Spending Problem? Try This!

Recently, I was taking in some content by an expert in psychology and money, Brad Klontz.  He studies how people make money decisions and the emotional barriers that exist to making good decisions.

One of his tips to help people spend less money was to put a note in your cell phone that would have the following questions:

  1. Do I really need this?

  2. Do I have room for this?

  3. What if I wait to buy this?

  4. How will I feel tomorrow if I buy this?

He suggested every time you are about to make a purchase you take your phone out, look at and answer each question before you buy the item.  If you still think you need/want to buy it, then buy it tomorrow instead of today.

We all know people who have major difficulties spending too much.  This might even be you! As I discuss money with people one of the most common things people say to me is how they struggle with shopping and/or over spending.

Trying to use willpower sometimes isn’t enough.  Our emotions get in the way.

Having spending rules and systems can keep these emotions in check.

This is why I have been a long advocate for the 24-hour rule for large purchases.  If it is a good buy, it will be a good buy tomorrow. If it is not a good buy, you give your rational part of the brain time to think instead of just letting your emotional part of the brain be in complete control in the moment.

This additional action of answering these questions forces your rational brain to get involved in the decision.  It might be just what you need to avoid making a spending mistake you will regret.

Our emotions get involved in our financial decisions all of the time.  In many ways we are hardwired to do things wrong. Having rules or a systematic way of making choices can help improve our chances of keeping us on the financial track we want to be on.

Student Loan Forgiveness for Teachers

Even though I frequently get questions from teachers about student loan forgiveness programs, there are still many who don’t know that forgiveness and cancellation options exist.  In fact, some of these programs were set up specifically for teachers.


Those that do know that programs exist, can quickly get overwhelmed by the different plans and how to decide which, if any, would be the most appropriate for them.  In this post, I tried to organize the different plans so that you can quickly figure out if they may be an option for you.


First, I should note that private student loans are not eligible for these forgiveness programs.  If you are struggling with these type of loans you will have to call the lender directly and see if they will work with you.  Also, it is important to understand that if you consolidate your federal (public) student loans into a private loan, most likely you will lose eligibility for these and any future forgiveness options.  If you are unsure about the different types of student loans, HERE is a primer.


Here is a look at the available ways that teachers can potentially get student loans forgiven.


Income Based Payment Plans


When you begin paying back your federal student loans you will choose a payment plan option.  You can choose the standard 10-year plan, graduated plan, extended plan, or an income-based option.  People struggle with what is the best option for them.


Income-based options come with a potential added benefit of forgiving any balances that remain after a certain amount of years.  This can greatly help those with low incomes or very high loan balances.


The government keeps adding income-based plans so it can become confusing pretty fast.  Currently, there are 4 income-based plans that can end up in student loan forgiveness: IBR, PAYE, RePAYE, and ICR.  Here is a quick rundown of each plan:


Income-Based Repayment Plan (IBR)


  • For loans issued before July 1, 2014:

    • Payment max of 15% of your discretionary income.

    • Remaining loan balance is forgiven after 25 years of payments.

  • For loans issued after July 1, 2014:

    • Payment max of 10% of your discretionary income.

    • Remaining loan balance is forgiven after 20 years of payments.

  • If any amount is forgiven it will be considered income on that year’s tax return.


Pay As You Earn Repayment Plan (PAYE)


  • For direct borrowers, if received disbursement on or after Oct. 1, 2011.

  • Payment max of 10% of your discretionary income.

  • Remaining loan balance is forgiven after 20 years of payments.

  • If any amount is forgiven it will be considered income on that year’s tax return.


Revised Pay As You Earn Repayment Plan (RePAYE)


  • For all direct borrowers no matter when the loan was taken out.

  • Payment max of 10% of your discretionary income.

  • Remaining loan balance is forgiven after 20 years of payments. (if all loans for undergrad)

  • Remaining loan balance is forgiven after 25 years of payments. (if ANY loans for graduate or professional)

  • If any amount is forgiven it will be considered income on that year’s tax return.


Income Contingent Repayment Plan (ICR)


  • All direct borrowers qualify.

  • Payments will be lesser of:

    • 20% of your discretionary income.

