Latest / Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love / Episode 309 | Student Loan Strategies for Attorneys with Scotty McDonald

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Episode 309 | Student Loan Strategies for Attorneys with Scotty McDonald · Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love

• 0:01
  Intro: Welcome to the wealthy woman lawyer podcast. What
• 0:05
  you could hang out with successful women lawyers, ask them about growing their firms, managing resources like time, team, and systems, mastering money issues, and more? Then take an insight or two to help you build a wealth generating law firm. Each week, your host, Devina Frederick, takes an in-depth look at how to think like a CEO, attract clients who you love to serve and will pay you on time, and create a profitable, sustainable firm you love. Devina is founder and CEO of Wealthy Woman Lawyer, and her goal is to give you the information you need to scale your law firm business from 6 to 7 figures in gross annual revenue so you can fully fund and still have time to enjoy the lifestyle of your dreams. Now here's Devina.
• 0:49
  Davina: Hello, and welcome back to the Wealthy Woman Lawyer podcast. I'm your host attorney Devina Frederick, and my guest today is Scottie McDonald. Scottie is a financial planner at SLP Wealth. He also is a certified student loan professional, CSLP, holds a FINRA series 65 license, and is a CFP professional. Scotty has a great passion for helping others realize the peace of mind that financial clarity can provide.
• 1:16
  He has a deep empathy and curiosity for each individual's circumstances derived from his wide range of life experiences as a small business owner, commercial photographer, and environmental scientist in the public sector. Scotty has firsthand student loan expertise from community colleges, private, and public universities. When not helping folks with student loans achieve financial freedom, Scotty is very likely going on long trail runs near his home in Santa Cruz, California. Please join me in welcoming Scotty to the Wealthy Woman Lawyer podcast. Hi, Scotty.
• 1:51
  Welcome to the Wealthy Woman Lawyer podcast. It's so good to have you here.
• 1:54
  Scotty: Devina, thank you so much for having me.
• 1:56
  Davina: Good. So why don't you start out by telling us a little bit about, your background and what led you to get into this work?
• 2:05
  Scotty: Got it. Such a specific weird little niche of the financial planning world. So, I am a, a financial planner with, SLP Wealth and with Student Loan Planner. And Student Loan Planner has been around since 2017, and we do a whole bunch of different stuff. The bread and butter of it is, like, kind of one on one deep dive consults to help people, like, figure out how to balance and optimize their student loan repayment strategies with the rest of your life, you know, because you're not just a person with student loans.
• 2:36
  You probably have other things you'd like to do with your life. And so we've been around since 2017. I think we've consulted on close to, like, 19 or 20,000 different individuals, student loans, couple billion dollars of student loan debt over that time. And and then the bulk of my time now is helping folks figure out, like, what is life like after student loans and or with student loans doing comprehensive wealth planning at at at SLP Wealth. I'm also sort of the default attorney adviser at SLP Wealth, mainly because when we were divvying up the teams two years ago, nobody else wanted to do it.
• 3:17
  Turns out, like, people are, like, scared of lawyers. They find lawyers intimidating. We can't be.
• 3:24
  Davina: We're we we mean to be.
• 3:26
  Scotty: Yeah. I also have a couple of very dear friends that are public interest attorneys that I've kind of helped with their stuff over the years. But I kind of I love my attorney clients, and I'm very happy to let my clients or my colleagues, like, believe that they're all, like, really scary. I I don't know if this has been the case for you, but, like, oftentimes, people that are in position of power are attorneys. And so they have this, like, sense of agency that I find really unique
• 3:53
  Davina: to work with that particular demographic. Interesting.
• 3:56
  Scotty: They feel like they can actually, like, affect change, and they're just not a passenger on the bus. You know?
• 4:01
  Davina: Right. Right.
• 4:02
  Scotty: Yes. Yeah. It's a really fun group.
• 4:04
  Davina: We're very passionate about whatever we're passionate about, we can we can make a good argument for it if we want to. So yeah. So I can see that. I'm sure that and probably whoever drew the short straw got doctors really has a challenge because
• 4:19
  Scotty: The problem the so let me tell you about doctors. As the brother of a doctor and this the brother-in-law of another doctor, the beautiful thing about attorneys in my experience is that attorneys very much value the advice of other professionals. Right?
• 4:36
  Davina: Right.
• 4:36
  Scotty: Whereas doctors, for better or worse, are so well educated that they're potentially overeducated and think they kinda know everything sometimes.
• 4:45
  Davina: Yeah. And what I if you can save a life, you know, like, you you kinda feel like there's really nothing nobody else has done that good. Right? And, so I I totally understand that. Let's talk about student loans.
