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Category: Student Loans / Podcast

YFP 144: How Two Pharmacists Paid Off $214k of Student Loans in 17 Months

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How Two Pharmacists Paid Off $214k of Student Loans in 17 Months

Levi Ellison, PharmD, shares how he and his wife paid off $214,594.55 of student loans over 17 months. Levi talks about the motivations behind such an aggressive repayment strategy, how they were able to do it and what they hope to accomplish now that they are debt free.

About Today’s Guest

Levi Ellison has been married to his loving wife, Jessica Ellison, since the summer of 2018 following their May graduation from the University of Arkansas for Medical Sciences College of Pharmacy in Little Rock. While in pharmacy school Levi was a winning team member of the 2017 Good Neighbor Pharmacy National Community Pharmacy Association Pruitt-Schutte Student Business Plan. Immediately following graduation he received a $20,000 sign on bonus for a 2-year commitment to work in his hometown of Mena, Arkansas as a staff pharmacist at Walgreens. He serves as a Sunday school teacher for young adults at Salem Baptist Church, Treasurer of the Polk County Republican Committee, and served as a Financial Peace University Coordinator. He enjoys running, traveling with his wife, spending time with his family, and being debt free!

Summary

Levi Ellison shares his remarkable story of how he and Jessica, his wife who is also a pharmacist, paid off $214,594.55 of student loan debt over 17 months. While in school, Levi and Jessica were pretty aware of how much money they were taking out and knew that they didn’t feel good about taking out more than they needed. That mentally paired with some scholarships allowed them to both graduate under the average debt load that most pharmacists carry.

They were motivated by Joe Baker’s personal finance class in pharmacy school and by Dave Ramsey’s book Total Money Makeover. Following the Dave Ramsey approach, they knew that they wanted to attack their debt in a gazelle-like fashion so that they could move on to other financial goals that are important to them. By following a strict budget and using a budgeting app called EveryDollar along with a homemade allocated spending budget, they were able to pay off $214,594.55 in 17 months while tithing 10% of their gross income to their church. This payoff breaks down to:

$151,478.51/year

$12,623.21/month

$2,899.93/week

$414.28/day

Levi discusses how they worked together as a team to accomplish this goal and what their plans are now that they aren’t spending over $12,000 a month on student loans.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist. Excited to welcome Levi Ellison onto the show to share his debt-free story. Levi, welcome and thank you for taking the time.

Levi Ellison: Thank you, Tim. It’s great to be with you.

Tim Ulbrich: So grateful that you reached out to share your incredible story of paying off a lot of debt, a lot of debt, in a really, really short period of time. When I first heard about your story, you and your wife Jessica tackling over $214,000 of debt over 17 months, I thought to myself, wow, what an amazing accomplishment. And I can’t wait to hear exactly more of the details about how you accomplished this and why you were so aggressive in your repayment. And I’m excited to share this with the YFP community as well. So let’s start. Can you share a little bit of background about you and your wife Jessica, where you went to school and then ultimately the work that you’re doing now?

Levi Ellison: Yes. So my wife and I, Jessica, we went to the University of Arkansas for Medical Sciences. And that’s in Little Rock, Arkansas. We met in school there, pretty much simultaneously there and our church and in Sunday school. So we were in the same classes, we were in the same church, so we’re doing everything together and ended up getting married the summer following pharmacy school. And on our honeymoon, we got a — I received a sign-on bonus from Walgreens and that was a substantial figure and if you don’t mind me sharing, I’ll just tell the YFP community, it was $20,000. And that sounds awesome and it sounds great. It’s like, wow, you could put $20,000 straight towards loans. But once it hits your bank account, it suspiciously looked like $13,000.

Tim Ulbrich: The tax.

Levi Ellison: Yeah, yeah. It was terrible. But that day it hit our account on our honeymoon. As soon as we got home, we put that all towards loans. And that really got the ball rolling. And we were, you know, obviously very intense with the way we paid off loans just from the get-go and never looking back I think really set up a strong foundation for us.

Tim Ulbrich: So and I want to make sure our audience understands, so two pharmacists, obviously.

Levi Ellison: Yes. Right.

Tim Ulbrich: But nonetheless, as people start to translate this to their personal situation, something I mentioned to you before the show, is I did that for me, two pharmacists’ income, there’s only so much take-home pay. So when we talk about, you know, figures like $12,600 roughly per month over that 17-month period on average, that means there was a lot of sacrifice, a lot of cutting of expenses and obviously now you’re on the back end of that, and we’ll talk about the journey between, but nonetheless, two pharmacists’ income does not necessarily just mean that this was an easy path. And so I want to re-emphasize that. Now, one of the things, Levi, I often wonder is we don’t talk much about the accrual phase of the debt. You know, we talk about the debt paydown part of it, but for someone who clearly had very strong motivations right after school to get this paid off, I’m wondering, I’m guessing many of our listeners are wondering, well, what did you think about this while you were in school? Did it really dawn on you? Did it bother you? And as you look back, what strategies did you take or could you have taken to mitigate some of that damage rather than obviously what we’re going to talk a lot about as the payoff part?

Levi Ellison: Tim, that’s a fantastic question, no kidding. I love to answer that. So for me, during school, you know, the first time I signed up for a student loan was my first year of pharmacy school. I took out $20,000. And I thought, phew, this hurts, as I’m sure most of us experienced. I don’t think I like this. And I didn’t. And it started to wear on me. You know, your first year, you’re thinking, I’m just excited to be here.

Tim Ulbrich: Sure.

Levi Ellison: But as you — if you log in maybe once every couple years during pharmacy school and you look, you’re kind of shocked. And I was. And so they did a few small scholarships while I was in school, and I applied for those. Got $1,000 here, $1,000 there. But when you’re talking about the kind of numbers that pharmacy school costs, that’s just not a huge percentage. Every bit helps, but my fourth year of school, they have like a — I don’t know what you would call it — but an ultimate scholarship. It was $15,000 from UAMS that they give away to one student. And I applied for that, had to write an essay, and I got it. And that was really helpful, you know? I could have been more in debt than I was. And so I got that, and then I also applied for a rural scholarship where our Arkansas State Board of Pharmacy, if you’ll go and work in an area of I think it’s 15,000 or less people — I forget all the details. But I know my hometown qualified, and so I was like, I’m going to go back home anyway if they’re going to pay me to do it. I’ll take $15,000 for that and go. And so — it was $15,000 for the scholarship. I got $7,500 from the state board. And so that was over the course of a couple years of pharmacy school, so that helped mitigate some of my own student loans.

Tim Ulbrich: Sure.

Levi Ellison: And then my wife, I think she was fiscally conservative too. And I know she’s going to be listening to this. But I was able to get some of those things, and so that helped on my side. So it wasn’t like I just came out of school and suddenly noticed that I had debt. I mean, I was realizing this and had I known it while I was in undergrad — because we both came out of undergrad debt-free completely. And so that was helpful. But if I’d have really thought this through, I would have started earlier.

Tim Ulbrich: Sure.

Levi Ellison: So if there’s aspiring pharmacists out there that are listening to this show and wonder how they can get through school debt-free, be smart is going to be some of the things I’m sure we’re going to talk about as far as budgeting and saving and I wish I’d have done more of that earlier.

Tim Ulbrich: Yeah, and you and I both know from personal experience just how interest accrues on those loans, especially when you’re in graduate school, unsubsidized loans. And I think what you said is really profound — I felt the same way. You’re in school the first year, you’re excited about the opportunity, you’re not really thinking much about it or what this will be at the end. And what it sounds like, though, what I heard there, Levi, is that you guys really did some things in terms of scholarships and you mentioned the rural piece that allowed you to be in less debt than you could have been.

Levi Ellison: Yes.

Tim Ulbrich: I mean, if we look at the averages now, graduates today roughly $170,000. So if we’re going to multiply that by two, obviously you guys worked with a lot of debt, but you were for two pharmacist graduates, you were below the average when you combine the two of those together. So but I think wisdom there, you know, students that are listening, you know, that’s what we kind of always preach is hey, anything that you can be doing to minimize the amount that’s borrowed, even if it seems insignificant, you know, if it’s $18,000 a semester instead of $20,000 a semester, that compounds because of interest and multiple semesters over time.

Levi Ellison: Right. Yeah, if I could add one other tidbit to that, Tim —

Tim Ulbrich: Sure.

Levi Ellison: We both worked while we were in school. I think that’s important not only just financially but just learning. If you want to be a good pharmacist, I don’t think your first day behind the counter ought to be the day you get your license. And so that was helpful as well, clearly, for both of us.

Tim Ulbrich: Absolutely. Yeah, and I think that’s another good reminder, even if that hourly wage doesn’t seem super significant in the scheme of things, it adds up. I want to talk for a moment about the education piece — and a shoutout here to Joe Baker, who we’ve had on the show, has been long in the financial education space at UAMS I think teaching that personal finance elective course since 1999 and has had what I interpret to be a very profound impact on many students coming out of that program and his teachings. And I sense the same here. So tell me a little bit about that class, the personal finance elective that he taught. And what were some of the big takeaways and ultimately what impact that had on your own personal journey?

Levi Ellison: Yeah, so Joe Baker is a tremendous teacher. He gets in there and really makes the class engage. And that was a big reason I guess why I learned so much in there. And I do owe a lot of influence and credit to him for our story. That’s where we picked up the book “The Total Money Makeover” by Dave Ramsey and I’m sure we’ll get into kind of the steps of how we got out of debt, and that was very influential and we followed that to a T. But Joe, he — I tell you what, Tim, I mean, he cares about students and he cared about me and he still checks in with me from time to time. You know how you can sort emails on your phone or on your computer?

Tim Ulbrich: Yeah.

Levi Ellison: And I’ve got a separate little inbox for him and so I can read through all his financial stuff that he sends out, updates and things to do and not to do and just staying engaged with money. And it’s not like something that you read 24/7, but as long as you’re staying up-to-date on stuff, you can really make big differences. And we did, anyway. Yeah, love Joe.

Tim Ulbrich: Yeah. I sense he’s a great teacher and he’s actually working on a book right now and as I’m reading through it, I feel like it’s just spewing with wisdom of multiple years of experience and his teachings to many students along the way. One of the things you said in the email that you and I had connected prior to the interview was the impact of learning things like Time Value of Money and other things. And so I think this is again just a great reminder for students listening, if you have that opportunity like an elective if you’re in college, taking advantage of that. I think it just brings the topic front and center and develops that passion hopefully towards learning. But if not, going out there and finding it. You know, podcasts, blogs, sites that are out there, courses that are out there that can help you learn more about this. So let’s get into the x’s and the o’s. So I’m going to break down the numbers again of what you guys were working with. Total debt load — or excuse me — a total payoff of $214,594.55, but who’s counting, right, with the $.55?

Levi Ellison: Right.

Tim Ulbrich: And if we average that out a little bit more about $151,000 per year, a little over $12,600 per month, $2,900 per week, over $400 per day. That per day is the one that my gosh, when you see that number, you’re like, holy cow.

Levi Ellison: Yeah, that floored both of us because we didn’t realize because you don’t write that check every day.

Tim Ulbrich: Yes.

Levi Ellison: We wrote it every two weeks when we got paid.

Tim Ulbrich: So as I alluded to already, I see that number, $12,600 per month. Even on two pharmacists’ salary, that is incredible. There is only so much take-home pay to work with. So talk us through how you did it. It sounds like the baby steps were a big part of this. But even more details about the budget and kind of how you and Jessica worked together, really each and every month, and I’m sure it was even more often than that.

Levi Ellison: Sure. So I think budget is the key as far as how we were able to do it. More importantly when you get into kind of the nitty-gritty of how we budgeted, is we learned something called an allocated spending plan. And so every two weeks, I have a little Excel chart. I’m a big nerd, so I love looking at this thing. We, you know, just put the money in our checking account in the top line and then we subtracted everything else that was essential, you know, from electric bill, water bill, all your normal stuff, wherever your money’s going to go for the next two weeks. And then whatever money was left over, we immediately, as soon as that hit our checking account, we would put it towards the loan because we knew every day that was passing was about $30 in interest being added. And so if you do it one day sooner, you save $30. I mean, it’s not a full $30 because you’re not getting it all, but that mindset. And so that was how we did it is we just, we said these things are what we have to have. And I can tell you, Tim, over the course of those 17 months, we can count on one hand how many times we ate out on our dime. Our parents took us from time to time, her family would take us, mine would, you know, that sort of thing. But as far as just going even fast food, no. We planned very carefully. I can remember — and we bought a few things that we had to have or at least we thought we did like Jessica’s phone broke, so we went to the AT&T store and I can remember it’s about an 80-mile drive from where we are out in rural Arkansas. And we get there to the AT&T store and we’re like, should we eat lunch before we go in or after? We’re like, well, the food will probably get hot because it’s in the car in our lunch boxes. And so we’re sitting there, eating a sandwich in the AT&T store. We’re like, this is going to be worth it.

Tim Ulbrich: Yeah.

Levi Ellison: And I can tell you, it is so worth it now. We look back on that, we laugh, like that was so funny. And now when we go there for traveling, we can go out to eat and have all the chips and salsa we want, you know.

Tim Ulbrich: That’s right.

Levi Ellison: It’s fun.

Tim Ulbrich: And I think there’s something fun about the journey, right? I’m sure for you and Jessica, that brought you guys together in a different way and obviously I can tell just as I hear you talking, you’re reflecting on that together. It was something you accomplished together, and I think that’s a piece we don’t talk enough about is you know, from a marriage standpoint, two people working on something like that and making some sacrifices and working together, that has long, long-term effects, you know, obviously for the good. So I think that’s worth noting as well. Talk to me more about the budget. I’m guessing — I’m wondering, I’m guessing our listeners are wondering as well, it sounds like more of a zero-based budget kind of model.

Levi Ellison: Yes.

Tim Ulbrich: Accounting for every single dollar that you’re earning each and every month. You talked about an Excel spreadsheet.

Levi Ellison: Yes.

Tim Ulbrich: So was this something that you were leading the charge on? You guys were working together? Was it just staying in Excel? Were you utilizing any apps or tools to help you along that process?

Levi Ellison: Oh, those are all good questions. So we used EveryDollar, Dave Ramsey’s budgeting app. And we had the Premium version, and so it would sync with our phones as far as our — of course, we don’t have any credit cards. But it syncs with our debit cards and we could keep track of every single dollar that came out and came in. And that was kind of the goal for the month. And it gets a little confusing. Anybody that’s ever done a budget, you’re like, well, I still have money left over at the end of the month and I haven’t gotten paid yet for the next month. And so like if you’re sitting here, we’re recording this in March and I’m not going to get paid until April such-and-such date or whatever, you’re like, well, how do I budget for that? Because I’ve already got the money in my account, and so that’s where the allocated spending plan really came into play. And so we were on a two-week budget, even if we have goals for the monthly budget and we can throw that into that allocated spending plan, we can just say, OK, let’s spend a couple hundred dollars on clothes this month because we can now or whatever it is. And you take that and say, we’re going to spend it on this check here or you can do it over the course of a couple ones. And so that’s how we managed to keep track of everything. And as far as us doing it together, it was me doing the math and doing all the charts and stuff for the most part. But what I never did was make that finalized. We would come in together for sure every two weeks, and she would look at it and say, OK, I like this, don’t like this, and she would change a few things. But I’d have it ready for her to look at — at least I would try to. It doesn’t always work out perfectly.

Tim Ulbrich: So to that point, I mean, obviously to be able to pay off more than $200,000 in a very short period of time, two people have to be on the same page.

Levi Ellison: Yes.

Tim Ulbrich: But you know, I’m guessing that that doesn’t necessarily mean it was always perfect. Maybe it was.

Levi Ellison: No.

Tim Ulbrich: What was — yeah, what were some of those challenges? And for those that are listening that, you know, may be of a more extreme situation where instead of just a challenge here or there, it’s two people that philosophically — you know, maybe they don’t agree on the goals or the intensity of it. Any words of wisdom there you can share about either challenges you all had or words of advice for others?

Levi Ellison: I don’t think you could have asked a better question. So for two people to be married, you have to be on the same page about money. I don’t know how you couldn’t be. And so this is not something that I just sprung on our honeymoon. We had talked about this beforehand as part of our premarital counseling. And so we were on the same page. And so one thing about us as far as motivation and why would you be so intense about this is we want to be good stewards of what we’ve been given. And so to understand our worldview or our framework that we work in, we’re Christians, and so we’re very involved in our local church. And so along the way, I think this is important for your listeners — we weren’t misers, we gave 10% of our gross income. And so if you factor that in to —

Tim Ulbrich: Absolutely.

Levi Ellison: — how much money we paid back on loans, we could have been out of debt a lot sooner. But we also lived a lot cheaper than some of your listeners are probably thinking, now realizing that we factor in that we make average pharmacist salaries, $120,000-130,000 a year and there’s two of us. And we tithe 10% of that. We gave a lot of money to the church, and that’s not a bragging issue, but it’s something we believed in. And so that’s one of the reasons why we did this so quickly and aggressively and we were on the same page is because we both had the same faith and we both are on the same page about money, and we knew that we wanted to do this. And you’re right about strengthening marriage to go back to the previous question is it surely did. When we look at stuff now, we say, “Yeah, we could do that. That won’t be a problem.” Like we know we can. We’ve done a lot harder stuff together.

Tim Ulbrich: Yeah, and I think it goes back to you guys had that common thread, you had that common viewpoint, which even if there were moments of maybe month-to-month, you didn’t see eye-to-eye on everything, obviously in a short period of time, you did see eye-to-eye on a lot. But nonetheless, you still had that common lens in which you’re working from. And we always talk about I think the importance of starting with the goal, starting with the why, and then getting into the nitty gritty of the budget because if you can agree on the philosophy, if you can agree on the direction, it’s much easier to agree on OK, in light of the philosophy, let’s talk about this one expense or this one issue.

Levi Ellison: If there’s no why, you’re never going to get to the what of driving a beater.

Tim Ulbrich: Absolutely.

Levi Ellison: And I don’t really consider our cars beaters, but they’re probably worth about $3,000 apiece. And they run just fine. They don’t break down. They’re just little cars, and they do great.

Tim Ulbrich: So speaking of cars, a famous Joe Baker quote, there is not a parade watching you on the way to work.

Levi Ellison: Yes, I love that.

Tim Ulbrich: Which takes me to, you know, this concept of what decisions you guys made in terms of things to forego as you’re talking about making massive student loan payments or $12,600 a month, you’re talking about tithing, giving 10% of gross income throughout this, obviously you had to give up on some things, car being one I’m assuming. But home, other things, talk us through what were the areas that you decided not to spend money on that, you know, might have been difficult as you think about some of the challenges with kind of the peer comparison and keeping up with the Joneses.

Levi Ellison: Yeah. So I guess you could say we gave up on the car, you’re right about that. I’d love to be driving a brand new GMC Sierra. I would love it. But I’m not, and that’s OK. We’re going to pay cash for something like that one day or a slightly used one. And that’s fine because Joe Baker is 100% right. If you can get in the mindset of there’s not a parade watching you go to work, it doesn’t matter. And it’s kind of funny, people notice. One of my coworkers, one of the techs, her daughter asked her, said, “Why is Levi still driving that?” And she was sharing that with me, and it just made me laugh. Like they don’t get it. But you can share with them, say, “There’s a whole goal behind this. We want to be debt-free.” So that was one of the things that we gave up was car. As far as our housing situation, we haven’t bought a home yet. We’re renting, but we’re in a very good, quiet neighborhood. I love running, and so the streets are great for that, very little traffic. So I don’t really feel like we gave up much there. We’re living in a lot better place than the apartments that we both lived in Little Rock over the course of pharmacy school. You know, we have a backyard, a place for our dog, stuff like that. So we gave up a little. We don’t have a tremendous mountain view, we’re kind of in the mountains over here in Western Arkansas, and we look forward to that very soon. That’s one of the things that we’re saving for now. But I don’t feel like we gave up just a whole lot. We just didn’t have extensive dates.

Tim Ulbrich: Sure.

Levi Ellison: I was talking to my wife and said, “Do you want to share anything about that from your perspective on the show tomorrow morning?” And she said, “Well, we didn’t spend any money on dates.” I said, “That’s not true. I went to Redbox multiple times. I remember that $1.75.”

Tim Ulbrich: I was going to say, it started as a dollar, now it’s $1.75, right? So yeah. But there’s creativity there, right? I mean, again, those are moments that are created together. And I think I want to reiterate some of what you said. I mean, you know, used cars, renting, I think those are probably — if I had to pick two areas, no judgement here, but two areas that I would say often get in the way of being able to achieve other goals, here whether it is student loan repayment, but it could be any other goal, saving for retirement, saving for kids’ college, being able to give whatever, I would say it’s often the home and the car. And I think it’s shifting perspective that renting is not a bad thing. Renting is not evil, you know. You’re not necessarily just throwing money down the drain, and we talked about that on a previous episode with Nate Hedrick and really running the numbers objectively. And used cars, I mean, I think really changing your perspective on Point A to Point B, and one of the best things I heard on this was Ramit Sethi, who wrote a book, “I Will Teach You to Be Rich.” He talks about this concept of money dials. And identifying the things that mean most to you and align with your why and dialing those up. So let’s say for you and your wife Jessica, maybe it’s shared experiences together now that you guys have obviously a little bit more margin, spending money on that, not being afraid to spend money on that if that’s what means most to you. But if a car doesn’t mean a whole lot to you, then dial it down. Like you know what I mean? And find those things that really aren’t that important at the end of the day to you and really challenging yourself to think through those, each of those individually. So what do you say in response to, you know, some of the typical objections to the Dave Ramsey baby steps, right? So things like, you know, often only having $1,000 in emergency fund until you’re fully out of debt, and is that realistic, is that prudent. is that wise, you know, not to have a full 3-6 months? Or not establishing credit or building credit? Delaying retirement savings, perhaps? So what do you say? And I know your journey’s a little bit different because it was a shorter time period of 17 months, and I think where some of those challenges come in, especially on delayed retirement and emergency savings, is when you’re stretching it out say 5, 6, 7, 8, 10, 15 years. But talk to us through how you all reconciled that that was the method, the steps, the path that was best for you and your plan.

Levi Ellison: I would say first off, if you’re going to follow the Dave Ramsey plan, you can’t be Dave-ish. You have to either do it or don’t. And so we decided we were going to do it, and we were going to be gazelle-intense, as he likes to say. We’re running away on the plain from the cheetah, and we’re going to make it. And so we did. And as far as like the emergency fund, that’s a temporary emergency fund of $1,000. We now have 6 months of expenses and with a very real coronavirus running around right now, that makes us feel better. I mean, it truly does. And so to have to owe no debt to anybody and to be as prepared as you can be for a crisis like this or a pandemic to not want to be fear-mongering, but we feel good about that piece of our plan. And pausing retirement for 17 months, I mean, the stock market just lost the biggest loss in 30 years. I guess I think we’re OK for now. You know, it’s not like we’re not going to buy a house. It’s not like we’re not going to ever fully fund our emergency fund, those types of things. It’s quick. I mean, if you’re going to do it, you need to do it. And so for us, we knew each other well enough, we were in the same study group, we were very good friends before we got married or even started dating. And so I knew her, she knew me, we both knew if we said we were going to do something, we were going to do it. And so we just had that resolve. That’s kind of the way it went for us. But as far as like credit goes, we have a goal of having no credit. And that may sound crazy to a lot of people, but you actually don’t need it. I went down to my local bank, said, “Hey, is this going to be a problem if we have no credit?” And they said, “No.” And so it’s almost laughable how the way people think that you have to have a credit score. You don’t. I’ve rented plenty of cars without a credit card. I’ve done all the things that you need to do. I’ve booked a $12,000 cruise celebrating getting out of debt, and it got canceled because it was the Grand Princess that was quarantined off the coast of California.

Tim Ulbrich: Oh my gosh.

Levi Ellison: Right. Yeah.

Tim Ulbrich: Oh my gosh.

Levi Ellison: So there’s that. And that’s not a laughing matter, it’s a very serious thing.

Tim Ulbrich: Sure.

Levi Ellison: They’re going to reimburse us. We’re still waiting to hear back from flights, and so one thing I would change about my financial plan is buying insurance on flights.

Tim Ulbrich: Yeah.

Levi Ellison: I’ve never done that before, but I will be in the future because you never know what’s happening.

Tim Ulbrich: Although what are the chances of something like COVID-19, right?

Levi Ellison: Right, right, yeah. That’s what I said.

Tim Ulbrich: Yeah. So one of the things too that I heard there and I think often doesn’t get talked about, whether it’s the Ramsey framework or something like the Compass Money Map framework or another framework, I think a framework is very helpful, especially when you have multiple competing priorities that you’re trying to work through, debt repayment, retirement savings, emergency funds, and you’re looking at a way for two people to get on the same page. I think sometimes it’s a little bit more difficult if it’s one person’s idea and I want this other person to implement it, but I think sometimes a framework is a nice third party that gives you both an idea of something you can work towards together and hopefully have those shared goals. Last question I have for you is here you are now on the backside of this, and I think we often don’t talk about life after paying off debt. And what was $12,600 a month going towards student loans is no longer is no longer going towards student loans.

Levi Ellison: Right.

Tim Ulbrich: So what is the game plan now? What are the goals? And how have you adjusted to loosen up some of those things like hey, it’s OK to go out to eat, you know, every once in awhile, and it’s OK to enjoy those things. So talk to us a little bit about life after having the debt paid off.

Levi Ellison: Right, so this is a whole goal, right?

Tim Ulbrich: Yeah.

Levi Ellison: You don’t want to live below the federal poverty limit for 17 months and continue that until I retire. It’s not — that wasn’t the plan, so it’s exciting to be here and to like the cruise thing, we were spending $12,000 a month on loans and repaying that. We can book a $12,000 cruise, and it was going to be a really nice one, 11 days.

Tim Ulbrich: Yeah, yep.

Levi Ellison: And those things will work out in the future, and so we plan to take some trips. We want to go to Washington, D.C., want to tour the Capitol, do all the things that we wanted to do while we were in debt. And things, as far as having a framework, you are nailing it there. It is so important to have a plan. And so what we decided to do was to come up with like an annual budget. I know that sounds a little crazy for a household, but we have a year’s worth of plans and just kind of rough estimates, this isn’t as intense as our allocated spending plan as far as I know where every single penny is going. But we have plans in place to get us both vehicles, to have a certain amount of money in place to put a down payment on a home if we don’t end up paying cash for a home, which we might do. It depends on some different circumstances here at home, but having that annual plan in place I think is really going to help us, it’s already informing our decisions as far as when we get this money back from the cruise, what are we going to do with that, are we just going to go blow it anyway because it’s like it’s already gone or are we going to put and speed up the plan as far as well, if we go ahead and do this, we can get me a truck before summer, we can get her an SUV or whatever we want to do, which is a much more fun conversation than, ‘OK, it’s Friday again. Man, was that only two weeks ago that we paid $6,000? OK, here we go again.’

Tim Ulbrich: Another Redbox.

Levi Ellison: Push submit. Yeah, again at Redbox this week, that sort of thing. So it’s exciting to be able to talk about what we’re going to do with it versus we know exactly what we’re going to do with it.

Tim Ulbrich: And you know what I love, Levi, I know my wife Jess and I felt this, I sense the same for you and also a Jess is that when you are so used to grinding it out, I mean, $12,600 a month, for a 17-month period, it’s hard to measure, but there is such a long-term benefit of that beyond the 17 months. You know, yes, you’re going to loosen up the reins, yes, that’s OK, you guys should do that, you should enjoy it. And there’s balance and all that. But you’ve shifted that perspective on what really is important and where happiness does and does not come from. And I think that has such a long-term benefit beyond that 17-month period of how you’re utilizing your money. And I love that for you guys, I know you guys are teaching some of this now with Financial Peace, obviously giving is still a priority and really giving back and sharing some of that as you are doing here on the podcast as well. So really excited to see where this goes for you all and the impact you’re able to have on others because of obviously the margin that you have now to work with and the ability to share that. So thank you for coming on the show, thank you for taking time to share your journey. Congratulations. It’s really, really an incredible journey. And excited that you were willing to come on and share it with our community.

Levi Ellison: You’re very welcome. I enjoyed it.

Tim Ulbrich: Thank you.

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YFP 141: How to not wreck your marriage because of student loans

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How to not wreck your marriage because of student loans

Steven Chung, tax attorney, joins Tim Ulbrich to discuss about a recent article he published titled ‘Student Loans Can Be the Homewrecker in A Marriage.’ Steven also talks about tax considerations as it relates to couples and why it’s so important to communicate this information.

About Today’s Guest

Steven Chung is a tax attorney in Los Angeles, California where he helps people with basic tax planning and the resolution of tax disputes. He also assists people manage their student loans. He also writes a weekly column on the influential legal news site Above The Law. Steven received his law degree from Whittier Law School and and LLM in Taxation with honors and high distinction from Loyola Law School in Los Angeles. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

Summary

Tax attorney Steven Chung discusses how to not wreck your marriage because of student loans with Tim Ulbrich.

He says that the relationships that often work out are the ones in which people fully disclose how much they owe and have a financial plan to pay it off or to pursue forgiveness. If the understanding or shared goals are there, carrying student loan debt shouldn’t affect whether a marriage stays together. On the other hand, Steven says that problems in marriages and relationships happen when the amount of student loan debt a person is carrying isn’t disclosed early enough in a relationship or if a couple has differences in how they want to pay off the debt, their spending habits or financial goals.

If a divorce does happen, there are some variables on what could happen to the loans. If a couple gets married and one person has a lot of loans and the other doesn’t but says that they will pay off the loans, it has to be determined if that was a gift or if the amount that person paid on the loans has to be paid back to them. If that isn’t the case, it’s possible that the loans could be split between both parties. Steven also mentions that if one person is getting a graduate degree during the marriage, the divorce court may say that those loans or tuition has to work collectively to pay it.

Steven also discusses community property states, tax planning with student loans, and what his outlook is on student loan forgiveness.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist. And I’m excited to have joining me tax attorney Steven Chung to talk about how student loans can impact a marriage and strategies that can be taken before and during marriage to mitigate the risks. Now, we’ve talked at length on this show about the student indebtedness pharmacy graduates are facing. And today we shift our focus to talking not about the amount or how to choose the best repayment option for your personal situation but rather, if you have a significant other, best practices for ensuring that you both are on the same page. Steven, welcome and thank you for taking time to come on to the Your Financial Pharmacist podcast.

Steven Chung: Oh, thanks for having me.

Tim Ulbrich: So you recently wrote an article, which we’ll link to in the show notes, and that article is titled “Student Loans Can Be the Home Wrecker in a Marriage.” And as I mentioned, we’ll link to that so our readers can learn more. And I’m going to use that article as the basis for our time together as I think it connects well with what many of our listeners may be facing, and that’s having lots of student loan debt and trying to figure out how to best navigate that if their significant other is in the picture. So for those listening that are not yet married that find themselves carrying student loan debt, what advice would you have for them in terms of how to best disclose or share this information with a future spouse? And why is this so important?

Steven Chung: Well, the thing is, I mean, student loans shouldn’t alone be a — shouldn’t prevent you from getting married. I mean, people come in — I mean, nowadays, a lot of people are coming in with student loan debts and unfortunately, some of them are quite large. But finances are an issue. But as long as both of you have the same financial goals and are willing — have a plan to pay it off one way or another, I mean, it should be doable. I think the problem becomes when No. 1, it’s not just — when the amount of loans is not disclosed early enough or if people just have — the potential spouses have basically incompatible financial habits, I mean, habits and goals. And that can be a problem.

Tim Ulbrich: Absolutely. And one way to wreck a honeymoon, right, is to disclose your student loan debt on a honeymoon. So we should be talking about this in advance, of course. And I think not only the amounts or do you have it but also philosophies around debt. We often talk about on this show that people view debt in different ways. And obviously, everyone has different competing priorities. And so how we’ve been raised and other variable can influence that, and I think so many conversations to be had among couples leading up to that point of becoming married. Now, I’ve seen a lot of data recently about student loans being a reason to delay starting a family. From your experience, do you think the same effect is being had regarding student loan debt impacting one’s decision to get married? Do you sense that for those that are coming out of school today and the debt load that they’re facing, that this is actually having an impact on their decision to get married?

Steven Chung: Oh, absolutely. A lot of people — they usually have two philosophies. One is that they feel guilty about having a large student loan, and they don’t want to burden their potential spouse and their kids. And they think they won’t be able to afford a nice house in a nice neighborhood to raise their kids properly. And the second group of people, they don’t want to get married — they want to marry someone who can either pay off the student loans for them or at least have the same philosophy on paying it off. And it seems like it’s become a problem, especially — it was more problematic during the Great Recession a couple years ago. But even now, the economy’s recovering, people are still kind of wondering about the potential recession and things like that. So it’s kind of making people feel a little — think deeper on financial analysis or some sort of background check, so to speak, on their potential spouse before tying the knot.

Tim Ulbrich: Steven, I was thinking before we recorded as I was preparing for this show, I could see specific situations that could cause difficulty between two individuals if there is not open communication. And three that come to mind — I’m sure there’s many others than three — but I could see a situation where one individual has a lot more debt than the other and a potential for resentment. So somebody that for whatever reason, maybe they don’t have debt through scholarships, parents helped pay for it, they worked, whatever, and somebody else has a lot of debt and potentially some resentment for that situation. Another situation I could see is just different feelings about the debt as I alluded to already and how to repay. You know, some, as we’ve talked about on the show, want to kind of go all in on debt repayment. Others want to take a slower approach with other priorities financially. And the third one I could see is whether or not parents are involved, you know, potentially cosigners or those that had family members directly loan them money. Do any one of these resonate with you more than the others in terms of experiences you’ve seen where this can cause some difficulties and resentment between two individuals?

Steven Chung: OK, definitely by far it is the philosophy on how people want to pay the student loans. There’s some people who want to pay off the debt as quickly as possible. And on the other end, someone just wants to be able to pay the bare minimum and pretty much have the YOLO attitude, You Only Live Once. Those two people, their relationship is probably not going to go anywhere. But usually, the ones that work it out are, like I said, the ones that have — I mean, they fully disclose how much they owe and knowing that, they have a financial plan to try to pay it off or a plan for loan forgiveness if that’s what they want to do and of course at the same time have a financial plan for retirement, buying a house, having children, that kind of thing. So as long as they have that kind of understanding and they’re OK with the spouse’s financial habits and have the same financial goals, whether or not one spouse has a lot more student debt than the other, it shouldn’t matter that much as long as they have some sort of plan to pay it off or to manage it. As for parents being involved or if they’re cosigners, I mean, it’s ultimately up to them. Some people have their parents cosign because they’d rather pay their parents back with interest rather than a bank. Also parents who are a third party might be more forgiving as opposed to a bank who will send collection agencies after them and impose collection fees and possibly sue them, ruin their credit. So there’s a variety of factors that determine whether parents should get involved. So I mean, there’s pros and cons either way, so to speak.

Tim Ulbrich: Yeah, and I think what you had said about, you know, couples working together with their goals is so important. And I think I don’t want that to get overlooked, something we talk often about on this show of why we think it’s so important that couples start with the goals and then of course they get into the budget and make sure they’re not looking at any one specific part of the financial plan in a silo. So you know, I’ll see this often where we may give a talk to a group of pharmacists or maybe a couple in the audience, they come up, and I can tell within 20 seconds if they have different philosophies on how to spend their money, you know, in terms of whether it be debt repayment or other parts of the plan. And I think if two people can agree on the goals and the shared vision, you know, debt repayment becomes a part of that and hopefully that mitigates any concerns or resentment might be there if there are different amounts of debt that people are carrying. Now, you mentioned in your article that for some married couples, as their joint income goes up, it might make sense for them to refinance their loans. Why is that the case?

Steven Chung: OK. Well, generally, what tends to happen is let’s just say a couple makes a lot more money, they were initially on an income-based repayment plan, paying the bare minimum, but it looks like based on their finances, assuming nothing goes wrong, they’ll probably pay it off within like six or seven years. It’s not going to make sense for them to continue paying on a income-based repayment plan for one reason or another, maybe the interest, maybe interest will increase too much and they probably won’t qualify for loan forgiveness. So basically, if they have a plan to pay it off within let’s say 5-10 years, I mean, they probably just want to refinance because of lower interest rates. So they’re basically saving money that way. So I mean, the only drawback is that if they go to a private bank, they don’t have a similar — they don’t have an income-based repayment program like the government does. And they certainly don’t have loan forgiveness programs. So that’s something to keep in mind. But yeah, it’s just really about paying less interest to the banks or to the lenders and their decision to refinance.

