Episode Transcript
Brenton: [00:00:00] We are one month out from student loan interest coming back and two months out from you making the first student loan payment you've had to make in over three years.
In this episode, we're gonna tell you some of the things you need to put in place before things kick back up again. 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. I can definitely [00:01:00] tell the student loan payments are about to resume because over the course of the past three years, I have been banging this drum about how important it is that we take advantage of this time as it pertains to some of the forgiveness programs, some of the revisions, and some people heard me, but not that many.
But now, all of a sudden, in the last couple of weeks, I've been getting a ton of questions as it relates to student Debt. So this is understandably a tense time. If you are looking and saying, for the first time, since March of 2020, I'm gonna have to make a payment. I'm gonna have to reintegrate these things into my budget.
So I thought what we would do is we'd have an episode where we covered some of the key things that you need to have in place before your student loan payments resume. So first, a reiteration of the dates: student loan interest will start accruing before payments are due. There's some unique ways that student loan interest accrues as it compares to other forms of Debt in our society.
As I've mentioned many times, we have another podcast, Escape Student loan Debt. I've also mentioned many times that for compliance [00:02:00] reasons I must share that's a separate entity from New Money New Problems. But I am gonna put some resources in the show notes for some of the episodes where we just dig a little deeper into how Student loan interest works and the like.
So we'll put that in the show notes, but interest starts again in September. Student loan payments resume in October. You'll probably get a bill in September or early October, but it will give you 30 days from that date to pay it.
So October is the month that is the line in the sand. So what are some things that you can do to prepare yourself for that moment?
Well, the first is pretty simple. I want you to go to student aid.gov, and if you have not already, register for a profile. Student aid.gov is the headquarters for everything as it relates to any student loan you've ever taken out.
So this is headquarters, this is hq. If you log on and register for a profile, they're gonna ask you for your social security number. And if you have not already registered, it takes a few days for the Department of Education to link that social security [00:03:00] number to your borrowing record. One of the first pieces of information you'll find once they've connected your account is literally just what do you owe in student loans?
Log in and there's a dashboard that you can go to. And in that dashboard it will show you the principal balance of your student loans and it will show you also the interest category, which is kept separate.
In the episode that we'll share in the show notes, we cover why that interest is kept separate. But if you're following along with us on screen, you're actually looking at a de-identified dashboard. On that dashboard. The person that we're looking at in this example, has about $279,000 in student loans, 275,000 of that being principal, about four or 3000 of it being that separate interest category.
After you have seen the loan balance, I want you to check the loan type, and this is crucially, crucially important when you check your loan type, which you can see on the details of these loans. When you dig a little further, I want you to verify that [00:04:00] all of your student loans are what's called direct loans.
If you took out any student loans before, I'd say 2011 or so, it's highly likely that you might have a type of loan called an FFEL loan or a Stafford loan that's mixed in with some loans that might be direct loans.
There are a number of programs that are currently being implemented by the Department of Education that are designed to give past credit for payments for borrowers who might or might not have been pursuing forgiveness under programs like Income Driven Repayment, or Public Service loan Forgiveness. If those are foreign terms to you, just know for the sake of this episode that Public Service loan Forgiveness is a forgiveness program where people who pay their student loans for 10 years while working for a nonprofit or government entity, they can have their student loans forgiven in full. Income Driven Repayment plans we've covered on this podcast before.
That is a payment plan, not a forgiveness program, where you pay a percentage of your income towards your student loans each [00:05:00] year. But similar to other forgiveness programs after, in some cases, 10, in most cases, 20 or 25 years of payments, any remaining balances are forgiven.
The issue with both of those programs is that you had to be meeting those rules for the entirety of those 10, 20, or 25 years in the past.
Thankfully the revisions the Department of Education is making is going back in time and saying, even if you have not been on an Income Driven Repayment plan to this point, we are going to count any of the time you spent on any student loan payment plan towards the 20 or 25 years that you need for forgiveness.
There also are some accommodations being made for past payments that may not have counted towards public service loan forgiveness as well.
Here's the rub. In order to have those revisions, you must have either a direct loan or an FFEL loan that is owned and managed by the federal government.
But the easiest way to make [00:06:00] sure you're in good standing is to simply make sure that any of your ineligible loans are consolidated into a direct consolidation loan.
But there is a sense of urgency here because if you have any non-direct loans that you are consolidating for the purpose of being eligible for this revision, you have to take care of that before December 31st of this year. So the next thing we need you to do is to look in your loan details and verify that all of your loans are direct loans.
The next step is a simple one: I want you to identify your student loan servicer and make sure that you have an up-to-date profile on their website.
This is valuable information for several reasons. First, many people just may not know where their loans currently reside, but also one of the things that happened during the pandemic when they paused payments is they severed your agreement to autopay your payments. So even if your student loan servicer hasn't changed, and you're thinking that when October comes, your payment is gonna just autodraft like it typically did, that is not the case. [00:07:00] You have to formally opt back into auto payments if that's how you prefer to pay.
So those are the first few things you need to know, but after the break, we'll give you the last few items as it pertains to student loans that you need to make sure you have in place before September and October of this year.
[00:08:00]
Brenton: The next step I want you to take with your student loans is to find out how much your payment will be in October, and to start to build it into your budget for these last couple months.
