Podcast #119 Show Notes: How to Pay for College with Robert Farrington

This episode we interview Robert Farrington, the founder of thecollegeinvestor.com, where he provides lots of information for young investors, for indebted people with student loans, and millennials in particular. Robert, Mr. Money Mustache, and myself started our blogs about the same time, though both of theirs are bigger than mine. His message is about getting out of student loan debt and starting to invest. Whether it’s millennials or not, his goal is to help people navigate the complex world of student loan debt, so that they can build wealth as early as possible. We discuss the order of operations for paying for college. There are nine basic ways to pay for college. You should max out each of them before moving on to the next step. We discuss each of those steps as well as the repayment plans available for student loans. If you are struggling under the weight of student loans, this episode will provide you information and encouragement to get rid of those student loans and begin building wealth as quickly as possible.

This episode is sponsored by Set for Life Insurance. Set for Life Insurance was founded by President, Jamie K. Fleischner, CLU, ChFC, LUTCF in 1993 which she started while attending Washington University in St. Louis. They specialize in individual term life, disability and long term care insurance. They work on the client’s behalf to shop around to find the most suitable products at the most cost-effective rate. Set for Life is first and foremost a client-centric company. They listen carefully to the needs of clients. Because of the volume and exceptional reputation of Set for Life Insurance, as well as the relationships they have developed over the years, Set for Life clients have access to special services not available elsewhere in the industry. This includes special discounts, gender-neutral policies (saving women significantly), priority underwriting handling and, on some occasions, exceptions in the underwriting process. Contact Jamie at Set for Life Insurance today.

Announcements

Recommended Financial Advisors

If you haven’t checked out our new recommended financial advisor page, I recommend you go check that out. This page is something that I have been working on for years. Even from the very beginning of this blog, I have been getting questions from people asking for recommendations for financial advisors. In the beginning, I just threw a few names up there, people I knew who were good. Then I had people start approaching me to be listed on that page. I ended up turning lots of them down, obviously, because, I think, most financial advisors really aren’t very good. Eventually it just became so much work, we started charging for it. I was doing too much work analyzing all these different firms and trying to figure out who are the good ones to be giving it away for free. I put an application in place, basically I asked all the questions that I think you ought to ask a financial advisor when you hire them. And if they could get all the questions right, that they were fee only, they’re fiduciaries, the price was reasonable, they were giving good advice or using passive investments, etc, then, I was okay with them being listed on that page. The page grew and became very unwieldy for anyone to sort through. So, this summer, we redesigned the page, in order to make it much more useful to you. We now have some premium listings at the top, that include all kinds of information about the advisors. And then, each advisor has their own individual little page on our site, where you can get even more information about them. We are adding clips from podcasts, when they were on there and a video so you can actually get a sense of who they are and what their personality is like and who their ideal client is.

We have tried to turn this into a very useful page for those of you who are interested in hiring a financial advisor. Whether you want to do it temporarily, or whether you want to do it long-term. They will all work with you in any location. Chances of you being in their location are not high but if you’re in a big metropolitan area, there’s a good chance that, at least, one of these advisors, you could meet with locally, if that was important to you. But, for the most part, they work with people via Skype and email and phone, which is really all you need when it comes to a financial advisor.

WCI Scholarship

how to pay for collegeWe are closing the submissions for The White Coat Investors scholarship at the end of this month. You have until August 31st at midnight Mountain Time, to get your application in. We have had hundreds of people apply, and we still could use a few more judges. So, if you’re interested in being a judge, email us at, [email protected] That’s the same place you send your application, if you want to apply for the scholarship. We’re giving away over $90,000 in cash and prizes this year.

It’s a great thing that not only helps improve financial literacy, because we are giving a copy of one of our White Coat Investor books to every member of the winning people’s class, the top five winners, everyone in their class gets a copy of a White Coat Investor book. But it also directly reduces the indebtedness of the top five winners. They are getting a check that will help them to not have to borrow so much money for their education. We are proud of being able to pay it forward along with advertisers and readers/listeners that have donated money to the scholarship.

How to Pay for College

The College Investor

Our guest in this episode is Robert Farrington of thecollegeinvestor.com. He was an entrepreneur from a young age. He always had a side hustle as a kid. He was selling candy bars in middle school that his mom would take him to Costco to buy and resell. In college he was selling stuff on eBay he picked up at garage sales. But when he started his blog, he had graduated from college and was working as a manager at Target. He enjoyed the people he worked with, and he felt the job was pretty easy and paid very well. This also gave him the flexibility to do side hustles. The college investor earned more than his career path about two years before he left Target. It is hard to keep working nights, weekends, and holidays when you don’t financially need to. Sounds a little like an emergency department, right?

The mission of The College Investor is to help people get out of student loan debt and to start investing and building wealth. He really champions his own path of doing it through side hustle. He is a big believer in the earn more mentality.

“I think that we are blessed, at this day and age, that you have limitless money making opportunities. And so, while you still need to budget and be mindful of your spending, I think, if you develop a side hustle, you earn more, you can achieve your financial goals of getting out of debt and investing early, and you can achieve that much sooner. Plus, student loan debt is complicated and confusing. And so, I really just enjoy helping people navigate that process, because, it’s hard, you’re like fighting the government effectively, and it can be a challenge.”

He publishes new articles on his blog Monday through Friday. They have a lot of reviews. He has always been passionate about the new up and coming companies and financial technology companies. He reviews pretty much every product, service, software, that is out there in the personal finance space so check that out if that is something that interests you. They definitely have the personal finance basics and interesting articles around different topics surrounding student loan debt. You’ll probably find everything you could ever want to know about student loan debt on his site and a lot of investing content as well.

Millennials and Student Loan Debt

The blog itself has a big focus on millennials but personal finance topics are open to everyone. The math is the math, and the tools are the tools. Millennials get lots of flack. People are calling them lazy or overly lifestyle focused. But Robert doesn’t think that is valid. It’s a different day and age. My parents don’t really understand how I make a living on the internet. And so, millennials just have different tools, different avenues to earn than the baby boomers did. They have different viewpoints on life, but Robert feels they’re definitely not lazy or lifestyle focus. I asked him what’s the biggest financial challenge these days for millennials? He said,

“Student loan debt is definitely the biggest financial challenge, I think, in aggregate. But I also think, there’s a lot of macroeconomic factors out there. Even though employment is good, wage growth is stagnant, the boomers are still jamming up the workplace for young adults, and so, they are not having as many opportunities to promote and advance their careers as quickly as previous generations, which keeps that wage growth stagnant. And lifestyle costs are higher, so, things that people would have done in the past, like buying a home or purchasing other things, it’s just more of a challenge. And so, when you combine all these factors, it really is just, it’s macroeconomics, and it’s individual personal financial choices, that have made the financial picture for millennials more challenging than, I think, previous generations encountered.”

Ways to Pay for College

I obviously really focus my message on physicians and other high income professionals, regardless of age. And that crowd’s big financial challenge is definitely student loans as well. Robert wrote a fantastic article that he called the order of operations for paying for college. It goes through nine ways to pay for college. Presumably, you max out each of them before moving on to the next step. Here are the nine steps for paying for college

  1. Scholarships and grants
  2. Your own savings as a student
  3. Your earnings as a student
  4. Your parents’ savings for college
  5. Your parents’ current income
  6. Fellowships and assistantships
  7. Aid through school work related programs
  8. Federal student loans
  9. Private student loans

I think it is a great list, and I totally agree with it. I asked Robert why he felt that article needed to be written?

“The article needed to be written because so many people, especially in mainstream media, I guess, you could say, just default to, you’ve got to use student loans to pay for college. And it’s like student loans are one option to pay for college, but there’re so many things that people forget are actual other options. And usually, better ways, I guess, you could say, to pay for college. And I just really wanted to demystify that, like, look, there is a good way to pay for college, and you can maximize each of these buckets.”

Scholarships

We ranted for a bit about scholarships and how they are the number one most underrated way to pay for college because no one wants to put in the work to get the scholarship. But the scholarship is the easiest, best way to get free money to pay for school. He runs a scholarship on his website called the Side Hustle Student Scholarship. He wanted to reward entrepreneurial high school students. He asked them to share their story, and then, he will give one of them a $2,500 scholarship. He only gets 100 or so entries to that scholarship. Once he starts combing through them, 70 out of the 100 did not meet the criteria for the scholarship. And it’s stupid things like they didn’t put a picture and he asked for a headshot. They didn’t put the school they were going to, they didn’t format their essay correctly. So a $2,500 scholarship, and really, you are in competition with 30 other people. The odds are so good. The crazy thing is when he has talked to other people that have run scholarships, it’s very similar across the board. 70 to 80% of all scholarship applications get disqualified just for not meeting the basic criteria. For the WCI scholarship, we have run into similar issues. We have a set word count (800-1200 words) and each year we throw out scholarship essays because of their lack of ability to count to 800 or 1,200. Scholarship applicants have lost out on tens of thousands of dollars because they didn’t pay attention to the word count.

