Robert Leonard (02:16):

Before we dive into a tactical conversation about paying off student loans and entrepreneurship, I want to talk about how and why the current student loan crisis even came to be. In your experience, having studied student loans and working with tons of people with student loan debt, how did we end up in the current situation we’re in, in regard to student loans?

Barbara Ginty (02:39):

Let me just say that it’s a terrible situation, and I have been following student loans now, since I got into personal finance back in 2013, and the numbers just continue to grow. They just came out and said that right now, I think it’s approaching 1.7 trillion in student loans, and we have 44 million Americans, so basically I think that comes out to one in eight Americans. Then if you break it down by age, obviously people like my parents’ age don’t have student loans. It’s a scary number. It’s even hard to think about what $1.7 trillion actually looks like in terms of the student loan debt that’s out there. I think the reason that we got and it’s been a problem, I think since the ‘60s and ‘70s, because right back in the day when our parents or my parents went to school, or your grandparents went to school, you could work a summer job and pay for school. Going to college didn’t necessarily mean you needed to borrow $150,000.

Barbara Ginty (03:33):

It just meant you had to have a summer job. So to give you a reference point, I’m second-generation Irish, so my grandfather immigrated to the country. He was a truck driver for Schaefer Beer down in the Bronx. My father worked at Schaefer Brewery in the summer using a high-low with the beer kegs, loading the trucks, and that paid for his private school college education, just the summer jobs. Now fast forward. I think the problem is tuition back then was a lot more affordable so that you could have that summer job. My dad just worked for his dad’s company as a summer gig. You could have any summer gig and really pay for school. Now, the cost of tuition is so high that doesn’t…., I had a waitressing job and I made very good money as a waitress in the summer, but that didn’t even come close to covering my tuition.

Barbara Ginty (04:21):

I think that’s the problem is the cost of tuition has inflated so much, even if you just looked at it from the ‘70s until today, so that student loans are necessary for almost, I would say most people in order to attend college. There’s also a big emphasis placed on getting a college degree. A lot of people say you have to have that in order to get a job. I think there are a few factors playing into it.

Robert Leonard (04:46):

We’ve seen the rate of inflation or the rate of growth in tuition rates significantly higher than the rate of growth in salaries.

Barbara Ginty (04:58):

Or just regular inflation.

Robert Leonard (04:58):

Right. That’s what I was just going to say is the rabbit hole we could go down that is inflation. You could look at data that says inflation’s anywhere from two to 4% over a decade, but really is that really measuring the right basket of goods? Most people go to college.

Barbara Ginty (05:15):

That’s like milk and bread and those sorts of things.

Robert Leonard (05:18):

Right. We should really be including medical costs and student loan costs and tuition and these types of things, in my opinion, to really get a true feeling of what inflation is. We can go down a whole rabbit hole of inflation, but that’s where this big disconnect comes.

Barbara Ginty (05:34):

I think that’s where it is because the cost of tuition has gotten so astronomical. Then now remember it, I think it trickles down and I’m not an economist, but I think it trickles down because the average doctor comes out I think owing, a medical student comes out owing over $200,000. Now your cost of, we just said, medical costs has been weighted a lot more, but if it costs that much more to be a doctor, that gets passed down to the people using those goods and services, I think it’s all interconnected, and I do think that that’s not always acknowledged. If you have to take out two to $300,000 to become a doctor or a dentist, now it’s more expensive to go to the doctor and the dentist. Because usually with businesses, it gets passed along to the consumer.

Barbara Ginty (06:16):

I do agree that when they’re looking at inflation, they’re not necessarily, I don’t think they’re including student loan in their student loan costs, or the ability to go to university and what that looks like. I think there’s a lot of factors that play into it, but obviously, the number one factor is the fact that tuition is so high. Just to go to a university, private or public is still a very expensive endeavor these days, versus what it used to be in the ‘60s or ‘70s.

Robert Leonard (06:41):

How do you think we got here with tuition rates being so high? I know it could be a million different things, and my opinion is that it’s supply and demand. You mentioned that for a long time, it was required to have a degree in order to feel like you could get any type of corporate job or scale a career. I think when you have something that’s required, simple supply and demand say, if there’s infinite demand essentially with this limited supply, they can charge whatever they want, and there’s really no cap on it. I think that’s essentially how we got to where we are today.

Barbara Ginty (07:11):

Then I think from a lending standpoint, it was married with very loose lending. I disagree wholeheartedly with the student loan industry. I will call it an industry because it is profitable, even though the majority of this debt that I just referenced, the 1.7 trillion, 1.6 is federal loans, so the majority of this is the federal government, and I think their practices are predatory. I think if they were a private company, it would be illegal. I have a very, very strong opinion on the way that they doled out student loans. I think it should be illegal. You couldn’t do it with, that’s what we saw with subprime mortgages. Subprime mortgages had very, very loose lending, and yes, maybe everybody thought they should have two houses, but that wasn’t the reality. They couldn’t afford the two houses, even though the lending said they could.

Barbara Ginty (07:54):

Then we went into that whole crisis. I’m surprised that the student loan has been going down this path so rapidly of increasing amounts, and that there hasn’t been a bubble with it, a big crash with it, because 1.7 trillion is a lot of money. It’s affecting a lot of people. As far as I can tell, I still find the student loan lending to be predatory. Not everybody can afford to go to a university that costs $70,000 a year at a 7% or 6% interest rate. That isn’t for everybody. I think that there’s still this notion and you’re making decisions 18, if you don’t have a parent guiding you, the university says, “Yeah, come to the school and you’ll definitely get a great return on your investment, and you should definitely sign all these forms and take out these loans,” without even going over how long it’s going to take to pay it back, how the interest rates work, how capitalization of interest work. When you get a mortgage, there’s a lot more truth in lending than there is with student loans.

