COVID’s Student Loan Deferment Update

This post may contain affiliate links. Please see my disclosure to learn more.

I don’t think I will ever forget this past Saturday when I learned that the student loan deferment was going to be extended until December 31st, 2020. As in, there is 0% interest on student loans for an extra three months this year due to COVID. This only applies to public student loans, not private student loans. Therefore, if you refinanced with a private lender, I would confirm whether deferment applies or not. But anyway, back to how this Saturday went.

It was sunny, and I was sitting at the park with Mike, my two siblings and my roommate. We were with my parents who had made us a nice barbeque. After spending the early afternoon poolside for hours with Mike, the BBQ was the icing on top of an already relaxing weekend. We had just finished looking up at the sky watching a jet plane spell “Marry Me” for a proposal to someone whose family happened to be setting up a picnic at the bench across the way. We knew it was related because of the champage, white roses, and blatant (and shall I say pre-emptive?) congratulatory sign.

We were discussing the ways in which to propose to someone. I’d like to think my siblings are of the non-romantic variety, probably to off-set my mother’s wildly lovey-dovey emotions. The conversation was about how unnecessary extravagant proposals were, and the frivolities on which we throw our money – when my brother glaned at his phone and announced that he just got a text with an update. Four new executive orders were released. He casually listed all four but I remember the giddiness (and shock) I felt when he announced that student loans were deferred at 0% interest for three more months.

My jaw literally dropped. I’m sure my eyes got all big like they do when I am swept with disbelief. I think my heart stopped for a moment, too. I asked a ton of questions, to which he replied, “That’s all I read,” with a shrug that told me he’s already moved on.

I could not believe my luck. I was smiling so big. This moment was very big for me.

I will remember this as the moment when I felt like everything I have done amounted to something really worthwhile.

My loans started at $575,000. It is taxed at 6.8% interest, but by switching from IBR to REPAYE after consulting Travis Hornsby from Student Loan Planner (affiliate link), we saved over $10,000 in interest. This is because REPAYE pays for half of the monthly interest for the first three years of the program whereas IBR does not.

When COVID hit, our principle was at $436,000. We stopped paying the loans aggressively since the interest rate went down to 0%, meaning the loan is not growing. We do still pay the minimum payment because we don’t want to be categorized as deferring our loan. Even though there is no penalty on your credit score for deferment, the “deferment” designation stays on your record. This could affect certain situations such as purchasing a house. If a mortgage lender sees that you had a deferment in the past year, they may decide not to lend you money. In that sense, deferment may still have an effect on your future financial endeavors. This is why I would recommend continuing to make the minimum payments, if able.

Meanwhile, we took the rest of our large, monthly payment and placed it in a high yield savings account at Marcus (by the way this is a referral link through which you can receive an additional 0.20% APY for 3 months) . This allows us to grow our money more while still keeping a liquid asset. A few hundred dollars of interest over the course of eight months may not seem like a lot, but it’s literally FREE money. I want my money to do the work for me, and this is one of the ways that we do that.

Of course, we can invest but our original plan was to pay off a huge sum on September 31, 2020 when the deferment was supposed to end. In fact, our plan was to reduce our loan from $436,000 to $380,000! We were simply setting the money aside and we did not want to tie it up in investments. I know that investments may give a better return, but we want to stay focused on our goal, which is to pay back the debt as soon as possible.

But now that we are going to wait until the new year to make our payments, my goal is to get our loans down to $350,000 on December 31st! Which means that on our anniversary (yes we got married on New Year’s Eve) we will be dropping the most we have ever dropped on our loan.

You may be wondering, how does the student loan deferment help us with our situation?

Well, let’s run some numbers.

$436,000 at 6.8% interest means that $29,648 of interest is added on to my loans each year.

Under REPAYE, half of that is paid off by the program for the first three years. Which means that $14,824 is per year is added to my loans in interest. This also translates to: $14,824 of what I pay towards my loans does not reduce the principal amount.

$14,824 of interest per year equates to roughly $1,235 per month of interest.

The student loan deferment due to COVID is now going to last 9 months.

Therefore, 9 months of $1,235 interest or $11,115 in interest is not being added to my debt. I am not wasting $11,115 of my hard-earned, post-tax dollars this year, which is the same as $15,878 of pre-tax dollars. It also means I can apply an extra $11,115 towards my principal amount!

I can see stars, I’m so happy.

