Student Loans 101

[MUSIC PLAYING] EMILY BIGHAM: Hi, and welcome to the podcast MakingCents brought to you by Navy Federal Credit Union. I'm your host, Emily Bigham. And each week I'll be taking your questions to the experts to help you make sense of your money, pun intended. 

 

[MUSIC PLAYING] 

 

Hi, and welcome back to MakingCents, a podcast brought to you by Navy Federal Credit Union. Today we're talking to Brittany Mills, the Assistant Manager In Education Lending. Hey Brittany, how's it going? 

 

BRITTANY MILLS: Hey, how are you? 

 

EMILY BIGHAM: Good. Thanks for coming on today. 

 

BRITTANY MILLS: Thank you for having me. 

 

EMILY BIGHAM: A lot of things have changed, and earlier we were catching up about what's been changing in the student loan area. I find it fascinating because, to me, when I was thinking about going to school, going to college, growing up in the United States, it's everyone needs to go to college. 

 

BRITTANY MILLS: Yup. 

 

EMILY BIGHAM: It's so expensive, but also I think a lot of the benefits are actually being on the campus. And you get more than just an education out of college. So I was curious about what's changed over the past year and a half. I feel like that's kind of a loaded question that we can get into. But in general, just right off the bat, what do you think has changed in the past six months? 

 

BRITTANY MILLS: Well, I think the fact of the campus experience has changed. Lots of people, at the start of the pandemic they had to stay home or go back home. Because they went to school, and now they're saying, oh, everything is shut down. Colleges are shutting down, lots of these schools didn't have online programs available, so it's almost like the schools had no other choice but to just say go home and we'll figure this out as we go. So I feel like a lot of things have changed when it comes to, I can't be on campus with my friends. I have to be online in an online virtual environment. And that was hard for a lot of people if they weren't already used to taking classes online. 

 

EMILY BIGHAM: So what's today's headline in the student lending world? 

 

BRITTANY MILLS: Student loan forgiveness. Are my loans going to be forgiven. That's a big question that students have. And rightly so. I do as well. Everyone does that has a student loan. And so Navy Federal, we're waiting to see what will happen in that landscape. 

 

EMILY BIGHAM: What would that decision change for you? I mean, it seems like there's a lot of uncertainty around that. I feel like the hot word is uncertainty. It's like, oh my gosh, what's going to happen in every aspect of everyone's life? But what would that change for Navy Federal or for you in your role? 

 

BRITTANY MILLS: So we've already changed our strategy when it comes to making sure that members are top of mind. So federal student loans, they come with benefits. And when you refinance those as a private student loan you lose those benefits. And so we made a decision to temporarily pause the refinance of federal student loans so that members could keep their benefits and we can make sure that they have what they need and make the best decision for them at that time. 

 

EMILY BIGHAM: How are you supposed to even make a decision as a student or a parent? Do you start saving for college? You have a son. You have a couple of kids, but I know that your super star football son is looking to go to school in a few years. What's the conversation in your household about college and student loans? 

 

BRITTANY MILLS: So as you just mentioned, I travel with him for football. And just this past weekend we went to Florida. And he actually wants to go to school in Florida. So there's a good chance that he might say, hey mom, I want to go to school in Florida. We're going to have to look at all of our options and see what's available. He may get a scholarship, he may not. I can't sit around and wait for that. So of course we're going to save our money. We're going to look at the options that are available to us, either from the schools that he picks, we're also going to fill out the FAFSA when it comes time, which is the free student loan application for federal loans. Just things that we will need to do to help him get ready. 

 

EMILY BIGHAM: So you mentioned federal student loans. And I very luckily did not have to go through this process so I'm a little bit unfamiliar with it. So apologies upfront if I ask a ton of questions about this. But what is the difference between a federal student loan and a private student loan? 

 

BRITTANY MILLS: Sure. So federal loans, they typically have fixed rates and they don't require credit. And then once the funds are granted through the federal loans, grants or scholarships, if they don't cover the full amount, then you'll go ahead and get a private loan which you can apply for through your bank or credit union. They will determine if you qualify for the amount based on your credit worthiness. Lots of times co-signers do increase the chance of loan approval and lower the interest rate on your loan. 

