Student Loan Update: IDR/PSLF Waivers and Student Loan Servicer Changes

Hey, dental associates and new practice owners. Welcome to the Associates on Fire podcast, powered by Practice cfo. This is the podcast that teaches you what you never learned in dental school, the financial side of dentistry. We cover topics from planning for ownership, buying a practice, to student loans, taxes, and all things financial for the hungry to learn. Dental Associate. So let's light it up.

Hey, hey everybody, it's Wes Reed coming at you another episode of the Associates on Fire podcast. In my last podcast, I committed to doing a review of the effects or changes going on, effects from various laws and Department of Education changes to student loans. So I want to devote what I'm hoping is only about 30 minutes here to the subject of student loans. If you have student loans, you should tune in to the next 30 minutes. If you are not familiar with these changes or even if you are, maybe you'll learn a little something in addition to what you already know. There has been a just a lot going on in this space. And since we work with dentists exclusively who on average have about $300,000 of student loans coming out of school, which actually feels lower. That was per a recent report published from the American Dental Education Association.

It feels to me like it's more around 4 to 500,000 even, plus for certain schools. But bottom line is, most of you that are listening to me, unless you're farther down the path of your career and in your 50s or 60s, you probably have student loans. So let's talk about some of these changes going on and how they might affect you. Some things may require action, some things don't require action. Now, the government, the specifically the Department of Education, is not happy with the way the student loan servicers have been carrying out their responsibility.

And so there's a major shakeup going on right now among the student loan servicers, which I'm going to talk to you about after I go through these provisions. But suffice it to say that there's been a lot of poor reporting and categorizing and counting among the systems within the student loan servicers to track people's progress toward forgiveness. Now, right now, the government and specifically the Biden administration is fairly aggressively looking for ways to relieve Americans of their student loan burden. And in fact, just today I read an announcement or an article that there is about, I believe, $6 billion or so student loans that are automatically being forgiven. It forgiven for some who have come out of some for profit universities. They specifically named the University of Phoenix and Devry University as having sort of been taken advantage of when they took on those student loans and so I believe maybe came out of a lawsuit, I don't recall. But the government's forgiving a lot of that. That's one of many efforts that they're doing. But this broader effort right now that they're, that they're doing is a trying to create a better organization across the tracking tools of borrowers and their payments. And that's number one and number two in doing so, trying to find ways to grant more forgiveness to people. So let's talk about some of these. As you know, the CARES act, which came out early on in the pandemic, paused student loan payments. Nothing new there, but they extended that pause also likely, as you know, a lot of times they did it six times. And so now you can count 30 months toward qualifying payments to get forgiveness in your IDR or PSLF plan. Now for PSLF, you must have still been working during that time. Now, just to clarify, when I say idr, I'm saying income driven repayment program. And under that umbrella is IBR pay and repay. Now there's actually two versions of IBR and there's also one called icr. I'm going to ignore those. Not terribly relevant. Most of you are either on the standard IBR income based repayment or you're on the pay as you earn pay or the revised pay as you earn. And this podcast is not going to go into differences between all of those simply because these updates to recount how many payments you've made to qualify toward forgiveness applies across all of them. So I'm going to just speak more more broadly about those changes. But this is a big deal because 30 months of qualifying payments, that is 25% on the way toward PSLF forgiveness. If you're in a government, federal, state, local, tribal or a nonprofit 501C3 if you're in any of those, you just got 30 months where you didn't have to make a single payment, interest didn't accrue, and all of it counts toward the 10 years or 120 months, that's 25%. That's big for the IDR plans. If you're on repay, as you know, that's 25 years. So that's, that's, what is that? 10%. If you're on a pay or IBR, that's 12%. So you just had a good chunk of the road to forgiveness taken care of by the government without you doing a thing. The only thing, like I said, is if you're pslf, you must have been working during that time. All right, let's go on to, let's stick on the, on the PSLF real quick. Now, most of you, I bet are not working for a non profit government or military is a good example. If you were working for the military, they, those periods during the military can count toward the PSLF waiver. The 10 years before. In order to qualify, you had to have 120 qualifying payments. Now a qualifying payment is any payment made. There's really three requirements. You have to have the right job. So again, a government nonprofit and you had to have worked for 30 hours. So that's, that's one. Number two is you had to have the right loan. So it had to be a direct loan. Then number three, it had to be a qualifying repayment plan as a direct loan. And that could have been a 10 year standard loan or any of the IDR loans. Those were the requirements. And so now they're expanding other payments that did not meet those requirements that now qualify. Now in any scenario, you had to have worked for a government or nonprofit in all of them. Always. That is the Public Student Loan Service forgiveness program. The PSLF can't get out of that one. However, if you had late or partial payments, guess what? They now qualify where they didn't before. If you were in Family first education loans, FFEL loans that predated 2010, those now count. So let's say you were in the military 2003 to 2010 and you had FFEL loans. Well, those seven years now count toward the 10 years. Fellow loans. However, you have to consolidate your loans first.