• 5:00
  Is your air of I thought it would be a really great time to have you on for this discussion because a lot of lawyers got them and there's been a lot of changes happening over the last few months with the new administration, out with the old administration and with the new administration for better or worse. Whatever your opinion is about it, it is what it is, we gotta deal with it and play in that arena. What have you seen? First of all, before we get into that, give me an idea of the average amount of student loans you're seeing lawyers. Is there an average amount that you're seeing that lawyers are coming out of law school with starting their own business or getting a job, and they're having to contend with this?
• 5:41
  What amount what number is that?
• 5:42
  Scotty: You know, it's pretty rare to see somebody with less than 200 k, and it's pretty rare to see people with more than, like, 3 to 400. So it's like if they have more than, like, three or four hundred k of that, it might have been, like, a second career or a second degree or, you know, or they had a really expensive undergrad for some bizarre reason. So, yeah, it's actually kinda hard to borrow that. Yeah. I mean, you physically can't borrow that much in undergrad.
• 6:10
  So, or it's people that have taken on debt for their kids in the form of, like, parent plus loans, which are currently you know, we should talk about that eventually. But, like, one of the areas that are is really gonna be hurt if the current legislation that's being debated in congress passes in the form that it is currently in. So but, yeah, somewhere in that kinda two to four kind of range.
• 6:36
  Davina: And that's not nothing. I mean, that's a
• 6:39
  Scotty: That's
• 6:39
  Davina: not nothing. That's a lot of money. Yeah. That used to be now I don't think it is, but it used to be the amount of a house. You know?
• 6:47
  And now I'm you'd be hard pressed probably to find a house for
• 6:49
  Scotty: Yeah.
• 6:50
  Davina: For 2 to 400, but that's a that's a lot of money. And I, as somebody, I just paid off my student loans from law school, and I was nowhere near that amount of money. And I've been a lawyer for eighteen years, so I had a really great interest rate. So when I hear these some of these amounts with these interest rates, I'm imagining that a lot of your clients, they're either one of two things. They are kind of avoiding thinking about it, or they just have a belief that it will work itself out.
• 7:21
  This will work itself out. I will I'm gonna get this high paying job, or I'm gonna start my business and make a lot of money, and it will all work itself out. Or they have the flip side of that, which is, oh my god. What have I done? Right?
• 7:34
  And they don't realize that until they get out and they start wanting to do some other things, like have a family or buy a house or whatever. Sure. What kinds of experiences are you hearing? Well, you
• 7:46
  Scotty: know, I always tell people that, like, you don't it kinda depends on their situation. Student loan debt is really different than any other type of debt that people kind of normally encounter for a couple reasons. Functionally, it operates differently. Student loan interest is simple interest. It doesn't compound in the same way that a credit card or a car payment or a mortgage kinda does.
• 8:09
  Interest on the interest is only being charged interest on the principal original principal. The other thing that makes student loan debt really, really different than other types of debt is that there are income driven plans. Right? So IDR, income driven plans, is this term you get thrown a lot in the news, and there's a handful of different plans that are sort of under that umbrella, which we can talk about in in more detail. But because of those income driven plans, student loans function much more like a tax than they do like a debt.
• 8:43
  So, you know, you'll pay anywhere from 10 to 15% of your discretionary income, and you do that for a certain period of time, ten years if you're in a public service job, fifteen or, you know, twenty or twenty five years if you're in a a private sector position. And then the balance is forgiven with potentially or not potentially a a tax implication. So what I tell people is like, okay. For the privilege of being an attorney for the rest of your life, dentist, veterinarian, physician, whatever, would you pay an extra 10 to 15% of your income for, like, you know, fifteen to twenty years. And almost all of them say, would you take that deal?
• 9:29
  And they say, yes. I'm like, well, good. Because that's the deal you took. Right? That's the deal you actually took functionally.
• 9:35
  Right? So when you see these big numbers,
• 9:38
  Davina: yeah, technically, you owe $400,000 in debt. And, yeah, technically, if you want it
• 9:42
  Scotty: to all go away, you
• 9:43
  Davina: could write some giant check for
• 9:44
  Scotty: $400,000. But functionally, it operates much, much more like a tax than it does like a debt. And so for clients hold a lot of, like, shame about this. Like, debt is like in our society, you messed up. Right?
• 9:59
  You messed up, and you're, like, less worthy because you have this debt or this whatever. You know? And it's just like getting people to reframe it, at least, like, to have an entry point into the conversation of what comes next, and let's manage this, and let's actually run some numbers and some calculations to see, is this really holding you up from doing the things that you wanna do, or is it not in the grand scheme of things? You know? Right.
