Episode 27: Robert Farrington on the Fastest Ways to Get Out of Debt

Robert Farrington is the founder of The College Investor, a site that’s helped people with their student loans for 10 years and counting. He worked as an executive at Target before making his way into the personal finance blogosphere following a horrible experience with FedLoan Servicing. Learn about Robert’s thoughts regarding Public Service Loan Forgiveness (PSLF), the student loan crisis and his advice for getting out of debt.

In today’s episode, you'll find out:

• Why Robert founded The College Investor
• Why articles claiming PSLF will have a 99% rejection rate are misleading
• How a lack of education regarding student loans hurts borrowers
• How a side hustle can help you pay off your student loan debt more quickly
• Robert’s advice for student loan borrowers considering whether to buy a house
• His thoughts on whether the student loan crisis will eventually crash
• How trying to unwind the credit in the student loan marketplace could negatively affect graduate programs
• Why Robert is a fan of borrowing caps for student loans
• What order financial savings should be put in, in terms of debt
• Extreme stories Robert has heard in regards to student loan borrowers
• The financial stressors he saw in employees while working at Target
• Robert’s thoughts on the FIRE (Financial Independence, Retire Early) movement
• What percentage people should be saving of their income
• His advice for setting up your own professional website — and why it’s important
• The best financial advice Robert has ever received

Links mentioned:

• TheCollegeInvestor.com

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Episode 27 Transcript

Travis Hornsby [00:00:00] Welcome to the Student Loan Planner® Podcast. Today I've got my friend Robert Farrington of The College Investor. Robert is a friend of mine from the personal finance blogosphere. So I'm super excited to have him on the show. Welcome, Robert.

Robert Farrington [00:00:10] Hey, thanks so much for having me, Travis. I am excited to be here, and we can talk student loans and money and more.

Why Robert founded The College Investor

Travis [00:00:16] So can you tell our listeners why you are, perhaps, the godfather of the student loan debt world?

Robert [00:00:22] Hah. I don't know about that, but I started The College Investor 10 years ago this year. And we have been talking a lot about student loans since the beginning. I started sharing my battle with FedLoan Servicing way back in the day, and it was one of my first articles that really caught people's attention. It started getting comments about, like, ‘Oh man, I've been having issues with them as well.' And that's what really got me blogging and talking about student loans.

Robert [00:00:48] And I was like, well, people really resonated with that. So, like, let's keep talking about it. Let's talk about student loan forgiveness. Let's talk about all these complex repayment plan programs that are supposed to make people's lives easier — and they can. But they definitely aren't the easiest to understand and apply for.

Travis [00:01:06] Yeah, seriously. And you know, you had, I think you have, like, what? 700 comments on that post? Or is it, like, a thousand now? How many is it? It's crazy.

Robert [00:01:14] It keeps growing and growing and growing. And sadly, people just keep having issues with FedLoan. You know, I guess they resonate with my story.

Travis [00:01:22] Yeah. Both of us benefit, I think, unfortunately, from the number of people searching Google for FedLoan because of the pain that they're caused. It almost, I think, feels cathartic for a lot of people, just that they're able to post somewhere where they can see the complaint, like, public; it's not buried in some, like, CFPB database, right.

Robert [00:01:39] Yeah. They see other people having those same battles, and so it helps them to know that they're not alone out there. I think it helps people understand. Because I think a big part of the problem is that just there's a lack of education. There's a lack of transparency around everything and how it works. And so seeing resources like ours out there I think helps a lot of people.

Why articles claiming PSLF will have a 99% rejection rate are misleading

Travis [00:01:59] So let's just jump right in. Before we pressed the record button, we were talking about this article on Facebook that just refuses to die. There's just iteration after iteration of this same article that 99% of people get rejected for PSLF (Public Service Loan Forgiveness). And I certainly get a bunch of comments and people sending me emails just saying ‘How can we even trust this program?' when that kind of stuff gets posted. So what is your opinion? Is PSLF going to have a 99% rejection rate, Robert?

Robert [00:02:24] Yeah. This headline drives me nuts because it is so misleading. Now if you look at the stats, yes, 99% of people got rejected. But that's so misleading because the qualifications to get Public Service Loan Forgiveness are threefold. Right. You have to have Direct student loans. You have to have a qualifying repayment plan, and you have to have qualifying employment. So we all get the qualifying employment part. Public service. Cool. But let's talk about loans, and let's talk about the repayment plan.

Robert [00:02:56] So the law went into effect in 2007. And so when you see this headline, they are looking at the people that got forgiveness in the first nine months of the program. So the end of 2017 into 2018. And the fact is, Direct Loans, the biggest loan program that people can be eligible for, prior to 2010, 97% of loans were not Direct Loans. They were FFEL (Federal Family Education Loan) Loans. So you wouldn't have even qualified unless you were in the 1% to 3% of all borrowers, depending on the year, that had Direct Loans.

Robert [00:03:33] The second qualification is the qualifying repayment plan. Well, the most common and popular repayment plans that qualify are IBR (Income-Based Repayment) and Pay As You Earn (PAYE). IBR didn't go into effect until 2009, and Pay As You Earn didn't go into effect until 2012. So the fact that we're trying to look at people qualifying in those first nine months – it would have been such a tiny, tiny, tiny, tiny handful of people that could have potentially benefited from the program anyways. It's like saying, “Oh, of the million people that went to the moon, only 37 went to the moon.” Yeah, that's just how it works.

Robert [00:04:13] So when you look at the future of these programs, the real bulk of people are going to start seeing forgiveness in 2021, 2022. Because when you look at the history of the program, that's when people are really actually making the ten-year mark. Sorry. I went on a riff there.

Travis [00:04:26] No, that was the point I wanted you to wrestle. Like, here's another headline. So I just pulled this data from the cumulative Employment Certification forms from the Department of [Education].

Robert [00:04:35] Yeah.

Travis [00:04:36] So the cumulative number PSLF borrowers with an approved certification form is 1,089,846. And those borrowers collectively owe $97 billion dollars.