Whose to say what will happen after this? All I know is that this is a big opportunity for us.

A big opportunity for a lot of graduates out there.

If you have student debt, you can definitely make the most use out of this time to pay it back quicker. That is, if you are on the path of standard repayment.

Then again, did you know that two-thirds of the borrowers were only paying the interest on their debt each month? This means that for two-thirds of graduates, their balances are not actually going down. For those under the loan forgiveness program, their balances are actually going up!

To make matters worse, it is unclear yet if the missed months will count as payments for those enrolled in income-driven repayment plans or the public service loan forgiveness plan. I have yet to find something regarding that written in stone. It’s all heresay. Meaning, this 8-month period may prolong the amount of time a person has to wait until their loans are forgiven. YIKES.

Lastly, prior to COVID, 1 in 7 borrowers were already defaulting on their student debt. What can we expect after COVID is all over? Many people are going to be left un-employed. How many more borrowers will default?

What if the economy takes such a down-turn that they pull the forgiveness programs altogether, leaving millions of young Americans swimming in trillions of dollars in student debt? Leaving two-thirds of borrowers with debt that has actually accrued interest. I would love to offer consoling words about how previous borrowers would be grandfathered in but I have never read that anywhere in the fine print. It just isn’t there.

My sister herself went through such a situation where the government program was pulled 6 months prior to her “forgiveness”, leaving her with $70k of student debt at a teacher’s salary after working at a low-income school for five years which should have qualified her for loan forgiveness.

I am not trying to scare anyone here, but we cannot turn a blind eye and hope for the best.

I have never felt more confident in my decision to be aggressive about my student debt. It has been a very lonely road, but I couldn’t be happier. I want others to know that this may be possible, too.

If you are paying back your student debt aggressively or want to pay it back as soon as possible without relying on the government to waive the debt, here are a few suggestions on what to do:

Pay the minimum payment to your lender if you can, to prevent from being classified as having a deferment.
Use the extra cash from your would-be extra payments to build an emergency fund. During COVID, you never know what can happen. Jobs are unstable, the economy is unstable, and the virus is still with us. You can always flip the emergency fund to a large sum payment later when this all ends. I would recommend storing such liquid assets in a high-yield savings account.
Pay off other high-interest debt. Did you know that the average US household has $5,700 in credit card debt? And credit cards have high interest rates, averaging at 18.61%. Get rid of that stuff!
Cut out as much spending as possible using frugal life hacks, my favorites of which can be found here.
Budget out the rest of the year. We personally love using YNAB.
Keep earning income. If you’ve lost your job, get back out there and earn where you can. Start a blog. Open a bakery. Walk some dogs. Ask to sit kids so that parents can go back to work. Offer online tutoring for those struggling with the distance-learning. Give yourself the skills worth sharing. Every little dollar counts right now. This is your gift. Consider the 0% interest rate the student loan version of FREE money.
Bookmark December 31, 2020 as the day you make your move.

If you need help, reach out to me anytime. I am rooting for you!

And make sure to sign up for this free course I wrote on how to set up a budgeting tool that works!

Finance: Financial Independence is for times of COVID

This post may contain affiliate links. Please see my disclosure to learn more.

There are circulating rumors that this pandemic has deemed the FI movement dead. Articles in mainstream media have been claiming that people who are in the midst of attaining FI are now struggling to live. As a FI defendant and warrior, I would like to say that the opposite is true. In fact, this pandemic has shown our little family that the path to financial independence is strictly for times like these. Not saying that I ever expected any of it to happen. I mean, there’s no way I could have predicted this and I certainly did not wish it upon the world. But the financial independence journey is the reason why this pandemic was so good to us. Here’s why.

Why FI is for times of COVID

FI is built on a number of different life-hacks that enable one of my life’s core values: freedom. The word independence itself is crucial to the term FI. Many of the principles in the financial independence community center around independence from other things such as your job, the market, societal expectations, debt, and of course, money. All of this was affected by the pandemic.

Those who are following the FI principles are more likely to have embraced job independency through side-hustles, entrepreneurship, self-employment, or simply creating multiple income streams. Many FI families had an emergency fund to carry them through times such as these past few months. If you’ve taken my course, you also know that mastering a budget is a super-power. If you’ve truly mastered your budget, you would have control of your spending, created a savings, and also planned for the spending a few months ahead. Most FIers lack debt. I, of course, have a huge student debt, one that I’ve also worked diligently to free myself from (see the progress here!). But even this single choice to aggressively pay down my student debt has helped me significantly during COVID-19! I mean, who would have ever predicted that you could get six months of 0% interest rate on student loans? Nobody, ever.

