“Oh! You’re the student loan tweet guy!”
This is a response that I heard a lot while introducing myself to people recently at FinCon, a conference for money writers and podcasters. It’s a strange thing to be known for after spending two and a half years writing about finances without ever really touching on the topic.
That said, the tweet led to a lot of interesting conversations, both in person and on Twitter, about student loans. In particular, a lot of people were very interested in the Public Service Loan Forgiveness program in which I am participating.
Some people objected to the program on financial grounds, but many raised political or policy issues.
Because of this, I thought that the Public Service Loan Forgiveness program would be a topic worth exploring during our month of politics.
A Brief Introduction
I generally build my articles around research or scientific studies. I rarely talk about my own life or situation.
This is part of why my student loan story never made it to the blog in the two and a half years that I’ve been writing. I knew a lot about my own situation and the Public Service Loan Forgiveness program but it didn’t really seem widely applicable, so I kept it to myself.
The tweet going viral showed that I was wrong and that my situation connected with a lot of people. It also showed that there are a lot of misconceptions around the idea of PSLF and public service generally.
To get there, though, I think I need to break with my standard approach and tell a bit of my story.
I graduated from college with degrees in History and Classical Humanities. (No, I don’t regret it. There is a ton of often-overlooked value to a liberal arts degree. But that is a whole different article.) At different points I contemplated routes to becoming a high school history teacher or a classics professor. Ultimately I decided I would become a lawyer.
Law school made sense because I naturally think like a lawyer. I challenge assumptions, I drill down to first principles, I problem-solve creatively, and I spot issues well. And I love puzzles. I did well on the LSAT without preparing. People complain about the Logic Games section of the test, but I actually had fun with it. I don’t say this to brag – there are plenty of things that I am terrible at – just to note that the law is a particularly good fit for me.
I graduated law school and wanted to put my skills to work helping people, so I looked into public service jobs. The problem is that public service jobs pay relatively little and I had a lot of student loan debt.
I graduated with around $250,000 in student loans, averaging a 6.8% interest rate. On a standard 10-year repayment plan, that would mean paying around $3,000 per month. I would need to subtract at least $35,000 from my after-tax salary before getting to any money that I could actually spend. And that’s if I want to take the full 10-years to pay it off.
Now, I could have done that. I got a good degree from the top school in my niche and had good work experience. I could have gone to a big firm and made a lot of money. But that’s not where I wanted to exercise my skills and not how I wanted to spend my time.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness program gave me another option. PSLF said that if I committed to public service I could make payments based on my income. The payments would be 10-15% of “discretionary income,” which basically means that they subtract 150% of the poverty line from your income before they calculate what you owe. If I make those payments on time for ten years (and jump through a bunch of procedural hoops), then the balance will be forgiven.
Basically, I would have to make sizable loan payments every month for ten years, but those loan payments would never be large enough to impede on my ability to feed and shelter my family.
After ten years, the slate is wiped clean.
It’s Not About the Money
Before getting into anything else about the program, I need to say up front that the decision for me was not about the money.
That sounds like a crazy thing to say. Obviously it is about the money to the extent that the program allows me to take on a job that I otherwise could not afford.
What I mean is that it is not about maximizing my wealth.
A lot of people questioned the return on investment of choosing public service over the private sector. They asked whether I would make more just taking a private sector job and paying off the loan. They speculated that the lower income from public service work would cost more in lost wages than what I would gain from forgiveness.
And they’re right.
If I had gone to a big firm and paid off my loans, I would have built much more wealth much more quickly than taking a public service job and working towards forgiveness.
It’s not about the money, though. If there’s one theme I’ve tried to drive home with this blog, it’s that it never really is about the money. More money is great, but not at the expense of other aspects of our life.
I wanted to serve the public. I also wanted to spend more time with my family than a big law job would allow. Those two goals are worth giving up all sorts of wealth in my eyes.
The Taxpayer’s Dime
Perhaps the most common response, though, was the complaint that taxpayers would be picking up the tab for my loans.
I was told that I was selfish for my choice to pursue public service. I was told that I must be a terrible public servant. I was told that I was a welfare recipient and a leech and that I was relying on a taxpayer bailout. I was told that I was a jerk stealing money from the public.
There were a lot of creative variations on this, but the theme was the same: the taxpayer should not have to pay my loans.
The superficial answer to this is that this is actually a great deal for the taxpayer.
A few years ago I had the option to jump from my public service job to a big firm. The big firm wanted me to do the exact same work that I was doing on the public service side, but they were offering to pay me almost triple what I was making.
I presumably would have been expected to put in more hours at the big firm, so the per hour price for my services would be closer to double what the government was paying rather than triple, but it is still a lot of extra money. If the government paid me market rate for my services, my salary would increase by enough to pay off my loans in three years. Instead, the public gets ten years of my services for that same amount of money.
Seems like a good deal.
Public Service is for Everyone
The more meaningful response, though, is this: Public service shouldn’t be a privilege belonging only to people with family wealth.