Robert [00:04:50] Yeah. So there's a million people going through this program. And so when I pulled the data just, probably about six months ago, in 2019-21, if you look at just people that have filed their certification, it's only 1,700 more people that are estimated to get forgiveness in the next one to two years. Right.

Robert [00:05:08] But then when you start looking out to 2027, you're looking at over 400,000 borrowers that are estimated to get loan forgiveness 10 years from now. So you can see where this program is ramping up, and then it just makes sense logically, right.

Robert [00:05:22] So, like, let's just say that I started college in 2007, and these programs went into effect. Well, if I'm going to college for four years, I'm graduating, and what is that? 2011? Well, let's just say I was diligent on 10 years from that point in time working in public service and meeting all the requirements. Well, boom, 2021 is when I would start to look at getting forgiveness.

Robert [00:05:46] And then, you know, you just start adding up the people. A lot of people didn't even know these programs existed at the beginning. It's going to keep snowballing for years to come. I really worry that these headlines get out there, and they scare people. And then our legislators are going to cancel the program because they're like, “Well, look at all the headlines. It wasn't even working,” when it's just factually incorrect about this thing.

Travis [00:06:08] Yeah. I mean, I think that there is little to no chance that it goes away for the people that are working towards it, simply because from a political perspective, a million people is a very powerful interest group.

Robert [00:06:18] I agree with you. And I think of the million people, it's also a lot of the people that are eligible are people that are surrounding these legislators, right. So it's all the congresspersons' aides and their staff and the police officers and firefighters and teachers. Like, you're going to go up against some very big, politically influential unions and people. And so I agree with you: I don't think it's necessarily going to go away. But I also think that these headlines really do steer borrowers the wrong way. I think it puts doubt in people's minds. And so it could lead to changes that would be negative versus positive.

Travis [00:06:51] Yeah, I think it's — I just think journalists have a responsibility to help people avoid making really bad personal finance choices. Because what these headlines do is, they freak people out and make people give up on these programs that should not be giving up on them.

Robert [00:07:07] Absolutely.

Travis [00:07:08] The Wall Street Journal even just recently highlighted that, and it's frustrating. You know, I get the people who had the FFEL loans that were misled by one of their loan servicers and told that they would be eligible, and they weren't — like, that's absolutely wrong. Nobody's saying that that's a good thing. What we're simply saying is if you were the last person to miss out on Social Security when that thing got passed 70 years ago, that would suck. Right. But you have to start it somewhere.

How a lack of education regarding student loans hurts borrowers

Robert [00:07:32] Totally. And I think it goes back to the education piece, right. So 40,000 people apply to this program thinking that they might get forgiveness. And so why did that happen? Like, why were they so misinformed or uneducated about how the program works? So that's a little concerning to me. And where are they getting that information from? Are they getting it from their loan servicers? Are they getting it from the news? Because they should have known that they wouldn't have qualified, but yet they still applied for it. Right.

Robert [00:07:58] And that's I think the bigger issue here is that there's a lot of misinformation, there's a lot of lack of education about how loans work. And I think the loan servicers do have issues, but on the flip side, you know, like, they're not your financial adviser. So you have to think of companies like FedLoan and Nelnet and Navient. You know, they're large corporations with large call centers — 10,000 people working in this call center — and they're fielding hundreds of calls a day. They're also relying on the person that called in to talk to them and give them the information — they might not know the full story of their loans and what they're eligible for. And the call center person might only see a little bit on the computer screen, and they're trying to, like, steer them in the right direction based on that.

Robert [00:08:39] So I think it also goes back to that. We need to educate people that borrow student loans on the program that they're eligible for and how to apply it the right way and how to work through the process.

Travis [00:08:50] Yeah, I think a lot of people just have the expectation that people are good people, and they're not going to try to actively mislead them or just give them bad information, which — I think I've read a book once that said, “If you pretend that everybody in the financial industry is a hardened criminal until you find out otherwise, then you'll do well.”

Robert [00:09:04] It's true. And I don't think necessarily that the individual call center rep at one of these loan servicing companies is a hardened criminal. I also think that they are a $10-an-hour call center rep that maybe didn't get the best training and is just trying to field the calls as best they can when they might not know the right answer for that person.

Travis [00:09:22] Right and certainly not saying that anyone's a criminal. I'm saying if you pretend that someone is, that just means that you have an appropriate level of skepticism.

Robert [00:09:30] Totally. And I also always go back to that old saying that nobody in this world can care more about your money than you. And so, like, if you take that approach with your loans, like, you know, that might be your biggest financial obstacle. So you need to care about it more than anybody else and learn about what works for you and what doesn't.

How a side hustle can help you pay off your student loan debt more quickly

Travis [00:09:46] True that. So let's change gears a little bit. You are one of the most active persons that I know in terms of coming up with ideas for side hustling and coming up with cool debt repayment tricks. So what are some ideas that you would have for somebody who is trying to pay off their debt as quickly as they can? And they want to try to earn more money or spend less money, and they're just trying to get rid of their student loan debt as quick as possible. What would be some ideas you might have for that person?

Robert [00:10:10] So I love that because that's how I got out of debt. It's really – I had $42,000 in student loans, and I paid that off in 2.5 years. And I did it by working my day job and side hustling. Right. And I am such a believer in side hustling. My side hustle was buying stuff and reselling it on eBay. And then I also was blogging at the same time. And so the blog didn't earn that much money. But I was making, like, $2,000 a month reselling stuff on eBay and going to estate sales and garage sales on the weekends and then listing it for sale on Amazon and eBay and making money that way.

Robert [00:10:42] And the cool thing is, is that we live in this day and age where the ability to earn is pretty much — you can do it anytime, anywhere and it's limitless. I'm a big believer — You do have to budget. You can't just ignore your spending. You got to avoid buying things that you don't need. You got to avoid vacations for a little bit. You got to, like, not subscribe to HBO and Hulu and Netflix because all that adds up.

