Category Archives: Educational loans

Student Loans: They’re Baaaaaack!

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The last few years have been a very weird time in the financial aid world.  At the start of the Covid-19 pandemic, the federal government put a pause on federal student loans.  All loans in the Federal Direct loan program stopped accruing interest.  And no payments were required on these loans for borrowers who were in repayment status.  At the time when this started, we all expected the pandemic to be short-lived and everything would go back to normal in short order.  But we all know that the pandemic (and the student loan pause) continued for quite a while.  Covid-19 has become an endemic and we’ve accepted that it is something we will just have to deal with going forward.  And the student loan pause extended many times.  But it has finally come to an end.

Starting September 1st, federal student loans began accruing interest again, for the first time since March 2020.  For borrowers who are in school (or in their six-month grace period following leaving school), this means that the loan servicer has started keeping track of the interest that is accruing each month, and when the loan goes into repayment that accrued interest will be added to the principal balance of the loan (this is called capitalization).  For borrowers who are already in repayment, this means that October is not only going to bring fall foliage, pumpkin spice latte, and spooky decorations.  October is going to bring a student loan payment.  For many this will be their first student loan payment ever.  For many more, this will be their first payment in several years.  This is going to take a little getting used to!

Thankfully, along with this new era of interest accrual and required payment, this fall also brings us a new income-driven repayment plan (IDR). IDRs base the amount of monthly payments on the amount the borrower is earning, instead of on the amount that was borrowed.  The Saving on a Valuable Education (SAVE) plan is replacing Revised Pay as You Earn (REPAYE), and it is without question the most favorable of the assorted income-driven payment options.  This plan boasts the following benefits:

  • The portion of the borrower’s income protected from being included in the calculation of the monthly payment is 225% of the federal poverty guideline, as opposed to the 150% offered by most other IDR plans.  This will yield the borrower a much lower monthly payment.
  • If the borrower’s monthly payment is not large enough to cover the accruing interest, the excess interest will be forgiven rather than being tacked onto the principal of the loan.  There will be no negative amortization!  Even if you only ever pay interest on the loan, the total balance due will never grow larger.  This is a game changer.  Gone are the days where a student borrows $40,000 for their education and then after years of payments find themselves owing $152,000.  The balance will never get bigger than where you started in repayment.
  • Married borrowers will have a way to remove their spouse’s income from the calculation of the monthly payment.  Borrowers will no longer have to make a choice between having the lowest monthly payment or legally wedding their soulmate.  If a borrower is married and wants to exclude their spouse’s income from the calculation, they simply need to file their federal income tax as married filing separately.

There are more changes to follow starting next summer, but the three listed above are already in place, and will have the greatest impact on law school alumni.  You can find a detailed description of the SAVE plan here, and a great description of how SAVE differs from the old REPAYE here.

Getting ready for student loan repayment after a three-and-a-half-year break will likely feel daunting.  You can find some guidelines here and here.  And your friendly neighborhood financial aid advisor is also here to provide help if you need it.

Big changes are arriving right now.  But with a little focus and a little help from available resources, this will be manageable.

 

This Pause Is Giving Me Pause

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In March of 2020 everything changed in the world as we knew it.  Everything closed down.  Masks were pervasive.  Toilet paper was a hard-to-find commodity.  And my least favorite task was bathing the groceries.  But as the pandemic moved forward, we learned more about the virus.  Treatments and preventative vaccines were created.  And now everything feels a lot more like normal.  Well….almost everything.  Student loan repayment seems even more up in the air now than it did at the beginning of the pandemic.

In March 2020 the President announced a pause on federal student loan repayment, as well as setting the interest rate on all Federal Direct Student Loans to 0%.  This was supposed to last for a few months, until the public health emergency had passed.  But we all know now that the public health emergency did not end after a few months.  And neither did the loan repayment pause.  The pause has been extended several times.  It really looked like repayment (and the accrual of interest) was going to resume in January 2023.  It was supposed to coincide with the processing of loan relief in the form of up to $20,000 in forgiveness for qualifying borrowers.  But that loan forgiveness program got all tangled up in law suits and we’re really not sure when that will be resolved.  So the pause was extended yet again.  And this time the end date is a moving target.