Tim Ulbrich: Yeah, and I’m glad you said some of those nuances that you may not get with a private company, obviously loan forgiveness, the potential for income-based repayment plan. And I know we’ve talked about before on the show, but I’ll reference our listeners to our refinance page information where they can learn more, YourFinancialPharmacist.com/refinance. What is it? Who’s it for? You know, what could be the potential savings? Pros and cons? And then we also have refinance offers there as well. Now, what’s your advice to those that are refinancing their loans where there may be a situation, whether that be the bank requests or better off, with both incomes included, where you have both spouses names that are on the loan or if one cosigns the other. What are some of the concerns that you have in that type of situation?

Steven Chung: OK, here’s the thing. If a bank does that, I would run. I mean, it’s just — I think the main drawback is you don’t want to burn your spouse with a loan. I mean, unless you’re absolutely sure that the loans can be paid off and the bank is offering a much lower interest rate, if there’s a cosigner, I mean, I would just run. I mean, there’s so many banks out there, there’s so many lenders out there. I mean, not a lot specialize in student loans, but there’s enough to make it competitive. But if a bank just says, ‘OK, well, we want your spouse to cosign or someone else to cosign,’ then run. I mean, I’d only do it if there’s like absolutely no other choice. It just doesn’t make sense. I mean, there’s so many red flags there.

Tim Ulbrich: And I think that’s a good reminder, Steven. What we have seen, as we’ve said before on this show, this is a $1.5 trillion market, student loans. So there is lots of competition out there in the market, and we often encourage our listeners go out there, shop around, do your homework. These companies I will say seem to becoming more and more aligned with how competitive their offers are, but I don’t think don’t fall into the trap of just one offer, one option. Now, your article brought up an issue that I honestly had not previously considered, which is for those that live in community property states, refinancing pre-marriage student loans during marriage could convert it into a community debt where each spouse will be liable for half of the debt. Can you first explain what it means to be a community property state? And then talk about the impact that this situation could have.

Steven Chung: OK, a community property state, which includes California and a few other states, it just means that anything acquired during a marriage is split 50-50 between each spouses, each spouse. So in the sense of refinancing, there is the potential that refinancing a loan could mean that a loan acquired before marriage turns into a community debt. For practical concerns, it doesn’t have that much of an impact if they stay married. I mean, they’re still going to pay their loans. It’s not going to — I mean, the banks will still go after a person on title, but ultimately, I think where it becomes an issue is when there is a divorce and when if the court will deem the loan a community loan and it might impact how the ex-spouses have to pay the community — the refinanced loan, whether the original spouse is liable in full or do both spouses have to pay 50%. So that’s probably going to be the issue in these type of things.

Tim Ulbrich: So let’s talk about that situation a little bit further with the very important disclaimer that we’re not here to provide legal advice and tax advice and every situation obviously can be different. We know we have people listening all over the country considering different state rules and nuances to each situation. But generally speaking, how does student debt get handled in a divorce situation in terms of shared liabilities? And what factors go into determining that?
Steven Chung: OK. Yeah, the thing is I’m not a family law attorney, so I’m not sure exactly how it works out in a divorce situation. And of course, 50 states have potentially 50 different rules, but the two nuances that kind of come up or at least — well, the big nuance where this might be an issue in a divorce is when, well, a couple gets married. One has no student loans and the other has a large amount of student loans. And then the first spouse offers to pay off the other spouse’s student loans. So in a divorce, what does that mean? Is that a gift to the other spouse? Or is it a loan that has to be paid back? So that’s kind of an issue that tends to come up in divorces. And then of course, even if there isn’t such a case, how would the loans be split? And would the couple have to pay their own loans? Or do they have to somehow pay the loans together? And usually, this situation comes up where a couple gets married and then one spouse during the marriage decides to get like a graduate degree or continues their education. But he needs student loan money to pay for basic living expenses like rent or things like that. So if that is the case, then chances are a divorce court judge will say that the couple collectively should pay a portion of the loans back and shouldn’t be responsible for — and shouldn’t just be responsible to whoever’s on the loan. So that’s kind of the issues that come up during divorce most frequently.

Tim Ulbrich: So my takeaways there are choose your spouse wisely and make sure you have open communication and conversations as far in advance as you possibly can. So let’s shift gears a little bit and talk about tax planning as it relates to student loans when we have two individuals that are involved. And again, important disclaimer, we’re not here to provide tax advice. And we certainly recommend they consult with a tax professional that can look at their personal situation in more detail. But it appears that the biggest consideration when it comes to student loans would be for those that are on an income-based repayment plan and determining whether it would be advantageous to file jointly or separately. What are some considerations here for our audience?

Steven Chung: OK. Let me add a third option and that’s just not getting married and living together. So they’ll just be filing single. But anyway, yeah, one of the things people have to look at when they’re on an income-based repayment plan is whether filing jointly will significantly increase their student loan payments. And of course, usually filing jointly, there is a small tax benefit. You’re usually in a smaller tax bracket. But let’s just say to make it simple you’re paying $10 more in student loans, but you’re saving $5 in taxes by filing jointly. Then you’re better off filing separately because even though you’re paying more in taxes, they’ll be paying even less in student loans, so that’s kind of. But usually for married couples who are both on income-based repayment plans or maybe one of them are, they should contact a tax preparer and have them do an analysis on what their tax situation will be if they file separately and then also look at what their student loan payments will be filing separately versus filing jointly. So and then make the comparison and then file the tax return on I guess whichever will save you the most money. And some people, like I said, there’s a third option. You could stay single. And interestingly, in California, you don’t even have to get married. You can actually choose to be a domestic partnership. I mean, that was an option given to homosexual couples before it became marriage was legalized. But now it seems to be making a comeback in people with large student loans. And this might be a viable option for them or just stay single altogether and just maybe live together, that kind of thing. The second biggest thing is — and this kind of could be down the road is when the income, when the loans are forgiven, that forgiven amount will be called cancellation of debt income. So it’s basically like the government kind of giving you — or somebody giving you money to pay off the loan, although you don’t actually get the money. Generally, there’s two things to consider. No. 1 is they tack the cancellation of debt income is based on your assets versus your liabilities. If your liabilities exceed your assets, then you’re considered insolvent and you will not be taxed on the forgiven debt. But if your assets exceed your liabilities, then a portion or maybe all of the forgiven debt could be taxable. Generally what I tend to tell people is don’t worry about it right now, especially if you’re just starting your careers. You know, maybe like the first 5-10 years, just focus on your career because you don’t want to live your life trying to plan for loan forgiveness. I mean, you’re pretty much throwing money away. And that’s kind of like putting the baby out with the bathwater, so to speak. So after the 5- or 10-year mark, once you kind of know what your salary will be, then you can possibly plan your finances to maximize insolvency or minimize your assets so you can minimize your taxes when loan forgiveness comes. The second thing to consider — and I think this is a very likely scenario — is that I think in about 10 years, that’s when I think the first income-based repayment forgiveness programs will begin. I think by the time, it’s probably not going to be taxed. The forgiveness is not going to be taxed. I think it’s just because a lot of potential candidates, especially Democrats, they are considering passing a law making forgiveness of debt income non-taxable. And as a precedent for that, back during the housing crisis when people were short selling their houses, the banks issued a cancellation of debt income on the amount that the banks lost or the amount of the mortgage that was forgiven, and then Congress immediately passed a law to make sure that the forgiven mortgage debt is non-taxable. So I think we’ll — I feel pretty good that there’s going to be something similar for student loan debtors when loan forgiveness comes. But just in case, I mean, you should probably make plans to maybe rearrange your assets, maybe lease or rent instead of buying, that kind of thing, at least around the time loan forgiveness happens. So yeah, so I think those kind of things you should consider.

Tim Ulbrich: Steven, let me ask you, you know, just this week I’m thinking about trying to reconcile this issue of where we may end up in five or 10 years when it comes to debt cancellation. You know, just this week, there’s news on both sides of it in terms of the Trump administration continuing to want to press forward with ending loan forgiveness and then obviously we have the campaign from the presidential Democratic candidates around debt cancellation, debt forgiveness and free college. And I think that often leaves people like in our community wondering, my gosh, what is the future of this going to be? What do I make of this? And how do I even begin to think and plan around it. And what I heard you say is you really feel like you think — obviously none of us have a crystal ball — but you think we’re going to move in that direction of not having that tax obligation based on some historical precedent. So tell me more about, you know, based on all that you have heard and based on your expertise in this area, tell me more about why you feel like that that’s the path that will go forward.

Steven Chung: OK. Well, the thing with Trump’s plan, he only calls for the removal of what they call the Public Service Loan Forgiveness. And that’s these student loan program where you work for the government or a nonprofit for 10 years and your loans are forgiven and without the cancellation of debt income.

Tim Ulbrich: Right.

Steven Chung: What he actually wanted to do was he wanted to simplify — there’s like several different IBR plans, and he wanted to simplify it into one 15-year plan. The thing is one 15-year plan for undergrads and then 30-year plan for graduate students. So he did not mention whether the loan cancellation will be forgiven. But let’s just say Trump’s proposal passes and loan forgiveness is not for another 30 years for people’s start. I mean, the way things are going now, the student loan numbers are just increasing. There’s no — I see no activity among students and schools to reduce it, to reduce tuition. I mean, just the cost of education is going up, and at some point, it’s just going to get to a point where people are going to be graduating with $300,000, $400,000, or even $500,000 debts. And I’m even starting to see that.

Tim Ulbrich: Yep.

Steven Chung: A few dentists, they’re even graduating like $700,000, $800,000 and even $1 million. There was one story in the Wall Street Journal, an orthodontist in Utah graduated with $1 million in debt. So I think with these numbers, I feel very good that this kind of relief is on the horizon. Of course, I’m not 100% sure, but I just feel good about it.

Tim Ulbrich: Sure.

Steven Chung: And it’s just going to affect so many people that there’s going to be a major outcry. And I think at that point, it’s just going to be a big — I mean, students and also their parents who also cosigned these loans will probably want them too. So there’s going to be an expanded voter base.

Tim Ulbrich: Yeah, I’ve thought a lot about that too. You know, and again, we don’t know what the future will hold. But I think when you think about the vulnerability of the borrower, the focus on costs in higher education and the political outcry that would come from something like that, I think that all of those are important considerations. One of the takeaways I’ve had, Steven, from our time together, which I really appreciate you sharing your expertise, is we often talk on this show — and I know this is second nature for you, but I think here we are in tax season, so it’s a good reminder that we often think about filing our taxes, which it really is just a mechanical retrospective look at what happened. And I think this has been a great reminder on the need to be more strategic, more prospective and to be working with experts, you know, especially as we’re thinking about things like single filed married, and some of those situations when it comes to income-based repayment and thinking on more of a strategic standpoint based on your personal situation. So again, I appreciate your time and appreciate your sharing your expertise. We’re going to link to your article in the show notes as well as your bio. But just here as we wrap, where can our listeners go to connect with you and to learn more about the work that you’re doing?

Steven Chung: Well, I write for a legal website called Above the Law, and my columns appear on every Wednesday. In fact, I just released a column today, although it’s more about tax law and video games, so totally off-topic. I’m also on Twitter. My Twitter is @stevenchung. I just post occasional tax stuff, usually nonsense, but that’s a good way to contact me. Or you can connect with me on LinkedIn or if you’re in the southern California area, you can contact me. My phone number is (818) 925-4699. I’ll be happy to answer any questions about tax planning or filing tax returns, especially this time of year.

Tim Ulbrich: Awesome, thank you. And again, to our listeners, Steven’s a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolves tax disputes. He’s sympathetic to people with large student loans. Many of us can certainly sympathize with that as well. He can be reached via email. We’ll link to that in our show notes or as he mentioned, you can connect to him on Twitter. You’ll also find him writing for Above the Law and also on LinkedIn. Steven, thank you again for taking time to come on the show.

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YFP 125: Why Lowering Interest Rates for Student Loans is an Alternative to Debt Cancellation

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Why Lowering Interest Rates for Student Loans is an Alternative to Debt Cancellation

Dr. Joey Mattingly, a faculty member at The University of Maryland School of Pharmacy, talks to Tim Ulbrich about a recent article published in the American Journal of Pharmaceutical Education titled Before we talk about student debt cancelation, can we talk about the interest rates? They cover the basics of loan terminology, discuss why lower interest rates would have such a significant impact on student indebtedness and discuss the reasons why lowering interest rates may be a better option than loan cancellation or forgiveness.

About Today’s Guest

After graduating from the University of Kentucky College of Pharmacy and Gatton College of Business and Economics, Dr. Mattingly dove directly into pharmacy practice for The Kroger Company as an EPRN super trainer, facilitating the implementation of a new pharmacy information system software to more than 40 pharmacies. After completion of the pharmacy system rollout, Dr. Mattingly managed four different Kroger Pharmacy locations (L292, L780, L366, and L389) between 2010 and 2012, revamping operations at each location to improve multiple business and patient care activities. Dr. Mattingly was promoted within Kroger to serve as District 6 Pharmacy Coordinator in the Mid-South Division, based in Carbondale, Illinois, overseeing operations for 12 pharmacies.

In 2013, Dr. Mattingly left The Kroger Company to lead Indianapolis operations as general manager for a start-up long-term care pharmacy company called AlixaRx, providing pharmacy services and remote automated dispensing systems to 23 skilled nursing facilities (SNFs) across Indiana, Kentucky, and Ohio. He currently serves as an associate professor in the Department of Pharmacy Practice and Science at the University of Maryland School of Pharmacy, where he teaches business strategy to students in the professional program and is a strategic consultant for the University of Maryland Medical Center Department of Pharmacy. In 2016, Dr. Mattingly was selected as the graduating class Teacher of the Year.

In addition to his work as a faculty member, he serves as the Director of Operations for the PATIENTS Program and recently earned his PhD in Pharmaceutical Health Services Research with a special focus in pharmacoeconomics. Dr. Mattingly is also passionate about policy and parliamentary procedure and is the Speaker of the House of Delegates and Board of Trustee for the American Pharmacists Association. He has previously served the American Pharmacists Association Academy of Student Pharmacists (APhA-ASP), the Kentucky Pharmacists Association (KPhA), and Phi Lambda Sigma Pharmacy Leadership Society as speaker of the house.

Summary

Dr. Joey Mattingly joins Tim Ulbrich to discuss some important pieces from his APJE article titled Before we talk about student debt cancelation, can we talk about the interest rates? He also breaks down key loan terminology, what the math on interest rates shows, and four reasons in favor of supporting lower interest rates instead of debt cancellation.

To kick off the episode, Joey discusses what the words principal, term, interest rate and amortization mean in regards to student loans so that everyone has a basic understanding of what this debt is comprised of.

Joey then jumps into this APJE article titled Before we talk about student debt cancelation, can we talk about the interest rates? Using the AACP Graduating Student Survey from 2017, Joey estimates that that graduating class carries a total of $2 billion in student debt. Although there are Presidential candidates that are discussing loan forgiveness, Joey encourages a discussion of lowering interest rates. By lowering interest rates, principal balances will come down quicker and monthly payment will be less expensive. Joey talks through what this math looks like for interest rates at 6%, 3% and 1.5% When looking at a 6% rate, after a 25 year term, the total interest accrued for the $2 billion of student debt is $1.9 billion, almost double the principal. Lowering the interest rate to 3% or 1.5% significantly reduces interest as well as lowers monthly payments.

Joey also talks through four reasons to support lower interest rates instead of debt cancellation: resentment, incentive realignment, decision making uncertainty, and public support for lower rates.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited to welcome back onto the show Dr. Joey Mattingly to talk about one of his most recent articles published in the American Journal of Pharmaceutical Education titled, “Before We Talk About Student Debt Cancellation, Can We Talk About the Interest Rates?” Joey was on the Your Financial Pharmacist podcast all the way back in Episode 005, where we talked about the impact of rising student debt on a pharmacist’s income. So a little bit about Joey before we get started: After graduating from the University of Kentucky College of Pharmacy and the Gatton College of Business and Economics, Dr. Joey Mattingly dove directly into pharmacy practice for the Kroger Company, where he facilitated the implementation of a new pharmacy information system software to more than 40 pharmacies. He managed four different Kroger Pharmacy locations between 2010 and 2012, revamping operations at each location to improve multiple business and patient care activities. Dr. Mattingly was promoted within Kroger to serve as the District 6 Pharmacy Coordinator in the Midsouth division, based in Carbondale, Illinois, overseeing operations for 12 pharmacies. In 2013, Dr. Mattingly left the Kroger Company to lead Indianapolis operations as General Manager for a startup long-term care pharmacy company called Elyxa Rx, providing pharmacy services at remote automated dispensing systems to 23 skilled nursing facilities across Indiana, Kentucky and the great state of Ohio. He currently serves as an associate professor in the pharmaceutical health services research department at the University of Maryland School of Pharmacy, where he serves as a strategic consultant for the pharmacy department at the University of Maryland Medical Center in Baltimore. Joey, welcome back to the Your Financial Pharmacist podcast.

Joey Mattingly: Thanks, Tim. I’m very excited to be back with your audience.

Tim Ulbrich: So the commentary you wrote for AJPE, again, titled “Before We Talk About Student Debt Cancellation, Can We Talk About the Interest Rates?” I really enjoyed this work. It was simple, it was straightforward. And I thought it was very effective in helping the reader understand the basics of loan terminology — and we’ll talk about some of that here today — as well as why a conversation around lowering interest rates should be happening alongside or potentially in place of the debt cancellation/forgiveness discussion that we discussed here on Episode 114 of the podcast with Richard Waithe from RxRadio and certainly I think many of our listeners are familiar with through the Democratic presidential debates that have been ongoing. So in this interview, we’re going to hit the high points of Joey’s article that he published in AJPE, but please make sure to check out the show notes, where we’re going to put a link to the full article. And it’s an open access journal, so you can read the article in its entirety. So Joey, before we jump into the specifics of your article – and again, you do a nice job of this in there as well, let’s break down some of the loan terminology, specifically principal, term, interest rate, and amortization to make sure we’re on the same page. So let’s start with principal. When you define the principal of a loan, what is it? Let’s start there.

Joey Mattingly: Absolutely. So and again, this is great, well-timed, Tim. Actually, I gave this exact topic today in my pharmacy management class at the University of Maryland.

Tim Ulbrich: Awesome.

Joey Mattingly: My students — and I always, because I think it’s important as any manager as well to understand debt. And I really — the goal for this article is not to scare people or freak people out because a lot of students when they’re graduating, you know, there’s that anxiety and fear around their debt. And I hope — what I love about your podcast and the work with your group is I feel like you’re doing your very best to try to empower students to understand their financial situation so that they don’t — rather than fear and anxiety, maybe they feel more hope and optimism. So anyway, I just start by hey, let’s break it down. So when we start, the biggest component that comes right off the bat that we think of is the principal. That’s that amount that we borrow from the lender. So thinking of if it’s going to cost me $100,000 to go to pharmacy school or $200,000, I guess that’s a whole other podcast episode, what am I going to have to borrow overall? And that’s the amount that’s really if you did not have — if you had all the cash in your bank account or your parents had a lot of money to help pay for your school, they would just pay your tuition, right? And so they would use, if it was $200,000, they would write a $200,000 check, right? Or whatever that may be. Whereas if you do not have the money in your bank account, then we look to financing. And so we start with the principal.

Tim Ulbrich: Yeah, and I think starting there, and you do a good job of this in the article, the way I think about it here too is if we have a P3 student listening and here we are fall semester of 2019, and let’s say they borrowed $10,000 for fall semester, that $10,000 and whatever that loan may be, unsubsidized loan, that’s the principal. But as you mention in the article, obviously we can’t stop there when we think about the full amount that somebody may end up being in debt because we have to think about the term as well as the interest rate. So why don’t we go on from the principal and talk about the term and the interest rate.

Joey Mattingly: Well, before we leave principal, one thing I think that often gets overlooked too is that when we’re having that initial transaction and say — so I keep using, I like easy numbers, Tim, I hope it’s OK.

Tim Ulbrich: Yeah, yeah.

Joey Mattingly: I know for everyone, the challenge is it becomes complicated when it’s $7,342 or whatever. So I always round and say, OK, say I need $100,000. If when I’m trying to get that initial loan, there are often costs that go into the transaction. And in the case of a student loan, often they’ll call them origination fees or things that around if you look at the Department of Education, you’ll see anywhere from about 1% to about 4.2%. So even in that initial signing the paper, once the $100,000 is transferred over into say it went into your account, if you tried to give that money right back to the lender, you’re going to pay possibly $4,200. Right? So there’s a cost in just the transaction.

Tim Ulbrich: And I think that origination fee, as you mention in the article, is often overlooked but so important, especially the students listening, that you understand how that is calculated and roughly what that may be in terms of the impact. You know, just this past week, I had the opportunity to speak with the vet med students here at Ohio State, and as we all know, the way these loans are typically presented to you, it’s hey, here’s the max. And sign the line, and the rest is good. And so often students will say, “Well, why not just take that? And then if I have anything left over, I’ll return it or whatever. At some point, hopefully I’ll be able to pay it off.” And I think what you’re describing here is so important is that right off the bat, you have that origination fee that anything you can do to minimize the amount that you borrow from the beginning is going to help you in the long run.

Joey Mattingly: Yeah. And then one of the things that — and I always go back to percentages and thinking about percentages versus whole numbers. And I can’t take credit for this, I actually, when I think of the whole reason why my whole life has changed when I think about percentages versus whole numbers, is because of an independent pharmacist in Kentucky that was originally from Alabama, so he’s got kind of an Alabama accent, and I would always tell him, I’d say, “Hey, Leon, we’ve got this medication. We’ll make 80% gross profit on it. We’ll make 80%. I’m so excited.” And he’s like, “Joey, how many dollars will I make? How many dollars will I make?” And it blew my mind. Tim, I had an MBA. I was the smart business guy. And it was this independent pharmacist for 25 years that said, “Joey, I need to make this many dollars,” dollahs, as he would say. So when you think about that for a second. As student loans increase or as the cost of tuition, the cost of room and board, all those other costs, as it increases, the percentage may stay the same, but what your total dollar amount that you need — so in a way, like guess what? If I’m a loan, if I’m giving out the dollars, if I am the person giving out the dollars, what does it cost for me to — as you’re thinking about it, like they’re able to make more whole dollars, not just yeah, that’s 4.2%, but it’s part of that incentive for the numbers to just get bigger. So anyway, we can move on to term, but I just wanted to, as we think about this, yes, it may be 1% or 2% or 3%, it may seem like nothing, but as we see the numbers get bigger and bigger, 1% and 2% can make a big difference.

Tim Ulbrich: And I think that’s a great point, Joey. You know, and we’re not talking here about tuition, whole separate — as you mentioned in the article — whole separate issue, whole separate topic for a different day, certainly a factor, but to your point, when you talk about something like an origination fee, we often see these presented separately where we’ll see OK, tuition has gone up x% this year, but it’s not just the increase in tuition, which is then going to increase what you need to borrow, it’s the increased amount that you’re going to borrow, which also increased your origination fees and then, of course, as we’re going to move onto here, the term in which you’re borrowing as well as the interest. So take us through those two terms.

Joey Mattingly: Yeah, so now the term. This is the one that we — when I say we, as graduates, as students, when we’re signing up — or not when we’re signing up, actually. So the difference — the interesting thing about student loans is that you don’t determine the term until you graduate. I think that’s something very different than when you’re buying a car, right?

Tim Ulbrich: Yep, right.

Joey Mattingly: So when you’re buying a car or buying a home — and often, when we’re buying a home, there’s opportunities to refinance and everything, which we can do that as well with student loans. I think you’ve got plenty of topics on that, you know. But when we get to the term, that’s just the time. That’s just the time that you’ve agreed to pay back the principal, principal and interest, I guess, over a period of time. And so what’s common is for student loans is somewhere between 10 and 30 years. 30 being the longest, which oddly enough, they have like the extended repayment plan is set at 25. So we often see 10 and 25 are common. But then I think there are other plans with the Department of Education where you can extend it out to 30. And that leads — and so we get the time built in. And again, we decide, you kind of get that exit counseling at the end of school. And so that’s often where you’re signing up. And think about what’s happening with some of our graduates right now. Tim, when you and I graduated — and we won’t talk about how long ago that was — but it was in a time when there was still a period where pharmacists were getting maybe bonuses, maybe we were getting multiple job offers, and let’s be real for a moment, we know a lot of our students right now aren’t in the same boat that we were in a few years ago. And so if I had been aggressive, which I wish I had gone back and was a little more aggressive at that time and taken a 10-year note, Tim, I just had my 10-year pharmacy school reunion this past, I guess, what was it? Two weekend ago back at the University of Kentucky. If I had not — so I initially signed up for a 25-year repayment plan. And I had been in that repayment plan for a few years, and after a couple years realizing oh my gosh, my principal isn’t going down. And so that’s what — and again, I would like to think I’m a smart person. I know how to do a lot of math, I’ve got the business and the degrees I think to say it. But a lot of it’s not about whether you can do the math, it’s about whether or not you’ve got the mental —

Tim Ulbrich: The behavior.

Joey Mattingly: The behavior. Will you do it?

Tim Ulbrich: Absolutely. And you had me reflecting back on when I graduated and the offers relative to the salary, and I’ve always tried to show graphs on debt-to-income ratio, debt-to-income ratio, debt-to-income ratio, where have we gone in the last 10 years? And if I’m correct off the top of my head, I think the median indebtedness for a pharmacy graduate in 2010, I believe in 2010 was $100,000. And so here we are now in 2019 and that now is north of $170,000, which you look at what’s happened, the Bureau of Labor Statistics I think for all pharmacists’ median salaries is a little bit misleading to the reality of the job market of somebody coming out today, but I would argue the entry-level community pharmacists in 2010 probably was making more than they’re making here in 2019, but we’ve seen the debt numbers go in the exact opposite direction. So you know, as you and I wrote an article on before and we’ve talked about in Episode 005, what’s the purchasing power of an income? And I think what we’re getting to here is when you think about your debt side of the equation, you’ve got what you borrowed to begin with, your principal, and then you’ve got the interest that’s accruing while you’re in school. And for unsubsidized loans, obviously that’s happening along the way and ultimately, we get to the point where those capitalize and it grows baby interest over the term, which as you mentioned is the repayment term, anywhere from 10 up to 30 years. So interest rate then is the next variable we’re looking at. So just basic definition of what is interest?

Joey Mattingly: Yeah, so this is what — if you think about it, this is sort of what the company that’s giving you the loan, they’re taking interest as sort of to cover their cost. So this is the amount that’s above, you know, I guess the way the U.S. Department of Education, is the cost of borrowing that money, it goes to the lender. And so if the lender is a nonprofit, then in theory, you’re just going to have the revenues meet the expenses and no additional profit. If the lender is a for-profit, so then we think about our private banks, we think about payday loan lenders or whatever, you’re playing with that number. Those interest rates are what puts food on your table as a lender. So anyway often we think about it annually. But I think it’s important to consider how — and again, as we roll into the more complicated thing, I think some folks can get down principal, term, and interest rate. It’s when we start to amortize the loan is when things get fun. But that’s where I really think we can have a big impact when we discuss amortization. But for student loans, it should range between 3-8.5%, which when you hear 8.5%, you’re like, it’s not our parents’ interest rates. And so that comes up. I make sure I have that conversation with folks is that I pull up 1980s numbers because I think about my father graduated high school in I think ‘80-’81, something like that, and as he was thinking about college, if you took out a student loan, comparatively or relative, you could get a 3.5%, 4%, 5% loan. Auto loans in the early 1980s were something like — it got as high as like 20% at one time.

Tim Ulbrich: That’s crazy.

Joey Mattingly: And so thinking about that, if interest to buy a house was 20%, then yeah, we’d say 8.5% is not too bad. But I just think it’s really important for us to understand that the area of interest rates — and that’s, again, the whole part of this exercise, the whole bulk of this article, but just to understand that these aren’t our parents’ interest rates. And so often, we think about our parents as our sometimes the folks that give us advice, you know? And we hope that they’re — and they’re trying, they want the best for us and are trying to give us some advice on how we can handle things. The number of times I hear people talk about how good student is, man, it’s something that — I don’t know how you feel about it, Tim —

Tim Ulbrich: I’m with you, I’m with you.

Joey Mattingly: I just don’t like calling it a good debt. Like you know, let’s talk about the math. Let’s do math first.

Tim Ulbrich: Yeah, let’s talk about the math, let’s talk about the career path, let’s talk about what you’re trying to achieve, what’s the ROI? I mean, so many factors that go into that. I mean, I think it’s a blanket statement that probably gets assumed too easily and too often. And I love what you had to say about advice we get from our parents because that’s something I hear so often from others, and this really gets to the concept of anchoring where when we talk to somebody and they’re like, “Oh, well, back in the day, my interest rates were 17% to buy a home.” All of a sudden, you look at 7% or 8% and you think, oh, not too bad. But even in that range you give in the article of 3-8% or so, as we know, as we’ve run various refi numbers and scenarios, having a 5% versus a 7% when you’re talking about $200,000 of debt, that’s a big, big deal. And so really digging in deep, especially for those that are in active repayment, understanding your options about what am I looking for in a repayment strategy and for those that are currently in school, really understanding and looking at what can I be doing right now to try to minimize any of the indebtedness while I’m in school. So Joey, in your article — so now that we covered the total cost of loans, which is inclusive of principal, term and interest rate — in your article, you mentioned that “for PharmD students, focusing on the impact of interest rates on their monthly payments and the total term (amortization) for their student loans may be the most beneficial approach to helping them achieve their personal finance goals. So there’s that term, amortization. So talk us through what you mean by that. Why is that the case?

Joey Mattingly: Yeah, so I highly recommend if this is the first time, if you’re an audience member listening and you’ve never really, you’re not familiar with the word amortization, get on the Google right now and start learning what amortization means. And download a free, I keep a free amortization calculator on my phone one, because I’m a nerd, but two, I mean, so it doesn’t matter what it is, if it’s a car or if it’s a house or whatever I’m in the process of discussing, I like to just throw out, look at the amortization schedule, play around with the numbers, see what it looks like if interest rates change, if terms change. So basically, the amortization schedule is simply the — when a lender is lending money and you’re agreeing to pay this back, it’s set up in a way so that the monthly payment is a fixed amount. And so you calculate it out so that the principal and the interest are captured over however many payments it is. And so it’s actually, there’s not a function of time, it’s a function of really how many payments and how frequently is the interest being captured. But typically, we think of it as annually, and then within that year, often you’ll see like 12, each month you’ll see things. So wanting to know how frequently does the interest start compounding because that’s something as well. So anyway, I don’t think listeners have to become experts in it, but I think getting to an amortization calculator quickly is a smart thing to do. Like being able to just pull up one of these calculators that has the different variables for you and then start with something simple, you know? Put $100,000 in it, put 5% interest rate, and just change the term from 10 to 20 years or change the term. And then look at the schedule, so the amortization schedule will map out all 120 months in the 10-year loan. And then if you switch it to 20 years, it will map out all payments for the 240 payments, the 240 months. And so that allows you then to break out what’s going, each month, how much is being contributed to the interest? And how much is being contributed to the principal? And this kind of really breaks down the nuts and bolts of your loan. And so that was sort of the purpose of this, getting into this and then walking through an example of — I use the class of 2017 as an example, and we had a little over $2 billion in student debt potentially estimated for this class. And you know, so we take that $2 billion and start thinking, alright, what if the average interest rate was 6%? And we start plugging it in. So that’s sort of what I hope folks as they follow along, they don’t get lost in the math. It’s meant to stay simple, but we wanted to use a real-world example to talk about how just changing those numbers from a 6% interest rate and then changing the terms or whatever, what would happen? And then if we were to hypothetically lower the interest rate, what would happen?

Tim Ulbrich: Yeah, and I echo your recommendation to our listeners. If you have not dug into an amortization table before, please do. Whether it’s your student loans or buying a home, I think it’s really powerful to be able to see if you’re on a 30-year type of mortgage repayment, for all of those months, how much would be going toward principal? How much would be going toward interest? And for those of you that are making those payments, you know very well when you get those statements, you’re like, man, I send in a big check, but only a little amount actually went to pay off the principal on the loan. And I think it’s a small but very important behavioral move that as we talk about over and over and over on this podcast, the more educated you become, the more empowered you feel, the more informed decisions that you make. And I think looking at an amortization table is just a great example of doing that versus you just blindly accept the debt for what it is. So Joey, let’s dig in. You talked about in the article, you walked through a case study using the class of 2017. You used the projections and the data provided by the AACP Graduating Student Survey, which we’ll link to in the show notes for those that have not seen that before. And obviously, those numbers have even gone up here in the last couple years. But you noted a total of indebtedness — if we assume across the entire cohort, all the graduating students, a little over $2 billion. And you then walk through essentially three different assumptions: one with an average interest rate of 6%, one with an average interest rate of 3%, and one with an average interest rate of 1.5% to determine what would essentially be the savings to the borrower and thus, the cost, I guess for lack of a better word, cost to the federal government if we were to move in this direction of actually lowering rates. So tell us more about what you found when you ran through that scenario.

Joey Mattingly: Yeah, so — and again, as the title of the paper sort of signifies, that there’s a lot of discussion around what if we forgive the debt, forgive the debt, forgive the debt. And I just thought that that is a pretty big jump. And whatever your politics are, that’s fine. I just want to make sure that we have a discussion around the issue of potentially the interest rates being problematic. And if we were able to — whether it’s subsidize or come up with a way to offset the interest, we could actually show gains, the students could — graduates, I should say — can make their payments, see their principals coming down, and pay off their loans. And from a budget perspective — and this is probably more our article that we did a couple years ago when we talked about what that payment is and budgeting out that student loan payment — and so as you walk through the scenarios, at 6%, this $2 billion in debt — I thought it was interesting to, I wanted to point like what if it was the entire cohort of students? Because you know, maybe the CEO of CVS Larry Murlow’s listening right and he’s thinking, hey, what can we do to help our pharmacists? So maybe CVS or Walgreens, one of the big boys, will step in and say, what if we wanted to help out? Have the Walgreens, CVS loan program.

Tim Ulbrich: Absolutely.

Joey Mattingly: So say that we were looking at that. The interest paid at the full term, so over 10 years for someone if we average it out at 6% and students had a mix of 8% and 3%, whatever — I like to keep the numbers simple for an article like this, so I just picked 6% — that we would see on the $2 billion about $677 million of interest would be collected over a 10-year period. And then if you were to take that out to 25 years, so if all the students picked 25-year terms, the total interest paid over a 25-year period would be $1.9 billion. So you actually, you essentially double —

Tim Ulbrich: Double, right.

Joey Mattingly: Double the principal. I mean, so you know, it’s interesting — and that’s just extending the repayment. That’s not messing with the interest. And then I started saying, well, what if we cut in half. What if we cut it down to 3%? 3% is like — in economics, we love that 3% number for an inflation number.

Tim Ulbrich: Inflation.

Joey Mattingly: Yeah. Because it’s probably more accurate on the whole for different types of areas. So anyway, let’s just say we were able to cut it to 3%. Well, as you’d imagine, when you start working out the math, it has a significant impact. Actually, one of the things I probably should point out is the monthly payment for students, the average monthly payment at that 6% level over 10 years is $1,815 a month. Now, imagine a resident trying to pay that. Imagine a pharmacist who took a full-time job but their hours got cut to 32 hours a week, imagine now paying that $1,815 a month.

Tim Ulbrich: For 10 years.

Joey Mattingly: For 10 years, right? So just cutting the interest, we knock $300 off of that 10-year scenario. And as we continue to cut, we cut $400 a month off if we — and I wanted to show an ultra-low, like what if it was just 1.5%? What if it was just enough to like this is the CPI? Economists would argue that’s too low for inflation, but let’s just say we had some philanthropy or something involved to offset so we got some dollars in interest. Because remember, the interest is the cost of the borrowing, the cost of the $2 billion. So anyway, just in doing that alone in a 10-year scenario, you’re knocking $400 a month off for each student. And when we look at the 25-year term, it’s that same kind of you’ll see about a $400 a month knocked off their payment, but you’re going from $1,000 a month to $654 a month in terms of your payments. And a lot of pharmacists can afford, we’ve gotten used to paying those $1,000-1,500 a month payments. So if you’re paying $1,500 a month but your interest, you’re actually able to get it done in 10 years, that’s — I don’t know, I just wanted to show that you can have significant impact in bringing it down. And one of the things I wanted to show in the article was I wanted to show a picture of just how the interest in terms of the amount of principal paid comes off. It’s not a linear line. It’s curved because your principal comes off at a faster rate later in the term. And so I think it’s disheartening for a student or a graduate in the first five years out because in the first five years, if you’re even on a 10-year repayment, you’ve only got about 40% paid off. It’s not exactly half, you know? In a way, it just I think — doesn’t it feel a little disheartening when it feels like it’s taking a long time to come off?

