Episode Transcript
[00:00:00] Speaker A: There's a whole lot going on with student loans right now and a lot.
[00:00:02] Speaker B: Of it seems terrifying.
[00:00:04] Speaker A: So in this episode, we go through what's real, what you should pay attention to, and most importantly, what to do next.
[00:00:10] Speaker B: 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.
[00:00:23] Speaker A: Hello, my name is Brincen Harrison of.
[00:00:25] Speaker B: Escape Student Loan Debt and your host for the Escape Student Loan Debt podcast.
[00:00:29] Speaker A: If you're listening to this and you pay attention to the student loan news, you know that it has been a.
[00:00:33] Speaker B: Crazy last couple of weeks as it.
[00:00:35] Speaker A: Pertains to the Department of Education and federal student loans.
[00:00:39] Speaker B: And in particular, the last seven to.
[00:00:41] Speaker A: 10 days or so have seen a lot of headlines that if I had.
[00:00:45] Speaker B: A federal student loan balance, I would.
[00:00:47] Speaker A: Be up in arms. So we wanted to make sure we.
[00:00:49] Speaker B: Did an episode to walk you through.
[00:00:51] Speaker A: Some of the things that have occurred, let you know the things that are not that big of a deal versus.
[00:00:55] Speaker B: Some things that are a pretty big.
[00:00:57] Speaker A: Deal, and if it is a big.
[00:00:58] Speaker B: Deal, how you should handle them.
[00:01:00] Speaker A: So my goal for this episode is.
[00:01:01] Speaker B: To walk through some of these updates.
[00:01:03] Speaker A: In terms of the timeline of events and then tell you what to do based on that timeline. We're going to start with the 8th.
[00:01:10] Speaker B: Circuit Court of Appeals and their order regarding the SAVE plan.
[00:01:13] Speaker A: We have spent a ton of time on this in previous episodes, so I'm not going to litigate it again.
[00:01:17] Speaker B: I'll just say that if you listen.
[00:01:19] Speaker A: To past episodes, you know that the.
[00:01:20] Speaker B: Save plan is an income driven repayment.
[00:01:22] Speaker A: Plan that is basically dead in the water.
[00:01:25] Speaker B: But the 8th Circuit Court of Appeals.
[00:01:27] Speaker A: Also said that in addition to the save plan being potentially illegal in their eyes, they also said that we think.
[00:01:34] Speaker B: That the pay as you earn plan and income contingent repayment plan may have.
[00:01:37] Speaker A: Overstepped as well and that the forgiveness.
[00:01:40] Speaker B: Offered by those plans needs to be authorized by Congress.
[00:01:43] Speaker A: And it wasn't.
[00:01:44] Speaker B: So it's thrown those three income driven repayment plans in flux. Now, what was the result of that 8th Circuit Court of Appeals order? What was the response?
[00:01:53] Speaker A: Well, the Department of Education is now.
[00:01:55] Speaker B: Under a new administration. The Trump administration, prior to this go round, has expressed disdain for student loan forgiveness. Republicans in the past have tried to do away with public service loan forgiveness.
[00:02:06] Speaker A: So it's not a surprise that they are not keen on like fighting for the save plan and that they think.
[00:02:12] Speaker B: That many of the things that have been offered to those under income driven.
[00:02:15] Speaker A: Repayment is too generous.
[00:02:17] Speaker B: So what they did in response was they flat out took down the applications for not just the save plan, but.
[00:02:25] Speaker A: Not just pay as you earn, not just income contingent repayment, but also the.
[00:02:30] Speaker B: Income based repayment plan.
[00:02:31] Speaker A: They took down the online application for.
[00:02:34] Speaker B: All payments under the income driven repayment plan umbrella.
[00:02:37] Speaker A: Which is interesting because while the court.
[00:02:38] Speaker B: Did cast doubt on the three plans.
[00:02:40] Speaker A: That we mentioned, there is a payment.
[00:02:42] Speaker B: Plan under that umbrella, the income based repayment plan, that was created by Congress and whose legality is almost cemented in stone.
[00:02:50] Speaker A: So the fact that they are just.
[00:02:52] Speaker B: Pulling down all the applications, including for.