Student Loans

Robert wants people to realize paying for college isn’t all about student loans; there’s so many ways to do it. You can save as a student, you can work through college, your parents can save, you can get fellowships. And then, if needed, federal student loans should always be first, for the most part, and then, private student loans. For most people, they should really think about this order, especially if you’re a parent, you should tell your young high schooler, even late middle schooler, that, “This is what we have, this is what we expect.” Have these conversations, so that, by the time they’re in their junior year of high school, it’s not a surprise, they know what it’s going to take, and they can plan accordingly.

Like Dave Ramsey, I believe no one needs to borrow for an undergraduate education. I don’t think anyone is going to work their way through dental school. But if you pick the school right, you pick one with a reasonable amount of tuition, you bust your butt, maybe your parents help you some, you can get through undergraduate without debt.

Robert agrees and says,

“My big thing with student loans is figuring out the return on investment of your education dollars. I don’t necessarily think borrowing is bad, but everyone gets into trouble with it. And it’s not different than borrowing for a house or borrowing for a car, it’s, they borrowed too much and they couldn’t afford it. And so, if you want to be a teacher today, in America, that’s great. But, realize, your starting salary, depending on where you teach, could be in the low 30,000, to maybe like 45, 50,000, if you’re in New York or California. And so, if you’re going to earn that after graduation, that’s fine, it’s not necessarily a bad thing. But don’t go spend $80,000 to become a teacher, maybe you go to your local community college. Which, in a lot of states now, they’re making free. And even if it’s not free in your state, it’s very cost effective. Do that for two years, knock out all your undergraduate stuff. Then, you transfer to your local in-state school, you finish up your two years, and you could be done and get a teaching credential for $10-$20,000. Now, when you’re looking at your starting salary as a teacher, you can afford to service that debt on your starting salary. It might not necessarily be the easiest, but it’s definitely a lot better than spending $80-$90,000 to be a teacher.”

He feels a little debt can be a positive return for you. It’s just when you spend way too much, that it becomes negative. His rule of thumb is never to borrow more than you expect to earn in your first year after graduation. If you’re going to go be a doctor, the same rule applies. If you’re going to go be a pediatrician, you expect to make $150,000, you should probably keep your borrowing to about $150,000. If you’re going to go be an orthopedic surgeon, you’re going to make $600,000 a year, then you can definitely afford to borrow a lot more. But, it varies, based on what you want to do after graduation, and you have to be intentional with that spending.

If your dream is to be a pediatrician or another lower paying medical specialty, remember your dream isn’t to struggle financially for the next 40 years of your life. If you don’t think you can keep your borrowing to 1X your starting salary, you should look at navigating the variety of programs that are out there to help you.

You do your due diligence, you take out federal loans, you go work in a public clinic, and you get Public Service Loan Forgiveness. Or, you could take advantage of one of the many rural opportunity programs, practicing in a remote location in exchange for them paying a portion of your loans over time. There are a lot of programs out there for that. But Robert stresses that you have to do that work upfront, and you have to commit yourself to that. The course can be laid out, and you can analyze all your options. But, you just need to do that upfront, versus when it’s too late.

Why Do People Struggle With Student Loans?

I asked Robert why do people struggle so much with student loans? Are they just ignorant and undisciplined? Is the system unfair? Or, is it some combination of both?

“It’s definitely ignorance and the system. So, one, we’re expecting these 18 year old, 19 year old kids to make very important financial decisions with very little to no guidance or education. I remember when I got my student loans. I remember, I got an email from the financial aid office, this was like May or June, before my freshman year, and it said, “Congratulations, you’ve received financial aid.” Right? So, notice, they don’t call them student loans, they say, “Congratulations, you have a financial aid award.” And then, I click the link in the email, took me to the financial aid website. And it said, like, “Click here to accept your award.” You have a little checkbox, and that checkbox is next to a student loan, but they’re calling it a financial aid award.

And then, you scroll through some terms and conditions, which, at this point in our lives, we’ve all been trained to just skip to the bottom of the terms and conditions and hit Accept. And that’s how I got my student loans. It is crazy how easy it is, and there is no education that’s part of it.”

Robert said when you literally take all the different paths that someone can take with their loan type, and their career and their repayment plan, there’s 150 plus different variables.

That is hard to navigate. It can be very challenging to navigate repayment. And then, when you combine that with the fact that these loan servicers are call centers with 10,000 plus employees that are making a minimum wage, they’re probably not necessarily doling out the personal financial advice you need.

The whole system is very challenging, and the best thing you can do is just educate yourself. No one in this world is going to care more about your money than you.

What are the Biggest Student Loan Related Mistakes People Make?

I asked Robert what are the biggest student loan related mistakes he is seeing his readers making these days?

“The biggest one I see, is that, people are not doing their research when it comes to what qualifies for these loan forgiveness plans. What repayment plans they should be on? They are just defaulting into getting six months of deferment on their federal loans after graduation, and then, automatically going into the standard 10 year plan. Well, they see that first bill, and they’re like, “I can’t afford it.” Well, then they default. And then, that drags on, their loans grow, and it becomes a mess. And they’re not sorting it out until it’s too late.”

Of course, we talked about Public Service Loan Forgiveness and headlines like “99% of people are denied for Public Service Loan Forgiveness.”

Robert feels like that headline could not be more misleading about the effectiveness of Public Service Loan Forgiveness, and what it actually takes to qualify.

“So, the fact that people think that they would qualify for Public Service Loan Forgiveness in month one that the program started, is so wrong. And it’s not the government’s fault that people didn’t educate themselves on how the program worked. And then, when you look at the denial reasons, the number one most common reason that you’re getting denied, is because you didn’t fill out the application correctly. So, it’s like, of course, the government’s going to deny you. Follow the directions, people.”

Certainly, there are issues with people not understanding how PSLF works. Certainly, there are competency issues on the part of those running the program. But I asked him does he think that this is going to be around for a long time? Does he think people should really be counting on it? Does he think this is a good program?

“I think it’s a great program that is poorly structured. So, like in my ideal world, for those that don’t know, direct student loans is the number one qualifying criteria. Number two is you have to be on a qualifying repayment plan. Which is the other thing that I think is silly with this program, why be so strict? You have to be on a qualifying repayment plan. And the number three is you have to work in qualifying public service for 120 months, 120 payments, right? And so, if you look at the data, the program is actually doing exactly as expected. So, here’s some scary stats, in 2019 to 2021, there’s only going to be 1,800 people this year and next year or so, that are going to get Public Service Loan Forgiveness. That’s just the math of who had the qualifying criteria 10 years ago, there just wasn’t very many.

But when you fast forward this clock to 2025, they’re going to have 150,000 people that are potentially eligible for Public Service Loan Forgiveness in 2025. And that starts to make sense, because, when the program started, you know what? Direct loans were only 1- 3% of all student loans issued. So, number one criteria doesn’t get met. And then, the other one, the correct repayment plan, most of the repayment plans didn’t come about until 2009 to 2011. And 2007, when the program started, income contingent repayment was the only repayment plan that existed, right? And that was a really, it’s still a really terrible plan. It’s not really terrible, but it’s not the best, right?

It would have been so rare, in 2007, for someone to have direct loans, for someone to be on income contingent repayment, and for them to follow the law so well that they recertify or they started certifying their employment immediately. So rare. But, when you start thinking about 2015, 2016, the program has been around for a few years. Now everybody is getting direct loans, after 2011. Pay As You Earn was created, IBR was created, REPAYE was created, so, these qualifying repayment plans were all created. People were graduating college, the program that existed, now it’s starting to make sense. 2015, 2016, 2017, you have big cohorts of borrowers that are potentially eligible for loan forgiveness.

So, the program is working exactly as it should. People just need to realize that it takes 10 years from this point in time. So, 2022-2023, we’ll start seeing lots more people getting student loan forgiveness in the program. And that’s why I also think it’ll be around. So, the numbers say it’s going to come in the future, the biggest groups of lobbyists in America are public service employees. You’re talking, the teachers, the firefighters, all the politicians are surrounded in their offices by people that are potentially eligible for public service. It would be very bad politically to eliminate the program. I think they should reform it, and then, they should expand it, open it up, fix some of these things. But the program is working well, and I think we’re going to start seeing huge waves of people on the next two, three years, start getting loan forgiveness. And then, we’ll start seeing a lot of positive chatter around it.”

