Episode Transcript
[00:00:00] Speaker A: Hey, guys, in this episode, I don't even know if we can call it an episode. I wanted to just give you a brief update on the emergency student loan episode, uh, that we released last week telling you about legal challenges to the save plan for federal student loan borrowers. We will put the link to that episode in the show notes. If you're listening on the podcast, we'll put, uh, a link to the video in the show description if you're watching on YouTube. But in that episode, we talked about that early last week. The last week in June, there were two judges in Missouri and Kansas who outlined two elements of the save plan that they would not allow to move forward until they were more thoroughly litigated. The first element that they were not going to allow to move forward is the ability for the save plan to forgive student loans after ten years of payments for borrowers who had borrowed $12,000 or less on their original loan. As a recap, if you were under the Save plan and you borrowed less than $12,000 for your original loan, then after ten years worth of payments, if there were any remaining loan balances, those balances could be forgiveness for every one, uh, thousand dollars you owe above 12,000, it added an additional year to your repayment schedule, capping out at either 20 or 25 years, depending on your level of schooling. One of the judges said you can no longer do this. You can still under income driven repayment plan umbrella, have access to plans that will forgive your loan balances after 20 or 25 years. But the ability to do that ten year, uh cycle was suspended. The second part that they suspended a different judge was related to the way that they calculate student loan payments under the save plan. If you have graduate school loans only, then your payment is 10% of your discretionary income. And when they released the plan, everybody since they released it, that's on that plan, which is about 8 million people, they have been paying 10% of their discretionary income in July. However, they were supposed to be switching towards a system where if you had undergraduate school loans only, instead of paying 10%, your payment will be dropped to 5% of your discretionary income. If you had both undergraduate and graduate school loans, your percentage would be based on a weighted average of your undergraduate and graduate school loans. Really complicated formula. But to make it more simple, if you had your highest balance in graduate school loans, then the percentage of your payment would drift closer towards the 10% of discretionary income. If your higher balances were in undergraduate school loans, your discretionary income payment would shift closer towards the 5%. If you had a 50 50 split, it would be right in the middle at 7.5%. But the judge said you can't do that. So you can still continue payments at 10% of discretionary income, but you cannot shift it down to 5% or weighted average of the two. Now that was early last week. On Thursday of last week, we recorded the podcast telling you about those changes. On Friday, a couple of things happen. If you're looking on screen, we'll put a link to this in the show notes. Uh, you're looking at an article from CNN.com that shares some of the updates that have happened since Friday morning. The first thing is they appealed this ruling to a higher court, basically saying to the court, we both have the ability to lower these payments in terms of our legal right. But also if you don't allow us to lower these payments, then you're going to throw this system even further into chaos. And we're already dealing with a tremendous amount of work in getting these student loan servicers on board. Many of you have probably dealt with that headache of talking to someone at your student loan servicer who's not following the rules based on some of the updates. It's not because they don't want to. It's because in many cases, the student loan service or customer service representatives are not as informed as you are. If you listen to this podcast, because they may have started two months ago, and as you listen to this podcast, you're aware it takes a little more than a couple months of knowledge, uh, to understand all the things that are going on with these federal student loans. So the first thing is they appealed the ruling. The second thing is they went to all of the people who were due to have their student loan payments reduced under the save plan, which is about 3 million people. And they said you are immediately going to go into forbearance. So that was on Friday. On Sunday, the higher court allowed one of the two things that had been put on pause with the save plan to continue. They didn't approve it. They said that you can continue doing this element of it while the matter is more thoroughly litigated. That element that they're allowing to continue for the time being is the ability to lower payments based on the undergraduate graduate mix of student loans that a borrower may have taken out. So the $12,000.10 years of forgiveness was not allowed to continue for the time being, although it hasn't been permanently done away with, it's just being litigated but the ability to lower that payment to 5% or the weighted average is back on for the time being. However, you can see from this article, it says, and I quote, some affected borrowers have not yet been placed in forbearance. If those borrowers already received a bill from their loan servicer that reflects the new lower payment for July, they should make that payment. So there is likely a very small group of people who did not get a letter from their loan servicer putting them in forbearance. They just got a new bill that says, here is your new lower payment. If you were not told by your student loan service or you're being put in forbearance, then you need to just pay your bill. But for those borrowers who are expecting to be in forbearance for the month of July, that forbearance will likely continue. Now, one of the other things that happened on Friday which they're still dealing with is the department of education not only put borrowers who were in the save plan on forbearance, they also took down the online application for the save student loan payment plan. And they said that while you could still apply for the save plan via a, uh, paper application, if you went ahead and did so, they would immediately put you into forbearance when they received your application. So they're trying to stem the tide of people who are flocking to this plan, essentially saying, you know what? While we're trying to figure out what your payments are going to be, we're just going to go ahead and put you in forbearance. Now, I was planning to do this emergency episode basically saying, hey, if you want a quick way to not have to make student loan payments for a while, if you haven't already applied for the save plan, at least temporarily, because they're going to immediately put you into forbearance. But because the court sided with the Department of Education, at least temporarily, the department has now said that they are working to restore the online application. Now, what does all this mean for you? I'll be transparent. I don't know. There's been so many things that have happened with the save plan since it was released. There's been so many things that have happened since last, like Tuesday, that a lot is still yet to be decided. But what I would encourage you to do is to, number one, keep your eye out for the mail. Keep your eye out for emails telling you about your current loan status. I would also encourage you to sign up for student loan updates. When it comes to newsletters from the Department of Education, and we'll put a link in the show notes to one that you can sign up for. So you can always be up to date on the comings and goings. But really, the key is to communicate. If you're confused with your lender, if you feel like your student loan servicer is not adhering to some of the things that the Department of Education is releasing, I would encourage you to contact the consumer Financial Protection Bureau and also contact the student loan ombudsman. Um, and I'll link to how you can do that in the show notes as well, because as I referenced, it is very realistic in times like these that you could be trying to make sure that you get what you have been promised when it comes to your student loan payments or your student loan forgiveness credits. And while you're arguing with someone in customer service, it truly may just be a case of them not being aware of the most recent updates. So if you can stay up to date, it gives you the best ability to advocate for yourself and put yourself on the path of having your student loans forgiven, reduced, reorganized, or expedited. I hope this emergency episode was helpful to you. If more things happen, we'll let you know, but until then, talk to you soon.
[00:08:09] Speaker B: Let's get some money 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.