Tim Ulbrich: It does. It’s like the first five years of a mortgage. Same thing. You see those statements, as I alluded to, and the student loans, exactly. You’re making these big payments and you feel like you’re not making the momentum that you should. And this is where we hear from people, especially those that decided to more aggressively pay them off, whether that be a refi or not, they’ll say things like hey, I made an extra $3,000 payment. Boom, you jumped on the amortization table. That goes directly toward principal and then they start to feel like they’re getting a sense of momentum. And separate conversation for a separate day, but I think what’s interesting — and I would encourage our listeners, again, check out the article, this is all in Table 1 where you can see the data, but what we’re not even talking about here is what’s the opportunity cost of what that money could be doing? So when you talk about a 10-year term and you talk about going from a 6% rate to a 3% rate, essentially that would take it down to a little over $1,800 a month to $1,579 per month. Well, what happens then if that difference you invest in your 401k, your 403b, your Roth IRA, you make extra home payments, you’re investing in growing businesses? I mean, what’s the value of that? And how do you even start to factor all of that in? So what I want to wrap up on, Joey, is I thought you did a really nice job at the end of summarizing really four reasons that you think this concept really is in favor of supporting lower interest rates over debt cancellation. And you talk about resentment, incentive, realignment, you talk about decision-making uncertainty, and public support for lower rates. So let’s walk through those briefly. When you say resentment, what do you mean by that? Why would this type of plan be more favorable compared to something like debt cancellation?

Joey Mattingly: Yeah, so this is the — I mean, honestly, if I could weight them, this is probably like I’d say 50-60% of one of the things that we need to really consider is that while — and I even put, I don’t know if you noticed in the paper, you know how, so for when we write academic papers, we put out our conflicts of interest?

Tim Ulbrich: Yes, I saw that.

Joey Mattingly: I put in my conflicts of interest, I said my wife and I have student loans. I was like, it’s absolutely — like I absolutely have a conflict in writing this paper. Now in the case, I’m actually arguing against my own best interests, you know. But I’m saying that so I have a lot of friends who have sacrificed or made choices in their life where whether it was maybe not buying a home right away, maybe even delaying having children, maybe it was whether they stayed in the same car for an extra 10 years and kept it going or whatever it was, the sacrifices that they made, didn’t go on trips or whatever, so that they could put larger chunks of their income right on top of those students loans and get them paid off. Now imagine my classmates that I love to death, we have grown through pharmacy together, find out that magic wand is waved from the federal government or whoever, and your loans are paid. Right?

Tim Ulbrich: Right, right.

Joey Mattingly: Now, they would probably think for the last 10 years, oh my gosh, they could have been investing in the stock market, they could have started a business, they could have done all these things had they known. And now, I totally agree that yeah, that would feel really, that would feel kind of challenging. Now, for some would say, well, you know, I’m still in principle OK with getting rid of the student debt just because you’re against, you know — maybe your politics are that you’re against students having this much debt to begin with. That’s another discussion. I just think that that’s an unintended consequence of this, and I think in a way, it sort of polarizes us. We get into these bigger philosophical discussions about what’s fair. And I just, I think that we can get past that. So I just wanted to put that out there. I think that’s a big one.

Tim Ulbrich: And I would agree with you. I think your percentage weighting is accurate. We actually had this out on the Facebook group, on the YFP Facebook group, a couple months ago when the candidates’ forgiveness/cancellation plans came out. And the word “fair” was by far the word that kept coming up over and over again. And some people were, as you mentioned, even though I’ve gone down that route, I still am in favor of this for various reasons. But I would say largely, many people had this concern, well, what about the people who have already paid this off? Is this fair? And that word, “fair,” did keep coming up. So the second thing you mentioned is incentive realignment. Tell us about that.

Joey Mattingly: Yeah, so I’ve shifted to become more of a health economist over the last few years in my studies and so incentives are something that I look at all the time and what are the things that the healthy behaviors that we think about, but anyway, in this particular case, imagine a policy shifting that saying, OK, we’re forgiving student loans. Does that tell future students or people who are thinking about doing another degree or whatever it may be to take out the maximum amount when maybe they don’t need the maximum amount? Because oh, hey, maybe it will just be forgiven later. And so I think there is a potential unintended consequence that may make it to where it’s not — we’re not aligning the incentives appropriately. And then one of the things I think would be kind of odd — again, this is theoretical, I don’t know this for certain — but think about some universities right now. We have a lot of universities, organizations, that they recognize that this is a problem. And I think some — and again, we could have a whole other discussion on whether or not schools are being more efficient — but that’s one of the things I do think some schools are working to become more efficient. And what if their consumers, the people paying the tuition, all of a sudden come into a windfall of more tuition dollars? Does this sort of put them in a situation where they’re thinking, oh, well, no sense in being efficient, anyone can pay for it?

Tim Ulbrich: Yeah, does it de-incentivize the efficiency? And you wrote a piece on the efficiency of the PharmD education.

Joey Mattingly: I’m just trying to get more citations.

Tim Ulbrich: We’ll link to that in the show notes as well. So the third point you make here — and again, we’re talking about reasons to support lower interest rates over debt cancellation — is decision-making uncertainty. What do you mean by that one?

Joey Mattingly: Yeah. So and I wanted to give an — I tried to give an example of myself. You know, my wife and I, as I stated, have student debt balances as we’ve worked to pay these things off. And we have a mortgage, we bought a home. Well, with all of this stuff happening in the politics, the national politics, Ashley and I have been working hard to take extra dollars putting on our student loans. You know, you listen to Your Financial Pharmacist, we’re trying to follow good behaviors and do those things. Well, for the next 12-24 months, Ashley and I have had the discussion, should we put that extra money in a savings account or somewhere or even towards our mortgage at least until we figure out what’s going to happen? Because you know, for those who are holding debt, I mean, come on. Like that would be dumb financially for me to not consider the prospects of that debt being paid off. And then if it never happens, if my debt doesn’t get magically forgiven by whatever policy, then if we invested wisely, we should be able to take that money from our savings and then put it on the debt. But in a way, that’s going to cause more interest rates — we’re going to pay more interest over that in the short term. But it’s kind of one of those risk things. But I just think it causes some uncertainty in decisions and whether that’s good and bad, I just think that it’s a negative to like look, while we’ve got this uncertainty, we don’t know what’s the best thing for our money.

Tim Ulbrich: That’s a great one. And the last one, which is of course of interest, you know, what would be the appetite for something like this in terms of the politics and the public support? And you addressed just that, the public support for lower rates. So what did you find in the literature and how this compares to debt cancellation?

Joey Mattingly: Yeah, so you know, when you think about it, it shouldn’t be that surprising when we think of if you ask in a general survey about interest rates on loans, no one likes interest rates. Like why would anyone — like I’ve never met a person that’s like, man, you know, I think they should raise our rates. I feel like I should be giving more to the financial institution. And so now I’m assuming the 12% that disagreed must work for a lender, right? Because like why would you be against lower rates? Now, I think that’s going to be the flip side is when you’re thinking about if folks are trying to lobby for lower interest rates or even debt forgiveness, actually, either way, you’re potentially destroying an industry where people work. OK? So those interest rates are paying people’s salaries. They are paying companies, lenders, it’s going to those groups. And so you’ll eliminate the need for those groups. But let’s not forget that there’s people behind that. And so that also means lobbying groups or whatever. There are going to be companies that are going to be very much against anything like this, that may even if we all believe as a society it’s good for us, there’s special interests that will be against it. But overwhelmingly, like from a general population standpoint, I think this is something we can all get behind. And Democrat, Republican, whoever, like you can support this without it being too political. And that’s one of the things too because I know this argument has gotten so political. And once you put on your red and blue hats, like you might as well stop talking.

Tim Ulbrich: Yeah, and this reminds me, Joey, I recently had the pleasure of interviewing Dr. Daniel Crosby, who wrote the New York Times bestseller, a couple books, “The Laws of Wealth,” and most recently, “The Behavioral Investor.” And he talks about the contentious debate of passive versus active investing. And he actually proposes an alternative, kind of a third, takes the best from both worlds. And this reminds me a little bit of that. You know, I think that when some bold proposals come out like debt cancellation or loan forgiveness, there tends to be OK, I’m on the yes side, I’m on the no side. And we forget about what other solutions that exist. And I think your article did such a nice job of OK, what other viewpoints are there? And is there a solution that can get us all on board of trying to move the needle on this rather than something that may be more polarizing that actually never moves forward. So Joey, I appreciate your time. Again, for our listeners, what we’ve discussed is a commentary that he wrote and authored in the American Journal of Pharmaceutical Education titled “Before We Talk About Student Debt Cancellation, Can We Talk About the Interest Rates?” So Joey, I greatly appreciate your time and your work here and the support that you’ve had for what we’re doing over at YFP.

Joey Mattingly: Thank you, Tim.

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YFP 122: What Will Be the Future of Pharmacy Practice?

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What Will Be the Future of Pharmacy Practice?

Dr. Todd Sorensen, President of the American Association of Colleges of Pharmacy (AACP) and Associate Dean for Strategic Initiatives & Innovation at the University of Minnesota joins Tim Ulbrich on this episode. They talk through the workforce challenges facing the profession of pharmacy, rising indebtedness, the change.org petition, and Todd’s vision for the future of pharmacy practice including dramatically expanding the number of pharmacists working alongside primary care providers.

About Today’s Guest

Dr. Sorensen is Professor and Associate Dean for Strategic Initiatives and Innovation at the College of Pharmacy, University of Minnesota. He also serves as the Executive Director of the Alliance for Integrated Medication Management, a non-profit organization that engages health care institutions in practice transformation activities that support improved medication use. He is currently serving as President of the American Association of Colleges of Pharmacy.

Dr. Sorensen’s work concentrates on identifying strategies that facilitate clinical practice development and developing change management and leadership skills in student pharmacists, pharmacy residents and practitioners. His research and service activities have focused on working with health care organizations to implement strategies that improve health outcomes associated with chronic illness, specifically identifying leadership strategies that allow organizations to integrate and sustain medication management services delivered by pharmacists within interprofessional teams. This work has been greatly influenced by ten years of experience participating in and leading national quality improvement collaboratives for health systems seeking to optimize medication use in outpatient settings.

Summary

Dr. Todd Sorensen joins Tim Ulbrich for a conversation covering many topics such as workforce challenges facing the profession of pharmacy, rising indebtedness, the change.org petition, and Todd’s vision for the future of the practice of pharmacy including dramatically expanding the number of pharmacists working alongside primary care providers.

Todd is the President-elect of AACP and also Associate Dean for Strategic Initiatives & Innovation at the University of Minnesota. Todd explains that he believes there are two broad reasons why the pharmacy job market is changing and why the Bureau of Labor Statistics projects 0% job growth in the profession over the next ten years. One of those reasons is that there is a lack of perceived value in the medication distribution process. The other is that the professions has seen this coming for 20+ years according to a workforce projection report from 1999. In that report were new roles for pharmacists, however those roles haven’t grown as projected.

Todd discusses his Presidential address at the 2019 AACP Annual Meeting which was titled Leading in Dickensian Times.” He began the speech with the notable quote, “it was the worst of times, it was the best of times” referencing different viewpoints of pharmacists today. There is a group that sees the current state of pharmacy as the worst of times and are legitimate in feeling that way as they are experiencing job loss, wage cuts, and a saturated job market. However, others see it as the best of times because there is a lot of opportunity available.

Even though Todd falls in the second category, he says it’s imperative to acknowledge the pressures and difficulties pharmacists are facing today. Todd shares AACP’s plan to address those issues. He also sees a large opportunity for collaboration between physicians and pharmacists and envisions every physician office having a pharmacist working in it. To attain this goal, first we have to have the mindset that it is possible and shift to a model of value based healthcare. He points out that no one is as highly trained and skilled as pharmacists are in managing complex medication problems.

Lastly, Todd addresses the #ChangePharmacy petition on change.org that requests organizations such as AACP halt accepting new accreditation applications until standards are installed, among a number of other requests. Todd explains that the reality is that they are unable to do this. As we’re in a free market society, restricting or halting such openings could be viewed as restriction of free trade. Instead, Todd says that we should shift our focus to create new opportunities for pharmacists that were predicted 20 years ago. This alone, according to Todd, should shift dynamics and balance the supply and demand of pharmacists.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I have joining me today Dr. Todd Sorensen, president of the American Association of Colleges of Pharmacy, also known as AACP, and Associate Dean for Strategic Initiatives and Innovation at the University of Minnesota. In addition to hearing about Todd’s background and career story, we’re going to focus our time together on the current workforce challenges facing our profession, including a flat job market over the next 10 years as projected by the Bureau of Labor Statistics, the student loan debt that continues to be on the rise, and his vision for the future of the profession of pharmacy. Dr. Sorensen, welcome to the show.

Todd Sorensen: Great, thanks. Glad to be here.

Tim Ulbrich: Well first of all, thank you for taking time out of your busy schedule. I know you have essentially two full-time jobs this year, both as president of AACP and associate dean at the University of Minnesota. And before we dive into the discussion around the workforce challenges that we’re facing as a profession and your vision for the future of pharmacy practice, if you could give our listeners just a brief background on your career journey and how you got to this point in time leading as the president of AACP.

Todd Sorensen: Sure. So I was a graduate of the University of Minnesota as a pharmacist in 1994. I entered practice, actually moved to Canada and was on faculty at Dalhousie University and practiced at the Queen Elizabeth II Health Sciences Center, where I was a critical care pharmacy specialist for three years while my wife and I were in Canada. It was a great experience, learned a lot there, got to experience a lot of Canadian pharmacy, which was a great experience to then bring back home, understanding similarities and differences between the two countries. Came back to Minnesota, worked for a period of time in managed care, really brief stint there, about 15 months. And then joined the faculty here at the University of Minnesota in 1998. My time here I have had kind of two distinct teaching experiences. I taught skills in our curriculum for a long period of time, physical assessment skills, was one of the instructors in our skills lab for almost 10 years. And then shifted my teaching activities almost entirely over to teaching leadership development. And my research work has really focused over the entire span of time at the University of Minnesota of how we advance the role of pharmacists in clinical areas, primarily in ambulatory care, both in community pharmacy as well as in primary care clinic settings. I would say the one thing that has really carried through my entire career starting as a student is I’ve really always been fascinated with about how leaders facilitate change in organizations and in their environments. I really got that bug in me when I was a student and saw some of the things that were happening back in the early ‘90s. And that’s what ultimately led me to focus on teaching leadership in our curriculum. I have done that in one way or another now almost, well, over 20 years I’ve been teaching leadership in one way or another. And that’s gotten me very involved in national organizations as well, which in the case of AACP, I’ve been very involved in a lot of different ways, worked my way through the different ranks and ultimately had the opportunity to run for president and get to serve in that role.

Tim Ulbrich: Yeah, and I’ve had the pleasure of attending several of your leadership sessions you presented on a national level. I’ve attended with some of my mentees, we’ve done some workshops and other things, and so I appreciate the work that you’ve done on that and the influence you’ve had on hundreds, probably thousands, of pharmacy leaders out there, students, residents, and other practitioners. And we’re going to come back, I appreciate your comment about your interest in change management and that aspect of leadership as well as your background and interest in primary care as I think that’s going to come together nicely as we talk about your vision for the future. So I don’t want to assume that everybody listening knows and understands AACP. So can you give us just a high-level overview of what is AACP?

Todd Sorensen: Sure. AACP is a national organization that represents faculty and schools of pharmacy. So we have two groups of members: We have institutional members, so all of the 144 schools of pharmacy across the country are members as institutions of AACP, and then the faculty at those schools, anyone who holds faculty appointment can choose to join AACP. We have approximately 5,000 members, faculty across the country, and again, those 144 schools.

Tim Ulbrich: So as our listeners know, and many pharmacists are unfortunately experiencing firsthand, the profession is pharmacy is changing. Many brick-and-mortar pharmacies are closing, we’ve seen a lot of news in the last year of full-time hours that are being reduced, in some places, jobs that are being cut, and I think for many, the job market is becoming more saturated than they probably have seen throughout their working career with the Bureau of Labor Statistics recently projecting a 0% job growth for pharmacists in the next 10 years between 2018-2028. Obviously, a topic that’s near and dear to my heart. To top it all off, we now see pharmacy graduates that are carrying student loan debt in excess of $170,000 on average. So from your perspective, Todd, both as the president of AACP as well as somebody who’s just had a lot of experience in the profession of pharmacy, why are we seeing such dramatic changes over the last few years? And what’s happened across I guess the last five to 10 to 15 years that’s led to these changes?

Todd Sorensen: Well, it’s a question that’s probably on the mind of just about everybody in pharmacy right now. It’s an important question, and from AACP’s standpoint and from our school’s standpoint, of course, this is a very important topic to us in terms of our alumni, all the practice sites that we work with in providing education and really just being part of the overall profession of pharmacy. And what happens out in practice, of course, does have influence and affects what happens in education as well and vice versa. What has happened? What has led to this? Well, it really is a complicated, multifaceted issue. And I don’t know that we can pinpoint any one thing. I do think there’s two broad issues that come into play. First, there is a lack of perceived value in the medication distribution process by people outside of pharmacy. Most payers and consumers, they do see medications and the process of acquiring them really as a transactional process.

Tim Ulbrich: Yes.

Todd Sorensen: And therefore, there’s little belief that any payment beyond cost of a medication should be required. And until we are able to demonstrate the value beyond that and a perception among payers and consumers, that is the reality that we live in. And that is been getting to be a tighter and tighter and tighter margin as that perception continues to drive those traditional payment systems over the last several years. And second, I’d say that we’ve really, we’ve seen this coming for over 20 years. If you go back to 1999, there was a workforce projection report authored by David Knapp (?), and eerily, some of his projections have born out to be quite accurate, particularly around some of the reductions in the number of pharmacists in the drug distribution process. What didn’t happen that were part of his projections was there was projections around new roles for pharmacists and how do we create those opportunities? And we have not seen the growth in some of the areas that were projected at that time. So I would say that there’s a number of things that happened over the last 20 years that maybe were a bit of a distraction from causing the profession to really look at what we need to do to create those new opportunities and bring value into the healthcare system in a new way. And now, we’re at that point in time where we really have to focus on that because we can’t ignore it any longer. There’s a lot of other factors that come into play that we probably don’t have time to get into. I would like to highlight for the listeners, if they are interested in really kind of getting into this in a deeper way, Dr. Lucinda Maine, the executive director/CEO of AACP, authored and published this summer a commentary titled, “It Really Isn’t That Simple” in the American Journal of Pharmaceutical Education. That is an open access journal, so anybody can access it. And she really gets into a lot more of the statistics and the numbers and the trends and the factors along the way from 1999 to 2019. And I think it’s really a good read that explains how complicated this issue really is.

Tim Ulbrich: Yeah, you beat me to it, Todd. I just had that pulled up; I was going to reference that piece to our listeners. We’ll link to that in our show notes as well. But I think the multifactorial, the reasons and discussion is really important, and I would encourage our listeners, I think this is a topic that often carries a lot of emotional aspects to it. It can feel charged based on how this is impacting your personal situation, whether that be somebody who’s impacted by job loss or just feeling the pressure of student loan debt or other things and really looking at all of the different variables and looking all the way back to some of the projections that were made in terms of the shortage and why we saw some of the expansion and, as you mentioned, some of the lack of evolution of where we thought the roles of the pharmacist was going to go beyond the dispensing aspects. And we’re going to come back to that as we talk about your vision in the future. So in your title of the piece that you facilitated in your presidential address at the American Association of Colleges of Pharmacy annual meeting this past summer in July, the title of that, which is published in AGAPE, which we will link to in the show notes, is “Leading In Dickensian Times.” And so what do you mean by that? What did you mean by this as you were choosing the topic and using that as the keynote for your presidential address?

Todd Sorensen: Yes, the reference is, of course, to Charles Dickens and “The Tale of Two Cities,” and I started out that speech with the familiar phrase that many people are familiar with: “It was the worst of times, it was the best of times. And I really feel like that is the mindset that we many have in pharmacy today. There is a group who sees this as the worst of times and probably in their personal experiences, that is a very legitimate perception to have. There is also a group who sees this as potentially the best of times, that the opportunity for pharmacists is as great as it’s ever been. I fall into that category. And so I started out the speech kind of using that traditional — paraphrasing the first paragraph of “A Tale of Two Cities” to kind of highlight this dynamic between things are as bad as they can be versus there are opportunities, and we can choose to look at where our opportunities are in a new way. I mean, I can honestly say that in the 25+ years I have been a pharmacist, the recognition of the good that can come from medication use and the harm and the cost associated with medication use is as great as it’s ever been. They may not — the people who are recognizing that now at an acute level outside of pharmacy may or may not see pharmacists as part of the solution. But that awareness is there like it’s never been before. And they’re looking for solutions, and so that creates an opportunity for pharmacy to be part of that solution in a way that I don’t think in the past 20 years have really existed in the same way that that acute understanding of where medication use is in our society and the good and bad that it can produce is a great opportunity for us to shift what we bring to the healthcare system.

Tim Ulbrich: Yeah, and I think what you just said there is so profound that the awareness piece is there. It’s finally there to the level that I think we had hoped it would be. And now the question is, are pharmacists going to be the center of that solution? And how do we as a profession begin to think about our role in that and making sure we’re advocating for our role. And that may mean shifting the role that we know or have been comfortable in for some time. So I think as there is a need for a problem to be solved, now the question is, are we willing to really pivot to make sure we’re a part of that solution? So Todd, in your address, you acknowledged that there’s some tough challenges pharmacists are facing in the current reality of our profession. So you said, “Pipeline of candidates seeking to enroll in professional programs continues to be far below optimal numbers. The employment prospects for our newest graduates are not consistent with the story we want to tell prospective students. Our alumni frequently express frustration about the nature of the work they’re expected to perform and the difficult environment in which the deliver it. The traditional model of compensation through distribution of medications is as difficult as it ever has been. So my question is, what is your vision? What is AACP’s strategic plan to remedy the challenges current and future pharmacists are facing here?

Todd Sorensen: To address that, I’d first say in presenting that information and saying that I fall into the category of people that see this could be the best of times instead of the worst of times, it is important to acknowledge that there are pressures. And so the last thing I wanted to do through this speech and through conversations like this is to send the message that I don’t recognize these issues but that they are real. They are. Now, in terms of AACP’s strategic plan, we really have three priorities related to this that we’re very focused on. First is increasing the pipeline of candidates. So regardless of where we are with number of schools, and we have been seeing a decline in the number of applicants interested in pharmacy.

Tim Ulbrich: That’s right.

Todd Sorensen: And that’s an unfortunate situation for the profession as a whole. There’s a lot of factors, again, this is also multifactorial, but for a number of reasons, individuals who are thinking about what their career choice is going to be might be looking at other options, not even in healthcare. We’re competing with lots of things in technology and other areas that are where high school seniors and into the undergraduate years of college are really wanting to focus their attention. So we have to demonstrate that pharmacy is a vibrant profession and a great career choice. And it is. So that has included a number of things that AACP has done with schools to really get the word out to candidates about pharmacy as a career.

Tim Ulbrich: Right.

Todd Sorensen: The second priority is then the consumer understanding of the role of pharmacists. And there’s a lot of misperceptions about the role of a pharmacist. And that affects, then, the pipeline as well because parents are often guiding their children in their career choices. And so a year ago this month, actually, we launched the Pharmacists for Healthier Lives campaign, which is largely a social media-based campaign targeting consumers to understand the diversity of the roles that pharmacists play in healthcare, the impact that pharmacists play in healthcare and really trying to help consumers understand how to work with a pharmacist and to proactively understand the role that they have that really, their healthcare team is not complete if they don’t have a pharmacist actively as a part of it. And then the third strategic priority for AACP is really focusing on innovation and education and in practice. That’s really where our work is focusing on this year is what is going to be the role, what should be the role of schools of pharmacy to help transform the way that we prepare practitioners for practice in the future and help stimulate the innovative practices that are going to bring value into healthcare in the future.

Tim Ulbrich: Yeah, and I’m hopeful going forward what obviously the focus of our podcast is personal finance, and so of course I have a bias here, but I’m hoping that we can see beyond just the somewhat of a grassroots movement, which is great, where we’re seeing many colleges more vested in this topic than ever before. I’m hopeful we can see some more movement on the national level, whether that be with AACP, other national pharmacy organizations. I think there’s some good models out there in medicine and vetment to really make this a priority. And I firmly believe — and we can talk about lots of reasons of why students are coming out with over $170,000 of debt, much of that is related to rises we’ve seen in tuition, much of that is self-inflicted with cost of living expenses, a whole host of reasons. However, we know that the financial literacy and education piece is so important, and we also know that if we can help decrease the burden of this financial indebtedness, I think we’re going to see more pharmacy graduates that are willing to take the risk that we need them to be taking when we need to have complex problems that need to be solved and we need solutions to solve those. So I’m hopeful that we can continue to further this conversation on a national level, and I think we’re seeing traction on that. And I’m excited to see where that goes in the future. Now, in your speech, you reference one of my favorite books, which is Gary Keller’s “The One Thing,” which I would highly recommend to all of our listeners and we’ll link to in the show notes. And that book, “The One Thing: The surprisingly simple truth behind extraordinary results,” he links success to narrowing your focus on really a single question. That single question is, what’s the one thing I can do or we can do such that by doing it, everything else will be easier or unnecessary? So how have you used this book, this concept, this method, to think of solutions to the current state of pharmacy?

Todd Sorensen: Well, you know, I’d mentioned before that the issues that we’re facing right now and the reasons why we’re facing them are multifaceted. So if you look at all those different issues and facets, it can become overwhelming. And so the premise is the book, as you described, is to really — and I know that it can sound simpler than it is, but in a very complicated world, you have to be able to distill things down to their essence, to some degree so that you can know where to go to create change. And it’s really — I think the book talks about this — it’s really ingraining in yourself a way of thinking and asking that question over and over again. What’s something that you can focus on today? What’s the one thing I need to do today to make everything easier or unnecessary? Or at the level we’re talking about, what’s the one thing that we can do to make everything else easier or necessary. So spent a lot of time with that question and really trying to not take the easy way out and just say, well, there is no one thing in this case. It’s too complicated. And from my experience, from my observations, what I landed on was the one thing that we can do to make everything else easier or unnecessary is forging collaborative, authentic relationships with physicians, that that could have more impact and more power than just about anything else that we would do that might focus on directly attacking some of these different factors that we’re focusing on, whether that be debt in itself, the job market in itself, so forth. Partnerships with physicians help us solve healthcare-related problems and create advocates for pharmacists in a way that would be stronger than we could ever be on our own. So I think it would make everything else easier or unnecessary.

Tim Ulbrich: And as I mentioned to you before we hit record, Todd, when I read this article and I listened to your speech just a few days after the annual meeting in July, you know, I think a lot of people are going to hear this and quickly start listing the objections. Well, we can’t do this because of this, this, or this. Or we can’t do this. Or what about this? Or what about this? And I think certainly of course there’s room for all that discussion, we should have that discussion, we should bat up these ideas back and forth. But the one thing I really, really appreciate is I feel like we have been lacking bold vision in terms of what are some potential solutions going forward? And so I commend you for putting a bold vision out there that leans on your experiences, and I think leans on a lot of opportunities and successes you’ve seen pharmacy have over the last five years. And so some more questions I have about this because I did my residency training 11 years ago in a physician office when at the time, you know, patient-centered medical homes were really just coming to be. So I certainly can appreciate the value of this living it firsthand and seeing many other primary care, ambulatory care pharmacists, when you see them in that practice and you see the impact they have on the patients, on the relationships you’re able to build with those other providers and the impact they can have on quality metrics, it pretty much becomes very obvious of wow, this is incredible if we could replicate this vision all across the country. But obviously, the questions are coming in terms of well, how do we scale it and how do we fund it and how do we replicate this with different state practice acts and all these other things? So couple questions for you on this vision physicians and pharmacists collaboration. What are the one or two areas that you think we need to start as you think about the potential objections or barriers that are in the way? How do we begin to forge forward when it comes to this idea of really replicating this model of pharmacists in a physician path? What are the one or two things of where we begin to do this?

Todd Sorensen: Well, I think we start with a mindset that it’s possible. And it is possible, I’ve seen it in my own state play out over and over and over again. And one of the reasons why it’s possible is the shift to value-based healthcare. If we continue to be focused on fee for service payment structures, it becomes very difficult to see how this maybe will play out in the way that we hoped it might. But when you focus on the fact that healthcare is moving more and more into paying for value, and I believe fully that pharmacists can bring value into healthcare, then there is a place for that. And so much of that value is being measured and determined upstream in that primary care area so that we can prevent the costs that occur downstream in terms of hospitalization, complications secondary to chronic illnesses, and so forth. So moving upstream to that place is where we need to be. And the healthcare system is becoming more focused on primary care than it has been in many, many, many years. So how do we align with that? The other reason I believe that it can happen, I referenced this story in the speech. I was at a conference where I saw a physician colleague who I knew by name, they were somebody that I work with that have a couple of pharmacists actually working in their clinic, and I didn’t know her personally, and I went up to introduce myself. And so I said, “Hi, my name is Todd Sorensen, I’m at the University of Minnesota.” Her immediate response without a beat of pause was, “So nice to meet you. I will never work in another clinic again that doesn’t have a pharmacist.”

Tim Ulbrich: Yep.

Todd Sorensen: And you know, that’s the vision that we need to have, that we can say the physicians don’t want to collaborate with pharmacists because there’s history, there’s been experiences that have suggested that. But the physicians that are coming through in the early parts of their career now and the pressures that they’re facing create a whole dynamic that didn’t exist 10 or 20 years ago in creating those teams. So it can happen. And so that’s where I would start, and then we could get into technicalities, different things that need to happen. But we don’t need to start with worrying about practice acts, we don’t need to start with worrying about — we have to build the relationships first. And the relationships will then create the advocacy that will make all the other things fall into place, which is, again, “The One Thing” principle. One other thing I’ll add is that we’ve done this before. The ‘70s and ‘80s schools of pharmacy were often the catalyst for creating change in acute care practice. I’m not sure if we have, as schools, maintained that same mindset that the leaders of those schools in the ‘70s and ‘80s had. And so part of this is calling for our schools, again, to see their role as catalysts in building these partnerships and creating these opportunities. We’ve done it before, we can do it again.

Tim Ulbrich: Yeah, and I think we’re in somewhat of a perfect storm environment, you know, building off of what you said. When you think of the challenges physicians are being faced with, the multiple pressures they’re being faced with, in combination with the value-based healthcare model that we’re shifting towards, I think pharmacists fit very nicely into that. And in my opinion, I think we often get caught up in the weeds of the conversations of what about practice acts? What about this? What about this? And I think starting with the relationships, starting with the vision. And I think in any time where there’s a complex problem like this where you start hearing a lot of objections that are being presented, I think that is so ripe for entrepreneurship and innovation. And so I personally think we’re going to look back and this 10-year period, whatever number of years you want to call on pharmacy and say, “Wow, a lot of cool things came out of this because these people decided to take risks towards this bigger vision and what could be achieved.” So one of the objections, Todd — and we could talk about many of these. I just want to talk about a couple here. But one of them I commonly hear and think about myself is, well, what about nurse practitioners? What about PAs? And how do pharmacists differentiate? What’s our differential advantage in terms of competing with those providers, especially when you think about factors like ability to prescribe, ability to get paid and reimbursed for those services that they’re providing inside of the clinic. So as you’ve thought about this on a bigger vision type of level, I’m sure that issue has come to mind for you and obviously from your experiences as well. So what are your thoughts on that?

Todd Sorensen: I have thought about it, and it’s a really important question. It gets back to the issue of bringing value into healthcare. We are in an environment where the practitioner or the individual that can produce an outcome at the lowest price is the one that’s going to get the business. And in many cases, pharmacists are the second most expensive person on a healthcare team. So we really have to think about what is it that we do uniquely, that nobody else can do as well as us, to be able to justify that price point and be able to demonstrate value. And there’s a couple of things that I think of. First of all, no one is trained. And nobody is as skilled as pharmacists in managing really complex medication-related problems. So that’s where we have to focus our team. For us to spend time on the majority of our time on things that are not very complicated, that our single disease-focused, others can do that. You mentioned nurse practitioners and physicians assistants. Honestly, RNs, at even a lower price point can manage essential hypertension on protocol. So we really have to be looking at where our unique knowledge and skills are different and can be leveraged in a way that exceeds that of others. The other thing that I would highlight is this was a small study, but it has gotten a lot of attention because it’s kind of put a new lens on, again pharmacist and physician teams. And one of the things that physicians are really dealing with — and of course, pharmacists are as well, which is issues of burnout and lack of joy in practice.

Tim Ulbrich: Yeah.

Todd Sorensen: We interviewed a series of primary care providers who had formal relationships with pharmacists and asked them whether or not that relationship affected their sense of burnout or joy in practice. And basically unanimously — of course that group, this was through interviews that we did this with — they said absolutely. And then we asked them why. And one of the things that came out of that that I in hindsight maybe could understand, but I hadn’t thought about it at the time, was that they said that the way I work with a pharmacist and this type of relationship is different than I work with any other practitioner. It’s different than how I work with a nurse practitioner. All these clinics had nurse practitioners in them. And the reason why was that the nurse practitioner has their own panel, and the physician has their own panel. They don’t really collaborate on individual patients. They collaborate at a population level, not necessarily an individual patient. Whereas they said with pharmacists, these really complicated, complex medication-heavy burden patients, they wear me out. They create mental burden, and often I just don’t know where to go with them. And it’s really part of what’s contributing to my lack of joy in my practice. But when I work with a pharmacist collaborative on that, it lifts much of that burden. So the way I work with a pharmacist on this select group of patients is different than the way I work with any other practitioner. And that’s starting to get to that uniqueness and to that value because we’re finding something that nobody else is doing or can do as well as a pharmacist can, and it’s bringing value. In that case, the value is in the sense of joy in practice with physicians, which will play out as an influential element in decision-making.

Tim Ulbrich: Absolutely.

Todd Sorensen: It also leads to then costs, better care, it really can lead to the quadrupling.

Tim Ulbrich: That’s an interesting angle. I’ve never heard that talked about. I’ve heard obviously the impact on value-based contracts and being able to improve quality metrics. I’ve heard about and seen studies related to freeing up physician time so they can see more patients, which certainly works in a fee-for-service model, but I think run flat longer term. That’s a really interesting angle in terms of the provider satisfaction. And it makes sense. I mean, I think back to my time in a primary care office, very much the 80-20 rule where you’d have 20% of the patients, maybe 10% of the patients, that took up 80-90% of the time in terms of the questions they have, the complexity of their care and the frequency of their visits, and so I think the pharmacist certainly could play an important role in that process. Todd, one of the things I also think a lot about is just from the academic perspective obviously living in this realm, and I think back to one of my favorite books called, “The End of Jobs” by Taylor Pearson is that I think as I hear you talking, as I listen to your vision, I read more about your vision, I think we have to find a way to better facilitate students and pharmacy graduates and practitioners being comfortable in the uncomfortable. So when I hear your vision, you know, I think pharmacists often want the A-Z checklist of OK, what do I need to do to execute this to be successful to earn a paycheck? And I think the answer is, it’s not there yet. And I think that those that are going to be successful, both practitioners now and students that will be out there in the future, in my opinion, is you have this broad framework, you have this broad vision, but now the creativity lies in the multiple pathways of solutions that can be had. So I would encourage our listeners for those that are out there, whether they’re working full-time, part-time, thinking ahead to the future, begin to think about what are the business solutions that may exist in this framework that you’re hearing Todd talk about? So Todd, I want to address — and you acknowledged this, and I appreciated it — that many pharmacists are frustrated right now with the state of the profession. And many of them are being deeply affected by the current reality. And so those that are out there listening or working today, maybe some of them got laid off, hours got cut, and they’re hearing about this longer term vision to expand pharmacists role in a primary care, they may feel like this message doesn’t do much to address the current challenges. And I’m not necessarily suggesting AACP has this responsibility alone, I think there’s a shared responsibility across all organizations and also shared responsibility by the individual as well as the associations, but any thoughts on short-term solutions or short-term strategies in addition to this longer term vision?

Todd Sorensen: Yes. You know, I would start off by saying that I think that part of the reason that we are — if you go back again and think about the 1999 and some of the projections that were in that NAP report and the factors that maybe did not allow those things to come to fruition on the growth side of the projections, I think it’s in part because it is much easier to focus on short-term initiatives in the short-term. It is much harder, even with the best of intentions, it is harder to get organizations let alone a whole profession, to really look at the long term.

Tim Ulbrich: Yes.

Todd Sorensen: The phrase, “the tyranny of the urgent” comes to mind. And many of the things that we have done over the last 20 years I think are with a short-term focus in terms of trying to pursue this payment opportunity here or even though they might not be the right thing or solving the problem in the long term. Let me give you one quick example.

Tim Ulbrich: Sure.