Now, finding out what that payment will be, can be a bit of a wild goose chase if you don't know where to look. For others, it can be really simple, but I'll break it down for you in terms of the possibilities.
If you were already making student loan payments before the pandemic, then your student loan payment in October will be whatever you were paying prior to the payment pause. If you were paying $50, then you will pay $50 when student loan payments start up.
And it's also vital you know the payment plan you were on prior to the [00:09:00] pandemic because that payment plan will let you know if that payment stays where it is or if it will change, and when it will change.
Here's what I mean. There are several student loan payment plans that are based off of taking your interest rate and the amount you owe and paying that balance off in full within a period of time. These are called standard plans. If you are on a standard plan and your payment was $300, it will not change until that student loan payment is paid off.
For others, I would say the majority of people who have a significant student loan balance, they are and were paying their student loans using an Income Driven Repayment plan. Those Income Driven Repayment plans base their payment on a percentage of your income each year. And just as your income changes each year, your student loan servicer asks you to update their income so your payment can change as well. But the date that they ask for that update can vary from borrower to borrower.
Every student loan borrower on an Income Driven Repayment plan has what's called an IDR [00:10:00] payment plan anniversary date, and that's the day each year where their student loan servicer reaches out and ask them to update their pay so their payment can be updated.
But because of the way the Department of Education is dripping us back into payments, that specific date may mean that your student loan payment is updated in a few months.
In some cases, people will go longer than a year without having to make an adjustment. I'll explain: the Department of Education has said that for people on Income Driven Repayment plans, they are not going to ask them to update their payment or update their income with their servicer within the first six months of payments resuming.
So let's say that I find out that my anniversary date is November of this year. Well, that falls within the six months after payments resume.
That means that in October, I'll start paying whatever I was paying prior to the pandemic and I won't have to update that number until November of next year, because since it fell within that window this year, they kick the can out 12 months.
The same is true if it is a 2024 [00:11:00] date that still falls within that window. If my payment anniversary is not till February of next year, I won't have my payment updated until February of 2025. So that can be a significant boon for people who are looking at a potential higher payment because they're making more than they were in 2020.
They may not have to worry about seeing that fully reflected in their budget for in some cases over a year.
Now if you fall outside of that window, maybe your payment anniversary is in May of each year, or you've missed May this year. Your student loan payments will start at whatever they were in 2020, but in May of 2024, that's when your payment will update.
Now if you're wondering how to find that date in that payment, there is actually a document that you can download from student aid.gov called your N S L D S Data file. And on that it has the history of all your student loans, including your current loans, even if they were consolidated. And on this document, which we're looking at on screen for a sample person that's been de-identified, you can see the loan type.
You can see the [00:12:00] current loan balance. You can see the payment plan that this person was on prior to the pandemic, and you can also see what that payment was and their anniversary date. So we'll put an episode link in the show notes where you can listen to a podcast episode and a video that will show you how to access and interpret this file for your own Debt.
Now, whatever that payment will be, having the opportunity to build it into your budget will be really helpful. It won't sneak up on you. Maybe you can save some of that money between now and October, and if you're a person who's going to see your student loan payment eventually increased significantly as many people are because of increased earnings over the past four or five years, then you can even start to build that higher payment into your budget.
And save up some reserves because when that new payment actually kicks in, it may be tougher to save than it's been in years past.
And then lastly, the final thing I want you to be aware of with student loans before October is to be wary of student loan refinancing. Now that we are seeing people make payments, again, I [00:13:00] guarantee you if you have student loans, you're gonna start getting mailers from private lenders who are asking you to refinance your federal student loan Debt with them as a private entity.
And I can tell you there are several cases where in the long run it may benefit you to refinance your federal student loans, and in many of those cases it's because you were not going to have your student loans forgiven anyways.
And in some cases, private student lenders can offer lower interest rates that can save you money over the course of time if you refinance.
The problem, however, is I don't think that time is now. We mentioned federal student loan forgiveness that got struck down by the Supreme Court, but I've also covered the one-time revisions that the Department of Education is making towards forgiveness for those programs that we referenced earlier in the episode.
A number of those revisions in terms of reflecting your new credits will not be taken care of for some borrowers until next summer. So the reason I'm hesitant for people to refinance before next year when that credit is [00:14:00] updated is, let's say that you've been paying on your student loans for 12 years and you have a significant balance. Now, if you look on your account now, they may only give you credit for four or five years towards that 20 year total for various reasons. And if you were to refinance your student loans thinking you're 16 years away from having your student loans forgiven, you'd probably be pretty pissed off when you find out that it would've been eight years if you just waited. And if you had waited, you'd have been able to make the decision, does it make sense to take this Debt and try to pay it off, or should I just pay as little as I can on this Income Driven Repayment plan and in eight years I will have saved money once these debts are forgiven?
There's so much going on with federal student Debt that we don't know. I would feel there's a potential missed opportunity if you were to look at a private lender's mailer and say, Hey, I'm going to save a percent or a percent and a half and just refinance without thinking through what might occur in the course of the next year.
So those are the things that I wanted you to keep in [00:15:00] mind as it pertains to your federal student Debt.
I hope this was useful to you. It's highly likely that over the next couple of months we do some webinars or something with a smaller group that might have some more specific questions about their Debt.
So if that interests you, make sure you sign up for our email list at newmoneynewproblems.com/podcast and I look forward to seeing you next week.
