Student Loan Hacks if your over 50

Welcome to another episode of the Student Loan Planner Podcast. This is Travis Hornsby. I am so excited for this episode today. If you are over 50 years old, or if you know someone who is, who has a lot of student loan debt, and let's go with more than $50,000 being a lot of student loan debt, then this episode could be absolutely life-changing. I am not underestimating that at all. I'm not understating that at all. This could really change someone's life with these strategies that we're going to go over if you're over 50 years old and you have a lot of student loan debt. Who has a lot of student loan debt at 50 and up? A lot more people than you'd think. According to the federal government, actually there's this really good source that you could check out. It's basically the Federal Student Loan Portfolio. You can Google it and you can get all the data that I'm going to talk about here in today's episode. It has a list of borrowers by amount and by age. For the latest results as of the end of September, that's the latest data that they've published. I'm recording this as we're going through the government shutdown. I think that we might be waiting a little while to get updated data from them. In the end of September, the total amount of debt that 50 to 61-year-olds owed in America for student loan debt was $219.4 billion. That's representative of 5.8 million actual people. That is quite a lot of debt and 62-year-olds have a lot as well. 62 and up, that age demographic owes 65.2 billion of student loan debt. Again, a ton of debt, that's only for 1.9 million people. Now you might look at those numbers and calculate averages and think, well, that's not the worst thing in the world. Maybe that's like a $30,000, $40,000 average balance for your 50 and up folks that qualify for AARP with their student loan debt. But that's a big, big problem. Because the dollar amount, if you look at the annual growth rate of people that are 50 to 61, the amount that they owed in total in student loan debt grew 10% last year. People that are over 62 years old, so basically people that are on the verge of qualifying for Social Security are already taking it, that amount of debt that they owed grew 18% in the past year. That is a monster rate of growth. Talk about adding 18% more debt. So in other words, it went from about $55 billion to $65 billion for people that are over 62 and about $200 billion to $220 billion for people who are below 62 but over 50. Now, the biggest amount of dollars that people owe is actually 35 to 49. That age demographic owes 540 billion. So that's your biggest student loan debt amount. The folks in their mid-20s to mid-30s owe the second largest amount of debt. But one thing that I found in looking at the demographic split between who owes what in student loan debt is the total national student loan debt is really not growing all that fast. It's only growing at about 3% or 4% right now. And that's because the economy is doing well. Everybody's happy. Everyone's spending money. And there are really no big issues with consumer spending or consumer confidence. And so people are taking out loans, but they're actually doing a pretty decent job at paying it back, especially people who owe less than $80,000. We're actually seeing really positive payment trends for debt amounts, which are actually decreasing instead of increasing for the first time in a while. But if you look at the amount owed by seniors, the amount that that population group owes is absolutely exploding. So the total amount that people over 50 years old owe is $285 billion as of the end of September, 2018, the latest date for which we have data. That represents about 40% of total student loan debt in America. So 20% of every dollar owed is by people over 50 years old. A lot of changes have happened obviously in the past few years with student loan debt. So prior to 2010, there was this program called the FFEL loan program. That was a bank issued government guaranteed loan program. And there was better caps in place. The interest rates were different. A lot of people would just put their loans on a 30-year kind of repayment plan and just forget about it. So to be fair, a lot of this debt is probably from people that owed debt a long time ago and they just chose that option. Basically, they put the debt on a 20, 30-year type repayment plan. The interest rate's not that bad, so they don't really pay attention to it or worry about it all that much. And people basically are just planning to pay on it until it's gone and probably extinguish it before retirement. So that is a group of folks. But where we see the exploding amounts of student loans that are happening, it's really from folks that are borrowing under the direct loan program. So the direct loan program started in earnest after 2010. In 2010, the federal government became the primary lender for student loans and eliminated the banks in their role. And the banks still issue some private debt for people who are actually going to school for the first time, but it's very, very small now. That means that the direct loan portfolio is what everybody is actually going to owe. So if you look at that portfolio alone, of that total amount, so I mentioned earlier that there was about $219 billion in total federal debt for people 50 to 61, about $65 billion for people over 62. Of that $219 billion, $160 billion of that is direct loans from people that are 50 to 61, and $39 billion of that is from people who are over 62. So that's really interesting because if you look at the growth rates of the direct loan portfolio, so in other words, we can't really change the past. So think about all those people paying on those 3% loans that are on 30-year repayment terms. People are generally paying those down. They're not something that can implode the economy or destroy people's lives as easily. It certainly can, but it's going to be a little bit easier to handle. So that amount of debt that people have is staying flat or it's actually going down. The direct loan stuff is what people are borrowing now in terms of the new debt that's coming out there. So that's the stuff that I like to look at for where the future trend's headed. So if you look at just the direct loans that people owe after 2010, people that borrowed after 2010 in this older age demographic, the growth, annual growth, one-year growth rate of the direct loan amount owed from 50 to 61-year-olds has been 14%. That's a one-year growth rate. That one-year growth rate is in a year where student loans overall grew about 3% or 4%. So in other words, your rate of growth for student loans among seniors is massive. For people who are over 62, the rate of growth was actually 26%. Think about that. That's doubling every three years. So in other words, the expected amount of student loan debt owed by people over 62, the amount of direct student loan debt is doubling for people over 62 every three years. So that means right now they owe about $40 billion. It's 2019. So in about 2022, we could expect people over 62 years old to owe $80 billion in student loan debt if that trend continues. So that stat right there was why I wanted to do this podcast episode for you, to talk about the fact that this is happening and address it more head-on in terms of what strategies you could use to deal with this. A lot of people have talked about it. AARP has talked a little bit about it. They've just thrown out just generic calls to action for elected representatives, address the student loan crisis, make more loans accessible for income-based repayment options, and maybe some of those things could help. But no one has really thought about this in a really deep way, and I'm really excited to continue sharing some of these things with you. So let's talk about stats for the amount of debt individually that someone owes that's over 50 years old. If you're over 50, there are 670,000 people who owe more than $100,000. Out of that group, there's about 2.7 million people overall that owe more than 100,000. That is quite a lot, 670,000 people out there that qualify for AARP that owe more than six figures in student loan debt. They basically have a mortgage on their brain or their children's brain. Now, if you're listening and you're over 50 years old, please take my AARP comment as a tongue-in-cheek joke. Certainly, being old is more of a state of mind, I think, than actually your age. So certainly, we have folks planning to work a really long time or doing second, third careers. Take my comments tongue-in-cheek, basically. In addition to these numbers, the 670,000 people who owe this amount of money, out of that 670K, there's 40,000 people who are over 62 who owe more than $200,000 of student loan debt. In other words, there's 40,000 people the size of a small city that each owe more than $200,000 in student loan debt to the federal government when they're basically at the age where a lot of people are approaching retirement. That group of 40,000 people is probably thinking, how the heck do I retire when I owe a mortgage in student loan debt? Because the folks that are 50 to 90 years old that are around today, when you attended undergraduate, if you attended undergrad at a typical time in your 20s, then school is super cheap. My dad went to Florida State back in the, I think, the 70s or something, 60s or 70s. He tells me stories how it was so cheap to go to classes that you could essentially work as a waiter somewhere and pretty well pay for your tuition with maybe a quarter of the year's earnings. It was incredibly affordable, very, very easy to do, just not at all the problem that it is today. Now, tuition inflation, as we know, has gone up a ton. What's happening, what I see anecdotally, people who have all this student loan debt, most of the folks that have this big of a student loan balance did not take it out 20, 30, 40 years ago because of how cheap tuition prices were. Actually, what they do is they take the debt out for either a career change, so they might go back to dental school or medical school or law school and take on $200,000 of student loan debt at 50 or 55 or something like that. Or what they'll do is they'll take out parent plus loans for their child's education. Maybe that describes you. Maybe you know someone like that that took out a bunch of student loans recently that's in an older age than you would have a traditional student in their 20s or 30s be in a degree program. That is the way that most of these giant student loan debts happen. It's not from people who have their debt and they've been paying on it for 20, 30 years for the most part. There's obviously exceptions, but that's just a general rule. Where's the student debt the worst for seniors? If you had to guess, you might think maybe California, maybe Illinois, maybe New York. You might just come up with some very high cost of living areas and think that that must be where