Todd Sorensen: I’m a particular fan of pharmacists trying to achieve revenue through annual wellness visits in primary care settings. We can’t demonstrate a clear value in net value proposition in that role because again, a nurse practitioner or even a nurse can do that. So by adjusting your service line to try to take advantage of that payment opportunity is very much a short-term focus that is not building the capacity and the direction for the future where you can actually demonstrate value. So I understand the dynamics. It’s easier, we have these short-term pressures that we have to address, so it is a balancing game that we have to consider. And it takes more discipline, and it takes more risk to be able to focus on the long term. And as you’re speaking to the audience and encouraging the idea of these opportunities in entrepreneurship, that’s the same thing. There’s the short-term of the job that’s in front of me right now. There’s a long-term of how I can be a solution and be creative and entrepreneurial to create an opportunity for the long term.

Tim Ulbrich: I think that’s such a great example, the annual wellness visits. I mean, I think it’s no different than how I treat my business and how other business owners look at things in terms of if you’re going to develop a product or a service, you want to think about, again, what’s your differential advantage? And even if this has short-term revenue gain, could this be replaced quickly by something else? I think that’s a good example where can we show a value proposition that is different than what others are doing? And I think based on the criteria for what’s involved in an annual wellness visit, I would agree with you, no. The other example that comes to mind, which isn’t going to be popular, is that even though we have a short-term urgency to focus fixing reimbursement rates on dispensing of products through fair reimbursement through some of the PBM things that are going on, all of that important efforts that we need to continue and we should be doing. It still, again, is a shorter term horizon as we think about 10, 15, 20 years, is the value of the pharmacist still tied to that product? And I think personally, the answer is no. And so I think that, again, we need to be thinking about the longer term and certainly addressing some of those issues. Todd, I want to end by talking about the change.org petition. I think we have to talk about it. For those that are not familiar, the change.org petition #ChangePharmacy, it’s been signed by almost 23,000 people now as of October 1. It probably is beyond that. And it urges the leaders of ACPE, AACP and APhA — not sure why only those three, but nonetheless, to halt and/or postpone accreditation of new pharmacy schools until 2030. So again, I have been a big advocate that we need to be having a constructive, informed conversation that addresses the challenges we’re facing today but also talks about the future and the vision that we need to aspire towards. So what insights can you provide, Todd, either from your personal perspective or AACP’s perspective, to those that signed the petition in terms of the authority for these organizations to “halt and/or postpone accreditation?” And really, what do you think the type of impact that that would have in terms of a solution and the impact on the profession?

Todd Sorensen: Yeah, it’s probably — it’s not really appropriate to hypothesize what that could look like because the reality is that it can’t. And ACPE has commented on this a number of times that we do operate in a free market society, and to do anything on their part to overtly restrict accreditation of schools could be viewed as restriction of free trade. And so that’s just a reality that we have to address that the market is part of what we believe drives supply and demand in our economy. Now, in terms of the number of schools, I mean, right now, that, again, is the short-term focus is that the reason why we are in the situation we are is because we have too many schools. Well, what if we would have created the new opportunities that were projected 20 years ago? Let’s say that even just 50% of primary care practices had some sort of formal relationship with pharmacists right now. That doesn’t even mean embedding them as an employed member of the team, but relationships between the community pharmacist and the primary care setting. That alone probably would shift our dynamics to the point where we would say we might be in balance with our supply or maybe even undersupplied at that time. So we don’t want to run the risk of taking, again, the very acute issue and blaming one thing as the reason for why we are in that situation. And instead, we need to look to the future and say, what does society need? What is the value that pharmacists can bring? And we don’t really know the number of pharmacists that are necessary. I would project that if we could accomplish the aim that I would like to see us pursue that we would not then say we have too many schools. We potentially are not fulfilling the needs of society with the number of pharmacists that we need. So it all is in your perception of how you look at things. Is it the worst of times? Or is the best of times?

Tim Ulbrich: Todd, I thank you so much, again, for taking the time that you did to come onto the show. Thank you for your leadership in AACP and all the work that you’ve done for the profession.

Todd Sorensen: Thanks, Tim. I enjoyed it. Great to have the opportunity to share some of these thoughts with your listeners.

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YFP 120: 5 Ways to Finish 2019 Strong

Posted on by yfpadmin


5 Ways to Finish 2019 Strong

Tim Ulbrich talks through 5 ways to finish 2019 strong. These 5 strategies will help you enter the New Year with a sense of momentum and accomplishment, setting yourself up for an awesome 2020.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited that you are joining me as we talk about five strategies that you can employ in 2019 to finish the year strong. So last week, we heard from one of our Certified Financial Planners, Christina Slavonik, where we did our first episode of a new segment that we will be rolling out going forward called, “Ask a YFP CFP.” Of course, CFP standing for Certified Financial Planner. We had some great questions that we answered from you, the YFP community, and we’d like to tackle more of your questions in the future. So if you have a question that you would like to have featured on the show and answered by one of our fee-only Certified Financial Planners, please do us a favor and shoot us an email at [email protected]. Again, that’s [email protected].

OK, so today’s episode, five strategies, five things that you can employ in 2019 to finish out this last quarter of the year strong. The theme across all five of these strategies is intentionality. The theme is slowing down for a moment and getting out of the month-to-month rush to ask yourself, what am I trying to achieve? Or maybe to remind yourself what am I trying to achieve? To ask yourself, what progress have I made thus far? And to ask yourself, what are some strategies that I can do for this last quarter, this remaining three months of 2019 to finish the year strong and to start 2020 with a bang? You know, I’m a big believer in momentum and running into the new year with some wins. And I think this is a much different situation than just waiting for 2020 to roll around, waiting for the new year to roll around so that you can hit the reset button and get a fresh start on your financial plan on the financial year. Now, don’t get me wrong. I think hitting the reset button every once in awhile can certainly be refreshing, and it does serve a purpose. But choosing to be intentional, choosing to be intentional in this final three months, in this final quarter of the year, and digging in, that’s a growth mindset. And that is putting yourself in a position of playing offense rather than playing defense.

So let’s jump in: Five strategies that you can employ to finish 2019 strong. Now, what would an episode of the YFP podcast, what would it be without us talking student loans? So No. 1 here is reevaluating your student loan repayment option. Or maybe for recent graduates, maybe it’s just evaluating your student loan repayment option for the first time. You know, when I started Your Financial Pharmacist back in 2015, I noticed there were only a handful of pharmacists that were spending the time, the time that is necessary to navigate all of the student loan repayment options that are out there and to determine the one best option for their own personal situation. This takes work. This takes effort. This takes digging into the unknown. This takes really understanding all of the variety of the repayment options and the confusion that could come along with that. And after I graduated from pharmacy school in 2008, I defaulted into the standard 10-year repayment plan because I didn’t know what else was out there. And at the time, that was the easiest path forward, right? It’s the standard, it’s the default repayment plan. The problem was is that I could have saved significant amounts of money by either pursuing Public Service Loan Forgiveness, PSLF, as I did work for a qualifying employer, or refinancing my loans to a lower interest rate because many of my loans at the time were at a fixed 6.8% interest rate, and I certainly could have done better than that if I weren’t pursuing PSLF, which I was not. So don’t get me wrong, while I’m grateful that I eventually got them paid off, I’m grateful that Jess and I were able to work through this journey, I think we learned lots through this journey, but not knowing all of the options that were available to me and just defaulting into the standard 10-year repayment plan certainly cost me big. Thankfully, there is now a lot more resources out there in terms of helping borrowers navigate the maze of student loan repayment. And in the pharmacy space — of course, disclaimer, I’m biased here — there is no better student loan repayment piece for pharmacy professionals than the one put together by our very own Tim Church. And that is the ultimate guide to repayment of student loans. You can get that post and all of the details and all the information for free at YourFinancialPharmacist.com/ultimate. Again, YourFinancialPharmacist.com/ultimate. We’ll link to that in the show notes.

Now, for students that are listening, the question hopefully you’re asking yourself is, you know, you’re note reevaluating repayment options, you haven’t yet evaluated them, and maybe you haven’t even thought about this yet for the first time. After all, this seems like it’s off into the distance as something you need to be thinking about into the future. And so my encouragement for the students listening is to begin to learn about these options that are available. Certainly you’re going to graduate, you’re going to have the grace period, you’re going to have some time, but that’s going to come quick. You’re going to have lots of competing priorities, you’re going to be studying for the NAPLEX, you’re going to be studying for the MPJE, you’re going to be starting a new job or residency or training program, and it may seem like that’s something to worry about in the future. But I think now is really the time to start listening to episodes like this or reading blogs or other resources that are out there to understand these terms, understand what an unsubsidized versus a subsidized loan is, understand what different types of loans are in terms of consolidation and refinancing and loan forgiveness and having the vocabulary, having an awareness that when you need to choose that option, you’re in a position that hopefully does not feel as overwhelming.

I would also encourage the students listening that I think you’ve heard me talk about before on this show, I think it’s easy as a student, myself included when I was a student, to fall into the trap of worrying about this in the future, to fall into the trap of it just feels like Monopoly money, it doesn’t feel real. So I would encourage you to inventory your loans, to log on, to look at your balances, to look at the interest rates, to see how that interest is accruing, to ask yourself, what are some things that I can do, especially on my unsubsidized loans, to lower the interest that is ultimately going to be accruing while you’re in school for your unsubsidized loans and, of course, capitalizing and growing beyond that?

And then students, the other thing I would encourage you is to begin to develop a relationship with the financial aid officer at your institution. Again, really building that relationship. Now having these conversations early as possible to begin to understand the terms, understand the options that when you need to make that decision, you’re ready to be in that position of action.

Now, for recent graduates, here I’m talking to the class of 2019, this could be those that are pursuing residency or those that are out in practice already, you know very well that you are in the grace period. You have the grace period, you’re living it right now. And here we are, that grace period is going to come to an end very soon. So now is the time if you have not already done so to evaluate and compare your options. I think for myself as was true for many others probably listening to this, it’s a rude awakening when you get that statement out of the blue to say, by the way, in the standard 10-year repayment option, you need to pay about $1,800 a month for 10 years to get these loans paid off. And so now is the time, before you get that notice, to evaluate, compare your options, understand income-driven repayment, understand some of the nuances between those plans, understand loan forgiveness, understand what are your options in the refinance marketplace so that when you go into active repayment, again, you’re in a position to make an educated decision.

Now, just a separate word for residents, you know, I think the common thing among residents is an automatic decision to defer. And my question for you to consider is is deferment the best option? Have you really thought about that? Have you really determined what’s going to happen to the interest on your loans while you’re in residency? What’s your makeup of subsidized versus unsubsidized loan? And I know, it’s a busy time. It’s a busy time. You finished your orientation, you’re active in your research experiences. Many of you are probably also teaching, balancing patient care and staffing responsibilities. I understand that you’re busy. But now is the time to really dig in and understand these options. And for those that are in active repayment, my question to you is maybe you’ve never sat down and intentionally evaluated all the options that are available to you. Or maybe you at one point refinanced, but you haven’t reevaluated rates. Or for those of you that are pursuing loan forgiveness, maybe you haven’t yet submitted your employer certification form. So my challenge for those that are in active repayment is have you confirmed, have you spent time to determine that the repayment strategy that you’re in right now is really the best option for you?

And I think as we are certainly here in October 2019, we’ve seen interest rates come down, we’ll talk about that here in a moment with refinance, when it comes to student loans, that means we often see the interest rates on a refinance become a greater differentiation or separation from the interest rates that you’re going to get offered through your federal loans. Now, we’ve said many, many times before, refinance is not for everyone. There’s certain considerations and benefits that you have in the federal system that you may not have in the private system, although that gap has closed. And certainly if you’re pursuing Public Service Loan Forgiveness, absolutely you do not want to pursue a refinance. But for those that have decided that is the best option for them, I think now is a good time to check rates. Certainly if you’re just getting initial quotes, it’s a soft pull on your credit, and that’s not going to have an impact until you actually go through the full application. You can learn more at YourFinancialPharmacist.com/refinance to learn more about the refinance process, who we think it’s for, who we think it is not for, and ultimately to check and compare rates. Again, YourFinancialPharmacist.com/refinance. So that’s No. 1 is reevaluating or evaluating your student loan repayment options.

No. 2, it’s hard to think about the holidays here in October, but if we’re going to finish 2019 strong, we need to set a budget, have a plan, and save for the holidays. And that’s No. 2. Now, we talked about this in detail all the way back in Episode 023. That was a long time ago, and I don’t know about you, but I know that I could use a reminder, and I’m guessing that’s the same for you, that we could all use a reminder about by the way, we’ve got to be thinking about the holidays and the impact that has on your financial plan. So of course, ideally, we’re saving throughout the year, that’s the thing we should be doing. But if you, like me, find yourself looking up at the calendar as we roll into October saying, ‘Is it really time for the holidays again?’ then we need to develop a plan as soon as possible to avoid the stress and the debt that often comes along with the holiday season and impacts how we start the new year. After all, the data shows that on average, on average, those who take on debt accrue approximately $1,000 of new debt from the holidays alone. So if we’re going to be in an offensive position going into the new year, we cannot let the holidays derail our financial plan. So the question here is, how can you have a painless financial holiday season?

So I think first thing that you can do is list all of your holiday expenses. Now, I’m talking all of your holiday expenses. And I know, here we are, it’s October. It’s not even Halloween yet, and we’re talking about later in the year holiday expenses. But this is important, right? Because it sounds easy. But from my experience, I’m sure from your experience, a lot of frustration comes from understanding what really are the true expenses when you reflect back on it. And I think we often underestimate these true expenses. So you know as well as I know it’s not just the gifts for family and friends, although that’s where we typically stop and end with the budget for the holidays. It’s the gifts we often buy for coworkers, it’s the gifts for those that are hosting parties we attend, it’s the gifts and the things associated with various work outings. It’s the expenses associated with hosting family and friends. Of course, it’s the travel, it’s the house decorations, it’s the cards and the postage, and the list goes on and on and on. So I think where we start is listing each item, holding true to that, and hopefully eventually coming up with a budget for each line item to come up with in sum, what do we need to be planning for the holiday season?

Second, for each of those categories, once you get everything down on paper, you know, begin to think about and identify are there some ways that since here we are planning well in advance, are there some ways because of your preparation and because of your diligence that you can be more intentional and save money during the holidays? For example, perhaps an electronic letter with a photo compared to printing cards or shopping in advance to be more intentional and to give yourself time to price shop around and compare. Or maybe it’s taking up those gift cards that have been unused or cashing in on travel or credit card points to help fund gifts or putting a cap on gift amounts with family or friends. And again, the list goes on and on. But the point is if we can plan here in October as we talk about finishing 2019 strong and we don’t wait until the last minute, we can be much more intentional and I think reap the benefits of that going into next year.

Now we have a guide we developed all the way back in Episode 023 if you want more information to help you think about this further and even start to work through the budgeting process of this. Head on over to YourFinancialPharmacist/holidays to get started. Again, YourFinancialPharmacist.com/holidays. So that’s No. 2: Set a budget, be intentional, save for the holidays. s

No. 3, evaluate a mortgage refinance. So for those of you that currently own a home, you know, here we are at the time of this recording, early October 2019, and we have seen a significant reduction in mortgage interest rates compared to this time last year. And I think there’s even talks of further reduction in Quarter 4 of 2019. So as an example, this time last year, my wife Jess and I moved down to Columbus from northeast Ohio, and interest rates on a 30-year fixed loan 12 months ago were north of 4.5%. So 12 months ago, we saw interest rates on 30-year fixed loans be above 4.5%. We actually closed on a loan at 4.625%. Now, today, we are seeing rates, a year later — depending on credit scores, of course if you buy points in the process and other factors — we’re seeing 30-year rates that are below 4%, high 3’s, and we’re seeing 15-year rates that are in the low 3’s. And I’ve even seen some offers in the high 2’s, especially if you’re buying points in the process. Now, it may not seem significant, but when you talk about a percentage, percentage and a half, even three-quarters of a percentage, depending on your mortgage, depending on where you’re at in the repayment process, this can be significant, especially over a 15- or 30-year term. So what I encourage you to do is take a moment to stop, look at the interest rate, look at the current market of rates — you can look at that without having to impact your credit score — and calculate a break-even on what this would mean if you would refinance your home. How much would you save relative to how much you would cost, how much you would spend in the closing process? So pretty simple, you can run a calculator. We’ve got some great resources on our site. If you go to YourFinancialPharmacist.com/calculators, we’ve got lots of resources that can help you here. But essentially, you do a simple calculation to say OK, if this is my current balance on my loan, here’s my current interest rate, here’s the rate I’m assuming in a refinance, how much would I save per month? And obviously, you have to make this as close to an apples-to-apples comparison as possible because if you currently have 26 years left on your mortgage and you’re going to refi to a 30-year, obviously you need to account for that time difference. There’s certainly calculators that can help you do that. So once you calculate the savings over the life of the loan, then you want to ask yourself, well, how much are you going to pay in closing costs, in fees? And this would include things like bank fees, title costs, third-party costs, appraisals or attorney fees, escrow charges and so forth. What’s your total cost to close? And based on your monthly savings, when will you get to a break-even? And typically, what you see like in the situation where Jess and I are in right now, if we had a 30-year mortgage that we just closed on a year ago of 4.625% and we can get a 30-year in the low 4’s or the high 3’s, then certainly we’re going to see a significant return on investment in a fairly short period of time. So that’s No. 3 is evaluating a mortgage refinance if you haven’t looked at that in awhile.

Now, No. 4 is one that’s near and dear to my heart, and it’s something I’m becoming more and more passionate about as I really understand the power and value in continuing to have a mindset of professional development and learning and learning and learning. No. 4 is making a commitment to read at least one book per month. Some of you may already be doing that, some of you that may seem a stretch. It’s just a place, a recommendation of where to start. Now, where does this come from? My wife and I are recently watching the Bill Gates documentary on Netflix, which is fantastic, by the way. It’s called “Inside Bill’s Brain,” and one of the things you’ll notice in that documentary is he just carries around this sack of books. He’s constantly reading and reading a wide variety of things. And his passion to learn, his desire to learn is so evident as a part of the fabric of who he is as a leader. And we’ll link to in the show notes, he actually has a summer books 2019 reading list, a suggestion of books if you’re looking to get started. But he’s reported to read approximately 50 books per year, and he’s quoted as saying, “You don’t really start getting old until you stop learning.” And when you look at some of the most successful people that are out there — and here I’m defining success by a combination of both net worth as well as the impact they have had and the work that they’re doing. This could be business related or philanthropic related, which certainly Bill Gates would fall into both of those. And what you see among these people is a common thread of a quest for knowledge, a deep desire to learn more and the humility to accept that what they know is only a fraction of what there is to learn, no matter where they are in their career. And so this just got me thinking, why is this so for such famous, successful people like Bill Gates, Oprah Winfrey, Warren Buffett, all of whom are worth billions of dollars, extremely busy, have lots of competing priorities? How in the world do they have time to read, time to learn more? And why is that such a significant priority for them? In many of these leaders what you see, as I’ve already alluded to, is that despite being extremely busy, they set aside at least an hour a day, five hours a week, over their entire career, or at least most of their career, for activities that could be classified as deliberate practice or learning. And this has been written about, it is known as the “Five-Hour Rule,” this five hours a week, and there’s a 2016 article that was written by serial entrepreneur and bestselling author Michael Simmons, and he quotes these individuals as exhibiting these behaviors and habits: Warren Buffett, for example, which is referenced in the Bill Gates documentary as well, spends 5-6 hours per day reading five newspapers and 500 pages of corporate reports. Not sure how he stays awake for that, but he does. Bill Gates reads 50 books per year, I already mentioned that. Mark Zuckerberg reads at least one book every two weeks. Elon Musk grew up reading two books a day, according to his brother. Mark Cuban reads more than three hours every day. Arthur Blank, co-founder of Home Depot, reads two hours a day. Dan Gilbert, self-made billionaire, owner of the Cleveland Cavaliers, reads 1-2 hours a day.

So my encouragement to you is to start making a habit of reading and learning more, whether that is the old-school book-in-hand method, maybe it’s a Kindle, an audiobook, podcast. Make this commitment to learn more of a priority. Set a goal for the number of books — I gave you an example as we started here point No. 4, one book per month — but set a number of books that you want to read for the remainder of 2019 and do the same for 2020. So we’ll link in the show notes to Bill Gates’ Summer of 2019 reading list if you’re looking for a place to get started. And I hope that you will share with the YFP community and our Facebook group what you’re reading and what you’re learning. And of course, if you’re looking for a good financial book to get started, I have to mention “Seven Figure Pharmacist,” I have a bias for that. Also I will throw out there, “I Will Teach You to Be Rich” by Ramit Sethi, “Rich Dad Poor Dad” by Robert Kiyosaki, “Friend of a Friend” by David Burkus, which we recently interviewed on the podcast, and one if you want to get ready for an interview you’re going to be doing in the future is “The Behavioral Investor” by Daniel Crosby. It talks a lot about the behavioral aspects of finance and has built a career with his PhD studying this information about how behavior impacts our financial plan. So there’s some ideas to get started. So that’s No. 4. No. 4 is making a commitment to read and doing so with reading at least one book per month.

No. 5 is start visualizing what success will look like for you in 2020. You know, several years ago, I read a book called “The Miracle Morning,” and one of the activities they talk about in “The Miracle Morning” by Hal Elrod, it’s a great book, great process, is this concept of visualization. Pat Flynn talks about this a lot as well in his book, “Will It Fly?” And they talk about this process of not only setting goals but visualizing those goals becoming a reality and then revisiting those goals each and every day or maybe it’s once a week or maybe it’s several times a month. And when you do that, an amazing thing happens between you start with the goal that maybe feels like a hope or a dream or a wish, and then you articulate it, and then you become more specific, and then you put a number to it, and then you start to repeat that and see it and think about what would this feel like? What would this look like if this were to become a reality? And you begin to convince yourself through visualization that it will become a reality.

So I want you to answer this question as you think about visualizing success for 2020. And that question is, at the end of 2020, finish this statement: I will feel like I am winning financially if… So write it down. Look at it. What is happening for you at the end of 2020 that you will feel like you are winning financially if these things happen? The more specific you can get here, the better. Maybe it’s a certain amount that you want to have paid off of debt, credit card debt, student loan debt. Maybe it’s a certain amount that you want saved for a rainy day. Maybe it’s a certain amount for investing or for paying on a mortgage or for starting to get invested in real estate. And I would encourage you in addition to just writing these down, maybe some things that come to mind that you’re already thinking about, set one big, audacious, stretch goal for 2020. One thing that may seem like, you know what, it’s a hope or it’s a dream, it’s out of sight, it’s out of touch, but this is something I’m going to put down on paper, and I’m going to begin to think about that if I get these other things achieved, I’m going to be in a position to work towards this bigger goal.

So for Jess and I in 2019, this was real estate. We said, you know what, we want to invest in our first real estate property. We want to do that in 2019. Now, at the time, we had a big $0 invested to do that, but we knew it was a goal. We were able to articulate why that was a goal for our family. We created a sinking fund in Ally that had a big $0 for a long time, but it was a constant visual reminder of why we needed to achieve the other things within our financial plan that were ultimately going to allow us to unlock this part of it. We’re going to talk more about what that process was for us and our first property and hopefully soon our second property in the next couple weeks.

So I want to finish here with a quote from Seth Godin that I think really gets to this concept of visualizing for the future, really gets to this concept of setting big goals and often that our limitations are internal, our limitations are the variable that we can’t see a big enough picture to be able to realize what we’re actually capable of. And this is really this concept of a growth mindset. Seth Godin says, “Not the limit of our skills, not the limit of our knowledge, not the limit of our physical capacity. It’s almost always the limits of our internal narrative, our guts, our willingness to be kind, to believe, to care enough to lead. We can’t do anything about the limitations of physics, and we can never do enough to change the limitations of our culture.” But Seth says, “But we can begin today on changing the internal limits we place on ourselves. Yes, it’s your turn.” I love that from Seth Godin.

So there you have it. Five ways to finish 2019 strong. I hope you can take away one of these five, maybe all of these five, and as always, I’d love to hear what your thoughts are and would love to have you share your progress with the Your Financial Pharmacist community over at the Your Financial Pharmacist Facebook group.

Before we wrap up today’s episode of the Your Financial Pharmacist podcast, I want to again thank today’s sponsor, the American Pharmacists Association. Founded in 1852, APhA is the largest association of pharmacists in the U.S. with more than 62,000 practicing pharmacists, pharmaceutical scientists, student pharmacists, and pharmacy technicians as members. Join APhA now to gain premier access to YFP-facilitated webinars, financial articles, live events, resources, and consultations. Your membership will also allow you to receive exclusive discounts on YFP products and services. You can join APhA at a 20% discount by visiting pharmacists.com/join and using the coupon code A19YFP. For more information about the financial resources we offer in partnership with APhA, visit pharmacists.com/YFP.

And one last thing if you could do us a favor, if you like what you heard on this week’s episode, please leave us a rating or review in Apple podcasts or wherever you listen to your podcasts each and every week. Also, make sure to head on over to YourFinancialPharmacist.com, where you’ll find a wide array of resources designed specifically for you, the pharmacy professional, to help you on the path towards achieving financial freedom. Have a great rest of your week.

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YFP 119: Ask a YFP CFP®

Posted on by yfpadmin


Ask a YFP CFP®

Christina Slavonik, CFP® at Your Financial Pharmacist, joins Tim Ulbrich for a new installment of the YFP podcast, Ask a YFP CFP®. Christina answers financial questions from the Your Financial Pharmacist community covering topics such as student loans, investing and the inverted yield curve.

Summary

Christina Slavonik, CFP®, is a team member of Your Financial Pharmacist and offers fee-only comprehensive financial planning. In this podcast episode, Christina answers questions from the YFP community in a rapid fire format.

To start, Christina explains that fee-only financial planning means that we’re not getting extra commissions as many traditional firms are. Christina explains that YFP believes the best way to measure non-conflict of interest is to provide fee-only services where clients are only paying for the advice they receive. YFP also upholds to the fiduciary standard where the clients’ best interests are really the focus.

Christina answers several questions from diverse topics such as student loans, investing and the inverted yield curve. Two of the asked questions are below:

Andre asks if he’s sacrificing a lot of immediate short term investment opportunities like having a house or saving for retirement in order to pay off student loans more quickly through refinancing. Christina explains that it really depends on your goals and life plan. While there may be some comprises that have to be made, YFP believes there should be a balance of today and tomorrow so that you’re enjoying your life along the way to meeting your financial goals.

Amanda asks, “I’ve heard that given the inverted yield curve as well as many other factors that we may be entering a recession. How can I best prepare? Should I be picking up lots of extra shifts at my 2nd job to boost my emergency savings (currently 3 months) or should I continue focusing on student loan debt?” Christina responds by saying that there will always be recessions. There have been 47 recessions in the U.S. and the average recession lasts about 1 ½ years. She explains that the markets are cyclical and recessions are part of the process. The best way to cover yourself in any situation, whether we’re in a recession or not, is to be diversified in your investments and also your income. Having a second job or side hustle and having an emergency fund with 3 to 6 months of income for emergency expenses are all good practices.

If you have a question you’d like answered, email [email protected] or send us a message on Facebook or Instagram.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast, excited to be here live on Facebook for the first installment of a new segment that we’re doing, Ask a YFP CFP, standing for Certified Financial Planner, where we’re going to be taking your questions on a regular basis going forward, and we’re going to ask those questions to one of our Certified Financial Planners, Tim Baker or joining me this evening, Christina Slavonik. So Christina, thank you so much for joining.

Christina Slavonik: Yes, thanks so much for having me, Tim. I’m excited.

Tim Ulbrich: Excited to do this. We’ve got some great questions that we’re going to answer this evening. And before we jump into those, I know some of our audience and community members with your background you’ve had — you’ve been on the show before — but some may not be, so give us a quick introduction and talk about some of the work that you’re doing over at YFP.

Christina Slavonik: Sure. Well, I’ve been in the industry doing various roles for the past 13 years and really just hit the planning piece the last several years, became a Certified Financial Planner in 2017 and was working with the more traditional side of investment management, which you hear about fee-based and fee-only, this was a little bit of both mixed. And so when I had the opportunity to come on board with Your Financial Pharmacist, it’s a niche. I love working with younger professionals, and it just seems like a great segway into the next stage.

Tim Ulbrich: Well, we’re certainly excited to have you as a part of the team. And you mentioned fee-based, fee-only, we talk a lot on the show about the importance of the credential of Certified Financial Planner but also the importance of being fee-only. Break that down for us real quick. Why is fee-only so important? And what does the credential CFP even mean?

Christina Slavonik: Sure. So fee-only, when that comes to mind is you’re paying us just for the advice. We’re not getting any extra commissions, no extra fees being paid on Assets Under Management, which is how a lot of traditional firms are paid and a lot of advisors. Nothing wrong with that, but we just believe that the best way to measure a non-conflict of interest is to provide that fee-only service, which is you’re just paying us for our advice and being a Certified Financial Planner, we are held to that higher standard, the fiduciary standard, so to speak. And we’re supposed to be holding our clients’ best interests at heart.

Tim Ulbrich: Yeah, and I think one of the examples I use often that is in the pharmacy world, you know, we tend to think that OK, everyone is licensed as a pharmacist, everyone has their doctorate of pharmacy, and therefore, we’re all obligated to act in the best interests of our patients. That’s what we do. And so it was a shocker to me when I first entered into this just over about four years ago to really learn that the industry in the financial planning world is very much not the case, even that really the opposite. And for those of you that want to learn more about this topic of fiduciary, fee-only, we’ve got lots of information on the website. But I think also John Oliver has a great segment on fiduciary and fee-only that I think is worth watching. And he really breaks this down in a way that’s easy to understand. So if you’re not already familiar, we offer fee-only comprehensive financial planning over at Your Financial Pharmacist. As I mentioned, we have two Certified Financial Planners, Christina and Tim Baker. And you can learn more over at YFPPlanning.com. And so we’re going to be taking your questions on a regular basis. Some of the questions that came in this evening came via email, our Facebook group, Instagram, so you can reach us at [email protected] or you can shoot us a question in one of those social media outlets as well. In terms of format, I’m going to rapid-fire these questions to Christina, so I’m going to put her on the hot seat. We have lots of questions, student loans, investing, inverted yield curves, which is the cool term these days, so we’re going to talk about lots of different things. And certainly, if you’re on live now and you have a question, throw it out there and we’d love to answer that as well. You ready?

Christina Slavonik: I’m ready. Let’s get going.

Tim Ulbrich: Awesome. Let’s do this. We’ve got some good questions, so this is exciting.

Christina Slavonik: I’m very impressed with the lineup.

Tim Ulbrich: So Andre — first question comes from Andre, and he has two questions. He’s a new member of our Facebook group, so Andre, welcome to the community. We’re excited to have you. His first question is traditionally, most people pursue PSLF, standing for Public Service Loan Forgiveness, or refinance their student loans. But his question is are there other, non-traditional methods to consider beyond PSLF or refinance?

Christina Slavonik: Yeah, this is a really great question, Andre. So one of the things that we’re seeing more and more is non-traditional method. Some employers are actually offering reimbursement to help you pay off your loans faster in various forms and fashions. So that’s actually something to look into with your current employer. And there’s always the non-PSLF forgiveness. I know some people kind of forget about that one. Of course, you would have to pay the tax hit once that forgiveness is sent your way. It is counted as income on your tax return. But still, it is a forgiveness. And I think some people forget about that kind of forgiveness. Side hustles, you know, other nontraditional ways, I know some people have talked about giving away plasma. I wouldn’t go as far as selling an organ, but hey, you know, the sky’s the limit if you’re that committed to paying off those loans. Cutting certain expenses, just fairly small changes can move the needle in a big way over a sustained period of time.

Tim Ulbrich: Yeah, and one of the things we preach, Christina, you know this in working with clients is that unfortunately, when it comes to choosing a student loan repayment strategy, it’s probably way more complicated than it needs to be. Multiple options in the federal system, income-based repayment, standard monthly payments, extended, graduated, forgiveness, non-forgiveness, PSLF, non-PSLF, and then you’ve also got the whole host of options you see in the private market with refinance.

Christina Slavonik: Right.

Tim Ulbrich: And I think because of that confusion, I know what happened for me in my personal journey, I see with lots of pharmacists, is there’s often that paralysis by analysis where people default into the standard 10-year or maybe go into income-based repayment but wander into that and don’t really think about why or what they’re trying to do. And if you’re talking about six-figure+ student loan debt, we now know the average graduating student is facing about $173,000 on average, which is mind-blowing. But this is not a decision that you want to wander into. And we’ve seen with clients, with individuals, intentionality in this choice can be the difference of tens of thousands of dollars, especially when you consider in the context of the rest of your financial plan. So I would point our listeners, if you haven’t already checked out — shoutout to Tim Church, he did an awesome job on this piece — if you go to YourFinancialPharmacist.com/ultimate, he’s got the ultimate guide to repaying back your student loans. It talks through a lot of those options and gives you additional information. Second question from Andre, Christina, he asks, “Am I sacrificing a lot of immediate, short-term investment opportunities such a house, retirement, kids, etc. in order to pay off student loans more quickly through refinancing?” What are your thoughts on that?

Christina Slavonik: Yeah, that’s always a tough one to navigate, especially when it’s staring at you right in the face. Hard to put a price tag on that clarity and peace of mind, totally get that. But being able to be with an accountability partner that can help you put all these things on the table, it all goes back to your life plan, what goals you have for yourself. And your financial plan should be built around that life plan. Once we kind of get that clarification, it’s much easier to see where the other things will fall into place. And it can be quite a transformative experience, and your priorities become more defined. Some of the questions I ask myself is trying to find that balance, what keeps you awake the most at night? And kind of prioritizing it that way and then working with this through a Certified Financial Planner or a life coach that can help you navigate which path you should take. There’s some compromises that may be worth sacrificing up front. Just some ideas, especially little kids. I don’t know how old your children are or if you’re just planning to have kids, but there’s so many ways you can have fun when they’re young, and you don’t have to spend a whole lot of money. So there’s just different ways to think out of the box when it comes to those opportunities.

Tim Ulbrich: Yeah, and I love the approach that you and Tim take on this that there has to be a balance of today and tomorrow. Right? I mean, we have to take care of our financial house today, but if we do a great job with that for 30 or 40 years and we never enjoy it along the way, then I think we’re losing, right? We have to find this balance between living a rich life today and living a rich life in the future. And I think that happens through asking some of those probing questions that really get at the things, you know, what do you care about most? What are you passionate about? What really gets you excited each and every day? And ultimately, why does this whole topic of money even matter? And I think that’s a great question to ask before you even get into the x’s and o’s of your financial plan. And I’ll never forget, I think it was Episode 032 and 033, maybe 031 and 032, where Tim Baker interview Jess and I, talking about this concept of find your why. When you really start to challenge and say, OK, we’re paying down debt, we’re saving, we’re doing all of these things, but why are we doing these things? What are the things that really matter? And I think that’s what Andre is getting to in this question here. Alright, next one’s a big one. So to Christina from Christina, and it’s a really multi-part question that’s got some investing pieces, student loan pieces, FSA dependent savings account, so I’m going to break this down and collectively, we’ll tackle this one. So Christina asks, “I just started working at a not-for-profit hospital. As soon as that happened, I switched to PAYE, Pay As You Earn, loan and have already submitted my PSLF loan forgiveness employment verification form to the DOE, Department of Education.” Lots of acronyms here in this question. “I maxed out by 403b so that I can hit the $19,000 limit.” The question from Christina is, “Can I also contribute to my traditional IRA? Or is it one or the other?”

Christina Slavonik: Well, my answer is yes, Christina, from Christina, you can contribute to max out your 401k or 403b up to that $19,000 as well as max out an IRA. So the way I like to think about it is one is provided by your employer, the other is provided personally to yourself. So both have maximum limits. The IRA, of course, you can choose between a Roth and a traditional. You can only max one of those out or just a combination of those two. But yes, to answer that question, you can.

Tim Ulbrich: Yeah, so great point. I mean, 401k, 403b, those are employer-sponsored, one for-profit, one not-for-profit. IRA, the I standing for Individual, right? So that’s your individual retirement account. So second part of this, then, is, “I am also a working PRN” — nerdy pharmacy lingo here — so “as needed at my retail job. And I left that at a 6% contribution for my 401k since that is what they match. What happens if I get extra shifts and end up contributing more? Is there a penalty? I tried to calculate and plan on watching it very closely, but I would like to know in the event it happens.”

Christina Slavonik: Well, yeah, it’s good that you’re being proactive and not waiting. You really have until your tax filing deadline of April 15 to make any corrections if you need to. And yes, there is a penalty involved. There’s typically a 6% excise tax as well as some other double taxation issues if you cannot get that amount out in time before you file your taxes. So yes, just keep tracking on both pay stubs, maybe even getting your HR person involved if possible. But yeah, you may just have to totally not contribute to one of those altogether for the rest of the year since the year is almost over and approaching that tax deadline.

Tim Ulbrich: And I think relatively a good problem to be thinking about, right? If you’re worried about exceeding the maximum contribution.