Last week the U.S. Department of Education announced that the payment pause would end sixty days after a) they are allowed to implement the debt relief program, or b) the litigation is resolved.  If neither of these things happens by June 30, 2023, then repayment (and the accrual of interest) will resume 60 days after that.

Clear as mud?  Yep.  I have long thought that the federal student loan programs are too complicated for the average borrower to understand thoroughly.  There are too many different repayment plans.  There are origination fees deducted from loan amounts that make borrowing less transparent than it ought to be.  Loan servicers have a known history of not being up front with borrowers when they call with questions.  Loans come with something called a “variable fixed” interest rate, so each year brings a new loan with a different interest rate from prior loans.  And these interest rates are much higher than rates on car loans or home mortgages, which is very discouraging. It’s hard for me to keep up with all of the details, and I spend my whole life living in the student loan world.  I can’t imagine how intimidating it must be to a brand new college freshman.

But here we are.  Student loans were complicated enough before our country started using student loan borrowers as political punching bags.  Borrowers are now caught in the crossfire of arguments about many different policies.  I’m still not sure how I feel about the proposed debt relief program currently tied up in the courts.  But I feel very strongly that student loan borrowers shouldn’t be made to suffer because of the political battles of others.  And I guess that’s why the payment pause was extended yet again.

Will this be the last extension of the pandemic payment pause?  Only time will tell.  But if there is something to know, you can be sure I’ll share it here when that time comes.

Student Debt Relief Details

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At the end of August President Biden announced a plan to forgive up to $20,000 in Federal Direct Student Loans for borrowers with income below $125,000 per year.  Shortly after that announcement, the legal challenges aiming to stop the program before it started came rolling in.  This past week a couple of those legal challenges were dismissed, which makes me think this forgiveness might actually happen (but then an appeals court blocked progress on Friday evening, so we can’t be sure).  Without any fanfare, the application for debt relief opened this past week.  And people have been submitting the application in droves!

You may be eligible to receive forgiveness of up to $10,000 if you meet the following conditions:

  • You have an outstanding federal direct loan (subsidized, unsubsidized, graduate PLUS, parent PLUS, or direct consolidation) that disbursed prior to June 30, 2022.  If you borrowed your first loan for the current academic year, you are out of luck.
  • Your adjusted gross income from your 2020 or 2021 tax return was less than $125,000 for single filers, or less than $250,000 for families.  You can use either year’s income—whichever is lower.  If you were classified as a dependent student for the 2021-22 academic year, then your family’s income will be used rather than your own to determine your eligibility.

You may be eligible to receive up to an additional $10,000 in forgiveness (for a total of up to $20,000) if you received a Pell grant as an undergraduate student.  If you don’t recall whether you received a Pell grant, you can find out by logging in at http://studentaid.gov and selecting “My Aid.”  The “Grants” tab will reveal whether you received a Pell grant.

You may not need to do anything to receive this forgiveness.  If the Department of Education already has your income information on file, your forgiveness can be processed without your having to take any action.  If you submitted a 2022-23 FAFSA, you should be all set (though the Department of Education may follow up for parent information if you were a dependent student for 2021-22).  If you submitted 2020 or 2021 income information to your loan servicer in order to be on an income driven payment plan, then you should also be all set.

If your income info is not already at hand, you will need to submit the application for debt relief before December 31, 2023 in order to receive this relief.  The form is very simple.  If you know your name, date of birth, email address, phone number, and Social Security Number you should be able to complete it in two minutes or less.  After submitting the form you should receive a confirmation email. The Department of Education will contact you if more information is needed.  Once the application is approved, you will be notified, and then your loan servicer will be in touch to let you know what your new loan balance is and what your new monthly payment amount will be.

It sounds really simple.  I hope it actually turns out to be that simple.  But it certainly can’t hurt to try.  If you  are eligible….bring on the debt relief!!

