Episode Transcript
[00:00:00] Speaker A: Hello and happy Friday to you. Before we get into today's episode, I want to remind you that April is financial Literacy month. And in honor of that, we have a private group that is tackling the 30 money moves challenge together. If you follow us on Instagram or LinkedIn, we've been doing previews of the first three or four days of the challenge. We are cutting off those previews at day five, and we're also cutting off the private group in day five because after today, if you have not done the first few days, you really need to kind of start from day one, uh, and follow the usual link that we post to our audience. But if you want to join that group and you're listening to it today, feel free to use the link in the show notes. We'll send you an email that catches you up for the first four days. But now let's get into this week's episode.
[00:00:44] Speaker B: Let's get some money from new money new problems. It's the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation, purchasing your first investment property, helping your family with money, the highs and lows of entrepreneurship. New money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison, and this is the new Money New Problems podcast.
[00:01:23] Speaker A: Hello. My name is Brenton Harrison. In our last episode, I mentioned, as we did a student loan episode, that there are some times where the content and the topic of the episode kind of blend between the audiences that we have on new money new problems, which is based on our work as financial advisors, and escape student loan debt, which, for compliance reasons, we always make sure, you know, is not connected to our work as financial advisors. Well, today is another one of those episodes where the content will blend together. And it's not that we want to typically go back to back, especially on our new money new Problems podcast talking about student loans. It just so happens that there are a series of dates that are fast approaching in the student student loan sphere that are really important that we cover. So we are, in this instance, going back to back with student loans. But before you turn the dial, if you do not have student loans, I would actually encourage you to, at minimum, if you have people in your life who do have student loans, send them this episode, because these are, in some cases, once in a lifetime, hopefully updates to student loans that if you miss them, you're missing a wildly beneficial chance to improve your odds at getting your student loans forgiven. So, what are we covering in this episode? We are going to be covering four crucial dates that are coming up between now and the end of September that are relevant to your federal student loans, why they're crucial, and what you need to do to make sure that you are on the good side of all of these actions. Day number one is April 30 of 2024, the end of this month. If you're wondering what happens at the end of this month, the end of the income driven repayment plan waiver is upon us. You are probably very familiar with income driven repayment plans by this point. But just as a quick recap to those who are not, an income driven repayment plan is a plan where the payment is based on a percentage of your income, rather than what's actually needed to pay off your loans in full within a given period of time. The added benefit of having these income driven repayment plans is that after 20 or 25 years of payments, if you have any student loans remaining, those balances will be forgiven in full. And typically, as we've covered in the past, in order to have a payment counted towards your 20 or 25 years of forgiveness, you had to be making that payment on one of the income driven repayment plans. You couldn't just be on some random plan that wasn't an IDR plan and have it counted towards forgiveness. You definitely couldn't get payments counted when you weren't making payments or the payment was late, or you made a partial payment. But the income driven repayment plan waiver is going back in time. This is not forward looking. This is going back in time. And it's saying that any payment that you made on any plan of any amount, even if it was late, it will count towards your 20 or 25 years. It's also giving credit for periods that you spent in deferment or forbearance that exceeded what your loan servicer was supposed to allow you, uh, to do for deferment or forbearance. There's all other types of things that it gives you credit for. One of the big ones that we talked about on escape student loan debt, and we'll link to this in the show notes, is how they credit consolidated loans. So, before the income driven repayment plan waiver, if you consolidated loans that were not eligible for forgiveness, once you consolidated them, um, your payment credit went back to zero. Well, after the waiver expires post April 30 of this year, there's going to be some credit that's given towards forgiveness, even towards consolidated loans. But the way that they give that credit, as you'll hear if you listen to that episode in the show notes, is not as beneficial as the way that they're crediting consolidated loans during the waiver. So the expiration of that waiver on April 30 is a really, really huge deal. So it is really important to understand that the loans that they are giving those pass credits to are, ah, loans that are owned and managed by the federal government. In most cases, those are a type of student loans called direct loans. In some limited instances, there are what's called FFEL loans that are owned and managed by the federal government. But as we've shared, if you have a loan that's not a direct loan, in the majority of the cases that we've seen, it makes sense for you to consolidate those loans into a direct loan. But in order to have all your ducks and row, where if you've consolidated those loans so that they'll be eligible for the waiver, even that consolidation has to take place before April 30 of this year. So April 30 is date number one. That is the expiration of the income driven repayment plan waiver. The second date we're going to cover is literally the very next day, May 1, 2024. And this date has to do with an announcement that was made by the Department of Education this week. And that announcement is that the Department of Education is taking over the processing of the Public Service Loan Forgiveness program from Mohila. Public Service Loan Forgiveness is a forgiveness program. It is not a payment plan. It is a forgiveness program for people who work for eligible nonprofits or government entities, where, if they follow the rules for this program while paying their loans for ten years, they can have their loans forgiven in full. Over the course of the public service loan forgiveness programs existence, there have been different loan servicers that have taken on the helm or