the people have the biggest student loan debt. It's actually really heavily concentrated in the Northeast. I did an analysis of the data and I asked, what was the greatest average student loan debt for seniors that are over 62? What states do live in? Vermont is the number one state in the country for per capita student loan debt for seniors. The average debt for people who have it is 53,500. Other states that were pretty high up there were Connecticut, Maryland, New Hampshire, New Jersey, Massachusetts. Actually, a lot of the states that had lower debt were some of the states that I expected to have really high debt for seniors. Actually, California was pretty low down the list. There were some other states that I thought because of high cost of living would be really high up on the list of where seniors live who have tons of student loan debt. The reason I think this is the case is I think that a lot of the institutions that are very historic, that are private institutions, are located in the Northeast. I think a lot of the folks that live in these areas probably go to these programs or have children that go to these programs. Just as an example, I used to live in Philadelphia and I would take the SEPTA train to work every day. Pretty much all the time, I'd see all kinds of ads for local regional universities trying to get you to sign up for degree programs. I think maybe if you live in some of these areas, maybe you kind of are susceptible to a lot of this marketing that a lot of the schools do because of how profitable it is to get a person to sign up for their degree program. That's just my guess as to why so many people in the Northeast seemingly have this problem that are older. They also have lots of student loan debt. It does not seem to be a big problem in places like West Virginia, Mississippi, out of the way places that are lower income, but maybe also lower education levels. At least you have that benefit. It does seem like there's certain places in the country where people are really disproportionately suffering from this. But really, there's people everywhere that have this problem. It's not just relegated to one state or one region. It's just because the average debt of somebody in Texas that has student loan debt that's in their 60s might be like 30,000. First of all, 30,000 is still a lot of money, but there's still people there in Texas who have 100,000 or 200,000 of student loan debt with the federal government that are in their 50s or 60s or 70s. Now, we've talked a lot about just federal debt at a high level, but there's actually different kinds of federal debt that are very relevant for this conversation. There are direct Stafford and direct Grad Plus loans, which are taken out in your name to fund your education. There are the FFEL loans that I talked about that people are paying on from before 2010. Most people tend to consolidate those FFEL loans from before 2010 and put them on a more generous income-driven repayment option like the repay or the pay programs. But that's debt that you have in your own name. Now, there's this other kind of debt that is only accessible to parents that a lot of people do not really think about in terms of student loan debt that you have to pay back, and that's Parent PLUS loans. Parent PLUS loans are totally different from everything you thought you knew about federal student loan debt. So if you're a regular listener to this podcast or you read studentloanplanner.com and you really feel like you know a lot about student loans because you're awesome and you've followed us for a while, know that Parent PLUS loans really fly in the face of conventional wisdom. We even had a consult that someone booked recently. She had a low six-figure amount, and she canceled the consult. In the cancellation comments, I looked at it, and it said, I have Parent PLUS loans. I don't have student loans, so I don't think this is relevant for me. I thought that was really kind of funny because that just shows you that people don't even think of Parent PLUS loans as student loans in a lot of cases, but they very much are federal loans. They're actually direct loans that you can convert into direct consolidation loans, but there's a lot of special rules to it. I think part of the problem with seniors and why the debt's exploding for 50, 60, 70, 80-year-old borrowers is because the information surrounding student loan debt, it's bad for everybody. You can attest to that. If you're in your 50s, 60s, 70s, then that is even more confusing because you have things like social security and different issues with Parent PLUS loans and how they're different from other kinds of loans that really throw you for a loop. For Parent PLUS loans, you can borrow up to the cost of attendance for your child going to a undergraduate institution. Once they're going to grad school, you can't borrow for them. You can't take out a Parent PLUS loan. This is exclusively for children that are attending some sort of undergraduate institution. A lot of times, the schools will basically say, okay, well, this is the cost, and we'll give you a little bit of grants and scholarships, and then we'll max out your kids' Stafford loans, but there's still a $10,000 a year gap. How do you want to pay for it? Rather than take out a home equity loan, where actually, this is relevant to talk about, there was changes with the new tax law that basically eliminate the interest deduction for home equity loans that are not used