I asked him the question that is often asked in our circles, is it fair that physicians who really only made payments for four years, because they made little tiny payments during their residency and fellowship, should have $400,000-$500,000 forgiven when they’re making $600,000-$700,000 a year?

“One of the reasons I really like Public Service Loan Forgiveness, is that, it requires 10 years or 120 payments of giving back. And what we deem as public good, public service jobs, are typically in the public good, right? So, you’re not getting something for nothing. We are asking these people to commit to working in the public good for a period of 10 years. And these programs have always existed in different forms or fashions, even before Public Service Loan Forgiveness. And so, it’s really a question like, if you disagree with the fact that we’re talking about Public Service Loan Forgiveness, and that it exists, well, your beef shouldn’t be with that orthopedic surgeon, your beef should be with your legislators and your congressman. The program exists. If you don’t like it, channel your efforts towards people that can create the laws and change the laws, not the person that is taking advantage of a perfectly legal program.”

He could see the change, like what President Obama proposed, of limiting the amount of money forgiven but thinks it would have to go hand in hand with a lot of other reforms.

“One of my big beefs and one of my actual proponents is, I am a big believer that you should cap the amount of student loans that you can take out, especially Grad PLUS Loans, which, I know, a lot of docs take advantage of. The fact that you can borrow unlimited amounts of money for grad school is part of the price inflation of grad school, and of all these different universities. And on the flip side, that’s where people get into trouble. So, I would say, if you’re going to cap the amount of student loans that can be forgiven, well, you also need to cap the amount, both federal and private, that can be borrowed. And then, you’re going to see a massive change in the marketplace, which, I can’t tell you if it’ll be good or bad, there’s definitely going to be pros and cons and arguments on both sides of that equation.

But, I think they would have to go hand in hand together. I think, in terms of Public Service Loan Forgiveness, doctors that work in public service are giving back. Like, they’re staffing VA hospitals, they’re staffing nonprofit clinics and providing services that other people might not want to provide. They’re probably working in lower income areas, seeing different clientele than other practitioners. Or, they’re educators, and they’re educating the next group of doctors that we need in this country. So, on the flip side, they are doing public service, and I don’t think we should dismiss that. Even though their loan balances are higher, they’re specially trained, and they have services and things that are valuable in our country.”

We discussed doctors and other high income professionals that are having trouble paying off their student loans even with high incomes 1X their student loans. They have a high income, but they’re not building any kind of wealth. They sometimes have a payment mentality. The biggest driver of wealth is getting out of that payment mentality. You can service your loan payment or you can just pay off your loans.

“Once you start getting out of the payment mentality, ‘well, I can nurse a longer payment here, and I can nurse a longer payment there,’ you’ll start building wealth, and you’ll start seeing your whole financial outlook change. And I think that’s the biggest thing, doctors start getting this great income, but then they start filling in the gap between their mandatory expenses and what they’re earning with fun stuff and other stuff, and that just wastes all their money.”

Make a Plan to Pay off Student Loans

Robert feels like as you are navigating that student loan repayment, it’s really important to get organized and know your options, and make the plan and stick to the plan. You’ve already become a doctor, you know how to commit to something. You went through a lot of schooling, a lot of training, more than anybody else in this country. You are totally capable of committing to the plan, and then sticking to that for the five years that it’s going to take to eliminate your student loan debt.

“Get educated, know exactly what you need to do. Dot your I’s, cross your T’s on these forms, and it can be done. You can get out of a student loan debt very quickly and easily, but you just have to be very diligent about it.”

Ending

Check out all the resources available to you at thecollegeinvestor.com. If you need help making a plan to pay off your student loans, contact one of our recommended student loan advisors. It’s interesting to get a student loan perspective of an average Joe. We talk about this stuff in terms of doctor incomes and doctor debt loads. We forget, there are lots of people struggling with an income of $50,000 a year and student loans of $80,000 a year. Which obviously takes a lot more sacrifice to pay off, than it does for a lot of us with physician size loans and incomes. So make a plan and get them out of your life.

Full Transcription

Intro: This is The White Coat Investor Podcast, where we help those who wear the white coat, get a fair shake on Wall Street. We’ve been helping doctors and other high income professionals, stop doing dumb things with their money since 2011. Here’s your host, Dr. Jim Dahle.

