Local La Crosse college says historic student loan forgiveness provides temporary relief
Posted: August 24, 2022 6:29 PM
Updated August 25, 2022 9:26 AM
by Duaa Israr
LA CROSSE (WKBT) — In a historic decision, President Joe Biden announced Wednesday he will cancel $10,000 of federal student loans for anyone making less than $125,000 per year.
Some critics say the issue is not student loans, but the interest it accrues. According to the National Center for Education Statistics, in the past 40 years, the average cost of attending college has increased by 180%. Experts say while $10,000 in relief may seem like a lot, it does little to help future college graduates.
45 million Americans across the nation felt a weight lifted off their shoulders as President Biden announced his plan from the Roosevelt Room Wednesday.
“For most of the clients we work with, the $10,000 is all or maybe half of their loans,” said Michael Swartz, owner of La Crosse Financial Planning.
Under President Biden’s 3-part student loan relief plan, if you received Pell Grants you would be eligible for up to an additional $10,000 in forgiveness — for a total of $20,000.
“More is always better from a forgiveness standpoint, from a personal financial perspective,” Swartz said.
At Western Technical College, 65% of students receive some form of financial aid.
“The amount of financial aid students can receive hasn’t kept up with the cost of education,” said Jerolyn Grandall, a financial advisor at Western Technical College.
Grandall says while loan forgiveness is a historic gesture, the bigger issue is interest. Interest rates on federal loans can be anywhere from 3% to 7%.
“Every three months they’ll add interest on the principal. Eventually you’re paying interest on interest. It just gets out of hand,” she said.
Grandall says the forgiveness is a band-aid over the larger issue of financial aid reform.
“You know, you can forgive $10,000 or $20,000 now, but then in the future, other students are going to have issues in the future as well,” Grandall said.
Swartz says the aid helps low-middle income families and will have little impact on the economy.
“This will have a lot more effect on relief from constricting dollars than it will direct impact on spending dollars on the consumer side,” he said.
For people with large student loan balance, Grandall says people should talk to a financial advisor.
“Don’t just ignore them, because you’ll need to pay them off, but there are different programs that will help,” she said.
If the President’s plan means you will soon be debt-free, Swartz says look into building long-term wealth.
“Building that emergency fund or saving for a down payment on a house. Get that next goal in mind and keep being intentional with your money,” he said.
The cancellation does apply to current college students as well, but if they are dependents, it will be based off their parents’ income.
The Education Department will release more information about how borrowers can claim relief in the upcoming weeks.
The WestCentral Business News
Defend yourself against costly investing mistakes
- By Ben Gibson, Guest Columnist
- Dec 21, 2022
If the average equity investor had invested $100,000 30 years ago, they would have ended up with $450,000. The S&P 500 would have turned that $100,000 into $2 million.
It was not the investments that performed poorly over those 30 years, it was the investors.
People make four mistakes as investors costing them potentially millions of dollars over their lifetime. They are:
• Chasing returns
• Poor diversification
• Market timing
The first mistake — Chasing returns
Chasing returns occurs when you change your investments based on short-term investment track records or projections. Perhaps we’ve read an article, watched a video or heard of an opportunity to catch the next wave. We move some of our investments into this new sector or fund in hopes of getting that higher return before it happens, only to see that fund plummet or languish right after we invest in it.
This doesn’t mean you should never change your investments. If you’re too heavy in sectors that have always been bad, then you should establish a plan. Making sure you are on the right road will lead to success but constantly changing lanes isn’t going to get you there any faster.
Chasing returns is probably the hardest to resist. Getting “average” returns just doesn’t seem right to us. Surely, we are above average. Shouldn’t our returns reflect our superior status? We chase better ones. We are encouraged to chase returns all the time.
To be a successful investor, you must follow investment strategies for decades, not days.
The second mistake – Poor diversification
You have heard that you should diversify your investments. The threat comes when we have all or most of our eggs in one basket. What happens when the nest falls out of the tree?
Facebook (META) is currently down 67 percent YTD. The S&P 500 is only down 18 percent. Never own enough of something to make a killing on it and you will never own enough to be killed by it.
You can also be over-diversified. People will have 18 different positions with no rhyme or reason for any of them. Perhaps out of their 18 funds, they have most of their money in growth, large-cap, technology and blue-chip funds. That sounds like good diversification, right? Except that under the hood, these funds contain 70 percent the same companies.
Over-diversified portfolios bring redundancy in holdings, increasing fees and bringing down overall returns on the same underlying companies.
The third mistake – Market timing
Market timing believes that you can be invested in the equity market only when it goes up and get out before it goes down. You “win by not losing.”
It feels like it should be possible. You look back at the markets and see fantastic growth spurts followed by catastrophic crashes.
Couldn’t it be possible to be in the market during the good years and then get out to preserve your gains? Even if you pulled out a little before the peak and didn’t get in right at the bottom of a dip, one should be able to sell high and buy low, right?
The problem with market timing is that you must be right twice. When you get out of the market and when you get back in. If you’re wrong on either side, you’ll end up worse than if you have never tried.
The fourth mistake — Panic
The markets are going up and up and up — euphoria around investing sets in. We believe the good times will never end. There is the excitement of being part of the “in” crowd. There is the joy of watching your money increase weekly, if not daily. It is alluring even for the most disciplined and principled investor.
Now imagine you have worked for 30 to 40 years. You have built up a modest but sufficient nest egg. The market has been mainly good to you and has helped propel you to new heights, but now, as you approach or enter retirement, the market is beginning to fall.
You watch your life savings decrease. You’ve lost $100,000. $200,000. $300,000. It’s gone. You are watching your life’s work evaporate before your eyes.
You panic. You sell your investments and go to cash.
This move turns out to be devastating. You went to cash at the bottom. The market comes raging back, but you are still in cash.
The market recovers without you, turning a temporary decline into a permanent loss.
Other reasons contribute to poor investor returns, but these are responsible for many of our woes. These four mistakes can cause the destruction of our potential, impact and legacies.
How will you defend yourself against these lethal mistakes?
Ben Gibson is a financial planner with La Crosse Financial Planning.