 

EMILY BIGHAM: OK, so that was a lot of financial speak. So even things as small as fixed rates, and determining your credit, and that they determine for you, I feel like even submitting something as simple as a credit card application can be daunting, because it is putting something out there and then seeing if it gets accepted. It's a lot of emotional stress. 

 

Can you walk me through the real bare bones steps of, OK, so I'm a student in high school, and I've already decided what college I want to go to that's best for me, but I can't afford it. So what is your first step? Should you even be thinking about federal versus private student loan? Can you walk me through first things, first steps? 

 

BRITTANY MILLS: Yeah. First things first is to fill out the FAFSA. A lot of people think, my parents have too much money, I can't apply, or I wouldn't get any money. You definitely want to go to the FAFSA which is the Free Application For Student Federal Aid to determine what you would qualify for. We want you to exhaust all your federal options first. 

 

EMILY BIGHAM: OK, so federal number one. 

 

BRITTANY MILLS: Federal number one. 

 

EMILY BIGHAM: And use the FAFSA. So where can you get that? Is that an application online? 

 

BRITTANY MILLS: Yes. 

 

EMILY BIGHAM: Do you go through Navy Federal's website? 

 

BRITTANY MILLS: That is FAFSA online. I can't think of the website right now, but yes. 

 

EMILY BIGHAM: Google it. 

 

BRITTANY MILLS: Google FAFSA. F-A-F-S-A. 

 

EMILY BIGHAM: Perfect. We'll put it in the show notes. 

 

BRITTANY MILLS: It lets you put up, I think, a couple schools that you choose. And then you can compare those offers once they come back to see what makes sense for you. 

 

EMILY BIGHAM: OK. So first things first, use the FAFSA application. And then once you get those back, you consider, OK, is that enough money to cover it or do I need more money. And how are you supposed to know if you need more money than what someone's told you you can have? Does the school provide that? 

 

BRITTANY MILLS: The school will provide you, I guess a gap letter. Not 100% sure. 

 

EMILY BIGHAM: OK, so-- 

 

BRITTANY MILLS: I'm pretty sure they will let you know what else is owed on your bill. 

 

EMILY BIGHAM: What else is owed on your bill. OK. And then, so when you then decide, OK, I need to go and get more money in a private student loan, is that when members reach out to Navy Federal? Is that when you-- 

 

BRITTANY MILLS: Yes. That's when they shop, which we encourage. Shop for the rates and terms that work for you. Because not every lender is the same. You want to check out that lender's reputation, you want to make sure that-- some lenders require you to pay immediately, so just checking to see what works for you is what's in the best interest for you at that time in your budget. 

 

EMILY BIGHAM: And for some reason in my head I thought that student loans covered tuition and the bulk of those big expenses. But I found talking to people that maybe it covers other things like dorms and books and whatever you need. So what do student loans cover? Or what can they cover? Is it up to the student or is it up to the loan product? 

 

BRITTANY MILLS: It is up to your school. So tuition, dorm room costs, off campus housing, textbooks and supplies, laptops, food, transportation, anything education related expenses that are certified by your school. 

 

EMILY BIGHAM: OK, so the school certifies it. That's interesting. So you have to keep your receipts? This is so interesting to me. How does that work? 

 

BRITTANY MILLS: I think it's up to each individual school. 

 

EMILY BIGHAM: OK. So it's something that you need to talk about with the university. 

 

BRITTANY MILLS: Yep. 

 

EMILY BIGHAM: There's so many things that are involved in student loans that it's really crazy. And is that something that at Navy Federal you guys help people with? Are you kind of the trusted advisor? I know that with mortgages that's something that we definitely, we consider ourselves a trusted advisor. Do you guys do that with covers? 

 

BRITTANY MILLS: We do as much as we can to support the student. But obviously each school is going to be different in what they require. And we also advise them, hey, reach out to your school. Make sure you know what is required of you from them as well. 

 

EMILY BIGHAM: So refinancing. Tell me a little bit about that. 

 

BRITTANY MILLS: Right. 

