Episode Transcript
Brenton: [00:00:00] There are five upcoming dates that are crucial to anyone with federal student loans. In this episode, we tell you what those dates are and how to benefit from them in your student Loan journey. Let's get started.
Brenton: Hello, my name is Brenton Harrison of New Money, New Problems, and your host for the New Money, New Problems podcast. This episode's gonna be a really unique one because we're talking about something that if you've been paying attention, you [00:01:00] might have noticed we haven't discussed on this podcast before.
And that is student loans. I have mentioned in previous episodes that I have another podcast called the Escape Student Loan Debt podcast. That podcast is solely devoted to private and federal student Loan strategy. But I've also shared when referencing that podcast that for compliance reasons, I have to state that it is separate and apart from my business as a financial advisor.
Financial advisors, rightfully so, are really heavily regulated and we have entities that monitor us and keep us safe from a compliance and regulatory perspective. So they just ask that when I reference it, I make sure that you understand I'm not acting in my capacity as an advisor.
And it's been a really tough thing to balance because it is such a thing that impacts, and I kind of have to this point assumed that if you listen to one podcast, you listen to the other. So I can keep the content separate, but I'm realizing that that may not be the case.
So I'm gonna bring some of the student Loan [00:02:00] content into this podcast, starting with this episode. But I am going to say that from a more detailed perspective, this is gonna be high level. That podcast has much more in terms of the meat and potatoes of student loans than what we cover on this podcast.
But in this episode, we're gonna cover five upcoming dates that are really crucial for those with student loans, because even at a high level, there are some dates in the calendar over the course of the next year that everybody needs to know and everybody can benefit from that I wanted to share.
Now before I share those dates, I have to give you some glossary terms. And if you have not heard these terms before, it's absolutely crucial that you have a basic understanding of what they mean.
The first of these terms is what's called income Driven Repayment. Income Driven Repayment is an umbrella of student Loan payment plans for people with federal student loans. Now, the majority of federal student Loan payment plans ask you to pay off your student Loan balance in [00:03:00] full within a given period of time.
Income Driven Repayment plans work very differently. Instead of aiming to pay your loans off with your payment, they base payments off of a percentage of a number called your Discretionary income. It has no relevance to your Loan balance. If you're on a particular plan, rather than looking at the Loan balance and saying this would pay it off, they instead take a percentage of that income number and say, pay five or 10 or 15, in some cases, 20% of this number towards your loans each year even if that amount is not enough to pay off or even pay down your Loan balance. As a matter of fact, the majority of people with which I work, they're on Income Driven Repayment plan, and the payment they're making isn't even enough to keep their balance staying still. It increases as they make payments because the payments just aren't large enough to cover the growing interest.
Now because of that phenomenon where you could be paying, but not pay enough to decrease your Loan balance, another element of Income Driven [00:04:00] Repayment plans is that if you are on these plans for either 20 or 25 years, depending on the plan, and at the end of that period, there's a remaining student Loan balance, that balance is forgiven in full. Now, there are some stipulations to that forgiveness in terms of whether it will or won't be taxed, but the premise remains that after 20 or 25 years, if you're on that IDR plan and you've spent two decades plus following the rules of those plans, any of your remaining Loan balances will be forgiven.
So that's the first term you need to know. Income, Driven Repayment. The next term you need to know is public service Loan forgiveness. The Public Service Loan forgiveness program is for people in public service. You either work for a nonprofit or a government entity. If that's the case, and you're paying back your student loans while meeting certain rules for 10 years, after 10 years, you can have your student loans forgiven as opposed to having to wait for 20 or 25 like under the Income Driven Repayment plan.
The next two terms before we go to [00:05:00] the break are the Public Service Loan Forgiveness Waiver, and the Income Driven Repayment Plan waiver. These were both plans that sought to go back in people's student Loan payment history and give them Revised credits for progress towards forgiveness, either under P S L F or under IDR. Those are the acronyms for those plans. Where that credit that wouldn't have counted in the past will now be counted in this one time revision. The original public service Loan forgiveness waiver ended on October 31st of last year, so Halloween 2022. The Income Driven Repayment Plan Waiver is something that does not formally end in terms of the things you can do to be eligible until December 31st. That's a little preview of one of the dates that we're gonna cover after the break.
