[00:00:00] Speaker A: In this episode, we talk about a new program offering a do over to federal student loan borrowers who feel they might have missed their shot for public service loan forgiveness. Let's get started.
Are your student loan payments or loan balances a major obstacle in your financial life? Then tune in and let's escape student loan debt.
Hello. My name is Brenton Harrison of Escape student loan debt and your host for the Escape Student Loan debt podcast. Hope that wherever you are, you are enjoying the last few weeks of summer. In the last several weeks, we've had both the state of student loans webinar and also an episode where we released a snippet of that webinar and some ways that you can advocate for yourself if you're in a situation where you feel like your loan servicer is telling you something that, you know, goes against a recent Department of Education guideline. This week, I want to go a little deeper into something I mentioned on the podcast, and I actually want to give you an announcement, plus a correction from last week's episode and the webinar itself. So let's start with the correction. One of the things that I talked about when I was venting about my frustration regarding the Save plan going into forbearance is during this period of administrative forbearance, they are not giving credit for people on that forbearance towards a general forgiveness under income driven repayment plans and also public service loan forgiveness. And when I was talking about that, I shared that. That upset me, because if you're a person, for example, who was applying for public service loan forgiveness, you are working for an eligible employer right now. One of the requirements of that program is that you have to to be employed by an eligible employer even at the time of application. So, for example, if I get my ten years before I apply for public service loan forgiveness, I can't just say, hey, I got my 120 months, now I can go work in the for profit world. I have to still be employed by that eligible employer at the time I ask for forgiveness. Now, what I said in the webinar was, on top of that, you had to also still be employed by that eligible employer at the time of forgiveness, which is how it worked prior to some recent changes. That was incorrect. I actually want to give credit where it's due. It was called to our attention by a member of our community.
Lisa, if you're listening to this, please forgive me if I mispronounce your last name. Lisa Gosweiler said that this is awesome info, but one thing that may be helpful is that based on the new public service loan application, it does say on page two that you only have to be working for PSLF eligible employers when you apply for the forgiveness discharge, you no longer have to be with that employer or any eligible employer at the time of forgiveness. So that was a correction that needed to be made from the webinar in last week's, or I should say two weeks ago's episode. Want to make sure we started with that. Now to the announcement. One of the things that we mentioned in the webinar, and also if you're in our email list, is that we are going to be releasing an income driven repayment plan guide. That guide is finally finished. It seems like it's very simple to just put out a guide, but we have a student loan calculator that's in the guide, and the coding of it is pretty difficult to make sure that all of the rules are followed when it comes to how to calculate an income different repayment plan payment. So we're going to be releasing that IDR guide on Monday. So if you are not on our email list, I highly advise you to go to escapestudentloanede.com so you can get on our email list before Monday because we're sending out that calculator on Monday along with instructions of how to use it. So that's the correction. That's the announcement. Now let's get to this week's episode, which to me I think is pretty straightforward. So it shouldn't take us that much time. Before the intro, I referenced a program that's now available for people who may want to do over when they missed their opportunity or felt they might have missed their opportunity to get public service loan forgiveness. Well, fear not, because in 2024 we have seen the release and the introduction of what's called the Public Service Loan Forgiveness buyback program. And this program is something that's available for people who are looking back in the past and saying, I wish I could get those months credit. You now have an option to do so if you're following along screen and we'll put this link in the show notes, you're looking at a link directly from Studentaid Dot Gov and it says that due to changes in PSLF regulation, you can now buy back certain months in your payment history to make them qualifying payments for PSLF. Now, there's all types of credits that you can purchase, but let's start with the ones that you