Robert Leonard (08:50):

Student loans were just so easy to get, from a federal perspective. Privates are super hard, and you mentioned “bubble”, and I think we could probably all agree that student loans are probably a bubble, but how can a bubble burst when it’s backed by the federal government? I don’t know if it can. That’s where I think that there’s a disconnect, but also I remember thinking when I was in college, I got student loans. I still have a little bit of student loans today. We can talk about that if we get there. But, I remember thinking to myself, this was so easy. They just hand them out.

Barbara Ginty (09:18):

Like candy.

Robert Leonard (09:19):

They didn’t look at credit. They didn’t look at anything. It was like nothing. I remember, I didn’t know a lot back then, and I was still like, “Wow, this was too easy. I feel like there should be something more here than what they just did.” It’s crazy.

Barbara Ginty (09:33):

If you had gone at 18 and said, let’s just assume the education is $200,000, and you had walked into a bank wanting to buy a house with no income, no financial literacy and said, “Please give me $200,000.” The bank would be like, “No way.” Even though there’s a tangible asset, you’re not a good [candidate].

Robert Leonard (09:50):

I was just going to say with an asset backing it.

Barbara Ginty (09:52):

Yes, with an asset backing it, they wouldn’t lend you. You don’t have the income. You don’t have two years worth of income to show that you can repay the loan. You wouldn’t be a good risk, but yet for college, that’s no problem. We’ll give you $200,000. We don’t know what your major is going to be. We don’t know what your job is going to be, because you could do a return on investment. That’s what I do with my day job, I have a wealth management practice outside of the podcast. When I meet with my client’s kids, we do a return on your investment. If you really want to be a doctor, are you committed to living like a resident for a long time in order to get your loans paid off so that they can make a more educated decision before signing up for all of these loans.

Barbara Ginty (10:33):

I think the problem is that the lending has been too easy and the practice and the repayment aspect of it in my mind, aside from giving out the money so easily, is predatory. The capitalization of interest, treating an extra payment as an early payment and not a principal-only payment, not being clear. They never give you one loan at 16. Nobody ever knows how many loans they have or what they’re paying or how the payments are being attributed. We could go down a whole podcast and just the repayment process being so convoluted and complicated that most people don’t get out of the debt because they don’t understand how it works, and when you call that 1-800 number, they are certainly not going to help you. Maybe you’ll have good luck, but no one I know has had good luck calling Naveen at Great Lakes and trying to really understand their loans.

Robert Leonard (11:19):

How do you calculate the ROI on student loans? Walk us through that process. Maybe, I don’t know if there’s a formula. Walk us through what you’re thinking about and how you calculate that.

Barbara Ginty (11:28):

What I think about is how much debt are you going to take out and what your repayment is going to look like? For instance, especially with medical school, because I would say that’s running like 90,000 a year around. Maybe some 60. Remember when you’re in medical school, you’re financing all your living costs, not working. That’s food, apartment, electricity, wifi, clothing, transportation. You’re financing all of that plus the medical school. Plus it obviously takes a long time to be a doctor, so there isn’t going to be any income coming in for a while, or a substantial income to pay off those loans, and the interest rates are not like what the interest rates are in the bank, which is another, I have … no one’s asked me, but I think a solution would be pegging it to the bank rate.

Barbara Ginty (12:11):

If the bank is paying you less than 1%, then that should be where student loan interest rates are, not at six or seven or eight or wherever they are. Basically, we just look at how much money you’re going to be taking out versus what that payment is going to look like when you’re finished, versus where we think your salary will be, and are you comfortable with that number. Now when you’re talking to an 18-year-old, they usually, and granted, I didn’t know what I was going to be doing, don’t always know what they’re going to be doing. Some people do know. I’m going to be a fireman, I’m going to be a cop, or I want to be an engineer, or I want to be a doctor, some people do know, so that’s a little easier because we can look at where the salary bands are for those jobs.

Barbara Ginty (12:47):

Then I think one thing people underestimate is taxes. They assume if they make 50,000, it’s 50,000 in their pocket, so we walk through just a basic understanding of finance. If you make 50,000 as a W2 employee, and now we take out taxes and we take out FECA, so social security and Medicare tax, which people forget about, and then we take out your housing costs and then we take out electricity and wifi and your cell phone. Then this is what you’re left with, and this is what your student loan payment would look like. That is usually an eye-opener to say, maybe you should consider the school where you got a scholarship, or you should consider going to a local college and then transferring, or a state university, which is maybe not as attractive as the out-of-state option.

Barbara Ginty (13:33):

I definitely lean more towards making a prudent financial decision. That again, saying it’s supposed to be the best four years of your life and you should go wherever you feel, because I don’t think that, that opinion takes into effect what the rest of your 20s are going to look like, or you’re 30s. For four years to be great and then your 20s to be miserable because you can’t afford to move out, or you can’t afford to take a job that you really like because you have to make that student loan payment, and that pays like 10,000 less, you can’t afford that. I really try and come at it from a more holistic approach of how does money work, and do you really want to be spending all this money now, or do you want to maybe go to a school that’s in your affordability arena?

Barbara Ginty (14:13):

I think that’s it, because I don’t think people at 18, and depending on where their parents lie and how educated they are and what their situation is, always do this analysis of what school can you actually afford. I think a lot of it is like you applied to all these schools and see where you get in, and I think it should really be, what can you afford?

Robert Leonard (14:28):

The reality is, it’s not even just the rest of your 20s, it could push into your 30s. It could be 30s. It could go into your 40s. You mentioned the best four years of your life impacting the rest of your 20s, but it could go 30s, 40s. It could be even more than that.