But both of these plans allow you to take payments that wouldn't have counted in the past. And now say, even if I thought I didn't have anywhere near 10 years, or 20 or 25 years [00:06:00] credit, if I follow these rules in these waivers, I can go back and have those previously ineligible payments now made eligible.
And then lastly, I can't remember if I said those waivers were lastly, but lastly, the Biden Student Loan Forgiveness Program. It's not formally called the Biden Student Loan Forgiveness Program, but colloquially, the Biden Student Loan Forgiveness Program.
This is something that I've shared in the other podcast. My opinion is I think that that will not pass. I think it's gonna get struck down. But just in case it doesn't, for those who have federal student loans, the Biden Student Loan forgiveness program is for people who have an Adjusted Gross Income of a single person with $125,000 or less.
Or a Married Filing Jointly person with $250,000 of Adjusted Gross Income or less. If you are within those income parameters and in your schooling years you took out a Pell Grant, then you can have up to $20,000 of student loans forgiven. If you are in those income parameters and you did not take out a Pell grant in your schooling years, then [00:07:00] you would have $10,000 of student loans forgiven.
So those are the terms that I want you to know before the break. After the break, we'll tell you how they factor in to the five key dates that are relevant to your federal student loans.
[00:08:00]
Brenton: The first key date in your federal student Loan journey for the next year or so is June 30th, 2023. The Biden student Loan forgiveness program is currently before the Supreme Court, and they're deciding whether they're gonna let the program stand or not.
They typically issue their decisions in June or July. Well, the Department of Education has been delaying student Loan payments for over three years to this point, and they have said that they are going to resume payments the earlier of 60 days following the Supreme Court's decision, or 60 days following June 30th.
So basically September. And that brings us to the [00:09:00] second date in your student Loan journey, which is actually a period of September to October. And that 60 days following June 30th factors into the September October timeline in this way. Let's say payments resume on September 1st, 2023. That does not mean you would automatically have a student Loan payment on September 1st. As a matter of fact, it takes about 30 days for that locomotive to get moving again. So for example, if you got an invoice or a bill from your student Loan provider that says your student Loan payment for September is, say, $200, you might have that payment due 30 days later in mid to late October. So that second date or period that we're discussing is September to October, because that's the period in time in which it's most likely that you would have to make your first required federal student Loan payment since March of 2020.
And if you've had to make a payment during that time and you weren't [00:10:00] eligible for the payment freeze, it's likely because you have a student Loan that wasn't eligible. And we on the other podcast, have talked about what you can do in that scenario because if you have an ineligible Loan now, that Loan is also ineligible for the Income Driven Repayment Plan Waiver and the Public service Loan forgiveness waiver.
So we're gonna put some episode resources where we link to some of those episodes in the other podcast where we discuss how to take care of those ineligible loans. Because again, if you're in that scenario where you've had to make payments, it also means that you would be left in the cold for those other programs we talked about for the break if you don't make some adjustments.
The next important date is December 31st, 2023. So this is a specific date because it's the last day of the year. The reason that's relevant is because for the Income Driven Repayment Plan Waiver, they are taking all these periods that you are making payments on the wrong plans that weren't Income Driven Repayment plans, and they're treating it as if it were an Income [00:11:00] Driven Repayment plan payment.
They're even taking some periods where your loans were in deferment or forbearance, and they're counting those months as paid as well. But in order to make sure you are included, you have to have either what's called a direct Loan or you have to have what's called an FFEL Loan that is held by the federal government. Because it is possible to have a federal student Loan that's actually managed and owned by a private entity, it's just backed by the federal government. Now, my rule of thumb is if you have an FFEL Loan just to be safe, because you don't know if it's privately held or federally held, consolidate it into a direct Loan. And what the Income Driven Repayment Plan Waiver says is that in order to consolidate it in time to be included for these Revised rules, it must be done before December 31st, 2023.