[00:02:54] Speaker A: That plan, is something that seems pun.
[00:02:57] Speaker B: They know that that plan is legally.
[00:02:59] Speaker A: Sound, but they are against the student loan forgiveness process. They're trying to cut costs wherever they can.
[00:03:04] Speaker B: So they're just going to essentially take everything down and see what happens and force people to press the issue.
[00:03:10] Speaker A: So the IDR applications are down.
[00:03:12] Speaker B: They also took down the applications for consolidating student loans.
[00:03:16] Speaker A: And while they do still allow you.
[00:03:18] Speaker B: To access and download or print off.
[00:03:20] Speaker A: The paper application for a consolidated student loan, the online versions of each of these applications has been pulled down.
[00:03:27] Speaker B: So that's the second little stop in.
[00:03:29] Speaker A: Timeline as it relates to today's episode.
[00:03:31] Speaker B: Next up, and this is the big.
[00:03:33] Speaker A: Update, or I should say, I think it's the most actionable update. So we're going to talk about what.
[00:03:37] Speaker B: Occurred before the break and then we're.
[00:03:38] Speaker A: Going to talk about the fallout after the break. So what occurred this weekend? A memo that the Department of Education.
[00:03:44] Speaker B: Sent to a few federal student loan servicers was leaked.
[00:03:48] Speaker A: And in that memo, the Department of.
[00:03:50] Speaker B: Education instructed those servicers to not only.
[00:03:54] Speaker A: Stop processing new applications for forgiveness, meaning for someone who had their 20 or 25 year obligation, the department is telling those servicers to not process those forgiven loans and wipe the balance away. They also told them to stop processing new applications for income driven repayment plans completely. So for someone who is trying to.
[00:04:18] Speaker B: Get onto an income driven repayment plan.
[00:04:20] Speaker A: They'Re telling them to stop the processing of those applications. They also are telling them to not.
[00:04:26] Speaker B: Allow borrowers to recertify.
[00:04:29] Speaker A: So if I am in a position where I'm on the pay as you earn plan is the anniversary of my.
[00:04:34] Speaker B: Plan and I'm required to give my tax returns, my pay stubs to update my income.
[00:04:39] Speaker A: They're telling them to not process those recertification applications. They also told them to stop processing.
[00:04:45] Speaker B: All pending applications for consolidating loans. So for people who may have in the past couple of months tried to consolidate their loans. Maybe they did it online or via paper application.
[00:04:57] Speaker A: The Department of Education told those servicers.
[00:04:59] Speaker B: To stop the processing of all those pending applications.
[00:05:02] Speaker A: They did instruct them to continue processing.
[00:05:04] Speaker B: Paper applications for consolidated loans, but for those applications, they are telling them to.
[00:05:10] Speaker A: Not allow anyone to sign up for.
[00:05:13] Speaker B: An income driven repayment plan. The only plans that would be available.
[00:05:17] Speaker A: Are standard plans, graduated plans, and extended plans. So they did all that.
[00:05:22] Speaker B: No new IDR applications, no processing of IDR forgiveness, no processing of pending consolidation.
[00:05:28] Speaker A: Applications that were online or paper. For any new application that are received via paper application, they can consolidate the loans, but they can't allow the people.
[00:05:37] Speaker B: To choose an income driven repayment plan. And for all of those things, they.
[00:05:41] Speaker A: Gave that order for the next three months.
[00:05:44] Speaker B: Now, if you read news stories or.
[00:05:46] Speaker A: Stay tapped in with people who kind.
[00:05:47] Speaker B: Of stay closer to the updates and when things occur in the student loan.
[00:05:52] Speaker A: Space than I do, they will tell you that this order isn't likely to.
[00:05:55] Speaker B: Stand for the entirety of those three months.
[00:05:57] Speaker A: They're saying it could be a month, it could be a few weeks.
[00:06:00] Speaker B: So we don't know how long it will occur. But the very fact that it's where we are right now is a huge deal.
[00:06:06] Speaker A: And after the break, we're going to.
[00:06:07] Speaker B: Go step by step through the different types of people who could be impacted by this order and what you should do if you find yourself in that number.