Barbara Ginty (14:42):

Right. It could be four years for 20 years, and that to me doesn’t make sense. My dad was able to pay for his schooling through working at the brewery and loading beer kegs. Because everyone around you, especially when you’re 18, you’re in high school. Everyone was applying all over the place for college. I was like, “Oh, I’m going to be the first one because my dad only did two years in school. I’m going to be the first one to get a four-year degree.” College was not optional because obviously the immigrant mentality, my grandfather never went to, he didn’t go to high school because he had to start working to get over here, so then my dad did two years of college. My goal was four years. It wasn’t really my goal. It was my dad’s goal that I got a four-year degree.

Barbara Ginty (15:19):

I was like, all the kids were applying in school, were applying all over. Their parents were flying them to other places to see schools. I just started, I picked all these schools and then I went home and I told my dad, I was like, “Okay. I want to go look in Savannah.” He was like, “I’m not taking you on vacation. Do you know how much a ticket there costs?” He was like, “You can go anywhere I can drive you within two hours.” I was like, “Well, but everyone at school,” He’s like, “We’re not everyone. These are your parameters.” He was like, “And try and get money. You need to get money.” I was like, “Okay.” He was like, “If you go to the local Sunni school, which is from the New York State University of New York program, then that way you don’t have to take any loans, and then I’ll pay for the remainder. Otherwise, you’re going to be covering like half the cost and I’ll try and help you with half depending on where you go.”

Barbara Ginty (16:02):

Literally, I had two hours, and all my other friends were applying everywhere. I had to do a little math because he was like, “You can fly to Savannah yourself if you want to use your money from the gap, and you can fly yourself down to Savannah.” I was like, “Well, I thought we did like a college trip.” He was like, “No, those are vacations. We’re not taking a vacation.” I ended up going to school where I got the most money. So I had very little loans because I got a scholarship and then my dad helped, and then I was out, so it was a third, a third, a third. A third scholarship, you obviously don’t repay that, a third my dad covered, and then a third, I covered. Then at graduation, I had three months to vacate the house with no rent, because he did not believe after 18, you should live rent-free. I vacated the house before September 1st, and because I got a job and I was fully what my dad called, the Dole, I was fully financially independent, he paid off the remainder of my loans. So I was debt-free but totally on my own, out of the house at 21.

Robert Leonard (17:01):

Very similar to me. When I was going into college, my dad told me the same thing. He said, “As soon as you graduate and you’re earning a salary, you’re going to have to pay me rent if you’re still living here because you’re not going to be earning a salary and living under my roof for free.” Honestly, I think that’s fair, to be completely honest with you.

Barbara Ginty (17:15):

I think it’s totally fair.

Robert Leonard (17:16):

But yeah, I went through a similar thought process actually for deciding my school. A lot of my friends went to Florida and actually I live in New Hampshire and at least when I was going into college, our state school, University of New Hampshire, was the most expensive in-state school in the country, so it didn’t really make sense to even go in state. A lot of kids were going to UNH and they were partying and all this, and they were having the best four years of their life. I don’t know if I, I don’t regret it at all, but I made the right financial decision. I went to a much, much, much cheaper school. I commuted, I didn’t even live there so I didn’t have dorm costs. I didn’t have meal plans, Nothing like that. I really tried to keep my costs as low as I can. I really did approach it from that same financial perspective that you’re talking about, and I really didn’t think about it as trying to be the best four years of my life.

Barbara Ginty (18:03):

No, I didn’t either, and I think what really helped me is I had gotten into Fordham. I was between Fordham and another, University of Scranton. Fordham, I got no money and Fordham was a bit more expensive, so I was at first really set on Fordham. I was a waitress at the time, so I didn’t obviously pay as much tax because people tipped in cash. My dad walked me through how many more tables I would have to wait on to afford Fordham. I couldn’t wait on that many more tables. I was already working all the whole dinner shift every day the restaurant was open, like first in last out. I couldn’t actually wait on more tables physically to make up the difference, so he was like, “Well, how are you going to pay the difference? Then you’re going to take loans. And then let’s talk about this. You want to move to New York City.”

Barbara Ginty (18:46):

There wasn’t enough money to pay the difference for Fordham. I was like, I guess I’m going to go to Scranton. It was great. I had a great four years. I think it’s all what you make of it. Because at one point in the middle of Scranton, I drove home and told my dad, I didn’t like it and I wanted to go to Boston college, which was a much more expensive school. He was like, obviously growing up with very little, he was irritated because I had the opportunity to live away at school, and go to school, and I didn’t have to work and do it. I was able to just go to school.

Barbara Ginty (19:16):

He basically came out before I even got in the house, and was like, “If you come in this house, I’m never paying another dollar for college. It is what you make of it. So your option is to turn around and go back to school and make yourself happy. Or if your mother wants to let you in the house and you decide to do that, then I’m done. This is what you make of it. I’m working very hard to help you pay for school. So you’re going to get back in that car, you’re going to drive back to Scranton and you’re going to make yourself happy.” I was like, “Okay, I guess I’m going right back.”

Robert Leonard (19:41):

I have to agree with your dad. That’s exactly how I would approach it if I was in his shoes. I do have to say it’s harsh, but I think it’s exactly what I would say too, and you’re probably thankful for it today. If you had to be honest.

Barbara Ginty (19:55):

I would approach the same way now, and I think that, I think when you’re younger, you haven’t had, I haven’t had as many life experiences, and I think that my dad obviously had my best interest at hand, and that was the best school for me. I didn’t know what I wanted to do. I didn’t know what my career path was going to be, so switching schools and taking on more debt was going to solve a temporary problem that was going to have a long term impact on my life, so staying at that school did for me, it allowed me when I graduated, he paid off the remainder of the loans because I was able to get a job right away. It allowed me to take a job that I probably wouldn’t have been able to take and live in Manhattan, had I switched schools or gone to a more expensive school. Because I wouldn’t have had the money to pay for rent.