WCI: This is White Coat Investor Podcast, number 119. Paying for College, with Robert Farrington. This episode is sponsored by Set for Life Insurance. Set for Life Insurance was founded by President Jamie K. Fleischner, CLU, ChFC, LUTCF in 1993, which she started while attending Washington University in St. Louis. They specialize in individual term life, disability and long-term care insurance. They work on the client’s behalf, to shop around, to find the most suitable products at the most cost effective rate. For more information, visit, setforlifeinsurance.com.
WCI: All right, if you haven’t checked out our new financial advisor page, our recommended financial advisor page, I recommend you go check that out. You can find it at, whitecoatinvestor.com/financial-advisors. This page is something that I have been working on for years. Even from the very beginning of this blog, I have been getting questions from people basically asking for recommendations for financial advisors. And so, in the beginning, I just threw a few names up there, people I knew who were good, and that’s how it started. And then, I had people start approaching me to be listed on that page. I ended up turning lots of them down, obviously, because, I think, most financial advisors really aren’t very good.
WCI: And then, eventually, it just became so much work, we started charging for it. I said, “I’m doing too much analyzing all these different firms and trying to figure out who are the good ones, to be giving it away for free.” So, we started actually, it was one of our ads that you could buy. You could buy a listing on the page, so long as you pass my criteria. And so, I put an application in place, basically asked all the questions that I think you ought to ask a financial advisor when you hire them. And if they could get all the questions right, that they were fee only, they’re fiduciaries, the price was reasonable, they were giving good advice or using passive investments, et cetera, then, I was okay with them being listed on that page.
WCI: Well, that page grew and grew and grew and grew, until we had over 40 advisors listed on there, and it just became very unwieldy for anybody to sort through. So, this summer, we redesigned the page, in order to make it much more useful to you. And so, we’ve got some premium listings at the top, that include all kinds of information about the advisors. And then, each advisor actually has their own individual little page on The White Coat Investor website, where you can get even more information about them. We’ve added clips from podcasts, if they were on there. And we’ve also added a video that you can actually get a sense of who they are and what their personality is like and who their ideal client is like, and learn more there.
WCI: So, we’ve tried to turn this into a very useful page, for those of you who are interested in hiring a financial advisor. Whether you want to do it temporarily, or whether you want to do it long-term. Whether you just need to put together a written financial plan, or whether you want someone to manage your assets going forward, we’ve got a list of these top financial advisors from across the country. They will all work with you in any location. Chances of you being in their location are not high, obviously, because these are firms all over the country. But if you’re in a big metropolitan area, there’s a good chance that, at least, one of these advisors, you could meet with locally, if that was important to you. But, for the most part, they work with people via Skype and email and phone, which is really all you need when it comes to a financial advisor, you don’t really need someone you can sit down with face-to-face.
WCI: So, check out that list, that’s at whitecoatinvestor.com/financial-advisors. Also, we’re halfway through August here, and you know what that means. That means, we are closing the submissions for The White Coat Investors scholarship at the end of this month. You have until August 31st of midnight Mountain Time, to get your application in, if you want to get The White Coat Investor scholarship. Now, we’ve had hundreds of people apply, and we still could use a few more judges. So, if you’re interested in being a judge, email us at, [email protected] That’s the same place you send your application, if you want to apply for the scholarship. We’re giving away over $90,000 in cash and prizes this year.
WCI: It’s a great thing that not only helps improve financial literacy, because we’re also giving a copy of one of our White Coat Investor books to every member of the winning people’s class, the top five winners, everybody in their class gets a copy of a White Coat Investor book. And so, it’s really helping to spread financial literacy throughout our medical and dental schools and other financial professions. But it also directly reduces the indebtedness of the top five winners, they’re getting get a check for cash, that will help them to not have to borrow so much money for their education. And so, we’re proud of being able to pay it forward, pay our success forward in that way, be sure to check that out.
WCI: We’re not the only ones that contribute to it, though, we have a lot of sponsors you’ve been seeing on the blog lately, and hearing about on the podcast. Our five platinum level sponsors include, Alexis Gallati, that does strategic tax planning. Ben Utley, he’s a financial advisor at Physician Family Financial Advisors. Splash Financial, which does student loan refinancing. Bob Bhayani, a doctor at disabilityquotes.com, who does disability and life insurance. And Larry Keller at Physician Financial Services, who also does disability and life insurance. So, thank you for supporting those who support what we’re trying to accomplish here at The White Coat Investor.
WCI: We have special guests here today, let’s bring them on to the call, and then, I’ll introduce them. Our guest today is Robert Farrington. He’s an online entrepreneur, the founder of The College Investor. He calls himself America’s Millennial Money Expert. I first met him at FinCon in 2013, which is about the time I was getting pretty serious about The White Coat Investor as a business. The other person I met at that conference was Mr. Money Mustache. And the three of our blogs have grown up together over the last few years. The College Investor started in 2009, Mr. Money Mustache started in April 2011, and I started in May 2011. I think, my blog is the smallest of the three in terms of traffic, but I think I interact in more ways than either the other people do. So, maybe that makes up for a little bit of it.
WCI: Welcome to the show, Robert.
Robert: Hey, thanks so much for having me. You were actually the first FinConer, I should say, that I ever met in the lobby of FinCon in 2013. I still remember that, because, you’re like, you had an investor in your name, and I had an investor in my name. And it was like, “Oh, what do you do?” That’s still so funny that that was when we first met.
WCI: Yeah, I remember that conversation, because I was like, “So, is this investing for college?” And I think your response to me was, “No, it’s for people in college that are investing.” And I said, “Okay, that’s interesting. It seems a little bit hard to invest while you’re in college. I know, I didn’t do any in college, because I didn’t have any money. I was too busy donating plasma for food money at the time.”
Robert: Yeah, I always was passionate about it, and I don’t know why I thought that people would want to know what some 19, 20 year old kid, what his thoughts were on investing. But, hey, I wanted to share my thoughts, and here we are today, at 10 years later, right?
WCI: Yeah. How old are you now?
Robert: I am 34 right now.
WCI: 34 years old. Okay.
Robert: Yeah.
WCI: So, you’re the college investor, what did you study in college?
Robert: I actually went into college because I was going to be a computer science major. And my freshman year, I was in the basement of a computer lab, programming, and I hated it. I just, I couldn’t stand it. I actually really liked the science and the logic behind it, but I just could not stand programming. So, I ended up switching my major to political science and economics, and that’s what I ended up doing after my freshman year.
WCI: Now, as I read your bio on your site, thecollegeinvestor.com, it sounds like you’re an entrepreneur from a young age. Are you honestly surprised to see what you’re doing now with your life?
Robert: I am. I was definitely always had that side hustling, how to earn money mentality, since I was a little kid. I was selling candy bars in middle school, that my mom would take me to Costco and I’d resell. I was selling stuff on eBay through college, that I’d go to garage sales and pick up. But, my parents were also, my dad was in the military, and then, he was in the defense contracting world for 20 years. And my mom worked in public service for her whole entire career of 40 years, so, they all had these stable jobs. I really never expected myself to start a business, and then, actually, do the business full-time. After I graduated from college, I was working at Target, and I actually did that. And that was my career.
Robert: I was a store manager there, I really loved it. I never expected it to be here, honestly.
WCI: So, that’s what you were doing? When you started The College Investor, you were managing at Target.
Robert: Yeah. I mean, I was at the bottom of the ladder back then. But, yeah, I mean, I started working in high school and college, cashiering and working on the sales floor. And then, after college, I became an assistant manager. And a couple of years after that, I became a store manager for Target. And I really enjoyed it, it actually, it was fun with the people I worked with, and I felt the job was pretty easy. And I think, people were surprised to hear that Target store managers get paid very well. So, it was great. And it also gave me the flexibility to do side hustles and build up my side business. Which, honestly, when I started, I never expected it to be where it was today.
WCI: So, when did the side business become the main business?
Robert: Well, it earned more than my career path, about two years before I left. This was about four or five years ago, at this point in time. It was a fantastic side hustle. The more I earned, and I was at Target, it’s almost like the movie office space. It’s like the less I was stressed about my day job. And it finally got to a point where I was like, “Why am I still doing this?” Because, the only drawback with retail is, it’s nights and weekends and holidays. So, the busiest time of the year is Christmas-
WCI: Sounds like an emergency department.
Robert: It does sound like an emergency department, right? So, you still had to… It’s like, I have young kids, even though the money is really good, and I found the job to be easy. Like, why am I still putting my family through this? My son had just started playing soccer, and it’s like, I have to miss like half of his games, because I’d be working on the weekend. And it really wasn’t serving any purpose, other than extra cash at that point in time. So, it was tough to leave, but I finally had to make that choice of what my priorities were of my life, and that’s really where we’re at today.
WCI: Let’s talk about The College Investor, what’s the mission of The College Investor? And how’s that changed over the years?
Robert: Yeah. Today, I am all about helping young adults, and really, anyone, get a student loan debt to start investing and building wealth. And I really champion my own path of doing it through side hustle. So, I’m a big believer in the earn more mentality. I think that we are blessed, at this day and age, that you have limitless money making opportunities. And so, while you still need the budget and be mindful of your spending, I think, if you develop a side hustle, you earn more, you can achieve your financial goals of getting out of debt in investing early, and you can achieve that much sooner. And then, plus, student loan debt is complicated and confusing. And so, I really just enjoy helping people navigate that process, because, it’s hard, you’re like fighting the government effectively, and it can be a challenge.