Meanwhile, the market is crashing and FIers with money reserves in their mastered budget can invest at low rates. They can buy rental properties due to their stellar credit history. They can survive off of an emergency fund in case of a layoff. Better yet, they can use their additional income streams or refocus their money-making to their side-hustle business. I’m not saying this is the time to brag, but perhaps it’s the time to pivot.

How COVID helped our financial journey.

Perhaps the reason why people think that the pandemic will negatively affect FIers is because not many of us have been sharing how it has helped. I can’t speak for all FI families, but for us, here is what happened.

Mike had wanted to pursue coding for a while. We decided to sign him up for a course in January and paid the tuition upfront and in full, which we were able to do thanks to our great budgeting and savings (Our entire budgeting method is compiled in this course that I wrote, if you’d like to follow in our steps). In February, about a month before the March 15th California lock-down, Mike offered to be laid off from a company that was down-sizing by forty percent, in exchange for a severance pay that would help with the transition into coding. After the severance pay ended in April, he qualified for EDD due to the lay off and got an additional $600 a week that the EDD was paying out to those who just found themselves unemployed, thus easing the transition even more. In fact, we had expected to receive $1800/mo from EDD prior to COVID 19. Due to the additional $600, Mike gets “paid” $4200 per month to study a course. What does this have to do with FI? Well, we wouldn’t have been able to pay for the course upfront without a savings. We wouldn’t have felt comfortable with Mike switching careers without a stable financial background. And we wouldn’t have been so non-chalant about the lay offs without a back-up plan (which is our other income streams).
I have multiple income streams. I own a corporation as a dentist and pay myself. As a dentist, I work at two different offices which also increases my chances of always having work. I also owned a bakery which I closed a week before the COVID shutdown (for real! What timing…) but which I considered turning back to if both dental offices remained closed (they didn’t). I also had a dog-sitting business on ROVER, as well as this blog wherein I make commissions through affiliate linking. I was out of dental work for a week and a half wherein I spent most of my time writing about it. I then went back to work (three days a week, half the amount of time I usually worked) and poured more time into this space. It has grown tremendously the last two months! All of this to say, I had options in terms of career.
All public student loans got reverted to 0% interest until September 31. This means that any student trying to pay down debt aggressively has a chance to make the money snowball go faster! Of course, I paid only the minimum monthly requirement for these COVID months just to keep cash liquid in case of emergencies, but now we’ve found ourselves sitting on a big chunk of change that we could use to buy a rental property. This gives us choice. I could drastically reduce the loan repayment journey to 2.5 more years, or I could invest in more long-term passive income.
We house hack which means we have someone living with us which helps us pay mortgage. I would count this as an additional income stream for us.
Speaking of mortgage, we refinanced our home. Due to our great credit, there was no hitch when we decided to refinance. The refinance gave us an additional $500 a month to put towards something else!
We paid off Mike’s car in May, therefore paving the way for quickening the loan repayment journey now that we can funnel those would-be-car payments into student loans.
We used COVID related benefits for health professionals and medical doctors such as retail discounts. Some of these benefits continue until the end of 2020.
We got free food when fast food places. I think we made use of free tacos on Tuesdays from Taco Bell four times. Mike got a free meal from Cafe Rio. Mike’s dad and grandpa live in a 55+ community and they received weekly boxes of nearly-expiring groceries. They picked what they wanted and Mike and his sister (and me) benefited from the rest, which then reduced our grocery bill.
COVID inadvertently reduced our monthly spending. Our cleaner couldn’t come for her bi-weekly cleaning which saved us $200 a month. Why would she when all three of us were home to clean, anyway? Mike had no work so there was no need to commute. He took online courses at home, which saved us $100 a month in gas. The aforementioned free food from Mike’s dad and grandpa saved us $100 in groceries per month. Since the yoga studios and gyms were closed, Mike and I had to replace our new-found love for yoga with running outdoors, thus saving us $250 a month.
COVID prevented us from traveling. All our trips got cancelled, which made us quite sad but at the same time, it saved us close to $10,000. (Between March and July, we had trips planned to Japan, Maldives, Hawaii, two trips to Norcal, one to San Diego, a bachelor party for Mike in Colorado, a bachelorette in SD…). We had two weddings that were also sadly cancelled.

