Student Loan Drama

The student loan saga continues… My last blog on this topic was in January 2021 and oh so much has changed! And it continues to change by the day. Since then, federal student loan payments have been paused 6 times and it is being contemplated again as payments are set to resume on September 1.

In addition, the Biden Administration is again in talks to cancel $10,000, but now with income limitations. One thought is to cancel $10,000 for individual borrowers who make under $150,000/year. Another rumor indicates Parent PLUS and Graduate PLUS loans will be included as well as other loan types. While $10,000 would take out a large chunk for some borrowers, those who went to law school or medical school with $100,000 or more of debt barely makes a dent.

Since President Biden has taken office, he has cancelled student loan debt for those who have been defrauded by for-profit colleges, folks with total and permanent disabilities, as well as expanded the existing public service loan forgiveness (PSLF) program: https://studentaid.gov/announcements-events/pslf-limited-waiver. To qualify for the temporary PSLF waiver whereby additional payment types count while working for a qualifying employer, including partial or late, but you must consolidate into the Direct Loan Program by October 31, 2022. If 120 qualifying payments were made, your loans may be forgiven and any overpayments will be refunded to you. Best of all, any refund is tax free!

With all of that said, here are some additional things to keep in mind as the student loan debate drags on. Please note, the commentary below is specific to borrowers who have federal loans.

Making Payments

Let me be clear, if you are in the PSLF program, you should not be making any payments towards your student loans because each month counts towards the 120 qualifying payments. If you are not in the program and do not qualify based on your current and previous employment, you may want to continue making payments. Why? Because every dollar you put towards your loans reduces your balance by that amount, thanks to the 0% interest rate. However, if your balance is $10,000 or less, you may want to consider holding off just in case $10,000 is forgiven.

Refinancing

Once again, if you are eligible for PSLF, please do not refinance into a private loan and ruin your chances of forgiveness. If you are not in the program and don’t plan to work for a qualifying employer, now may be a good time to evaluate private loans with lower interest rates. But, not until the 0% interest rate officially expires! Check out https://studentaid.gov/loan-simulator/. Because refinancing to a private loan is an irreversible step, you may want to contact a student loan expert to help you evaluate the best course of action. Interest rates continue to rise, so the earlier you start researching, the better.

Applying for the PSLF Temporary Waiver

If you have worked for a qualifying employer and have not officially applied for student loan forgiveness, now is the time! You have until October 31, 2022 to consolidate your loans into the Federal Student Loan Program to have payments that would not have normally qualified count towards the 120 payments. Plus, the remaining balance forgiven continues to be tax free.

Preparing for Repayment

There is a good chance the payment pause will be extended through the end of the year (think mid-term elections), however, you should be prepared to make payments starting September 1. If you do nothing, your payment plan will not change and the amount will be based on the balance as of that date. You can always apply for a different payment plan, but I would recommend that you consult with a student loan expert or a financial planner who specializes in student loans.

Bottom line is, if you have federal student loans, you should be staying up to date with all of the changes that are occurring with the program. As of this writing, the payment pause has not been officially extended nor has the $10,000 in forgiveness been finalized. Student loans are unnecessarily complex and eliciting the help of an expert who understands the ins and outs of the student loan program is recommended.