Christina Slavonik: Yes.

Tim Ulbrich: So let’s not lose that fact, Christina, great job on making these contributions. Next part of this is, “There was also a dependent FSA, Flexible Savings Account, offered that I opted into for child care expenses. I’m trying to max as much as possible so that I can decrease my AGI, Adjusted Gross Income, for my PAYE, Pay As You Earn, loan. How do you determine when to file married separate or married jointly?” This is a great question. We get this all the time.

Christina Slavonik: Yeah, it is a fabulous question and one that’s best suited for someone, an enrolled agent or CPA that deals with taxes on a regular basis. There are so many pieces that wag the tax dog. And it’s just hard to give a specific recommendation without seeing the whole situation. Sometimes, it does make sense to file separately when doing the Pay As You Earn as the other spouse’s income does not count. But again, there are other factors to consider as well.

Tim Ulbrich: And I think for me, that’s the take-home point when I get a question like this is that making sure that those that are in an income-based repayment plan, especially those that are pursuing Public Service Loan Forgiveness, that you understand there can be a difference. And from there, you really dig deeper with an enrolled agent, with a tax professional, because they can look at the rest of your financial plan to understand the rest of your financial situation, understand what might be best. And we’re also grateful that we have Paul on our team, who is an enrolled agent, that can supplement the financial planning services that you and Tim are doing as well. OK, last part here from Christina is, “And for dependents’ savings account that are offered through your employer, is there a max that each person can use? Is it $5,000 per family and only $2,500 per person? Or can one do the full $5,000?”

Christina Slavonik: Sure, this is a really good question and one that we’ve actually seen before. Yes, the maximum is $5,000 to contribute. But really, any person in that family can utilize that. I know Tim Baker has mentioned that there are state-specific rules when it comes to FSAs, but in general, you can use it on qualified expenses for the physical care, the day care, child care, yeah. Just keep the receipts, keep good records of what you actually used it for. And one other side note with that: I know you’re wanting to lower your AGI by doing this. And sometimes, employers will also offer the Health Savings Account component for a high-deductible health plan. Sometimes having a limited purpose FSA will allow you to have an HSA as well, which can increase the deduction you can put towards lowering your AGI, so that’s another way to check into some more tax savings.

Tim Ulbrich: And good news we got back from Christina as a follow-up to this question. She says, “We max out our deductions for a total of $55,000 going into the 403b, TSA, IRAs, DSA, which should bring us to just under $100,000 of Adjusted Gross Income for the year. Thank you for reaching out and for all the help with the group.” I love that because I think that what I see through Christina’s questions is intentionality. And I see her digging in, I see her trying to understand the tax situations, understand what’s going on with the rest of the financial plan as it relates to student loans. And let me encourage those that are listening that they hear 401k, 403b, Roth IRA, FSA, HSA, DSA, and you’re following, great. But for those that are hearing some of those terms for the first time, we have a lot that we’ve covered in the investing realm on the podcast. Episode 072-076 back in fall 2018, we did an entire series on investing for this reason, so I would encourage you to check that out and certainly get more information that will help you with the rest of this decision as you’re looking at loan forgiveness and some of these situations. OK, from Stephanie, this question comes from Instagram: “Recommendations for personal loan lenders for the intention of consolidating credit card debt?” What are your thoughts on that one, Christina?

Christina Slavonik: Sure, well, congratulations, Stephanie, being one of the 2019 graduates. Like many graduates, I’m sure you’ve had your share of transitional expenses, such as the job moving, job search, budget changes. While we can’t generally recommend any specific lender, we do recommend starting with a current banking relationship as the best way to tackle that, including a credit union. They can normally give you pretty good rates. Try being careful. Some things to look out for when consolidating credit card debt is make sure that there may be a minimum that you have to consolidate. And sometimes you may not meet that minimum. So having to make sure you know that. Try not to take more than five years to pay off that loan just because the shorter we can keep that, the better. And know if there are going to be any origination fees or what those flat fees or any flat fees that are involved. Sometimes it’s a percentage of what you consolidate, sometimes there isn’t. And don’t — try not to use the credit cards once you consolidate. I know that’s one of the hardest things, but I’ve seen that happen time and time again. And I know the snowball method — now we’re venturing into Dave Ramsey territory, that’s one of the things he says — once you’re paying off those credit cards, try not to use them. You’re trying to get rid of that debt. So other items to consider, maybe a home equity line of credit is another way to approach that. And revisiting the budget. If you can avoid taking on a consolidation loan altogether, the extra steps are worth it and just finding ways that you can walk through your budget and maybe cut some extra expenses. I do want to give out a shout to Tom Eraz (?), he’s our accounting budgeting nerd at YFP Planning. And he’s helped many, many of our clients with questions just like this, what should I do in this situation? And he’s been very helpful with giving some suggestions.

Tim Ulbrich: To say Tom is a budgeting nerd is an understatement. I mean, he gets jacked up about budgeting.

Christina Slavonik: Yeah, I’ve never seen someone so excited about spreadsheets.

Tim Ulbrich: Yeah, I think he loves helping people in that area. Alright, time to get nerdy, and we’re going to talk about inverted yield curves. And I swear about a month ago, this was like the cool thing to talk about on NPR and the Wall Street Journal. Everybody was talking about inverted yield curves. So Amanda asks, “I’ve heard that given the inverted yield curve as well as many other factors that we may be entering a recession.” So the question is, “How can I best prepare? Should I be picking up lots of extra shifts at my second job to boost my emergency savings currently at three months? Or should I continue focusing on student loan debt? Thank you for your help.”

Christina Slavonik: Sure, Amanda. Yeah. And I know sometimes it’s hard not to listen to the talking heads and the people when they comment on inverted yield curves and what those indicators may mean. Typically, it may or may not say that a recession’s on the way. That’s just one of the indicators that we kind of look at. But again, it’s not something to hang your laurels on. There always will be recessions. I know we’ve had about 47 recessions in the U.S. history. Average one lasts about one and a half years, so just a little bit of feedback on that. The markets are cyclical, so what goes up will go down. That’s just part of the process. But just know that I believe you are already covering yourself the best way you can. Recession or not, it’s always great to be diversified, not just in your investments but also how you have your cash flow coming in to you. So even though you’re picking up those side hustles, working those second jobs, you’re not getting stuck in the 9-5, which is fantastic. Having a second side hustle or flow of income coming through and having that emergency fund already saved up at 3-6 months of emergency expenses for those non-discretionary items. These are great behaviors just to keep consistent during good and bad markets. So never really a bad idea to keep paying towards debt as it overall increases your net worth over time. And just be careful to keep reevaluating your lifestyle creep is a good exercise as well. So very good. Very good.

Tim Ulbrich: Yeah, I agree. When I saw this question, I mean, I think boosting emergency savings and paying down debt is good practice regardless of a pending recession or not. So I think it’s important to think about those foundational items. So Jeff asks, again, kind of along this idea of low interest rates, potentially a pending recession, “How should a prolonged period of extremely low or even negative interest rates be considered in your financial plan?”

Christina Slavonik: Sure, and one thing I like to think about first is where are you at in your life cycle? Are you approaching retirement? Are you a retiree who would have to look at those cash alternatives such as a bond ladder, which is where you can match cash flow with the demand for cash via multi-maturing layerings, and that’s a whole other topic. But yeah, mostly when dealing with young professionals, you’re generally saving for those long-term goals and objectives, so saving for retirement. And the period of a downside should really have little consequence with the long-term strategy, so I try not to get too wrapped up if you see prolonged periods of market drops. Generally, if you’re trying to borrow money, now would be a great time to do that, an extreme or low, negative interest rate environments. And capitalize on the securities and the equities, especially during the down times because you’re buying at a bargain. And so by the time the market does go back up again, you know you’re going to be well ahead if you had decided not to do that, instead take your investment ball and go home. So again, just really determining your objectives and having an investment allocation that matches that objective. Short-term goals, you may need to dial back a little bit, CDs, Money Market funds or whatnot. But yeah, just in general, I wouldn’t worry too much if you have a long-term strategy.

Tim Ulbrich: Yeah, I think that’s an important point: long-term strategy. And building off of the previous question with the inverted curve and looking at interest rates and other things, I think it is hard to take the noise out of it. I mean, I meant to keep them and I forgot to do so, but I’m still that guy who gets a newspaper delivered at home every day. And literally, you know, I was thinking back in December, January, it was like every day, it was the front page of one day the market was going up, the next it was going down.

Christina Slavonik: It’s always going on.

Tim Ulbrich: And the projections of why this was going on, and even though I’ve got a plan and I’m sticking to it, like it’s still hard to ignore the noise, and it starts to have that subconscious effect over time. But I think your point’s a good one here when we talk about negative low interest rates, really think about — the two areas that come to mind, especially for a lot of our community members, would be mortgage interest rates and whether it’s a new home or refinancing on a home, I think now is the time is probably to be looking at that if you haven’t done so in awhile. You know, when you look at a 30-year mortgage, a point on that loan can be really significant on a $300,000-400,000 house and looking at what would be your break-even on a refinance, and then also refinance on the student loans. We preach over and over again that refinancing student loans is not for everyone. So if you’re pursuing Public Service Loan Forgiveness, absolutely not. There’s certain provisions you want to consider and be looking for when you’re doing a refinance. But for those that the math makes sense and they’re really doing all of those things they need to be thinking about, you know, a point or two on your student loans obviously can be really significant. And as we see student loans still at 6, 7, 8% for many graduates, and we’re seeing refi rates continue to come down. I think it’s a good opportunity to look at those. OK, Kelsey asks, back into the student loan category, “Question about re-certifying my IBR income-based replacement income — income-based repayment income. I’m seeing that PAYE and RePAYE may be a better option for those that qualify. I’m due to re-certify for IBR this month. But would changing to PAYE or RePAYE affect anything in regards to qualifying for PSLF in the future? I’m five years in, and I don’t want to mess anything up. I’ve read the horror stories from those who’ve submitted for forgiveness, and they say not to change anything. But I’m hoping to make my payment a little lower this year if I can. Any thoughts, suggestions, or advice?”

Christina Slavonik: Yes. Three words: student loan analysis. This is one of those bigger picture things. So yeah, looking at the bigger picture, definitely changing from an IBR to a Pay As You Earn or RePAYE would not affect qualifying for the student loan forgiveness itself, but you would need to figure out which loans in particular would qualify and how to navigate that process. So that’s probably where people say if it’s not broke, don’t fix it. Stay where you’re at. So I wouldn’t want you to consolidate as that could restart the forgiveness clock all over again since you are five years in. I typically wouldn’t touch it unless you’re willing to do a little more digging and get that analysis done. As a side note, we did have a client that did go through the analysis, and she was in the IBR, went through the analysis program, and we did discover that she would be a good candidate to switch to the PAYE or RePAYE. And we were able to walk her through the steps. So in general, yes, the PAYE, RePAYE, can be more beneficial, meaning it can lower your payments, but it’s hard to say a firm yes or no without looking under the hood of the car, so to speak.

Tim Ulbrich: Yeah, and I think most of the horror stories that I’ve seen and heard and read about have been because of the consolidation piece that for many people, restarted the PSLF clock. Certainly, there’s been some qualified employer issues that have been out there. But I think if you really dig deep on this — and we talked about this in Episode 078 where we broke down is pursuing Public Service Loan Forgiveness a waste? And this really came out of the NPR story that was famous that we still have questions about. Every time we’re speaking, we’re quoting 99% of applicants that were denied. And really, when you dug into that a lot deeper, we talked about that on that episode, you know, many of those were incomplete applications, many people that weren’t in a qualifying repayment plan, and many people that ran into issues around consolidation or other things. And I think it’s important to reiterate here that this program, in terms of those that are actually qualified and eligible for forgiveness, is still relatively new. So 2007, this program was started, meaning 2017 was the first group that was up for forgiveness to take place. And I think the information that people have today and a lot of things we talk about in terms of what you need to be doing to cross your t’s, dot your i’s, is very different than the information that was available before. So I think our take is as we talk about many times when it comes to student loans, look at all your options, do the math, see how you feel about it, and make sure certainly if it’s PSLF that you’re doing all the details that you need to do to make sure you qualify. Alright, last question we have here, of course, somebody, we had to talk about the Dave Ramsey baby steps and the Dave Ramsey program. So Andrea asks — and it’s a good one — “Here’s my question. I’m starting the Dave Ramsey program at my church tonight. What are good points in his program” — so I’m pretty sure she’s referring to Financial Peace University — “that I should really focus on. Are there parts of the program that you disagree with or have a different opinion? I love his baby steps but not knowing exactly where to start.” So what are your thoughts on the Ramsey baby steps and the Ramsey plan?

Christina Slavonik: Yeah, and Andrea, I’m so excited. I love Dave Ramsey and what he has done in society in general just making people more aware on the forefront that you can get in control of your finances. And this is, I mean, a tremendous, huge first step, especially for those that have had no prior experience getting back to the baby steps, getting into the habit of saving and paying down debt, starting with that $1,000 emergency fund is a really key component to jumpstarting that. And I love the snowball method. That is one thing that we do preach on here is the debt rolldown and how to tackle that debt. We do focus more on the emergency fund part, you know, if you’re comfortable having a $1,000, that’s great. But we try to have at least three months, maybe $10,000 as a buffer, depending on what kind of income you have coming in just to forebode any huge, unexpected things coming your way. And then getting the match in your retirement plan, we think that’s a great thing. I know he preaches that. Getting basic term life insurance, we do recommend just getting basic. There’s no way you can beat that. And then working on what’s the next steps? I know he is a big component of paying down the mortgage. I guess that’s probably one of the places we may deviate a little bit from. And of course, you know, again, what keeps you up at night? It all comes back to that emotional factor. If you feel like paying down your mortgage as soon as possible is the best way to go, but most times, you can be earning a whole lot more putting that extra payments into the market or to another savings goal. You can, however, shave off 10-15 years off of a 30-year loan by just making an extra payment or two each year. So just trying to balance that out. He can be a little extreme in some of the methods he tackles, but again, it’s great. I have nothing bad to say about Dave Ramsey. And he’s really done a great service to many, many people.

Tim Ulbrich: Yeah, I’m not sure, as you know, I went through Financial Peace, Jess and I did, and it was a great experience for us and listened to his podcast for awhile. And I, like you, I think that it provides a great framework. But certainly, there’s nothing that evokes a greater emotional reaction than talking about Dave Ramsey’s baby steps, right? And I think what’s important to remember — and I actually had a chance to go visit Ramsey’s office when I was at the American Pharmacists Association in Nashville a couple years ago and quietly was able to talk to one of their team members who certainly was willing to open up and say, ‘Hey, the reality is Dave’s talking to 5+ million people every day, right? And so when you’re teaching that many people every day, there has to be a simple framework and model.’ And so he’s talking with people that have maybe an income of $20,000-30,000 but of course people that have incomes of $300,000 or more per year. And of course, their situations are going to be very different. But at the end of the day, it’s a stepwise approach, and I think you have to remember that it’s meant for that general audience. I think you also have to remember that it’s predicated on the fact that behavioral aspects related to your financial plan are really what’s going to get many people hung up. It’s not necessarily always the math, but it could be the behavioral piece. And for even the people here listening tonight, I think some people, that model and framework as is may be great to have the discipline, even if it means leaving some of the dollars, some of the math on the table. For other people, maybe that’s not an issue, and they’re going to really adjust, move things around, and create a plan of their own. So I think it very much depends on how much do you need that stepwise approach? How much does that model really resonate with you? And where are you at in the financial planning? Do you really feel like you need that motivation and reminder along the way? I, too, like you — and we talked about this Episode 068, we went back and forth a little bit on the pros and cons of the Dave Ramsey steps, and we hope to have him on the show someday, maybe doing that episode if he were to come on the show, I don’t know.

Christina Slavonik: That would be great.

Tim Ulbrich: But one of the things we talked about, of course, was employer retirement match, which is something that I disagree with him on that. For most people with few exceptions, I think we’re talking about free money. And I think the other thing that you mentioned, the mortgage. I think for some people, paying off the home really makes a whole lot of sense. I think for other people, depending on your interest rate, depending on what’s going on else in your plan, maybe not so much. I think some people are taking that home out 30 years at a low interest rate so they can free up money to do other types of investing, and they’re calculating risk appropriately. Other people maybe not so much. So again, it depends. And I think of course, the big variable and difference is that Dave’s audience is not on average facing $173,000 of student loan debt, right?

Christina Slavonik: Very good point.

Tim Ulbrich: So that’s a very unique factor. And when you think about his framework and model, baby steps, really paying off all debt before you build up a full emergency fund, I think we would agree that some of that needs to be happening in tandem because somebody may be in debt for 10+ years paying off student loans. So great stuff there, Christina. We actually had another question come in that I’m going to read. And just a reminder to those that are on live as well, if you have a question before we jump off, we’d love to answer it. Question relates to PSLF and picking up extra hours at a non-qualifying employer. So question is, “Can you work on the side at a retail pharmacy, which would be a for-profit, non-qualifying employer while enrolled and working with the Public Service Loan Forgiveness employer?” So imagine a situation here where somebody’s working full-time for a not-for-profit hospital, and then they’re picking up extra shifts at a for-profit. Is there extra penalty for making more money from the side retail job? Of course besides it having an impact on your Adjusted Gross Income and therefore, impacting your payments.

Christina Slavonik: Yeah, that’s a good question. And the answer is no. As long as you’re working at a 501c3, the forgiveness should still be OK. I mean, you have many people out there pursuing different side hustles and whatnot just to help make ends meet. And so yeah, the short answer would be no, it shouldn’t affect the PSLF. Is that what was the question?

Tim Ulbrich: That is. I think the other obvious component here if I’m understanding this correctly would be making more money of course would increase the AGI.

Christina Slavonik: It would.

Tim Ulbrich: Which would change the monthly payment, right?

Christina Slavonik: It could, definitely. Yeah. So that is one aspect of that.

Tim Ulbrich: Awesome. Well, Christina, thank you so much. We’re going to be doing this hopefully a lot more often in the future. And just a reminder to the community, shoot us your question that you have, we’d love to have it answered by Christina or Tim Baker, again, our Certified Financial Planners. You can shoot us an email at [email protected]. You can hit us up in the YFP Facebook group or on Instagram as well. And again, as I mentioned at the very beginning of the call, if you’re not already familiar, we offer fee-only comprehensive financial planning over at Your Financial Pharmacist. So you can learn more about that and working with Christina or Tim over at YFPPlanning.com. So Christina, thank you so much. And to everyone else, have a great rest of your night.

Christina Slavonik: Thank you so much, Tim.

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YFP 115: Financial Considerations for Job Loss or Reduced Hours

Posted on by yfpadmin


Financial Considerations for Job Loss or Reduced Hours

On this week’s episode, Tim Ulbrich and Tim Baker talk through financial considerations for those that find themselves in a financial hardship due to job loss, hours being cut or wages being reduced. With the recent news of some big box pharmacies planning to close stores and cut their workforce and many other employers cutting back hours for full-time pharmacy employees, this conversation of how to navigate a current hardship or be ready to weather a future storm is more important than ever.

Summary

Tim and Tim talk through several financial considerations for job loss or reduced hours. Some pharmacists are facing potential job loss, cut hours or a reduction in wages. Companies like Walgreens, Walmart, Kroger and Harris Teether are either closing their pharmacy doors or reducing hours significantly, leaving many pharmacists to question how secure their jobs are. If you’re in this position, what should you do or be thinking about? Tim and Tim discuss emergency funds, what to do with your student loans during a financial hardship, health insurance, what to focus on with retirement savings, the value and importance of a side hustle and networking.

Tim Baker shares that while many of this is out of a pharmacist’s control, you can start by looking at your foundation. How much credit card debt do you have? Is your emergency fund where it needs to be? By reducing credit card debt and having an emergency fund to cover 3-6 months of non discretionary expenses like rent, utilities, mortgage and loans, you’re setting yourself to be protected in case you face financial hardships like many are in the field today.

Next they discuss federal loans and when to use forbearance, deferment, or choosing an income based repayment plan. Tim Baker says that first deferment should be explored and then forbearance if needed as your interest will capitalize greatly with the latter.

In regards to health insurance when losing your job or having a change in your benefits, there are several options to consider including COBRA, short-term health insurance, exploring the federal marketplace, healthcare sharing, or HSAs.

When looking at retirement savings, Tim Baker says that typically, if you are in your 30s, there is plenty of time to right a ship that’s off course but that it’s also important to keep the fees associated with your investments low. They also talk about the importance of diversifying not only your investments but also your income by taking on a side hustle or entrepreneurial venture. This allows you to make money and also put the extra money into different savings goals depending on your passions. Tim and Tim also talk through how networking can help in times like these and the membership offer APhA has to those facing financial hardships.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. And I have with me back on the mic the one and only Tim Baker, fee-only Certified Financial Planner for Your Financial Pharmacist. Tim, it’s been awhile. How are you doing?

Tim Baker: I’m doing well, Tim. How are you doing?

Tim Ulbrich: Good. So before we jump in, it’s been awhile since you’ve been on the show. And big news for the Baker family with the addition of a baby. Give us the good news and tell us how everyone’s doing.

Tim Baker: Yeah, everyone’s doing well. And August 2, we welcomed Liam Baker to the fold. So we have Olivia who’s 4, turns 5 in October. And now we have Liam. And everyone’s doing well. I’ve got to give major props to my wife, Shea. She experienced 40 hours of labor, and we finally got to meet him on the 2nd. So it was a lot of stress I think leading up to it, but we’re happy and healthy baby, healthy mom, and now we’re kind of going through the storm of — I shouldn’t say storm, that’s probably a bad way to say it — but in-laws here and family here and trying to get into a routine and everything like that. So all good things, though, and thanks for asking.

Tim Ulbrich: Yeah. When people ask about like the birth of a child, I always feel like it’s easy to think of it as like the most chaotic, most joyous moments of your life, all wrapped into one.

Tim Baker: Yeah. And I’ll tell you what — and this came I think straight from you guys, you and Jess, like I don’t think I could have done it without our doulas. So shoutout to our doulas, our doulas were unbelievable and I think if I looked back on that experience, if they weren’t there to support Shea and myself, I think we would have been lost. And it’s just one of those things where you don’t know what you don’t know. It’s almost like a financial planner, you know, these individuals are just lovely people who are there to help coach you and advocate for you and in a world sometimes in labor and delivery where it’s almost like it’s very medicalized, if that makes sense, and sometimes, the things we manage to the lowest common denominator — obviously we want a healthy baby — but do we have to do this procedure? Do we have to do this? Or it gives us some time to think about it, and I think that really when we compare Shea’s birthing experience for Olivia versus Liam, they’re so different. I think the doulas are a big part of that. So not to get on a tangent about that, but that was a great process or great to have them on the team.

Tim Ulbrich: Yeah, and the value of a coach is real, right? Especially in this situation and this exciting time in life but also very stressful one. And a shoutout to YFP team member Caitlyn, who helps us with the podcast and lots of things with YFP who is also a doula, helping people up in the northeast Ohio area. So let’s transition and talk about this week financial considerations for those that are facing potentially a job loss, hours that are being cut, a reduction in wage, and this topic I think is really more important than ever in the profession if you think about the recent announcement by Walgreens and its plan to close 200 stores in the U.S. Obviously, we have others; this isn’t an isolated story. WalMart had made similar announcements. We have many others that have cut hours, notably would Kroeger and Harris Teeter. It seems like 32 is really becoming more of the norm when it comes to a community pharmacy practice, and we’re seeing certainly wages that are being reduced as well. And so I think this conversation about what should one be thinking about if they find themselves in this situation, whether that be a job loss, whether that be hours cut, or whether that be a reduction in wage. And oh, of course we’re not seeing a slowing down of the student indebtedness with the most recent data from the class of 2019 showing now an average just over $172,000. So Tim, before we jump into the strategies and what one should be thinking, what do you make of all this and what we’re seeing out there in the profession?

Tim Baker: It’s a great question, Tim. I mean, I am not — I think you and I have stated multiple times and just in our view on things is that I think we are very much the optimist. But I’ve seen it with clients that have come through my door where they’ll — it’s like OK, we’re talking about their financial plan and their net worth and income, and I’ll say, “OK, what’s your annual income?” And I work with two full-time community pharmacists, and they’re making in the $70s each. And you know, at the end of the day, I think this is all cyclical. Like I think right now, we’re in a position or the profession is in a place where it’s kind of right-sizing, and I think we’re going to see that from a job perspective, probably even an education perspective. So I think that this is something that we definitely have to I think talk about and talk through. And I think that’s where YFP I think can play a role is kind of talk through these issues and what we can do financially, but I think also what we can do as a profession — and this is me as an outsider speaking about pharmacy. But it concerns me, I think. You know, when you’re looking at a full-time job of $70,000-80,000, and you still are carrying $170,000, $270,000, $300,000+ in loans, which I see, that’s concerning, you know. And the political climate out there is such that our leaders, at least what you see on the Democratic side, and we’ve heard it from President Trump, I think there’s attention that is at least being paid to this crisis, or whatever you want to talk about. But at the end of the day, there’s a lot of things that we can’t control. And there are things that we can control, and I think what we want to do is kind of shine a light on the things that we ultimately can control and at least get something to think about and to chew on, and I think that’s really our purpose in this episode.

Tim Ulbrich: Yeah, absolutely. And we’re going to jump into those things that we can really focus on and one can control. And before doing that, I want to give a shoutout to Richard Waithe from RxRadio. And him and I talked on our podcast last week and also on his show about the debt cancellation that’s being proposed by the 2020 candidates. But what I want to mention here — and we’ll link to our show notes — I think he did an awesome job, to your point about starting and sparking a conversation, he wrote a great post on Medium that we’ll link to that talks about some of the WalMart news and other cuts and what we should be thinking about as a profession and those within that profession. And I think I’m with you. We need to have a constructive conversation, and I feel like there really isn’t a great venue for that to happen right now. But I think that’s where we’re going to see really a lot of creativity and innovation in what we can be doing going forward. So let’s jump in. What can people control? And I think No. 1 what comes to mind, Tim, for me is really developing a sound financial base. So here, I’m really thinking prevention that if somebody were to find themselves in this position, if they have their financial house “in order” or those that aren’t yet in this position but maybe find themselves in that position in the future that they can really weather a storm like this or maybe even put themselves in a position to be more opportunistic if they’re dissatisfied with their work or they want to find something else to do. And we talk on this show all the time about having a sound financial base, having your financial house in order. So when you’re working with clients, what does this really entail in terms of putting yourself in a good position?

Tim Baker: Yeah, so I think the thing — and we talked about this in Episode 026, Baby Stepping Into a Financial Plan, which I look back at I think with this episode is it’s so long ago that I think we talked about it, it’s worth bringing up again. I think the two things that I look at when I first kind of do a once-over to someone’s financial situation is what does the consumer debt look like? So I’m not even really concerned about the student loans as much because there’s a lot of things that we can do to kind of mitigate the cash flow or the repayment of those loans. The thing that I look at is what essentially do the credit cards look like? And unfortunately, I feel like more and more pharmacists that come through my door, we have a good amount — I’m talking $10,000 or more — of credit card debt that we have to really reconcile. So you know, I think figuring that out is probably first and foremost. I think secondarily is it goes back to the emergency fund. So typically when we don’t have an emergency fund, that’s when we’re reaching for the credit card when something comes up. So the emergency fund really allows us to have peace of mind so we have cash money set aside in case something were to happen, it allows our investments to keep kind of working. So we don’t want to be pulling money out of our 401k or any of our investments that are really tailored to more of a long-term approach.

Tim Ulbrich: Right.

Tim Baker: And it allows us to avoid the credit card debt, so we’ve talked about at length of why this is important, and this is typically 3-6 months of non-discretionary monthly expenses, which are just a fancy way to say if you lose your job or your hours get cut back, these are the expenses you’re going to have regardless: your rent, your mortgage, utilities, your loan payments, that type of stuff. So I think at the end of the day, those two things, from a foundational standpoint, is the consumer debt in check? And you know, is the emergency fund in place or at least phase one? Sometimes I’ll say, “Hey, client, you need $30,000 in an emergency fund,” and they’re like, they might have $10,000 worth of debt, so we kind of take it in bite-sized chunks so we can achieve that goal.

Tim Ulbrich: That’s one of the things you boo, right? Go home, Tim Baker.

Tim Baker: Yeah, yeah. And the thing about it, and I kind of talk about this at length with regard to the investments, it’s really boring to pay off a debt, right? It’s just boring. There’s nothing exciting about it. It’s really boring to save money in an account. I mean, I like doing it because I like to see my interest payments go up, I know interest rates have gone down, so we’re big Ally nerds, and I think their interest rate has gone down to 1.9%, but it’s still 20 times better than the next guy. But that’s really not — a lot of people would compare it to watching paint dry. But I think sound financial planning for the most part is super boring. So yeah, I might get booed off the stage when I say, “Hey, pay off this debt,” or “Save this money,” or “Be really, really boring with regard to your investments,” but at the end of the day, I think it’s kind of the best interests of the client.

Tim Ulbrich: Well, I think there’s a great opportunity for people to reflect, myself included, yourself included, that you know, while you may not have been impacted by some of the recent cuts or job layoffs, any one of us is vulnerable to this at any given point in time.

Tim Baker: Yeah.

Tim Ulbrich: And obviously, there’s things we can do to help protect ourselves, but if you can envision a situation where if you find yourself in a job loss or hours cut or wages reduced, and you imagine Scenario A where you’ve got $20,000 of credit card debt, no emergency fund, Scenario B where you’ve got no credit card debt and a fully funded emergency fund, the stress associated with those two scenarios is very, very, very different. And so I think that’s a great reminder, as you mentioned, Episode 026, we talked about it. The other thing I think worth mentioning here — and we talk about this a lot in terms of budgeting and really thinking about the future — is these are moments where, again, even if you haven’t been impacted, to just take a step back and say, “What can I do to create margin in the month-to-month?” so that if I were to find myself in a position like this, either you can weather it or it may not necessarily hurt as much or you can work through having several months where you may not find yourself having an income coming in. So again, you think about if somebody’s in a situation where they’re used to making $7,000 of net income per month, and they’re spending $7,000 or more of net income per month, versus somebody’s who’s maybe only spending $3,000 or $4,000 of that net income per month because of house payments and car payments and all of the other things that we’ve talked about before, obviously, again, those are two very different scenarios. So I think there’s wisdom in all of us hearing this message and taking a look at our financial plan to say hey, what can we do to build margin and take some of the pressure off if we would find ourselves in a situation like this.

Tim Baker: Absolutely. Yeah, I mean, one of the things that we kind of brushed over here recently is about interest rates. I mean, some of that margin could come from just restructuring debt. So you know, if you bought a home, and your interest payment is 4.75%, you might be able to — if we consider closing costs and things like that, it might make sense for you to do something like that. I mean, that’s something that doesn’t really test your kind of putting you outside of your comfort zone, so a lot of things when we examine inflows like making more money or outflows, cutting expenses and tightening the belt, it’s typically outside of our comfort zone, and we don’t like to do it. But it might be something as savvy as that, taking advantage of where interest rates are to kind of create that margin. But there’s lot of ways to do it.

Tim Ulbrich: Second area I want to talk about is potential need for deferment or forbearance of loans. So obviously, we have people that are listening that have been impacted by this, may currently find themselves in a position where hey, I don’t have work or I have such reduced hours or wages that I just cannot make the payments that I have. And so here inserts this option of potentially deferring or forbearing loans, which we know is not the ideal scenario but may be the reality for some people. So talk us through what is deferment, forbearance? What’s the difference? And what are some of the considerations here?
Tim Baker: Yeah, and when we typically talk like deferment, forbearance, grace period can be like also rolled up into this, it’s essentially periods of time where you don’t have to pay off your loans, where you’re basically out of school, sometimes you might be in additional training, so that’s where we talked about — and this is one of the things that I love we talk about, Tim, moving the needle. I rarely come across a resident that I work with that will automatically say, “Oh, I’m deferring my loans,” which makes me happy because I know when we first talking on the subject, I would ask a resident, “Did you defer your loans during residency?” or “Are you doing it?” Yeah, I feel like the majority of them would. So I feel like that message has come out. So like we say about the grace period, it’s not very gracious, you know, the deferment and forbearance, they’re not good. We’re really look at these as really stopgaps, like you said, Tim, when we can’t make the payment. So I typically follow the alphabet and go, deferment first — D before F — and then forbearance, typically because of how interest accrues. On some loans like Perkins and subsidized Stafford loans or direct loans, in the deferment period you may not be responsible for paying off the interest that accrues. And typically, it accrues during those deferment periods or forbearance periods and then the interest capitalizes, meaning it moves from the interest column to the principal column. And then when you’re paying back that amount of money is now bearing more interest on the bad side of things. So you know, the big thing to remember is that ultimately, one of these is typically going to be available to you, either deferment or forbearance. And I would say look at deferment first, go to forbearance second, because typically, the forbearance is for a financial hardship, that type of thing, but the deferment will be a little more gracious. So I would say if this is a you need to do this, which I would advise against, but sometimes you have to do what you have to do, go that route because it’s going to give you a little bit more runway to get your financial house in order, try to figure out ways to make the income, find a job, side hustle, whatever it is. The big con is ultimately not only are you not putting a dent into the loans, they’re growing, unfortunately. And for the amount of loans that we’re talking about with pharmacists, it can grow substantially. So you could wake up — and the terms vary. Sometimes it could be 12 months, I think some deferment periods can last up to three years. That’s a long time for you to be sitting on a loan that on average, 6-6.5% interest, that can really add up over time. So at the end of the day, what you want to do is on the federal side of things, with federal loans, this is a no-brainer. This is actually one of the benefits that the federal loan system provides is that if during a hardship or during a period of time where you can’t make the payments, they’re going to work with you. And the reason for that is that loans are not discharged during bankruptcy proceedings, so they’re not going away. Even if they do, the federal loan program is backed by the full faith and credit of the U.S. government, which has us as taxpayers to be able to support the. So this is kind of a no-brainer. And at the end of the day, the government collects more in interest the longer that you pay off or the longer that you defer. On the private side of things, it’s a different ball game altogether.

Tim Ulbrich: Yeah, and I think that’s worth noting because when we talk about on the private side of things, obviously you’re now at the mercy of the private lender — and mercy may not be the right word, that makes it sound terrible — but the reality is that we talk about this all the time: When it comes to refinancing your loans with a private lender, full transparency, you have to consider both the pros and cons in that. And while many of these lenders have really come into line with having all of the benefits — or many, if not all — of the benefits of the federal system, one of them that you have to consider is one important one here that we’re talking about is if you were to find yourself in this position, what’s going to be the option if you don’t have a deferment/forbearance option with a private loan? So how have you handled that with clients? Or what advice might you have for them? Because they’re probably not going to just throw this out there and market it and say, yes, we’re going to offer you forbearance or deferment. So you’re probably going to have to dig a little bit deeper here.

Tim Baker: Yeah, one of the risks moving from — although we believe that — so when I first started advising clients on student loans, basically, what we were told is never have the client move from the federal system to the private system. So never have them refinance. And obviously, the big reason was because of all the federal protections: They forgive upon death or disability, there’s forgiveness, there’s lots of different plans that you could pay off the debt, that’s also hardship. Now, because this is a $1.5 trillion issue that affects 45+ million Americans, a lot of these companies have said, hey — the CommonBonds, the SoFis, the LendKeys of the world — have said, “Hey, we’ll match those benefits. We’ll forgive upon death and disability, we’ll try to make you basically as similar to the federal system as we can.” Now, one of the things where I think they fall short a lot of times is a lot of these companies don’t necessarily advertise that they’ll work with you on a hardship. Kind of behind closed doors, I think that they will because at the end of the day, they want what you want. They don’t want you to — you can’t really default on the loan. Well, you can default on the loan. But it’s not going to go away. So eventually, what the companies will do is they’ll sell the loan for pennies on the dollar to a collector, and then they kind of hound you for it. They don’t want that because they want to get as much of the interest and principal paid back as possible. So what I would say to someone that has private loans that is struggling to make the payments is just level with them. I think pharmacists have a little bit more cash because you have a professional degree, you have the ability to make a good income, even if it’s not now but in the future once you kind of get sorted out. So to me, it’s just level with them and say, “Hey, I want what you want. I want to be able to pay this back, but I need some time to figure this out, or I need some grace.” And I think more often than not, they’ll figure it out. But at the same time, they are running a business. And they are not backed by the full faith and credit of the U.S. taxpayers, so sometimes they might call you on the loan, and then you’re kind of left paying with it. So it’s a little bit of give-and-take. Obviously, when you move from the federal system, you’re getting a better rate, but there’s a little bit less flexibility in repayment. And sometimes, a hardship is chalking that up to that.