Robert [00:11:08] But on the flip side, the amount that you can cut in your budget is going to hit a point where you just can't cut anymore. You still got to pay for rent. You still got to have transportation to work, whether that's a car or public transportation. You still have to buy food for yourself at some point time. You just can't cut anymore, and that's where earning more money can become a powerful factor in achieving your financial goals, whether that's getting out of student loan debt or saving a little bit more for retirement or putting yourself on the path to financial independence.

Robert [00:11:34] I don't care what you do, but you just need to go out and do something. You could drive for Uber or Lyft. Or deliver food for DoorDash or Postmates or Uber Eats. Or, you know, you could start a blog, or you could sell stuff on eBay. My cousin — right now, she's a senior in college. She's been selling stuff on Poshmark — fashion items. She goes to, like, thrift stores and buys, like, designer clothes for, like, $2 and then resells them for, like, $80 to $100 on Poshmark. There are so many different things out there. The potential is limitless. It's just figuring out what you want to do in your spare time and going out and actually doing it.

Travis [00:12:07] Yeah. And sometimes people can earn a very high hourly wage by just side hustling within their job. We see a lot of people that do moonlighting, you know, and have some sort of side hustle related to that. It can be a lot of things. but your takeaway is spend less money but also focus on earning more money. Right.

Robert [00:12:23] And you're totally right. We have some friends — one's an electrician. So he's an electrician by day, and then he picks up, like, odd gigs for cash on the side. He'll do that on a Saturday or Sunday and go help people out, make a couple hundred bucks.

Robert [00:12:34] The thing is, is that for most people, if you could add in like $200 to $500 more a month, that's game-changing money. I know it's not sexy to go out and drive for Uber or Lyft, and everyone kind of rags on them for the amount that you earn. But where else could you earn money? Let's say you can't sleep. And it's a Saturday night, and it's one in the morning. You don't have to report to anybody or have a boss. You could just turn on your smartphone app and go out and drive and earn money in the middle of the night with, like, no commitment.

Robert [00:13:06] We live in this day and age where that's possible. And like I said — Look, even if you can put an extra $200 to $500 bucks a month toward your loans or towards your retirement, you could literally, within five to 10 years, set yourself up so well financially.

Travis [00:13:19] Yeah. Our audience tends to be a little bit higher debt and higher income than the average student loan borrower. Probably about 70% of our listeners have more than a hundred grand of debt. And that comes with probably an average income of, like, $60k to $100k. But we certainly have a lot of people that have, you know, $300k of student loan debt.

Robert [00:13:37] Sure.

Robert’s advice for student loan borrowers considering whether to buy a house

Travis [00:13:38] One of the things that they'll do is, we also have a lot of people that are on the coasts that are trying to buy houses. And I know that you live in California, which is one of the most expensive places in the country to live. What are your thoughts about buying a house right now in a high-cost living area, like a California? What advice would you give somebody who is wanting to buy a house that also has a bunch of student loan debt?

Robert [00:13:59] It depends. So, like, I am not, like, you need to buy this house, and a house is a path to wealth. I think that your own personal home is, for 95% of people, a terrible investment. Right. The only reason that you buy your own home versus rent a home is preference. And is it — Do you want to customize it a little bit more? Do you want to avoid the potential to have your rent raised? You want to avoid the potential that your landlord is going to evict you because they're going to sell the house or something along those lines? It's preference. It's not an investment. And I think we need to get that out of our head.

Robert [00:14:36] It's very much like a car, right. Because homeownership requires constant maintenance. And, you know, most people finance it with debt. They're not paying it. It might appreciate; it might not. Depends on when you buy it. And if you look at the long-term historical returns of real estate, they can look good on paper. But most of those returns are people investing in real estate, so they're buying a property with the surplus of cash flow, and you're not doing that with your house. You are spending money on painting it. You are spending money on landscaping. You are paying for maintenance. You are not earning any cash flow on it, and so it really is a personal preference issue.

Robert [00:15:14] I don't think you're right or wrong one way or another. My wife and I actually talk about this a lot. Like, if we were to move, we would probably rent a place. But we would rent a place in an apartment complex, not a private landlord. Because then you have less of a likelihood that you're going to have to move because the house sells or something changes. Because if it's in a nicer apartment complex, that's just an apartment complex. You're not going to necessarily lose that. Now, you could see your rent go up, things like that could happen, but it's not a bad gig to rent. I think people just need to do the math for themselves. Think about their own personal preferences and make that decision.

His thoughts on whether the student loan crisis will eventually crash

Travis [00:15:51] Sure. So we talk a lot about — There's a student loan crisis in America. We did a survey recently where we found 90% of people had severe anxiety because of their student loan debt. Do you think that there's a crisis in this country for student loan debt? And what levels do you think that this crisis continues at until it all crashes?

Robert [00:16:11] Well, that's the hard part. So, do we have a crisis? Yes. But can it crash? No. And the problem with this is that student loan debt doesn't have a mechanism to unwind.

Robert [00:16:25] So when we think of the housing bubble — or we might have an automotive lending bubble, things like that — there's a mechanism to unwind. So when we get to this point where people can't pay their mortgages anymore, well, the banks foreclose, they take the house back and they might sell that house at a loss or a big loss even. But at the end of the day, the housing crisis can unravel itself in 18 months, two years because the assets go bad. The banks take the write off. They take the hit. Maybe the bank goes under, but whatever. It all figures itself out in a year or two.

Robert [00:16:57] The problem that you know with student loans is it's near impossible to pop. You can't get rid of them. There's no mechanism in place. The bankruptcy mechanism for student loans is near non-existent, unless you have a very rare case of — typically involves medical debt or other things. So you're not getting your loans discharged in bankruptcy, and the IOU, the asset for student loans, is you. It's your ability to earn. There's no house to repossess. There's no car to repossess. What they're going to garnish is your earnings. They're going to garnish your wages. They're going to garnish your tax returns. They're going to garnish your Social Security, if you make it that long.