[00:06:15] Speaker C: This is the Escape Student Loan Debt.
[00:06:17] Speaker D: 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.
[00:06:28] Speaker C: We'll be right back.
[00:06:32] Speaker E: 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 escapestudentloedebt.com and join our email list.
[00:06:57] Speaker B: Now.
[00:07:00] Speaker D: You're listening to the Escape Student Loan Debt Podcast.
[00:07:04] Speaker C: Subscribe now at escapestudentloede.com welcome back.
[00:07:09] Speaker A: All right, welcome back from the break. Now let's go through this mess and figure out, you know, what's the best course of action, depending on the camp.
[00:07:17] Speaker B: In which you find yourself.
[00:07:18] Speaker A: And I've kind of laid out like different avatars of people who could be impacted by this work order where they're saying you can't process forgiveness, can't do IDR applications and so on and so forth. We're going to start with people who.
[00:07:30] Speaker B: Are close, close to having their student.
[00:07:32] Speaker A: Loans forgiven but are on a plan that's not the income based repayment plan. So this could be someone who was on the save plan and has been in forbearance because that plan is no longer allowed. Or I should say, as it stands now, it's likely to not be allowed. It could be a person on pay as you earn and you are close.
[00:07:52] Speaker B: To the either 20 or 25 years of payments that are required to be or have your loans forgiven under these options.
[00:07:59] Speaker A: Well, even prior to the most recent.
[00:08:02] Speaker B: 8Th Circuit Court of Appeals order, they had already placed a pause on student.
[00:08:06] Speaker A: Loan forgiveness for any plan that was.
[00:08:08] Speaker B: An income based repayment.
[00:08:09] Speaker A: So all the plans that I just mentioned. So if you are close to having your student loans forgiven, you do have an option.
[00:08:15] Speaker B: The option in regular times would be any payment that you make on any income driven repayment plan counts towards another payment forgiveness plan.
[00:08:25] Speaker A: So for example, if I have 15 years worth of credit on pay as.
[00:08:28] Speaker B: You earn and I switch my plan over to income based repayment, I still am in my 15th year. I don't lose that credit when I switch from one plan to another.
[00:08:37] Speaker A: So even if they don't allow you.
[00:08:39] Speaker B: To process forgiveness under those options in regular times, you would have the option of just getting to your 20th or.
[00:08:45] Speaker A: 25Th year, switching over to income based.
[00:08:48] Speaker B: Repayment and just having your loans forgiven under that plan. That did exist in normal times.
[00:08:53] Speaker A: The reason I keep saying in normal times is right now, if you do.
[00:08:57] Speaker B: That same process, you get to your 20th or 25th year, you're eligible forgiveness under income based repayment.
[00:09:02] Speaker A: You try to switch from your current.
[00:09:04] Speaker B: Plan on to income based repayment, they're not processing applications for income generated payment.
[00:09:09] Speaker A: Plans right now in any circumstance. So what would you do? Well, I would tell you if you're on a plan that's still allowing you.
[00:09:15] Speaker B: To make payments and those payments are.
[00:09:17] Speaker A: Affordable, you know, affordable is a relative term to keep making them, keep getting.
[00:09:21] Speaker B: Your progress towards the months that are.
[00:09:23] Speaker A: Going to be needed to qualify for forgiveness and when you get to that.
[00:09:26] Speaker B: Period of time where you've reached the last month that's needed, you have the option of putting your student loans into forbearance at that time.
[00:09:34] Speaker A: So that's how I would go about it. If on a plan that's making payments, keep making them and then put your loans in forbearance. If You've reached forgiveness if you're on.
[00:09:41] Speaker B: The save plan where you're not allowed.
[00:09:43] Speaker A: To make payments right now. You really can't switch to an income.
[00:09:46] Speaker B: Driven repayment plan until all of this is resolved.
[00:09:49] Speaker A: So unfortunately you have to stay put. The next group are people who are.
[00:09:52] Speaker B: Close to having their student loans forgiven.
[00:09:54] Speaker A: Who are already on income based repayment plan. This is an important group because income based repayment is the plan that we know is almost certain to stick around.