Robert Leonard (20:34):

Like we talked about earlier, it really comes down to, I’d rather trade four years of not being the best four years of my life, and still being fine, still being happy, just not being the best four years, and having the next 30 years be fantastic versus having good four years and then struggling for 30 years.

Barbara Ginty (20:52):

Yeah, I totally agree. What I think is interesting about the numbers is the people that are between 35 and 49, which is my age bracket. I think we’re the elder millennials or senior citizen millennials, so sad. We hold the highest balances. Not the largest percentage. There’s less of us, but the balances are higher. I think that’s because people have really struggled to pay those off. But you’ve had them since you were 22, if you’re in that age band, that means some of those people have had those loans for over 20 years.

Robert Leonard (21:20):

A lot of the people that listen to the show are probably past college, so what we’re talking about in terms of maybe adjusting or changing how they’re going to go to school is probably a little too late for them. I’m sure there’s some people that that applies to, but there’s probably more that it’s already too late for them, so now they’re in this position where they already have the student loans and now they’ve got to figure it out from here. What is the best way for them to start paying down these student loans? Do you have any specific tips or strategies that you’ve discovered that really help with paying down student loans?

Barbara Ginty (21:49):

The first one is you have to have a plan. Most people I talk to and most people that come on the show know what their student loan payment is, how much they pay a month, but they have no idea when that payment is going to pay off their loans. They also usually don’t have any idea how many loans they have. Someone will be like, is that one loan or is that seven? And they’re like, “Well, I think it’s more than one, but I’m not totally sure.” They don’t know how the money’s being attributed amongst those loans, because more often than not, it’s more than one. I think that the key to being successful with your loans is really taking an inventory of your loans and knowing what they are and what that payment is doing because that payment might not be paying them off in 10 years.

Barbara Ginty (22:25):

Most likely it’s not paying them off in 10 years. I think you really need to have an inventory and understanding of what you have before, and then come up with a plan of exactly how you’re going to tackle it. Whether that be paying the smallest one off first or the highest interest one. Obviously, I love principal-only payments, which is where they make it hard to do it, but you can do it, so you can make a principal-only payment if you get a bonus or you get a tax refund or you have extra cash, I always liked that idea.

Robert Leonard (22:53):

How do you think about, I guess these are two different situations, but they’re related. Right now we have forbearance or loans, which are paused for federal loans. Do you think people should still be making payments if they can? Two, how do you think about, there’s been a lot of talk about student loan forgiveness, and that could look like a million different things. It could be $10,000. It could be only certain people. It could be $50,000. We don’t know what it’s going to look like. With that ambiguity, how do we approach that? Do we just pay the minimums and hope that it gets paid off someday or forgiven, or do we just continue to tackle it because it’s our responsibility? I know that’s two different questions, but start with the first one, and how we handle the forbearance, and then talk to us a bit about potential forgiveness.

Barbara Ginty (23:38):

Sure. With the forbearance, I really think it’s an opportunity to try and get ahead on your loans. Leave your second question. We’ll address it a little bit more. For the people that are nervous about using this opportunity to pay off their loans, because they’re afraid that it will then be forgiven, you can put all the money that you would use to pay off the loans in a bank account. If you’re working diligently during this period where you don’t have interest on your loans, because they’re basically, you’re not accruing interest, if you don’t feel comfortable putting it directly on your loan to reduce that amount, what I would do is put it in a bank account and then save that money until the forbearance adds, and we have a little bit more clarity on what’s happening with the student loans.

Barbara Ginty (24:16):

Now, that being said, I think this is a huge window of opportunity to get ahead on your loans using a bank account or paying it off. Depends on your opinion on whether or not they’ll be forgiven, but I wouldn’t do that unless you have an emergency fund. I think that COVID really highlighted the fact that while you might not have an emergency, the world can have an emergency, and that world emergency can directly impact your personal finances. The first thing I would do is make sure you have a good emergency fund, and then from there, I think this is a huge window of opportunity the fact that they have deferred this interest because as we talked about, I think the practices are pretty predatory and that being the interest rates being so high and the fact that they capitalize interest. I would definitely take advantage of this period of forbearance, where there’s going to be no interest, and sock that money away.

Barbara Ginty (25:00):

Then if you think it’s going to be forgiven, just do it in a bank account. I think that forgiveness aspect to me, I think it would be very hard because we don’t have an eraser where we can just erase $1.7 trillion. I think then it puts us in a rabbit hole of what happened to the person who took a second job to pay off their loans, and they just pay them off. Do they get a rebate? Or what about the parent that sacrificed their own retirement and never took family vacations so that their kids could pay back their loans, they could help them pay them off. I’m not as confident in the student loan forgiveness as some are, because I just think it has far-reaching impact. To me, what will be a really easy fix would be to lower the interest rate and not allow for capitalization of interest.

Barbara Ginty (25:50):

Peg the interest rate to any other normal lending rate, and that gives people’s. If you borrow 20,000, you pay back 20,000 and half a percent in interest. That’s a really reasonable payment. If you make the payment every month, then you should be able to pay it off. The problem is with the interest rates, the way they are, and the way they structure these loans, is if you’re paying…a woman came in, she had been paying $400 a month for the last 10 years, she owed more money.

Robert Leonard (26:17):

Why is that?

Barbara Ginty (26:18):

Because of the interest. She actually wasn’t paying all the interest that was due. She thought she was because they tell you, you owe 400, so you pay 400, but they’re in the business of making money. They’re not in the business of having you have these loans paid off. Every time you don’t make a full interest payment that month, they take that amount, add it back to your principal amount and then recalculate the interest on that higher number.

Robert Leonard (26:40):

Is that the definition of capitalizing interest?

Barbara Ginty (26:43):

Yes.

Robert Leonard (26:44):

Are there any other types of loans that do that?