 

A Rundown of that Big Student Loan Announcement

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This was a big week for financial aid news.  On Wednesday President Biden announced a plan to forgive up to $10,000 in student debt for some borrowers and up to $20,000 for other borrowers.  And there was a lot of other good news bundled in there as well.  Here’s the good, the bad, and the ugly of what I know so far.

The good is that this will bring a lot of relief to a lot of student loan borrowers.  Any borrower with outstanding Federal Direct Student Loans as of July 2022 will receive up to $10,000 in forgiveness on their loan balance if their income for 2020 or 2021 was less than $125,000 for single tax filers, or less than $250,000 for joint filers.  If those same borrowers also received a Pell grant for their undergrad study, they will receive up to an additional $10,000 in forgiveness, for a total of $20,000.  Nobody is going to receive forgiveness of more than their current balance, but some borrowers may be fortunate enough to have their total outstanding balance forgiven.  The details of how this is all going to work is still a bit fuzzy.  It’s my understanding that if the Department of Education has the borrower’s income on file already, either from an income-driven repayment plan or from a current FAFSA form, there won’t be an application process required—the forgiveness should process automatically.  For those without income information on file, there will be an application process.  I’ve heard that the application will be short and simple, but that remains to be seen.  I’ve heard conflicting information about whether this application will become available in September or October of this year, but I’m sure we’ll know soon.  And there is a catch for those in their first year of graduate study this year.  If you were a dependent student for financial aid in the 2021-22 academic year, this will all be based on your parents’ income, not on your own.

The other big news in the announcement was yet another extension of the pandemic-related payment pause on federal student loans that began in March 2020.  Since that time all Federal Direct Loans have not required any payments, and the interest rate on these loans has been set at 0%.  These terms have been extended one last time, through December 31, 2022.  Repayment will resume in January for those borrowers not in another deferment status (like the in-school deferment while you are working on your law degree).  And loans will start accruing interest again in January.

These two things are the hot topics in the news, but there was additional good news tucked away in Biden’s announcement, which I think are even more exciting than the hotter, sexier topics.  The Department of Education is planning to make a major change to the way unpaid student loan interest is managed.  Previously, when a borrower with large student loans was making payments on an income-driven payment plan, the amount the borrower paid was oftentimes less than the amount of interest accruing.  And that extra interest was added on to the principal of the loan.  This is called negative amortization.  The borrower was making regular payments and their total amount due was growing rather than shrinking.  This is going to change going forward.  While it may take a while for the details to be released, the announcement on Wednesday claimed an end to the process of negative amortization.  If you make an income-driven loan payment (even a payment of $0), no extra interest will accrue.

The final piece of the announcement involves the creation of a new income-driven payment plan, which will be much more favorable to borrowers than the existing plans.  Existing plans calculate the monthly payment based on 10%, 15%, or 20% of the borrower’s “discretionary income,” dependent upon the plan.  This new plan will calculate that at 5% of discretionary income for undergraduate debt, but sadly will maintain the 10% calculation for graduate level debt.  There will be some kind of weighted calculation for those with both graduate and undergraduate debt.  But this new plan will still be an improvement even for those with only graduate level debt, because the definition of discretionary income is changing as well.  On the existing income-driven plans discretionary income is 150% of the current poverty guideline.  On the new plan that will be 225% of the poverty guideline, so the portion of the borrower’s income protected from inclusion in the student loan payment calculation is larger.

That was a lot of information for one little Presidential press conference.  And not everyone is happy about it.  Any kind of loan forgiveness comes with questions about equity.  Some think any forgiveness at all is too much (and I’m actually anticipating delays in implementation due to legal challenges from this camp).  Others think $20,000 is not near enough.  I’m still conflicted myself about the forgiveness portion of this, but I’m not angry and not begrudging anyone the forgiveness they may receive.  I think it will help a lot of people. But the other parts of the announcement are the more important parts, as they are solid first steps toward fixing a student loan system that hasn’t been serving students particularly well for some time now.  In a perfect world, my job as a financial aid administrator would be completely unnecessary because education would be affordable to all.  But we don’t live in a perfect world.