the responsibility of processing applications that people submit to have their loans forgiven under public service loan forgiveness. Prior, uh, to Mohila, it was fed loan servicing. So if you were trying to apply for public service loan forgiveness, it didn't matter where your loans started in terms of who your loan servicer was, whenever the time came when you wanted them forgiven under public service loan forgiveness, you had to transfer them to fed loan service so that fed loan servicing could actually process that application. Well, now, that responsibility to this point has been on the backs of Mo healer. Well, now, this week, the Department of Education is saying that they are taking that responsibility away from student loan servicers completely, and they are now going to manage that process themselves. So they are saying that starting May 1, you no longer would go to Mohela. Even if that's your loan servicer. That's not where you would go to check your credits towards public service loan forgiveness. And that's not where you would go to submit new forms for public service loan forgiveness beginning May 1. That is going to be housed under the studentaid dot gov umbrella. Now, the reason that May 1 date is important is not just so that you don't submit any new forms for public service loan forgiveness on Moheela site. It's also to let you know that in the months of May and June, while they are going through that transition, the Department of Education is going to stop processing any public service loan forgiveness forms from May to July of 2024. There will be no processing and there will be no updates given. Now, uh, even though they're not processing these forms, your payments towards your loans are still due. So even if you think you're close to public service loan forgiveness, I would not just stop paying because then you not only risk finding out after they've processed your application that you're a few months short, you also risk your credit. But you should not expect to see any payment updates in terms of your credit towards forgiveness during this period of time. After the break, we'll tell you the last two dates and we'll bring this thing on home.
[00:08:36] Speaker C: This is the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back.
[00:08:55] Speaker B: Are you wondering what new money problems you might be overlooking in your financial life? If so, we've got great news.
We've crafted the new money new problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investments, insurance, and even the threat your extended family's finances could pose to your household. Please head to newmoneynewproblems.com gapfinder to complete it today. Again, that's newmoneynewproblems.com gapfinder. To take the assessment.
[00:09:34] Speaker C: You'Re listening to the new Money New Problems podcast. Subscribe now at new Money newproblems.com. Welcome back.
[00:09:44] Speaker A: The third crucial upcoming date for federal student loans is June 30, 2024. We talked about income driven repayment plans, where you make payments based on a percentage of your income. Well, under that income driven repayment plan umbrella, there are several different payment plans, and I would say the majority of the people with which we work are on either the pay as you earn plan or the saving on a valuable education plan, those people fall into two different camps. Most of the people with which we work have graduate school loans, and the reason that they fall into those two different camps is that the save plan, saving on a valuable education for most people, is going to have the lowest student loan payment. So there are some people in a camp where they're just trying to have the lowest monthly payment possible. And for the people in that camp, the save plan is likely their most viable option. There are other people in that camp who have graduate school loans, and they want their payment to be low, but they also want that loan paid off or forgiven as fast as possible. And it just so happens that for graduate school borrowers, the pay plan allows any remaining balances to be forgiven five years faster than the save plan. For graduate school borrowers, under the save plan, any remaining balances are forgiven after 25 years of payments. For people on the pay plan, even if you have graduate school loans, is forgiven after 20 years of payments. So you may, if your payments already high, let's say you're paying $500 a month on the save plan and you'd have to pay it for 25 years. You may look at the pay plan and say, hey, maybe my payment is $175 a month more, but I only have to pay it for 20 years. And that's a better deal than having to pay it for 25 years as I would under the save plan. So people who are looking at it from that perspective, how fast can I be done with paying these loans? They may instead choose to use the pay plan. This is relevant to June 30 because June 30 is the last day that people who are eligible for the pay as you earn plan can sign up for that plan. Because if they haven't done so by July 1 of this year, that plan is closed to new applicants forever. They're essentially saying you can be grandfathered into that plan if you sign up for it before July 1, but anybody who hasn't done so by that date is out of luck. They will be stuck with either the save plan or the two versions of the income based repayment plan. We're going to put some episodes in the show notes comparing the pay plan to the save plan because it takes more time than we have in this episode. But if you're on the fence and you're trying to figure out which of the two is the right one for you, check out those episodes. But make sure you check them out before June 30 at 11:59 p.m. Because if you decide after that research the pay plan is right for you, then you need to make sure that you've clicked that button to apply before midnight strikes. And it's July 1, the last important upcoming date. The fourth and final date for this episode is September of 2024. I wish I had a more exact date, but I cannot share an exact date because the Department of Education did not give one. They're trying to give themselves as much latitude as possible, and they simply said September of 2024. So what were they talking about when they said September of 2024? They were talking about the income driven repayment recertification deadline. If you're looking on screen, you're looking at a little timeline. On the left hand side of the timeline, it says January. On the right hand end it says September. And right in the middle of that timeline, it says the month of May. Here's why I put this on screen. If you have an income driven repayment plan where you are basing that payment off of what you make, it would make sense to you. The Department of Education is going to need to figure out what you make on a regular basis. They're not going to just let you sign up for