Tim Ulbrich: Yeah, Tim, I think that’s a great point in terms of the private companies and at the end of the day, they’re running a business. I think this is also a good time to remind our listeners that are in the federal system that maybe haven’t refinanced their loans to the private sector that before they go through and pursue a deferment or forbearance option, is to see whether or not one of the income-driven repayment plans, if they’re not already in an income-driven repayment plan, would allow them to right-size their payment to match the income in terms of the time period that they may have a reduced wage or have lost their job. Of course, deferment/forbearance always being an option, but not overlooking the income-driven repayment plans that might provide some temporary relief without having to go into a deferment or forbearance situation.

Tim Baker: Yeah, and I think one of the — we often talk about — especially on the federal side — there’s lots of flexibility in repayment, and I often say it’s almost too much flexibility because there’s so many different options with the different repayment plans and deferment and forbearance. And what it typically does is it just confuses people in terms of like what they should actually do in practice when things are normal. But when they’re not normal or when things aren’t going as well from an income perspective, it’s actually a good thing on the federal side. And just to recap, like I said, the private companies, they do want you to pay back the loans, so they’ll try to work with you I think the best they can. But sometimes, they’re not going to be as flexible as the federal system. So again, lots of flexibility in the federal system. But I think there’s typically an avenue for everybody that might hurt the long-term gain or long-term approach to the student loans but can give you some relief in the short term.

Tim Ulbrich: Yeah, and I think to wrap up this section here as we continue to reemphasize the importance that when you’re refinancing student loans or looking into refinance, of course, interest rate is a big variable. You want to calculate the savings. But it has to be the savings plus looking at some of these other variables. And I think that’s more important than ever now as we see rates continue to drop. Those refinance offers are going to become attractive. Here we are in September, end of August 2019, that making sure you’re looking at OK, what are some of these other benefits that you may be losing from the federal system, although you’ve talked about those have really equalized across the board. But certainly it’s not an apples-to-apples comparison between the two.

Tim Baker: Sure.

Tim Ulbrich: So again, as we continue this journey talking about financial considerations for those that have potentially a job loss, hours cut, or reduced wages, we’ve talked about first developing a sound financial base, really the prevention aspect. Then we talked about loan deferment or forbearance. I think the next thing, Tim, we need to talk about is if somebody ends up in a situation where they lose their job or potentially they get hours cut to a part-time where they no longer have access to health insurance benefits, or I know we have several side hustlers out there that may make the decision to say, hey, I’m going to jump ship from my day job and ultimately, they carry the responsibility of health insurance coverage. But this factor, especially if you’ve always been used to having employer-provided health insurance, is a huge consideration. I mean, the cost of this is no joke, right, Tim, when you look at this relative to the rest of the plan?

Tim Baker: Yeah, absolutely. And this is one that’s going to be dependent on the region or the state that you live in in terms of the coverage. This one’s a hard nut to crack, and I’m of the belief hopefully that eventually, the employment will be separated from this benefit and that everyone can get coverage separate from who their employer is because I think it is one of those things that sometimes, it prevents people from moving away from a job that isn’t necessarily a good fit for them and they feel stuck. But it’s either looking at the exchange per state — and some states, you can really find something that can fit your needs, and other states, there’s almost nothing available. But the big one — and Tim, I think you have some experience with this here recently — is going to be COBRA and what that basically provides for people in kind of a transitionary period.

Tim Ulbrich: Yeah, and I think this question’s really interesting because I think it’s just a good activity for everyone to look at, even if you’re not foreseeing a situation where you leave a job is to look at what you’re paying out of pocket per month for your plan and what percentage that is of the overall cost. I mean, most likely, the employer is carrying about 90% of that, right? You know, varying degrees, obviously less or more, varying degrees depending on how catastrophic the coverage is or not or high deductibles, all those things. But at the end of the day, again, it’s easy to get lulled into this is one of the real benefits, just like we’ll talk about here in a moment with retirement where if you have a match provided and then all of a sudden that’s fully on your back, you’ve really got to factor that in, especially for those that are thinking about making a jump that’s of their own choice, especially to pursue some type of entrepreneurial option or side hustles. You’ve really got to factor this in when you’re thinking about your business, pricing your services, all of those things because often, people will say, “OK, I’m making $100,000. I need to replace $100,000.” And obviously, we know it’s probably more like $150,000-200,000 when you factor in all those other things. So yeah, Jess and I actually had a little bit of experience with this last year when we made the transition down here to Columbus from northeast Ohio, and we were looking at, OK, what are our options for health insurance coverage? And the reason why we were looking at this is we made a really specific decision for our family that we’re going to take two months off in the transition, which was awesome. And then we had the holy cow moment of oh, wait a minute, we have three kids, and we’re not going to have any health insurance, so what’s the game plan? So the most obvious option we ran into is Cobra, which is essentially extending your employer coverage that is offered to you for a period of time, but you’re going to really foot the bill for doing that. And this allows you to take out the plan you have now, you know who’s in network, you know who’s not in network, especially if you’re staying in the area, you’re comfortable with the offering of what’s there, so it’s essentially the continuation of your coverage that was being fully funded by your employer or a combination of employer and you, and now you’re able to continue that offering, have access to that offering, but really, the cost is going to be on you to do so. And the reason we didn’t go through this — and this is really a good bridge option for many people, especially if this is only a 3-6 month period is that the plan that we had offered at my previous employer was so rich and we necessarily weren’t really using a lot of those benefits that we looked at the cost and said, “Wow, like we don’t really want that,” and I think this really highlights us having the opportunity to talk about the importance of an emergency fund that if you have a fully funded emergency fund and you’ve been relatively healthy, you may not necessarily want to pay out of pocket for an expensive Cobra coverage. Or if you’re looking at options in the exchange, you may be able to take on something that has a little bit higher deductible or that has more catastrophic coverage because of the other savings and funds that you have. So Cobra is certainly an option. The other option that I honestly, Tim, wasn’t aware of, is short-term health insurance. And we ended up doing this when we took a couple months off between jobs because at the end of the day, it was cheaper than Cobra, and for us, it really just provided what we needed, which was catastrophic coverage. So the cost of this was really, really significant in terms of the savings, pretty simple to get signed up, simple to find, so for those that are relatively healthy, have a good savings in place, I think this is a good option. If you’re looking longer term, I think of course the exchange, all those you mentioned, state-to-state you’re going to see a significant variety. From my experience looking at some of those, those policies, many of them are very expensive, even just for catastrophic type of coverage. But obviously, healthcare.gov is a place to go to look there. Then the other one that I think is often overlooked are some of the healthcare sharing service organizations that are out there. You probably have heard of terms such as MediShare, Liberty HealthShare, these are essentially individuals that are coming together, a lot of them are faith-based organizations that come together with the idea that you as a community are, through contributions, sharing in the cost and essentially pooling together money and resources that can help fund one another. So that, of course, has upsides and downsides. And then if somebody moves into the route of being self-employed through opening up their own business, then of course, you have the opportunity to open and provide health insurance coverage through yourself and the tax advantages and benefits that come with that as well. So I think at the end of the day, for most people that are listening that may find themselves as one of those pharmacists that either is losing their position or is getting cut down to part-time hours, doesn’t have healthcare coverage, most likely, they’re going to be looking at either Cobra coverage for that transition period or potentially some short-term health insurance really would probably be the two predominant options.

Tim Baker: Yeah. The other thing that we talk about more is almost like a longer term stealth IRA is the HSA where that’s something that if push comes to shove, you can use for medical expenses in the near term. We talk about as a triple tax benefit account that can almost act as a secondary retirement account. But if push comes to shove and we need to dip into that, I mean, by all means. I think having that as part of the overall thing to tap into is something to look at as well.

Tim Ulbrich: That’s a great point. Next bucket, Tim, is this idea that people in this situation may find themselves with a loss of the option of saving for retirement through an employer-sponsored account. So if they no longer have their job, they can no longer access a 401k or 403b, maybe they’re losing the match, or even just the option to contribute to that beyond the match or even in the absence of a match. So if you’re working with a client who’s in this situation, how would you handle this in terms of evaluating, OK, are we just going to put on pause through this temporary time of hardship, and what are the things we’re going to be looking at? Or if we do want to continue to save, what are the other options that are out there?

Tim Baker: Yeah, I mean, typically, when we’re looking at a situation like this where it’s either job loss or maybe even significant cutback in hours, you know, this is kind of an emergency situation where we might not look at even getting the match. Most of the time, I would say, get the match as best you can. But I think this is where some people can get in trouble with kind of the longer term because it’s really hard to put numbers and calculate, OK, if this happens, what are the long-term repercussions? So one of the exercises that I think we do at YFP Planning, which I really think kind of turns the light on, is actually just taking a client through a nest egg calculation and showing them, OK, if we give a set of certain assumptions and kind of we can see what your current savings rate is, what you have saved, how long we have until retirement, we can kind of see are we on track or off track? And then we can take some of those variables and change them to say, OK, if before, we were putting 8% in and now we drop that to 4%, how does that change the overall bottom line? So I think if I was working with a client, that’s essentially what we would do. And most of the time — I wouldn’t say all the time — but most of the time, given the fact that the majority of the pharmacists that we work with are kind of in their 30s, there’s a lot of time between now and retirement to kind of right a ship that’s not necessarily on the right track, but my belief is that from an investment perspective when it comes to retirement investment is trust in the market. It will take care of you over long periods of time. So my thought is to be fairly aggressive with those accounts and make sure that expenses are low. So I think when you couple those two together — I had a couple recently that they felt, I think they were in their late 20s, didn’t have a whole lot saved for retirement, just getting started out, and we kind of went through the numbers, and I think they were like flabbergasted that they weren’t like 10 or 20 years behind. So I think when we actually do the numbers, it can be a powerful reassurance to see if the variables change, how that changes the overall thing. But you know, I think, again, this wouldn’t be something that I would necessarily fret at in the short term if we were in this scenario because I think at the end of the day, this could be figured out.

Tim Ulbrich: So Tim, I think it’s worth talking through here, you know, somebody who finds themself in a situation like a job loss, maybe even a time period before they find another opportunity, so they have this 401k or 403b account that’s sitting there. What do you typically advise — or maybe better yet, what are the factors or variables you’re helping a client think through in terms of determining, do I leave those monies there as is until I may have a new position that I can make that decision to compare what I might get in an IRA versus what my new employer offers? Do you move forward with a rollover into an IRA? How do you typically work that through with a client?

Tim Baker: Yeah, so to me, this decision really begins and ends with expense. So in a 403b, 401k environment, I always say that we have to operate within the sandbox that the employer and the custodian, whether it’s Fidelity, Vanguard, whoever it is, allows us to basically play in. So in those retirement plans, you typically have 20 or 30 different investments that you can put your money towards, and that’s it. In an IRA environment, the world’s your oyster. You can invest in just about anything that you’d like. So but I think the big difference is that in the 401k, 403b environment, it’s not as transparent as we would like. So most people, they sign in, they say, oh, I’m putting 5% in, here’s x amount of funds, I like these four or five or six funds, and then that’s it. But what they don’t know is there’s typically a lot of fees that are associated with that that are very opaque to them. So I actually did an analysis with a client here in Baltimore. He’s one of the clients that is not a pharmacist, but he has a 401k with a major company here, and basically, when we went through his analysis, I had not yet analyzed his 401k yet, but he has an IRA with us, and I say, “Look. Depending on when we do the analysis, depending on what comes back in terms of like how expensive your 401k is, is going to really determine if we should contribute future dollars to the 401k or to the IRA.” So when I did the analysis this morning, and his 401k was about five times more expensive than the IRA that we have. So basically, the move was to keep his 401k contribution static, so basically get the match. And then as he increases his contribution to his retirement account, it will go into the IRA until we max that out. So this is kind of — and sometimes, this can be shades of gray. This is like looking at expense ratios of .1% versus .05%, so it’s very, very minimal. But if we’re talking hundreds of thousands of dollars or even millions of dollars over the course of a career, that stuff definitely adds up. So the decision, longer answer, Tim, the decision to move those monies is going to be dependent on the actual plan themselves. You know, if you’re in a TSP, as an example, those are really efficient funds. But what most financial planners will say is they’ll say, “Hey, move the funds for me to manage,” because that’s typically how they get paid is the investments that they’re managing. So it’s typically sound advice, but not advice that is not necessarily in the client’s best interest. So I say it just depends on what the analysis shows, if that makes sense.

Tim Ulbrich: Yeah, absolutely. I appreciate the insight. I think fees, at the end of the day, we’ve talked before on this show, the impact those can have. And with a few exceptions, I think you mentioned the TSP being one, and maybe there’s a couple others out there. I mean, more often than not, what we’ve seen is that employer-sponsored accounts just typically don’t always have as low of fees as you can get out there in the open market through index funds and other things. But I think being aware of where the advice is coming from is really important as well. The next one we have here is the value and importance of a side hustle. And obviously, we’ve talked at length on this show, we’ve had lots of examples as recent as Brett Rollins coming on the show to talk about his two side hustles in writing for Pro Football Sports and then doing some work around expert witnesses and his area of expertise. But when it comes to side hustling, especially for those that are potentially in a time period of loss of job, reduced income, reduced wages, what do you see as the value of this side hustle in addition to, of course, just what they’re going to get from potentially the monetary income?

Tim Baker: Yeah, you know, when we talk through like a savings plan for a client, when we do goal-setting, we’ll talk about things like, what are the things that are important to you? And a lot of people will say, you know, it could be travel, it could be starting a side business, it could be whatever that — retiring at a certain age. So we typically like to marry up what they’re actually passionate about in life and what they want to do with kind of how we’re deploying our savings and our money. So one of the things I like to kind of point to is basically a savings plan. So the baseline or the bedrock of that is going to be the emergency fund, but it might be where we have a savings plan for our trip to Disney World. We have a savings plan for Benji, our dog, so when he gets sick or he needs grooming. So one of the things I really like about the savings plan is that it clearly shows where the money comes from. So for nine out of 10 of us, it’s going to be like a paycheck, right?

Tim Ulbrich: Right.

Tim Baker: So when we talked about at length with Shea and I, when we basically funded our trips to Disney World, Brazil, and Iceland through Airbnb and Rover, in our savings plan, that’s what we outlined was that everything else was paycheck except for those two things or that one thing was all going to be from those dollars. So what I like to clearly show to clients is that typically, all of our proverbial income eggs are in one basket. It’s going to be WalMart, like we talked about in the beginning of the show, or it’s going to be a hospital, or it’s going to be CVS, whatever it is. We’re at risk because if a decision is made in a boardroom in some city in the country, it can affect all of us. So my belief — and I understand that I’m biased because I’m an entrepreneur, Tim, you’re an entrepreneur — but it should be to not only diversify our investments but to diversify our income streams. One of the conversations that we’re having in our household is, Tim, is about YFP profit distribution. So as we distribute profits to the business owners, Shea, what should we be doing with this money? So like for me, it’s like, I really want to buy an RV and travel the United States. So that might go into an RV fund. Or it might be, we really need to catch up on retirement, so it might go strictly into retirement. But I like to clearly delineate lines of income for a purpose. And part of that is to show that most of us are very susceptible to kind of a one-income or two income streams if there’s two people in the household.

Tim Ulbrich: And one of the things I love that you do with your clients — and Jess and I have experienced this firsthand in working with you — is you mention as you’re working through that savings allocation worksheet, if you have a prioritized list of what you’re working on, when that extra income comes in the door, boom. Like there is no question about where that is going. It doesn’t go off into the ether of no-man’s land or expenses come here or there. So I think the clarity, and obviously, that then gives you that feeling of acceleration of your financial goals, which fuels on itself and I think helps things move forward. The other thing I really love — and we’ve experienced this personally, and I know we’ve heard this over and over again from the guests we’ve had on the show — is that while there’s not a direct monetary value necessarily from it, but that value of having a creative outlet, you know, where you can really contribute to something that you’re really passionate about and that you want to implement and to have the fun in terms of the creative side of the business and working through the problem and the challenges. And I think especially for people that find themselves stuck or dissatisfied in their day job, I think beyond the cash, there’s incredible value in being able to have that creative outlet while you may be pursuing other opportunities or even just working through that difficult time.

Tim Baker: Yeah, and I think one of the things that is worth mentioning — and I remember something that I think Tony Guerra said that I’ll paraphrase — is like, he almost set his schedule off the bat at like a 32-hour schedule so that he could have one day of just thinking or working on different progress.

Tim Ulbrich: The entrepreneurial 8.

Tim Baker: Yeah, exactly. So to me, a lot of people sometimes bemoan the fact like, oh, I can only get three days this week or four days this week. To me, I would flip that on its head. It’s like, well now you have a day or two that you have capacity to do something else that you can monetize your time in a different way. So and sometimes, it’s just getting there and getting outside of your head or maybe doing something that you would never do. Like I said, like when I launched my business, Tim, I drove Uber. And it was one of the best jobs because I love to drive, and I love to talk to people. But for me, when I was launching my business, I was just stuck in a room and I was kind of bouncing off the walls. But when I got out and looked at the world in a different space and talked to different people, it made all the difference. But to me, it was to earn income so I could pay my rent and feed myself. But it was also to think through a problem or work through a problem or do something that’s kind of outside your comfort zone. So I think sometimes with a lot of pharmacists that we work with, I say, “Hey, look, whether you’re growing top-line revenue, top-line income or cutting expenses, typically, both of those things are going to be outside of your comfort zone. But I think doing a little bit of both is good, especially to tighten the belt if you’re expecting hey, I thought I was going to make $120,000, but now I’m only making $80,000-90,000. So I think capacity in your workweek is something that we should value and really try to figure out ways to go from there.

Tim Ulbrich: I agree. And one of the last things I think about with a side hustle, which takes us into our last plan around networking and professional development, that I don’t think it’s talked about as much as the extra income and the creative outlet is this idea that as you pursue a side hustle, as you get yourself out there, as you meet more people, you’re naturally going to expand your network, right? And you’re going to take yourself out of your comfort zones, you’re going to have to really talk about the work that you’re doing and why you have a solution to a problem that needs to be solved. And those are skills that if you’re working in a 9-5, let’s say a traditional community pharmacy job is one example, you’re probably not forced to do those things. And your opportunities to expand that network may be a little bit limited unless you take that step above and beyond yourself. So I think this last point here of networking and professional development — and this timing is really good as next on the show, we’re going to have David Burkus, the author of “Friend of a Friend,” to talk about this concept of hidden networks and really redefining how we think about networking and why networking is so important, not when you need it in the moment of holy cow, I don’t have a job, I now need to tap into my network, but why you should be fostering and developing that network all along. So stay tuned to next week, we’re going to talk about that a lot more. I think this is also a good chance, Tim, for us to highlight what APhA is doing here as we continue to partner with them and value their partnership, is they just a couple weeks ago announced that they’re offering complimentary APhA membership to those that have found themselves in a position where they have been laid off or work hours have been significantly reduced, and they’re really positioning this as for people, whether they need CE, whether they’re looking to network, they’re trying to find new opportunities, pursue new skills, that this membership that they feel like will help them do that. And I really commend them for doing that. I think there’s been a lot of discussion nationally about hey, national organizations, where are you in this difficult time? And this is really somebody stepping out there and saying, we’re going to invest in this. And this is one way we’re going to show this is a priority. So for those that find themselves in that position of either a job loss or hours that have been significantly reduced, you can email the APhA membership team at [email protected]. Again, that’s [email protected]. Or you can call APhA as well, and it sounds like they’re going to be able to move that forward, which we’re excited about. So networking, professional development, when you think of your journey, Tim, and the work that you’re doing obviously now with YFP, but formerly Script Financial, I mean, how important — I hear you talk about a thousand cups of coffee all the time, right? I mean, this concept of networking.

Tim Baker: Yeah. No, it’s true. I mean, when I kind of had this Eureka! moment, I’m like, I’m going to start a fee-only financial planning firm for pharmacists for Gen X, Gen Y pharmacists, I’m like, I’ve got a lot to learn. So that 1,000 cups of coffee really put me on the path so when I sit in front of prospective clients, and I say, “Hey, prospective client, these are typically the things that I hear, and by the way, we have a solution to kind of hope ease some of that pain,” most of the time, they’re like, “Wow, Tim, you just described my life. Yeah, I’m struggling with debt. And yes, I’m unsure about my budget or my long-term projections and things like that. So to me, it’s so huge. And I think that any way you can expand your network, not just for — I think looking at it from like how you can help others is the best approach, not necessarily being in it for yourself, is the way to go. So I’m looking forward to that episode.

Tim Ulbrich: Well, great stuff, Tim. I want to remind our listeners if they’re not already aware and if they’re here listening at the very end of August, we’ve got a few days left in our exciting giveaway for the end of this month. So for those that are interested in pursuing something entrepreneurial, building off what we talked about today, or a side hustle, but if you’re not sure where to get started, we’ve got a giveaway for you this month that includes some awesome books and resources that will hopefully help spark some ideas and remove some of the barriers to getting started. So for three different winners, you will receive a copy of some great books: “Will It Fly?” by Pat Flynn, “Failing Forward” by John Maxwell, “The $100 Startup,” “The Freedom Journal,” and, of course, a Hustle Mode T-shirt. What would this be without a Hustle Mode T-shirt? So giveaway ends end of August, Aug. 31, 2019, and for those that are interested, you can sign up at YourFinancialPharmacist.com/giveaway. Again, YourFinancialPharmacist.com/giveaway. And if you’re hearing this after the end of August 2019, don’t worry. You can go to that same URL, and it’s likely we have another giveaway that’s ongoing right now. So Tim, as always, great stuff and looking forward to connecting soon on future episodes.

Tim Baker: Yeah, thanks, Tim.

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YFP 114: Presidential Candidates’ Plans for Student Loan Forgiveness

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Presidential Candidates’ Plans for Student Loan Forgiveness

On this episode, Tim Ulbrich and Richard Waithe, the creator of RxRadio, talk through the student loan forgiveness plans proposed by Senators Bernie Sanders and Elizabeth Warren, two of the 2020 presidential candidates. Tim and Richard discuss the details of who would and would not receive forgiveness under these plans and how they would be funded if enacted. They also discuss current loan forgiveness plans that are already in place and options that are available for those that need to delay loan payments due to a financial hardship such as a job loss or reduction in hours.

This episode originally aired in July 2019 on the RxRadio Podcast. You can learn more about RxRadio by visiting rxradio.fm.

About Today’s Guest

Richard Waithe, PharmD, is passionate about patient engagement and advancements in technology that improve adherence and health literacy to ultimately improve outcomes. With years of experience on the front lines in community Pharmacy, Richard is committed to helping individuals better manage their health and medications.

He is currently the President of VUCA Health, a company that has the largest library of medication education videos that serves to enhance patient engagement and provide an on-demand extension of pharmacists and other healthcare providers. He is also the host of the Rx Radio podcast where he interviews Pharmacists practicing in a vast variety of fields and discusses the future of our profession. Richard is the author of the book First Time Pharmacist: Everything you didn’t learn in school or on-the-job training.

Summary

This week’s episode is a simulcast release of a RxRadio episode. Tim Ulbrich joined Richard Waithe on the RxRadio Podcast to discuss Bernie Sanders and Elizabeth Warren’s proposals to cancel student loan debt.

Tim first dives into Bernie Sanders’ proposal, which is part of a more comprehensive college for all program and includes free tuition for public and private schools, the most ambitious plan yet. Bernie’s proposal is available to 45 million student loan borrowers, can be used for both federal and private loans, and has no eligibility differentiation as Warren’s does. Bernie is also proposing that interest rates should be capped at 2%. This debt cancellation will be funded by a Financial Transaction Tax which adds a .5% tax on stock trades.

Elizabeth Warren also has proposed a plan to cancel student loan debt, however, hers carries a few restrictions. This plan would cancel debt for about 95% of student loan borrowers. It would cancel $50,000 of student loan debt for households making $100,000 or less. The proposal offers phase out provisions: for households making $100,000-$200,000, borrowers can receive $1 forgiveness for every $3 of income. For example, if the household income is $130,000, $40,000 would be cancelled; if the household income is $160,000, $30,000 would be cancelled; and if the household income is $250,000, you would be excluded from receiving any student loan debt cancellation.

If these candidates aren’t elected or these proposals or similar ones don’t go through, there are forgiveness options that are available now. The first option is to pursue PSLF (Public Service Loan Forgiveness) which 25% of pharmacy graduates qualify for. To obtain PSLF forgiveness, you must work for a qualifying employer, have a qualifying plan, work full-time, and make 120 payments over 10 years. If you fulfill all of the requirements, your remaining loan amount will be forgiven tax free.

Non-PSLF is also an option for forgiveness. With this program, the borrower can work anywhere and makes payments over 20-25 years. However, the forgiven amount will be taxable and can be a hefty bill that you have to plan for. This program is best suited for those with a high debt to income ratio. Lastly, there are several state and federal forgiveness plans that you could qualify for.

So, if these proposals go through, what do you do with the extra money? Tim suggests that you first need to articulate your financial goals and prioritize them. First, you should focus on building up your emergency fund and paying off credit card debt. Then, you can focus on putting money toward retirement savings, home savings, college, vacations, etc.

Mentioned on the Show

Episode Transcript

Richard Waithe: Tim, how’s it going?

Tim Ulbrich: Good, doing well. Thanks, Richard, for having me on the show. I love what you’re doing over at RxRadio.

Richard Waithe: I appreciate the kind words. I am excited to have you on because one, I’ve heard obviously great things about you from Your Financial Pharmacist that we had on here. So we heard a little bit about your background, but we’ll hear a little bit again that part from you as to like how things got started, but just to give a little preface to what the episode today is going to be like, the news with the presidential candidates and their debt cancellations, I immediately thought about what your organization, Your Financial Pharmacist, and how things like this could potentially impact people’s financial plans. So you guys immediately came to mind, so I want to chop it up with you to dive into it, get some ideas, get some exact facts as to what it is that’s going on. But before we do that, if you could just start off by telling the listeners a little bit about yourself.

Tim Ulbrich: Absolutely, Richard. Yeah, great topic, excited to jump in the conversation. So I graduated with my PharmD from Ohio Northern University in 2008, did my community residency also alongside academia at The Ohio State University in 2009, and then for about 10 years, I was up in Northeast Ohio Medical University in the Akron-Cleveland area in various roles, patient care, service development, ambulatory care, community care, did some administrative work in admissions and student affairs and really developed a passion for professional development and helping students identify their career path and to really help empower them along that path. And that really intersected nicely for me with the financial piece, which really came to be in 2015 with the beginnings of Your Financial Pharmacist. But I started, and of course I know you had an opportunity to interview Tim, and we also have another Tim, hopefully no more Tims in the mix after three.

Richard Waithe: That should be in the rules.

Tim Ulbrich: Yeah, right? But I went through a journey of paying off a couple hundred thousand dollars of debt. Obviously, I’m being casual about that just for the sake of brevity so we can get into the discussion, and really felt like I lived a little bit on an island while going through that journey and didn’t really hear many pharmacists talking about this topic, talking about issues like we’re going to talk about right here tonight. And so I reached out to 100 of my closest colleagues and friends, said, “Hey, I’m thinking about starting a blog around personal finance and pharmacy. What do you think?” And the responses I got to that were really overwhelming and I think incredible for me to hear, OK, others are interested in this. It’s not just for financial nerds, and many people in pharmacy are feeling some of the pressures and pains around personal finance, especially those making the transition from student to new practitioner. So that began Your Financial Pharmacist, which started as a blog. We then launched the podcast the summer of 2017, we just crossed our 100th episode. And we’ve got comprehensive financial planning, lots of resources and tools, all designed to help the pharmacy professional on their path towards achieving financial freedom, which obviously student loans is a big, big part of that. So I think this conversation is timely. And now currently, just this past fall, I transitioned back to Ohio State University, and I direct the Masters and Health Systems Pharmacy Administration. So again, a lot of intersection between professional development. I really see personal finance being a big piece of professional development, and I’m excited that we as a profession are starting to embrace that personal finance is a topic that I think many, most, agree that we need to be addressing as a part of one’s professional development.

Richard Waithe: Yeah. So I think this is a prime example of, you know, find a passion, start creating content around it, and then all of a sudden it could potentially become either a business or a side hustle. So you’re a great example of that. Also before we jump into everything, you mentioned that you’re part of the Masters program at Ohio State now. Can you maybe shed some light on the topic of maybe what a pharmacist can benefit from going through a program like that? Because I get that question a lot, I see it a lot, like should I do this Masters? Should I do x, y, z that’s extra? An extra degree? Which a lot of times, I think it’s not an easy answer. Sometimes, I’ll discourage it depending on what their motives are. Sometimes, I’ll say it’s a great idea. Can you shed some light as to why that might be a good or bad idea for that particular program?

Tim Ulbrich: Yeah, absolutely. And I think you nailed one of the key questions that your listeners need to ask themselves or if they’re advising others is what’s the motive? What’s the reason? Because with any Masters program, whether it be a program like I direct at Ohio State, which is simply a Masters around Health Systems Pharmacy Administration, so really gearing people to be in an administrative roles in health system pharmacy. So this could be Director of Pharmacy, Chief Pharmacy Officer, Operations Manager, all types of roles that one could be depending on the type of program that they’re going to engage in. But whether it’s a health systems pharmacy administration Masters, whether it’s a PhD, an MBA, an MHA, an MPh, so many students I would advise, I often felt like they were enamored with the degree but really couldn’t connect it to why they wanted the degree and how that helped them along their career path. So I always encourage people, take a step back regardless of the program and really have some good, deep conversations and self-reflection about what’s the path — and it may not be crystal clear, but what are the things that I really identify with? What are the things that energize me, that I want to do more of regardless of how much time I spend? And what are the things that exhaust me, and how can I better align my career and my job towards those things that really give you energy? And if a Masters degree or if a residency or if a PhD, whatever be the case, helps you get there and you can specifically put an ROI on that path, then I think that that is worthwhile to consider. But I think for many people, that may not necessarily be the case. And so for specifically our program — and your question’s actually a timely one because right now and historically, our program at Ohio State has been around since 1959 and almost entirely for that time has been paired with a two years of residency and a Masters degree that are happening simultaneously. And we just now are getting ready to convert that program to an online offering, which is going to open that up for working professionals, and so the way I always describe is if somebody’s out there in the workforce, typically is working full-time, maybe they didn’t complete residency training, maybe they only did a PGY1, have interest in administrative roles, or maybe their leadership has identified them as an emerging leader, often they may want them to enroll in a program like this to help fast-track their skill set around things like operations and inventory management and supply chain and patient safety, leadership, entrepreneurship, all these types of skills that certainly with enough years of experience, you can get. But typically, in the inpatient health system setting, the leaderhsip will often identify people and say, OK, we really want them to go into this program so they can evolve to the next role that will be along their career path.

Richard Waithe: Got you. Great, great. Well that’s a lot of insight for the listeners. I really appreciate that.

Tim Ulbrich: Yeah.

Richard Waithe: OK, let’s jump into it here. So I’m also going to start off by saying that we’re going to discuss some ideas that are presented by political candidates, either maybe if you’re listening to this, maybe affiliated with your particular views or not, but we are talking about this solely to present the facts and present what the ideas are that are being presented around cancelling student debt. Neither one of us, both individually or our organizations, are taking a side with what we think is a good idea or not with some of the policies that are presented by these candidates. So I want to give that disclaimer here that no matter how you hear us describing a potential idea, it’s solely to give information about it and/or play devil’s advocate to get both sides or to get a better understanding as to how this could work. So now that we’ve gotten that disclaimer out of the way, let’s jump in by talking about Bernie Sanders’ plan that was recently announced. If you can just give us some background on that.

Tim Ulbrich: Yeah, absolutely. And before we jump into Bernie’s plan, Richard, if I could even build on what you said there because I think you articulated it really well, I also just encourage your listeners that these proposals, you know, we’re really far away from these potentially being implemented, and so I think it’s good to think and reflect on them for your own personal financial situation. But we still have current status, and we’ll talk about some current forgiveness plans and other things that are actually in place right now. So I think as you hear these, I don’t want to encourage our listeners to run and begin to make decisions on their own personal financial situation until some of these either go into place as they’re currently proposed, maybe they don’t happen at all, or they get modified to some degree. So Bernie’s plan — and I think that’s a good one to start because it’s probably the easiest to understand. So here we’re referring to Bernie Sanders’ plan, just announced last week, and it’s really a part of a more comprehensive, college-for-all program. So a common theme you’ve been hearing amongst some of the candidates is free tuition for public universities and community college, and so this plan around loan forgiveness for Bernie Sanders is a part of that more comprehensive, college-for-all program. And this is really the most ambitious plan yet that we’ve seen that’s trying to address what many of your listeners I’m sure have heard of is the $1.4 trillion student loan debt probelm in our nation. And we could debate all night long about how we’ve gotten there, but I think the better part is what does this plan address? And really, what it says it’s available to all of the nation’s almost 45 million student loan borrowers for both federal student loans and private student loans, and there’s no eligibility criteria included to be forgiven. And that’s going to be an important distinction when we talk in a little bit about Elizabeth Warren’s plan. So here, it doesn’t matter if you make $250,000 or you make $45,000, it doesn’t matter if you have $200,000 in debt or you have $20,000 debt, everyone is included. There are no specific eligibility criteria when it comes to Bernie Sanders’ plan.

Richard Waithe: Now, did they — I’m not sure if you might have seen this, but the way that you described it was as this is one plan, we’re in this one plan, we’re going to get free college, whatever, and we’re also going to get this great student loan forgiveness plan, whatever. Is there a chance that that’s potential exclusive, or was it clear in kind of what you see in that this is going to be one package and like one bill, let’s say?

Tim Ulbrich: Yeah, that’s a great question. And I think your question really gets to the point that when we’re seeing plans like this, and think about any previous presidential election, really reflect back on some major policy issues that came forward and how many of them got implemented as they were presented as a policy issue during a primary. How did that change when you actually got into the general election and you narrowed down the pool? And then once somebody is in office, what did that actually look like when it got implemented? So I don’t know, I think that will ultimately go forward in terms of how does this conversation shape? And I think that will be in part based on the reaction of the votership here in the country. As they get some receptiveness on this issue, will it be packaged as it’s currently presented in terms of a broader bill or however it gets included in terms of free tuition? And another part of this too, Richard, which I think is worth noting, is that often, people will say, well, this is great, but it doesn’t really address, what about in the future when somebody goes for a private school and they wrack up debt? We still have very interest rates, well above what you can buy a home for. So if you look at what our current pharmacy students are borrowing for their federal loans, you know, many students now are looking at interest rates at 6-8%. And what you can buy a home for on a 30-year mortgage is now down I think in the high 3’s. It’s a very stark difference, and a lot of people ask, why is it so expensive in terms of interest rates on loans? And so what Bernie is also proposing is that the student loan interest rates would be capped at just under 2%. So again, will this happen? How is it going to get funded? How will it be proposed? I think it’s all something to watch, but certainly this plan is the most ambitious, it’s the most comprehensive, there’s no exclusion criteria.

Richard Waithe: Yeah, I just hate when politics or politicians are presenting a bill or they’re voting on a bill, but that one bill has like 10 different things in it. And some of them don’t even relate to each other. And then it’s like, it didn’t go through because line item 7 was not great, you know? So I don’t know, hopefully it can be something that the American people can look at individually and make a decision on instead of forcing it to be one whole package. But alright, let’s just say things are going well, he decides he wants to implement this. Bernie Sanders decides to implement this for him, things are going well, and it seems like his plan is about to come to fruition. How would he actually pay for it?

Tim Ulbrich: Yeah, this is the million-dollar question, right? Whether it’s Bernie Sanders’ plan, Elizabeth Warren’s plan, or even a modified version of either one of these is that you can’t just erase debt. Obviously when you look at student loans and interest, ultimately, that’s a revenue stream for the federal government, so what Bernie Sanders is essentially proposing here is what’s referred to as a Financial Transaction Tax, or an FTT. And it’s really just a fancy way to say that there would be a small tax — I guess small depending on how you define it and how you view taxes — that would be about a .5% tax on stock trades. So if you were to buy $100 worth of stock, essentially you would get a $.50 charge. Now, it’s interesting because as I read that, you know, Richard, I started to think about well, why go after investments? Why go after stock? And what will be included, what will not be included in terms of this tax? And I also started to think that if you think about the individuals that are often buying high amounts of stock, especially outside of retirement accounts, I have to believe they’re going to find other ways to divert having to pay taxes such as this, such as oh, maybe I’ll put more of my money into real estate or I’ll do other types of investments. So again, it’s good to think about this question. How will it be paid for? And looking at the status quo of how people purchase stocks, guesstimation through this plan is that the Financial Transaction Tax, which would be a .5% tax on stock trades, would essentially cover the cost for the loan forgiveness provisions.

Richard Waithe: That’s interesting. I haven’t really heard of a lot of plans that targeted that specifically. I know they’ve talked about increasing corporate taxes and taxes on when you actually make a profit off of the stock trade, but this is really a little different. But any other additional information around Bernie’s plan before we move onto Warren’s plan?