WCI: So, this has been a little bit of an interesting development in the physician financial space over the last, I’d say, two or three years. I mean, my WCI network partner, Passive Income MD, is always talking about side hustles and these other things. There’s a physician side gig’s Facebook group that has 36,000 members in it. And I look at it, and I go, “These are doctors, right? They’re making 150, 200, 300, $400,000 a year. Do they need a side hustle?”
Robert: Well, I mean, it’s never a need, right? It’s also like, I don’t know, I started, I always enjoyed my side hustle is because it’s like, what’s my hobby, right? And my hobby is earning money. And so, back, when I was in college, I would go to garage sales and I would flip things on eBay. I’d buy them, I’d resell them on eBay, because I enjoyed it. I don’t find any enjoyment in watching TV, I don’t necessarily find enjoyment in doing other things that people might consider to be their hobby. My hobby really is making money and earning money. And so, if I was going to spend my time doing something, I’d like it to generate some kind of income or have a return. And clearly, I don’t think I’m the only one in this. I mean, there’s definitely people that need a side hustle to provide for themselves or change their financial situation.
Robert: But, I think, especially when you look at like a doctor side hustle group, I bet you, they’re just people out there and physicians out there that enjoy the idea of entrepreneurship, without the risk, per se. Or, they just enjoy that kind of thinking skills or those activities.
WCI: Now, your website, the blog itself, it seems to have a big focus on millennials. What’s so special about millennials? Why millennials?
Robert: Well, it is millennials, but it’s everybody. You get found in search, just like you, people are googling topics, and my blog will come up. But, marketing one on one, I had to pick something, right? And the one thing I always thought about with millennials is just like the baby boomers, the baby boomers are always going to be called baby boomers. From the 70s and 80s, they were called the baby boomers, till today, they’re called the baby boomers. And I view the same thing with millennials, is, they’ve been coined millennials, and they’re going to be called millennials till they die. And so, it’s like, as long as I want to do this, millennials will be around, and I just felt like that was a choice. But, on the flip side, the blog and the personal finance topics are open to anyone.
Robert: I mean, the math is the math, and the tools are the tools. And so, I do have a much broader audience. I’d say, millennials actually only make up about 40% of everyone that visits our website. But on the flip side, it’s just a branding thing that I picked, because, I didn’t necessarily know what I was going to morph into five years ago when we were setting all this up.
WCI: So, you consider yourself a millennial?
Robert: I’m an older millennial. Yes.
WCI: How old are the youngest millennials these days?
Robert: The youngest millennials now are like 22, 23, they’re all wrapping up college, getting into the workforce. And the oldest ones are in their mid 30s, like I am. So, it’s basically mid 20s to mid 30s, is the millennial generation these days.
WCI: So, they’re still getting lots of flack, a lot of them get really personal about it. People are calling them lazy or overly lifestyle focused. Do you think that’s valid or not?
Robert: I don’t. I think it’s just, it’s a different day and age, right? So, when I look at every generation, there’s plenty of boomers out there that have no savings, still have student loan debt, and are lazy. There are plenty of, every generation, Gen Xers, all of them that have these terms. It’s just, we’re in a different time and a different space, and so, my parents don’t understand how I provide for a living on the internet. And so, millennials just have different tools, different avenues to earn. They have different viewpoints on life, but they’re definitely not lazy or lifestyle focus. There’s plenty of that in every generation, and I think, that’s just a very much an overgeneralization of the millennial generation.
WCI: It’s interesting, your parents have no idea what you’re doing, either. It’s basically the line my dad told me, when I talked to him about buyout offer I had a couple of years ago. He’s like, “I don’t really understand what you’re doing.” Yeah. It’s such a unique, the internet, we all knew in the 90s was going to change things, but we had no idea how it could change our lives personally, I think, going forward. I had no idea in college that I would be making most of my money online, basically.
Robert: Absolutely. And I think that’s the interesting aspect of the world we live in today. And I think, millennials, and then, the next generations, like the Gen Z, or Zennials, or whatever they’re calling themselves, one thing that they have going for us and we have going for us, is that, we have adopted the internet and embraced it, and we communicate and leverage it in ways that other generations haven’t. And so, when they say, millennials can’t communicate, I would challenge that millennials actually are the most communicative generation that has ever existed in the history of our planet. The problem is, they’re communicating on text, and on Snapchat, and online in different ways, and what they have lost, and this is where I think the criticism comes from, is they’ve lost the ability to verbally communicate in a face-to-face conversation. Now, that’s becoming rare and rare.
Robert: It’s not to say they don’t communicate, but, some of the social norms and social skills that previous generations have built themselves on, the millennials are changing or are having different norms of what that looks like, and that can be challenging to understand.
WCI: Yeah, I think that’s probably where a lot of that criticism comes from is just different.
Robert: It’s just different, and the next generation is going to be different. And in 40 years, you and I are going to be, “Look at these young kids these days, I can’t believe they’re so lazy and what,” but they’re just different.
WCI: What’s the biggest financial challenge these days for millennials? I mean, mid 20s to mid 30s, what’s their challenge? What are they struggling with?
Robert: Student loan debt is definitely the biggest financial challenge, I think, in aggregate. But I also think, there’s a lot of macroeconomic factors out there. Even though employment is good, wage growth is stagnant, the boomers are still jamming up the workplace for young adults, and so, they are not having as many opportunities to promote and advance their careers as quickly as previous generations, which keeps that wage growth stagnant. And lifestyle costs are higher, so, things that people would have done in the past, like buying a home or purchasing other things, it’s just more of a challenge. And so, when you combine all these factors, it really is just, it’s macroeconomics, and it’s individual personal financial choices, that have made the financial picture for millennials more challenging than, I think, previous generations encountered.
WCI: Now, my work mostly focuses on high income professionals like doctors. Are millennial doctors any different from other doctors, in any significant material way?
Robert: I think that it’s hard to know, but there’s inflation and everything, but I think the cost of schooling is definitely higher. And so, the student loan debt is higher. Just like other career paths, I think wages are getting limiting. I think, it definitely depends on your specialty, right? And you know this much more than I do, but you go into pediatrics or other specialties, where there is a demand for doctors in many areas, the wages aren’t there. And then, on the flip side, you go into more advanced specialties, and there’s still great wages, but you’re tacking on another six years of training or something, that’s just going to add to your cost. So, it’s not necessarily any different than going into other professions. I think, the income potential is there, the ROI on your education spending can still be there, but you just have to just be mindful across the board.
WCI: Are you planning to keep focusing on millennials as millennials age, with your writing and your blog? Or, are you going to stay focused on younger folks? And in turn, it’s going to become focused on Generation Z and et cetera.
Robert: I mean, I’m going to continue just driving home the message that we are about getting a student loan debt and starting to invest. Whether it’s millennials or not, that’s my goal is navigating the complex world of student loan debt, so that you can build wealth as early as possible. And sadly, early as possible might be their 30s or 40s. But, hopefully, we can knock them and tap into them when they’re in their late teens, early 20s, to set them up for success.
WCI: Yeah. Let’s turn now a little bit toward your blog and your site. I noticed, looking through it, in preparation for this, that you’re apparently trademarking a couple of terms, America’s Millennial Money Expert, and America’s Student Loan Debt Expert. And I know I’ve had enough hassle and expense defending The White Coat Investor as a trademark, and can’t imagine defending those two terms, why did you decide to trademark those? And how’s that gone for you?
Robert: I honestly decided to trademark them because I thought they were cool. There really was no material business aspect to it, except, how could I spend 700 bucks to have it? But, I actually have leveraged it in many ways that have earned back that ROI. Now, defending them is probably something different. Luckily, I haven’t encountered it, because, you see a lot people call themselves a millennial money expert, but no one actually… or a student loan debt expert, but you tack on America’s, and that’s where you get more of the defense aspect of it. But, I don’t even know if I would pursue it a ton, I probably would just cursory to keep the trademarks there. But, I leveraged a lot when it comes to our brand partnerships, and some of the brands really do like that.
Robert: And for a while there, I thought I was going to do more spokesperson work and be more public facing of my brand, and that’s where these terms, I was really going to start leveraging more. But, I’ve pivoted over the years, but they’re still pretty fun to have.
WCI: Now, let’s talk a little bit about your business a bit. I mean, you have grown this enough that it was making enough money for you to be able to quit your job, you’ve now got seven people working for you, what’s it like to be a boss? Do you like it or dislike it?
Robert: Oh, and see, I very much dislike being a boss. I do have seven team members, I mean, but they’re all freelancers, it’s all virtual. One of the things that I grew up with at Target, when I was a store manager, I had over 200 people reporting to me, various different pay levels and structures. And I enjoyed that, and that was like that season of life. But, once I left, I really I’m a firm believer, especially in the online world of a company of one. There’s a new book out for it. I was always saying, a business of one, and there’s a new book out called Company of One. But, we live in this day and age where it’s like, I don’t necessarily see this reason to scale up a team. And actually, I see more horror stories of online companies that scaled up with big teams, and then, an algorithm changes and they’re laying off all these people. That sounds not appealing at all.
Robert: So, yes, we do have freelancers, though, seven people are all outsourced team members. But I keep it lean, I keep it virtual, we run everything online, on email. No set hard, like, ask and see kind of things, where you have to be at any certain time. That’s what I really love about an online business is that virtual aspect, that company of one aspect, where, I, pivoting out of that corporate “world” into this online entrepreneurship world, I value my time, I don’t have as much of a set schedule. Family comes first, and I want that for the freelancers that work for me, and I really enjoy that.
WCI: How much time do you think you’re putting in these days, into the work?
Robert: I put probably about 20 to 30 hours a week in. And it definitely varies, there’s some longer days, like, those days where I’m going to be like a six, seven hour days. And there’s days that maybe goes in and just check email for an hour or so, and go from there.