Robert [00:17:31] And what that does is it just puts a drag on the economy. So instead of having a student loan bubble that's going to pop, what you're going to do is you're going to have a student loan bubble that's going to slowly, like, deflate like a tire. And it's just going to get, like, stickier and stickier on the road as it gets more and more wages and things that are going to get garnished. Because all you're doing is hurting people's ability to earn, and that ability to earn is also what theoretically would repay the debt if they weren't being garnished. So we do have a crisis. The hard part is, is that we don't have a great way to unwind the crisis, other than to stop future people from getting in the crisis and trying to help those that are in it as best as we can through programs like Public Service Loan Forgiveness.

How trying to unwind the credit in the student loan marketplace could negatively affect graduate programs

Travis [00:18:13] I think another reason that we have a crisis, too, with this is that if you tried to unwind the credit that exists in the marketplace, you would potentially cause half of the graduate programs in America to close. So I've thought about this quite a bit, like, the number of dental graduates has doubled in the past 10 years. The number of pharmacist graduates has tripled in the past 10 years. So if you took away unlimited borrowing overnight and made the private lenders be responsible for lending to graduate students again, just overnight, then I think you'd have so many colleges and universities close. I'm not sure that would be great either — or just that kind of shock treatment to the economy. So it's a really complicated problem.

Why Robert is a fan of borrowing caps for student loans

Robert [00:18:53] I don't know if you saw this, but, you know, I'm actually a big fan of borrowing caps and borrowing limits. Because the reason we got into this mess, like you kind of touched on, is the unlimited funds, right. Sadly, if I'm a college or university, the student is my customer, and I'm trying to attract customers. And so, you know, the first way you attract customers is creating a great academic program. That means hiring professors and hiring staff, and that costs money. But you know, we've kind of passed that level now. Like, the schools that have great programs have great programs.

Robert [00:19:21] So now you're trying to attract people with the amenities, right. So they're building new housing and new dorms, and they're building rec centers. And they're building new stadiums. And they're building parking structures to make commuters come. And those cost even more money. And how do these schools pay for that?

Robert [00:19:37] Well, they take a bond up front, and then they raise the tuition to pay the bond. And they know that they can limitlessly raise tuition because people can borrow it. So if you put this cap on the amount they can borrow — and I think we already have the cap on undergraduate borrowing, but we need to have a cap on graduate borrowing. And we need to have a cap on private loan borrowing. I'm a big fan of it.

Robert [00:19:58] Doesn't need to be a harsh cap. It doesn't need to be like this, like, no one can borrow more than $5,000. We should get there, but I think we need to start with a staggered cap over the next 10 years and slowly bring that cap down to allow universities to adjust their capital expenditures to be in line with what students can borrow. And then we can slowly start unwinding this for future loan borrowers. We combine that with some ROI education — return on investment. Students need to think about their return on investment of the dollars that they're going to spend on their education.

Travis [00:20:30] So if you — Say that you had the keys to the kingdom. You had to reform student loans in America. Is that what you would do — just gradually reduce the cap on borrowing? Could you do anything different? What about the people who are currently indebted and they have these tax bombs they have to worry about in some cases?

Robert [00:20:48] Well, I'm not saying — You've got two sides of the equation, right? You've got the current borrowers, and you got the future borrowers. Yeah, for future borrowers, I would make a student loan cap that is tied to the average return on investment of your degree program, and I think you'd have to report your degree program to a lender. We could set up an easy table that's housed at the Department of Education. Like, you want to be a teacher, the most that you could ever borrow for your education, in aggregate, $40,000 bucks. If you want to be a computer science engineer, the most you can borrow for your education, in aggregate — private, federal, whatever — is $65,000 bucks. And you just set up a table based on all the careers.

Robert [00:21:22] I mean they have all this data. It's not like that data doesn't exist. Like, we already can go to Glassdoor and see your salary for whatever career. Social Security Administration has all this data. I saw an interesting thing from the Social Security Administration last year that came out that if you're a female in United States and you borrow more than $150,000 for your education, there is no way that you're going to get your ROI on that. The statistics just are not in your favor. And we can do that because we can know what the lifetime earnings of people are. We know what the cost of education is. Like, you can tell how much it's going to spend. There are definitely exceptions to that. Like, you go to medical school, you do different programs, like, we can have different caps.

Robert [00:22:03] Then when it comes to the existing borrowers, I think we need to see more programs like Public Service Loan Forgiveness. I like it. I don't like blanket. I don't like Elizabeth Warren's plan where everybody with a certain income level gets $50,000 forgiven, and then, like, it phases out based on higher income levels to nothing. I think you need to do some kind of work that we need as a country, and you get your loans forgiven. I love Public Service Loan Forgiveness. Like, we have teachers, military, police officers — these are valuable professions to us as a country. And you do that for 10 years, and you get your loans forgiven. I'd like to see that just expanded out — like, FFEL Loans should not be excluded from the program. They should count. It could be any repayment plan. If you do any repayment plan for 10 years, you should get your loans forgiven. Like, don't make it so complicated and confusing. Reward people for doing the work that we need as a country.

Travis [00:22:56] That's a great point. And selfishly, like, I obviously would really like for the promises the government kept to be fulfilled. But for future people out there, like — My wife works at an academic hospital as a physician. Frankly, I think that once academic hospitals start realizing that PSLF is really a thing — which right now, they really don't, by and large, especially the people making the decisions at the top have just no clue. When academic hospitals realize that PSLF exists, I'm pretty sure that they are going to make efforts to reduce salaries at those institutions or at least not keep up with salaries and competing employers. And I'm concerned about that, and I think everybody should be concerned about that, that employers respond to whatever total compensation is being given to somebody including government indirect compensation.

Robert [00:23:40] Right.

Travis [00:23:40] If we didn't have PSLF, at least for future borrowers, they could plan for it way, way in advance. Then some of these institutions that are sitting on billions and billions of dollars in endowment funds would be more forced to pay market wages. And that's something that I think a lot of people don't know, is a lot of these places that are getting PSLF for their people are sitting on endowment funds that are in the nine figures.

