[00:00:00] Speaker A: In this episode, we share a recent but temporary update that impacts federal student loan borrowers. Let's get started.
[00:00:07] 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.
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I'm Brenton Harrison and this is the New Money New Problems podcast.
[00:00:45] Speaker A: Hello, my name is Brenton Harrison and while I would typically say this is Brenton Harrison with insert company here, there's a reason that I'm not doing that. Uh, whether you are here for our New Money New Problems community, and that is our financial advisory where we serve the needs of first and second generation high income earners. Or you're here for Escape Student Loan Debt, where we help people with federal student loan debt have it forgiven, reduced, reorganized or expedited. You'll know that we typically post episodes on Friday. This is not a Friday. Uh, this is an off cycle episode because of an update that has some urgency, uh, when it comes to the timing for our Escape Student Loan Debt community. But the reason we didn't want to post on Friday for our New Money New Problems audience is because not all of them have federal student loans. We've shared in the past that those businesses are not connected. Our work with Escape Student Loan Debt is not affiliated with our work as an advisory firm. But there are times when the topics cross each other and we make sure we post on both platforms. So we're doing that today. And the reason that we're here is because last week the Department of Education released an interim rule where they temporarily reintroduced the pay as you earn plan and the income contingent repayment plan. And if you're used to listening to Escape Student Loan debt and you know this like the back of your hand, just bear with me for a couple of minutes as I catch up the other audience. I had New Money, new problems. But under federal student loans, when it comes to repayment plans, there is an umbrella of payment plans called the income driven repayment plans. Those plans are based on a percentage of something called your discretionary income each year. And it's a way that people have had a more manageable payment where they have their student loans forgiven after paying less money than they would have to pay if they simply paid off the loans. It's also a way for public Servants who are working in education or nonprofit work or government work to have their student loans forgiven after 10 years under public service loan forgiveness, which require you to use an income driven repayment plan. Now, of the plans under that umbrella, the newest and most recent plan was the SAVE plan, which is currently under attack by the courts and is likely to be struck down. And as a result, all the people who signed up for the SAVE plan, which was millions and millions of people, they have all been put into an administrative forbearance where they're not required to make payments on their loans, interest is not growing on their loans. But unfortunately, as a result of that administrative forbearance, they are also not getting credit towards the forgiveness that TYP typically comes with income driven repayment plans, nor are they getting credit towards public service loan forgiveness in terms of their count towards the 10 years of payment that are required before it's wiped away under that program. Now, an additional wrinkle to this and escape student loan debt listeners. You are now back in the mode where you should be paying attention. We've discussed that. The reason that there is so much fear and trepidation regarding some of the court rulings that are coming up with the SAVE plan is that part of the discussion has been whether or not the Department of Education even has the authority to both create new payment plans like the SAVE plan, but also to offer forgiveness of student loans under those payment plans. There are those that were created by Congress, which is the old and new versions of the income based repayment plan. And then there were those that were created by the Department of Education. Now, prior to the SAVE plan, those plans created by the Department of Education were the revised pay as you earn plan, the pay as you earn plan, and the income contingent repayment plan. When the save plan was created, it took the place of the revised pay as you earn plan. And since July 1st of this year, access to the pay as you earn and income contingent repayment plan were closed. So before last week, the only IDR plan that existed that was created by the Department of Education actually was the save plan. They're saying that that plan is illegal. And if that plan is illegal, there's the possibility that the other plans that they created illegal as well. And if the payment plans aren't allowed, then it's also not allowed to offer forgiveness. So as a result, while these rules are in a holding pattern, the Department of Education responded by not only putting borrowers who are in SAVE and administrative forbearance, but they also put a pause on any Forgiveness being granted under any income driven repayment period. And that pause has been in place for a decent period now. But last week, the Department of Education, which really only has in terms of this administration, uh, December and the first half of January to enact any changes, they released this interim ruling. And it says, and I'm quoting from what you'll see on the screen, we'll put the link to this in the show. Notes. The scope of this rule is narrow. It just revises the end date for most borrowers to enroll in the income contingent repayment or pay as you earn plans from July 1, 2024 to July 1, 2027. This time limits a change to eligibility rest that went into effect on July 1, 2024 will allow the Department to meet its statutory obligations while it undertakes the necessary administrative changes to make its repayment plans that would otherwise be available for borrowers compliant with the terms of an injunction from the U.S. court of Appeals for the 8th Circuit, end quote. What that basically means is the Department is arguing that they have the obligation to offer these plans, but the only way that they can do so in light of the recent court ruling is instead of offering forgiveness under save to do so by resuming process forgiveness for those who are using the income based repayment plan and also reopening two plans that they just closed, those plans being pay as you earn and income contingent repayment. Now, it's important to keep in mind that the Trump administration has the ability when they come into office to just reverse this and say, no, you can't reopen the pay as you earn plan and no, you can't reopen the income contingent repayment plan. So the only plans that we're going to allow you to use is the income based repayment plan, and they cannot take that one away without an act of Congress because it was created by Congress. But if past is prologue, this opens up a really, really crucial window for certain borrowers. Because if this goes like it has gone in the past, they would have to be really, really aggressive. And I would argue that it might take more work