• 10:24
  So framing it in that way, I think, is really helpful for, like, the starting point. Yeah.
• 10:28
  Davina: Yeah. I I certainly I certainly there are certain financial gurus out there who give advice about getting out of debt and the importance of getting out of debt, and there's a lot of shame around. You'll hear a lot of people calling in, talking about I have x number of student loan debt, and there's a lot of, well, my god. What are you? A neurosurgeon?
• 10:46
  You know? And you're like, well, no. But the reality of it is for most of us is that we wouldn't have been able to go to college. We wouldn't have been able to get advanced degrees. We wouldn't have been able if we had not had some sort of way of paying for it, through a loan because we come from families that don't.
• 11:05
  Yeah. And and I think there's tremendous value in the education that comes from it because it changes the trajectory of your life when you have when you have a law degree. Certainly, it does. Right? It changes everything.
• 11:17
  Right? Yeah. So, regardless of people's thoughts or opinions on, you know, whether that was a good whether Aunt Jenny thinks that was a good decision or a bad opinion bad decision. It's really none of our business. She can think what she wants.
• 11:32
  Here we are. We've made it. Now we have student loan debt.
• 11:35
  Scotty: Now we have student loan debt.
• 11:36
  Davina: Yeah. And we're wanting and we also have a degree, and now we need to go move forward. So talk to me about how you guys help your clients. What what when they're coming to you, what are they're coming to you? What are their concerns when they're coming to you?
• 11:52
  Scotty: Yeah. So a lot of the folks that we deal with are folks that are kind of freshly out of law school or kind of, you know, first job, and now they're actually, like, having to start to pay the stuff back. And so and a lot of, you know, public interest attorneys and government attorneys and DAs and, you know,
• 12:11
  Davina: other stuff,
• 12:12
  Scotty: public defenders. And we start by, like, looking at what the debt is, how much it is, and kind of what their debt to income ratios are. So for the kind of the current plans left standing, if your debt to income ratio is, like, two to one, like twice as much debt to income, Even in the least generous of these plans, a lot of times, you're a forgiveness candidate still. Right? So the payment will be based on your adjusted gross income with a deduction for the federal poverty line, and you'll make that payment for a certain amount of years, and then the balance is forgiven.
• 12:51
  If your debt is 1.5 times, then it's an edge case, and there's a little more strategery to do with it. And if your debt is less than one x your income, you're probably gonna end up paying it off. And so in those situations, we would run through the pros and cons of, like, do we keep these loans in the federal system even though we could get maybe a slightly lower interest rate if we were to refinance them? Or do we kinda just wait and see with all the volatility in the world that's going on right now? Is it worth just keeping things in the federal system that has a lot of serious protections?
• 13:31
  You know? Death and disability discharge is a protection. Cancer deferment is a protection. Like, things that just don't exist in the in the public sector I'm sorry, in the private sector for for loans. You gotta pay them, you know, whether you you're whether you're a hospital bed or not.
• 13:45
  You gotta pay your student loans if they're private student loans. It's not the case for federal student loans. So sometimes it can be worse even if you are one of those edge cases to kinda hedge to stay in the federal system even if it's ever so slightly more expensive. And then we dive into, like, what are all the ways that we can optimize for your student loan payment? Right?
• 14:09
  Which turns out like, so for thinking about student loan payments as if they are a tax, well, if someone's living in New York or California and they're making, you know, $250,000 a year upwards of that, then, you know, you're probably already in a 24 to 32% federal tax bracket. Call it another eight to 10% sometimes for state and local stuff, plus another 15. It's like we're scratching at 50% effective tax rates for a lot of these folks. You know? No joke.
• 14:37
  And so everything that we can do to reduce taxable income because, like, that's what all this stuff is tied to becomes really important. So there's, like, some really interesting planning opportunities for how to reduce taxable income. Right?
• 14:49
  Davina: So that's kind of interesting because that's a little bit like, you know, I think a lot of people think, well, the only way I have so I borrowed so much. The only way that I'm going to be able to pay this off is to do public interest work. And my goal my dream was to go open my own firm or work for somebody or whatever, and then they're kind of faced with this decision of doing that. Do you have you had conversations with people about that like that?
• 15:18
  Scotty: Every single every single client that is going through public service loan forgiveness, I always run the numbers for them because people feel trapped. I did and this is, my my story specifically, actually, that I had student loans of my own. I was at the time working as an environmental scientist for a big water agency here in the Bay Area. And, you know, part of my whole plan was like, I'm gonna get public service student loan forgiveness. Now my personal loans were not so much that it was worth making life decisions Yeah.
