[00:00:00] Speaker A: In this episode, we cover a little known wrinkle of a widely covered student loan waiver that has just been extended another four months.
[00:00:07] Speaker B: Let's get started. Let's get some money from new money new problems. It's the new money new problems. Um, 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, uh, 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.
[00:00:46] Speaker A: Hello. My name is Brenton Harrison. Welcome to the first episode of the New Money New Problems podcast in 2024. This is going to be an episode where we partner with our other podcast, Escape student Loan debt. As I've shared in the past, Escape Student Loan debt is a separate podcast. It is not affiliated with our work as a financial advisor at New Money new problems, we have to state that for compliance purposes, just so you know when we're acting in which capacity. But on that podcast at the top of the year, we talked about the income driven repayment plan waiver, which is something that we've talked about on new money new problems as well. That waiver was due to expire on December 31 of, uh, 2023. And in early December, the Department of Education decided that they were going to extend that waiver to the end of April. In this episode, we cover some of the details of that waiver in particular, but also a little known wrinkle for people who have student loans whose payment histories are separated by a good period of time. So if you had undergrad loans, maybe you went back to work for a little while before you got your master's or got your terminal degree. These are the types of things that would be really beneficial to you to take advantage of before April. So we wanted to make sure that we gave a replay of this on new money new problems so you didn't miss out. So the next voice you hear will be my voice, but on a different platform. I hope you find this useful.
We spent a lot of time on the podcast this year talking about different waivers and adjustments towards repayment history for things like income driven repayment and public service loan forgiveness. The most consistent of those topics being the income driven repayment plan waiver and the public service loan forgiveness waiver. And throughout the course of these episodes, we have told you a lot about who wasn't eligible for these waivers in the efforts of making sure that they took any steps that they needed to take to make sure that they got in good standing before the waiver expired on December 31 of this year. So we wanted to do everything we could to make sure that if someone wanted to participate in the waiver and everyone should want to participate, that you wouldn't find yourself ineligible and not, uh, realizing it on the last day of the year. And by this point, you should be acutely aware of everything that's needed to be eligible for that waiver, although we're going to recap it in this episode. But there were another couple of factors at play that went into the specific things that we focused on. Another factor was the fact that student loan payments began again in October. Now, I knew that starting student loan payments up again would be a mess, and it has proven to be an even bigger mess than I expected, to the point that the Department of Education has just put a bunch of people back into forbearance until some of these issues get figured out. But the connection between the start of student loan payments and what we focused on has to do with the fact that when you're starting student loan payments, for many people, they were supposed to have their payment resume at the amount that they were paying prior to the pandemic. Another wrinkle of that restart, allowing you to resume at what you were paying prior to the pandemic, is that people were wondering, okay, well, when does that change? When am I going to have to recertify my income for the first time? Post freeze recertify, meaning give updated information as to what your pay is so that your servicer can recalculate your payment. The Department of Education promised that they were not going to force anyone to recertify their income until at least six months after the resumption of student loan payments. And that's a big deal, because if you recertified your income now and you're making significantly more than you were making prior to the pandemic, even with things like the new Save plan, which dramatically lowers payments for most borrowers, that's all dependent on what you're making now versus what you were making then. I did some back of the napkin math, and if you were making $50,000 in a household of two prior to the pandemic on the pay plan, your student loan payment would be about $170 a month. But let's say that now, post pandemic, post payment freeze, you're making $100,000 as a household of two. Even if you went to the save plan which for most people is going to lead to the lowest payment. Your payment goes from $170 when you're making $50,000 to $463 when you're making 100,000. So for most people, if you were already eligible for the income driven repayment plan waiver and the public service loan forgiveness waiver, the danger of taking steps, trying to navigate and negotiate for reasons other than becoming eligible was really high because what if you consolidate, and because you consolidated, you have to give updated information, and now you've gone from $170 to $463 a month, maybe six months faster than you would have had to if you just waited. There were all these things that led to me just saying, you know what? We're going to focus right now on people who are not eligible, because the dangers of me telling you to consolidate or take other steps when you're already eligible were