I’m sure that there is still a lot of clarification to come on all of this.  I’ll be watching for updates at https://studentaid.gov/debt-relief-announcement/ and through my many financial aid administrator networks.  When there is more news to share, you will certainly hear from me.  Until then, I hope that you are able to find some joy in all of this news.

What’s New(ish) in Student Loans

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Throughout the pandemic some interesting things have been happening in the world of student loans—some pandemic-related and others that just fell into this timing.  And if you have student loans, you really should know what is going on.

The Pause

In March 2020, when the pandemic started to hit hard in the U.S. and we learned all about lockdowns and quarantines, all federal student loans (including Direct Subsidized/Unsubsidized and Grad PLUS) were placed in a payment pause.  The idea was to make life easier for student loan borrowers while we all deal with this whole global pandemic thing.  For those in loan repayment, this made it so the required minimum payment on loans has been $0.  And the pause has had another benefit that has helped those currently in school as well as those in repayment:  during the pause the interest rates on all federal student loans have been set to 0%.  This means that no interest has been accruing on federal student loans for almost two years.  That adds up to thousands of dollars in savings for a typical law student.  The pause has been extended a couple of times as the pandemic has dragged on, and it is currently set to expire on May 1, 2022.  If there is not another extension, on May 1 loans will go back into repayment and their interest rates will reset to their original rates.  Brace yourself…it is coming.

The Loan Servicer Shuffle

When a student borrows a Federal Direct student loan, those loans are each assigned to a loan servicer contracted by the Department of Education (ED) to be in charge of managing that loan until it is repaid.  In the year 2021 three major loan servicers decided not to extend their contracts with ED and are exiting the Direct Loan servicing business.  Granite State Management and Resources is the smallest of these three.  Granite State loans will be transferred to EdFinancial, another experienced Direct Loan Servicer.  The other two servicers exiting the business are much larger and will impact a larger number of borrowers.  Navient (formerly a part of Sallie Mae) will be moving their loan portfolio to Aidvantage, which is a division of Maximus Education.  Maximus is experienced in Direct Loans as the collection agency that works on defaulted loans for ED.  Finally, FedLoan Servicing (a division of PHEAA), the servicer that handles all Public Service Loan Forgiveness loans (in addition to many others), will be transferring all of their Federal Direct Loans to MOHELA, yet another experienced Direct Loan servicer.  What this means is that if your loans are currently held by Granite State, Navient, or FedLoan Servicing, your loans are on the move.  If you have not already received notification that your loan has been transferred, that notification will be coming soon.  This does not change any of the terms of your loan.  It simply changes who you need to be in contact with regarding the loan.  Also, if you were on an income-driven payment plan and your loan has moved to a new servicer, you should contact that servicer to make sure your income-driven plan is set up in your loan’s new home.

The PSLF Limited Waiver

The Public Service Loan Forgiveness limited waiver doesn’t really impact currently enrolled students, but I know I have some alumni readers out there who can benefit.  Plus I find this whole issue pretty fascinating.  When the Public Service Loan Forgiveness (PSLF) program first began, there was a lot of chatter on Capitol Hill about how expensive the program would be, assuming that everyone who ever thought about working in public service was going to have tens of thousands of dollars in loans forgiven.  But when we finally (several years later) arrived at the point where borrowers were eligible to apply for forgiveness, almost nobody was approved.  Maybe they had the wrong kind of job.  Maybe they had the wrong kind of loan.  Maybe they were on the wrong payment plan.  There are multitude of reasons why a borrower can be denied PSLF, and this limited waiver allows a reprieve for some of those reasons.  The “wrong kind of loan” issue can be corrected retroactively with a Direct Loan Consolidation.  The wrong payment plan issue can be waived during this time.  The wrong kind of work issue, however, cannot be overlooked.  ED did a deep dive review of all the applications that were denied, and found that many of them could be approved under the terms of this waiver.  And as an extra added bonus, many borrowers who had made additional payments after they were technically eligible for forgiveness had those extra payments refunded to them.  It’s been a huge help to a lot of public servants.  But it is, indeed, temporary. This limited waiver expires on October 31, 2022.  So if you are in repayment and think you may benefit, it is important that you complete the PSLF Help Tool  before the end of October in order to make sure as many payments as possible count toward your 120 qualifying payments needed to earn forgiveness.