 

EMILY BIGHAM: Everyone loves a good refi. 

 

BRITTANY MILLS: So refinancing is typically great for someone that have all these loans and they want to consolidate them into one payment, and they want to potentially reduce the interest rate, which in effect will reduce their monthly payment. But at the same time, refinancing, you should also make sure you have the income to support as well as the credit history. 

 

EMILY BIGHAM: So is this after? When are you supposed to think about refinancing? Is it after you're done with school and you have a job? Because I know that your credit matters. In order to build credit and in order to get a lower rate, you typically have to have higher income, or income period. Is that something that you have to wait and do afterwards? Or can you do it when you're in the process, in school? 

 

BRITTANY MILLS: Most lenders require you to graduate before you can refinance. So and at that point you can do it at any time. But again, checking the rates, checking the lenders, knowing what they're being offered is what's in the best interest of you at that time, and making sure that you are getting the rate that you want. Because you wouldn't want to have a lower rate and try to refinance and you would get a higher rate. So trying to make sense. 

 

EMILY BIGHAM: Well, and we're in a very low rate environment right now. 

 

BRITTANY MILLS: Right now, yep. 

 

EMILY BIGHAM: So are people concerned about rates going up and are they looking to refinance? 

 

BRITTANY MILLS: And see, that's where part of the uncertainty is, because of the federal loan component. I believe some lenders are still refinancing federal loans. We are not. I think some people have even stopped considering it for now just to see what happens around-- 

 

EMILY BIGHAM: Put it on pause because you just don't know. And I think that's the smart decision. 

 

BRITTANY MILLS: Exactly. 

 

EMILY BIGHAM: Because if loans start going up, or even inflation will probably impact that a little bit. Also there's a lot going on with the job market right now with employment. I think a record number of people have left their jobs. I don't know if that's because-- I mean, there's a couple ways of looking at that data. So it could be like, OK, for the past year and a half, people have been sitting tight in their jobs, not wanting to leave or try to find new ones, because obviously working from home, or trying to go to a new company and manage a new team, or figure out what's going on while working from home is difficult. 

 

So, is it now that because everything is opening up and people are starting to get out there more, is that percentage higher because people are looking-- they've been putting it on hold and now there's a surge. I had to point to that and I can't remember where I was going with it. 

 

BRITTANY MILLS: Hey, listen-- 

 

EMILY BIGHAM: Because you know how I am. Analyst brain. 

 

BRITTANY MILLS: No, that's fine. But to piggyback off that point, a lot of people, being home, have considered other options for themselves. The great resignation, right? People are actually considering things that are good for them and trying to understand-- making sure that they have that extra income to support whatever they want to do, whether that's refinance or keep their loans the same. 

 

EMILY BIGHAM: Yeah. And I think also the crazy thing about the interest rates, and how we don't know what's going to happen with that, and there's so much fluctuation, I think that there's a lot of hype about that. Because even if interest rates are changing, it's not going to be so quickly that no one's going to have time to think about, OK, what should I do with my finances. Do you guys have any resources online that people can look at to if they have questions about this? Where do you send members when they have questions? 

 

BRITTANY MILLS: We have a couple articles on our website, MakingCents articles that speak along these lines. Just educating them on the different student loans, and refinancing, things like that. So we definitely have the education out there for our members to look at. 

 

EMILY BIGHAM: When do you start to repay student loans? Is that after you graduate as well? 

 

BRITTANY MILLS: Yes. 

 

EMILY BIGHAM: OK. What are your like-- 

 

BRITTANY MILLS: Although, I guess for in school, if you're in school, we allow you to make the $25 payment so that you can help build your credit. 

 

EMILY BIGHAM: Tell me more about that. Because building credit is-- 

 

BRITTANY MILLS: It's very important. 

 

EMILY BIGHAM: Well, it's really important, but it's something that people don't really understand that they can be doing while-- there's just a lot of questions about credit. And I think that you know a lot about credit. You were formerly in credit cards. We miss you. But tell me a little bit more about that monthly payment of $25 while you're in school and what that does to help your credit. How does that work? 