Right now in order to convert those fellows. Those were called indirect loans. They were loans issued by a bank rather than the government, but backed by the government. 2010, the government moved everything to direct loans, which is basically the government's, the lender administered by student loan servicers. But those old fellow loans now actually count. You have to consolidate right now. Now. Now some people have said, well, if I consolidate my loans right now, I'm on really low interest rates now. I'm going to get bumped up to the 7.5% rate. Ongoing student loan rates, not the case. When you consolidate your loans on studentaid.gov it simply takes the weighted average of your various loans, bundles them into a single rate that is the weighted average of your prior loan rates. So you're not gonna take a current rate. You're still gonna get that lower back benefit rate. So really there's no risk to consolidating those old FFEL loans. If you think that you can do so and then count those payments toward the pslf. Okay, and let's see, the ones that don't apply, the payments that don't apply for the PSLF waiver are the Parent plus loans. Sorry, do not count. Also any payments made before the consolidation. FYI, if it didn't go without saying, those do now count. So those old fellow loans, for example, made before consolidation, once you consolidate now, anything before and after consolidation count toward the 10 year forgiveness for the PSLF. Okay, I'm going to set aside the PSLF waiver right now and I'm going to go into what's called the IDR waiver here in a second, which is going to relate to probably more people on this call or on this podcast than the pslf. Since most of our listeners are in private practice and therefore not qualifying for the pslf. The American Rescue Plan act, which was put into place March 11, 2021, did something pretty cool. If you meet your 20 or 25 year deadline between then and the end of 2025, December 31, 2025, meaning that you have had student loans either since the year 2020 or 2000. I'm sorry, 2000 or the year 2005, depending if your IDR or if you're in pay or repay. Pay is 25 to get forgiveness, repay is 25. Sorry guys, let me clarify that. Repay is 25 and, and pay is 20 and if you hit that mark anytime between March 11, 2021 and December 31, 2025, and your loans are therefore forgiven, guess what? That whole tax bomb you always heard about. Not applicable. You don't have to pay taxes on that forgiven or discharged debt if that occurs at that point. What would be terrible is if suddenly on January 1st or 2nd, whatever, shortly after you meet that 20 or 25 year mark, and now you're having to pay taxes at ordinary tax rates, which for many of you is going to be close to 50% depending on your state for the amount of debt discharged. Doesn't quite seem right to me. Who knows, These things are changing by the day. Maybe by the time we get to that point there's just going to be a permanent law in place. I bet there will be. That simply says discharged student loan debt is not taxable. So I wouldn't panic if you think you're going to hit that sometime after the 2025. Now, a lot of you listeners since this, this is the Associates on Fire podcast, are a lot younger than that, maybe graduated in the past 10 years or so. And so you're not even close to the 20 or 25 mile marker. So that's not terribly relevant for you. Now let's talk about the IDR waiver. And I'm on the government side website on studentaid.gov they have a page called Income Driven Repayment Public Service Loan Forgiveness Program Account adjustments. And they have a section for one time payment count revisions and permanent fixes to the IDR payment counting. So this is all about when you hear this term IDR waiver, which is sort of floating around out there in podcasts and articles and whatnot. The IDR waiver is simply the government trying to accurately count how many payments you've made or could have made if you were on forbearance or deferment, if they qualify, could have made toward your 20 or 25 years. That's what this is all about, what payments qualify and also sort of loosening the standards to allow more count more months to count toward that forgiveness. So let's talk about the one time revision. The Education Department will conduct a one time account, I'm reading off their website, a one time account adjustment to borrower accounts that will count time toward IDR forgiveness, including any months in which you had time in a repayment status, regardless of the payment made, the loan type or the repayment plan. So, so now if you were in those FFEL loans again, for example, or you're in some type of loan, in some cases they had extended loans. If you got into an extended loan that wasn't an IDR loan, those loans all now count. Now plus loans again do not count, but virtually now any type of loan and repayment plan that you are in now counts. The next item is if you had 12 or more consecutive months of forbearance, consecutive or 36 months in total cumulative forbearance, that period now counts. Now don't quote me on this, but I kept trying to understand why would longer periods of forbearance count but not shorter period? I think if it was under the 12 months, then it already counted toward forgiveness. I could be wrong on that, but that's the only reason that that would make sense to me. So if you were on forgiveness, had this extended term of forbearance for 12 months or more consecutively, or total of 36 months, guess what? All that time, that one year or three years, depending on how long it was, now counts toward your 20 or 25 years in getting for forgiveness. And then any months spent in deferment, any months spent in deferment, with the exception of in school deferment before 2013. So if you had deferred your student loan payments before 2013 while you were out of school, those now count as months contributing toward your forgiveness.

