[00:00:00] Speaker A: In this episode, we go through the last major announcement regarding your student loans from the Biden administration, what it means and how the new presidential administration could upend your plans. Let's get started.
[00:00:12] Speaker B: 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 Brinson Harrison of Escape Student Loan Debt and your host for the Escape Student Loan Debt podcast. Hope that you all are having a good week so far. We are actually posting this episode on our other podcast platform as well. New Money, New Problems and if you're aware, this is the like third or fourth time in the past few weeks, past month or so that I've been under the weather. So please pardon my voice yet again and I hope that it doesn't impact your ability to get something out of this episode. If you were with us last week. Typically we post every other week, but there have been some updates in the last week or so that are relevant to you. So this is an off cycle episode, but last week we talked about if you are interested in having your student loans reviewed on our podcast with deidentified information, we won't have any of your private information up there for consumption that you could do so by going to escapestudentloedebt.com review. We have already seen quite a few people who have signed up, so we'll have to see how we're going to work through the people who have signed up. But please still submit your case so that if it's something that we feel would be educational and instructive to the rest of the audience, that we can have you on the podcast. So this is typically something that we charge for, but if you're on the podcast, we will not charge. I will also say based on a really, really good episode that we had last week, something that I've never said on this podcast before, I have mentioned that we have another platform, New Money, New Problems during our work or through our work as financial advisors at the firm. New Money, New Problems. I don't think I've ever told you on this platform to listen to that podcast. If you really enjoy this one, I can almost promise you that there are subjects on that New Money, New Problems podcast that you will enj. So if you've never taken a listen to that podcast, I highly encourage you to go over there and check out some of our recent episodes or go back to the catalog because I can almost assure you that if you like this one, there's something that you'll enjoy on that platform as well. So what are some of the updates? Well, Last week on the 15th of January, the Department of Education came out with a series of announcements really focused on the SAVE plan, the general forbearance, the people who have applied for that plan are currently under, and what it means in terms of like, the impact on other elements of student loan forgiveness, student loan repayment plans and the like. If you look at just the date of January 15th and you know what happened this week, you are aware that this is really functionally the last major update that's released by the Biden administration regarding your student loans. And I say that because now that we have a new presidential administration, everything that we're going to go through in this episode, you have to be aware that it can be changed, right? Like the Education Department comes out with an announcement, they now have a new administration. That new administration could come in and just say, never mind, we changed our mind or canceled that, that wasn't our idea, or we disagree and here's what we're going to do instead. So it's a little tough to navigate some of these things, but you still need to be aware of them because if they hold true, then it definitely impacts your strategy. And if they don't, then you need to be aware of when the status quo changes so that you can adjust accordingly. So what we're going to do is we're going to pull up this announcement, we're going to go section by section so that you can understand what it if this information holds, and then also what it would mean if it changes overnight and you need to make adjustments.
If you're looking on screen, we're looking at the announcement itself and we'll put this in the show notes. Then at the top it says Update as of January 15, 2025. And it mentions that the Education Department is currently prohibited from using the SAVE formula to calculate monthly payments and from forgiving loans after years of payments under the SAVE pay as you earn and income contingent repayment plans. If you listen to this frequently, you're well aware that the SAVE plan is currently tied up in the courts. So if you already apply for that plan, you're in a general forbearance that does not count towards either IDR plan forgiveness or public service loan forgiveness. The pay as you earn and income contingent repayment plans, because those are plans that were created in a similar fashion, are actually open to new applicants. So you can sign up for pay as you earn, you can sign up for income contingent repayment, and you can make payments on those plans, unlike Save. However, under all three of these options, even if you got to the 20th or 25th year of that payment program, which is the amount that it requires until any remaining loans are forgiven, you would then basically just be stuck in forbearance again, because as it stands now, you can pay under those plans, but you can't have your loans forgiven under those plans while the save plan is being litigated. And following that update, they essentially have a question and answer section that goes through all of the updates that we're going to discuss. The first one says, I'm enrolled in the save plan. What does the court's injunction mean for me? Well, we've talked about this. We just mentioned that you're in general forbearance, so you don't have to make payments. Interest is not accruing. However, the time that you're in forbearance does not count towards student loan forgiveness under IDR or Public Service Loan forgiveness. Now, there is an update that we haven't discussed that came out last week that I want to make sure that we go through. It says, and I quote, because save Plan borrowers will