Robert [00:24:04] Yeah. Well, and I think it's the same thing. So, like, one of the big arguments against caps for student loan borrowing, right, is that it's going to disenfranchise low-income borrowers or low-income students that can't afford to pay for college. But on the flip side, if schools, like — Let's just use Harvard as an example. They have, like, a 10-figure endowment, right. Fifty billion dollars or something crazy, right. And, like, they would suddenly have to make a choice: Either they can get a reputation of not being diverse, or they could use some of their money to get more and more people through on scholarship or other means to pay for school.

Robert [00:24:37] And I think that's what you'd see. I think you would see a consolidation for profit, and I think you would see a consolidation in graduate programs across the country. But on the flip side, I think a lot of schools would start lowering tuition costs, or they would start funding scholarships or other means to get people into their programs because they have the money out there. It's just they're using it in different ways than I think we would see as a society is beneficial.

What order financial savings should be put in, in terms of debt

Travis [00:25:02] You know, a lot of the people that come to me, they ask, “I want to invest for retirement. I want to invest just in general and maybe got a little bit of credit card debt. Oh yeah, I also have these student loans.” Where would you put the order of things that somebody should do for their finances in terms of, they have debt. They want to invest for retirement. They want to invest just in general, and they also need to get some savings. What order would you put on those?

Robert [00:25:25] I'm a big believer in financial balance, right. I would definitely — This is where I disagree with, like, Dave Ramsey's approach and things. So, like, I always say if you can get a 401(k) contribution and a match, like, always take advantage of your 401(k) up to your employer match. I would try to do an IRA, and I would try to do a health savings account (HSA), if you can contribute one or you're eligible for one.

Robert [00:25:47] The reason is, the amount that you can put into these accounts is finite, and it's limited in the years. And if you could start this when you're 23, 24, 25 — And you can't go back in time. So if you skip your first 10 years of doing this, like, you can't add in that $6,000 you contribute to your IRA, you know, and you miss all those years of gains. On the flip side, the more you contribute to these pretax retirement accounts, it also lowers your AGI (adjusted gross income), which could lower your student loan payment anyways.

Robert [00:26:15] So I'm a big believer in financial balance. Take advantage of these retirement accounts, especially ones where you get free money, and then leverage the rest of your disposable income towards your debt. Definitely get rid of your consumer debt — credit cards, car loans, things like that — then start working on your student loans. Don't think about necessarily getting a mortgage. Don't buy a house. But if you have one, then you can start working on that as well. But then you can earn more money, too. Like, it doesn't have to be so ‘either or' of cutting, cutting and budgeting. Like, earn some more money to put towards your loans as well.

Extreme stories Robert has heard in regards to student loan borrowers

Travis [00:26:45] Cool. What are some extreme stories you've heard about student loan debt in terms of having a huge impact on someone's life or people having amazing success getting rid of it? Let's maybe try some of both of those sides of the equation.

Robert [00:26:57] I mean, I see so many, just like you do I was actually at a local entrepreneurship meetup last week here in San Diego. And there's this young kid there, actually went to my alma mater at UCSD (University of California San Diego) and just sat there at the table and introduced himself. And he's like, “You know, I'm 23 years old. I graduated last year. I have no idea what I want to do in my life. I graduated from computer science. I have $80,000 in student loan debt, and I don't have a job. I've just been driving for Uber to figure out my life.”

Robert [00:27:27] And I just see that so often, that — You know, people who have this huge amount of debt. He's making no payments on it. He's so lost. He doesn't know what he wants to do. And I scream out, like, this is exactly why college isn't the time to find yourself, and our young adults today don't necessarily need to take that path of taking on massive amounts of debt to, like, go into something that they don't even know what they want to do. I know our parents and our generation ahead of us has said, “Everyone goes to college,” and that's just what you do.

Robert [00:27:54] But it's like — I've been having some work done at my house, and this plumber, who is also about 24 years old, he was telling me, like, “I didn't go to college. I started working when I was 18.” He's like, “I've been contributing to my IRA and my 401(k) for these last six years since I started working.” He owns his own firm now. He didn't say exactly what he makes, but I would say he probably makes low six figures, low $100,000 range. And this dude is probably worth half a million dollars at 24 years old, running his own business and didn't even go to college.

Robert [00:28:24] So first off, imagine if you didn't go to college and you didn't go into debt. And you started making $50,000 a year at 18 in the trade school, and you saved half of that. Maybe you save only $10,000, $20,000. Maybe you save half, a third of that, and you did that for five years. Imagine how you're going to compare to people just getting out of college today. And then if you continue that path for the next decade, you're financially set for life, and you're not dealing with the struggle.

Travis [00:28:51] I was going to say, one of my more popular posts is “[Doctor vs Plumber: What's the Better] Financial Decision?“. And I don't know what it is, but, like, the plumbers that find that from Google, they just love bragging on professionals in, like, high debt. And they're like, “Aw, I'm making so much money, and my union pays $150 an hour.” And I'm just like, “Oh my gosh, man.”

Robert [00:29:10] Absolutely. And that's, you know, you just think about it. And so, like, once again, that's also not the path for everybody. Right. But I also just — It just tears me up every time I see these young adults go to college that they'd have no idea what they want to do. And this guy threw away $80,000 and has no ROI to show for it as of yet. And he's going to spend another probably couple of years figuring it out, and these loans are going to grow. And it's just not a great situation.

Robert [00:29:36] So that's the bad side I see, and I see that too often. I see that all the way up to 60-year-olds. I mean, you see this too, is that — Seen people job hop. They went to grad school in their 50s, and now they're their 60s. And they're unemployed, and they have $80,000 in debt. Or 58 years old and took out Plus Loans, and then they lost their job. And it's sad, like, we don't need to get into this debt situation. You've got to have a purpose when you go to college, and that's the big thing.

Robert [00:30:01] You know, on the flip side, I love seeing stories of success. Another one that was just very recently: He's a physician assistant, a P.A. He had $180,000 in student loan debt. He is down to his last $60,000. But on top of his $180,000, he had $60,000 in credit card debt as well. Because beyond just living on his student loans and racking up a bunch of money, he was living on credit cards and just had no basic personal finance education. And 100% wiped out his credit cards. He's down to his last $60,000 in student loan debt.