Let’s add this all up, shall we?

During COVID, the following things changed in our monthly budget:

$4500 from EDD for Mike’s work transition
$500 per month savings from the home refinance
$585 per month savings from paying off the car
$200 savings from not having a cleaner
$250 from not having a gym membership
$100 gas savings from not having a commute
$100 from the food box donations
$1400 a month of interest that the government isn’t taking from my student loans

That’s $7,635 savings per month due to COVID. Multiplied for the two months we’ve been in this lockdown.

Plus the $10k that we saved from not traveling.

I would assume we have saved near $25,000. Plus the liquid cash I kept from only making the minimum payments for student loans ($16,500).

Now you know why we are looking at a second home.

The FIers are not going to suffer from COVID. If anything, they are likely the least to suffer. I know of FIers who have bought one rental property a year for 15 years straight. Most of them make passive income from real estate or intellectual assets. Many are entrepreneurs, self-published, self-employed, self-sustaining. Most don’t have debt and they ALL have funds to rely on. On top of that, they have a well-balanced investment strategy that is mostly hands-off which protects them from panic-selling during times of market volatility. We are frugal, make use of opportunities, are in the know of life-hacks and benefit from financial situations such as these. That’s what FI is about. And everyone can become FI. Even though the media and the general public would like you to think otherwise. Just like they tried to tell me the loans would be unwise to pay off.

Is FI for you?

If you’ve recently lost your job due to the pandemic, perhaps it’s time to create a space for yourself. There are many pros to being self-employed. Even something semi-self-employed such as creating contract work under your name is a great option. Additionally, now may be the time to chase a dream of yours by picking up a side-hustle. Do something you love, and make money doing it. I did that with this blog, and if that interests you, perhaps you’d like to learn more about how to do that here. If you want to make money dog-sitting, apply to Rover today.

If you felt the crushing loss of a job and didn’t have an emergency fund, then the last few months may have been difficult. The EDD stipend of $600 a week to those who are unemployed has helped many, certainly, but really, having an emergency can also alleviate that stress. Start by mastering your budget. It’s the first step to all financial independence journeys.

If you have a lot of debt, it’s time to start paying it off. If you have trouble paying off your credit card debts, you can always try The Credit Pros. They will help identify the most damaging and most helpful credit items, as well as provide advice and educational tools.

Student loan questions in particular? Now is the time to talk to a professional. Our recommendation is Travis Hornsby of Student Loan Planner. Schedule an appointment through my affiliate link, here.

It’s never too late to start. Trust me. I started from the bottom. Negative $575,000 bottom.

Thoughts On: This Surprise

I know it’s hard for people to live in a world that feels so reduced. Trust me, you are not. Trust me, I’ve been there.

It’s quite the sensation feeling like you’ve got nothing left to lose. Like all your decisions led you here. Trust me, I’ve been there.

I know what it’s like feeling enslaved by a system. Despite losing your freedom to move, you still have the freedom to choose
how to continue living when you’re tied to stillness and a snail’s pace. But even snails get somewhere.

You don’t have money, god knows I never did, but you have a brain, your health, love, hope, dreams, a breath. And if it were only one of these things, I’d venture to call THAT a life,
This a phase,
You, a force,
The world, your oyster,
The virus, a lesson.

Because the best thing I ever learned was that nothingness is a gift, and starting from the bottom means there’s an up. Something to look forward to and make life worth living. Nowadays I choose to live with less, knowing ultimately people can’t tell me what I can’t do, and if you dig deep enough into the recesses no one else is willing to touch, you will find that all you need for a good life is with you in the form of a past that no one can take, a future that only you can destroy, and a present which we are always lamenting but the great thing about having nothing is not having anything to lament.

Is it so bad not being able to know what can happen next? I bet it’s the first time in years that you haven’t tried to plan or control your entire life. In a way, I’ve found myself worrying less. Moving with the tide. Sleeping in without guilt. Forgetting the days.

Isn’t this what living is — Letting things unfold in due time?

I don’t know about y’all, but this was a good surprise.