    • The equivalent of a fixed payment plan of 12 years, adjusted to your income.

  • Remaining loan balance is forgiven after 25 years of payments.

  • If any amount is forgiven it will be considered income on that year’s tax return.

  • Parent borrowers can use this plan if they first consolidate their parent PLUS loans into a Direct Consolidation Loan.


*You must recertify your income and family size each and every year for these options.  These changes may cause monthly payments to increase or decrease from year to year. It is in your best interest to remember to do this (they do send reminders).  If you neglect to do this, negative consequences can include a sharp increase in monthly payment or disqualification of the program.


Public Service Loan Forgiveness (PSLF)


Many teachers are eligible for a program for public service workers because they work in a public school setting.  Private school teachers may be eligible depending on the circumstances. For many, this will be the best program among the bunch because it is a ten-year payment timeline (instead of 20 or 25) and the borrower doesn’t have to report any forgiven balances as income on their taxes.


  • Must be using one of the income-based repayment plans (see above)

  • Must be a full-time employee. (at least 30 hours per week)

    • Must work for a public service employer:

      • Government organization (federal, state, local, or tribal).

      • Not-for-profits under Section 501(c)(3) IRS tax code.

      • Other types of non-profits.

  • Must have a Federal Direct student loan

    • Family Education Loans (FFEL) and/or Federal Perkins Loans must first be consolidated to a Direct Consolidation Loan in order to be eligible

  • Remaining loan balance is forgiven after 10 years of payments.

    • Eligible payments are ones made after Oct.1, 2007.

  • Any amount forgiven will NOT be counted towards income.


Teacher Loan Forgiveness Program


This program is for teachers that serve low-income students and/or specific subjects of need.


  • Eligibility:

  • Maximum forgiveness amount either $17,500 or $5,000, depending on the subject taught.

    • Up to $17,500 if math or science at the secondary school level

    • Up to $17,500 if special education teacher (elementary or secondary)

    • Up to $5,000 if none of the above.

  • Any amount forgiven will NOT be counted towards income.


Perkins Loan Cancellation for Teachers


If a teacher has outstanding Perkins Loans (which are need-based student loans) they can get up to 100% of the principal balance cancelled after five years.


  • Eligibility

    • Full-time teacher in public school or nonprofit school system and one of the following:

      • Teacher in a school serving low-income families.

      • Special education teacher

      • Teacher of math, science, foreign languages, bilingual education, or shortage area determined by your state education agency.

  • Cancel up to 100% of a Federal Perkins Loan.

    • 15% cancelled for the 1st year

    • 15% cancelled for the 2nd year

    • 20% cancelled for the 3rd year

    • 20% cancelled for the 4th year

    • 30% cancelled for the 5th year

  • Any amount forgiven will NOT be counted towards income.


State Programs


Some states have additional loan forgiveness programs for teachers and others.  The easiest way to find this is to just Google “teacher forgiveness your state”


For example in Iowa, where I live, the state has the Iowa Scholar Program:


Teach Iowa Scholar Program (TIS)


  • Eligibility:

    • Graduate on/after January 1, 2013.

    • Graduate in the top 25% academically of your teaching program.

    • Full-time employment in Iowa in a designated shortage area.

  • Can receive up to $4,000 per year for up to 5 consecutive years.




Deciding how to pay back student loans can be difficult and confusing.  Just getting the correct information can be a time-consuming process.


The student loan landscape is constantly changing.  Programs have been added over recent years and more could be added in the future.  Sometimes states add and drop programs depending on funding available or the political landscape.  Some workplaces are now recognizing that student loans are an issue for their workers and are offering to pay back loans for their employees over time.  Additionally, the current Trump administration has hinted at changing and/or dropping some of the federal programs outlined above.


I would also add that for many just paying your student loans down as fast as possible can be the simplest and best solution even if you are eligible for forgiveness programs.  (Check THIS story out for some motivation!)


Everyone is unique.  What is best for one person may be a bad option for another.  Looking at your whole financial picture is important when making this decision.  Considering the following may help you decide what is best for your specific case:


  • Current income.

  • Potential income growth.