be in the general forbearance until the fall of 2025, the Education Department is directing loan servicers to change IDR plan anniversary recertification deadlines. What does this mean? Let's break it down right here. So, end quote. This means that every single year, if you're on an income driven repayment plan, you have an anniversary at which point your servicer reaches out to you to ask for you to recertify your inc. So for me, that may be June 1st of each year. For you, that may be February 1st of each year. What they're saying is they are pushing out the deadline before the first person has to recertify. It says the first recertification deadline for saved borrowers will be no earlier than February 2026. What does this mean? Going back to our example, let's change the dates and let's say that instead of June 1st of each year, then my date of anniversaries for income driven repayment is January 1st. That means that January coming before February 1st of 2026 would come and go before I'm required to recertify if I'm currently signed up for the save plan. So if I'm on the save plan, I've shared that that plan is almost certainly going away, but we don't know when. And what they're saying is if you're currently signed up for save, they're not going to ask you to recertify your income until at least February of 2026, meaning that if your current Anne anniversary comes before that date, either a date in 2025 or maybe it's January 1st of 2026, that basically you're going to be able to skip this year. In terms of recertifying your income, this could have a major impact because like we've talked about in previous episodes, you may be a person who has a spouse who doesn't have federal student loans, and as a result you've done things like filed your taxes separately so that their income does not impact your student loan payment. Or you may be the one whose income has changed radically and you're sitting there wondering when the other shoe is going to drop, saying, you know what, my payment's going to go from 300amonth to 1,000amonth. But I don't know when this is giving you some guidance as to when that could occur. So that's the update. Let's also be aware that the incoming presidential administration has already been frustrated with the number of extensions for recertifying your income and they did not like the SAVE plan to begin with. So this is something that you want to be aware of in case it changes your strategy either for your budget or your tax preparation. But you also wanna know that at any point in time the Department of Education under the new administration could say scratch that. Payments have to restart immediately. If that's the case, most of the time you have to have a couple months notice both for the student loan servicer and also for the length of time between when you're given the bill and when it's due. So you would probably have a couple months of lag time. But again, this is something where I might, if I were in your situation, set a Google alert so that if news comes out about the chang of the deadlines, you will be made aware and you can adjust according. The next question in the FAQs is how does forbearance affect me? It talks about the safe forbearance. We're not going to spend time on that. It's already been discussed. But they also say if you are in processing forbearance. So what is processing forbearance? Processing forbearance is essentially the Department of Education saying you have applied for a new payment plan and it's taking us a very long time to process that application. So while we're processing it, these are periods of time where if we had done our job faster Conceptually you would be getting credit towards income Driven Repayment Plan Forgiveness or public service loan forgiveness. So processing forbearance is a status where while that application is going through the system, they give you credit towards income Driven Repayment and Public Service Loan forgiveness if you are eligible. It says, and I quote as described below, servicers may place borrowers into a different forbearance category known as processing forbearance. If the servicers need additional time to process those borrowers applications to enroll in ibr, recalculate their payments, so on and so forth. In contrast to the general forbearance for borrowers enrolled in save interest will accrue while a borrower is in processing forbearance. So that's a major difference. You're getting credit towards forgiveness. But unlike general forbearance, interest is accruing during this time. Going back to the quote it says additionally time spent in processing forbearance for up to 60 days is eligible for PSLF and IDR credit processing forbearance will last no longer than 60 days, at which point a borrower may be placed into general forbearance under the terms described for that status. Let's break down what that means. In layman's terms, there is no guarantee that your IDR application is approved within 60 days and processed. What they're saying is, for example, if it takes 120 days to process that application, that 60 of those days would be considered processing forbearance. Interest would accrue and you would also be eligible for forgiveness at that date. If after that 60 day period it still hasn't been processed, you go back into general forbearance where there is no credit towards forgiveness. So these are the types of things where you need to be taking screenshots, making sure you retain all documents. Because two months where you're getting credit versus two months where you're not could be the difference at the end of that 20th, 25th year or 10th year in public service loan forgiveness where you're not required to make those couple months payments as long as you have taken good not notes and retain documents that you can show to your loan servicer when it's come time to apply. This is the Escape Student Loan Debt.
[00:11:17] Speaker C: 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.
[00:11:32] Speaker B: 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.
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[00:12:00] Speaker C: You're listening to the Escape Student Loan Debt Podcast.