 

BRITTANY MILLS: So yeah, you can choose that option where you can pay $25, and that will help you pay towards your loan. And a lot of people don't realize, but those payments are being recorded and helping your score increase little and little over time. So it does help that student, that when they finally graduate, they can maybe refinance on their own without a co-signer. Because most likely if you're a student, you're going to need your co-signer to support you. 

 

EMILY BIGHAM: So it gives you a lot of financial independence. And you need a good credit to move on in your life. To buy a house, to buy a car, you need to have credit. 

 

BRITTANY MILLS: Exactly. All those next steps and all those big milestones that come after school. So I think it's a good thing that we put on our website. We promote that. It's a good step for credit builders. 

 

EMILY BIGHAM: Is it unique to Navy Federal or do other lenders do this? 

 

BRITTANY MILLS: I believe there are some other lenders that do it, in their own unique way, of course. 

 

EMILY BIGHAM: Right. But I mean that $25 monthly payment, that's something that seems very affordable for people. 

 

BRITTANY MILLS: Very. 

 

EMILY BIGHAM: Is it kind of like a set it and forget it type of thing where you can just set it up and it automatically transfers? 

 

BRITTANY MILLS: So automatic payments are an option for all of our borrowers. So yes, they can do that. 

 

EMILY BIGHAM: And can you pause it at any time if you feel like you really need that $25? 

 

BRITTANY MILLS: Absolutely. 

 

EMILY BIGHAM: That's really cool. That's a great benefit. I like that one. Of the best things that my dad ever did for me was give me a credit card when I went to college. And I love saying that because I know he's probably going to listen to this and be like, oh my god, that was a disaster. But that taught me about building credit and the importance of making sure that-- that monthly payment really matters. And just showing on time payments can boost your credit history, or the opposite, which I think that's why it's important that you guys allow people to pause that. Because if you miss payments that's also takes a credit ding. So this is a good learning tool I think. That's pretty cool. 

 

BRITTANY MILLS: Yeah, we offer options. If they ever run into anything they can apply for forbearance. We can help them. So they just reach out, they apply for it, we'd go over their individual circumstances at the time. 

 

EMILY BIGHAM: So what did forbearance look like in the past year and a half? What happened during the pandemic? What kept you up at night? 

 

BRITTANY MILLS: I didn't know what I was doing. My first real world experience. 

 

EMILY BIGHAM: No one did. 

 

BRITTANY MILLS: During the pandemic we absolutely kept our members top of mind. We helped over 1,800 members with payment relief for their loans. And as always, we're going to continue to monitor their needs, and we adjusted as we needed to to ensure that they were OK, that we got their back, that we're doing this for them. So pandemic was a fun time. 

 

EMILY BIGHAM: Yeah, well I think it taught us a lot too, about the importance of making sure that if you put the members top of mind, it's always going to work out. And I think that's pretty cool. So it says here that you guys assisted over 1,800 members with payment relief. That's a pretty high number. How many members do you guys serve in the private student lending world, ballpark? Is this a big percentage? Did you reach out to them or did they reach out to you? How did that work? Did you just kind of know who needed help? Or did they have to request it. 

 

BRITTANY MILLS: They requested it. And I think ballpark is like 30,000 or so that we have in our student and refi space. So they reached out, we gave them the help that they needed, either online or maybe some called by phone. 

 

EMILY BIGHAM: OK. So I have some questions for you that came from my sister. 

 

BRITTANY MILLS: Sister! 

 

EMILY BIGHAM: Shout out to Caitlin Bigham. Because she and my older brother both went and got their MBAs a couple years ago. And I know for her it was a huge stressor because she had to take out student loans. This was the first time that she had to go through that process. And I just remember it was very stressful and emotional. Not to mention that she's also going to school and figuring out what her internship's going to be in the summer. And she moved from San Francisco to New York City to go to school. And that was a whole thing. I mean New York City, as we know, the prices are really high. 

 

So some of the questions that she had, which I think we already answered, were, do I shop around for student loans and see what rates I can get? And you said, absolutely. So I think that that's a big thing to mention. She asked about refinancing loans after graduation, which you also said, yes. And then something that she mentioned I thought was interesting was, when you are paying off your loans, how do you manage paying off loans versus putting your money towards other investments like retirement accounts, property, stocks. 