Barbara Ginty (26:47):

Credit cards maybe, but on credit cards they have that little box at the bottom that says, if you make the amendment payment, you’ll pay for 99 years. They have that in red, like this is a bad decision and this is the impact of your decision. They don’t have that on the student loans.

Robert Leonard (27:02):

They didn’t always have that either, so that was something that had to come into play.

Barbara Ginty (27:07):

Yes, because then they had predatory practices. They would post up at a football game because I opened, I think it was five PNC credit cards at a football game, and I got five blankets, and then I had to go close all those credit cards. I never used them, but plenty of people did.

Robert Leonard (27:21):

I never experienced that when I was in college, but I’ve heard stories like that and it’s crazy to me. I’m interested to see what we see for changes to student loans over the next, I don’t know how long, five, 10 years maybe. maybe there’ll be some more disclosures, better disclosures. But, what’s interesting about the forgiveness that you mentioned is, if you think first level you’re like, you get to forgive 1.7 million. That’s a lot of money obviously, but over the last couple of years, we’ve printed what? Four to 8 trillion, something along those lines, like what’s another 1.7 to help all these people.

Robert Leonard (27:54):

But, now you get into the second level, third level, fourth level thinking where you, like all the things you mentioned, that’s really a web. It reaches so many different areas that you mentioned, the people that sacrifice their whole life to pay for these, all these people have already paid it off. People who have higher balances than some. There are so many different variables that I think I agree with you. I think it’s hard to just throw a blanket statement that says it’s going to all be forgiven.

Barbara Ginty (28:19):

Yeah. Or like I chose to go to the school where I had a scholarship. Do I get refunded the difference?

Robert Leonard (28:25):

Same for me.

Barbara Ginty (28:26):

Yeah, you did too. I made in my opinion, not a sacrifice, but I made a conscious decision to choose a school that I could afford, and somebody else maybe didn’t look at the numbers. There’s plenty of people that didn’t look at the numbers and figure they’d figure it out after, so they get preferential treatment and they get it forgiven. I really do think a fair way would be, get rid of the interest because that’s the reason people aren’t getting ahead. That’s the reason we’re seeing the fact that the balances are higher for people over 35. Because those balances are growing. The numbers on that…those balances are more than, I think it’s three times higher than their starting balances. That’s that capitalization of interest.

Robert Leonard (29:02):

That’s crazy.

Barbara Ginty (29:03):

Yeah. I just think pegging the interest, like half a basis point, or 50 basis points.

Robert Leonard (29:09):

The problem with that is the government loses a massive, massive source of revenue.

Barbara Ginty (29:14):

Yeah. But I think it’s a bubble and I don’t think discharging it is fair to the people who made better decisions, or who paid it off or who took the second jobs or maybe didn’t go to school because they couldn’t afford it. I don’t think waving, and I don’t know how you would actually do that, because technically with debt dischargement there are taxes on that.

Robert Leonard (29:34):

That was another piece that I’ve read a couple of articles on. It’s like some people listening, they might not know what that means, but basically, anytime you have a loan forgiven or discharge, it’s technically income for you in that year. Let’s just say you had $100,000.

Barbara Ginty (29:46):

It’s a big income.

Robert Leonard (29:47):

That’s a big income for you to pay taxes on. You might have a $30,000 tax bill on that just because a loan was forgiven.

Barbara Ginty (29:54):

No. Now the IRS is the creditor and trust me, you much rather have the federal government than the IRS being your creditor, because they can garnish wages.

Robert Leonard (30:04):

Absolutely. You mentioned having a good emergency fund. A lot of people probably know what an emergency fund is, but what is a good emergency fund? What do you define as a good emergency fund?

Barbara Ginty (30:16):

To me, it depends on how many dependents you have. How many people are relying on you for income or support. For a single person, I think three to six months. I also think it depends on your life situation.

Robert Leonard (30:29):

What do you include in that three to six months for expenses?

Barbara Ginty (30:33):

I would include all my expenses, but I wouldn’t include any of the extras. I wouldn’t include restaurants out. I wouldn’t include Ubers, taxis, gym memberships. I don’t have cable. I don’t believe in it, so I wouldn’t include cable because you can live without it. I think you would still need wifi because you’re going to be needing to look for a job. I’ve lived very bare bones in order to front-load my retirement. I’m pretty scrappy. I don’t know that most people want to be that scrappy, but I don’t think you need all the comforts. If you lost your job, I think it needs to be bare bones. I would say three to six months of necessity spending. To me, that’s not the gym. You can go on YouTube and find a free workout video.

Barbara Ginty (31:11):

You have to figure out what’s important to you and what you would want to keep if you lost your job. Then I would extend it from there, six months to 12 months, if you have a spouse, a partner, I would definitely say if you have children because children are expensive and they’re not contributing. I think depending on who is reliant on you, would depend whether you need three months or up to 12 months. I’m a big believer in cash. I feel like most people aren’t. It always prevents problems. I always think it’s good to have. Right now it doesn’t pay anything unfortunately with where interest rates are. But I always think it’s important. I always described it as the moat around the castle, and your castle being all of your other financial goals, and that moat protects them.

Robert Leonard (31:50):

Often when I talk with financial experts about personal finance, I like to get their opinion on a hotly debated question, and that is, should someone start investing or pay off student loans first? I have a lot of different guests, and the reason I do that is because I think it’s great for the audience to be able to hear a bunch of different points of view. I don’t want to just bring on a bunch of different people that all say the same thing about student loans. I’d love to hear just different viewpoints, and even if people agree, they often have different reasons or different explanations. I’d love to hear just different points of view for everyone listening to hear those. Do you think someone should start paying off their student loans first completely before investing, or should they invest first?

