships. So always fill out the FAFSA, that gets you your student loans. And then if you do need anything else, you can look at these private loan options.

Eric Rosenberg:

That’s great information. So let’s say you’re a parent trying to help your student that’s in your family. They’re getting ready to go to college or getting ready to go back to college. You fill out the FAFSA, that is your family’s financial information. What does it look like when you get something back from the school? Or does the government come and knock on your door and say, “Here’s how many loans you get”? How does that work?

Robert Farrington:

No, that’s a great point. I think a lot of people get confused by that. So you fill out the FAFSA and then you select what schools you send this FAFSA to, which honestly is every school you apply to basically. And then when you get accepted, they’re going to send you the acceptance letter and then they’re going to send you a financial aid award letter. Of course, they misnomer this as aid or financial aid, but that list of options will include the student loans that you’re eligible to apply for. So you deal with everything with your federal student loans through your school’s financial aid office, at least on the federal side. When you do private loans, you apply directly with the lender and then you tell them what school that you’re going to go to and they will send the money to your school’s financial aid office. But that financial aid office of your school is the hub for everything. And you’ll see what loans you’re eligible for on that financial aid award letter.

Eric Rosenberg:

That’s good info. So if you are getting federal student loans or any kind of federal aid, you definitely want to know where the student aid office is on campus or the email, phone number, the website, all the ways to get ahold of them because if you have questions, they’re going to be a very helpful resource, probably your first go-to resource.

Robert Farrington:

Absolutely. And most things are going to be done online these days too, so make sure you have that login and you do it all and you can accept your student loans. You can do all the paperwork online. But again, like you said, if you do have questions, you pick up the phone and give them a call.

Eric Rosenberg:

Yeah. So I know there’s been a lot of talk in the news lately about student loan forgiveness. It’s been you’re going to get student loans forgiven, you’re not going to get student loans forgiven, but there’s these old programs that are still out there. What does student loan forgiveness look like when you get to the other side of college and you have to really start paying for these loans?

Robert Farrington:

Absolutely. So about 50% of all student loan borrowers today qualify for some type of student loan forgiveness program. But these programs aren’t like, hey, guess what, you do nothing. You get your loans forgiven. They all require something. And so in general, every income-driven repayment plan, such as income-based repayment, Pay As You Earn, and the new SAVE repayment plan, all include loan forgiveness after either 20 or 25 years of making payments. So what does this look like in practice? It means if you had a very low payment, maybe you paid a hundred dollars a month and you did this for 20 years, if there’s any balance left on your loans, the remaining balance is just completely wiped clean.

There’s also other programs that are actually program driven. So my favorite and one of the best programs out there is Public Service Loan Forgiveness. And so this is a program where if you work in public service for 10 years, you get your balance of your student loans forgiven. And so you can see it really shrinks that time in half. And it’s a great program because the definition of public service is huge. You can work for your state, local or federal government. You could work for a school district like a water district, you could work for public safety, police, fire, you could work in the military.

And then also, all these nonprofits qualify too. So if you’re fully employed at a nonprofit, which includes a lot of hospitals and health clinics and things like that, it doesn’t matter what you do. I think that’s what really gets people hung up. They’re like, “I’m not a teacher, I don’t qualify.” Well, it’s like, are you a librarian? Are you an aide? Are you working in the kitchen? Are you in the office? Are you an executive that might work for these companies? Are you in accounting? It doesn’t actually matter what your job is, what matters is who employs you. And that can lead to getting your student loans forgiven.

But again, like I said, it’s not like you do nothing and you get your loans forgiven. You got to put in the time, the work, the effort, fill out the application, and if you do something, you’ll get rewarded for that through student loan forgiveness.

Eric Rosenberg:

Is this something you can just do your 10 years and wait until the end and fill out a form? Or is there something you should do ahead of time to plan ahead for that 10 years if this is something you think you’re going to do?

Robert Farrington:

Yeah, so Public Service Loan Forgiveness, you can wait 10 years, fill out the form and do it, but that’s hard and I don’t recommend it. The common practice is that you fill out the Public Service Loan Forgiveness form every year and certify your employment. And the reason is that you need to get your boss or your HR department to sign off that says, “Hey, yes, so-and-so did work here in qualifying employment for the year.” And let’s face it, the world changes, jobs change. You might work at a school or an employer for a year or two, and then if you leave, if you forget to get that form filled out, you got to go back and hope that they remember you or look through the records to get you to sign that. So it becomes very challenging. So if you’re going for Public Service Loan Forgiveness, you fill out the paperwork every single year.

The cool thing is, is that when you do this, you can also see your tally of qualifying payments in your student loan portal. So you’ll know you’re not messing anything up. So once you certify your employment, you can log into your loan servicer’s website and you’ll see it says like, I have 12 payments, I have 24 payments. And so you can get your track because there’s also requirements like making those payments and being on a qualifying repayment plan. So you want to make sure things don’t get messed up. And by certifying your employment every single year, you can make sure you’re on track instead of getting blindsided 10 years down the road.

Eric Rosenberg:

That’s great to know. And if you don’t want to have an unpleasant surprise, which has happened to a lot of people where they think their loans will be forgiven and something didn’t count, so make sure you stay on top of that. That’s great advice.

Robert Farrington:

And you nailed it. And so when you hear these media headlines out there and you see 99% of people are not getting their loans for forgiven them when they should, 98% of that 99% didn’t do their paperwork, didn’t have the right loans, didn’t meet the criteria, and they were just praying that they got their loans forgiven. So don’t be a statistic, do your work, get your loans forgiven, because now as you see, we fast forwarded a few years from those headlines a few years ago, and lots of people are getting their loan forgiveness. Every single week you see a new headline. So get your loans forgiven. It’s possible. You can do it.