 

BRITTANY MILLS: So I believe there's some knowledge out there that I've read, that anything over 6%, your student loan rates, you're better off paying those. Because you would save more money just by paying those. If it's less than that, pay those and you can invest a little here and there in what you're interested in. So I think that's the general guidance that I've seen when I've looked into this. 

 

EMILY BIGHAM: OK. And is that something that Navy Federal money managers can also help with? I'm sure that's something they could help with. 

 

BRITTANY MILLS: I'm sure. 

 

EMILY BIGHAM: At this point, when you look at student loans and how long it's going to take people to pay off your student loans, how daunting to think that you would never actually be able to invest any of the money that you make. I mean, you have to figure out, what are we doing here? How am I going to set up myself for financial success? 

 

BRITTANY MILLS: Especially because right around the time you're graduating you're also thinking about, what does my retirement look like in the future? What does that look like? So I think, yes, finding a financial advisor if you need to, Navy Federal has them. That can help you figure out what the right balance is. 

 

EMILY BIGHAM: What about students who go to trade schools or unaccredited universities? Is there anything different there about the process they need to go through? 

 

BRITTANY MILLS: They can still apply for loans. The advice I would give is just determine what the value is. There may be other options out there for you to take advantage of. There's a lot of online learning, but at the same time people do want that certificate or that completion. So it's really up to each individual person whether they want to take the loan out or just save the couple thousand dollars to pay for what they want. 

 

EMILY BIGHAM: So transitioning a little bit to military, since that is a big part of Navy Federal's audience and membership. The GI Bill. What do you know about the GI Bill? 

 

BRITTANY MILLS: Hey, if you have access to the GI Bill you should definitely use that for your education. If then additional funds are needed, then you can apply for private loans. But at the same time, a borrower's or co-signer's income would be required at that point. 

 

EMILY BIGHAM: OK, so if you can take advantage of the GI Bill, you should do it. 

 

BRITTANY MILLS: Absolutely. 

 

EMILY BIGHAM: Awesome. OK. And I assume that's something that they also just go to the website and kind of-- 

 

BRITTANY MILLS: Mm-hmm. 

 

EMILY BIGHAM: I don't know if it's similar to VA loans in that sense. Is a GI Bill financed through an institution or is it just through the government? Question for Google? 

 

BRITTANY MILLS: Yeah. 

 

EMILY BIGHAM: OK. Well I mean it's a big thing. So I also see some facts here. 9 in 10 borrowers aren't ready to resume federal loan payments in October. That's a high number. That's 90%. What does that mean? Aren't ready to resume? Does that mean-- 

 

BRITTANY MILLS: Well, because of the CARES Act, zero payment, zero interest, nobody is paying. I think I saw something where maybe 1% of borrowers are actually paying their federal loans. We still are doing our $25 payments and people are still paying our loans because we're private lender, obviously, we're not federal. I guess that would be something that they would have to determine on how they would handle. 

 

EMILY BIGHAM: Yeah, so I think that there's still a big emphasis on the importance of college and I think that's also what's so frustrating, is you don't want something like financing to keep you from reaching your potential and getting you to the point where you're so stressed out that you're like, I'm just not going to do it because I don't understand federal versus student versus the uncertainty of forgiveness. What is your advice for people who are on the fence about going to school because of financing concerns? 

 

BRITTANY MILLS: I would say, again, apply for your federal funds. Because you don't know what you will get at that point. After that, then you can look into what other options you have out there, and what's available. You may find that there's a family member that's willing to help you co-sign just to help you further that education. So don't be afraid to go to school because of financing. Apply and then see what happens from there. 

 

EMILY BIGHAM: Apply and see what happens. And also I love the $25 monthly payment to help boost your credit. So I feel like right there there's a positive that you get immediately from doing something like this. When in the process should they start looking into it? When do you have to apply? So if you go to school in the fall, say school starts in August or September, when do you start this process? 

 

BRITTANY MILLS: So I believe the FAFSA opens October 1 of each year. 

 

EMILY BIGHAM: So for the following year. 