[00:12:04] Speaker A: Subscribe
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The next question in our FAQ says I want to to enroll in the SAVE plan or another IDR plan or consolidate my loans. What do I need to know? We'll put a link in the show notes for how you can consolidate your loans and also how you can apply for income driven repayment. It says as of December 16, 2024, borrowers may apply for the following IDR Pay. You can actually still apply for save, they just won't allow you to make payments. Income based repayment and income contingent repayment. If you apply for save, they're not going to process the application even though they're not going to stop you. But it says specifically servicers have resumed processing borrowers applications to enroll in income based repayment, income contingent repayment and pay as you earn. Now it also says that even though they are accepting applications for pay as you earn and income contingent repayment, that income based repayment, the plan that was created by Congress, the only one that is not currently being legislatively challenged, that is the only plan where they will actually process forgiveness. Right now. It doesn't mean that you can't get forgiveness on the other plans. It just means that for example, if you're in new IBR and it's your 20th month, meaning that you've done all you need to do, then you are actually eligible for forgiveness and they will actually process it. Conversely, if you are in your 20th month for pay as you earn, that's the only time that you need to do. You don't have to make any more payments. But they are not going to actually process that forgiveness until they receive more clarity from the court.
So that's the update. Now let's talk about the impact of the new administration. We've talked about the fact that there are really two camps of income driven repayment plans. There's those that were created by the Department of Education that are currently under attack. The Save plan is the only one that's actually listed in terms of litigation. But if the court comes and says the way that this plan was created was illegal, then Republican led states who have brought More frivolous lawsuits in the past regarding student loans could easily say, well, if the save plan is considered illegal, then these two plans, pay as you earn and income contingent repayment, were created the same way, wouldn't that make those illegal as well? That's why the department is being very hesitant about processing forgiveness under these plans. And it means that the only safe option currently that you know is not being attacked is old income based repayment and new income based repayment. So if you're trying to put yourself in a scenario where you're not having to worry about it, we've talked about the fact that if you're eligible for both pay as you earn and new income based repayment, those are functionally, with very small differences, the same, same payment plan. So if I were in the scenario where I was eligible for both, I would probably just sign up for new income based repayment. If I were in a situation where I'm eligible for pay as you earn an old income based repayment, I may take my chances. Because old income based repayment has a payment that's 5% higher and a repayment period that's five years longer. So in that scenario, it may be worthwhile to just say, I'm going to take my shot with pay as you earn, hope that it ends up being safe in the long run. And while the applications are open to me, because the new administration could eventually close it to new applicants, I'm going to make sure that I get in the door before it's too late. And the last one I'm enrolled in the save plan. Is there any way for me to earn credit towards public service loan forgiveness during this time? And in this section they reference that you're not currently getting credit towards public service loan forgiveness if you're in general forbearance for save. But they do mention three different options that you can use if you're interested in getting credits during this period of confusion. The first is buyback credit. So we've done an episode on this on Escape Student Loan. If you're listening on New Money, New Problems, we'll put a link in the show notes to that episode. Public Service Loan Forgiveness Buyback program is a program where if you had a period of time where you worked for an eligible employer that was a nonprofit or a government entity, but for whatever reason, you either weren't making student loan payments or you weren't getting credit for those payments, you can go back in time and make payments based on what you would have owed during this period. For example, let's say that I'm making a million dollars right now and my student loan payment would have been $10,000 a month. But at the time that I was working for an eligible employer, I was making $30,000 and my payment would have been $5 a month. Well, I can actually go back based on that $5 a month payment and pay the money that would have been owed during that period and in exchange I get the credit for those months towards Public Service Loan forgiveness. So it's a really phenomenal program. However, it is something that I could easily see being struck down by the new administration. This is something where hopefully I'm wr in a situation where you are less than a year out of having your student loans forgiven. Under Public Service Loan Forgiveness, I probably would just switch repayment plans. But another option is to wait until you would have 10 years worth of credit. You have to wait until you can prove that this additional credit would bump you over the 10 year requirement. And once you've met that point, you can apply for buyback credits through Public Service Loan Forgiveness. And then lastly, it tells you what we mentioned before. You can enroll in a different PSLF eligible repayment plan right now. Now that functionally means that you can enroll in income based repayment. And I'm hoping that we don't get in a scenario where old income based repayment and new income based repayment are the only options that we have moving forward. But if you are trying to get credit right now as quickly as possible and you're close to the point where your student loan forgiveness is like right on the horizon, those are really the only two options that you have to make sure that you're in good standing. So I know that was a lot, but we didn't spend a tremendous amount of time on it. Like I said, there are some times where we have something on the agenda for our podcast, but something comes up where we just know that we need to bump other stuff down the line to make sure we address something that's relevant to our audience. And hopefully you found this valuable. We'll be back with regularly scheduled programming for our next episode and I hope.
[00:18:03] Speaker B: To see 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 homeownership.