WCI: I mean, what can people expect when they go to your website? I mean, are you publishing something every day? How many articles a month typically come out? I mean, what should they expect when they go there?
Robert: Yeah. We publish every day. Well, Monday through Friday. Sometimes I do it on the weekends, but, pretty much, Monday through Friday, we have a new article. We have a lot of reviews. So, one of the things that I’ve always been passionate about is, the new up and coming companies and financial technology companies. One thing that we’ve become known for is, we do review pretty much every product, service, software, that’s out there in the personal finance space. So, we do a lot of reviews. And then, we definitely have our personal finance basics and interesting articles around different topics around student loan debt. You’ll probably find everything you could ever want to know about student loan debt on our site. And then, we do have a lot of investing content as well.
WCI: This is a tricky thing, I think, anybody that’s an online entrepreneur runs into. How do you balance writing about stuff your readers need to know about, and writing posts that actually make money?
Robert: Yeah, it’s tough. And I’ve been doing this a while, and I still don’t have 100% the answer. But, one thing that I know, is that, I like to write the stuff that my readers need to know about, and I outsource those that I don’t want to write that make money, like the reviews and different things. But, on the flip side, people do want to know that stuff, it’s just not necessarily what I want them to know about. And so, it is about striking the balance. But, the one thing I have learned, is that, if you’re going to write about something, cover all the basics. So, let’s say that you want to dive into the student loan space. Well, what are you going to talk about there? Student loan forgiveness. Well, then there’s 80 plus different programs, and you should probably start covering all of those. And people want to know about all of them.
Robert: And you’ve got to build this ecosystem around your content. And some of it, not everyone’s going to want to know about, but if you could help that one person, then it might be worth it. And I will say like, I’ve written some very obscure stuff. And some of my most obscure content is also what has gotten some of the most exposure. I wrote an article, I don’t know, probably like five, six years ago, about, pay ahead status and Public Service Loan Forgiveness. And how, if you go into pay ahead status, you can disqualify yourself from Public Service Loan Forgiveness, because it lowers your next future monthly payment. And I wrote this because a reader had this problem. And I researched it and wrote about it, and then, nothing happened. I think, over the course of two years, maybe 1,000 people viewed the article, which is very low on our site.
Robert: But then, Ron Lieber, from the New York Times reached out, and was like, “Robert, why the heck did you write this? We’re doing an in-depth piece on this, and we have the same thing. We’re finding readers have it, and we’ve been investigating fed loan about this.” And their whole investigative journalism kind of money, picked up our article and picked up our story and shared that out there. So, I think karma is always a good thing, you help people, you create content that’s worthwhile, and you’ll get paid dividends from it in some way or another down the road.
WCI: Well, you also put it in a forum on your site, what’s that been like?
Robert: I created the forum, solely to create a place where people can ask questions in their own words. So, the hard part with personal finance and doing this for so long, is that, I speak in a different language, probably that most readers speak. And so, I wanted a place where they could post a question using their own language, and then, be able to answer those. And most of our forum responses redirect them to the appropriate article on our site. And we don’t get a ton of engagement, but we do answer people’s questions. So, I would say, we get one or two posts a week, nothing crazy, nothing like your forums, but it does serve as that answer for people in their own language, which I think is very valuable. Because, people type in all kinds of crazy search terms, because they don’t know exactly what they’re looking for. And I think, the forums can help address that and help people find the answers that they are looking for.
WCI: Now, thumbing through some of your content, I see an article you wrote recently on the best place says to trade options. Do you think it’s a good idea for your readers to be trading options?
Robert: I don’t. But, on the flip side, I have had this realization over the last few years that I also cannot be my readers mom. So, whether I agree or disagree, all I can do is tell them my thoughts on it. And then, on the flip side, at least, show them tools and resources, so, they might not get themselves in a lot of trouble. And the one thing I also think, is that, as a young adult, let’s just say, you’re in your 20s, and you’re trading on… you’re not probably not spending your life savings trading options, you probably have $500, $1,000, and you’re going to trade options on it. And if you lose it all, well, that’s terrible. But, on the flip side, it’s a cheap lesson learned for the future, hopefully.
Robert: So, that’s my goal with this. I talk a lot about, trading options is one, I talk about paying for advice and paying for help. People are going to do it, whether I agree or disagree. So, my goal is to, at least, show them the right way to go about it, give them the insight of what it is, and then, at least, provide reputable tools that they won’t get scammed out of their money or other things in that regard.
WCI: Let’s talk a little bit about the subject to this podcast, paying for college. You had a fantastic article that you called the order of operations for paying for college. And it went through nine things that basically, nine ways to pay for college. And presumably, you max out each of them before moving on to the next step. It started with, number one, scholarships and grants. And then, number two, your own savings as a student. Number three, your earnings as a student. Number four, your parents’ savings for college. Number five, your parents’ current income. Number six, fellowships and assistantships. Number seven, aid through school work related programs. Number eight, federal student loans, and number nine, private student loans.
WCI: I think it’s a great list, and I totally agree with it. Why did you feel like that article needed to be written?
Robert: The article needed to be written because so many people, especially in mainstream media, I guess, you could say, just default to, you’ve got to use student loans to pay for college. And it’s like student loans are one option to pay for college, but there’re so many things that people forget are actual other options. And usually, more better ways, I guess, you could say, to pay for college. And I just really wanted to demystify that, like, look, there is a good way to pay for college, and you can maximize each of these buckets. And number one is scholarships, which are the totally number one most underrated way to pay for college. And it drives me nuts, just because no one just wants to put in the work to get the scholarship. But the scholarship is the easiest, best way to get free money to pay for school.
Robert: Let me give you an example, I run a scholarship on my website, it’s live right now, it’s called the Side Hustlin’ Student Scholarship. And I wanted to reward entrepreneurial high school students. I want them to share their story, and then, I’ll give them a $2,500 scholarship. I’ve been doing this for three years. So, the crazy thing is, is, it’s $2,500, and there’s a second place prize for $500. I only got 100 or so entries to that scholarship. And then, once I started combing through it, 70 out of the 100 did not meet the criteria for the scholarship. And it’s stupid things, it is like, they didn’t put a picture, I asked for a headshot. They didn’t put the school they were going to, they didn’t format their essay. Some people put them as a Google document, but they don’t allow you to get the permissions to access that Google document.
Robert: So, here you are, as a $2,500 scholarship, and really, you’re in competition with 30 other people. The odds are so good. And that’s what’s so crazy is, when I talk to other people that I’ve run scholarships, it’s very similar across the board. 70 to 80% of all scholarship applications get disqualified just for not meeting the basic criteria. And then, it’s just, it’s a numbers game, right? So, you just do the expected value of the scholarship and your competition, and then, how many you apply to you. If you want to put the work in, as a high school junior or a high school senior, I would say, if you applied to 50 to 60 scholarships, you could easily pay for 50 to 75% of your college education cost. And it’s just crazy to me.
WCI: Yeah, that’s definitely an issue. And I’ve run into similar issues with our scholarship. We had one person within the last few years, where the scholarship was clearly, or their application was clearly going to be a winning application. But, we have a strict word limit on their essays, it’s 800 to 1,200 words. And for their lack of ability to count to 1,200, they lost out on tens of thousands of dollars. So, it’s pretty amazing.
Robert: Just crazy to me. Yeah. And that’s where I just want people to realize, is that, paying for college isn’t all about student loans, there’s so many ways to do it. And you can save as a student, you can work through college, your parents can save, you can get fellowships. And then, yeah, federal student loans should always be first, for the most part, and then, private student loans. And of course, this order of operations probably only applies to 90% of people, there’s always going to be some random case out there, where it’s like, well, I should do this, or I should do this. And it’s like, yes.
Robert: But, for the most people, you should really think about this order, especially if you’re a parent, you should tell your young high schooler, even late middle schooler, that, “This is what we have, this is what we expect.” Have these conversations, so that, by the time they’re in their junior year of high school, it’s not a surprise, they know what it’s going to take, and they can plan accordingly.
WCI: Now, if you listen to Dave Ramsey, and honestly, I probably agree with him, he would say that nobody needs to borrow for an undergraduate education. He probably extend that even to graduate school. I wouldn’t quite go that far, I don’t think anybody’s going to work their way through dental school. But, that’s how he believes it. That if you pick the school right, you pick one with a reasonable amount of tuition, you bust your butt, maybe your parents help you some, that you can get through without debt. Do you think that’s fair? Do you think that can be done? Do you think most people should be getting through their undergraduate education without borrowing?
Robert: Absolutely. I think, if you look at the stats, about 40% of people graduate college today even, with no student loan debt. So, 40% of America is already doing it, it’s 60% that aren’t. That number continues to be less and less people over time, but it’s totally doable. I think, my big thing with student loans is figuring out the return on investment of your education dollars. I don’t necessarily think borrowing is bad, but everyone gets into trouble with it. And it’s not different than borrowing for a house or borrowing for a car, it’s, they borrowed too much and they couldn’t afford it. And so, if you want to be a teacher today, in America, that’s great. But, realize, your starting salary, depending on where you teach, could be in the low 30,000, to maybe like 45, 50,000, if you’re on New York or California.