  • Your comfort level of taxpayers potentially paying your loan forgiven amount.

  • Other debt obligations.

  • The political climate and possible changes to these programs.

  • Tax considerations.

  • Your tolerance of having debt.


If you would like help going through this process to make the best decision for your situation let us know HERE.

Types of Student Loans - An Overview

Student loans can be confusing.  Whether you are looking into getting loans for the first time or trying to identify the type of loans you already have, I hope this guide will be helpful to you.  There are two types of student loans: federal (public) loans and private loans.


Federal Student Loans


A student must complete the Free Application for Federal Student Aid (FAFSA) form to determine eligibility for the following loan programs.  This application will also determine potential eligibility for grants and work-study programs.  In addition, many schools use this to help them determine who will get financial aid directly from their institution.  Below are brief outlines of the different types of federal student loans:


Direct Subsidized (Stafford) Loans


  • Must show financial need.

  • For undergraduate degrees.

  • The government will pay (subsidize) the interest while still in school.

  • U.S. Department of Education is the lender.

  • Maximum amounts:

    • $5,500 for 1st year undergraduate (up to $3,500 can be unsubsidized).

    • $6,500 for 2nd year undergraduate (up to $4,500 can be unsubsidized).

    • $7,500 for 3rd year undergraduate and after (up to $5,500 can be unsubsidized).

  • Maximum Aggregate limits:

    • $31,000 (up to $23,000 can be unsubsidized).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Direct Unsubsidized (Stafford) Loans


  • No financial need necessary (i.e. Bill Gates’ children would be eligible).

  • For undergraduate, graduate, or professional degrees.

  • Interest will accrue while still in school.  Student likely does not have to pay interest while in school, although they can choose to do so.

  • U.S. Department of Education is the lender.

  • Maximum amount (see above, as explained with subsidized loans).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Direct (Parent) PLUS Loans


  • For parents of dependent children.

  • Also for graduate, or professional degree students.

  • No financial need necessary.

  • The borrower must NOT have adverse credit.

  • U.S. Department of Education is the lender.

  • The maximum amount is the cost of attendance (minus any other financial aid received).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Perkins Loan Program


  • Must show financial need.

  • For undergraduate, graduate, or professional degrees.

  • School is the lender.  Schools have limited funds to distribute.  Also, not all schools participate in this program.

  • Maximum Amounts:

    • $5,500 per year for undergraduate degrees.

    • $8,000 per year for graduate or professional degrees.

  • Maximum Aggregate amounts:

    • $27,500 for undergraduate degree.

    • $60,000 for graduate degree (includes the amount as an undergraduate).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Private Student Loans


These loans are made directly from a lender, such as a bank, credit union, state agency, or school.  Typically private loans are used when a student doesn’t have enough to pay for their schooling after considering the federal loan programs for which they are eligible.


These loans can vary greatly from each institution but generally, they have the following characteristics:


  • May require payment while still in school.

  • The borrower may need a cosigner.

  • Can have variable interest rates.

  • May require a credit check which can determine interest rates and terms.

  • May not offer forbearance and/or deferment during financial hardship like federal loans.

  • Can often borrow up to the cost of attendance, if approved.


Generally, federal (public) student loans are better than private student loans, for all kinds of reasons.  So it is usually wise to exhaust federal loan options before getting private debt.


If you would like help making good decisions of how to pay for college or the best way to pay back student loans please let us know.  

How to Pay Off $66,000 of Debt in 14 Months

Checking my email one day, I came across an article posted on LinkedIn that a former student of mine had written.  I was amazed to read that he was able to pay off over $66,000 in debt in only 14 months!


In my high school economics class, I teach the virtues of saving and getting out of debt, so you can imagine how proud I was as his former teacher, to read about this great accomplishment.  So I reached out to Chris and we had coffee. I had to know more about how he pulled off this amazing feat!


All of us can learn from his journey.


Decide to Be Different


Chris told me that he witnessed the struggle his sister was having paying her student loan debt.  It impacted her life in many ways. Not wanting this to be his fate, he decided that he was going to take action and not be the typical college graduate still having to make monthly debt payments 10 years later.  


This decision to be different cannot be understated.  