for real estate purposes. It used to be that people would use their home as their piggy bank, and they would just take out money. They needed $10,000, $20,000 here or there. Maybe they just tapped their home. Maybe if you don't have the home equity to tap, or you're afraid to tap the home equity, then you turn to other sources of funding. I've certainly seen people that have realized that the Parent PLUS loans are more expensive with a higher interest rate, and they'll turn to a private lender. For example, I saw a friend of mine, actually, she's a physician assistant. Her parents didn't want her to come out with a bunch of student loan debt. They took out a bunch of private student loans for grad school, because actually, private loans, in this case, they were the only option for her, because the parents couldn't take out the Parent PLUS loans, because she was going for grad school. The Parent PLUS loans for undergrad are very much an option. Because of the issues with private lenders, and because of the fact that you have to make the payment no matter what, and there's no flexibility, a lot of times, financial aid offices will actually actively suggest to parents that they use Parent PLUS loans to cover the cost of their kid's school. A lot of people will sign up for Parent PLUS loans that have this mentality that they should pay for their kid's college. They think that that's their responsibility. They want their kid to go anywhere they want to go. I would say for most people, they actually don't believe that. I think most parents I talk to, they're very much believing that they have to take care of their own finances. If their kid wants to go to a more expensive school, then they have to figure it out, or they're going to have to make a different choice. I would say that's probably the typical attitude I hear from parents when I'm talking to different folks. But there are a big group of people out there that think that they ought to do this for their child no matter what. They want to cover at least their undergrad. If they're not in a position to do so financially because they didn't put money away in a 529 account, then they'll take out these Parent PLUS loans. Let's talk a little bit more about them. I just want to say I'm not an expert on Parent PLUS loans financial aid on the front end in terms of your available options and everything, but I do know quite a bit about it to be dangerous. Basically, Parent PLUS loans, you can borrow up to the cost of attendance, which means there's no caps. With Stafford loans, there's a cap for undergrads that they cannot borrow more than a certain amount in the low five figures. Any additional cost, you've heard of undergrad institutions that cost $200,000 to attend. Any additional cost that the child needs to come up with, the undergraduate student, 18 to 22 years old, the parent is going to take out in those Parent PLUS loans. A typical amount for a Parent PLUS loan would be $30,000. Like I said, $10,000 a year gap in funding. The parent might use the Parent PLUS loans to meet that, so then they might end up with $30,000, $40,000, $50,000 of student loans. Then when the child graduates and gets a good job, they'll say, here you go, Junior, take this over and refinance those loans into your name. Actually, if you go to studentloanplanner.com forward slash refi, you should use those two cashback bonuses on the page for Laurel Road and for Common Bond because they'll actually let you do that. You can take Parent PLUS loans and refinance them into the child's name. Then you'll also get a cashback bonus for doing that along with a lower interest rate. That's a pretty effective way to deal with Parent PLUS loans if you have maybe $25,000 to $50,000 of them or maybe even less than that. But what if you owe a lot? About Parent PLUS loans more generally, there's $90 billion of Parent PLUS loans as of the end of September 2018. That's 3.6 million borrowers. The average Parent PLUS debt is about $25,000 and that's not too high. Like I said, a lot of people would benefit from just taking the debt out for the child because they don't have any other source of funds and then they'll have the kid take it over with the private refinancing. Parent PLUS loans have origination fees, which means that you have to pay an upfront finance charge of about four and a quarter percent. That's really, really high. That gets financed into your principal balance, which is kind of crazy to think about, but you have to pay that. Then you also have to interest rate is 7.6%. It's a margin above whatever the treasury bonds are yielding. That's really high, 7.6% plus that upfront one-time origination fee. Parent PLUS loans are very expensive, but they're easier to get than private loans and you can get as much as you want of them without any cap, which is why so many people turn to them. If you owe $25,000 in Parent PLUS loans, that is very unpleasant to deal with, but it's basically like a car loan. You basically just bought a car for your child and most people are capable of paying that back. Even though it's not going to be comfy, it's not going to be pleasant, you can do that. Let me give you this hypothetical example that I saw maybe a few months ago. A family of two parents and triplets decides that they want to send their triplets to a high cost Catholic private school for undergrad in Northeast. How do you fund that? Because they didn't put any money away into 529 accounts. Well, the person