Robert: And so, if you’re going to earn that after graduation, that’s fine, it’s not necessarily a bad thing. But don’t go spend $80,000 to become a teacher, maybe you go to your local community college. Which, in a lot of states now, they’re making it free. And even if it’s not free in your state, it’s very cost effective. Do that for two years, knock out all your undergraduate stuff. Then, you transfer to your local in-state school, you finish up your two years, and you could be done and get a teaching credential for 10, $20,000. Now, when you’re looking at your starting salary as a teacher, you can afford to service that debt on your starting salary. It might not necessarily be the easiest, but it’s definitely a lot better than spending 80, $90,000 to be a teacher.
Robert: And then, when you combine that with scholarships, when you combine that with potentially working through school, and all these other ways that we talk about on the order to save, you can even minimize your debt further. So, Dave’s not wrong. But on the flip side, thinking about the return on investment of your dollars, a little debt here can be a positive return for you. It’s just when you spend way too much, that it becomes negative.
WCI: So, what rule of thumb can people follow? How do they know when they’ve spent too much?
Robert: My rule of thumb is, never borrow more than you expect to earn in your first year after graduation. And so, like, if you want to be a teacher, you’re going to make $40,000, you should never borrow more than $40,000. If you’re going to go be a doctor, the same rule applies. If you’re going to go be a pediatrician, you expect to make 150,000, you should probably keep your borrowing to about 150,000. If you’re going to go be an orthopedic surgeon, you’re going to make $600,000 a year, where you can definitely afford to borrow a lot more. But, it definitely varies, based on what you want to do after graduation, and you have to be intentional with that spending. But, on the flip side, that’s hard to tell a 17 year, old 18 year old kid, when they’re making these decisions.
Robert: So, it definitely needs to have a lot of parental involvement in it.
WCI: Right. I mean, what about the person that, “This is my dream, I want to be a pediatrician, and my family can’t help me at all. And I don’t think I can get the grades I need to get into medical school if I’m working. And so, my only option is to borrow $600,000 to get this job that pays 150 or 200”? What do you say to that person, that feels like you’re killing their dream by giving them advice like that?
Robert: I say like, on the flip side, though, is your dream to struggle financially for the next 40 years of your life. So, it might be your dream to help people, but maybe you could go be, start with being LPN, and then, be an RN. And then, do it for a lot less, and still help people. Because, if you’re going to be a pediatrician, I don’t want to dismiss pediatricians, but you’re treating colds and ear infections, and you’re referring them out to specialties, that’s why they don’t earn very much. So, could you get your same fulfillment without jeopardizing your future 40 years of your life, trying to pay back this debt. You could also look at navigating the variety of programs that are out there to help you.
Robert: So, if you really do your due diligence, you take out federal loans, you go work in a public clinic, and you get Public Service Loan Forgiveness, well, maybe it’s worth it. Or, you could take advantage of one of the many rural opportunity programs. So, like, every state has some kind of program out there, where you could go be a doctor or a nurse in remote location, and they’ll basically forgive your loans or pay a portion of your loans over time. There’s a lot of programs out there for that. But, once again, you have to do that work upfront, and you have to commit yourself to that. Whether it is, like, doctors already are putting themselves and they’re committing themselves to 8, 10 years of education.
Robert: So, you’ve got to ask yourself, “Is it worth the commitment for another 10 years beyond that, potentially, or more, to achieve this dream of mine.” And it’s either going to be working in an area you might not want to work in, or it’s going to be struggling financially, because you took on too much debt you can’t afford to pay. The courses can be laid out, and you can analyze all your options. But, you just need to do that upfront, versus when it’s too late.
WCI: Yeah, I certainly agree with that, that you have to look at it and analyze it upfront. Now, for those 4,000 pediatricians that are utterly mad right now, send all your hate mail to Robert, not to me. All right?
Robert: Please do.
WCI: I know you guys are doing lots more than cold. So, send him your email.
Robert: Let me know, because my sister is starting her training right now, and she wants to be a pediatrician. And so, we’ve had these conversations. Send me your love and hate and advice for her, and you can send it to me, of course. Don’t blame Jim.
WCI: I tell you, the first part of your answer to the last question is going to get you some emails. So, here we go.
Robert: That’s all right, I’m all for it. Once again, it’s definitely the good and the bad. People do have their goals, but finances plays such a huge part of your life, and you have to do the expected value of it. And not to say that it’s not worth it or whatnot, but that’s just the math.
WCI: Yeah, you don’t get a pass on math.
Robert: You don’t.
WCI: Just because you want to be a doctor. That’s absolutely right. Okay, why do people struggle so much with student loans? Are they just ignorant and undisciplined? Is the system unfair? Or, is it some combination of both?
Robert: It’s definitely ignorance and the system. So, one, is we’re expecting these 18 year old, 19 year old kids to make very important financial decisions with very little to no guidance or education. I remember when I got my student loans. I remember, I got an email from the financial aid office, this was like May or June, before my freshman year, and it said, “Congratulations, you’ve received financial aid.” Right? So, notice, they don’t call them student loans, they say, “Congratulations, you have a financial aid award.” And then, I click the link in the email, took me to the financial aid website. And it said, like, “Click here to accept your award.” You have a little checkbox, and that checkbox is next to a student loan, but they’re calling it a financial aid award, a financial aid award.
Robert: And then, you scroll through some terms and conditions, which, at this point in our lives, we’ve all been trained to just skip to the bottom of the terms and conditions and hit Accept. And that’s how I got my student loans. It is crazy how easy it is, and there is no education and no anything to go around it. So, that’s part of it. But, on the flip side, did you, Jim, there’s over 150 different options for your student loan debt, when you’re set and done? I’m talking about, student loan forgiveness, repayment plans, deferment options. When you literally take all the different paths that someone can take with their loan type, and their career and their repayment plan, there’s 150 plus different variables.
Robert: And so, that’s just hard to navigate as well. And yes, most people are going to default into like one of four different major ones. But that’s not to say that, option number 121 isn’t the best one for you. And so, it’s very challenging to navigate repayment. And then, when you combine that with the fact that these loan servicers, our call centers with 10,000 plus employees that are making a minimum wage, they’re probably not necessarily doling out the personal financial advice you need, right? They’re just trying to answer your-
WCI: That’s a nice way to put it. I usually say, utterly incompetent.
Robert: Is it incompetence? Or… is it, I’m making $10 an hour in the call center, and then, on the flip side, you have to say, does the caller, that’s calling fed loan or whatever company they’re calling, are they saying the right things to the representative, that the representative even knows what they’re talking about? Because, so many people are just ignorant of the terms to use. Like, when you’re calling and saying, “I need to lower my student loan payment.” Well, are you asking for an income driven repayment plan? Or, are you asking for the extended plan? Or, do you need a deferment? Or, are you looking for a loan forgiveness options?
Robert: Like, I’m a call center rep, I don’t know your financial situation, I don’t care about your financial situation. I’m getting paid $10 an hour to answer this call, and so, if you also aren’t clear about what you’re asking for, it’s very difficult for a call center representative to help you. So, the whole system is very challenging, and the best thing you can do is just educate yourself. Because, I mean, you know the rule, no one in this world is going to care more about your money than you. And so, if you don’t care about it, it’s going to be challenging.
WCI: Yeah. What are the biggest student loan related mistakes you’re seeing your readers making these days?
Robert: The biggest one I see, is that, people are not doing their research when it comes to, what qualifies for these loan forgiveness plans? What repayment plans they should be on? They are just defaulting into, let’s just say, you’re done with college, right? You get six months of deferment on your federal loans, and then, you automatically go into the standard 10 year plan, if you don’t elect a choice, right? Well, they see that first bill, and they’re like, “I can’t afford it.” Well, then they default. And then, that drags on, their loans grow, and it becomes a mess. And they’re not sorting it out until it’s too late. And then I see the headlines, like, 99% of people are denied for Public Service Loan Forgiveness. I’m sure, most of your listeners have seen that headline.
Robert: Well, that headline could not be more misleading about the effectiveness of Public Service Loan Forgiveness, and what it actually takes to qualify. So, the fact that people think that they would qualify for Public Service Loan Forgiveness in month one that the program started, is so wrong. And it’s not the government’s fault that people didn’t educate themselves on how the program worked. And then, when you look at the denial reasons, the number one most common reason that you’re getting denied, is because you didn’t fill out the application correctly. It’s like 33% of all of them didn’t fill out the application correctly, or left a blank or whatnot. So, it’s like, of course, the government’s going to deny you. It’s just like your scholarship winner, they went over the word count, they got knocked out of the running for it, right? Follow the directions, people. I don’t know.
Robert: So, those are the most common things that I see. Is not taking action, and then, just not doing your diligence around your own things.
WCI: What is your opinion on the current status of Public Service Loan Forgiveness? I mean, certainly, there’s issues that people not understanding how the program works. Certainly, there are competence issues on the part of those running the program. I mean, it takes a year and a half to get a recount of the payments you’ve made. I mean, do you think that this is going to be around for a long time? Do you think people should really be counting on it? Do you think this is a good program? A bad program? What are your thoughts on where we’re at currently with Public Service Loan Forgiveness?
Robert: Sure. I think it’s a great program that is poorly structured. So, like in my ideal world, for those that don’t know, direct student loans is the number one qualifying criteria. Number two is you have to be on a qualifying repayment plan. Which is the other thing that I think is silly with this program, why be so strict? You have to be on a qualifying repayment plan. And the number three is you have to work in qualifying public service for 120 months, 120 payments, right? And so, if you look at the data, the program is actually doing exactly as expected, right? So, here’s some scary stats, in 2019 to 2021, there’s only going to be 1,800 people this year and next year or so, that are going to get Public Service Loan Forgiveness. That’s just the math of who had the qualifying criteria 10 years ago, there just wasn’t very many.