Barbara Ginty (32:33):

I would say you need to do both, which is why I’m a big fan of a budget, which most people are not. I think you should be getting rid of cable and really being so scrappy in order to achieve both. I would say the reason why is because most people are, it’s going to take them more than 10 years to pay off their loans. If we use that as an average, like you’re going to be on a 10-year repayment, then you really need to be saving. I wouldn’t say investing, I would say investing for retirement. You need to be in your workplace plan, ideally getting your match and also making progress on your loans. The only time I would say that as an exception, is if you are in the last end of your student loans, and you’re like, if all I do is do student loans for the next 10, 12, 14 months, I will be totally done, and then I’ll ramp up my retirement.

Barbara Ginty (33:14):

That would be fine to me. But if you’re looking at a normal person who has 10 years of student loans and has a job, you need to be doing both. That’s where I think the budgeting is important because I think you just really need to know what you have coming in and what that loan payment looks like and what you need to be saving for retirement, and then work down. I call it budgeting backwards. Most people spend their money, at the end of the month whatever’s left over is what they save. I think it needs to be the opposite. I think you need to set your retirement saving’s goal and your student loan goal, and then what you have left over is what you can use for fun, or housing. Because I feel like people overspend on housing. That’s usually one of the biggest issues I see.

Robert Leonard (33:52):

What about other kinds of debt? We just talked about student loans and investing, but what about other types of debt that somebody might have, and how does that play into this equation of investing versus paying off debt?

Barbara Ginty (34:04):

Credit cards are also not ideal because they have high-interest rates. I would say if you had credit card, student loans, and retirement, saying that you had retirement through work with a match, I still think you could lower your retirement to only get the match, and then tackle the credit card, and then the student loan. You really have to be putting money on all of them is my opinion. Unless some things are really like a short term, where you’re going to really suck it up for six months or eight months and be really diligent and get one of them checked off.

Robert Leonard (34:31):

We’re talking about different orders of investing, basically different orders of where to put your money. Whether it comes to investing, paying off loans, etc. Now, how about diving a little bit deeper into that investing component? There’s a lot of different accounts. When we say you should be investing, there’s a lot of different ways that you could invest. Talk to us a little bit about your thought process in the order in which you contribute dollars to an investment account. Talk about whether it goes to 401ks, IRAs, HSAs, taxable brokerage accounts. Your thought process or roadmap in terms of where you allocate dollars that way.

Barbara Ginty (35:09):

I think the first place to start is your workplace plan. The reason why is because typically when we see people coming in for retirement, the majority of their net worth, more than what they have in real estate, which would be different for you because you do real estate. But a normal employee, person who works for a corporation, non-profit, the majority of their net worth will be in their workplace plan. The reason why is because it’s a disciplined approach, and like everything else in life, if you’re disciplined, you usually succeed.

Robert Leonard (35:35):

Is that with or without a match?

Barbara Ginty (35:37):

With or without a match.

Robert Leonard (35:39):

Interesting.

Barbara Ginty (35:41):

The reason why is because it’s already done for you and some companies even do the negative consent, meaning they automatically sign you up, which I think is amazing. Because usually with people the obstacle is the paperwork. But once they’re in, they’re in, and they tend to not mess with it. The money comes out every pay period. If there’s a match, you’re doing even better. The investments really, they give you a menu. They’ve already gone through and eliminated basically 7,900 mutual funds for you. They’ve already picked, you have 20 to pick from, so it’s much easier, a lot less intimidating, and that consistency of having money put in every pay period, which is a dollar-cost averaging, really helps long term and people tend to not mess with it.

Barbara Ginty (36:23):

Versus the flip side, which is you set up your own investment account, you have to contribute, you have to pick your own investments, you have to monitor and maintain it. Review those investments. With a workplace plan, if the investments are not performing, they go in and fire them. You don’t have to do it. They just automatically switch them.

Robert Leonard (36:40):

What if you can automate the IRA process? I’m interested. You piqued my interest with this because I agree that 401ks or workplace plans, whatever that might look like, are typically the place to start. But where we diverge a little bit is, my opinion had been, and it might be changing right now, right on this episode. But my opinion had been only if you have an employee match because that’s essentially free money. But if you don’t, I had typically thought that my opinion had been that going to IRAs was more optimal. For somebody who has the discipline to actually continue to do that DCA, it probably is. But the piece that I didn’t think about is the psychological component that you just talked about on the ease of access. But what if you could automate, because I’ve actually heard that you can have your employer automatically contribute to IRAs. What if you can do that?

Barbara Ginty (37:29):

I hadn’t heard about that. Because it seems like an HR nightmare, but maybe. Because the reason why the workplace plan works so well with or without the match is they’ve already picked investments, so we eliminate and that’s a big obstacle for most people trying to do an IRA. Where do they open it? What do they pay? That’s a big obstacle. It’s already chosen. They literally give you a menu. Your money goes in every pay period automatically. No questions asked, so your dollar-cost averaging. Another component of the investments is if they’re not doing well, the company is reviewing those investments for you, and then getting rid of underperformers. We see it all the time. People will call the office and be like, “My investment’s changed.” I’m like, “That’s great.” That growth fund wasn’t working and they’ve just subbed in a different one, and good to go.

Barbara Ginty (38:13):

I really think that the structure of them works so well because you’re taking out a lot of the onus of the individual to do it themselves. What I see with personal finance, the reason why people typically don’t succeed is because there’s too much put on them to do. Unlike your car breaking down, which you have to go literally get it fixed, you don’t ever have to do your personal finances. It can always wait until tomorrow. Until there’s an emergency. To me, the workplace plan is great because it takes a lot of the thinking out of it, and it’s automatic. You get in it and then you literally don’t touch it, and if you work at that company, which people don’t nowadays, but if you work there for 10 years, people are shocked what they have in it after.