took out Parent PLUS loans. This person took out about $200,000 of Parent PLUS loans for their three children to go to this Catholic institution. I'm not going to make a judgment at all about this. That's not for me to do. My role is to figure out, okay, you have the debt, how do you best pay it back and how do you save as much money as possible? Another route I've seen people come out with 200,000 of Parent PLUS loans. I've seen a lot of private pharmacy schools that will have accelerated undergraduate type programs and they'll have outrageous costs for them. They'll target first-generation immigrant families where they have children in the United States, but parents are from other countries. Think India, Pakistan, Nigeria, Mexico, Europe, people that are coming here that have children in America that want better futures for their children. They're not super rich, but they do qualify for Parent PLUS loans as permanent residents or citizens. They'll take out maybe 200,000 of Parent PLUS loans and then the child will go to pharmacy school and take out an additional 200,000 of student loans in the child's name. That's how a person in their 60s could end up with 200,000 of Parent PLUS loans, either one of these preparatory programs that technically qualify as undergraduate institutions, or you take out a bunch of loans for maybe two or three children even. How in the heck do you retire if you have a massive amount of student loan debt and you're over 50 years old? There's two situations that you could be in. You could have the Parent PLUS loans, which are a little bit more difficult to deal with, or you could have loans in your own name. If you have loans in your own name and you're just starting out making payments, then you're going to use one of those income-driven payment options. You might pay it over 20 to 25 years, or you'd refinance, or you'd do public service loan forgiveness. Those are your three options. If you're dealing with Parent PLUS loans, you actually still have those three options. You actually have an additional option of having your child take over that loan and refinance it in his or her own name, but it's a little bit different. Here's the general idea for how do you retire when you have more than, let's say, 50,000 of student loan debt overall. The first step is you have to manage your Adjusted Gross Income, your AGI. If you're married, 25,000 per year is the amount that you're able to contribute each in a 401k if you're over 50 years old. The amount that I get to contribute is 19,000 max to a 401k as an employee because I'm under 50 years old. But if you're over 50 years old, you get to do a catch-up contribution, which I believe is $6,000 in 2019. You'd take 19,000 plus six. That's how I come up with the 25,000 figure. Your 25,000 amount that you can put into your 401k, you're able to contribute that for yourself, but you're also able to contribute that for your spouse if you can afford to. If you're struggling with your budget, the first step is obviously to get your spending under control. But if you can get up to this point where you're able to contribute the max to your 401k, you could contribute $50,000 pre-tax to your 401k. You obviously don't have to pay state or federal income tax on that for contributions, so you could easily save maybe 30% in taxes on that. In this hypothetical example, you're saving about 15,000 that you'd have to pay in taxes otherwise. The actual take-home pay cost is 50 minus 15, which is about 35,000. Then on top of that, that 50,000 comes off of your required student loan payment. If you are making payments on a 10% of your income type of plan, 10% of 50,000 is 5,000, so you'd save an additional 5,000 on your student loan payments. The take-home pay cost was 35,000 because of taxes. Now you take away the 5,000 and you're at about 30,000 of take-home pay that this 50k cost you. We're talking about a $2,300, $2,400 a month kind of impact to your take-home pay could put $50,000 a year away into you and your spouse's retirement accounts. That is tremendous. On top of that, you'd put away as much as 7,000 in a health savings account if you have access to one of those. That's an additional amount that you can contribute to shield money from taxes, but also to shield money from the government collecting your student loan payments legally. Of course, you could also contribute to Roth IRAs after that if you have access to a 401k account because the Roth IRAs wouldn't help you with the student loans, but you can take money that's already been taxed and have it not taxed in the future. The idea behind all of that is if you have a lot of student loan debt, it depends on your situation, a lot of the people should be visiting studentloanplanner.com forward slash refi, R-E-F-I. A lot of the people should be doing that if you have a very modest amount of debt, but if you have a non-negligible amount of student loan debt, then this could be life-changing. This could totally change your retirement timeline. Instead of retiring in five years or 10 years, you could potentially retire even sooner than that depending on what your finances look like. Instead of retiring in 20 years, if you thought you would never be able to retire, maybe you're able to retire in five to 10 years with this kind of a strategy. It could really be life-changing. The way you would do this is basically you would be spending your brokerage account assets, your savings, and your retirement accounts before 