Tim Ulbrich: Yeah, I think a comment I would just make here I think is a good one. And we can come back to this after we talk about Elizabeth Warren’s plan, but I think there’s some just really interesting issues that when we talk about loan forgiveness, it really presents a much broader conversation around why is college the cost that it is? Why are the interest rates the way that it is? How much of the borrowing is related to tuition, and why is tuition creeping up at a rate that is outpacing inflation by a significant amount? And how much of the borrowing is due to cost of living? And how do we teach more about personal finance? So this very much feels — when you and I talked about this leading up to — and you emailed me about the opportunity to do this, it almost feels like you’re peeling back the layers of an onion. And so what I hope we can do here is just start to begin a conversation among your listeners, among our community, that this — when you talk about student loans and you talk about loan forgiveness, you talk about student loan debt and broader just debt in general, it’s never one issue, in my opinion, that’s really just going to solve the problem, right? You have to holistically look at many of these variable, which starts to then get into some very interesting discussions around socioeconomic status and how do we teach things and all types of variables that I’m hopeful your listeners while they here these plans start to think of some of those broaders aspects as well.

Richard Waithe: Yeah, that makes a lot of sense. Alright, so let’s move onto Warren’s plan. What is her plan? Give us some details, some basics around that. And then we can see how it compares to what Bernie’s plan was.

Tim Ulbrich: Yeah, think about Elizabeth Warren’s plan potentially as a scaled-back version of Elizabeth Warren’s (sic) plan. So instead of saying that there’s no eligibility criteria, it’s open to everyone regardless of income limits, regardless of debt loads, essentially, Elizabeth Warren’s plan puts some more restrictions around forgiveness provisions so that it would cancel student loan debt for approximately 95% of borrowers, so not 100% of borrowers. And it’s estimated — from their estimations — that it would cancel student loan debt in its entirety for a large portion of those because of how they have the caps on both the indebtedness as well as the income. So let me explain the restrictions here for a minute. Again, Bernie’s plan says no eligibility criteria. Elizabeth Warren’s plan says that we will cancel $50,000 in student loan debt for every person with a household income of under $100,000. So let me say that again. It would cancel $50,000 in student loan debt for every person that has a household income under $100,000. So hopefully, your listeners are thinking, OK, well, $50,000 in debt, we know the average indebtedness of a pharmacy graduate today is about $160,000. And when you say household income under $100,000, we know the average income of a pharmacist, while it’s changing, is above or close to that threshold of $100,000. So would this even be applicable for pharmacists? And the answer is yes, maybe. So the question then is what about this group that makes more than $100,000? And essentially what they have is some phase-out provisions. So it would provide for those making between $100,000-250,000 of household income — so that’s an important variable to keep in mind — that you would have some forgiveness, but it wouldn’t be to the full amount of the $50,000. So the $50,000 in cancellation, which is the maximum amount under Warrens’ plan, phases out by $1 for every $3 in income above $100,000. So for example, Richard, if you made $130,000, instead of getting $50,000 of forgiveness, because of that phase-out, you would get $40,000 in cancellation. And if somebody had a household income of $160,000, instead of $50,000 of maximum forgiveness, they would only get $30,000. So if you make under $100,000, you get the full $50,000 maximum amount forgiven. But if you make between $100,000-250,000, you get a lesser amount of that depending on how much you make. And then if you have a household income above $250,000, which could be the case if you have let’s say two pharmacists, a pharmacist-physician, a pharmacist-another high income in the household, you would be excluded altogether with no debt cancellation. So again, while we think in pharmacy, high debt loads, high income, if you really look at the general population of those that have student loan debt, I think the last average I saw was somewhere around the mid-$30,000s, and obviously we know the median household income in the country is about $55,000-57,000, so the vast majority — while it may not be the case for pharmacists — the vast majority would have $50,000 or close to that that would be forgiven as the maximum in this situation.

Richard Waithe: And you know, it’s important to note that while a pharmacist might not see 100% cancellation as another individual, it’s still helpful. I mean, even $30,000 off of my loan would be helpful, especially if it gets accompanied by some cut of an interest rate. I think that’s a huge deal, which I’m not sure if she proposed that in the plan or not, but —

Tim Ulbrich: I didn’t see that with hers. She may have as well. But I think it’s also important to note that both of these also mention private student loans being eligible for cancellation. And I think that’s something really interesting to watch because you think of all the pharmacists who, rightfully so, for better interest rates, they weren’t pursuing loan forgiveness, they refinanced, they had significant savings, how might this impact them if these plans go into place? So while that sounds really good, I just think that tracking that and trying to identify that, and now you’re getting into the private sector when you’re dealing with those companies, will something like that really become a reality? Or will it stay in the federal system? But right now, both of these plans as is do mention private student loan debt cancellation as well.

Richard Waithe: And along some of these lines, what about bankruptcy? Has any of them talked about — because I think a student loan is one of the only type of debt in the nation that you cannot declare bankruptcy on. Have you seen anything around that? Or potential ways that that come to fruition as this problem just starts to grow?

Tim Ulbrich: Yeah, I haven’t yet. I think that’s a really good point. I mean, there’s stories now that are floating around of paychecks that are being garnished wages and other things in terms of how they’re going after these student loan types of debts that are outstanding, and I think when you look at this number — and I think in pharmacy, to your point, Richard, especially as we see there are people that maybe can’t find employment or do so at a much lesser value, if they have $300,000-400,000 of debt, which certainly are stories that we have heard, those types of situations I think certainly could come to be. One of the things we can come back to, though, is there’s strategies that those individuals should be thinking about, such as income-driven repayment plans that would allow you to eventually pursue, even over a long period of time, forgiveness, and it would adjust up as your income would go up. So I think it’s a good question. I have seen a couple crazy stories of people fleeing the country, which is really sad.

Richard Waithe: Oh, wow. That’s crazy.

Tim Ulbrich: But I want people to hear there’s options. And we can come back and talk more about this, whether it’s deferment, forbearance, seeking out an income-driven repayment plan, working with your lender to really — just like you would on an outstanding credit card payment — trying to do whatever you can to establish a payment plan. Really, you want to do anything that you can do to make sure that you don’t go into default or any situation that would have a negative impact on your credit.

Richard Waithe: Makes a lot of sense. Alright, so let’s just say none of these go through, and we’re stuck with kind of what we have now. And what is it now that’s available for programs for pharmacists or, I would say any student, I guess, that is part of a loan forgiveness program.

Tim Ulbrich: Yeah, the most common current situation we’re in — which obviously there’s lots of debate about this and whether it would stay, and I think that will be a big part of the conversation when Bernie’s and Elizabeth’s and other plans come forward — we talk a lot about on our podcast and our website, we’ve got lots of resources around Public Service Loan Forgiveness, also known as PSLF. So in my estimation, about 20-25% of all pharmacy graduates qualify for Public Service Loan Forgiveness. Now, that doesn’t mean that it’s the right decision for them. There’s lot of options that are out there, it’s very much an individual situation, but it does impact a big percentage of pharmacy graduates. And essentially what Public Service Loan Forgiveness says is that if you work for a qualifying employer, which is most commonly going to be a not-for-profit employer, so for those that are in hospital, inpatient, health system, underserved types of settings, government work, if you’re working for a government entity or a not-for-profit institution, if you make payments under a qualifying repayment plan, which is typically an income-driven repayment plan that people are going to be looking at, if you’re working full-time, and if you make 120 payments — they don’t have to be consecutive, but 10 years worth of payments — when it’s all said and done, you essentially would have any remaining balance that’s forgiven, it would be forgiven tax-free. So for pharmacists that are especially facing a high debt-to-income ratio, so let’s say somebody listening has $200,000 in debt and they’re making $100,000 a year, if they’re working for a nonprofit, depending on their personal situation, it’s usually at least worth evaluating among other options. And of course, you have to consider the variable of how do I feel about the debt? And am I OK with some of the unknowns around Public Service Loan Forgiveness? And we talk a lot about this issue exactly on Episode 078 of the Your Financial Pharmacist podcast if any of your listeners want to hear some more discussion we have on that. So Public Service Loan Forgiveness is a great option that you should at least be evaluating if you work in the public, not-for-profit, government sector. And then, Richard, a lot of people don’t actually know that there’s also a non-Public Service Loan Forgiveness option that’s out there through the federal government as well. So whereas with Public Service Loan Forgiveness, or PSLF, you have to work for a qualifying employer, with non-PSLF, it doesn’t matter who you work for. So it doesn’t have to be a not-for-profit; you can work for Walgreens, CVS, Rite-Aid, whomever, a for-profit hospital, but the kicker is instead of 10 years, you’re looking at 20-25 years. And instead of tax-free forgiveness, you’re ultimately going to have an income tax bill on the amount that’s forgiven. So some more planning and logistics you have to think about, but there’s a very small percentage of people in our estimation and research, those that are in the for-profit sector of work that have a very high debt-to-income ratio, they may consider non-PSLF, especially if they can’t afford their monthly payments for whatever reason. And so those are the current options. The other one, there are some state forgiveness plans. I just read an article recently in the Wall Street Journal about more state forgiveness plans that are popping up, so I would encourage your listeners to check out state information. And then obviously, there’s some of the military plans. And I’ve seen some unique programs around, for example, those that work in underserved settings that address some of the opioid issues, there’s some forgiveness plan types of things out there. And I want to reference your listeners to — credit here to Tim Church, who wrote a very comprehensive, great blog post that helps people evaluate all the different repayment options that are out there. Not to say this is the right one or this is the right one but to look at all the options, look at your personal situation, and then try to navigate it and work through which of those may be best. And that’s over at YourFinancialPharmacist.com/ultimate.

Richard Waithe: And I’ll definitely link that up in the show notes as well to make it easier if anyone wants to just look in the show notes to get links to everything that Tim has just mentioned. Quick question about the non- or the for-profit forgiveness plan. What qualifications are in play there, if any?

Tim Ulbrich: Yeah, not really. I mean, you have to still use one of the income-based repayment plans, which is what you’d want to do anyways because the goal would be to minimize payments, maximize forgiveness. The biggest things, as I mentioned, is that when it’s all said and done, you’re going to have an income tax bill that you’re going to have to plan for. So it requires some work, in my opinion, working with an accountant to do some projections, running some numbers, but the way that would work is let’s say you’re federal income tax is right at 20% 20 years from now. If you’ve got $100,000 left over, essentially that year when you go to file your taxes, it’s going to treat that amount that’s forgiven, in that case $100,000, as taxable income. So you’d have — depending on the rest of your financial situation — an additional tax bill to pay because if you make $100,000 that year, and you have $100,000 that’s forgiven, the IRS that year is going to look at it as if you made $200,000. But all along, you probably were only paying that year and having withholdings based on your $100,000 income. So there’s some more planning. And it really takes, in my opinion, somebody to have a very high debt-to-income ratio that’s really in a hardship. Maybe they have a lower income situation that they’re struggling to make payments. And I think you also have to especially here look at the math side-by-side with can you really kind of ride this out for 20-25 years? I mean, I know I felt after two, three, four years like I’ve got to get these things off my back. But certainly there are some people I think that very much can have the mindset of, hey, I’m going to let this ride, I’m going to treat it like a mortgage, and it’s part of the plan. And they’re methodical in how they approach that.

Richard Waithe: So like a lifestyle tax almost.

Tim Ulbrich: Yeah, that’s right.

Richard Waithe: That’s what I like to call it, make it justify that a little bit.

Tim Ulbrich: Yeah.

Richard Waithe: So let’s get into a little bit of hypotheticals here. I mean, and this is actually real for some people that actually pay off their loans eventually. But let’s just say that some of these plans were to come into place, and some pharmacists were in a position where maybe from one day to the next, obviously this could take years to come into play, but let’s just say from one day to the next, they all of a sudden don’t have that extra $500-1,500 loan payment per month. What would you advise that they do instead of just living off a fancier lifestyle? Or maybe they should live a fancier lifestyle. But what would you advise that they would do with that extra specific amount of money?

Tim Ulbrich: Yeah, now this is a fun question, right? You know, what to do with extra cash each and every month. And this was real for my wife Jess and I. When we went through our journey, we were paying off aggressively as we were getting toward the end, about $2,500 a month toward our student loan on top of the payment. So all of a sudden, you get to $0 payment, and then it’s a conversation of hey, what are we going to now do with this money we’ve been allocating toward our student loans each and every month? That is a fun, motivating conversation to have. So we talk all the time on the podcast and on our blog and when we’re speaking about this is a great example of why it is so important to articulate and write down your financial goals and prioritize those goals because whether it’s at some point, you have your loans forgiven, whether you get a raise, whether you’re able to cut your expenses, whether you get an unexpected inheritance, who knows whatever be the case, when you run into a situation like this where you’ve got extra cash, you know exactly where you’re going to put that money. So you’re essentially putting around some guardrails that yes, we should always enjoy the achievement and balance the achievement of financial goals with enjoying life along the way, right? If we’re always squirreling money away for 30 or 40 years, it’s kind of like, what’s the point? But by having that prioritized list of goals, you’re essentially putting some guardrails around avoiding lifestyle creep and letting that happen. So if somebody were to find themselves in this situation, and they didn’t yet have an emergency fund, or if they had credit card debt, those are the two things that I always focus on first. And here, I’m of course making generalizations without knowing each and every person’s individual financial plan. So Tim Baker, our certified financial planner, refers those two steps as “baby-stepping” into your financial plan: having a fully funded emergency fund and having high interest rate credit card debt paid off. So those would be the two places. And then from there, you would begin to think about what other goals are going on and what’s the personal situation, what does that all involve? So where are you at with retirement savings and investing based on the goals that you have set and how much you’ll need at retirement? When do you want to retire? How much do you need? All those types of variables. Is a home in the mix? Do you already have one? If not, how much do you want to buy? How much do you want to put down? Kids’ college, vacations, enjoyment, all these things get put into a list, and you begin to prioritize them so when you run into this situation, you can work down the list and you know exactly where you’re going to fund them along the way.

Richard Waithe: Yeah, that makes a lot of sense. We talk about fairytales, but who knows? This could happen, one, if you have a great plan financially with where your loans are going to be paid off soon, or we get lucky and one of these people or even just whoever decides to say, oh, we’re going to cancel all student debt and all of a sudden, you don’t have any more debt. One thing that does come to mind, though — and so we’re going to start getting into a little of talks that aren’t as positive as I like to keep things on the podcast, but one also downside about some of the plans that are being announced is people are upset because one, if this sort of plan does go through, we’re essentially making someone else pay for our decisions in life. And then two, what about the people that’s kind of busted their butts to try to pay off those loans and pay down all that debt that they were responsible for? And then all of a sudden, these people coming along after them don’t have to put in all that work that they did. So there’s definitely a lot of different perspectives and a lot of different things that people can either like or dislike about these particular plans. I don’t know if you have any thoughts you want to throw in there at all.

Tim Ulbrich: Yeah, I do. And actually, we had some discussion on the YFP Facebook page — it might have been in the group or the page, I’m not sure which off the top of my head — about this exactly. So I think we posted Bernie Sanders’ plan, it just got some discussion started, and there was really a range of comments to your point. I mean, there were some sentiments of, this is not fair to those that have worked so hard to pay off their loans or those that maybe their family saved for years to help them or they didn’t have to take on that debt or pursued scholarships. So I think there’s some of that or that aspect of personal responsibility or you know, all the lessons that you learn while you’re going through paying off student debt and does this really address kind of the core issues and problems around cost of higher education and personal finance literacy and education? And then I think there’s some of the opposite standpoint, probably more so from those that are currently struggling with debt repayment that would say to the previous question, this would really help me out in terms of I’m really struggling month-to-month or I’d love to be able to do A, B or C, and this would really help me be able to do that by taking some of the burden off my back. So I think this is a good discussion to just continue. And again, to my comment earlier, is that these discussions around loan forgiveness, in my opinion, need to happen at a much, much broader, more comprehensive discussion around all of the issues that we’ve been talking about because just looking at one of them, you know, one of our members in the page had mentioned that any student loan forgiveness program or free college plan really needs to be paired and coupled with a plan to decrease the cost of college because if those two things aren’t happening in tandem in terms of forgiveness as well as addressing the cost, we may not be getting to the true issue. I would even add on to that in terms of some of the other things, I think about my four young kids at home. At a very young age, they’re learning hopefully good but some bad habits from me as well around personal finance. So a lot of this starts in the home, it starts in the education system, and again, to my comments earlier, when you start talking about those types of issues, you know, when you deal with education and you deal with other variables, it can become very complex in terms of how we address them.

Richard Waithe: Yeah. So with the crazy news that happened recently — and while this is probably one of the larger pieces of these types of news we’ve heard in awhile, I mean this has been a trend that’s been going on for at least the last five or 10 years, with pharmacies closing, jobs, the market saturation is increasing, people being laid off, this was a little bit unique. WalMart allegedly — I don’t think this has been officially confirmed by WalMart, this is all I think where the Bloomberg reported that a person familiar with the editor said that it was 40% of senior pharmacists, which so let’s assume that’s true. That means that they’re trying to streamline wages, things like that, but let’s just say that there’s an individual that’s in a terrible situation like this where they get to a point where because they just potentially lost their job and their main stream of income, they can’t pay for a loan. What are their options there if they’re in that extreme position and they can’t for a loan? What happens? What are consequences? Give us some details on that.

Tim Ulbrich: Yeah, and I think this is a really, really important conversation because the news I had read related to WalMart is that it impacted senior pharmacists and I think there were some projections as well around new hires and part-time workers. And I think those may have very different implications around where somebody’s at in their debt repayment, other goals they’re achieving or not achieving, do they have credit card debt, do they not? So obviously, we know it can impact those people in a very different way. But the other reason I think it’s a really important conversation is we’ve had news here in central Ohio of pharmacists that has been, of course, known nationally around going from 40 hours to 32 hours, 32 becoming the new norm. So whether it’s WalMart or another company, whether somebody’s working full-time or gets cut to part-time or gets hours cut, whatever be the situation, I think we’re going to see more and more pharmacists that are in this question and situation of, hey, what can I do if I can’t make my student loan payment? And this really gets to the option around deferment or forbearance. And I think when we hear those words, we think, oh my gosh, stay away as far as you can, but the important point I want to make here with deferment or forbearance — and I’ll differentiate those here in a moment — is that both of those, while they may sound terrible in terms of an option to pursue, if you pursue them and you pursue them wisely with a plan in place, they will not have a negative impact on your credit. And so what we’re trying to avoid is default. Default is really worst-case scenario when it comes to student loans. So the options I’m thinking about is if I’m somebody who’s making aggressive student loan payments, and I find out that I’m getting cut part-time or maybe temporarily I’m in search for another job, I’m going to first see if I can switch to an income-driven repayment plan where I don’t have to go into deferment or forbearance, but I can adjust my payments because of course, that adjusts with income. So if I go from 40 to 32 or if I go from 40 to 20 or whatever be the case, hopefully that won’t be permanent, you can make a transition and get back on pace with the rest of your financial goals, including your student loans, but the whole point of income-driven repayment plans — and here we’re talking about things like PAYE, RePAYE, IBR, ICR — is that they adjust up and down as your income adjusts up and down. Now, that may sound really good, and obviously, as your payment goes down, as your income goes down, it most likely will mean that your interest is probably accruing faster than your monthly payment, so that has its own challenges. But you’re not altogether stopping payments, and I think that’s important not only actually making the financial momentum but also behaviorally, you still feel like you’re making momentum. Whereas with deferment or forbearance, you’re actually going to stop making payments. And these are options that are available to you specifically in the federal system. Now, when it comes to the private lenders, it depends on the lender, so you have to work with them individually. Many of them do not, but some of them will offer forbearance or deferment provisions. But essentially when it comes to your federal loans, whether it’s deferment or forbearance, the idea is that you are stopping making payments for a period of time. Now, the one advantage — if I had to say one of these is better than the other, the one advantage of deferment over forbearance is that if any of the listeners have certain types of loans, most notably these would be subsidized loans or Perkins loans, they would actually not have to pay the interest, or the interest would not accrue while you’re in the deferment period. So if somebody’s listening and they have subsidized loans, they have Perkins loans and they’re thinking about deferment or forbearance, for that reason, there probably would be an advantage around deferment. However, most pharmacy student loans, which is most of a graduate’s indebtedness today, they’re not going to have subsidized loans. Most of them are going to be unsubsidized. So in that stance, it’s really not going to matter in terms of the interest that’s saved. So if you can, Option 1 for me, Richard, would be pursue or try to pursue an income-driven repayment plan so you can continue to make payments for the reasons that I mentioned. If not, then I think it’s pursuing deferment or forbearance with the goal of trying to avoid defaulting on those loans.

Richard Waithe: So it sounds like the deferment in that one case is kind of like literally just hitting a pause button.

Tim Ulbrich: Yeah, if somebody only has subsidized loans or Perkins loans, they could essentially hit pause if they get approved. And there’s obviously some application and there’s time periods around these. But they would hit pause and for those subsidized or Perkins loans, they would essentially — that interest wouldn’t keep ticking. Whereas if you go into forbearance, and when it comes to your unsubsidized loans and your other loans, interest continues to accrue on all of those loans. So let’s say you go into a 10-month forbearance period, if you’ve $150,000 in debt and you’re at an average interest rate of 6%, you know, yes, you’re going to get through that hardship period by not having to make payments, but your student loan balance at the end of that 10-month period is going to be greater than what you started with because that interest is going to continue to accrue and continue to compound. So you want to use it wisely. I really look at it as an emergency situation to do anything you can to avoid defaulting. But better yet would be can you get in an income-driven repayment plan so you don’t have to utilize deferment or forbearance. But know that they’re there, and that’s really the intent, one of the intents is financial hardship if you need them for situations such as this.

Richard Waithe: So what are the differences between the forbearance and deferment?

Tim Ulbrich: Yeah, so besides the which loans may have the interest not accruing — so that’s really the biggest thing. So subsidized federal student loans and Perkins loans, the interest would not accrue during deferment. Whereas in forbearance, it doesn’t matter. Interest is accruing on all loans. So that’s really one of the biggest differences. The other difference is the length. So with deferment, the length, while it varies by deferment type, some last as long as three years while others will be available as long as you qualify. Whereas forbearance, it lasts for no more than 12 months at a time. You essentially would have to reapply through that process. So there’s some interest advantages to deferment if you have those certain types of loans. And then there’s the difference around the time period, but in both situations, it would have no negative impact on credit. So again, remember, these provisions are there for a reason. Income-driven repayment option I’d pursue first. Then, I’d pursue one of these second. And you can work with your loan servicer to evaluate these options further.

Richard Waithe: Now, does any one of these loan forgiveness programs affect — sorry. In terms of a hardship, where you need to postpone payments, does it potentially affect your ability to be a part of a program that’s involved in loan forgiveness?

Tim Ulbrich: It does now. So with Bernie and Elizabeth Warren’s plans, obviously the way they have those structured, it would take a lot of this out of play. But right now, with Public Service Loan Forgiveness, and even with non-Public Service Loan Forgiveness, there’s a — with PSLF, there’s one example. You have to make 120 qualifying payments. So if you’re in a forbearance or deferment period, those obviously don’t count as qualifying payments during that time because you’re not making a payment, right? However, keep in mind that with PSLF, those don’t have to be consecutive payments. So while it may extend your time, so if you’re off for a year of making payments, now maybe the 10 years becomes 11 years. It doesn’t disqualify you altogether from PSLF, but that one year or whatever the time period would be where you’re not making payments, those don’t count towards your 120 qualifying payments. So yes, it would have an impact.

Richard Waithe: Wow. So that’s really interesting.

Tim Ulbrich: Yeah.

Richard Waithe: That’s a lot of information.

Tim Ulbrich: It is. And these are great discussions. And you know, I’m happy, if your listeners have further questions, they can shoot us an email over at [email protected], and we’ve got lots of resources, I mentioned one, Episode 078 of the podcast. We’ve got, I think it’s Episode 018, we also talk about PSLF. We’ve got some other podcast resources. And then we’ve got the Facebook group and community really out there with the hope and goal that people are asking these types of questions and getting encouragement and getting those questions answered from others in the community.

Richard Waithe: Yeah, and I would highly encourage people to go in there, and whether you’re involved in some of these Facebook groups, whether you’re going to be actively talking about your stories, or whether you’re just seeing what other people are doing, and definitely checking out all the information on their website. It’s super helpful, and I think that we are undereducated on all of this stuff because I learned a bunch today even, and I’ve been out paying loans for five years now. So there’s always new stuff to learn, new things to learn around how we can better manage our finances and our student loans, so really appreciate all that. But before I kind of close out here, I do want to ask a completely random question.

Tim Ulbrich: Yeah.

Richard Waithe: If you had to take anyone out to dinner, and the person had to be famous, and they had to still be alive, who would that be and why?

Tim Ulbrich: Ooo. If I had to take anybody out to dinner, and they had to be famous, and they had to be alive. Wow. That’s a great question.

Richard Waithe: They should have a Wikipedia page. If I can’t find them on Wikipedia, I’m coming back at you. And you cannot use Donald Trump or Obama or any of the Obamas because they have been taken — or Jeff Bezos because that’s becoming a popular option. You can’t use any of those four.

Tim Ulbrich: Yeah, you know, first thing that came to mind was some dead people, but your question, before I answer it, is really timely because one of the things I think often about is the concept of legacy and really whether it’s somebody that’s served in a high leadership role, started their own company, served as a president, I’m really trying to figure out why people do what they do and what drives them in terms of leaving a legacy in what they do. So the first person that came to mind comes from one of the books that’s had probably the greatest influence on me in terms of my own personal financial journey and how I think about personal finance would be Robert Kiyosaki, who wrote “Rich Dad, Poor Dad.” You know, if you ask people about what’s the No. 1 and No. 2 financial book that’s impacted your life, you often hear that book. And I think it’s such a different way of thinking about money that once you read it, I think it really transforms the way you think about it. I know it has for me in terms of business, real estate, just how my wife and I manage our finances, and I’d love to be able to sit down and kind of pick his brain about some of the concepts around that book. So that was the first person that came to mind.

Richard Waithe: And that book — I’ve read that book as well, and it’s an easy read too.

Tim Ulbrich: Yeah.

Richard Waithe: Like it’s not as intimidating as some other books out there that are really famous and end up being like 1,000 pages long with real hard vocabulary. That was actually an easy read.

Tim Ulbrich: That’s great. It is. It is an easy read, and it’s one that I think you read more than once, you go back to, and you take something different from it when you read it a second or third time.

Richard Waithe: Yeah, great. Well Tim, thank you so much for all your insights. I really appreciate you being on the show.

Tim Ulbrich: Thanks, Richard, appreciate it.

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YFP 109: An Interview with Suze Orman

Posted on by yfpadmin


An Interview with Suze Orman

Suze Orman, a #1 New York Times bestselling author on personal finance with over 25 million books in circulation, joins Tim Ulbrich on today’s episode. They talk about her most recent book Women & Money: Be Strong, Be Smart, Be Secure and the advice Suze has for pharmacy professionals feeling overwhelmed with their student loan debt and managing their financial plan.

About Today’s Guest

Suze has been called “a force in the world of personal finance” and a “one-woman financial advice power house” by USA today. A #1 New York Times bestselling author, magazine and online columnist, writer/producer, and one of the top motivational speakers in the world today, Orman is undeniably America’s most recognized expert on personal finance.

Orman was the contributing editor to “O” The Oprah Magazine for 16 years, the Costco Connection Magazine for over 18 years, and hosted the award winning Suze Orman Show, which aired every Saturday night on CNBC for 13 years. Over her television career Suze has accomplished that which no other television personality ever has before. Not only is she the single most successful fundraiser in the history of Public Television, but she has also garnered an unprecedented eight Gracie awards, more than anyone in the entire history of this prestigious award. The Gracies recognize the nation’s best radio, television, and cable programming for, by, and about women.

In March 2013, Forbes magazine awarded Suze a spot in the top 10 on a list of the most influential celebrities of 2013. In January 2013, The Television Academy Foundation’s Archive of American Television has honored Suze’s broadcast career accomplishments with her recent inclusion in its historic Emmy TV Legends interview collection.

In 2010, Orman was also honored with the Touchstone Award from Women in Cable Telecommunications, was named one of “The World’s 100 Most Powerful Women” by Forbes and was presented with an Honorary Doctor of Commercial Science degree from Bentley University. In that same month, Orman received the Gracie Allen Tribute Award from the American Women in Radio and Television (AWRT); the Gracie Allen Tribute Award is bestowed upon an individual who truly plays a key role in laying the foundation for future generations of women in the media.

In October 2009, Orman was the recipient of a Visionary Award from the Council for Economic Education for being a champion on economic empowerment. In July 2009, Forbes named Orman 18th on their list of The Most Influential Women In Media. In May 2009, Orman was presented with an honorary degree Doctor of Humane Letters from the University of Illinois. In May 2009 and May 2008, Time Magazine named Orman as one of the TIME 100, The World’s Most Influential People. In October 2008, Orman was the recipient of the National Equality Award from the Human Rights Campaign.

In April 2008, Orman was presented with the Amelia Earhart Award for her message of financial empowerment for women. Saturday Night Live has spoofed Suze six times during 2008-2011. In 2007, Business Week named Orman one of the top ten motivational speakers in the world-she was the ONLY woman on that list, thereby making her 2007’s top female motivational speaker in the world.

Orman who grew up on the South Side of Chicago earned a bachelor’s degree in social work at the University of Illinois and at the age of 30 was still a waitress making $400 a month.

Summary

The one and only Suze Orman joins Tim Ulbrich on this week’s podcast episode. Suze, #1 New York Times bestselling author on personal finance with over 25 million books in circulation, talks about her most recent book Women & Money: Be Strong, Be Smart, Be Secure and the advice Suze has for pharmacy professionals feeling overwhelmed with their student loan debt and managing their financial plan.

Suze shares her journey of being a waitress until she was 30 years old and going through a giant loss of $50,000 from an investment through Merryl Lynch in a 3 month time period. This is where her passion for personal finance began. Suze landed a job at Merryl Lynch, quickly began rising in rankings and eventually started her own firm. Suze became an advocate to make sure other people’s investments make more money than she’s earning.

Suze says that it’s important to have a healthy relationship with money and that there is no shame big enough to keep you from who you are meant to be. She shares that fear, shame and anger are the three internal obstacles to wealth.

In regards to student loans, particularly for those with the biggest debt loads, Suze says that first and foremost you have to understand the ramifications that unpaid student loan debt will have on your life. She suggests following the standard repayment plan to minimize the additional interest and amount added on the end of loan (if following an income driven plan), as well as the taxes that will have to be paid if the loan is forgiven. After paying off your student loan debt, Suze says that you can start dreaming. If an employer offers a 401(k) or 403(b) with an employer match, Suze suggests to contribute to the retirement account only up until the amount of the match.

Suze has created a protection portfolio with the four must have estate planning documents: will, living revocable trust, advanced directive and durable power of attorney. Setting these forms up with a lawyer can cost upwards of $2,500 with additional fees each time they need to be amended. With Suze’s must have documents, you can update as often as you’d like with no additional charge. At the release of this podcast, the offer for these must have documents is available here.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. And joining me this week is a special guest, Suze Orman, who is an extraordinary individual, has transformed the financial lives of millions of people across the world through her passion for teaching personal finance and empowering others. While many of you I’m sure are very familiar with Suze’s work and have been impacted positively by her teachings, let me provide a brief background on Suze. She has been called “a force in the world of personal finance” and “a one-woman financial advice powerhouse” by USA Today. She is a No. 1 New York Times bestselling author, magazine and online columnist, writer, producer, and one of the top motivational speakers in the world today. Orman was the contributing editor to “O,” the Oprah magazine for 16 years, the “Costco Connection” magazine for over 18 years, and hosted the award-winning “Suze Orman Show,” which aired every Saturday night on CNBC for 13 years. To mention a few of her many accolades, she is the single most successful fundraiser in the history of public television. In 2007, “Business Week” named Orman one of the top 10 motivational speakers in the world. In 2008, Orman was presented with the Amelia Earheart Award for her message of financial empowerment for women. In 2009, “Forbes” named Orman 18th on their list of most influential women in media. And in May 2009 and May 2008, “Time” magazine named Orman as one of the Time 100: The World’s Most Influential People. It is without question an honor to welcome Suze Orman to the Your Financial Pharmacist podcast. Suze, before we jump in to discuss how pharmacists can be more intentional with their financial plan, I want to give a shoutout to one of our avid listeners, Amanda Copolinski (?), who is a superfan of yours that said, “Tim, you need to interview Suze on the podcast. Her message will resonate so well with your listeners in the financial issues that pharmacists are facing.” So while you have impacted millions of people, Amanda is one of those. And because of your work, your message will now impact thousands more in our community. So thank you so much for coming on the show.

Suze Orman: You’re welcome. But Tim, I just have to say one thing about Amanda. Seriously. Amanda asked, and because she had a voice — because it is so important particularly that women have a voice and they ask for what they want — and because she asked for what she wanted, even though it was for the good of all, it obviously was also good for Amanda, she got what she wanted. So if we can just learn to ask for what we want, I mean, what’s the worst thing that could happen? I say no. So then it wouldn’t have mattered — you see what I mean? So Amanda, you go girl, you go girl, you go girl. Alright, we can go now.

Tim Ulbrich: So before we jump in and talk more about your book, “Women and Money: Be Strong, Be Smart, Be Secure,” I’m curious and want our listeners to know as well a little bit more about your background into this world of personal finance that has led you to transform millions of people on their own financial journey. Were there a series of events or an Aha! moment for you that set you on this path, on this journey to teach and empower others about personal finance?

Suze Orman: Yeah, it was a very simple story, actually, where I was a waitress until I was 30 years of age in Berkeley, California. Having been a waitress for seven years making $400 a month, to make a very long story short, I had this idea that I could open up my own restaurant because I made these people a fortune with all my ideas. My parents had absolutely no money. My mother was a secretary, my father was sick most of his life, blah, blah, blah, blah. And the customers I had been waiting on lent me $50,000 to open up my own restaurant. So I’m again making a long story short. They had me put that money in Merrill Lynch, which was a brokerage firm. I had a crooked broker, and within three months, all $50,000 was lost. And now, I didn’t know what to do. And I thought, I know I can be a broker. They just make you broker. Because during those three months, I really loved starting to learn about a world that was so foreign to me. I didn’t even know what a money market was or Merrill Lynch was. Anyway, I went and applied for a job at Merrill Lynch because I knew I wanted to pay these people back that lent me $50,000, and I wasn’t going to do that at $400 a month, which was my salary as a waitress. They hired me to fill their women’s quota. And while I was working for them, I realized what my broker did was illegal. And I also had been told that women belonged barefoot and pregnant. They had to hire me, but they would fire me in six months. And so while I was working for them, I sued them with the help of somebody who worked for Merrill Lynch who told me what had happened to me was illegal. And because I sued them, they couldn’t fire me. And during the two years until it came to court — and they then settled outside of court because I was their No. 6 producing broker at the time — but what happened was during that time, those two years, I realized, oh my God, how many people out there don’t have the money to lose?

Tim Ulbrich: Right.

Suze Orman: Like alright, I was young, I could have somehow come back. But what if it were my parents? What if it were your parents? What if it was somebody who that was every penny they had to their name? And so that’s when I became — even though I was a financial advisor in terms of serving people at that time, I became an advocate to make sure that every single person that invested money, that their money meant more than the money I was going to earn off of them. I put them before me. People first, then money, then things. It was those people that mattered because I was one of those people. And before you knew it, I just rose and rose in the ranks, started my own firm, and here we are today.

Tim Ulbrich: Indeed. And I think that’s a good segway into talking about your 1 million-copy, No. 1 New York Times bestselling book, “Women and Money: Be Strong, Be Smart, Be Secure.” And as you may or may not already know, the profession of pharmacy is made up of a majority of women, approximately 60-40 split, two-thirds one-third of graduates today, roughly speaking, and so I think this message and your book is certainly going to resonate with our audience. And you start the book with a chapter titled, “Imagine What’s Possible,” and there’s a passage in there that I want to briefly read that really stood out to me. You said, “Women can invest, save and handle debt just as well and skillfully as any man. I still believe that. Why would anyone think differently? So imagine my surprise when I learned that some of the people closest to me in my life were in the dark about their own finances. Clueless, or in some cases, willfully resisting doing what they knew needed to be done. I’m talking about smart, competent, accomplished women who present a face to the world that is pure confidence and capability.” So why, Suze, is this topic of personal finance, even for well, smart, accomplished women, such as the pharmacists listening, and heck, regardless of gender, I would say this is true. Really smart people that often can’t effectively manage their money. What are the root causes for them?