Robert Leonard (38:54):

I’m going to paraphrase what this guest said to me because I don’t remember the quote exactly. But I had a guest a couple of weeks back. He was an older gentleman. He was great. But he had said something along the lines of how you’re right that you don’t have to focus on your personal finances. But basically what he said is it never goes away. It never goes away with age. There’s a lot of things that if you just push to the side, they’ll eventually just fall off. Personal finance never goes away. It doesn’t matter how old you are. If you’re 70, 80, it doesn’t matter. It never goes away.

Barbara Ginty (39:23):

It just gets more complicated actually.

Robert Leonard (39:26):

Exactly. He said, “You’re better off, just do it. Just get it done and get it set up, and then you don’t have to worry about it for the next 30, 40 years if you get a plan set up early.” It’s intuitive. You hear that and it makes sense. But for some reason that just really stuck with me when he said that.

Barbara Ginty (39:42):

I 100% agree. It never goes away, and the earlier you do it, the statistically more successful you’ll be, which is why I really push people to the easiest mechanism to be successful. Not to say that there aren’t people listening who would be great at setting up their own IRA and picking investments and monitoring it. But it’s not the majority of people, just from what I’ve seen. The path of least resistance to me is what I usually recommend, because it can have the biggest impact on that individual. To keep it as simple as possible to get your foot in the door, and then typically once they see how well their workplace plan is doing, it peaks their interest and they realize how one little time investment of, let’s say 30 minutes to set it up, made such a big impact.

Barbara Ginty (40:26):

That’s usually once you pique their interest and they’re like, “Okay, hold on. Now, I want to get a bit more involved in it. What else can I do besides this?” I always start with the workplace plan because the path of least resistance statistically has the most success.

Robert Leonard (40:39):

This reminds me of my approach with Dave Ramsey. When I first found Dave Ramsey’s like baby steps and some of his other like snowball method, and things like that, I was totally against it. 100%. Everything I believed in was completely against it, because mathematically if you want to optimize, the snowball is not the best from a numbers perspective. But, what I came to realize was that it’s not about the numbers with the snowball method. It’s all about psychology in the path of least resistance and momentum, and these types of things that have nothing to do with numbers. I’m really having a good time with this conversation about the 401ks, because it’s just really making me think of that psychological component, and that path of least resistance is really important like you mentioned.

Barbara Ginty (41:23):

Because the thing is, especially when I’m talking to individuals, I want to make sure I have the most impact on them. There are definitely people who are more hands-on, like I’m hands-on with, I love personal finance. Then you meet other people who really love it. You are really interested, but then you meet a lot of people who are like, “I know I need to do this, and I know it’s part of being an adult, and I just want to get through this. I don’t understand it. I don’t like it.” I think the psychology is very important because even if statistically, like as you were saying with Dave Ramsey, that might not be your best mathematical option, but that doesn’t matter if you don’t do it. If it doesn’t fit you, it doesn’t feel comfortable to you and it doesn’t work for you and you don’t do it, well then we’re no better off.

Barbara Ginty (42:04):

I think the key is being successful and there’s a lot of different paths to that, and you have to find the path that fits you the most. I would say for most people, not all, but for a lot of people having something with the path of least resistance where other people at work have the workplace plan, you know that people are in it, is the first easy step to get into it, and if you get into it at 22, it’s a huge impact, versus maybe at 22 or 25, when you have other things going on in your life, you don’t really want to take the time to figure out setting up and automating your own investments. I don’t see the downside. I think that once you do, the priority I would give it would be your workplace plan.

Barbara Ginty (42:42):

And or, if you have the time, a Roth IRA, because I really like Roth IRAs. Then with the 401k, you can typically do traditional or Roth in there. That’s very specific to the individual. Their earning potential, like where they think they’re going to be in the future tax-wise, what they need today. So I don’t want to give a recommendation. I think it’s very personal. Then once you’ve done all of those things, then I think the non-retirement, a personal investing account makes sense. But I typically think you first need to get everything else in your house, your financial house in order.

Robert Leonard (43:16):

I think the audience that we’re speaking to is also a big determinant of what the opinions are of the person giving the advice. Like you and Dave typically speak to people that have no interest in this type of stuff, and they just know they need to do it. Versus the people that I talk to are typically a lot more hands-on. You listen to a podcast about money because you’re passionate about it for the most part, or you want to be involved. That changes the audience that we’re talking about. I think the approach and strategies that are right for the audience you and Dave might be speaking to, is a little bit different than the people that I’m speaking to because they might not need the path of least resistance, but somebody who you’re speaking to might. It’s interesting.

Barbara Ginty (43:59):

I will say that we are predominantly female-focused, and females own the majority of student loan debt. I think that as a female, they don’t love. I’ll use my sister for example. Super smart attorney. She comes on the podcast all the time. She wants to succeed with her retirement. She wants to have Roth money. She wants it all, but she doesn’t want to be in the nitty-gritty. I do think that I do see that difference between men and women, that the women want the plan and they actually are better at following the plan, in my opinion. Then the men really get down into the details of, what is my allocation? What are the investment returns versus when we’re talking about this holistic approach to success with your personal finance? The workplace plan versus the IRA, as long as you get it done, you’ll both succeed.

Barbara Ginty (44:47):

One person might want to dive more into the details of the investments where typically with women, it’s not that they’re not interested because they listen to the podcast every week. They’re interested more from the overarching perspective of what can the retirement do for them, not as much as what the investments are. At least in my opinion, and more about the overarching personal finance. How do student loans play into their plan? How do credit cards play into their plan? How do they buy a house? How do they get to retirement? Whether that’s FIRE or traditional.

Robert Leonard (45:13):

At the end of each episode, I have a segment that I call The Action Plan. In this segment of the show I ask the guest for, I ask them three questions that can help create an action plan for listeners to do when they’re done with this episode. The reason I came up with this is because I think a lot of people just aimlessly listen to podcasts and they just continue to consume content and they never take action. The reason I created this segment called The Action Plan is that hopefully, people will hear this. If they ignore everything else that was in this episode, they can just hear the action plan, take action on these three things, and hopefully, they’ll gain some value and move their life forward. The first question, which habit or principle do you follow in your life that has had a big impact on your success, that not enough people do, but should?