70 years old. That's how you would have to do this. You'd rely on that money before 70 years old, and then you would delay Social Security, and you would claim Social Security at 70 or as late as possible because that Social Security income is guaranteed, and every year you delay it, you get a higher benefit. People who delay their Social Security till 70 can get a 40% higher benefit in a lot of cases than somebody who claims their Social Security at the typical standard retirement age. I'm not an expert in Social Security. Again, I know enough to be dangerous, but that's how it generally works is every year you wait to claim your Social Security, you get a higher benefit. Hence, if you're waiting until 70 to claim your benefit, that could be an enormous boost to your retirement income. That could also help you with your student loans in a big way. The issue with this is when you put so much money away in pre-tax accounts, a middle-class income couple making $50,000 to $200,000 could really make their income look a lot more negligible to the government that's collecting a percentage of it with your direct loans that are on an income-driven payment plan. This is easier to do if you are on the pay-as-you-earn or revise pay-as-you-earn or IBR programs because the loans are in your name. You pay 10% to 15% of your discretionary income. Discretionary income is your AGI, what's on your taxes, minus a deduction. Basically, it's about 150% of the federal poverty line. I won't go into too much detail, but what that looks like is your AGI minus about $25,000 if you're a married couple with just you two. Since it's based on your AGI, that's why I talked to you about lowering your income through some of these retirement portfolios and health savings accounts and things like that. It's easier if you have loans in your name directly. But if you have Parent PLUS loans, you do not have access to repay pay or IBR, so how do you get some relief? What you would do with ICR, this is the only plan that you can use for Parent PLUS loans. You have to consolidate your Parent PLUS loans into a direct consolidation loan. A lot of people that are doing Parent PLUS loans, making payments, they use a graduated program and that's okay, but that's not nearly as helpful as this or powerful as this. So you consolidate your Parent PLUS loans to a direct consolidation loan. Because those loans were Parent PLUS loans, you never had the ability to do all of the best income-driven repayment options on them. You could only do ICR. ICR is the oldest repayment program in existence. It's been around since I think the 90s. It's a payment program that says you can make 20% of your discretionary income in payments or there's this complicated thing where you can pay a fixed amount. But just for the purposes of this, think 20% of your discretionary income in payments. And it's actually calculated a little bit differently than the other loans as well, the other repay IBR kind of things as well. So we'll talk about that in a second. I will say this, that if you're consolidating more than just Parent PLUS loans, it's very important to keep your Parent PLUS loans separate in a consolidation. You do not want to consolidate Grad PLUS or Stafford loans with Parent PLUS loans because then you'll make all of the loans in the new consolidation loan ineligible for some of the best repayment plans. So keep your Parent PLUS loans separate. And if you consolidate them, you can get access to ICR and pay 20% of your income on it. But I have some tricks for you if you're over 50 on how you could really game the system with this legally. So let's talk about Social Security a little bit. Social Security is the primary source of retirement income for a huge percentage of America. Most people don't do a great job of saving for retirement. There's nothing wrong about that. It's just reality. Things happen, life happens, health issues, just people just not knowing about retirement, people not following a budget. So they just don't know where money's going, that kind of thing. So I just wanted to tell you that Adjusted Gross Income, the thing that these student loan payments are based off of excludes the non-taxable portion of Social Security income. And the government figures out what your taxable Social Security income is based off of this little formula that I found. Basically, they take something called Modified Adjusted Gross Income, or it looks like MAGI if you look at the acronym, but it's like M-A-G-I. I don't know how CPAs say this, but I'm just going to say M-A-G-I, Modified Adjusted Gross Income. So it's just a formula where they take your Adjusted Gross Income, like your retirement income, your dividends, your stuff like that, and then they add on non-taxable interest, and they add on half of your Social Security income, and that's what they do to come up with this number. And then this number, they look at it and they say, is it above $32,000 for a married couple? If this number is above $32,000 for a married couple, then 0% of your Social Security benefits are taxed. That's amazing. In addition to this 0% tax rate for Social Security, about 40 states don't tax Social Security income at all. That's really pretty neat. Let's do an example here so you can see how this works. Let's say you've got $10,000 of income from a pension or a 401k or dividends or something like that, and you have $40,000 of Social Security income and you're married. So your income together is $50,000. But as far as the government's concerned, it's actually not $50,000 because they would take your $10,000 and they'd add 50% of your Social Security. That's how they come up with that MAGI number I was telling you about. So $10,000 plus 50% of $40,000 is $10,000 plus $20,000, and that's equal to $30,000. So $30,000 is your modified Adjusted Gross Income in this case. Since that's below the $32,000 threshold for a married couple, 0% of your Social Security benefits would be taxed and they wouldn't show up in your Adjusted Gross Income. Remember how I said that your Adjusted Gross Income is what they base the student loan payment off of? If your Adjusted Gross Income is $10,000, that means even though you're making $50,000, your Adjusted Gross Income would cause your student loan payment under an ICR plan or pay repay IBR to be $0 a month. So you'd legally be allowed to pay $0 a month whether you owe $30,000 or if you owe $300,000 of student loan debt. That takes a debt away from you and turns it into a tax. Well, if your income is low enough and you can get a big enough exemption and you can make the tax 0%, then that's the same thing as not having a cost, right? That's really quite amazing. So you also get a $24,000 standard deduction if you're married now in 2019. So there's no tax on the $10,000 retirement withdrawal either. So that $50,000 of income that I just told you about, the tax rate for federal and state probably would be pretty close to zero. So where you'd have about $50,000 of tax-free retirement income, that is pretty awesome. Now that discretionary income definition, just so you know, just for fun in case you're a student loan junkie like me. So pay as you earn, revised pay as you earn or IBR, that discretionary income is 10% for pay and repay minus 150% of the federal poverty line. So the federal poverty line for a married couple, if you do the multiplication, that comes out about $25,000 deduction. So pay, repay, IBR, you're getting an AGI percentage minus 25,000. Now for ICR, they take 20% of discretionary income, but they only give you 100% deduction for the federal poverty line. So what that means is that instead of a 25K deduction, they only give you a 16K deduction. For example, if we look at a higher income couple to see how this would work, our borrower who has got a $0 payment on the previous situation, let's change that number a little bit. Let's say they have a $40,000 pension and a $40,000 social security and they're a married couple. So 80,000 now is your income in retirement that is. So your modified adjusted gross income now is 40 from retirement pension plus 40 times 50% of the social security. So your modified adjusted gross income is 60K. So that means that you're way above the threshold. So now 85% of your social security is taxed. So what you do now is you take 85% of the 40K, multiply those things together and you get 34,000. So you add that to the pension income. And then now the actual taxable income is 74,000. Now we're going to deduct for, if the loans are in the person's name alone, then that's like a Stafford grad plus kind of situation. So you deduct your 150% and you're down to 49,000 and you take 10% of that and that's 4,900 a year on pay or repay. Now, if you're doing ICR, you get a lower deduction because of those weird rules about parent plus loans. Remember parent plus is weird stuff's complicated, right? You take the 74K income in this example and you subtract 16K instead of the 25K because of the different deduction rules. So now you have 58,000 and you take 20% of that. Basically that works out to about a 12,000 a year payment. It's about a thousand dollars a month. So, you know, about 400 a month if the loans were in your name or if the loans in your kid's name or multiple children's and you took out a whole bunch of them, then you could pay a thousand a month. If you could pay a thousand a month, is that a good thing to do? Well, if you have two, 300,000 in the student loan debt, that could be amazing, right? If you're paying even less than that, only 400 a month and that's great too. So what you're going to find from this strategy is that forgiveness math is typically not good for very high income families who are going to keep a very high income in retirement. You know, you can potentially do some things, maybe try to go for PSLF. If you happen to work in a not-for-profit or government employer full-time for 10 years, you'd have to consolidate the loans and pay on ICR for 10 years. But for most people, you know, if you're high income for parent plus loans especially, you probably do want to get rid of them if your income really is like, you know, going to be over a hundred thousand in retirement. But since most people, especially people who have student loan debt are typical regular Americans that are going to have typical regular type of retirement income, it's going to be good, but not fantastic, right? You're not going to have an unlimited spigot of cash. Then this could change everything because let's say that right now you have 200,000 of parent plus loans. Well, let's say that you decided to do this max retirement strategy I talked to you about, and you put away 50,000 a year for five years. Well, now you have 250,000 plus any investment returns. And let's say you do this by the time you're 65. Okay. So you could take your money in your retirement account and you could live on that between 65 and 70. All the while you're having a pretty