Also before the only so this one's kind of important. The only loans that counted toward your forgiveness timeline were loans that occurred payments that occurred after consolidation. Now with this one time payment count revision and any payments, including those before consolidation are counting toward your forgiveness. Little subtext here that consolidation is not the same as refinance. If you refinanced out of government loans into a private bank loan, then none of this applies and you can just stop listening to this podcast altogether. Because you're locked into a private loan now has nothing to do with with the government. The government has no control or no ability to forgive that loan. It's in the hands of a private banker. Okay, so that's one time. Let's go on to permanent fixes to IDR payment counting Permanent fixes So off the website. In addition to issuing new guidance to student loan servicers to ensure accurate and uniform payment counting practices, Ed the Education Department will track payment counts in our own modernized system.

ED is undertaking an effort to display borrower IDR payment counts on studentaid.gov so that you can view your progress yourself.

Additionally, the Education Department is working on regulations to revise the terms of the IDR program to further simplify payment counting, which includes proposals to allow more loan statuses to count toward IDR forgiveness, including certain types of deferment and forbearance. So what are they saying there? They're saying I alluded to this in the beginning of the podcast. They're saying that, look, we realize that the student loan servicers have done a horrible job at tracking the amount of qualifying payments of our borrowers. Now to as I don't mean to make excuses for the student loan servicers because they're on nobody's party list. They have been knee jerked around re just whiplashed. Better word on government regulation, the changes to student loan regulations and the laws on this. And so it's difficult when you have a system and you're servicing millions and millions of borrowers to go and constantly update your program to meet these ever changing, constantly changing rules around student loans. So it's been difficult for the servicers to do that. That said, the government and I applaud them on this is trying to apply more pressure and hold them more accountable to simply do their job better. So a little bit more on that here in a moment.

Okay, so we've talked about the end of the moratorium on August 31st of this year, the 30 free months, basically during COVID we've talked about the limited pslf, we talked about the removal of the tax bomb through December 31, 2025, and in my opinion, probably thereafter. But TBD on that. And we've talked about the IDR waivers as well. Now, by the way, on these IDR waivers when they make these adjustments, because the IDR waiver isn't something that you need to necessarily go do anything about.

