Episode Transcript
Hello, this is Brenton Harrison, founder of Escape Student Loan Debt, and your host for the Escape Student Loan Debt podcast. If you were with us in part one of this series, we covered some of the one time revisions that will occur for programs like public service loan forgiveness, otherwise known as PS L F, and the income driven repayment plan waiver.
But we talked about those one time revisions in part one, so that in part two of what I've now decided will be a three part series, we can discuss the permanent changes that are due to come for these programs, specifically public service loan forgiveness.
In that episode, we read from a fact sheet, a press release from the Department of Education entitled The Future of P S L F, and we're gonna go right back to that fact sheet so we can talk first about some of the previously ineligible payments towards public service loan forgiveness that will now be counted as a result of these permanent change.
In terms of the timing [00:01:00] of these changes, similar to what we discussed in part one, these will take effect after July 1st, 2023. Until that point, we're following the same old rules, but one of the first adjustments beyond that date is that borrowers can receive credit for PS L F payments made that were late in installments or in a lump sum.
This is a huge deal because historically, in order for a payment to count towards public service loan forgiveness, it had to be made in full for the amount listed on your statement within 15 days of your due date.
Now they're saying you can get credit as long as that payment is made while you're working for an eligible employer. Even if you make that payment late, and in some cases they may allow you to receive credit for a lump sum payments.
We've also covered that in the past, student loan servicers either incorrectly steered borrowers into forbearance or deferment when it would've been better off for them to utilize the services of an [00:02:00] income driven repayment plan. But also in doing so, they failed to tell them some of the negative impacts in terms of their student loan interest rate or their lack of eligibility for these programs. To help stem the tide of that confusion, they are now including some periods of deferment and forbearance into the future, including periods of cancer treatment deferment, things like military service, but most importantly administrative or mandatory administrative forbearances.
So what is a mandatory administrative forbearance?
Essentially, this means that there are periods where your student loan servicer automatically puts your loans into forbearances. There are also periods of mandatory forbearances for things like military service or medical residencies, where you do not have to put your loans in Forbearances, but if you request that forbearances, it has to be granted to you.
Now, they're not giving full details for things like those types of training, but they are saying that if you're on these lists that you see in terms of [00:03:00] the type of forbearance or deferment, there's a possibility that these previously ineligible payments will now be counted.
And lastly, this is a huge change. One so big that we might do a separate episode on it later down the line. There has been a monumental change to how credits are applied to borrowers who have consolidated their loans into a direct consolidation loan.
If you listen to our episodes on public service loan forgiveness, you would know that many people do this because the only type of loans that can be forgiven under this plan are direct loans. So if you had an F FEL loan or a Perkins loan, you would have to consolidate those loans into a direct loan to be eligible.
Now prior to these changes, any payments you made toward those ineligible loans prior to consolidation would not count. Meaning that if you had paid for eight years on these ineligible loans and then decided to consolidate them, you would lose all of those payment credits and be starting over at month one post consolidation.
[00:04:00] That will now change according to these regulations.
Reading from this document, " borrowers will receive a weighted average of existing qualifying payments towards public service loan forgiveness when they consolidate their direct loans. Under current rules, borrowers lose all progress towards forgiveness when they consolidate".
Now they give you an example of a weighted average, but their example is pretty complicated, so I'm going to try my own and see if this helps in explaining it. A weighted average is very different than an actual average.
Let's say I gave you two loans. One of the loans has an interest rate of 10%, and the other has an interest rate of 0%, and I asked you for the average of the two interest rates.
Well, the average would be five. One loan is at 0%, the other is at 10, meet right in the middle, and you're at 5% as the average interest rate. Weighted average, however, takes into consideration the amount of money that you owe on each loan. As an [00:05:00] example, let's say that I owe a hundred thousand dollars in total between the two loans, and $1 is at 0% and $99,999 is at 10% on that second loan.
Well, the weighted average interest rate is going to take into consideration that the majority of the money I owe is at 10% interest, and that weighted average will basically be 10%. Even though there are two loans with wildly different interest rates, the loan that has the highest balance is going to have more of a weight in determining what that average will be.