• 15:47
  Over them. But but if I had $350,000 worth of, you know,
• 15:53
  Davina: law school
• 15:53
  Scotty: debt or something, it might maybe we'd feel differently about that. And so, yeah, it's a calculation that I always run with folks to show them, like, okay. If you were going for public service loan forgiveness and you were gonna be completely done with this in ten years, a 120 payments. Right? And maybe I should just, like, step back.
• 16:11
  The public service loan forgiveness program has, like, four main criteria. You have to have the right type of job. So working for a government entity or a five o five zero one three c, you gotta do it at least thirty hours a week while you're making student loan payments that are in the right type of plan with the right type of loan types. So direct loans, any of the income driven plans qualify. Right?
• 16:32
  So if all those criteria are met, then you're 120 of those payments, and then you're out the door. They do not have to be consecutive. Right? So it's like if you were working and then you got a job in a private practice and then you decided to go back and teach or something after that, that time in the private practice wouldn't count, but the time on either ends would. Okay.
• 16:51
  Davina: Oh, interesting.
• 16:52
  Scotty: So they don't have to be consecutive. And so what I'll always do with people is be like, okay. Well, what's the balance of your loan that would be forgiven? And then what is that annualized? Right?
• 17:02
  So if we think you're gonna get $200,000 worth of loan forgiveness and you would still need to work in your public sector job for another, like, four years to be able to do it, then the value of that loan forgiveness is the forgiveness divided by the time left you have to do it. Right? And then so we just see, basically, it's like, okay. If you can make over the course of that time, say it's like $200,000 worth of loan forgiveness and you're doing over four years, so that basically a $50,000 a year benefit to you, could you make more than that in a private sector, like your public sector plus the 50 k, that's what you gotta do to be able to beat PSLF. Right?
• 17:44
  Davina: Mhmm. Mhmm.
• 17:45
  Scotty: Or vice versa. So it's something I do, like, literally with every single PSLF client. Yeah.
• 17:50
  Davina: Yeah. Interesting. I have a friend from law school who has in the number you're talking about, the higher range of those numbers because she has multiple degrees and advanced degrees and things like that. And she, started a nonprofit to be able to have, have some advantage Uh-huh. For her student loans.
• 18:14
  So what have you had have you had many clients
• 18:17
  Scotty: to do? This is like this is yes. So this gets into the sort of the the the the squishy areas, the gray areas of student loans. So, if please don't do that just for student loan forgiveness. Please have a legitimate nonprofit.
• 18:32
  Please abide by the legitimate re
• 18:35
  Davina: she had a legitimate nonprofit, but that was
• 18:37
  Scotty: part of the motivation. She was legitimate. I would be very I I always advocate for clients. Do not be the person signing off on your own forms. Right?
• 18:47
  So if you're gonna have a nonprofit that you've created, good for you. You know? Cat Rescue of Southern Florida or whatever. You know? Have a board.
• 18:56
  Have a a chief operating officer. Do not be the one that's signing off on your own form. Right?
• 19:02
  Davina: Right.
• 19:02
  Scotty: It's just like not that anybody has, to my knowledge, ever been audited for a for falsifying a student loan employment certification form. But we live in uncharted water, folks. You know? And it's like, don't give anybody, you know, access to Any yeah. Any reason to to come at you, especially if you have, you know, like a you could have your license pulled.
• 19:30
  You know? Like Right. Right. So you got stuff to lose, you know, more than a lot of other people do.
• 19:36
  Davina: Yeah. So tell me what well, I started out this talking about the what's going on in in federal lending world and with the federal government. Tell us kind of where where we are right now because I think there's a lot of change that seems to happen fast, but then maybe the wheels are moving a little slow and there actually haven't been laws passed. But give us an idea of where we were, where we are, and where we may be headed.
• 20:06
  Scotty: So let's talk about, like, on January 19, where we were, and then I can kinda, like, catch you guys up to to to where we are now. So the Biden administration did a lot of stuff. They were very aggressive about trying to get relief to student loan borrowers and to try and, like, fix a lot of the problems that had plagued the student loan system for a really long time. One of those things that's probably you know, folks remember, it seems like ancient history now with as much as news comes out on a daily basis. But, like Right.
• 20:38
  The one time cancellation that the Supreme Court shot down. Right? And then they said, okay. No one time cancellation. So they were gonna put forth this save plan, the saving on a valuable education plan, which is one of those IDR plans that we talked about.