this plan when you just graduated from school and you're making no money. And then 20 years from now, now you're still making a payment based on the income when you were 22 years old. That's not how it works. So what happens is when your student loan servicer first asks you to tell them what you're making so they can calculate your student loan payment, the date that you give them that information becomes what's called your IDR payment anniversary. Essentially, that's the date moving forward each year where your student loan servicer is going to come back to you and say, hey, it's been twelve months since you last told us what you make. You need to submit updated payment information so we can recalculate your payment. Everyone who has an income driven repayment plan has one of these dates, and it's a different date for each person. Now, student loan payments for federal student loan borrowers started up again in October of last year. And when those student loan payments restarted, the Department of Education said that if you were on an income driven repayment plan before the pandemic, when they froze payments, then when they resumed again, the payment that you should make should just pick up from where it left off. Meaning that even if your income has changed since March of 2020, when the pandemic started, if you were paying $100 a month in February of 2020, then October of last year, your payments should have started back at $100 a month. And not only that, they said they wouldn't make anyone recertify their income or submit updated income information for the first six months. They're actually coming to the end of that period where you shouldn't have had to make any changes to your payment. It should have been whatever it was prior to March of 2020. Well, there were several student loan services who just ignored that advice, and they asked their borrowers to recertify their income anyways, in spite of that rule. And that was against what the Department of Education had promised their borrowers. And as a result of not only that, but also those loan servicers botching the payment calculations, it was just a mess getting back into repayment. The Department of Education has said multiple times now, you know what? We got to find a way to make this right. And one of the ways that they made it right was they allowed people to go into forbearance and they said, don't worry about it. You're not going to have to make a payment, but we're still going to give you credit towards forgiveness as if you were making payments. They did that for months and months and months. And now they're saying, you know what? We have to go a step further. So what we're going to do first is we're going to push out the date that you can wait to recertify your income to September of this year, meaning that you will not have to update your income even if you're still paying based off of your 2019 2018 pay until September of this year. But that is the earliest date that you would have to recertify. And here's where this timeline comes into play. It's not that everybody has to update their income in September 2024. It's that September of this year is the first date where people with anniversaries will have to hear from their servicer to update their pay. What's the difference between the two? Well, if your anniversary is in October of this year, well, that comes after September. So in October of this year, your student loan servicer is going reach out to you to update your income. You're going to have to do it. But what about the person whose anniversary is like the one in the timeline where it's in May, so it's before September. That does not mean that this person is going to have to update their income in, uh, September, even though their anniversary is in May. It means that they won't have to update their income until their next payment anniversary, which is May of 2025 on escape student loan debt podcast, we've talked several times about how there are people right now who, based on the way their anniversary and their tax return filings fell on the calendar, are still making payments now based on their income from 2018. And if this falls the right way on the calendar again, it's possible that they won't have to update their income until 2025 m, meaning that up until that point, they will still be making a payment off of income that they earned seven years ago. But also, there's another Easter egg that the Department of Education has given to people who are in this scenario where they were asked to recalculate or recertify their income incorrectly. You can actually see it on screen. It says, before we announce this end date, some people receive messages from their loan servicer starting in December 2023 about recertifying for IDR in March 2024. Later on, it says, if your payment went up, we will revert your payment to its previous monthly amount until your new recertification deadline. So they're essentially saying that if you've already recertified your income and your payment went up as a result of that recertification, you don't have to worry about it. We're going to kick your payment back to what it was prior to recertification, and you won't have to worry about it again until at least September 2024. Again, not saying that's the date you have to worry about it, but that's the earliest that you would have to worry about it. So if you feel that you had to recertify, um, necessarily, you can contact your loan servicer, show them this notice. It's important to understand, like we shared in the last episode, that sometimes these people on these customer service lines just started, and you actually have to give them documented proof that this is something that you're eligible for. So they can make the adjustment adjustments because in many cases, they may know less than you do about your rights as a student loan borrower. If your loan servicer does not make the necessary and required adjustments, you can send it to the student loan ombudsman. Um, we'll put that link in the show notes for how you can contact them as well, and you will make sure that you have your student loans kick back to where they were before it was recertified incorrectly. Those are the four dates that are important for federal student loans. I know that was a lot and very deep student loan jargon. If this is not something that you dig into on a frequent basis, which is why we'll put an extensive amount of resources in the show notes so you can do some background research if it's helpful to you. We'll be back on escape student loan debt in a couple weeks with more student loan information for you to follow and for new money new problems. We'll be back in your ear next week with a non student loan episode for you to enjoy. I, uh, promise. See you then.
[00:19:38] Speaker B: From new money new problems. This was the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
