Student Loans Today
This is part three of a series I'm doing on wiping out my student loans.
In part two, I wrote about how I got started investing and eventually created my own strategy.
But right now, we're in a very different place. The coronavirus pandemic has put us in a recession.
Here's what I would do if I was starting now. Use this to help you think about what you should do. See for yourself if I'm spot on or full of shit. Develop your own plan.
And remember, I am not a financial advisor.
Stopping the Bleeding
The first thing I would do right now is see how I can let as little money as possible out from my bank account.
I would look at all my fixed expenses and see how I could get rid of them.
There aren't any exceptions here. Netflix, Spotify, and any other subscription services are on the table.
I would look at my cell-phone bill and see if I could get it down. I would call the cable company and downgrade to basic, or just cut the cord altogether.
If I was a renter, I would ask my landlord what my options were. This one is tricky because nobody is actually giving landlords any help on their mortgages. Some mortgage companies are giving forbearance but that just means they owe all the mortgage payments in bulk when this is over, which means they may have to keep charging rent anyways to save money for that day. Even if they don't have a mortgage, nobody is giving them a break on their property taxes.
I would do all this until I was saving at most 50% of what is coming in. If I could go over 50%, I would just keep some of those things. Netflix is great to have when stuck at home.
Buying Low and Selling High
Probably the most cliched Main Street advice about stocks is "buy low, sell high."
There's just one issue: how does anybody know when a stock is low or high?
The thing is, right now it doesn't matter. Without knowing if stocks are really low or high in general, you can safely bet they are all low.
Recessions are a great time to buy stocks because the market panics.
After getting the money going out to be at most 50% of what's coming in, I would take whatever is left and invest it in the big names we all know will be around after this is over.
Think about those big businesses we all love. Those are exactly the ones I'm buying stock in right now, both in this example and in real life.
These chances to buy businesses low don't come around often. This is bigger than any student loans I might have.
I'm not calling a bottom in the market. If the market were to go down, I would buy more of those same stocks. This brings down the average price I paid for every share I own. This is called Dollar-Cost Averaging.
What Ever Happened To the Loans
I would try any way possible to not be paying my loans right now. Not even the minimums.
The reason is simple. Right now the government is in a very giving mood.
Small businesses are getting bailouts. People are getting checks in the mail.
If there is ever a time when student loans are gonna be forgiven or refinanced, it's during this recession.
So let's look at the opportunity cost.
I could take my money and keep paying the minimums on my loans. The opportunity is being done sooner with the loans. The most obvious cost is investing that money in what could be a generational opportunity to buy great businesses. This alone is a good enough reason to make me stop and think about it.
The less obvious cost is being able to take full advantage of whatever relief the government is gonna give me.
To show you what I mean, let's say the government decided to just forgive all student loans entirely.
If that happens, any money I used to pay my loans would have come from the government instead, but now I don't get any of it back.
I'm not saying I would never pay my loans hoping the government would forgive them. It just means right now the chances of something like that happening are significantly higher, so I think it's worth finding out if it does.
Best case scenario, I've invested in great businesses, built a great base of investments for the long term, and my loans have been completely wiped out.
If nothing happens and my loan stays the same, I'm still in great financial shape with my investments when the pandemic is finally over.
I think the odds are the government will do something in between. After the pandemic is over, I would assess my situation and do what I did in part two.