cannot purchase. You can't go back in time and get credit for a loan that's not a direct loan. So if you still have a Stafford loan, if you still have a Perkins loan, we've told you many times you need to consolidate those loans. But if you have a loan that's not a direct loan, you can't buy back credit towards that loan. You also can't buy back credit for a loan that's already been paid off, which makes sense. It's already been paid off. You can't buy back credit for a loan that's already been forgiven. So the thought may be for someone with a paid off loan that you could like somehow buy back that credit and get a refund for monies that you have already paid, that's not possible. And you also can't buy back loans that at the time you were working for the eligible employer were an in school deferment. We're in a grace period, were defaulted, we're part of a bankruptcy proceeding or we're being monitored for total and permanent disability. And if you think about it, this makes sense. You can't get past credit for loans that have already been paid off or forgiven. And you can't get past credit for loans that you weren't going to have to pay for anyways because of the status of that loan. And you can't get credit for loans that were in default status or basically in a state where you just were ignoring your obligation to pay during that period as opposed to being allowed to have them in forbearance or deferment. There's a major difference. Now let's go to the months that you can buy back if you were working for an eligible employer for public service loan forgiveness, even if you didn't make a payment, you can buy back credits for months that your loans were in deferment, months that they were in forbearance or they were in deferment or forbearance after the first disbursement of a direct consolidation loan. So essentially there can be a lag time after you've filed for a consolidation loan. And if you're saying, hey man, this was like three months after this loan was consolidated, before they had a payment, but I should have gotten credit towards public service loan forgiveness, those months are eligible for buyback as well. Now, there are some stipulations to when you can buy back these credits. If you're following along, on screen, it says the buyback opportunity is only available to you if you already have 120 months of qualifying employment and buying back. Months in forbearance or deferment would result in forgiveness under public service loan forgiveness or temporary expanded public service loan. What does that mean? It means that you can't go back and buy these credits until you can prove that once you receive those credits, you will be over the 120 month threshold. Let's give an example. Let's say that I have 100 months of credit already towards public service loan forgiveness, but there's twelve months of past credits that I want to buy back. Well, if 120 months is the requirement, even if I bought back those months, I would still be short. I would be at 112 months, and as a result, I can't buy it at that time. Now, let's say I get to the point where I have 108 months of credit that I already have credited, and there's still that twelve months that I want to buy back. Now I can buy them back because I can make the case that once I receive those twelve months of credit, it will bump me over the 120 month threshold and I will be eligible to have my loans wiped away. So you can always buy them back. The timing of when you buy them back just has to occur after the point where you can prove you'd reach your required payment amount if you received what you're applying for when it comes to the buyback credit. So that's the program in a nutshell, in terms of which loans are eligible or which periods of potential repayment are eligible for a buyback. After the break, we'll talk about how to calculate what it costs to buy back those credits, and some planning strategies that you could use in general terms, but also specifically for people who are stuck with the save plan in this period of administrative forbearance.
[00:08:06] Speaker B: This is the escape Student Loan Debt podcast, a show for established professionals whose student loan payments or loan balances are impacting their marriage, their business, their credit, or their dream of achieving home ownership. We'll be right back.
[00:08:24] Speaker A: Are you interested in learning the tools and techniques we use to get student loans forgiven, reduced, reorganized, or expedited? Well, great news. We're currently updating our flagship course, escape student loan debt, to reflect the current changes in the student loan landscape. To stay up to date on the launch of the course and opportunities to sit in on our live recording sessions, head to escapestudentloanede.com and join our email list. Now.
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[00:08:58] Speaker B: Dot welcome back.