I was told that I shouldn’t have taken on the debt if I knew I wanted to go into public service. But without my parents paying for school, there was no other way to get a law degree. (Someone else suggested that I should have earned the money to pay for school as I went. Presumably this is a Baby Boomer that has not followed the slow growth of wages and the ridiculous growth of education costs. If anyone can point me to a part time job that pays $70,000 a year and leaves time to study, let me know.)
If only people without debt can work for the public, then you will only ever have public sector lawyers or doctors or others with expensive degrees that come from wealthy households. My parents weren’t poor by any stretch of the imagination, but they didn’t have an extra $100,000 a year lying around to pay for me to go to law school while my brother was going to college. Most families don’t have anywhere near that kind of money.
The only way the government can function well is if you get talented people to work as public servants. We need to do more to encourage this. We need more great people becoming teachers and public defenders. We need to be expanding the pool of people that want jobs that benefit the public, not shrinking it by only allowing the wealthy to consider a career in public service.
Another common response was a reference to the recent MarketWatch article on the Public Service Loan Forgiveness program. The article noted that 99% of applications for forgiveness have been rejected.
This is obviously not great, but the article provides much more nuanced information than the headline.
First, 28% of applications were rejected because they were missing paperwork. Those rejections don’t really say anything about the underlying program other than the fact that there is probably a lot of paperwork involved in having tens of thousands or hundreds of thousands of dollars of debt forgiven.
The next thing to remember is that this is the first cohort that could possibly be eligible under the program, as it has been in place for only ten years. Only someone that began participating in the program as soon as it launched and has continuously worked in public service and made on-time payments since then would be eligible for forgiveness.
On top of that, there was a lot of confusion at the beginning of the program. Remember those hoops that I mentioned you had to jump through? They are confusing for everyone.
I didn’t start until 2013 and I still was given bad information by Sallie Mae that caused my first year of payments not to count towards forgiveness. On top of that, when I told Navient I was going to be using PSLF, they had to consolidate my loans into direct loans. Somehow they screwed up the process and $30,000 of the loans ended up ineligible. The mistake wasn’t caught for four years, so now I would need to work an extra four years for that chunk to be forgiven.
I am sure that I am not alone and that things like this happened to other people. As the MarketWatch article notes, the number of applications for forgiveness that will be approved is expected to rise dramatically over the coming years. I am confident that I have jumped through the necessary hoops and will complete the necessary paperwork to avoid rejection.
(If you are in the PSLF program, immediately ask to have your loans moved over to FedLoan Servicing. They have been great for me and have spotted all of the mistakes that Sallie Mae and Navient made. They also make it easy to confirm the exact number of payments you have made in the past that qualify towards forgiveness. If you’re not with them already, ask to be switched over. It will be great for your peace of mind when articles like the MarketWatch one come out.)
Dave Ramsey Doesn’t Know What He’s Talking About
After I had planned out everything that I have written above, I was sent a video of Dave Ramsey recently talking about PSLF.
What I learned is that Dave Ramsey doesn’t really know what he’s talking about.
I’ve already taken a lot of your time on this subject today, so feel free to quit now. But in case you’re interested, I’ve pulled Ramsey’s points from the video and responded to them below:
“The answer to [Public Service Loan Forgiveness] is always ‘Don’t do it.’ Get your loans paid off as quick as you can. For God’s sake don’t stay in debt for ten years.”
All else being equal, sure. It is unpleasant to be in debt for ten years. But if loan forgiveness is the only way to take on a job that would bring more meaning to your life, then go for it.
One of my biggest problems with Dave Ramsey is his penchant for making definitive declarative statements about what people should or shouldn’t do. Personal finance is personal and everyone’s situation is a little bit different. There is no advice that applies to everyone. Life is nuanced.
Ramsey’s advice here is bad. Live the life you want to live, not the one some “guru” wants you to live.
“The government is questioning whether they’re actually going to do this or not.”
No they aren’t. Ramsey reads from the MarketWatch article saying that 99% of applications in the first batch have been rejected and takes from this that the government is just arbitrarily deciding not to forgive people’s loans. This is just false and Ramsey is lying to his listeners.
“If you’re waiting on the government to fix your life, you’re screwed.”
This seems to be based on the mindset that the random twitter users had that this is a government bailout program. That public servants are like the auto industry or the big banks and we need the government to step in and correct our mistakes. That’s not what this is at all.
The government offered a benefit that would somewhat offset the low salaries that it pays. A bunch of us took that offer instead of cashing out in the private sector. It has nothing to do with needing the government to “fix our lives.”
“To start with, let’s just assume you were one of the 96 [applications for forgiveness that have been approved]. You still waited ten freaking years to start your life. You waited ten years to start your financial life. That’s asinine. It’s ridiculous.”