That's how weighted averages work. It's a win in and of itself that some of these payments you've made towards previously ineligible loans will now be counted towards your public service loan forgiveness credit. But in terms of understanding how that weighted average will come into play, or at least how I think it will come into play until they release more details, we have to take interest rates out [00:06:00] of the example that we just covered and enter in the amount of payments you've made prior to consider.
Going back to our example, we had a loan that was $1, and let's assume that we had made 20 payments towards that loan before we consolidated it with our other loan that owed $99,999. Now, let's assume that towards that second loan, we had made a hundred payments prior to consolidation, far more than what we had paid towards the $1.
If we consolidate those loans together, the weight of that second loan is going to be much heavier than the loan where we only had 20 payments. So when determining how much we'll have in terms of credit towards public service loan forgiveness, that loan we had made more payments to with a higher balance, will weigh more heavily into determining the final credit towards forgiveness.
So again, this is a [00:07:00] huge deal and will hopefully get many people much closer than they had thought if they waited a while to consolidate loans. And after the break, we'll tell you how payments aside, borrowers who just as a nature of their employment, wouldn't have been eligible in the past, will now be able to pursue public service loan forgiveness without switching employers.
Before the break, we talked about payments that would not have counted towards public service loan forgiveness in the past, that will now be counted.
Now it's time to talk about forms of employment that were previously ineligible that now will be roped in to the allowable jobs under public service loan forgiveness. The first is clarification for how long you have to work regardless of where you work. In the past, you had to work the higher of 30 hours per week or your employer's definition of full-time.
That was what the Department of Education considered full-time employment. So if you worked for an employer that for some reason considered 25 hours full-time, you had to work at least 30. [00:08:00] But if you worked for an employer that required 40, you had to work those 40 hours to be considered an eligible employee under PSL F.
Now they're saying that they are adopting a single standard of full-time employment at 30 hours a week. No more confusion. Doesn't matter what the rules are for your employer, you just gotta work the 30, even if they require 40 at your job. If you have those 30 hours and you can have someone sign off to a test to working those 30 hours, you are in the door.
Secondly, for employers who have adjunct and contingent faculty, the Department of Education will credit at least 3.35 hours of work for every credit hour that adjunct professor has taught.
Historically, employers have really struggled to determine the work hours that they were going to apply to adjunct professors. What the Department of Ed is now saying is, for every credit hour this person has taught, that employer now has to assume that person has worked at least 3.35 hours.[00:09:00]
And then lastly, and this is the reason we decided to extend this to a part three of this series, this is something that impacts a number of medical professionals, specifically in the states of California and Texas.
They "will allow a qualifying employer to certify employment for a contractor if that individual is providing services that by state law cannot be filled or provided by an employee of that organization. The department is aware of certain circumstances where existing state laws generally prevent doctors at non-profit hospitals in California and Texas from working for these hospitals directly.
This change would cover those individuals as well as any other contractor whose employment is similarly barred by state law."
If you're not in the medical profession, that might make no sense to you at all. But essentially in California and Texas, for some reason, there are non-profit facilities that would not by state law, allow medical professionals to work [00:10:00] directly for that non-profit facility. As an example, you might have a nonprofit or a government hospital in Pasadena, California that if you worked directly for that institution, you would be eligible for public service loan forgiveness.
But because you were a doctor, state law said that you had to work for a private entity that contracted with that hospital. And as a result, you have thousands of doctors in Texas and California who might be working at a hospital that itself is eligible, but they are instead employed by institutions like Kaiser.
And as such, they've been ineligible to receive credit towards public service loan forgiveness, even in their medical residencies, which is a time period where people typically bank on getting at least three years worth of credit towards the 10 year requirement. This changes all of that and now opens up these people to get credit towards public service loan forgiveness if they're working in these states.
And in part three of this series we'll cover how this change will have immediate ramifications for [00:11:00] people who are graduating from medical school.
And we'll also cover some of the potential options for people who previously worked in these states now trying to get these credits applied to their public service loan forgiveness balance.