Robert [00:30:33] And you know how he's done it? He's working as a P.A., and he's side hustling. He's been doing P.A. consulting to help people get into P.A. school. He charges these students to help them with their essays and their interview prep and all this stuff. And he's been making a killing doing that. All that extra money that he's making side hustling is going right to student loan debt, and he's trying to knock it out.

Travis [00:30:55] I think one thing that side hustling does sometimes, too, is it gives you ideas for businesses that you could start and potentially do instead of your full-time job. You know, certainly for me, Student Loan Planner® started partly because of side hustling and just helping friends with student loan questions that they had. So I think that a lot of times, the side hustles can maybe not work out, too, but a lot of times, they can work out in a huge way, if you take that risk.

Robert [00:31:18] Absolutely. I mean, that's exactly how I started this. And, you know, it's a side hustle and now our full-time gig 10 years later. So I think almost every success story that I see with student loan debt typically involves a side hustle. And it's because I think people realize that they're not going to necessarily conquer the big financial goals without bringing in more money. And so every single one I can think of, they side hustle in some way or another to knock out their debt in a relatively fast period of time.

The financial stressors he saw in employees while working at Target

Travis [00:31:46] So one thing I wanted to ask you is, you used to be an executive at Target and senior manager there, and you had a lot of people working for you – and a lot of those people were very moderate-income people. And I was just wondering if you could comment just the kind of financial stressors that you saw amongst a lot of your employees that maybe were not as high income as a lot of the people listening to this podcast, just to give them kind of a comparison point.

Robert [00:32:10] Yeah, I mean it's all relative. I definitely saw that. Just slightly-above-minimum-wage workers. But a lot of workers at Target aren't even full time. So it's, like, yeah, you're making $12 an hour, which is more than minimum wage, but you might only be working 24 to 30 hours a week. I would say, though, is that the people that were at that level, it also wasn't their full-time gig. So they were working at Target as their second job or their night job, or they were a college student that was trying to work on the side while going to school.

Robert [00:32:38] But, you know, there also were plenty of people that were trying to make this their full-time gig and a low income. And they dealt with a lot of interesting aspects. A lot of it had to do with benefits and state and federal food stamp benefits and welfare and earned income tax credit. Child care benefits is a big one that I don't think we think a lot of. And I've also seen a lot of people worried about a benefit cliff. So, you know, we talk a lot about, it's always good to earn more; it's always good to earn more. But these low-income people, actually, it's not.

Robert [00:33:07] So, yeah, the tax rates are marginal. But all the sudden, if you go from — I don't know the exact numbers, but let's say you're making $32,000, and you go to $35,000 because you got a raise. Well, that little bit could take you to zero dollars in child care benefits from the state. And so now you could be seeing yourself out of pocket $1,500 a month in child care expenses.

Robert [00:33:30] So going from these different levels, and you think that, oh, it's always good to earn more. Well, no, it's like, you really need to go from $32,000 to $50,000 to make up the cost of your lost child care benefits for some workers. And so it can be a real challenge to navigate the personal finance aspect of lower- to low-middle-income individuals.

Travis [00:33:50] Yeah. I read this book, “[The] Simple Path to Wealth” by JL Collins, and he gave a shout out to this, like, global rich list website. And I typed in, like, what the global income would make you in the top 1% globally, and it was only $34,000, which I thought was kind of unreal. You know, it's like, a lot of the people listening to this podcast, there's personal finance struggles that you'll have at every level of income, no matter if you're minimum wage or making a million dollars a year, and they're always different. Right.

Robert [00:34:19] Absolutely. And it's like, you might think, ‘Oh, like, you know, what if I could just put away, like, all this money and then live off my interest and dividends. And all the sudden, I get, like you know, subsidized health care because I don't have any income.' And all this other stuff.

Robert [00:34:33] But it's like, you also don't realize the other challenges that people that are actually at this level face. There's a reason why we're subsidizing their health care costs because, like, they couldn't afford it, but they also have all these other concerns as well. And on IBR, they might be at zero dollars a month in interest, but their student loans are going to double over the next five years because they're not make any payments on them.

Robert [00:34:51] And then, let's just say in five years, they start getting a raise, and they get themselves — pull themselves out. Now their loan balance is huge. And they might have been insolvent at some period of time, so they wouldn't have worried about the tax bomb. But now they're suddenly earning so much money that their insolvency is not going to necessarily be a viable option. And you draw this out. And so you have so many unintended consequences of trying to pull people out of low-wage jobs, low-middle-class jobs and having them earn more.

Robert’s thoughts on the FIRE movement

Travis [00:35:19] Can we talk a little bit about financial independence and the FIRE (Financial Independence, Retire Early) movement. What do you think of that movement, and what do you think is a worthwhile goal to shoot for if you are interested in that?

Robert [00:35:29] I love the tenants of the FIRE movement. I think the idea that you spend less than you earn and, like, you figure out this number that you need to live off of, and then you shoot to make that passive income — I think these things are great. I think really understanding the financial products that are out there whether, it's a Roth IRA or 401(k) or the different ways to save. I think that's huge. I think the real focus on personal financial literacy that the FIRE movement is driving is such a positive win for the people that are in the movement — or even those that are just reading about it and maybe learning about it.

Robert [00:36:04] On the flip side, I have a real big beef with the R-E portion, the retire early portion of the FIRE movement because so many people that preach FIRE never retire early, right. I think financial independence is a great goal to achieve. That means that you have enough in the — in your savings accounts and your retirement accounts that you never have to work again. You can call it ‘go to hell money'; you can call it whatever. And I think that's a great goal.

Robert [00:36:29] I think most people aren't going to retire early. I think even if you don't need to work at your current job, you're going to find another job, or you're going to do something. Like, in my view of retirement, retirement really is, like, ‘I'm done. I'm out of the workforce. I may go sit on a beach somewhere, and I'm not going to do anything anymore.' Or, you know, even if you're not out of the workforce, you're out of the paid workforce. So I'm going to stop working. I'm going to go volunteer at my animal shelter, and I'm going to play cards with my friends. And I'm not going to do anything else.