How to Care for House Plants

We’ve been mulling a question for a while, tossing it around, letting it linger on our lips. “When this is all over, what will be the first thing you’ll do?” We’ve got answers up the wazoo that show signs of who we are, and what we miss – the little things that meant more than we could even know. Happy hour cocktails and cheap pub food surrounded by a large group of friends; Gym memberships to be rid of the COVID-15 and to be a part of a community; Sand in my hair and thongs between my toes.

To the last one, I say “Cheers!”

Rather than lamenting the current situation and wallowing in self-pity, I do think that we can start to amend for the last bit of longing by bringing the outdoors in, or at least, introducing a bit of nature to our internal spaces. Houseplants can be a reprieve from the cabin fever signs and symptoms that we have all been exhibiting. They are especially useful in calming the distraught and frustrated, feelings which I’m sure have surfaced during this time of personal introspection. Additionally, they boost overall mood, purify the air of toxins, boosts creativity, and makes the indoors more aesthetically pleasing.

We are all dying to get outside. The weather is turning nicer by the day and we’ve pretty much written off Spring and moved on to summer. But despite the long list of “firsts” that our house has planned once the stay-at-home mandates lift, I have also been enjoying this time at home (truly!) and it would be a shame to rush on to to-do lists and whatever the future holds when there is so much work left to do here in the present.

Today, I go over a few houseplant care routines to help refocus the mind into the now, to facilitate a continual tending to the home, and to, well, bring the outdoors in.

Repot plants in new, healthy soil. Plants outgrow their vessels and their soil. Every year, around Spring time, we repot our plants by gently easing them out of their current vessels, removing some of the soil around the roots, and placing them in their new home. It may take a while for a plant to adjust to a new pot, so don’t be discouraged if you see a pause in growth. Over time, you will find that the soil helps to grow your plant much quicker than before.
Wipe the leaves of your plants. Some plant leaves take up a large amount of real estate. All the more to take in sunlight! But also, all the more to collect dust particles. Plants like Monsteras and Fiddles can accidentally collect too much dust, which will then prevent them from absorbing light. Try wiping down plant leaves regularly with a cloth towel and water. Be gentle so as not to damage tender greens. Get ready to admire your plants even more – they’ll look fairly glossy and polished!
Rotate plants a quarter turn every week. Technically, you can follow a different rotation schedule, but just try to rotate the plants every once in a while for even growth. Plants are in love with the sun and if they aren’t rotated, they can start to lean towards a single direction or grow unevenly, which doesn’t make for a pretty sight.
Prune off dead or wilted leaves. When leaves start to yellow and wilt, don’t take it as a sign of failure. Perhaps the plant is making way for new leaves to grow. I can’t recount how many times yellowing leaves have been a signal for two more to grow in its place. However, you will want to remove these leaves as they can affect the health of the rest of the plant. Don’t wait until they start to rot, as this can cause unwanted fungus or mold to start cohabiting with your favorite shrub.

Mist plants with water. Plants love a good misting. The cat, however, hates my spray bottle and runs away until it’s all over. I place water in an amber bottle which remains at hand on a shelf for random spritzes throughout the week. The leaves definitely perk up after a nice splash. I like the effect so much that sometimes, when I water my plants, I haul them into the shower to mimic a rainforest environment and drizzle the water right over them. Unfortunately, my Monsterra and Fiddle are getting way too large to move around, but I’m not complaining!

Propagate. When you’ve done all you can to care for your existing plants, the only thing left to do is … MAKE MORE PLANT BABIES! My favorite to propagate are fast growing plants like our Pothos. It’s quite easy to do. Snip off a few stems with the node still intact, and place them in a glass container filled with water (no soil). After it starts to root (about a month later), gently pot the plant, surrounding the baby roots with healthy Earth. Plus, plants make great non-material, frugal gifts and I have gifted two propagated Pothos plants in the last year!

I hope these tips have at least helped to pass another five minutes of your morning. I hope your plants have calmed you down, and you are energized by the fact that you’ve already taken care of one small aspect of your home today.

I know we are all itching to get outdoors and for quarantine to be over, but mayhap our discomfort with being at home signals an even deeper mal-alignment. I encourage you to hang in there and stop burying unrest with things to do in the future. It’s what we’ve always done … but it wasn’t working. It takes a great deal of strength and courage to sit in an uncomfortable situation but a presence of mind can really bring light to what is at the root of our malaise. Whenever you feel like moving on to “better days”, I ask that you pause and take the opportunity to dig just a little deeper.