Eric Rosenberg:

Yeah, that’s great. So you kept mentioning federal student loans with forgiveness. How do federal student loans and private student loans differ with forgiveness?

Robert Farrington:

Yeah, so every single student loan forgiveness program that you hear applies to federal student loans. Federal student loans, why they’re recommended over private student loans is they have a ton of great options. So they have loan forgiveness possibilities, they have income-driven repayment plans, which means that you could have a very low or even a $0 a month student loan payment, and they offer a ton of hardship options, deferment, forbearance, or the COVID pause. So the $0 payments and no interest throughout COVID only applied to federal student loans. So that’s one of the perks of federal student loans.

Private student loans on the flip side, they don’t really have a lot of options. They operate much more like a personal loan or a car loan. Your lender might work with you a little bit in terms of offering you a deferment or modifying your payment for a short period of time, but it’s all based on how they feel about you and what they think, and there’s no real set laws and they could really make life difficult for you if you don’t pay those bills. So there’s a lot of options for federal loans. There’s very limited options for private loans.

Eric Rosenberg:

That’s great to know. So another place where I see the lines get blurred between federal and private student loans is refinancing. What does it mean to refinance student loans and does it mean the same thing if you refinanced federal loans as private loans?

Robert Farrington:

Yeah, so refinancing is a hot topic, especially because you see a lot of ads for them, and there’s stadiums built after refinancing companies. So refinancing is the process of getting a private loan to replace your existing student loans. And you could be replacing existing private loans or you could be replacing existing federal loans. If you have federal student loans, most if not all borrowers should probably stick away from refinancing. There’s really not a solid purpose to refinance federal student loans. So 99% of people with federal loans probably will not benefit from refinancing because all you’re doing is getting rid of all these wonderful benefits and you might potentially save a little bit on interest. And I say might because interest rates vary. So you don’t even know if you’ll save. Federal student loans over the last few years, those interest rates are so low, like 2%, 3%. I don’t know if you’ll even save refinancing that type of loan.

If you have a private loan though, refinancing can make sense. You should always be shopping for those rates. So maybe you got these private loans and you had a co-signer when you were young and now you get out of school for a couple years, you have a great paying job and great credit, you might qualify for a much better rate. So if you have private loans, highly recommend you’re always shopping those rates at least once a year to see if you can save some money. But if you have federal loans, it’s a pretty rare case where refinancing makes sense.

Eric Rosenberg:

That’s another great tip. Another good thing to know. So I know when I had student loans, there was a portion that was called… Sorry, we’re going to have to edit this. I just had a brain fart. So I know when I had student loans, a portion was called subsidized and another portion was called unsubsidized. What is the difference between those when someone’s looking at their student loan award options?

Robert Farrington:

Yeah, definitely. So subsidized student loans are available to those who meet certain income requirements. So they’re like financial aid. They actually do have some perks. The perks of subsidized loans are that you don’t have to pay your interest while you’re in school or in deferment. The government covers that interest for you. And then there’s other perks too, like if you’re in deferment afterwards or things like that, they’ll cover that interest for you. Unsubsidized loans, they’re just a regular loan. There’s no fancy perks to it. There’s still a federal loan, so you get the benefit of loan forgiveness and income during repayment, but the government’s not going to cover that interest for you. When you take your financial aid award, you’ll see them listed there in a list. So if you’re offered subsidized loans, always take the subsidized loans first, then take the unsubsidized loans. But I’ll tell you, every single borrower qualifies for the unsubsidized loans. If you meet the financial need requirements, you might be offered subsidized loans as well.

Eric Rosenberg:

That’s great to know. So let’s say someone is still in school and they’re working part-time or even full-time while they’re going to school. Is it a good idea to start paying your loans while you’re in school if you’re able, or should you wait until you graduate to make the first payment?

Robert Farrington:

If you have federal student loans, I never suggest a borrower pay more on their federal student loans. And call me crazy here, but I would rather you take that extra money and start building wealth. Whether that’s putting any money in an IRA, 401(k), saving it, doing that type of thing, because there are so many options with your federal student loans that include loan forgiveness, that throwing extra money towards them might actually be a waste of money, believe it or not. I would rather you keep your student loan payment as low as legally possible, and then maximize your loan forgiveness and have a nice little IRA built up where you have some money saving for the future.

On the flip side, if you have private student loans, because you don’t have these options, it could be a good idea to pay off those student loans much faster and pay that interest while you’re in college and really try to eliminate that debt as fast as you can. So it’s really important to look at your debt individually and then decide how you want to handle it, because the perks of federal student loans a lot of times don’t make sense to pay extra on.

Eric Rosenberg:

That’s really good to know. So we’ve had a lot of information packed in here. You’re clearly a wealth of knowledge when it comes to student loans. If somebody wants to learn more from you or they want to connect and find out what you’re doing online, where should they go?

Robert Farrington:

Absolutely. So you can learn more about us and figure out everything you need with your student loan debt at thecollegeinvestor.com. You can listen to our podcast, The College Investor Audio Show, or you can find us on your favorite video platform @TheCollegeInvestor. So however you like to find your content, we’re here for you.

Eric Rosenberg:

Awesome. Well, thank you so much for sharing your time and your knowledge with us, and hopefully we’ll talk to you again soon.

Robert Farrington:

Awesome.

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