Those adjustments should take place sometime between now, which is June 2022 to the end of this year, 2022. So they're saying fall of this year. Who knows? Might take a little bit longer than, than that. All right, let's talk quickly about recertification.

Now you have student loans. You know that every year you have to report your income to your student loan servicers. That's called recertification. And if you don't, bad things can happen. For example, all the accrued interest on your student loan, especially in the early years when you're, when you're on an IDR plan paying 10%, which is a lot less than your standard 10 year repayment plan. And therefore the difference gets added to your student loan balance. And so you see your balance going up. If you don't recertify, you run the risk of that increased amount being added to your loan capitalizing. And you do not want that to happen. Capitalized interest is bad interest. Capitalized interest is interest that you are now going to pay interest on. So if your balance went from 400,000 up to 500,000, if it capitalizes, you're now paying interest on 500,000 and not just 400,000. You have two separate buckets of interest, what's called accrued interest, which is simply the unpaid interest because you're on a 10% cap. And the difference or the amount above that goes into bucket number one, accrued interest. Bucket number one can pour into bucket number two, which is capitalized interest, if certain triggers are hit. I won't go over that list of triggers, but one of them is, is to not recertify that you run that risk. And if you, and if that happens, then you're going to unfortunately have to pay interest on that amount of accrued interest. You don't want to pay interest on interest. That just sucks. That's bad because then your interest goes up much, much faster. It accelerates. So be sure to recertify. Now, we're in a period right now where you don't have to recertify. And if you do recertify and report your income, it's self reported. You don't even have to include a W2 or a tax return, nothing. This is whatever you say it is. So if you're one of the more aggressive, slash shady, maybe that's the wrong term for anybody listening to this podcast. But you could go, you could be making 500,000 a year and say, hey, I, I'm only making $30,000 this year. Go ahead and adjust my payments, which are going to kick in here after August 31st. So you can self report right now.

And because this whole recertification was effectively suspended during the pandemic. Now the earliest that you'll be forced to recertify is March of next year, 2023. That's the earliest. Now if you get a notice from your student loan servicer asking you to recertify saying, hey, your recertification debt is, let's say November 2022, you can ignore that and your actual true recertification required deadline is one year after that, November 2023. So again, if you get any request to recertify before March of 2023, just know that you add on one year and that's actually when you're required to recertify. Now one other comment I want to make on this is just to clarify the difference between recertification and recalculation. Recertification is where you report your income and they adjust your payment. Assuming you're on an IDR plan, an income Driven repayment plan, they adjust it to that 10% based on your new amount of income. And, and that's, that's done through your student loan servicer.

Now that's required once a year. You can submit your income documents though, any time. You don't have to wait until recertification. Maybe you know this, but if you don't, you should. So if there's an event where you lose a job or you're out of a job, you, you temporary, temporarily go on sabatical, you leave, what, whatever, terminated leave, voluntarily, doesn't matter. But if your income is now zero, or let's say you take another job and you decide to go work on an Indian reservation and you're now making $80,000 instead of $180,000, you don't have to wait for your recertification. You can simply go on to studentaid.gov or actually you go onto your servicer loan, your loan servicer site and you can report your income. It takes about 15, 20 minutes. I believe. And, and then they will adjust. As of that point forward, they'll adjust your required payments down to your new income. That is what I am calling recalculation, which is different than recertification. Okay, the last comments I want to make here. What's going on with the student loan servicers is a big massive shakeup now in the past. And I, and I bring this up in a podcast because you may be getting letters already from the student loan servicers and if you haven't, you probably will.

Unless you're with a couple of the ones that are surviving this whole shakeup. Maybe you won't. But in the past you had nine student loan services. You had the big four, which did about 80% of them. That was Navient Nelnet, Fedloan Servicing and Great Lakes. At that time, FedLoan servicing was the only one that did the PSLF program. FYI, if you have a PSLF program or you're on that and you were attempting to qualify for it, then you were going to be with FedLoan Servicing. And then there were five others that did the other 20% of student loan servicing. That was Mohela, that was.