Barbara Ginty (45:58):

I think it’s discipline. I was going to say, I think the whole reason that I’ve succeeded is I’ve put my head down and continued to do the work even when you don’t see the results. I know we’re going to talk about favorite books, but that from Think And Grow Rich, the three feet from gold. I think that a lot of people want those immediate results, and I think you just have to do the same thing every day in and out, whether or not you’re seeing the results, just knowing that eventually, you will. I think that discipline is important in any goal, fitness, finance. I think it can relate to all aspects of life.

Robert Leonard (46:29):

You alluded to it, so let’s chat about it. What has been the most influential book in your life? I always like to note that I mention influential, not necessarily favorite, because I think maybe they’re the same sometimes, but they’re not always the same. Sometimes something could be your favorite book, but it’s not influential or vice versa. What has had the most impact on you? What has been the most influential?

Barbara Ginty (46:51):

I really like Think And Grow Rich just because I feel like the discipline has been the key, at least for me, of keeping my head down and continuing to work, even when I didn’t see results. Even when people said, “What you’re doing isn’t going to work.” I had a lot of people telling me things weren’t going to work and I just kept my head down. I definitely reread that section of the book multiple times to be like, you never know when it’s going to work. I just need to keep following the process. Can I give you another one? The other one I really like is Rich Dad, Poor Dad, which I have them all on my desk, but Rich Dad, Poor Dad, I gave to my sister’s fiance. I was like, “You need to read this book.” He’s currently reading that one. I think that one’s really good because it talks about being an entrepreneur, which I’m an entrepreneur, and I like all of his theories in there.

Robert Leonard (47:34):

I have a love, hate relationship with Rich Dad, Poor Dad.

Barbara Ginty (47:39):

Really?

Robert Leonard (47:40):

Those who have been listening to the show for a while, know that. But are you familiar with Ryan Holiday?

Barbara Ginty (47:45):

No.

Robert Leonard (47:46):

He’s written a couple of books. One of them is Ego Is The Enemy and a couple others, and you’re wording or you’re phrasing where you said discipline is the key reminds me of, it sounds like a potential Ryan Holiday book, and that’s a great compliment because Ryan Holiday is a great anchor and author. Now, when this episode is over, before the listener quickly jumps to the next podcast that they have queued up in their podcast player, what is one action? In addition to reading a book and developing discipline, like you mentioned, what is one action they should take that can help improve their life, career, finances, or business?

Barbara Ginty (48:21):

You have to have a plan. Whether that’s an overarching plan for your financial success, but if related to this podcast with student loans, you need to know what you have for your student loans. You need to know how long it’s going to take to pay them off, what your interest rates are, how your payment is being attributed, and I would absolutely make sure that right now we are on a pause, but once we get off the pause that you’re not dealing with interest capitalization, and then I would learn to understand the value of a principal-only payment.

Robert Leonard (48:46):

I know I was a guest on your show, your podcast already, so you’ve been able to ask me quite a few questions, but I still like to wrap up the show by allowing the guest to ask me a question, turning the tables for a second. What question do you have for me, Barbara?

Barbara Ginty (49:01):

Since we already talked a lot about real estate on my show, I was going to ask you, what’s your biggest takeaway from doing the podcast?

Robert Leonard (49:07):

My biggest takeaway from doing the podcast, and I’ve talked about this before, but I think it’s important, and I want to say it again just in case anybody else hasn’t heard it, or they want to hear it again. My biggest takeaway that I’ve learned from the podcast is not a specific strategy, it’s not anything specific that one guest has told me, rather, it’s this overarching dynamic or just realization that I’ve had when I step back from the mic and think for a second. That is that we’re more or less all the same. What I mean by that is, I’ve talked to some amazing, amazing guests. I’ve had Robert Kiyosaki on the show from Rich Dad, Poor Dad. I’ve had Louis House, Kevin O’Leary, some of these amazing, amazing guys. Before you have the chance to speak to them or even going up to those meetings, you sometimes feel, I don’t want to say inadequate, but you feel like you can’t do what they’ve done because they might have some special skills or special abilities that you don’t have.

Robert Leonard (50:05):

What I’ve realized through this podcast is that’s not the case. Sure these guys are talented, but they weren’t born with it. They put in the work to where they are. I think that we all have the ability to do that. That’s the biggest thing I’ve realized. Like I said, I’ve been on with some of the biggest names in business, and their dogs have run in the room or their kids have run in the room, or they’re in sweatshirts and sweatpants when they’re interviewing with me. You just realize that these guys and girls, they’re all normal people that have normal day problems like we all do, but they’re just building something extraordinary because they work extremely hard. It’s made me realize that we could all do what they’ve done.

Barbara Ginty (50:39):

Yeah, I hope so.

Robert Leonard (50:41):

Now, to wrap up the show, where can the audience go to connect with you and find you on the internet, find your podcast, find anything else you want to direct them to?

Barbara Ginty (50:51):

They can listen to your episode and you can find us at wwwfuturerichpodcast.com. That’s our homepage. We do have a free online class about student loans. If you’re one of the, what did I say, 44 million individuals with student loans, we have a free class that goes over to get a handle on them and tackle them, and you can find that on our website.

Robert Leonard (51:13):

I’ll be sure to put a link to the class, your website, I’ll put a link to the episode we did together as well. Some other resources in the show notes below for anybody that’s interested in checking that out. Barbara, thanks so much for joining me.

Barbara Ginty (51:25):

Thank you for having me.

Robert Leonard (51:26):

All right, guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (51:33):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcaster Network. Written permission must be granted before syndication or rebroadcasting.