So that's an extremely important date, not just for the IDR waiver, but because one of the things that they're doing is they are saying, when we revise all of these [00:12:00] payments for Income Driven Repayment, we will also update your account for public service Loan forgiveness, which is a pseudo extension of the public service Loan forgiveness waiver as well.
So if you have an eligible loans, those have to be consolidated into an eligible Loan by December 31st, 2023.
And then lastly, March of 2024, I referenced that when you have an Income Driven Repayment plan, instead of paying enough to pay off your loans, you pay based on a percentage of your income. So if you have made a significant amount in the post covid years than you were before March of 2020, then you are well aware, if I had an Income Driven Repayment plan that was based on that income pre 2020, it's going to be way less than it will be whenever they find out what I'm making in 2023. And there are people who have been on these plans for years who have been kind of living in fear of what that payment might jump to when student Loan payments resume, and they have to update their income.
In terms of the timing of when you [00:13:00] update your income, every single student Loan borrower that's on an Income Driven Repayment plan, has an Income Driven Repayment plan anniversary date. It's the same date every single year for that person.
And that date tells you when your student Loan servicer is going to expect you to re-certify or update your income with them so that they can recalculate your payment for the upcoming year.
Now we did an episode on the other podcast recently where we showed you how you can find your IDR plan anniversary date. We'll also link that in the episode resources, but suffice it to say it's very important that you know that date because it lets you know when your student Loan payment will change.
Because when student Loan payments resume in September, October, They're going to resume at whatever you were paying prior to the pandemic. So even if you're making a million dollars now, if you were making $30,000 in 2020 and paying $15 a month towards your student loans, when student Loan payments restart, you're gonna be paying $15 a month until your [00:14:00] IDR plan anniversary date.
Well, another announcement that the Department of Education made that is what leads to March 2024 being an important date, is that they're not going to ask any borrower on an Income Driven Repayment plan to re-certify their income within six months of the resumption of student Loan payments.
So what this means is that if student Loan payments start in September of 2023, you would not have to recertify your income until March of 2024.
Now, if you think about this, I want you to follow this logic with me. If you have an IDR plan anniversary date that falls between September, 2023 and March of 2024, you will skip over your anniversary.
So that means that your payment would not only start at what it was before the pandemic, it would stay at that rate until your anniversary date in 2024, or early 2025. So it's very possible that you could have student Loan borrowers who are making a payment on an IDR plan [00:15:00] based on what they were making on their 2019 or 2018 tax return until late 2024 or 2025.
Now, if your IDR plan anniversary date falls after March of 2024, then at least you know that while you may not get a year or 18 months of payments based on a five year old income, You still have a significant period of time before your payment will increase, and you can make plans accordingly so that it doesn't shock you when that new payment hits your budget.
Bear with me. I'm going through my list and I'm realizing that was four dates. I skipped one. So the last one, we're gonna go back in time to August 2023. The reason I wrote this down in my notes, and the reason it's important is because as a part of that Income Driven Repayment Plan waiver, there are several people who did not have any payment credits towards Income, Driven, Repayment, the 20 or 25 years that you need to be forgiven,. Or if they had any credit, it certainly wasn't a large amount of credit. But they had been paying on student loans for at [00:16:00] least 20 or 25 years. It was just on other plans that weren't Income, Driven. Repayment plans . Well, when the Department of Education goes back and makes these revisions, those borrowers will find out that they now have the 20 or 25 years credit that they need to have their student loans wiped away immediately.
And what the Department of Education has said is that if they revise your credit, and before August 1st of this year, you already have the 20 or 25 years credit that you need, your student loans will be forgiven in full before August 1st, 2023.
There are more details about this in the Income Driven Repayment Plan Waiver and frequently asked questions document, which we'll also link to in the show notes. I know this was a lot to throw at you, especially if you haven't been listening to that other podcast, but I'm hoping that if you slow it down, Uh, listen at half speed, maybe listen even twice that you'll get what you need to, at least whet your appetite and let you know why it's so important that as these dates come up in the [00:17:00] next few months, that you pay attention to what's going on with your student loans and with student Loan legislation.
I'll see you next week.