For it is this step that makes someone willing to make the sacrifice in the first place that allows them to achieve better than typical results.  It is so easy just to resign yourself that you have no power to make things better and you end up doing what everyone else is doing. Chris decided that he could change his fate.


Do you want things to be different?  Are you willing to do the things that most aren’t willing to do in order to get there?


Create Multiple Streams of Income


He didn’t just use his full-time income to accomplish this feat.  He also sought out ways to make additional income. He bought and sold things on eBay.  He also became the go-to guy for his friends that found themselves with gift cards they weren’t going to use.  Chris would buy these gift cards at a discount and then sell them to others who would use them. He said this started with a few friends and then the word got out that Chris was the guy to see if you had a card you didn’t want.


By spending time with his entrepreneur hat on, he told me that not only was he making additional money, but this had the added benefit of spending less time on activities that cost money.  


If you work more hours at your job or on “side hustles” you spend less money.  There is much wisdom in this.


Find Ways to Keep Spending Low


The biggest way he kept spending in check was to move back to his parent's house.  By saving huge amounts of money on what for most of us is our largest spending category (housing) he was able to shift this money to his goal of paying down his student loans.


Now some of you may be thinking that this step is not possible in your situation.  This may be true. But don’t lose the lesson in the details. The point is Chris was able to spend low amounts on expenses that are usually high.  For most of us, these big spending categories are where the greatest amount of money can be found to change our financial path for the better. Knowing Chris, if he lived in a city far away from his parents, I think he would have been willing to live in a crappy apartment with multiple roommates to keep his housing expenses low.  


This is not the only example that he shared with me.  He lived very simply during this time. By making lifestyle sacrifices he found money that was able to go toward his goal.


Track Progress to the Penny


He seemed a little embarrassed to tell me that he tracked this goal so much in depth, that at any given day in this process, he could tell you how much debt he had to pay off… to the penny.  He had a spreadsheet that he created that used to track his goal and he looked at it frequently.


I thought this was great!  This may be a bit overboard, but really when you think of it, this probably had a huge psychological effect on him the helped him to be successful.  His debt goal was constantly on his mind because he created ways to keep it front and center.


Tracking progress on our goals often keeps them front and center in our lives.  It reminds us to make good choices. To say no to things we don’t need. To continue the good financial habits in our lives that will make it possible to achieve the things in our lives that we strive for.  


Focus on One Goal at a Time


This story exhibits the power of concentration.  Chris didn’t spread his extra income around to 3 or 4 different goals.  Instead, he focused on one task only. This goal became his obsession. Because of this, he found that his remaining debt started to go down fast.  He saw his hard work and sacrifice making a huge difference which reinforced these actions. It gave him the incentive to truck on.


What is the one thing that would make the biggest difference in your life if you made it better?  What would happen if you focused all your energy on that goal?


Think of the Possibilities


Chris achieved this amazing feat by the time he was 21 years old!  (Oh, by the way, because he had college credit from high school and he focused on success in school, he was able to graduate in 2 ½ years.  Chris is a man of action!)


Imagine the opportunity for his financial future.  Achieving this goal of being debt free at such a young age will allow him to live a life free from debt burden and to set himself up to be very financially successful.


Imagine if he were to just take his initial student loan minimum payment of around $600/month and invest this going forward for the next 38 years?  At an 8% annual return, he would accumulate over $1.7 million by the time he is age 60! I think he will be able to have an okay retirement.


If you want to read the original story written by Chris himself, here it is.


Lessons Learned


Ever since meeting with Chris I have shared his story with my high school students.  I want them to see that becoming debt free can be done. Chris was a student just like them.   If he can do it, so can they… so can you!


My hope is that sharing this story will have the same impact on you.  If your finances aren’t where you like them to be, you can do something about it.  Chris’ journey gives us a roadmap:


  1. Decide that you will be different.

  2. Find ways to make some extra money.

  3. Spend less by living simply and making some sacrifices.

  4. Track your spending and goals.

  5. Prioritize your goals and concentrate on the most important one.


If you do these 5 things you will move to better outcomes with your finances.  


If you want help planning this out, let us know.

Print Friendly and PDF