Robert: But when you fast forward this clock to you as at 2025, they’re going to have 150,000 people that are potentially eligible for Public Service Loan Forgiveness in 2025. And that starts to make sense, because, when the program started, you know what? Direct loans were only one to 3% of all student loans issued. So, number one criteria doesn’t get met. And then, the other one, the correct repayment plan, most of the repayment plans didn’t come about until 2009 to 2011. And 2007, when the program started, income contingent repayment was the only repayment plan that existed, right? And that was a really, it’s still a really terrible plan. It’s not really terrible, but it’s not the best, right?
Robert: And so, it would have been so rare, in 2007, for someone to have direct loans, for someone to be on income contingent repayment, and for them to follow the law so well that they recertify or they started certifying their employment immediately. So, rare. But, when you start thinking about 2015, 2016, the program has been around for a few years. Now, you have direct loans, everybody is getting direct loans, after 2011. You start having, pay as you earn was created, IBR was created, repay was created, so, these qualifying repayment plans were all created. People were graduating college, the program that existed, now it’s starting to make sense. 2015, 2016, 2017, you have big cohorts of borrowers that are potentially eligible for loan forgiveness.
Robert: So, the program is working exactly as it should. People just need to realize that it takes 10 years from this point in time. So, 2022, 2023, we’ll start seeing lots more people getting student loan forgiveness in the program. And that’s why I also think it’ll be around. So, the numbers say it’s going to come in the future, the biggest groups of lobbyists in America are public service employees. You’re talking, the teachers, the firefighters, all the politicians are surrounded in their offices by people that are potentially eligible for public service. It would be very politically, I don’t know, I don’t think they’d be able to stomach it politically to eliminate the program. I think they should reform it, and then, they should expand it, open it up, fix some of these things. Even their fixes, like temporary expanded Public Service Loan Forgiveness is so poorly done.
Robert: Like, you have to apply, get denied, and then send an email to fed loan, that’s just totally incompetent that they would even created a law like that. But, they did, I think they need to definitely fix some of these gaps in there. But the program is working well, and I think we’re going to start seeing huge waves of people on the next two, three years, start getting loan forgiveness. And then, we’ll start seeing a lot of positive chatter around it.
WCI: Now, some people say it’s not fair, it’s not fair that an academic orthopedic surgeon, who really only made payments for four years, because they made little tiny payments during their residency in fellowship, should have four or $500,000 forgiven, when they’re making six or $700,000 a year. What do you say to those who criticize that aspect of the program for high income professionals?
Robert: Totally. I mean, there’s always going to be a moral hazard with everything. I mean, there’s always going to be those one or two people that take advantage. Whether you call it taking advantage or not, it’s what law is. But, on the flip side, one of the reasons I really like Public Service Loan Forgiveness, is that, it requires 10 years or 120 payments of giving back. And what we deem as public good, public service jobs, are typically in the public good, right? So, you’re not getting something for nothing. We are asking these people to commit to working in the public good for a period of 10 years. And these programs have always existed in different forms or fashions, even before Public Service Loan Forgiveness. The military is a prime example, they’ve been doing this for 20, 30 years. Where, you go and serve in the military for five years, and they’ll give you $50,000 to pay off your loan.
Robert: And so, it’s really a question like, if you disagree with the fact that we’re talking about Public Service Loan Forgiveness, and that it exists, well, your beef shouldn’t be with that orthopedic surgeon, your beef should be with your legislators and your congressman. The program exists, if you don’t like it, channel your efforts towards people that can create the laws and change the laws, not the person that is taking advantage of a perfectly legal program.
WCI: Now, some people say, “Well, this wasn’t designed for doctors, this was designed for firefighters and teachers.” And in fact, the Obama budget, I think it was in 2013, had a recommendation to limit the amount you could have forgiven to just $57,000 a year, which obviously makes this a non-starter for most docs to use the program. What’s your opinion of a change like that? Would it be a good change? A bad change to the program? And what do you think the likelihood of something like that happening is?
Robert: I can see something like that happening, but I think, it would have to go hand in hand with a lot of other reforms. One of my big beefs and one of my actual proponents is, I am a big believer that you should cap the amount of student loans that you can take out, especially Grad PLUS Loans, which, I know, a lot of docs take advantage of. The fact that you can borrow unlimited amounts of money for grad school is part of the price inflation of grad school, and of all these different universities. And on the flip side, that’s where people get into trouble. So, I would say, if you’re going to cap the amount of student loans that can be forgiven, well, you also need to cap the amount, both federal and private, that can be borrowed. And then, you’re going to see a massive change in the marketplace, which, I can’t tell you if it’ll be good and bad, there’s definitely going to be pros and cons and arguments on both sides of that equation.
Robert: But, I think they would have to go hand in hand together. I think, in terms of Public Service Loan Forgiveness, doctors that work in public service are giving back. Like, they’re staffing VA hospitals, they’re staffing nonprofit clinics and providing services that other people might not want to provide. They’re probably working in lower income areas, seeing different clientele than other practitioners. Or, they’re educators, and they’re educating the next group of doctors that we need in this country. So, on the flip side, they are doing public service, and I don’t think we should dismiss that. Even though their loan balances are higher, they’re specially trained, and they have services and things that are valuable in our country.
WCI: Now, I run into doc sometimes, that say, man, I’m just having a lot of trouble paying off my $200,000 in student loans on my income of $200,000.” Well, what do you say to those people? Do you think that’s ridiculous? Or, what’s your response to docs who are taking years and years and years to pay off their student loans with ratios like that?
Robert: Yeah, I think it’s a challenge. I mean, every situation is so unique, and it’s no different than someone that’s struggling to pay off $30,000 in student loan debt is. There’s income based repayment plans, right? So, if you’re already on that, your payment is kept 10, 15% of your discretionary income. And if you’re still struggling at that point in time, you’ve got to look at the rest of your budget. I also see, and you talk about this a lot on your site, is like, these doctors that make 200, $300,000 a year, and have no wealth, actually. They have a high income, but they’re not building any kind of wealth. Because, they’re spending all their money, they have a second vacation home, they have a boat, they have an RV, all these things, you don’t need those, right? You shouldn’t be blowing your money.
Robert: You actually had an anonymous question in your forum the other day that I really loved it, in the private Facebook group for your White Coat Investors. And there was this guy that had this payment mentality, he owed his parents money still, and he had all these payments, and he was paying on like three cars and all this stuff is. The biggest driver of wealth is getting out of the payment mentality. And so, you can service your loan payment, or you can just pay off your loans. And once you start getting out of the payment mentality, well, I can nurse a longer payment here, and I can nurse a longer payment there, you’ll start building wealth, and you’ll start seeing your whole financial outlook change. And I think that’s the biggest thing, is that, doctors start getting this great income, but then they start filling in the gap between their mandatory expenses and what they’re earning with fun stuff and other stuff, and that just wastes all their money.
WCI: Yeah. Now, we’re starting to push up against an hour here on this podcast, we better start wrapping it up here. But I wanted to give you the chance, if there’s anything else you’d like the 20 to 30,000 docs and other high income professionals that will eventually listen to this podcast to know, what would you like to tell them? If you’ve got their ear here just for a minute or two, what’s the most important thing you think you could tell them at this point?
Robert: Yeah. Honestly, as you are navigating that student loan repayment, it’s really important to get organized and know your options, and make the plan and stick to the plan. You’ve already been a doctor, you know how to commit to something. You went through a lot of schooling, a lot of training, more than anybody else in this country, right? So, it’s like you are totally capable of committing to the plan, and then sticking to that for the five to 10 years that it’s going to take to eliminate your student loan debt. But it can be confusing. One of the things that we’ve been doing is creating a tool called LoanBuddy to help navigate that. Jim, I’ve shared a little bit with him. But, there’s tools out there, there’s services, there’s Jim’s pod, The White Coat Investor is phenomenal, so many great resources, the forum there.
Robert: Get educated, know exactly what you need to do. Dot your I’s, cross your T’s on these forms, and it can be done. You can get out of a student loan debt very quickly and easily, but you just have to be very diligent about it.
WCI: Thank you so much, Robert. We’ve been talking with Robert Farrington, the founder of thecollegeinvestor.com, where he provides lots of information for young investors, for indebted people with student loans, millennials in particular. And he’s been doing that since 2009. So, a very successful online entrepreneur. Thank you so much, Robert, for coming on our show.
Robert: Thank you so much for having me. This has been great.
WCI: Okay, I hope that was helpful, talking about that with Robert Farrington. It’s interesting to get it from perspective of an average Joe. Somewhat often, we talk about this stuff in terms of doctor incomes and doctor debt loads. And sometimes we forget, there’s lots of people out there struggling with an income of $50,000 a year and student loans of $80,000 a year. Which obviously takes a lot more sacrifice to pay off, than it does for a lot of us with physician size loans and incomes.
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WCI: All right, make sure you get your scholarship applications in. If you would like to help us judge this scholarship, is not that hard. Yes, it doesn’t pay anything, you get no recognition for it, but you’ll only have to read some routine 10 and 20 of these essays, and you’ll have real impact on the choice of who wins these scholarship dollars and which medical schools actually end up getting these books for their medical students. So, make sure you get your scholarship applications in by the 31st. If you’d like to be a judge, again, email us at [email protected], put volunteer judge in the title, and we’ll get you in there to do that. Basically, the only criteria is, you can’t be a student or a resident, you have to be a professional working in your profession, or a retiree, and we’ll let you be a judge.
WCI: So, we could use as much help as we can get with that, we’re going to have hundreds of hundreds of applications this year. Head up, shoulders back, you’ve got this, we can help. We’ll see you next time on The White Coat Investor Podcast.
Disclaimer: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So, this podcast is for your entertainment and information only. It should not be considered official personalized financial advice.