[00:10:04] Speaker B: That plan requires you to make 20.
[00:10:06] Speaker A: Years worth of payments if you have undergrad loans, 25 years worth of payments.
[00:10:10] Speaker B: If you have grad loans.
[00:10:11] Speaker A: If you're on that plan and you.
[00:10:12] Speaker B: Reach the point where you are eligible for forgiveness.
[00:10:15] Speaker A: Remember, they're not going to process that.
[00:10:17] Speaker B: Forgiveness right now because of this work order. So you could also again put your loans into forbearance after you have made that last payment that's required under the.
[00:10:26] Speaker A: Plan and wait for this all to shake out. Even though in forbearance if you have.
[00:10:30] Speaker B: Interest that's unsubsidized, it will grow on your loans while it's in forbearance.
[00:10:35] Speaker A: If you have met the requirements for.
[00:10:36] Speaker B: Forgiveness, there's not a limit on how.
[00:10:38] Speaker A: Much can be forgiven.
[00:10:39] Speaker B: That added amount that's added to your.
[00:10:41] Speaker A: Balance will be inconsequential, especially right now.
[00:10:44] Speaker B: Where forgiven loans are not treated as taxable income.
[00:10:47] Speaker A: And that will continue to be the case through the end of 2025 and.
[00:10:51] Speaker B: Potentially longer if that current rule is extended by Congress.
[00:10:55] Speaker A: The next group are people who are.
[00:10:57] Speaker B: Far from having their loans forgiven on income driven repayment plans.
[00:11:00] Speaker A: And they also don't have a required date to recertify their loans around the corner, right? So it's like, hey, I'm making a payment towards these plans and it was going to be the end of this.
[00:11:10] Speaker B: Year or early year before I had.
[00:11:12] Speaker A: To recertify my loans anyways. And for you, I would just tell you if you're already making payments to just keep making payments, right?
[00:11:18] Speaker B: There's nothing in this order that impacts you.
[00:11:21] Speaker A: You're not in a position where you.
[00:11:22] Speaker B: Needed to switch plans or consolidate your loans anyways.
[00:11:25] Speaker A: So it's really about just continuing to rack up that credit towards forgiveness while we wait for all of this to settle out.
[00:11:31] Speaker B: So no news is good news. Matter of fact, the longer you have, especially if you've had an increase in income since the last time you recertified.
[00:11:39] Speaker A: The longer you have before you have.
[00:11:41] Speaker B: To do it again, the better.
[00:11:42] Speaker A: So keep on benefiting from that lower payment and don't do anything that's going to stop your progression towards the 20 or 25 years that's required under these plans. Next up, we have people who are.
[00:11:53] Speaker B: Far from income driven repayment plan forgiveness.
[00:11:56] Speaker A: But their income recertification date is around.
[00:11:59] Speaker B: The corner, potentially within that three month.
[00:12:02] Speaker A: Window where they're telling them not to allow the recertification.
[00:12:06] Speaker B: And this is a group that's in real danger.
[00:12:08] Speaker A: Depending on how the Department of Education.
[00:12:10] Speaker B: And Loan Service choose to go about this work order.
[00:12:14] Speaker A: The reason they're in danger is because on the payment plans that remain right pay as you earn income, contingent repayment.
[00:12:22] Speaker B: Income based repayment, you are required to.
[00:12:25] Speaker A: Recertify your income every year and the consequence to not recertifying your income is.
[00:12:30] Speaker B: That they drop your payment down to what would be required under a 10 year standard payment plan.
[00:12:36] Speaker A: Now the hope is because the Department of Education is not allowing people to recertify that the student loan servicer would not follow through.
[00:12:44] Speaker B: Right. Instead of saying hey, you didn't recertify.
[00:12:47] Speaker A: We'Re just going to put you on a 10 year standard plan. The hope is that they say, hey, because you're not allowed to recertify, we're just going to let you keep paying what you were paying. Because the alternative, actually making people just.
[00:12:59] Speaker B: Default to the 10 year standard would be a potentially disastrous scenario for some.
[00:13:04] Speaker A: People who owe a lot of money.
[00:13:05] Speaker B: And don't have enough income to service that debt.