This is more nonsense. I have a wife and a baby and a job that I really like. I have a pretty great life. I’m not waiting to start living until after I get loan forgiveness. I’m not even waiting to start my financial life. I’m maxing out my retirement accounts every year and investing in a taxable account on top of that. I am contributing to a 529 for my son. I can’t think of anything that I am not doing financially that I would be doing if my loans were gone.
I know plenty of people that are still waiting to start their financial lives, and none of them are waiting because of PSLF.
[Talking about people that do “debt free screams.”] “They weren’t waiting on welfare to fix their life. When you wait on welfare to fix your life you get screwed.”
Again. Not welfare. Don’t need my life fixed.
“Some of you have been jerking around with this, thinking ‘I’m gonna win this. I’m gonna play the government game. I’m gonna dumb my life down to the bell curve. And I’m gonna wait ten freaking years for them to forgive a portion of my debt – the portion that I have not reduced. Oh I forgot. I didn’t check into this. I don’t meet the requirements. I’m ineligible.’”
I’m not quite sure what this means, but it seems to be based on the idea that this is some sort of gaming of the system to try to get a government handout.
I have no idea what he means when he says that public servants are dumbing down their lives. I’ve met some really brilliant people in the public sector and I’ve met some not-so-brilliant people. I’ve met some smart people in the private sector and some dumb people in the private sector. Your place of employment doesn’t determine your intelligence. Whether or not you could afford school without debt is not an indicator of your intelligence. This is all nonsense.
“I bet you buy lotto tickets too. The government is gonna pay off my student loan debt and I’m gonna win the lotto. Two statements made by fools who thought they were gonna build wealth.”
Whether or not I’m a fool is up for debate, I suppose, but I have built wealth and I continue to build wealth. That is happening right now! I am not waiting for some future occurrence to make it possible.
I also don’t buy lottery tickets, in case you were wondering.
“Nope. You’re not gonna build wealth that way. You’re gonna build wealth when you take control and don’t wait on dumb luck and government programs to fix your life.”
I did take control! That’s the whole point! The PSLF allowed me a choice between working in the private sector, making a ton of money, and paying off my debt quickly or working in the public sector, making less money but in a more meaningful way, and having my loans forgiven after ten years. That option gave me choices. It gave me control. No dumb luck involved.
And again, wealth is already accumulating. This comment that you can’t build wealth on PSLF is just flat wrong. I’m willing to give Ramsey the benefit of the doubt, though, and say that he is just ignorant rather than actually lying this time.
“Are you going to believe in unicorns? Are you going to believe in mythology? When you say the government is going to fix my life, that is the definition of mythology. The government is actually going to help me generally is mythology.”
Ramsey is definitely off the rails by this point. Loan forgiveness is not mythology. It is a real government program that is actually in existence. This first round of applications had a lot of rejections for reasons that we’ve already discussed, but that doesn’t negate the program’s existence.
Ramsey himself stated in this very clip that the number of applications approved is expected to rise dramatically. You can disagree with whether a policy should exist, but you can’t disagree with whether it does exist.
His comment about the government never helping people is also pure nonsense. The government helps a lot of people. The government has helped Dave Ramsey immensely.
Dave Ramsey built his first multi-million dollar fortune on real estate, thanks largely to a whole bunch of tax expenditures that make real estate a good investment. Then, when he overextended himself by making bad investment decisions, he used government-created bankruptcy laws to bail him out. Instead of actually paying off his debt, he used government policies to get his debt forgiven.
These days, Ramsey relies on the government’s copyright laws to support the income-producing capabilities of his 19 books as well as the free press laws to allow the existence of his radio show. Without the government’s help, Ramsey would not have built his fortune, recovered from his bad decisions, or built a new fortune.
“I’m not angry at the government. I’m angry that the government has convinced a bunch of you that it is a source of hope. I believe in you. I don’t believe in them. I don’t trust them. I don’t think there’s malice involved, I don’t think they’re a bunch of crooks, I don’t think it’s a conspiracy theory. I think it’s the largest case of incompetence in human history. They meant well, but they absolutely do not know how to do well. They want to help people but they absolutely cannot seem to get out of their own freaking way to get there. And this is proof of it yet again.”
This is just more anti-government ranting. He’s basically saying that the government doesn’t help anybody because it is filled with incompetent people. Even if this were true, it would be a great reason to promote the PSLF program rather than eliminate it. PSLF opens public service up to a wider variety of people and allows more competition and better hires for government positions. If you want more competence in government, then promote more loan forgiveness and pay government workers a lot more!
“If you’re waiting on them to get you out of student loan debt, you’re dumber than a rock. You really are. You’re asking for a mess because you believe the mythology when someone said ‘Hi! I’m from the government and I’m here to help.’ When you hear that you should run. Run.”
I feel oddly honored to be called dumber than a rock by Dave Ramsey. He has been wrong in just about everything that he said in this entire rant, so I’m going to call that a win.
Join the Conversation!
What do you think about loan forgiveness for public servants? What other questions do you have? Let us know in the comments!