so high that it's not something I wanted to do unless I was talking to someone individually about their student loans. Now, all of that was preamble for the new year's miracle. And the New Year's miracle is that earlier this month, the Department of Education announced that they are extending the deadline by which you can consolidate your loans to get your account adjusted under the income driven repayment and public service loan forgiveness waivers from December 30 of 2023 all the way out to April 30 of 2024. So before the break, we're going to recap the waivers themselves. We're going to cover why the department chose this date specifically, because April 30 is a very specific date that they picked with intention. And we'll talk about what you need to do to make yourself eligible. And then after the break, we'll talk about how, even if you are already eligible, it's worth considering consolidating your loans in some key scenarios that might significantly increase the amount of credit that you have towards these key programs. So what are the waivers? As I stated earlier in the episode, the income driven repayment plans base their payment off of a percentage of your discretionary income this year. But the second part of those plans is that if you follow the guidelines for 20 or 25 years, and it has to be on one of those eligible plans for the entire 20 or 25 years, any remaining loan balances will be forgiven. The sticking point to that is, in the past, many people didn't know how to sign up for income driven repayment plans, or maybe they had partial payments that didn't count. Maybe they were in forbearance and shouldn't have been, or deferment and shouldn't have been. And for whatever reason, they have been in repayment longer than 20 or 25 years. But they have not been following the rules of the plans, and as such, they weren't getting their student loans forgiven. Now, the waiver corrects that, and it goes in the past and says any months that you spent in any type of repayment status, regardless of the loan type, regardless of the loan payment plan, will count towards your 2025 years. It also gives credit for some months in forbearance and deferment that exceeds the allowable limits in those scenarios. There's all these payments that wouldn't have counted in the past that will suddenly count as a part of this waiver. Now, the public service loan forgiveness waiver did the same thing. Any payment that wouldn't have counted in the past towards the ten years that you need to have your loans forgiven under the Public Service Loan forgiveness program, those will now count as well, as long as you can prove that you made a payment while working for an eligible employer, which would be a nonprofit or a government entity.
Another huge element for the public service loan forgiveness waiver that's not as widely discussed as you might think is that under the current and future rules of the program, you not just had to have ten years worth of payments while working for an eligible provider, you also had to still be working for an eligible employer while you waited for your loans to be forgiven. So you may have ten years worth of credit, and now you want to move on with your life. You apply for public service loan forgiveness. Maybe you want to work for a for profit entity, but if it takes nine months for your student loans to be forgiven, you had to currently be employed at the time of application and forgiveness in order for that to go through as a part of the waiver. You didn't have to be employed by an eligible entity. If they found that you had 120 months worth of credit, they would forgive those student loans and you could go on your merry way even if you had already left for another employer. So that's a really big deal that's not frequently covered. Now, the people that we focused on in this podcast were people who were ineligible. And ineligible means that you did not have a loan that was owned and managed by the federal government. We've talked about the fact that all direct loans, which is most new borrowers, are owned and managed by the federal government. But there's a type of loan called an FFEL loan that could be managed by the federal government and could not be. It could be owned and managed by a private entity. The department also says in this release that they think that it's going to take them until July 1 of 2024 to update all of the credits under these waivers. They also know that it's supposed to take about 60 days in order to consolidate a student loan. So they chose the April 30 date because if you consolidate by April 3060 days after April 30 is July 1. So they're essentially trying to say that as long as you get it in within this program, you should have your new loan issued so that it's eligible for these waivers by the time the final adjustments are made on July 1, 2024. I think that's very generous. I've seen plenty of times where it takes longer than 60 days, so I definitely wouldn't wait till April 30 in order to put this consolidation application into your servicer. And after the break, we're going to tell you, even if you're already eligible, when you're in the camp of people who might still consider consolidating before this point in time.
[00:10:16] Speaker B: This is the escape Student Loan Death.
[00:10:18] 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.
[00:10:29] Speaker B: We'll be right back.
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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[00:10:58] Speaker A: Now.
[00:11:01] Speaker C: You'Re listening to the escape Student Loan, um, debt podcast.
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[00:11:08] Speaker C: Welcome back.