• 20:53
  And it was much more generous than any of the other plans that went for it, and it kind of made forgiveness an opportunity if you were, like, one x more I mean, it's like if your income was slightly below your debt, then you were probably getting forgiveness. Right? Much more generous calculation for the poverty line deduction. In fact, so generous that it got sued. The Biden administration got sued by a consortium of of Republican AGs, and, it's currently enjoined by the eighth circuit.
• 21:27
  Right? So, everyone that was on an older plan from the Obama administration called REPAY had been pushed on to this new save plan, and then a whole bunch of other people jumped onto it because it was like, oh my god. Finally, some relief. Right? So there's, like, 8,000,000 ish folks that are currently on the save forbearance while that kind of works its way through the court.
• 21:51
  Okay. So there's a bunch of people that are like, their loans are paused. They're not able to make a payment even if they wanted to, and they're currently not being charged interest, but they're also not making any progress towards loan forgiveness. Right? Because those forbearances don't count currently.
• 22:10
  So that's thing one. The other big thing that the Biden administration tried to do and did actually do is this thing called the IDR account adjustment. Right? So for the last whatever twenty years, loan servicers had been giving really sort of crummy advice for a variety of different reasons to borrowers, putting them into forbearances when they should have been steered into income driven plans, not telling them that they needed to consolidate their loans so they'd have access to these other more preferential programs, all these different things. So the Biden administration said, okay.
• 22:42
  We're gonna say if you've had any time in repayment with any type of loan in any type of repayment program, if you consolidate your loans, we're gonna give you credit for that entire time, whether you're in forbearance that was greater than twelve months or cumulatively greater than thirty six months. Awesome. And so that was, like, an unbelievable boon to a ton of people that didn't like, thought that they were these lost causes. You know? And especially people that had loans that had different time frames in repayment.
• 23:17
  So say you had a couple of thousand bucks worth of undergrad debt, and then you went to law school and you have a couple $100,000 of law school debt. If those time frames were different, if you consolidated the loans within the right window, the whole portfolio got the history of the oldest loan. Right? So I had clients I had clients that had hundreds of thousands of dollars of law school debt that was much newer, nowhere near twenty years, twenty five years of repayment. But because they had a couple of dumb thousand dollar loans from undergrad that had been in repayment for eighteen years, they made, you know, twenty four months of payments and got, like, a massive amount forgiven.
• 23:53
  Davina: Wow. Wow.
• 23:54
  Scotty: Super, super powerful. When the Trump administration came into power in in January, that tracker that the Biden administration put on was removed from the website. So, like, the account adjustment had happened. People's, like, accounts had been, like, adjusted to reflect those forbearances and other times that didn't count. And they'd posted a tracker on the website.
• 24:19
  That's been taken down. And and literally as of this week, they've said they're gonna put it back up. Thanks, Elizabeth Warren.
• 24:25
  Davina: So
• 24:28
  Scotty: so that's something to look forward to. If you had this account tracker up and now it's gone, it doesn't mean that credit is gone. It just means that they took it down as part of, like, a revamping of the website, and they're and they're moving it back up. So those are the two big things that are currently, like, working their way through it. The other really, really big thing is the big, beautiful bill budget reconciliation that's kind of working its way through congress, which would, like, fundamentally change the student landscape the student loan landscape in America.
• 24:57
  Davina: Tell me about that.
• 24:58
  Scotty: Yeah. The big beautiful bill mainly has a couple really key components when it comes to student loans, and it's different between the house and the senate. So most of what they're talking about doing is getting rid of all of the student loan repayment plans except for potentially two, something called IBR, income based repayment, and this new plan, the Republican plan that's called RAP, the repayment assistance program. And so anybody and everybody would be forced either onto one of those two options. And for borrowers post 2026, July 2026, the wrap plan would be the only thing available.
• 25:43
  And sort of the, like, the sort of TLDR on the wrap plan is that it'd be a much less generous plan. The payment would be based on your adjusted gross income, not on your discretionary income. So there would no longer be a deduction for the federal poverty line for folks. Right? And it's basically a very a much less generous interest subsidy, and you're in repayment until you've paid back the equivalent of your original balance.
• 26:13
  Right? Even if your loan interest is, like, ballooned to a gazillion dollars, it's like, you borrow $200,000, you're gonna be in in that payment program until then. So the very small $50 per child sort of credit for for family size, but that's kind of it. They would also take all of the other loan repayment programs and throw them out and only have IVR. And the way it's currently written is only IVR has two different versions of it.
• 26:45
  One that is for folks that is pre 2014, which we call old IVR, and one for folks that are after 2014, which we call new IVR. Such clever thing. And the the the interesting thing about that IVR plan is that it's actually in statute. Right? So congress actually passed.