Robert [00:36:56] I just think the big thing is, is that so many people in this FIRE movement don't do that. And especially, some of the ones that have really made a name for themselves in this FIRE movement — their blogs or side businesses or even their full-time businesses now could easily support them. And so it kind of becomes demotivating for others that are on the path, especially early on in the path, to realize that certain bloggers or different things are making $200k a year on their blogs, and yet they're calling themselves FIRE, right. And so it could be demotivating.

Robert [00:37:28] So I think the big thing is, is the underlying personal finance aspects of FIRE — phenomenal. Everyone should aspire for those. Don't get so caught up in the personalities of the movement, and don't necessarily think you have to retire early. Really just shoot for the F-I, the financial independence portion of it, which just means that you don't have to work, right.

Robert [00:37:44] Well, you have the option. You could do whatever you want to do. Like, you're not tied to your work. You could quit your job. Go start another job. You could quit your job and not work. You could take a break for five years and go back later. I think that's the big thing, is financial independence is what we should strive for. The ‘retire early' should have a — definitely have an asterix next to it of what retirement means to most people.

What percentage people should be saving of their income

Travis [00:38:05] Yeah, we try to tell people that they need a savings rate of at least 30% going to loans and investments to be able to hit financial independence at a reasonable age. Do you have any recommended percentage of someone's income that you think is a good target to shoot for?

Robert [00:38:20] It's basically one — save what you can. But if you're really trying to achieve FIRE: If you're 22 years old today, and you save half your income for the next 10 years, you're probably going to be 80% to 100% of your way to financial independence. But that's hard to do. But, you know, I think we also get so caught up on, ‘I have to save half of my income of, like, my day job.' Well, what if it's just that you make $40,000 a year, and your target goal is to save $20,000 a year? Well, what if you contribute a little bit to your 401(k), and you get a company match of a few thousand dollars? And you contribute to an HSA, and they match you a thousand dollars?

Robert [00:38:55] Well, like, you might be getting this free money that goes to your savings rate, and so maybe when you're trying to save for $20,000, you could personally put away $10,000. Your employer gives you $5,000, and then could you side hustle the remaining $5,000 to achieve that goal of saving $20,000 this year. You just have to think outside the box of these different ways to save, and then it really starts becoming doable in terms of achieving a much higher savings rate than you ever thought possible.

Travis [00:39:24] I would encourage somebody to try to spend a low amount of money when you're first getting started in your career, whether that's — you're 26 and you graduate from professional school or 22 and you graduate college. Because I spent maybe, like, $16,000 per year when I was in my early 20s. And I look back on some of the things that I did back then, and there's zero way that I would be able to do those things now. You know, now that I'm married and have other people to consider. What are your thoughts about that — about starting from a low base spending and working your way up?

Robert [00:39:55] Absolutely. Like, Jim Dahle says it a lot, and it's kind of — he's The White Coat Investor. And he's like, if you're a doctor, and you're on this path. You've been a resident for, like, six years, and it's like, you've already been used to living on a low salary. It's like, if you could just continue living like a resident for your first, like, six to 10 years after graduation, when you finally start achieving that much higher income, it's, like, you could set yourself financially up for life.

Robert [00:40:19] Because we see this all the time, is that high income does not equal high net worth. Like, you see a celebrity is going bankrupt. Football players going bankrupt. And these doctors that have to keep working until they're 70 years old because they never saved a dime in their life. If you could just literally continue if your college or graduate school lifestyle for a few more years after you graduate, you could really set yourself up financially.

His advice for setting up your own professional website — and why it’s important

Travis [00:40:42] That's great. So people probably don't know this, because they might not know you personally like I do, but you have one of the largest personal finance websites in the country. You get, like, I think over a million visitors to your site each month or several hundred thousand, if not over the million mark, and you're a genius when it comes to getting traffic from all these different sources.

Travis [00:41:03] And, you know, we have probably a lot of aspiring practice owners listening. A lot of people that would want to start their own dental practice, right, or their own veterinary practice. Or they're thinking about becoming a partner in some physician group that's looking to rank when people search, you know, for certain kind of surgeries locally in their area. Like, what kind of advice would you give from a business standpoint on somebody who wants to have a website that's going to be used to attract patients or customers for their own business?

Robert [00:41:31] Oh my gosh. You have to get out there and get your own Web site. You know, if you're a doctor, you need to have your own name — Doctor so and so dot com. And you need to have your own bio and everything, and you need to claim yourself on all these major sites, whether it's Yelp or Trustpilot or whatever. Even if you're a doctor or a dentist and your firm because — I'm going to tell you what: anyone that's under 45 today is going to Google you and search for you that way, or they're going to search for orthopedic surgeons in XYZ city. Or they're going to search for dentists that specialize in root canals in XYZ city. And that's how they're going to find you.

Robert [00:42:10] And people want to see you. They want to see your office. They want to see your testimonials. They want to know from other clients. They want to get a sense of trust, and the trust is built online. Now, it doesn't matter what you're in, but you have to do it. You have to create the time to start.

Robert [00:42:25] I went on a flight a couple of weeks ago, and, like, if you ever go to the in-flight magazines on, like, the last 10 pages, it's — These are, like, the best plastic surgeons in XYZ city, and it's, like, a totally advertising section. Nobody is reading your magazine. Stop paying money for that. If you are going to invest any money in your business, you should not be investing money in the back of a magazine ad to be, like, a best doctor in whatever area you're in.

Robert [00:42:50] You need to buy a website. You need to invest in creating quality content around whatever it is your practice is or your business is because anyone that's under 45 is going to Google you, and it's even more so as you get younger and younger and younger.