[00:09:01] Speaker A: All right, so let's talk about how these buyback credits are determined. The good thing is you likely are in this scenario because you are making more money now than you were during the period where you were working for an eligible employer. As a matter of fact, if you didn't have a little more cash flow, you probably wouldn't be considering buying back those credits in the first place. Well, that's a positive because thankfully the payment that you make to buy back those credits is not based on what you're making. Now, let's go straight back to the page so we can see the wording and walk through. It says, how is the buyback amount determined? The option one says if you were on an IDR plan immediately before or after the months you're buying back, if the deferment was less than a year in length, we'll use the lower of the two monthly IDR payments for the months before or after the time in deferment or forbearance. That's a lot of loan speak, so we'll use examples to drive the point home. Let's say that from January, February, March, I'm on an IDR plan sometime back in 2012. And during those three months on my IDR plan, I had to make $200 a month of payments. And for some reason from April through December, I decided to not make those payments. So that's nine months worth of credit that I would have received had I kept up with my $200 monthly payments. Let's also assume that in January of the following year, when I started making payments again, that my payments had risen from $200 a month to dollar 400 a month. So I have a deferment or forbearance that lasted less than a year, which is part of the requirement. I was on an IDR plan payment before I stopped paying. And when I started paying again, I was on an IDR payment that had increased prior to what I was paying before. So in this instance, they're saying they're going to take the lower of the two payments for the nine months in question. They're going to look, and they're going to say, we are going to look at dollar 200 that you were paying before, dollar 400 that you are paying after, and we're going to take the dollar 200 because it's the lower number and that's what we're going to assume you would have had to pay for that nine month stretch. Nine months times $200 means that if you wanted to buy back that credit, it would cost you $1,800 in order to receive the full nine months of credit. Now let's look at option number two. If you were not in an IDR plan before or after the months you're buying back. We'll request tax information for that calendar year to determine the amount that you would have paid under an IDR plan. If your deferments or forbearances cross over multiple tax years, then we will need your tax information for each year. What are they saying? They're saying exactly what occurs when you sign up for an IDR plan in the first place. You have to submit your tax return to your student loan servicer. They calculate what your payment is. That's what you pay. In this instance, you have to go back to the past. So in our example, if 2012 was the year, you're going to have to locate your 2012 tax return, submit it to your loan servicer so that they can calculate what you would have had to pay back. Then it does not matter what you would have had to pay based on your current salary. It's all based on what you were earning in the year that youre trying to buy back credits. If this occurred where it's over 20 12, 20 13, 20 14, you would then have to supply tax returns for each of those years. Now see what it says further down. Your payment amount will be based on the lowest IDR amount you were eligible for at the time of the deferment or forbearance. If the ten year standard payment is lower than your calculated IDR payment, then the ten year standard payment will be used. And it even has a question asking how does my buyback work if my payment would have been $0 using IDR? And it says if we calculate your back agreement to be $0, we will proceed with processing forgiveness on your loan when we send you the buyback agreement as no payment will be required. Again, that's a lot of loan speak. Let's break it down. It's saying that when you send in that tax return, they're going to calculate your payments and they're going to look at all of the income driven repayment plans that were available at that time. And thankfully they're going to use what would have been the lowest payment of all the available plans to figure out what you pay. If for some reason the lowest payment during that time would have been the ten year standard plan, then even though that's not an income driven repayment plan, they would allow you to make your payment credits based on the ten year standard plan. It's all going to be based on what was the lowest possible payment that you could have made in this scenario. They also are saying what if during that period your income was so low that when we calculate your payments or what they would have been during that time, it would have been $0. They're saying that's perfectly fine. You can receive your buyback credits even though you technically have haven't bought back anything. If you can prove that during the period that you're trying to have added onto your total, your payment during those years would have been $0. So again, the program is kind of complicated, but when you think about what makes the most sense, it kind of comes into place. And so now let's talk about some of the planning options that you have. One of the things that you'll see we don't have to read word for word on this site, which we'll link to in the show notes, is they strongly encourage you to not even try to buy back these credits until later in 2024 because people are still having their forgiveness credits updated through the public service loan forgiveness and the IDR plan waiver. The reason that you wouldn't want to try to buy it back before you know for sure that you've gotten all your credits is because there's allowances in both of those programs where they're already giving you credit for months in deferment or forbearance that exceeded a certain period of time. So, for example, you would not want to, before they give you all of your credits, go back and pay for months when your loans were in deferment. If you're already