 

BRITTANY MILLS: Yeah. So as early as you can, you've got to check the federal timelines, you've got to check your school timelines, states sometimes have guidelines. So once you know, OK, this is what I'm doing, start researching the schools, your state timelines, and all of that, so that you can go ahead and-- 

 

How I want to do it when it's time for me and my son, go find out what school he wants to go to, find out what their timelines are-- keep saying deadlines, I'm sorry, but they're probably the same-- deadlines and timelines, and then from there, I can organize my steps based on what we're going to do. So I can tell him, look, this is what needs to be done, blah, blah, blah, blah, blah. Hopefully he'll take some initiative, we will see. 

 

EMILY BIGHAM: Even if he does, I'm pretty sure you're going to be like, oh, no, no, no, no, thanks honey, but here's what we're actually going to do. 

 

BRITTANY MILLS: Yep, exactly. 

 

EMILY BIGHAM: Good luck to him. 

 

BRITTANY MILLS: You know how it is. 

 

EMILY BIGHAM: I wish him the best. 

 

BRITTANY MILLS: We still like to see it though. 

 

EMILY BIGHAM: A for effort. 

 

BRITTANY MILLS: But that's pretty much the timeline I'm going to be on, is once I know for sure what schools he wants to go to, start getting those dates written down so that I can organize what we're going to do. 

 

EMILY BIGHAM: So a lot of preplanning. 

 

BRITTANY MILLS: Yep. 

 

EMILY BIGHAM: And then, is it ever too late to apply? 

 

BRITTANY MILLS: That, I guess, would be up to your school. 

 

EMILY BIGHAM: Not everyone is Brittany Mills and-- 

 

BRITTANY MILLS: That would be beautiful. 

 

EMILY BIGHAM: --was ready when your child was 8 years old. 

 

BRITTANY MILLS: I'm sure they'll make some exceptions based on what happened in the past year. 

 

EMILY BIGHAM: Well, also because there is some uncertainty. You just never know. So you never know what you're going to get back from your application, and then you never know what exceptions they'll make. But also, what if you're in school and then your situation changes and you need student financing, loans. 

 

BRITTANY MILLS: You can apply. 

 

EMILY BIGHAM: You can apply? 

 

BRITTANY MILLS: Mm-hmm. 

 

EMILY BIGHAM: At any time? So it's never too late any time? 

 

BRITTANY MILLS: You can apply and see. 

 

EMILY BIGHAM: OK. That's awesome. Well, is there anything that we haven't covered that you would like to talk about? 

 

BRITTANY MILLS: I would just want to say that, this is to the students and to the parents as well, but we've all been through our own personal challenges this past year. And I would say, please take care of you. Take care of yourself. Whether it's through meditating, creating, connecting, caring for yourself, I think all of that is very important. And if you don't know how or what to do, your school might have resources. There might be resources in your area that you can use. But keeping your mind healthy is just important. And I feel very strongly about that. 

 

EMILY BIGHAM: That's great. And I think the emotion, the stress that comes with debt and financing, reach out to your trusted lender and talk to someone about what you can do to help ease that. Because if we can at least relieve some of that stress, I think that's a big win too. 

 

BRITTANY MILLS: Absolutely. 

 

EMILY BIGHAM: All right. Well, I can't wait for you to circle back with me and tell me what's going on with student loan forgiveness. 

 

BRITTANY MILLS: I know. Maybe I'll be back. Maybe I'll be back. 

 

EMILY BIGHAM: Who knows? You never know. Thanks so much Brittany. It was great to talk to you and I hope you have a great weekend. 

 

BRITTANY MILLS: You too. Thank you. 

 

EMILY BIGHAM: And good luck to your son. 

 

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ANNOUNCER: Navy Federal Credit Union is federally insured by the National Credit Union Administration. This podcast is intended to provide general information and shouldn't be considered legal, tax, or financial advice. It's always a good idea to consult a tax or financial professional for specific information on how certain laws may apply to your individual financial situation. References to and participation with the military community does not constitute organizational endorsement. Navy Federal is an equal housing lender. Navy Federal Credit union are members on a mission. Insured by NCUA.