There’s been a lot happening behind the scenes in the world of student loans over the last two years.  I hope this helps to keep you in the know.  Questions can always be directed to your loan servicer.  Or to your friendly neighborhood law school financial aid director who always enjoys talking to students and alumni alike.

Fun with Phone Scams

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It seems that telephone scams are alive and well even in this digital age.  Several times a week I’ll get a phone call (on my cell phone) from a number I don’t recognize.  Sometimes I don’t answer.  Sometimes I do.

Recently I decided to answer one of these calls and ended up listening to a computer voice tell me that this was my last chance to save money on my student loans before certain federal programs end.  Since my student loans have been paid off for a very long time, and I also happen to know more than a little about federal student aid programs (such as that no federal student aid programs are currently scheduled to end), I decided that I would try to have a little fun.

The computer voice told me to press 5 if I knew my FSA ID or 8 if I needed help retrieving it.  So this was a cue to me that the mission of this scammer was likely to get my FSA ID and use that to retrieve other private information about me (like my Social Security number and birth date).  I pressed 5 and then was put on hold for a minute or so.  This seemed weird since I was on the receiving end of the phone call.  But I held.  I wanted to play.  Eventually I was greeted by someone who asked if I was having trouble making my student loan payments.  I said that no, that wasn’t really a problem, and then they promptly hung up.  But much to my delight, they called back just a few minutes later, so the game could continue.  I pressed 5 and waited my turn again.  And this time the voice on the other end asked me if I had student loans.  I said that I assumed they knew I did, since they had called me about this issue.  Again…a hang up.

The student loan people have not called me back since that day.  My game wasn’t much fun.  I’ve had financial aid administrator friends keeps folks like this on the line for up to half an hour.  My experience pales by comparison.  But the message was received.  Phone scammers are out there, disguised as student loan consolidators.  Beware if you get a call from these folks.  They are not trying to help you.  And if you do have questions or concerns about your student loans, your answers are best found with either your loan servicer or your friendly neighborhood Financial Aid Director in suite 105 of the Katz Building.  And never give out any personal information on a telephone call you did not initiate.

 

The Latest News from Capitol Hill for Law Students

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While law students were hunkering down over the weekend studying for exams, the eyes of the rest of the country were on Washington, D.C..  Let me catch you up on the pertinent info for law students.

First, the Senate passed their version of tax reform.  There are several differences between the House and Senate tax bills, so now both chambers need to sit down and hammer out the differences to decide what the final version (which will then go to the President for approval) will look like.  Without getting political or partisan, the most pertinent issue for law students is the elimination of the above the line deduction for student loan interest.  For several years student loan borrowers have been able to deduct up to $2,500 per year in student loan interest paid, without having to itemize deductions.  This deduction is wiped away in both the House and Senate versions, so it’s pretty safe to say this one is going to be gone.  The next most pertinent thing is the education tax credits.  Law students are able to take up to $2,000 a year from the Lifetime Learning tax credit for tuition and fees paid.  The House bill eliminates this credit, but the Senate bill does not.  So we’ll have to wait and see how that one plays out.  And finally there is the taxability of tuition waivers, which is less pertinent to law students, but a very big deal to many other graduate programs.  The House bill proposes that tuition waivers (such as those offered to grad students with assistantships) will count as taxable income.  This is also not in the Senate version, so I am hopeful that grad students throughout the country will be spared this burden.  (But don’t worry about scholarship and grant funds—these are taxed differently than waivers and will not be affected.)