• 27:05
  This is the thing. This is the IVR plan. This is what we intended to do, and it says forgiveness at the end of it. All of the other plans that folks might be familiar with so ICR, income contingent repayment, the pay as you earn plan, and the newer version of IVR were created by executive order and and negotiated rulemaking. Right?
• 27:26
  So so they can take them away without an act of congress. And so since the only thing that is actually in statute is the IBR plan, that's what they're going to force it onto, which is like I said, if you're still two to one debt to income ratio, still a pretty good deal for a lot of folks. You know? It's like you're not totally out of the woods, but not as generous as the other plans. And it's kinda like changing the rules on a lot of folks kinda midstream.
• 27:51
  You know? It's as if you, like, bought a house on you know, with a mortgage that said it was x, and then the bank says, just kidding. We're gonna be
• 28:01
  Davina: changing it. Yeah.
• 28:02
  Scotty: Yeah. Yeah. So yeah. So I I can't imagine that there's not class action lawsuits about the sort of revoking of the promissory notes of, you know, tens of millions of people that thought that they had signed up for one deal, and now they're getting another one. Yeah.
• 28:19
  Yeah.
• 28:19
  Davina: And they have no say in the deal. It is it's the deal that's being forced upon them.
• 28:25
  Scotty: The deal is being forced upon them. So, yes, they do have so this is something that's, like, really interesting in my work with folks, like individual borrowers. One of the secret little sneaky sneaky weapons that we have is the constituent services folks at your local congressperson and senator's office. They listen to people. And so, like, being that squeaky wheel, like, letting folks know, letting your representatives know that, like, this is gonna have a really material impact on me being able to, you know, leave that, like, super stressful public interest job and start my own firm where I can hire 14 different people and create value for my community, you know, all these different things that you're being held up from doing because of these proposed changes.
• 29:14
  You know?
• 29:14
  Davina: Yeah. Being a job creator.
• 29:16
  Scotty: Yeah. So it really makes a big difference.
• 29:19
  Davina: Talk to me about the before we I wanna do I do wanna talk about the parent post loans. Before we get there, talk to me about are you are you working with very many people who start their own firms? And how does that how do they, and how are we taking student loans in consideration we are starting there's not a public interest job, we're starting our own law firm, this is what we're doing, or other things like you know, we're not in a public interest job. We're in a private firm. We're wanting to buy a house.
• 29:49
  We're wanting to have kids. We're wanting to do whatever. What kinds of situations are you seeing, and how are we how are you able to help people with that?
• 29:56
  Scotty: Yeah. So I have I have a lot of folks that are public interest folks. I have a lot of folks that are, you know, solo practices or, like, three partner practices. I have a handful of folks that are, you know, in house counsel at national brands that you have heard of, right, for clients. So for the folks that are starting their own firms or thinking about starting their own firms, being a business owner gives you a whole lot of control over your taxable income.
• 30:24
  Right? So for instance, like, if you are an associate working at a firm, and it's a decent firm, they probably have a four zero one k. Right? You can put $23,500 into your four zero one k. Right?
• 30:39
  But if you are a solo practitioner that started their own firm, well, now you can do a solo four zero one k, and you can do $23,000 and an additional, like, up to $69,000 total into the four zero one k. That lowers your AGI for this year, sets you up for a good retirement, and it lowers your student loan payment. Right? Making sure that you're kind of optimizing your income to take advantage of QBI deduction that further lowers your AGI. You know?
• 31:05
  So for small firms, there's a lot of interesting ways of making sure a lot of the tax optimization stuff is is dialed in, mainly on how do you reduce taxable income. Yeah. So that's like the main thing that we really work with folks is like, what are the levers that we can pull to reduce taxable income?
• 31:23
  Davina: Right.
• 31:23
  Scotty: Yeah. Right. So making sure people have those small plans set up is, like, the biggest lever for most people. Yeah.
• 31:28
  Davina: Are you seeing a lot of a lot of people coming in with their own loans, and then they're signing loans for their kids?
• 31:37
  Scotty: Yes. And those are some of, like, the most heartbreaking cases by, like, a long shot. Right? Because the people that need parent plus loans are by default not terribly wealthy people. You know?
• 31:48
  Mhmm. And the parent plus loans are particularly sad because, one, there's no limit on how much you can borrow. Right? So I have clients that, like, have large families. We're working their whole, you know, childhood for these the kids.
• 32:06
  And when it's time for these, like, kids to go up to college, they're, like, all relying on student loans, and undergraduate borrowing is capped at, like, you know, $30,000 ish. And so if they're going to grad school, then they're taking out parent plus loans or they're doing grad plus loans. So the bummer about parent plus loans is that they're only really eligible for one of the income driven plans. This thing called ICR, income contingent repayment. And you have to consolidate to be able to get access to that.