[00:13:08] Speaker A: As an example, if you're looking on.
[00:13:09] Speaker B: Screen, we have pulled up our Escape.
[00:13:11] Speaker A: Student Loan Debt guide to income driven repayment plans. Let's assume that we have a person who their total adjusted gross income for the household for the year is $100,000.
[00:13:21] Speaker B: We're going to assume that they have.
[00:13:22] Speaker A: A family size of four and we're.
[00:13:24] Speaker B: Going to give them a student loan balance of $100,000. So they have $100,000 adjusted gross income, $100,000 student loan balance at a rate of 6.5%. And their anniversary where they're required to.
[00:13:36] Speaker A: Update or recertify their income is coming up next month.
[00:13:39] Speaker B: Well right now based on that income.
[00:13:42] Speaker A: They would pay under pay as you.
[00:13:43] Speaker B: Earn $443.33 a month.
[00:13:47] Speaker A: Well, in normal times, if their month.
[00:13:49] Speaker B: To recertify their income was coming up next month, they would simply give their student loan servicer their most recent tax.
[00:13:55] Speaker A: Return or pay stubs. And if their income hadn't changed, their.
[00:13:58] Speaker B: Payment will remain at the approximately $400 a month. Well now that is paused right These servicers have been instructed to not accept anyone who's trying to recertify their income.
[00:14:08] Speaker A: For the next 90 days and hopefully just allow them to maintain that payment. But the rules of pay as you.
[00:14:14] Speaker B: Earn state that if you fail to.
[00:14:16] Speaker A: Recertify your income that your payment will.
[00:14:19] Speaker B: Change to whatever's required to pay off your student loan balance under the 10 year standard repayment plan.
[00:14:25] Speaker A: Well, you can see at the bottom.
[00:14:25] Speaker B: Of this spreadsheet that instead of $443.
[00:14:28] Speaker A: A month, that would cause their monthly.
[00:14:30] Speaker B: Payment to go up to $1,135 per month.
[00:14:34] Speaker A: And we don't know what these student.
[00:14:35] Speaker B: Loan servicers would do.
[00:14:37] Speaker A: It's almost impossible to get these people on the phone. It's very difficult to get any communication.
[00:14:42] Speaker B: And response from them. So is it an automated system that bumps your payment up to the ten year standard plan?
[00:14:48] Speaker A: Do you have the ability to say, hey, I just can't pay this? If you are in a position where.
[00:14:54] Speaker B: You just see your payment jump to.
[00:14:56] Speaker A: That 10 year standard plan and you.
[00:14:57] Speaker B: Can'T afford it, which most people can't.
[00:14:59] Speaker A: Otherwise you wouldn't be on an income.
[00:15:01] Speaker B: Driven repayment plan in the first place.
[00:15:03] Speaker A: I would tell you you likely need.
[00:15:04] Speaker B: To go into forbearance, right?
[00:15:05] Speaker A: This would be a time where you say, I just need to wait until some of this stuff resol. I can't make this payment. I'm going to put my loans in.
[00:15:13] Speaker B: Forbearance, even though for an unsubsidized loan my balance is going to increase.
[00:15:17] Speaker A: But what is the alternative?
[00:15:18] Speaker B: The alternative is for something that we don't know how long this is going.
[00:15:22] Speaker A: To last, making a payment that you simply can't make. And I don't know that that's feasible for most people. So that's a really dangerous group. People who want to recertify but are.
[00:15:31] Speaker B: Not allowed to recertify because the fear is that their payment would jump to that 10 year standard payment.
[00:15:37] Speaker A: The next group are people who have put in an application to consolidate their.
[00:15:41] Speaker B: Loans or switch to an income driven.
[00:15:43] Speaker A: Repayment plan and that process is pending, right? Or it's still in flux and for you you have to wait, right? If you are like the people who have counseled to consolidate their loans in.
[00:15:54] Speaker B: Recent months or to switch to a.
[00:15:55] Speaker A: New payment plan in recent months, the.
[00:15:57] Speaker B: Department of education is telling these loan servicers to just sit on the application and we don't know if once it resumes they're going to go back through the pile and start to process them or are they going to require you to start process over? We just don't know.