[00:11:11] Speaker A: Welcome back. I'm sure there is more than one group that would benefit from consolidating their loans for these waivers, even if they're already eligible. But I'm going to tell you about the biggest one that I found and explain why they would benefit and then let you get back to your holiday. That group that I think would benefit are people who have student loans they took out many years apart. So people who might have gone to school and then went into the workforce for four or five or ten or 15 years before deciding to go back and get a master's degree or go back to medical school or law school. Or you could have somebody who took out student loans for themselves and then 20 or 25 years down the line took out student loans on behalf of their children for parent plus loans, and now they have loans that are 2025 years apart or four or five years apart or ten years apart, and you might have been paying on that original set of loans in the interim. And then when you get back to school, you stop, and then now you've got loans that have wildly different amounts, wildly different credits. You're trying to figure out how it's going to impact your credit towards forgiveness, and all this has to do with the credits that you're applied after you've consolidated a loan with different repayment credit before the income driven repayment plan waiver. If you consolidated loans into a new direct consolidation loan with the intention of getting credit towards student loan forgiveness or public service loan forgiveness, you would lose credit for any months that you paid on those loans prior to the consolidation. And I've seen some horror stories where people have been six, seven years in to making payments towards things like public service loan forgiveness, and they'd only have three or four years left. But then they find out that four or five of those loans that they have, that have a large balance on them were Stafford loans that weren't eligible for public service loan forgiveness, and they would be starting at month one when the consolidation took place. So that's a huge deal. So now let's talk about what would happen after. I know we're skipping, uh, away from what's happening now, but I want you to understand the importance of this. So we're kind of bearing the lead a little bit after the student loan waiver has expired, and we're going into the new rules. The way that consolidation will work is you will not lose credit towards what you've paid prior to the consolidation. But the amount that you're credited for that consolidated loan will be based on the weighted average of student loan balances and student loan credits of what you put into the new pot. An average is you just taking two or three numbers and finding the average between them. So an example would be the average of the numbers zero and ten is five. It's right down the middle. With student loans, it's a little more complex, because if you're talking about things like payment credits, you also have to consider the fact that there's an actual loan balance associated with this debt as well. I put an example on screen so you can see this for yourself. Let's say that we have four student loans, and we're trying to make ourselves eligible for the public service Loan forgiveness program, which requires 120 months of payment before your student loans are forgiven. Now, of those four student loans, one of them is $50,000, and it has 20 months credit towards forgiveness. The other is $25,000. Also 20 months credit, another for $15,000. Also 20 months credit. And let's say that of the $100,000 in total across these four loans, 10% of it is with this last little bitty loan. That's $10,000. But this loan has 115 months of credit. This is probably someone who took out loans for their undergrad, took a period of time off where they started making payments toward those debts, then went back to graduate school, and has these loans in separate groupings. Now, they have a loan that's five months from getting forgiven, 115 of the 120 months that they need. But the other three loans in the pot have 100 months to go. And because they represent 90% of their total loan balance, they have a heavier weight than that smaller student loan. So, when we find the weighted average of these debts, you would find that even though one of these loans is five months from being forgiven, if they were to consolidate, the weighted average would give their new loan just under 30 months credit towards public service loan forgiveness. It has drawn that balance much closer to the loans with the heavier weight. So, after the waiver expires, if you were to consolidate your loans, the good thing is that you're not going to lose all your credit. At least you're not starting at zero. But the bad news is that if you have a loan like this small one in the bunch, you missed out on an opportunity to get all of your loans much closer to forgiveness because of the weight of those debts. Now, lastly, how is it working? Now, I wanted you to understand weighted average so that you can understand just how powerful what I'm about to say is towards your student loan history. If you look at these loans during the waiver, instead of doing a weighted average, instead of wiping away your credit, the student loan servicers are going to give your entire new consolidated loan credit towards forgiveness based on the oldest loan in the bunch. So, going back to our example, instead of calculating this weighted average, if we owe $100,000 across four student loans, and of those four student loans, $90,000 and three loans only have 20 months of credit, but $10,000 in one loan has 115, and we consolidate them together, this oldest loan is going to be the one that they use to calculate your credit. Which means that even though you've barely paid on those other loans in terms of your credit towards public service loan forgiveness, or income driven repayment just by consolidating these loans. Even if you're already eligible, you would go from 20 months credit on these loans to 115 months credit overnight just because you happen to have one loan in the bunch that you took out in your undergraduate years. This is a huge deal that has been the linchpin for many of the people that we're seeing having their student loans forgiven in scenarios that they thought were just absolutely outrageous. So if you find yourself in this scenario, and you do have loans that are grouped many years apart, even if they are already eligible for public service loan forgiveness or the income driven repayment plan waiver, it's worth considering doing a consolidation so that you can put yourself in that number where you're getting that advanced credit based on an amount that doesn't seem reasonable, but just happens to be a circumstance of how these current rules are being enacted. We appreciate you all for rocking with us in 2023. If you have not already, join our email list at Escapestudentloan debt and we look forward to seeing you in the new year.
[00:17:33] Speaker B: Happy holidays 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.