• 32:37
  That is the, like, the least generous of any of the plans. So we've been talking about, like, a 10 to 15% of discretionary income. ICR is 20% of discretionary income. Right? There had been a process by which you could consolidate your loans in a couple of steps, a double consolidation process that helped people that was a loophole that helped people get on to the more generous income driven plan, save, pay, new IBR.
• 33:07
  That loophole is very much closing. And it looks like in both of these proposed bills that people that are in that have had loans be repaid had had current consolidation loan that repaid loans that contained parent plus loans could potentially be kicked off of all of it if they're not in ICR currently on the day the loan the big beautiful bill passes. So we've seen in the last, like, week when we, like, read and reread and reread the actual, like, proposed text of the legislation, 1,100 pages of it. Well, we didn't read all 1,100 pages, to be perfectly honest. We read, like, you know, a couple of dozen pages that had pertained to student loans.
• 33:52
  And it looks like there's some very scary stuff in there for parent plus borrowers because that thought that they were out of the woods, thought that they had done all the stuff that was recommended to get on to these more generous plans. And now they could just be, like, booted off of it. And these are folks that are like, I have clients that are in their sixties, seventies, you know, that have
• 34:13
  Davina: Right.
• 34:14
  Scotty: Hundreds of thousands of dollars, $700,000 plus of this one family I'm thinking of. You know, they're not probably paying that back. And so it's morbid to think about, but one of the main benefits of federal student loans is death and disability discharge. Right? So it's like, maybe we just pay the little as we can, put this into forbearance three years, and because you can do three years of forbearance for most loans.
• 34:44
  If you're in your seventies, maybe just kinda run off the clock on this thing. Die with your loans. We have an article about it on the website. I wouldn't I wouldn't die on purpose just to get rid of your student loans, but if you have some other good reason to die
• 34:56
  Davina: But if that happens, gig for the kids.
• 34:58
  Scotty: Yeah. Yeah. The other thing is there's some strategic retirement planning that can come to effect with Parent PLUS borrowers. Because if they are on an ICR plan that's tied to their AGI. Right?
• 35:11
  And if, like, we can push that payment out a couple of years by using strategic forbearances, for instance, and we can get them into retirement when they're gonna have a much lower income perhaps than their working years. And this is probably not the case so much for for your audience because I don't know very many lawyers that retire. So but for people so just for your audience. So retirement's this thing where you stop working and then you do other stuff that's presumably more enjoyable. Like, some people, like, interact with their families.
• 35:43
  Some people go travel. You know? Yeah.
• 35:47
  Davina: Yeah. Well, it's interesting because it depends because there it's just the lawyer answer. It depends. It depends because I got some people who tell me that, oh, I wanna retire at 40. I only wanna do this for x number of years, then I don't wanna do it anymore.
• 36:01
  And so Yeah. The urgency of sort of dealing with these student loans so that we're not carrying them beyond into whatever else next phase of life. Sure. I've I've had conversations with people who just kind of said, just stop paying it. I don't want to think about it, deal with it.
• 36:19
  And then when they went to buy a house, they were like, okay, now I need to do what I need to do. And they were able to jump through some hoops, make some negotiation with the student loan, and then get it back on track and and Yep.
• 36:32
  Scotty: So there was specifically during the pandemic, there was a program called Fresh Start, which helped people that were in default get out of default so that they could then, you know, start to move forward with their credit. But, like, because there are no there's no collateral for a student loan, we can't, like, take back your, you know, education. The they are the most difficult to discharge not impossible, but difficult to discharge types of debts.
• 36:58
  Davina: Bankruptcy is a he it's it's it's available for everything else but student loans and taxes. I mean, like, you to try to Yeah. Discharge your student loan in bankruptcy. Like, you know, you gotta be in an iron lung or something. Like, there's no Basically.
• 37:15
  Scotty: Yeah. Yeah. The good news for people that are buying houses is that a decent mortgage broker will know to use the income driven payment as part of your debt to income ratio and not the total balance of the loan. So if by default, they just see some debt on your balance sheet, they'll use 1% of the loan balance per month as the obligation for that loan, which is not what the actual obligation is if they're on an income driven plan. So that's a pretty, like, useful, like, practical tip for folks is that if your if your lender is not using your IDR payment as as part of your debt to income calculation, make sure they are doing that because they're allowed to, and and a lot don't.
• 38:01
  The good ones will, but a lot a lot don't. Yeah.