[00:16:11] Speaker A: So unfortunately for this group, you have.
[00:16:13] Speaker B: To just sit and wait.
[00:16:15] Speaker A: And then lastly, people pursuing public service loan forgiveness.
[00:16:18] Speaker B: Oddly enough, with all this stuff going on, public service loan forgiveness seems to be chugging along.
[00:16:23] Speaker A: This is something where we're seeing people even who are on plans that are not income based repayment have their student loans forgiven once they've met their 10 year requirement.
[00:16:33] Speaker B: For all the things that we just discussed, I would let the leading decision.
[00:16:37] Speaker A: Maker be can you afford your payment right? But if you the ability to either.
[00:16:42] Speaker B: Be close to public service loan forgiveness or you're far from public service loan.
[00:16:45] Speaker A: Forgiveness, but you're on a payment plan that's allowing you to keep paying and earning those credits, I would just keep going, keep paying and earning those credits. Because public service loan forgiveness is also.
[00:16:55] Speaker B: Something that was created by Congress and.
[00:16:57] Speaker A: Would need a super majority to be taken away. So that is something that I also.
[00:17:01] Speaker B: See as damn near cemented into law and not something that you should be concerned about now.
[00:17:07] Speaker A: Now, we spent a whole lot of time on the update that I mentioned.
[00:17:11] Speaker B: Before the break, but it wasn't the most recent update. By the time that you listen to this, it is highly possible that Trump.
[00:17:18] Speaker A: Has or will later today issue an.
[00:17:21] Speaker B: Order to abolish the Department of Education.
[00:17:24] Speaker A: And I left that to the end because that even though I don't think it's going to stand, it's going to take a while for it to be undone. I don't think that that has an.
[00:17:34] Speaker B: Outsized effect on student loan borrowers. It has a potentially terrible effect on.
[00:17:38] Speaker A: People who are still in primary or secondary school and things of that nature.
[00:17:42] Speaker B: Which is not what this podcast is about.
[00:17:45] Speaker A: But the fact of the matter is.
[00:17:46] Speaker B: When it comes to student loans, they can't just undo student loans. If the Department of Education is abolished.
[00:17:52] Speaker A: Then the things that the loan servicers would do and the department does, they.
[00:17:55] Speaker B: Would just shift to a different department in the federal government because those tasks are required to be carried out.
[00:18:02] Speaker A: So I don't want to go through a lot of if, ands and buts.
[00:18:04] Speaker B: About it, but I also want you to be aware that this is something that could occur or could have already occurred.
[00:18:10] Speaker A: Based on the time that I'm recording this episode, I would not get swept.
[00:18:13] Speaker B: Up in it, at least in terms of the impact on student loans.
[00:18:17] Speaker A: To me, the more impactful thing is.
[00:18:19] Speaker B: The one that we just spent the.
[00:18:20] Speaker A: Last 15 minutes, or however long we did going through.
[00:18:23] Speaker B: So a lot of scary news stories.
[00:18:25] Speaker A: Out there, a lot of stuff that.
[00:18:26] Speaker B: Can get you up in arms. So I would say in this time, control what you can control.
[00:18:30] Speaker A: It's a very crazy time, not just.
[00:18:32] Speaker B: With student loans, but with a whole.
[00:18:33] Speaker A: Lot of stuff going on in our economy. And we're trying to do the best we can to give you this information.
[00:18:37] Speaker B: As it comes and sift through the.
[00:18:39] Speaker A: Things that are actionable versus the things that you just need to kind of.
[00:18:42] Speaker B: Keep your head in the sand and.
[00:18:44] Speaker A: Not let it impact you.
[00:18:45] Speaker B: Or at least try to not let.
[00:18:46] Speaker A: It impact you as best you can.
[00:18:49] Speaker E: From Escape Student Loan Debt this was.
[00:18:52] Speaker B: The Escape Student Loan Debt podcast, a.
[00:18:54] Speaker A: Show for established professionals whose student loan.
[00:18:56] Speaker B: Payments or loan back balances are impacting their marriage, their business, their credit, or their dream of achieving homeownership.