Suze Orman: Yeah. You just used the word can’t. Oh, they can. Women have more talent in their little fingers — I’m so sorry to say — more capability than most men have in both hands, really. And I don’t say that as a put-down to men. It’s just that women, women hold up the entire sky here in the United States. They take care of their parents, their children, their spouse, their brothers, their sisters, their employees, their clients, their patients — everybody — their pets, their plants. And when it’s all said and done, when they’re 50 or 60 years of age, that’s when for the very first time, they start to think about themselves. You have got to remember that women have the ability to give birth, in most cases. They have the ability to feed that which they have given birth to, in most cases. So a woman’s nature is to nurture, is to take care of everybody else before she takes care of herself. So it’s not that she can’t. It’s she doesn’t want to. She doesn’t want to. She wants to make sure that her kids, in particular — a woman will do anything to make sure that her children are fine. That is not true with men. That is not true with men. I would think, I used to think that it was until 2008 came along. And when people were laid off of their jobs, they lost their home, they lost their retirement, they lost everything, women would go back to work, working three or four jobs, a waitress, a cocktail waitress, anything, just to put food on the table. A man, if they had a $200,000 job would not go back to work if all they were offered was $60,000. They weren’t going to do it. Again, it’s not putting men down. Please, men, don’t think that because I don’t put you down. It’s the socialization effect of the difference between a man and a woman. So a woman just will do it all, but she won’t take care of herself. She chooses not to. In any aspect, she’ll only take care of her household expenses. You know why? Because her house holds everybody that she loves. That’s the only difference. That’s the only difference, boyfriend. That’s the only difference.

Tim Ulbrich: Which is a good segway to talk about healthy relationships with money because in the book, you mention that in order to build a healthy relationship with money, there are attitudes that women need to get rid of, with the first of these being these weights or burdens that you referenced that are commonly carried around, one being the burden of shame and the second being the tendency of blame. Can you tell us more about this concept of blame?

Suze Orman: Yep. You know, in the book, I talk about truthfully that there is no blame big enough or shame big enough you who you are meant from being. There just isn’t. And it’s sometimes, we’re ashamed that we don’t know about money. Sometimes, we’re ashamed that we don’t have the money that we need to be able to give our children what they want. Now, what I just said was very heavy, believe it or not, because it’s really difficult — I mean, I just experienced it. I had my niece here. In fact, I had all my nieces here, but one in particular that has a 5-year-old child who loves Pluto more than life itself. He literally thinks Pluto is alive. He said to me, “Aunt Suze, how do I get a real Pluto?” And I mean, “You mean a dog?” And he said, “No, really. I want this Pluto to be alive.” And you could just see, you want to give this kid anything this kid wants because he’s so fabulous. Not that — all your kids are fabulous, to you, anyway. And so a mother feels — especially if she’s a single mother — that she has to make up for the loss of a father figure or another mother figure or parent figure. And she does it usually by purchasing things for her kids because when they go to school, oh, but this kid has this cute backpack and this kid has this, and look at these watches, and look at this iPhone. And so it becomes very interesting that a lot of times, you’re ashamed of what you yourself don’t have. You’re not proud that you have anything. You’re ashamed of what you don’t have. And you blame it usually on somebody else. Or you blame it on yourself. You know, it’s — and fear, shame and anger are the three internal obstacles to wealth. They just are. You know, I have people — I know you’re talking about the book right now, but my true love at this moment in time is the Women and Money podcast because it’s on the Women and Money podcast that you can hear, you can hear via the emails that are sent in, the shame and the blame that women feel, the anger that they have at themselves for staying in a relationship that they don’t want to be in but they don’t have the money to leave, the confusion that’s out there. And a lot of these women are so powerless because they’re not powerful over their own money.

Tim Ulbrich: In the book, you go through a detailed financial empowerment plan, which I think is incredibly helpful for our listeners to hear more about since we know many pharmacists are struggling with spinning their wheels financially, graduating now with more than six figures of student loan debt — the average about $166,000 — having many competing financial priorities with home buying, starting up a family, building up reserves, saving up for retirement, the list goes on and on. So the question is, where does one start when they are looking at so many competing financial priorities, and it can feel so overwhelming?

refinance student loans

Suze Orman: You start by No. 1, really understanding the ramifications that student loan debt that goes unpaid will have on your life forever. So you’re No. 1 priority, bar none, is your student loan debt. And you have got to understand the difference between paying back student loan debt on the standard repayment method and the income-based repayment methods. And you have to understand that in your head, if you think, oh, I have all this debt. I’m just going to pay back a little bit because I don’t have that much of an income, and they’re going to forgive it in 20 or 25 years, I’ll be OK. No, you won’t. You won’t because if under the standard repayment method, your monthly payment should be $1,500 a month and under income-based repayment, you’re only $750 a month, that $750 difference gets added onto the back end of your loan plus interest. And when they forgive it, when a debt is forgiven, you need to pay taxes on that as if it were ordinary income. And it is possible that if you do that over 20 years, you’re going to end up owing more than you even started with that they’re going to forgive.

Tim Ulbrich: Right.

Suze Orman: So you have to be realistic here. If you’re going to go in this industry, you’re going to become a vet, if you’re going to become anything with massive student loan debt, then you have to put your priorities in place. And your first priority is your student loan. After your student loan, hopefully on the standard repayment method, is paid off, then start dreaming. Ten years isn’t that big of a deal. It will come and it will go. But don’t try to do it all at once.

Tim Ulbrich: Yeah, and that’s really timely for many pharmacists that are listening to this, they’re looking at, as I mentioned, six figures of student loan debt, $160,000, $170,000, $200,000 of loan, unsubsidized many of those, interest rates that are 6-8%. And so obviously those interest rates and the growing interest and the baby interest can have an incredible negative impact on their financial plan. So that being a good segway I think into the conversation about loan forgiveness, which has gotten a lot of attention with the upcoming presidential elections, and we’ve had some discussion with Bernie Sanders, Elizabeth Warren, have forgiveness plans that are out there. And not even getting into specific candidates or politics or the individual policies, I think it brings up an interesting discussion around loan forgiveness and the positives and benefits of that relative to what people learn through the process of paying off student loans. And I know for me, individually, going through the process of paying off more than $200,000 of student loan debt, there was a lot I learned and that my wife and I learned through that lesson in terms of budgeting, working together, setting goals. But I also understand that for many — and certainly would have been the case for us as well — not having that debt would have been fantastic. So how do we reconcile forgiveness relative to being able to learn through that process?

Suze Orman: First of all, let’s talk about student loan debt to begin with and the viability of it. Is everybody crazy that we should have to pay, our children should have to pay $200,000 for a college education?

Tim Ulbrich: Amen.

Suze Orman: Like is that just to begin with the sickest thing you have ever heard in your life? So while everybody’s dealing with the debt that we have, what we also should be dealing with is why are we paying that kind of money? Listen, if that’s what these financial institutions need to keep the buildings and the teachers and everything going, maybe we need to go to online universities that are fully credited that everything is done online because the burden that these kids are leaving school with is so heavy. It is the No. 1 question that I am asked. And it is so sad it is the No. 1 question that I do not really have an answer for because they will not let you discharge it in bankruptcy. I mean, it is crazy that you pay the same amount of money to get a Master’s in social work as you do an MBA. Really? So tuitions, No. 1, should be based on the area that you are specializing in. Hey, if you’re going to graduate and you’re going to make $200,000, $400,000, $500,000 a year, fine. Then you start spending money that then subsidizes those that are going to make $30,000 a year because they want to be a teacher. Or whatever it may be. But I do think what’s going to start to happen is that people are going to have to start going to community colleges for the first two years or so.

Tim Ulbrich: Right.

Suze Orman: And then probably switch over. But then you have to be crazy if you go to a school that’s $50,000 a year. Now, with that said, I get when you want to be a vet, when you want to be a pharmacist, when you want to be a doctor, that’s what they charge. So if you know, if you know beforehand that that’s what it’s going to cost you and you have an unsubsidized loan, which means that it is growing while you are in school, can you at least pay the interest on that loan while you’re in school? And I know everybody’s going to say, ‘But Suze, I’m working full-time at school, I can’t,’ oh yes, you can. I had to put myself through school, I worked until 2 a.m. every morning. I started at 7, I worked seven days a week for four years straight. Don’t you dare tell Suze Orman you can’t do it. You most certainly can. You just don’t want to. And when you have debt that you can’t pay back, this is not a choice if you can or you can’t, if you want to or you don’t want to. You have to, and it’s — I don’t mean to sound harsh to you. But you’ll thank me years from now that at least you haven’t accumulated an interest rate on top of everything else.

Tim Ulbrich: Suze, one of the most common questions that I get — and I’m sure you get all the time as well — is how do I balance paying off my student loan debt relative to investing and saving for the future? And as we think about pharmacy professionals specifically, many of them have gone through lots of education to get where they are, they may have four years of undergrad, they have four years likely, some people more in terms of getting their doctorate degree, they may go on and do residency training, and so here they are and they look at the clock and say, ‘Yes, I’m young, but I also know I need to aggressively save, and I keep hearing the message of I need to be putting away money for the future. But I’ve got $160,000, $180,000, $200,000 of student loan debt, unsubsidized loans, 6-8%. So how do I balance the two of these?’ What advice do you give people to help think through that?

Suze Orman: I would not not pay a student loan under the standard repayment method in order to then save in a retirement account. Obviously, if you work for a corporation that gives you a 401k or a 403b or whatever it may be and it matches your contribution, then you have absolutely no choice whatsoever but to absolutely at least invest up to the point of the match. After that, your very first bill that has to be paid before you can decide anything is your student loan repayment. After you know what it’s going to cost you to pay on your student loan, then you have to make a decision. ‘Oh, do I have to move in with six or seven kids and all live together in order just to do whatever? What do I have to do after that payment? Is there any money left over? And if there is, what will it allow me to do?’ It may only allow you — I know you’re going to really think I’ve lost it — to move back in with your parents for a number of years.

Tim Ulbrich: You’ve got to do what you’ve got to do.

Suze Orman: You’ve got to do what you’ve got to do. And for all of us to make it in today’s society, we have to either really enhance the nuclear unit and nuclear family and really help each other, or if we can’t do what we’re born into, then create our own nuclear family where it is five or six of you get together and you go, OK, we have this problem. And it’s not like communal living, but it’s how do we solve this problem? So rather than you each have your own individual apartment, you each have your own car, you each have all of this stuff, what can you do as a group of people? You know, Uber and Lyft and Zipcars, all of that came about — you know, especially Zipcars — about people who couldn’t afford to have their own car. So again, I don’t mean to be Suze Smackdown here. But I do want you just to be realistic about your life and the independence dream: living on your own, having all of these things. Nothing will give you more pleasure than having money versus things.

Tim Ulbrich: Yeah, and my wife and I talk often, as we think about our own financial situation, that we felt some of that pressure in our mid-20s of wanting to live up to the lifestyle that our parents have gotten to after 30 or 40 years. So I think really reshifting expectations and thinking about specifically today’s pharmacy graduates, it really has to be intentional with their financial plan and change some of those expectations to set them up to be successful in the long run. Shifting gears a little bit, I want to talk about planning for the future. And we recently had on the show Cameron Huddleston, author of the book, “Mom and Dad: How to have essential conversations with your parents about their finances,” an excellent book that has me thinking more and more about the significance and importance of healthy and open financial conversations with family about money and ensuring that the estate planning process is well thought out and is in place. And I noticed that you offer a protection portfolio that is meant to help people take the worry out of protecting themselves, their assets, and their family. So tell us a little bit more about why this process of having a protection portfolio in place is so important and what information is compiled in a portfolio like this.

Suze Orman: What’s really important is for everybody to understand that we have no control over the things that happen to us. Are we going to be in an accident? I mean, really, just the other day, Tim, you know I live on a private island. And I’m driving down this road, there are no cars on this private island. There are only golf carts. There were only like — there’s 80 homes. There’s nobody here most of the time. And I’m driving, you know, back to my house. And I come up on a golf cart that overturned on these four 20-year-olds. And they were seriously hurt. Alright? And I mean, five minutes before then, they were on this private island having a fabulous time, and now I’m like, oh my God. So anything can happen at any time. And every one of you needs to be protected against the what ifs of life. May you always hope for the best, but may you plan for the worst, whether it’s an accident, an illness, an early death, whatever it may be. The number of emails I get from 40-year-old women, 50-year-old women, 30-year-old women, saying, “Suze, my spouse died. I have three kids. I never expected to be in this situation.” And they go on and on and on about it. And this is also — what I’m about to tell you — very important if you have parents. Because if you have parents, the question becomes like, my mom lived ‘til she was 97. If something happens to your parents, they lose their mind, so to speak, they have dementia, they have Alzheimer’s, and they can’t write their checks anymore or pay their bills, who’s going to take care of them? You can’t do anything for them unless you have what I call the must-have documents. Not only a will, a living revocable trust, an advanced directive, and a durable power of attorney for healthcare. You must have those. But most of the time, lawyers tell you, “All you need is a will.” Oh, give me a break. The less money you have, the more you need a living revocable trust because wills make it so that in most cases, if you own a piece of real estate or whatever it may be, your estate has to go through probate. And guess who gets the probate fees? The lawyer that told you all you need is a will. So a living revocable trust not only passes your assets from one person to another within a two-week period of time, no fees, nothing. But in case of an incapacity, it will say, you can sign for so-and-so, so-and-so can sign for you. It sets up your estate every way you want it. And it also helps you because minors cannot inherit money. So if you have young children, and both you and your spouse are killed in a car crash, something happens, the money can’t go to your minors. If you left your money to them via your will, good luck. It’s going to end up in a blocked account until they’re 18. So with that said, most trusts, if you go to see a trust lawyer — first of all, you have to know there are good trust lawyers, most of them are not — are at least $2,500. And every time you make a change, $500, $1,000. You’re just sitting here talking to me about you don’t have even have enough money to pay your student loan debt. Where are you going to get $2,500 to do a will, a trust, an advanced directive, and durable power of attorney for healthcare? And every time you need to make a change, where are you going to get the money to do that? And so years ago, with my own trust lawyer, I created what’s called the must-have documents. These documents are my documents. If you were to look at my trust, my will, everything, you would see these. But I wanted to do it at a price that every single person could afford. So we created over $2,500 worth of state-of-the-art documents for approximately $69.

Tim Ulbrich: Wow.

Suze Orman: And what’s great about these documents, not only are they fabulous, every time the law changes, they automatically get updated, but you can change it as many times as you want. So if you go from one kid to two kids, you go back to your computer, you change them. So you never have to pay for it again. And if you’re interested, really, in that offer, you can just go to SuzeOrman.com/offer, and through there, it’s $69. Otherwise, you’ll see it sold for $100, $90. They’re sold for all over the place. But these documents have changed the lives of millions and millions and millions of people over the years.

Tim Ulbrich: Yeah, and I think it’s also important for our listeners just to consider the peace of mind of having all this together. When you think about all of the things that are found in estate planning documents and my wife and I went through this process, we’ve talked about on the podcast before, where you put together insurance policy information and where your accounts are at and birth certificates and all of the papers that would need to be readily accessible in addition to all of your estate planning documents. To get there and the conversations you have and the peace of mind it provides is incredible. So again, SuzeOrman.com/offer will get you there. Suze, I want to wrap up our time together by talking about legacy. And I’m fascinated with learning more about what drives very successful, highly influential individuals such as yourself to take on the life’s mission and work that they do. And so for you, as you look back on a career that is undeniably wildly successful and that has positively transformed the lives of millions of people, what is the legacy that you’re leaving?

Suze Orman: You know, I hope the legacy that I leave is that women in particular — but men as well — but women in particular really know that they are more capable than they have any idea; that they will never be powerful in life until they’re powerful over their own money, how they think about it, how they feel about it, and how they invest it; and that every one of them, one of them, has what it takes to be more and to have more. We just have to want to. So I don’t really know, I don’t know how to answer that because I never think about what I’m going to leave. I only really think about what I’m doing. And I can tell you right now, like one of my friends said to me, “You just can’t help yourself, can you, Suze Orman?” So you know, with the Women and Money podcast, people write in their emails. And I keep saying, “I’m not going to answer them. I can’t answer all these emails.” And now, I’ve answered almost every one except four. You know, I’ve got four left. And then they’ll mount up again and blah, blah, blah, blah. But I have such a desire for every single woman — and the men smart enough to listen — but really, for every single woman to get the right advice, the best advice, to start to educate them so that they become smart enough, strong enough, secure enough, so they can start educating their daughters and their sisters and their aunts and their moms and their grandmas and everybody so that we start really teaching one another because I’m just so afraid of where this world — truthfully, the hatred in this world that we are experiencing right now — I am very afraid of where it’s going to take us next year. And so, you know, I just, I hope I leave a legacy of love and power. That’s what I really hope I leave.

Tim Ulbrich: Yeah, and what really stands out to me, Suze, is the work that you’re doing — and you alluded to this — is the generational impact that it’s having. And that will forever go on. I mean, that’s an amazing thing when you think about transforming somebody’s personal financial life. And let’s say they’re a mother, and they pass that on to their kids and their friends and their cousins and their network, and that’s passed on to another generation. That is incredible, transformational work that will forever have impact. And so I thank you for that work, and I know it’s had an impact here on me in even having the opportunity to talk with you today. So to our listeners, as Suze mentioned, she responds to her requests as it relates to the podcast she has each and every week, the Suze Orman’s Women and Money podcast. So if you have a question for Suze that we did not touch on during today’s show, make sure to reach out at [email protected]. And again, as a reminder, make sure to head on over to SuzeOrman.com, where you can learn more about Suze, including her blog, the podcast, comprehensive resources, live events that she hosts, and books and products that are designed to help empower you in your own financial plan. So Suze, again, thank you so much for coming on the show. And I’m grateful for what you were able to share and the impact that it will have on our community. Thank you very much.

Suze Orman: Anytime, boyfriend. Anytime.

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YFP 107: What You Should Be Doing During the Grace Period

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What You Should Be Doing During the Grace Period

Christina Slavonik, CFP® and YFP Team Member, joins Tim Baker to discuss the student loan grace period, why it’s not that gracious and what you should be doing during the grace period. They break down the differences between the grace period, forbearance and deferment and talk through scenarios you can consider when determining your student loan payoff strategy.

Summary

Christina Slavonik, CFP®, is back on the show to talk about how the grace period sometimes isn’t that gracious. The grace period on your federal student loans usually lasts 6 to 9 months and is the time between graduating from college and when you start making payments on your loans. This can be really helpful while you are looking for a job, but it should be looked at with caution. The problem is that interest accrued during this period is then transferred over to your principal balance, causing your balance to obviously increase as well as the interest on the loans. Behaviorally, a lot of people have a hard time avoiding lifestyle creep as they don’t have to make any student loan payments and then are hit with a surprise a few months later.

When the grace period is over, you automatically will be defaulted into a standard repayment plan. If your student loan debt is $160,000, a standard repayment plan will have you pay about $1,800 monthly. So what should you do during the grace period if you don’t want to fall into a standard repayment plan?

Christina suggests that establishing ground rules and assessing your job, situation and cash flow are the first steps. Then, you can formulate a repayment strategy. Tim and Christina talk through scenarios of a pharmacist seeking PSLF, non-PSLF forgiveness and an aggressive option. Christina reminds listeners to stick to a strategy once you understand them and pick one and to not get too comfortable during the grace period. Overall, Tim and Christina both iterate the importance of intentionality when determining a loan payoff strategy. They also discuss refinancing and consolidating your federal loans and the strategies and reasons for doing so.

Mentioned on the Show

Episode Transcript

Tim Baker: Hey, what’s up, everybody? Welcome to Episode 107 of the Your Financial Pharmacist podcast. Christina, welcome back to the podcast. It’s been awhile since you’ve been on. How have you been?

Christina Slavonik: Doing great, yeah. Thanks so much.

Tim Baker: So a little update for the listeners out there, Christina, who I think came onto the team in March, she was actually out in Baltimore in YFP Planning headquarters, and we spent a week last week kind of just doing some training and just working together, side-by-side, which I think was fantastic. I feel like anytime we can get in person, not just on the YFP Planning side but just with the Tims and everything, it’s always a good, productive use of time. So yeah, how was your visit to Baltimore?

Christina Slavonik: It was wonderful. Yeah. Baltimore, I just love the history, of course. And you and Shea were very hospitable. And got to have some crabs, I’ve never had to open crabs before, so thank you to Paul Eichenberg and his wife Anne for being so patient. I think I was a fast learner, but yeah, it always helps to have a good tutor to help you with that.

Tim Baker: Yeah, so we pick crabs with Paul on one of the evenings Christina was here. And it was out on the water, it was beautiful, so yeah, big props to Paul and his wife Anne for hosting. That was fantastic. So Christina, we’re going to talk about the grace period. And for a lot of those out there, we talk about the grace period as something that maybe isn’t as gracious as one would think. And really, what we’re talking about is really that waiting period between graduation and when you actually start your loan payment. So for a lot of people, this is going to be, for their federal loans, it’s going to be six months. If you have Perkins loans out there, it could be up to nine months where you’re actually not on the hook for any of the payments that are out there. There are some exceptions out there that if you are in the military or something of that sort, you know, you can actually get a longer grace period. The problem is during this period of time, the interest that is basically building month after month, year over year, really, if you go out that far, is unforgiving. And it’s not so gracious. So I think for us today, what we want to talk about is, you know, along with some of the nuances of what grace is and kind of what are the differences between grace, deferment, and forbearance, is actually what you can do to mitigate some of that during that six-, nine-month time. So Christina, for you, when you think about grace versus deferment versus forbearance, can you tell the audience, basically break it down like what the difference is between those things? And how we should kind of go about the grace period?

Christina Slavonik: Sure. So yeah, just reiterating what you had just said, the grace period is the waiting period between your graduation and the actual start of loan repayment. So there’s also some other caveats. So if you’re going from full-time schooling to part-time schooling. And then if you withdraw from school, your grace period may also end. But the whole point of the grace period is just to give you some time to hopefully find that job and so that you have an income within that 6-9 months to start repaying back those loans. So yeah, looking at the difference, deferment allows you to completely stop making payments. So if you decide to return back to school, you can take advantage of that whereas forbearance, you stop the payment requirement altogether due to financial hardship. And there are different definitions of that and how that works.

Tim Baker: Yeah, and sometimes, if you’re going into a residency program, you can actually qualify for a deferment. And sometimes they categorize that as more schooling or forbearance because maybe the residency doesn’t pay you kind of anywhere close to what you would actually be able to pay off your loans with. So you know, it is important to understand the difference. But by and large, what we often say is that the grace period should be looked at with absolute caution. I feel like when we first started talking on this subject, Christina, and we would go and we would talk to residents or people that had just done residency or a fellowship or just even current residents and we would say, “Hey, how many of you deferred or put your, you know, loans into forbearance after the grace period?” And a lot of them opted into that just because just making ends meet with that residency salary was tough. The problem is — and we’ll talk about this a little bit more — is the fact of the matter is that you have this period of time to account for the period of time where life is adjusting. What we often see is that the lifestyle creep can kick in, we sometimes see that it’s just one of those things that are in the back of our mind that we know that this maybe six-figure monster is looming overhead, but we just don’t want to confront that quite yet. And typically, the longer that we kick the can down the road, the more painful it’s going to be. And it’s typically when we go from the grace period into repayment. So if you don’t do anything, that standard repayment plan is going to be your default plan. So again, the numbers per the averages is that if you have an average pharmacy loan debt of $160,000, the standard plan, which is over 10 years, it’s about an $1,800 per month payment. So if you don’t do anything, once you go from that grace period into the payment, whether it’s standard or one of the income-driven, all of the dollars that are in the interest column — you know, so you have your principal and your interest. And your interest has just been accumulating throughout school for those unsubsidized. And for the subsidized loans, they’re not. But once you basically have the act of going into repayment, all of those interest dollars migrate over to principal. So basically, it clears the ledger of interest, but then those dollars are now making interest and interest on top of interest, and that’s where it can get very predatory. So you know, one of the things that we’ll kind of talk about is what to do during the grace period and how to tackle that. But it’s super — you know, we talk about this time and time again, and you know, it’s kind of — we beat the drum on this is it’s all about intentionality. For some people, as they’re looking — and Christina, you and I can attest to this since working with so many residents —

Christina Slavonik: Definitely.

Tim Baker: And new grads, it’s like the job market is real. And sometimes, it doesn’t line up as quickly as you would want. So that’s where the grace period really can come into play. However, I think there are some ways that we can get into repayment easier and at a more preferential monthly payment that is actually doable, even on a resident’s salary. So in terms of some loopholes that we can talk about with regard to the grace period, what have you seen as kind of maybe the big loophole to kind of shift the default in terms of that six-month or that nine-month waiting period to get into repayment?

Christina Slavonik: The shift to think about — some people, the moment they get out, they’re like, oh, I want to pay down this debt, they want to consolidate. But just be careful to make sure you’re weighing all your options because even though you’re in grace period, once you do decide to consolidate or even refinance, that grace period will actually, you’ll lose it. So yeah, students who consolidate during the grace period will lose the remainder of that grace period. So that’s why, you know, we recommend that — say for instance, you’re about to enter repayment within 60 days or so. If you do decide to consolidate, just wait if you can to the end of that grace period so you’re kind of backing it up to that point so you don’t have to immediately be out of grace period and start having to pay it back that urgently.

Tim Baker: Yeah, so for some people, depending on what the strategy is — and we’ll kind of talk through some examples here — but for some people that they don’t want to lose the grace period because the income isn’t there to support that payment, something like a consolidation is ill advisable because you typically will lose that grace period. However, if you’re a pharmacist that you want to get into repayment as quickly as possible because you want to start the clock maybe on PSLF or you just want to get in the process of paying those loans down, consolidation is a great way to kind of cut through the grace period because for some people, they don’t need it. They have a job before they even graduate, and they basically can start the repayment process. So it just depends on where that’s at. Now, again, from a refinance perspective, anytime — so to just kind of recap of where we’re at with refinance, so consolidation is basically where we take one or more of our federal loans and we basically consolidate them down into one to two consolidation loans. And typically, the way this works is when you graduate, oftentimes, we’ll see pharmacists that have FELL loans, which are kind of like the old federal loans, they’ll have Stafford subsidized, Stafford unsubsidized, they might have a Perkins loan, they might have a private loan. So all the loans except for the private loan are eligible for the federal loan repayment, so that’s going to be your standard default and then one of the four income-driven ones, which is going to be IBR, ICR, revised Pay As You Earn and Pay As You Earn. However, especially for like the Perkins and the FELL loans, we often have to basically solve the square peg, round hole. So the FELL and the Perkins loans don’t fit into the income-driven ones. We basically have to consolidate those down to typically a consolidation subsidized and a consolidation unsubsidized to get into those income-driven plans. And what a lot of people do is they fail to do that. So in certain situations, we’ll have clients that are halfway through PSLF, it’ll be five years in, but they might have $30,000-40,000 of FELL loans that don’t qualify for forgiveness because they never consolidated those down. So my thought is you want to do this on the — basically from Jump Street. So if you just graduated and you’re unsure, timing your consolidation is important because if you do it like right now and you don’t have a job lined up, in 60 days, the payments are going to start, which might not necessarily be a bad thing. Or you wait until the end of the consolidation period. One thing to really focus on, Christina, is once you consolidate, any payments that you might have previously made — so that’s the example, the five-year, making payments for five years — that clock starts over. So that’s really important to really understand. So that’s a big roadblock is if you ask yourself, how many years have I been paying towards a forgiveness strategy before you consolidate? Because if you consolidate, then the time in that situation goes from five years to zero years, and that’s no bueno. So refinance, on the other example, is when you say, “Hey, thanks, federal system, it’s been great. But I’m going to take my income and my payment history and my credit, and I’m going to go out to say one of the YFP partners at Common Bond or SoFi or LendKey or Earnest and try to get a better rate since this is where I’m paying 6.5% with the federal government. I’m going to try to refi down and get a 5.5% rate at a term that fits me and my budget.” The big reminder there is once you go from private to federal, once we go from private to federal, we can’t go back. So that’s really important to remember as well. So that’s kind of a brief overview. So again, when we talk about the grace period loophole, what we’re really talking about is consolidation. And if we consolidate, then if you don’t want that six-month period, we can actually cut that by a third and get you into repayment basically in two months. So that’s kind of what we’re looking at. So Christina, when we talk about the grace period, what are the things that we do with clients, you know, maybe from a basic level when we talk about goals or budget — how would you start the conversation with regard to what do we do? What do we do during the grace period and really beyond that?

Christina Slavonik: Yeah, so basically, Tim, you just want to establish some ground rules. Obviously, what their job situation looks like and if they’re ready to just start looking at this. Because if they don’t do anything, at least they’ll have the standard plan that they’ll just default into. So we do get quite a few people that they’re finishing residency and about to start their job, and then they start kind of panicking. They’re like, well, what do we do with our student loans during this time? So I just try and reassure them, first and foremost, that hey, you don’t have to make a decision ASAP. But we have to get that conversation going. So firstly, you know, looking at their budget, seeing exactly where they’re at with their cash flow is the No. 1 thing and then formalizing a repayment plan from there. So you had already mentioned the RePAYE and the PAYE as well as the other IBR plans. Those are the typical ones that we see people falling into. And then if you can do it with PSLF, what that looks like. And then if you can’t qualify for PSLF or the Public Student Loan Forgiveness, what that also looks like. So of course, PSLF, you will pay the least amount as humanly possible, especially important to at least begin thinking about that from your P4 year to PGY1. And if you know you are going to be pursuing PSLF or have a job lined up with a nonprofit, consolidating to get into that repayment is so important because you want that clock to start ticking the moment you are starting to repay those loans.

Tim Baker: Yeah, so if we break that down. And we can kind of use a real-world example here. We had a client that actually is going from their PGY2 year into a nonprofit hospital position. So she was weighing a few different options, and she was looking at an option that paid her I think about $98,000 for the nonprofit hospital. And she had about $270,000 in debt, so to speak. And then she was also weighing a for-profit offer, which was about $125,000 in that area. And she actually decided to go with the nonprofit that paid her substantially less because as you said, you’re going to pay the least amount as humanly possible over the course of those 10 years. It’s not even a comparison. So for her, it’s really getting into the repayment as quickly as possible. Now, again, if you’re looking at like you mentioned, a P4 year going into a PGY1 or something like that, you want to start the clock on PSLF as soon as possible. So that’s typically where you want to get through the grace period, maybe you consolidate, start the payments in 60 days, and then really start the clock on that 120 payments hopefully over those 10 years. So those are all great points. So what if PSLF is not on the table? What if you say, “Hey, Tim, that’s great. I’m going to go work for a for-profit hospital or I’m going to go work in industry or something like that.” What’s a strategy that we would look at? And how would the grace period affect us in that mode in your estimation?

Christina Slavonik: There’s just really what you’re comfortable with. Non-PSLF, obviously, you can’t have RePAYE, but the thing is if there is any forgiveness, it’s going to non-PSLF forgiveness. So at the end of your payments, you will have to pay taxes back on whatever is forgiven. So knowing that in advance and being able to stock some extra money away at the end of that term is important because you don’t want to have a huge what we call a tax bomb on your tax return that final year when you do get everything paid off.

Tim Baker: Yeah, so if you’re transitioning from like a P4, like you said, Christina, into something that’s for-profit, typically something outside of PSLF forgiveness makes sense if you have a debt-to-income ratio higher than 2:1. So this is an example of, “Hey, Tim, I have $300,000 in debt. I’m offered $100,000 at my for-profit job. What do I do?” And this is typically where we would want to get you into one of the income-driven plans and get that started as quickly as possible. So again, in the grace period, it probably makes sense for you to do that. And then the idea is to one, lower your AGI just like you would in PSLF, get those payments down as low as possible. But in the non-PSLF strategy, what you really want to do is save for that tax bomb, as you mentioned, and make sure that there are dollars set aside for that so you’re not surprised by that.

Christina Slavonik: Yeah.

Tim Baker: And really, both of those cases, in the PSLF and the non-PSLF, if you can — again, given the budget and things that you mentioned, maybe having a little bit of cushion with the emergency fund — it’s really imperative in my estimation is to get into repayment as quickly so you can start the clock for forgiveness. The last one we should probably talk about is an aggressive option. So if you are of the mind of say like our Tim Church where he is in repayment, very aggressively — you know, in this scenario, the grace period might not even matter. Now, it could for some because if you’re a recent graduate and you’re waiting to get into repayment, sometimes when you refi, the refi companies want to see, they want to see proof of income, they want to see proof of payment, that you actually have a track record of doing so. So sometimes, doing nothing and just going through the grace period or at least consolidate them and maybe get into repayment more quickly might make sense. But from there, you know, you probably want to shop refi when you feel eligible, when you feel like you have a long enough track record and get that process going. You could also do nothing and stay in the standard plan after the grace period and just know that that interest will capitalize from the interest column into the principal column, which is not necessarily a fun thing. Any thoughts on that, Christina? In terms of what you see.

Christina Slavonik: Well, just be black or white. Don’t be anywhere in the middle.

Tim Baker: Yeah, exactly.

Christina Slavonik: You want to make a decision to do aggressive, do aggressive the whole way, just like Tim Church is a very good example, as well as many other clients and people we’ve had on the podcast. And those that listen on a regular basis have heard their stories. But yeah, just put all you have into it and head to the ground and get it done.

Tim Baker: But it’s one of those things, though, you know, it’s kind of our human nature where if I’m putting the least amount towards my loans, sometimes I may feel guilty, so maybe I get a tax refund or maybe I get a graduation gift, and I want to like put that towards my loans and get the process started. But if you’re seeking a forgiveness play, it’s like, uh uh. You want to fly that flag until you are forgiven. But human nature, we kind of revert to the mean. So that’s not necessarily the right thing to do. So important to, again, understand your strategy and stick to the strategy.

Christina Slavonik: Exactly.

Tim Baker: Yeah, at the end of the day, what we often like to say, this is more about intentionality. And I think what sometimes happens with the grace period is that we lose some of the intentionality because we get comfortable in kind of that transitionary space or we just kind of forget — we have clients that will say, “Oh yeah, the loans. Like now I have a bill for $1,800. What do I do?” We’re seeing more and more people become proactive and I think intentional, which I think it’s a great sign that maybe we’re moving the needle a bit. And people can speak through the different strategies and that type of thing. But the grace period I think, like you said, it’s not necessarily gracious from a math perspective but then also from a behavioral perspective just because of that half a year, so to speak, where you get comfortable without having to really worry about the loans. Me, that can be almost as problematic as the math. So I think to kind of reiterate, the grace period, it’s not necessarily gracious. It’s going to be different than the forbearance and the deferment options that are going to be out there for many, especially if you’re having problems finding a job in those maybe pharmacy-saturated markets or if you’re going into residency, you can easily opt into those types of things. But what our suggestion over this grace period is one, does it make sense to cut through that? And if it doesn’t, I think just having a plan going forward with the loans because it’s not hyperbole to say that the decision of what you do with the loans, especially out of the gate, can be hundreds of thousands of dollars one way or the other, especially with the average loan forgiveness programs we’re seeing.

Christina Slavonik: Yeah. Like a huge difference.

Tim Baker: Yeah. You know, and you’ve seen it, Christina, when we’re working with clients, it’s like when we put that on the decision table, for a lot of people, it’s really the first time that they’ve actually looked at the numbers and actually seen like, OK, if I go down this path, this is what I’m going to pay in total and this is kind of my monthly payment that I can expect. And that can be shocking for a lot of people, especially if they’ve been in this mindset going through pharmacy school of just kind of sticking your head down and worrying about getting through pharmacy school because that’s really hard in and of itself.The financial side has kind of been buried. And it’s funny, when we go to the APhA conference and I talk to students there, and I say, “Hey, what are you — what’s your thoughts about your student loans?” It’s like, “I don’t even think about my student loans.” It’s almost like they stick their head in the sand, and they don’t worry about them, which I think can be problematic in and of itself. But the grace period can be almost an extension of that because we’re kicking the can another half year down the road for us to actually come to grips with what we actually have to pay back and how do we use the tools out there?

Christina Slavonik: Exactly.

Tim Baker: So once again, Christina, thank you for coming on the YFP podcast to lend your voice to this discussion about the grace period and student loans, always great to have you represented here. And I think we covered a lot of ground. You know, I think we talked about the difference between the grace period, forbearance, and deferment. We talked about different strategies and the grace period loophole with regard to consolidation. And what we really want as a community is for you, the recent pharmacy graduate, to really be intentional with your student loans. Now, if you’re looking for additional resources, additional podcasts to listen to with regard to the student loans and as you’re transitioning, I want to point you to three different episodes: Episode 051, which is 8 Things to Do or Avoid to Evade Financial Purgatory After Graduation, and then 052, the one following it, is 5 Steps to Crush Your Student Loans. Great resources. And then finally, Episode 099 is Key Financial Moves for Pharmacy Graduates. I think this podcast, along with those other three, will really equip you on your journey to pay back your student debt. So thank you for listening to this week’s episode of the Your Financial Pharmacist podcast. And looking forward to next time.

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