Granite State, that was osla, and that was Higher Education Services Corp. And actually, I think that's it. I might be missing one in there, but that was virtually most of them at the time. Now what's happening is the big four are all getting axed, gone, murdered, no longer here. Navient, huge goodbye Nellent, huge goodbye. Fed Loan Servicing, big goodbye Great Lakes, goodbye. And Great Lakes had the best rating as A in their customer support than any of them. And yet they're still going. Now some of these, I think, voluntarily left. They're like, okay, we just want to wash our hands of this whole mess of the government student loan thing, which is just a complete chaotic nightmare. And so we want out. I think others were being forced out because of how horrendous the support system was for borrowers and just how terrible the tracking system was. And so the government stepping in and taking more point on, on a, on an overhaul here. And so if you were with the Federal Service, if you had a psl, let's start here. If you had a PSLF loan, you were with Fed Loan Servicing, you're probably going over to Mohela. Mohela is now going to be processing all the PSLF loans or servicing those. Now in this case, you probably already got notified of that if you're a PSLF borrower. Most of Navient are now Going to a new one called aidvantage Advantage. And let me list off the new ones. Kind of the survivors out of here are really. There's two survivors. There's Mohela and, and Higher Education Services Corp. Ed Financial it's also called. If you were on one of those, you probably aren't seeing any change. No letters, nothing. But the new kids on the block are now F.H. conan Associates number one. Number two, Maximus. Number three, Trellis Texas Guaranteed Student Loan Corp. Trellis. And number three, Advantage, which again is taking over the Navient loans. Those are the new ones. And so you'll be receiving letters, you'll be receiving letters in the mail. And what I recommend doing is going on to studentaid.gov and downloading your, your history.

On that on all of your student loan payments and it downloads it to a CSV file and just keep it. I doubt anything will get lost in transit but you know, just to be safe have a copy of that. Is, is what I recommend. And, and so, so, so be ready on that. I would, I, I try to stay current. Let's see anything else on these student loan servicers for you.

This is one of those areas where you just gotta be proactive. I would make sure that as you see, receive these letters, don't just toss them in in your shelf, actually read them. Maybe contact your student loan servicer, make sure you, you know what they have on file. Make sure you can log in, make sure everything looks accurate. Be proactive about owning this because there's a, there's, there's a big shakeup here and you don't want this to come back in and hurt you. All right. Big change in the landscape of student loans going on right now. It'll be interesting to see how this shakes out over the next year or two because a change of this magnitude where you got millions and millions and millions of borrowers being switched over from one system to another and the government now wanting to themselves track in, in studentaid.gov your qualifying payments there. And of course the law changing to be more forgiving for a lot of these loans. There's just a lot going on. So stay, stay close to your student loans as well. If you have questions about what student loan is the right student loan for you, well, you can reach out to practice CFO. We are, as you know, financial planners and CPAs. So we're a combined.

Advisor as your sort of CPA slash accountant and your financial advisor. And we do address a lot of student loan issues here and can be happy to be help you. One of the places I refer a lot of my clients to is Student Loan Planner.

Student Loan Planner run by a guy named Travis Hornby, really knows his stuff. Got great podcasts. I definitely endorse advocate him. And I also want to acknowledge my limit that this is very much a specialty knowledge. And so I'm giving you a lot of the highlights. I think I'm also giving you some details and I believe these details are fairly accurate. I certainly study up deeply on these things. But the the resource, the specialist of all specialists when it comes to student loans. Studentloanplanner.com you can pay them a modest rate and they'll do a full analysis of your student loans as well and so reference them also. So shout out to those guys. We do have a podcast I did with Travis Hornsby about a year ago or so. You can check that out on earlier on our stream of podcast releases on the Associates on Fire website. So hopefully this was all helpful for you. All right team, good luck with those student loans.