going to find out that they were going to give you credit because of those waivers without making you make a payment at all. So they're telling you, and I agree, you should probably wait until, I would say early 2025 before you even consider doing this, because you want to make sure that that credit is fully updated and reflected in your system. You also will see on this site the way that you can apply for the buyback. It tells you to go to the PSLF help tool, which we'll also link to in the show notes. It tells you to make sure that you verify your employment. So you would have to get a certification form for the month you're trying to buy back, and then you can submit a request to the PSLF reconsideration page. So we'll put those links in the show notes. We don't have to go through all five of them because they're going to be in that link. But to me, here are a couple of planning opportunities to consider, starting with the thing that is most emergent, which is the group of people who are under the Save plan, who are in forbearance but aren't receiving credit towards public service loan forgiveness or general forgiveness. The first thing is this is only for public service loan forgiveness. It's not for general income driven repayment forgiveness. But if you're a person right now who's under saved and you're working for an eligible employer, and you were hoping during these months that you were getting credit towards public service loan forgiveness, only to be told that you're not until there's clarification from the courts, then this buyback program gives you the opportunity to say, even if this forbearance goes nine months, twelve months, six months, once you cross your 120 month threshold, you will have the option of going back and making lump sum payments to get back those months of credit that you would have paid towards the program. I would encourage you in that scenario to calculate what your payment would be now and start putting money aside so that you're not having to come up with that lump sum when the option occurs. But it is an option that will be available to you, which to me isn't a positive because you shouldn't be in this situation. But it's at least a silver lining that gives you some hope at the end of this sh, you know, whatever storm that we're in when it comes to student loans. Now, here's another planning opportunity for people who aren't in that situation. They're literally just looking forward or looking backward at their opportunities for having their credits. Let's go to one of the professions that we discussed, a medical student or a medical resident who's in their first year, their second year, and they're sitting there saying, look, I'm getting paid, you know, $30,000 because I'm working half the year my first year as a resident, maybe $60,000 my second year, 70 the third year. But I've got 300 $400,000 in student loans. You may not have the ability or the desire to make a payment right now. Now. Now, the good thing is, based on the fact that they're going off of your previous year's tax returns, most medical residents, in their first year, their required year payment is $0. The second year may be a couple hundred dollars a month, a few hundred dollars a month, but it still may be an amount that you just don't want to pay or can't pay. Well, making that payment 200, $300 a month, 2000, $403,600 a year when you're making $60,000 is a lot more daunting. Than if you're making 200 or $300,000 and you have to make a lump sum payment of 2400 or 3600 to get an entire year's worth of credit. So to me, this opens up the opportunity for a medical resident who says, I just don't want to be bothered with making this payment during residency. When I'm making less money, I will just work for the eligible employer. And once I've gotten to the point where I would have gotten my 10th year of service, I'll just buy back those months at a later time when the amount of money that I'm spending is less of a burden. Going a step further, I may calculate what my payments would be during those years during medical residency, and I might just invest the money and say, I'm going to just keep investing these monies instead of making my payments for these years when income is lower and I'm going to let them grow in the market. So that ten years from now, not only will I have the ability to make that lump sum payment, I will hopefully have interest and growth that has increased the amount that I've set aside, where maybe I only have to make a lump sum payment of $2,400 or $3,600 from an account that might have grown to ten or $15,000. So it could be a better opportunity to have emergency reserves during residency to have an amount of money that's establishing an investment account during residency. Because as long as this opportunity exists, you're essentially getting to dip your toe on both sides of the water where you're working for an eligible employer and have the opportunity of having loan forgiveness. But you also have a recourse that doesn't require you to make payments at any specific time in order to get that forgiveness. And if you're on the track or in a profession where your income is due to increase over time, this may give you an opportunity to make payments in the future when you're making more money based on an amount that was calculated when you were making less money. So I know that's a lot. Like I said, this isn't something that I would consider looking into until 2025 at the earliest. But as with most things when it comes to finances, I would encourage you to do some research and let it, you know, kind of knock around in your brain for a few months before you pull the trigger, which is why we wanted to talk about this program. Now we'll put all this information in the show notes. Again, if you are not on our email list, I encourage you to join that list before Monday so you can be one of the first to receive the income driven repayment plan guide and I look forward to seeing you all in two weeks. Talk to you then from escape student loan debt this was the Escape Student Loan Debt podcast, a show for established professionals whose student loan payments or loan balances are impacting their marriage, their business, their credit, or their dream of achieving home ownership.