modest income. So your payments based on your income on your loans are pretty low. And then now you start living on social security pretty much exclusively after you've exhausted your retirement savings. And then if you're good at budgeting, you could claim that higher social security benefit at 70 and retire. So in other words, somebody who's 60 years old only has to do five years of preparation, even if they have nothing saved for retirement, even if they have 200,000 who still loan debt today, and that person could retire in five years. Do you see now why this is so powerful? Do you see now why I wanted to do a whole episode on this? This is life-changing for people that can really figure this out and understand the math behind it. So I want to recap a little bit because this has been a whole bunch of information, right? Basically seniors out there owe a ton of debt. And there's various reasons for this. Some people, they want to go back and have a second career. Banks would never approve that in the past since there's no underwriting guidelines at all now for student loans. The government will give anybody any debt for any reason, basically. There's pretty much no restrictions. So a lot of people that previously could not have this kind of impulse decision to go back and have a second career that couldn't have afforded it out of paying for cash, obviously, now they can afford this by simply just signing up for loans. And a lot of the schools that are really trying to fill seats are really open to doing this. And so that's one way that people get the debt. People are taking a lot of the debt for their children because of the Parent PLUS program not having any caps. And people are also forbearing for a lot of years and the balances just grow and grow and grow. And then they have a bunch of debt and they finally have to deal with it. So if you have a lot of student loan debt and you're over 50, then you probably want to pay based on your income unless your debt is significantly less than your income or about the same as your income, then you want to refinance it and get one of those cashback bonuses at studentloanplanner.com. You want to max retirement savings and take advantage of the catch-up contribution to do about $50,000 for retirement if you're married to $25,000, if you're not, if you're over 50. You want to delay claiming the Social Security retirement age to 70 and not make the huge mistake that everybody makes and they claim it at 62 as soon as they can and just screw themselves and take a bunch of future retirement income off the table by just not being able to wait. And also you want to spend down your brokerage and retirement assets like 401ks first before claiming Social Security. And then you'll probably be able to claim Medicaid for covering long-term care and nursing home coverage. Most people do that anyway. And then what you can do is go for loan forgiveness on your federal student loan debt. And finally, one thing I did not mention, you'll have to pay taxes on the forgiven balance under the current law. I've talked to some attorneys about this. A lot of people think that if you're 80-something years old with a tax bomb, that it'd be fairly easy to get a disability declaration from Social Security. And because you're disabled, then the debt's forgiven tax-free under the current rules. And finally, if there's folks listening to this, they're like, oh my gosh, this is the biggest ripoff ever of taxpayers or something. I don't make the rules. I simply try to find all the loopholes that exist because this is a crushing problem. People are not being held accountable at universities that are putting people into this debt. People do not have any protections offered to them at all with consumer protections where you're protected from yourself, where you can't make a really bad decision that you can't undo. Some of these decisions aren't bad decisions. You thought you'd be able to handle it, but you lose your job or you have a health problem or you go on disability for a little bit and things happen. So my goal is that you would have the best strategy for your student loan debt. And I will pretty much guarantee that nobody in the world has thought about student loans as much as we have at Student Loan Planner, especially for people who are over 50 years old who have student loan debt that's over $50,000. And if you have student loan debt and you're under 50, we'd love to help you as well. Obviously, most of episodes are pertinent to you that are under that age, but nobody talks enough about this unique problem that's happening where student loan debt among people that are over 50 is tripling every three to five years. That's just really scary. And it's just something that our country is eventually going to have to deal with in a good or bad way because people aren't really addressing it and doing anything about it right now. And if you want to get a custom student loan plan, you have Parent PLUS loans, or you have loans in your own name, we'd love to help, studentloanplanner.com forward slash help. Thank you for listening to today's show. If you know that you need a custom student loan plan, you can schedule one today at studentloanplanner.com forward slash book. You can find the show notes for today's episode at studentloanplanner.com forward slash the number of the episode. And finally, if you'd like the podcast, leave us a review or share it with someone who owes more than you. Have a great week.