Meanwhile, while the Senate was talking tax reform, the House introduced a bill specifically for higher education student aid reauthorization.  And it scares me.  There are a few things I like about the bill.  For starters, it would do away with student loan origination fees.  And it would also provide for more intensive student loan counseling.  But that’s pretty much where my happiness ends.  Here are some of the proposed changes that could affect future law students:

  • Graduate student annual federal loan limit of $28,500
  • Aggregate grad federal student loan limit of $150,000
  • The multitude of income driven payment options that we have now replaced by only one plan that would not allow for forgiveness after a certain number of years (only after the full amount of principal and interest is repaid in full).
  • The end of Public Service Loan Forgiveness
  • No more work study for graduate students

This bill is, of course, just the starting point.  The House will be talking about it and marking it up more in the coming weeks.  And then the Senate has to come up with their version, and then the whole reconciliation of the two different bills has to happen.  So it’s likely that this will not all come to pass…this is the lowball offer that we’re starting with, so there will be plenty of room for negotiation going forward.

Now is the time when the constituents come into play.  If you have an opinion on any of this proposed legislation, you have the right (and duty) as an American to make your Representatives and Senators hear your voice.

It’s been a busy few days in D.C..  And it definitely looks like lots of interesting (and sort of scary) stuff is coming down the pipeline.  Feel free to reach out if you would like to discuss any of it with me.

And good luck on exams!

What I Learned in Washington

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DC

I was lucky enough to go on a true adventure last week.  I accompanied a group representing the Pennsylvania Association of Student Financial Aid Administrators to Washington, DC to talk with various groups about issues of concern to the financial aid community.  We met with staff from several Pennsylvania Representatives, and also met in person with Representatives Charles Dent and Glenn Thompson. In addition to these meetings, we also met with staff from the House Committee on Education and the Workforce, the Senate Committee on Health, Education, Labor, and Pensions, as well as a representative from the Consumer Financial Protection Bureau.  These last three I mentioned were perhaps the most valuable meetings, as they had as many questions for us as we had for them.  Talking with the people in the trenches, dealing with real students, is quite valuable for these folks and they were happy to pick our brains a bit.

While the other aid administrators in my group were focused on things like Pell grants, my focus was strictly on the income-driven loan repayment plans and the federal Public Service Loan Forgiveness (PSLF) plan. The Pay as You Earn (PAYE) loan repayment option and the PSLF plan have been under the microscope a bit too much for my comfort lately.  These programs have been tagged by both sides of the political fence as being unsustainably expensive…though there is no real proof that that is the case.  President Obama’s most recent budget proposal called for capping the amount forgivable under PSLF at $57,500, as well as increasing the number of years required for non-public service loan forgiveness under PAYE from 20 to 25.  A recent Senate tax reform proposal called for making amounts forgiven under PSLF taxable.  Assorted other changes have been tossed around as well.  Thankfully every one of these proposals has been tied to legislation that is doomed not to move forward.  But once something is placed on “the list” of things that can be looked to for budget cuts, it is in danger of change.  It was my mission in DC to remind the decision makers that these programs were created in order to make it possible for student loan borrowers to be able to afford to choose a career in public service work.  I sat in various offices on Capitol Hill and explained how important it is for students to be able to choose their loan repayment option based on their chosen career path, rather than letting their amount of student loan debt choose the path of their career.

The reactions I received were a pleasant surprise.  I did not encounter anyone who wants PSLF to be taken away.  And of the eight Representatives’ staffs we met with, only Rep. Dent expressed strong feelings about wanting to make changes to the PSLF program.  I find this encouraging for the future of this program.  Maintaining the PSLF program protects career choice for prosecutors, public defenders, government workers, and public interest attorneys.  The other positive response was in regard to grandfathering existing borrowers if future changes to these programs should come.  The general consensus on the Hill is that if changes do happen to these programs in the future, those who have already borrowed student loans relying on the existence of these programs should not be subject to any changes—the changes should start with new borrowers as of a certain future date.

It was a whirlwind tour of Capitol Hill.  And I don’t know if I made any difference at all.  But I definitely feel a bit better knowing that I gave it a good effort.  And I definitely feel a bit more confident about the future of these federal student loan programs that I care about.  Change may come.  But I’m feeling like my current students and alumni are going to come out just fine.