Robert [00:43:04] And you might say to yourself, “Well, you know, that's not my target audience.” Well, I would also challenge you that older folks today — so, parents are looking towards their children for recommendations, and more and more kids are helping their older parents. When I say kids, I'm talking, like, 30-year-old children are helping their older parents make financial decisions, especially when it comes to doctors, lawyers, financial planners and professional services. So if the kid's not comfortable with you, the parent's not going to be comfortable with you. And maybe the parent is more of your target client.

Robert [00:43:37] So you have to be online. You don't have to necessarily be on social media. You probably should, depending on your niche, but you definitely have to have a solid web presence. I just can't stress that enough.

Travis [00:43:49] Yeah. And it's interesting, too. So many of the people that I know want to post all their content on these rented platforms, like Facebook and Instagram and Twitter and all these places, right. But I think that there's something so valuable about having your own platform that you actually own.

Robert [00:44:03] Right. And I see this a lot with doctors, actually. So let's just say you're a specialty doctor. Well, a lot of these specialty doctors simply keep their profiles on with their major providers. So let's say they work for Scripts or Kaiser or whatever, and each of those companies makes a little website profile for their doctors. But you need to create your own branded profile. Because how many times do — you know this, too, Travis — is that a doctor moves; a doctor changes practice. They go out on their own. Like, you need to have your own home base with your own specialties and your own content that you own, that's not hooked up to a network. And then you can link to it. You can link all around all the different sites and boost your organic traffic because people can find you and it builds trust.

Robert [00:44:47] There's nothing crazier to me when I google somebody, and then all of a sudden, like, there's different things that you find. Like, on one website, there's one thing that's said about it. On another site, there's another thing that's said about them. Because what you also don't realize is that all these places already have profiles for you set up. Like, you might not have made them yourself, but a lot of these companies, like Yelp and Trustpilot and other places, are automatically creating profiles for you. And if you don't go in there and set it up yourself, you might not be comfortable with what's already being posted about you.

Travis [00:45:20] Funny story: My wife actually got a call to her private cell phone one time from a patient inquiring about how she could schedule an appointment, and my wife was like, “How the heck did you get my phone number?” And we did some google searching, and we found that, like, her employer had posted her profile on, like, The U.S. News, like, top doctors in America list or something. And they had posted her personal cell phone. So, it was just unreal.

Travis [00:45:44] Now, let's say I'm a dentist, and I want to go buy, like, Dr. John Gupta or something like that, I don't know, like dot com. Where do I go to get a URL? Like, maybe I'm in dental school right now, and I want this website for the future. Like, where do I go to, like, host or, like, put it in a place that I can use it later?

Robert [00:46:01] Go to GoDaddy; buy a domain there. I mean, there's a lot of domain services, but I keep it simple. I think everyone should buy their own name. I think you should also have your family's names because, like, names are going to get bought up. So like for you, Travis, like, your wife, kids — buy their names and just save them away. Like, you never know. But if you don't, somebody else is going to do that in the next couple of years. So I'm a big believer in that, like, get all the domain names locked down.

Robert [00:46:24] And then, you know, there's a lot of places that you could create a website. The cool thing with most of these professional services firms, whether you're a doctor, a dentist, a lawyer or other professional service, is that you don't need a crazy expensive web-hosting platform. You could start with the Bluehost or the HostGator or these really basic low-cost platforms that are going to cost you, like, $5 a month, and you could set up a website.

Robert [00:46:49] You're not going to get a lot of traffic at first, but the goal is that you just start you have a presence out there and that your presence is consistent across all the other different platforms. You have a Facebook page. You have a Yelp page. You have a Trustpilot page. You have a — I don't know, there's so many different ones out there.

Robert [00:47:04] I'm sure every industry has different listings, too. I know a lot of doctors have, like, not only, like, the American Medical Association, but, like, they all have their own specialty associations as well. And you want to make sure that all your information on all these different portals is accurate and reflects who you are today.

Travis [00:47:20] Yeah. And just a cautionary tale. I don't want anybody going to it. But there is another Travis Hornsby in the world, and he happens to be a pole dancer from South Africa.

Robert [00:47:31] That's awesome.

Travis [00:47:32] So —

Robert [00:47:33] We need to find him.

Travis [00:47:34] Yeah, exactly. So, like, now I'm in this situation where I have to hope that he forgets to renew his hosting contract, or I have to go approach him and try to buy that domain. Luckily, Google doesn't show that site if you search my name because there's other more authoritative content reflecting my name. But even if you have kind of, like, an uncommon name, somebody can still go out and buy it, and then you're kind of stuck where you're like, “I really wish I could have had that.” You know? And it's just going to get worse.

Robert [00:48:02] Here's the scarier one, at least for your professional services providers that might be listening, is that, let's just say you upset somebody. Well, what if they went out and bought your domain name and then create a website that is all about the negative reviews for your business? And I've seen that happen as well. You don't necessarily have fair use to it. You could sue. You could try to claim defamation. But, like, I've seen it happen, and it's kind of a ‘good luck in getting it.' Because the URL name is probably accurate if they're talking about you, and you might not be happy with what's being said. So control your own stuff.

The best financial advice Robert has ever received

Travis [00:48:35] That's great advice. Now, what is the best financial advice you've ever received?

Robert [00:48:40] Oh, man. The best financial advice I've ever received is just, it's simple, but it's “get organized.” I think almost all of our financial problems happen just because we're not organized. Track your spending, track your savings and know where your accounts are, whether you use a tool. I used to be bullish on Quicken; I'm still pretty bullish on Quicken. I wasn't bullish for about five years, but they really made a lot of strides at improving their software. But you could use Mint. You could use Personal Capital. Just get organized. You can't make any progress in any direction if you're not organized on what's going on with your money.

Travis [00:49:17] And lastly, Robert, where can people learn more about The College Investor, and where can people connect with you?

Robert [00:49:22] Yeah. So you can find me at TheCollegeInvestor.com or on your favorite social platform. Or if you're a podcast listener, which you are if you're listening to this show, you can find The College Investor audio show on your favorite podcast listening platform.

Travis [00:49:37] Thank you so much for being on the show.

Robert [00:49:38] Thank you so much for having me, Travis. This was fun.