than they plan to do to take people who signed up before they cut off access again and kick them off the plan. It may be more likely that they do what has been done in administrations past where they close it off to new borrowers from a certain point. But others are grandfathered in now. We don't know what the future holds. But if that were to be the case where they don't allow future borrowers to enroll in the plan, but they do allow you to be grandfathered in. There's this very narrow window of time where you have to get your application in before they make that change. So let's talk about when you can do it, if you should do it and who it impacts. The first is when you can do it. And if you're looking on screen, we're looking at a summary of the ruling, uh, an article that was written up by Forbes and it says at the bottom that the rule is expected to go into effect in 30 days, which means borrowers could able to apply for pay as you earn and income contingent repayment by mid December. So this is time sensitive, but it's going to take a while for that window to be opened up which actually suppresses the period of time in which you could apply if there is a rule change. Next, let's talk about who should do it. And this isn't going to be necessarily a plug for our Income Driven Repayment Plan guide at Escape Student Loan Debt, but we do think it is a decent tool. We'll put a link to it in the show notes, but you can download it by going to escapestudentloan debt.comguide. if you're following along on screen you're looking at that guide and in it it describes uh, the eligibility for different payment plans including pay as you earn. So in terms of who should do it first you have to be eligible and who is eligible. Well, if you're following along on screen you can see that you can only have direct loans that you're paying under this plan. You have to be a new borrower as of 10-1-2007. So that means you either took out your first loan after that date or you had paid off all student loans before you took an additional loan as of that date. And you also have to take a new loan after 10-1-2011. So first loan or all of your previous loans were repaid as of 10/01.2007 and then you have to take another loan out after 2011. So if those dates don't apply to you, it doesn't really matter because you're not eligible for pay as you earn. But here's this important wrinkle we've talked about. The fact that the other camp of income driven repayment plans, those created by Congress, are the the old IBR and new ibr. Now new IBR is very, very similar to the pay as you earn plan. And if you look at the dates, eligibility, in order to be eligible for new ibr, you have to be a new borrower on or after July 1, 2014. So based on the dates, if you were 18, uh, and you took out loans in undergrad, you're really talking about people eligible for new IBR who are 28 years old or younger. Or if you're a person who took it out for the first time in graduate school, maybe you're 32 or younger, but that's kind of the age range. If you're older than 32 and went to school at quote unquote traditional times, then it's highly likely that you're not eligible for new ibr. So you can either do pay or you are stuck with old ibr. An old IBR says that you have to have an outstanding loan balance before July 1, 2014. So if you're in the camp of borrowers where you are eligible for both pay as you earn and old ibr, this is that tension point where you have to make a decision of if I'm on the save plan, that plan is toast. So if and when they do away with that plan, I'm either going to be left with if it's still available, the pay as you earn plan or the old income based repayment plan. Why is that such a big deal? Well, it's a big deal because the old income based repayment plan has a significantly higher payment than the pay as you earn plan. Let's look at an example going down to the calculator at the bottom of this guide which you can use to input your family size, your adjusted gross income, your loan balance, your interest rate, and it will calculate the payment that you would make under the various income driven repayment plans. Let's assume that we have a family of four with an adjusted gross income of $150,000 and a student loan balance collectively of 200 $150,000. We're not even going to talk about the save plans because those are due to go away. But under the pay as you earn plan or the new income based repayment plan, the household payment towards student loans in this scenario for a family of $150,000 would be $860 a month. However, if you're not eligible for new IBR or if you don't sign up for the pay plan in time and you're stuck with the old version of income based repayment, instead of $860 a month, this family would have to pay 1,290 DOL dollars per month towards their loans. And if you're not eligible for pay as you earn or new income based repayment and that's the only choice that you have, then it is what it is. But if you're a part of that group of people that's in your mid-30s to early-40s, and you are eligible for the pay as you earn plan, this limited window for which you could apply is crucial because if they close off this limited period in which you can apply for pay when the new administration takes over, you not only could have lost the opportunity to save hundreds of dollars per month towards your student loans, but also, if you look at the time that you have to pay these lo until they're forgiven, you could shave five years off of your repayment period by signing up before the door is closed on pay as you earn. Now, uh, that's a lot to consider. And there have been other updates in recent weeks when it comes to federal student loans. And another reason that we're doing this episode off cycle is because we've just decided we've gotten so many questions about this that we're going to do another state of student loans webinar. So, as we've done in the past, a webinar where we say, hey, for 19 bucks, come listen. And we'll not only answer all the questions that you have about student loans, but we'll bring up information and share updates that you might not be aware aware of. If you're wondering why we charge for these things, to be quite frank, when we make it free, nobody shows up. But when people have to pay for it, they tend to show up. So there's some value in the fact that you value what you pay for. So we'll make it a nominal fee, but it will be something that we offer, uh, for our audiences so that we can share as much as we know about things that can help you get those student loans forgiven, reduced, reorganized and expedited. So if you're not already on our email list, you can. On the Escape Student Loan Debt platform, Sign up at escapestudentloandet. On the new money New Problems platform, you can sign
[email protected] subscribe. We will, of course, announce the date of that webinar on these platforms. But if you're on our email list, that'll be the first place that you go. And we will make sure that we have that information to you, um, in the coming days. Talk to you soon.
[00:13:39] 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.
[00:13:50] Speaker A: They've never seen.