• 38:04
  Davina: Right.
• 38:04
  Scotty: So for that person, it might not have been as scary as they would have thought it was. So yeah.
• 38:09
  Davina: So my advice is that this I am sitting here listening to this, and, when you start talking numbers, my eyes start glazing over. And I think it's the way it is for most lawyers, who say things like, I don't do math. That's why I went to law school. As we're sitting here going, oh my god. What?
• 38:28
  What did he say? So my advice is if you are if you have some hefty loans, would be good to consult with experts who do this all day every day like student loan planner, the financial, advisor who specializes in student loans, because you might be leaving money on the table, you might be in a plan or in a situation where you're not maximizing your strategies that you can be maximizing to sort of minimize the impact that this student loan will have on your financial life.
• 39:01
  Scotty: For sure.
• 39:02
  Davina: Fair to say?
• 39:03
  Scotty: Fair to say. Yeah. It's pretty remarkable. Like, you know, we do comprehensive financial planning for folks in addition to doing one off student loan plans for people. And there's not many areas of financial planning where I regularly make 6 figure impacts on people's financial lives.
• 39:22
  I do it all the time. All the time optimizing people's student loan situations. So it's, like, pretty life changing for people.
• 39:30
  Davina: Yeah. That really is It's
• 39:32
  Scotty: really fun.
• 39:32
  Davina: When you're when you're looking yeah. That's gotta be very rewarding to
• 39:35
  Scotty: Yeah.
• 39:36
  Davina: To know that you're having that impact on somebody's life because that makes a huge difference in the long term. I know a lot of people when they're young, they don't they're not thinking the long term consequences of things. I know I didn't. And now that I'm older and I look back and go, man, look at all the stupid mistakes I made. And I wish I had gotten more advice from people who were experts in certain areas.
• 40:00
  So this would be one of those areas. If you're carrying student loan debt, I think that it would be really smart and wise to do that. Tell us how we can learn more about what you do, get in touch with you,
• 40:10
  Scotty: connect with your team. I'm happy to put my you know, my my email is just Scottie@studentloanplanner, s c o t t y, or Scottie at SLP Wealth, s l p u l, if you wanted a more comprehensive approach. And subscribe to our newsletter. It's, like, literally the most up to date information on student loans that's out there. We have a podcast that comes out twice a week.
• 40:33
  The Tuesday podcast is more focused on, like, the current craziness of student loans, and then we've kind of transitioned the Friday podcast to be more sort of, like, general sort of wealth planning and financial planning stuff. And we do one off consultations with people where we take a deep dive into your actual student loan data file and do some projections and, you know, run those calculations like I was telling you. Like, what is PSLF actually worth to me? Could I be doing you know, does it matter? And then, like, what I really, really always try to do with people is put that number in context of, okay.
• 41:10
  Student loans is just one part of your financial life. But in the grand scheme of things, what I really care about for you is when are you financially independent. Right? Right. And putting putting the financial putting student loans as one piece of that journey is, like, crazy powerful because you'd be like, well, I have $800,000 of student loans, but it only makes it one year longer for me to be financially independent if I do this optimized plan.
• 41:34
  Right.
• 41:36
  Davina: Okay. Maybe I will do why I think it's so important is because I I guarantee you people are not thinking about, I mean, it's complex. It's complex to even understand. A lot of what you've shared today, I think there are a lot of people who are going, oh my god. What did he just And so meeting with somebody who specializes in that area can help you put it in context.
• 41:56
  And that really does a lot psychologically for people as well if you say integrating. This is just part of my and when I actually look at the numbers, here's the reality of it, and here's what and it may not be as bad as you think it is. But I think that's what you're getting at. Right? May not be as bad
• 42:10
  Scotty: as you believe is. It's often not as bad as you think it is. And if you end up paying your student loans back completely, well, congratulations, that just means you're making a boatload of money. So good for you. It's a great great problem great problem to have that I've that I would love to, you know, take off your plate.
• 42:25
  So
• 42:26
  Davina: Yeah. Yeah. Wonderful.
• 42:27
  Scotty: Thank you. We also do I was also gonna mention we also do group webinars and things occasionally for organizations and groups. So if you have your, you know, local bar association or your, you know, young attorneys group or whatever, we're happy to come and talk to groups and things as
• 42:43
  Davina: well. Wonderful. Thank you so much. And I will share any all those links that you talked about. When you send those to me, we'll share them in the show notes.
• 42:50
  Everybody can click on them. I appreciate you being here and sharing with me. This has been really interesting conversation.
• 42:57
  Scotty: Happy to be here. Thank you for the
• 43:00
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