Money Matters

Demystifying Student Loan Debt: Updates, Repayment Options, and Financial Planning

August 16, 2023 Brought to you by Neighbors Federal Credit Union Episode 37
Demystifying Student Loan Debt: Updates, Repayment Options, and Financial Planning
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Money Matters
Demystifying Student Loan Debt: Updates, Repayment Options, and Financial Planning
Aug 16, 2023 Episode 37
Brought to you by Neighbors Federal Credit Union

Are you feeling overwhelmed by the recent developments in student loans? Well, we've got you covered. In our latest episode, we welcome Deborah Paul, Scholarship and Grant Director from the Louisiana Office of Student Financial Assistance, to break down the complexities of student loan management. What does the Supreme Court's decision to block one-time student loan debt relief mean for you? How will the resumption of payments and interest accumulation in September affect your financial planning? We've got the answers. We also delve into critical information for those new to loan repayments, explaining the purpose of exit counseling and providing tips to locate your loan servicer.

We're not stopping there. We'll guide you through the Save Repayment Plan - a lifesaver for those earning less than $32,800 a year for single earners and $67,500 a year for families of four. We'll demystify the terms 'deferment' and 'forbearance' and shed light on the requirements for loan forgiveness. And if you're starting to feel the pinch of repayment, we'll share practical tips on managing it, like adjusting your payment plan to minimize monthly outgoings or recertifying your income-driven repayment plan. To ensure you're well-informed, we've curated a list of government websites, including studentaid.gov, nslds.ed.gov, and mylosfa.la.gov, which can be indispensable tools in your student loan journey. Join us in this crucial conversation. Together, let's demystify student loan debt.

Guest Deborah Paul, scholarship and grant director with the Louisiana Office of Student Financial Assistance

myLOSFA.la.gov

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Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want – brought to you by Neighbors Federal Credit Union.

The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional advice.

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Show Notes Transcript Chapter Markers

Are you feeling overwhelmed by the recent developments in student loans? Well, we've got you covered. In our latest episode, we welcome Deborah Paul, Scholarship and Grant Director from the Louisiana Office of Student Financial Assistance, to break down the complexities of student loan management. What does the Supreme Court's decision to block one-time student loan debt relief mean for you? How will the resumption of payments and interest accumulation in September affect your financial planning? We've got the answers. We also delve into critical information for those new to loan repayments, explaining the purpose of exit counseling and providing tips to locate your loan servicer.

We're not stopping there. We'll guide you through the Save Repayment Plan - a lifesaver for those earning less than $32,800 a year for single earners and $67,500 a year for families of four. We'll demystify the terms 'deferment' and 'forbearance' and shed light on the requirements for loan forgiveness. And if you're starting to feel the pinch of repayment, we'll share practical tips on managing it, like adjusting your payment plan to minimize monthly outgoings or recertifying your income-driven repayment plan. To ensure you're well-informed, we've curated a list of government websites, including studentaid.gov, nslds.ed.gov, and mylosfa.la.gov, which can be indispensable tools in your student loan journey. Join us in this crucial conversation. Together, let's demystify student loan debt.

Guest Deborah Paul, scholarship and grant director with the Louisiana Office of Student Financial Assistance

myLOSFA.la.gov

Support the Show.

Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want – brought to you by Neighbors Federal Credit Union.

The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional advice.

Speaker 1:

Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want. Now here is your host, ms Kim Chapman.

Speaker 2:

Welcome to a new edition of Money Matters. I am your host, Kim Chapman. My guest today is Deborah Paul. Deborah is the scholarship and grant director with the Louisiana Office of Student Financial Assistance and my go-to person for all things related to student loans. I ask you to join me today to provide some updates ahead of the end of the payment pause for all federal student loans. Welcome back, Ms. Deborah.

Speaker 1:

Thank you, I'm glad to be here.

Speaker 2:

So I want to do a little recap of where this all began and the reason that we're here today. So back in March of 2020, in response to COVID-19 emergency, the government paused student loan payments and set interest rates to zero for eligible student loans, and then fast-forwarding in August of 2022, the administration announced a proposal to forgive up to $20,000 in federal student loans. And I tell you, all of us with student loans were excited. We were sitting here waiting and waiting, and then there was some opposition and then, of course, recently, the Supreme Court issued a decision blocking us from moving forward with the one-time student loan debt relief. So here we are with this new decision there's not going to be any student loan forgiveness, at least the original proposal. So tell us a little bit D'Bora. Can you give us some reason? Why was this plan opposed?

Speaker 1:

There are several reasons, but they felt that it was going to reduce too much debt for the United States across the whole. There were some borrowers who were going to get $10,000 relief basically, and then those who had received the Pell Grant could qualify for up to $20,000 of relief and I think about 40% of the borrowers would have taken advantage of the program. And it was based on income, so you were not talking about wealthy individuals getting relief from the problem, because you had to submit your tax returns to show that as a single borrower you made X amount and as a married couple. So I think it's under $75,000. So that's not an extremely high income. So I think the relief because they thought two and people would just get off, and you had people who paid their loans off years and years ago and was like I paid mine off, so they should have to pay theirs too. So you had just opposition and you had pros and cons on both sides.

Speaker 2:

Okay, and it looks like those with the student loans kind of came out for a loss, or actually. What does it really mean? What does this Supreme Court decision mean for borrowers?

Speaker 1:

Well, the plan that the administration put forth cannot go forth, so they're looking at proposing another plan that's going to provide some relief for borrowers, just not a debt relief where they would wipe out their student loan balance.

Speaker 2:

Okay, so payments have been on pause since early 20. And now, when will payments resume?

Speaker 1:

Payments are going to resume October 1st. Interest is going to start accumulating in September. So it's important for borrowers to get in contact with their student loan servicer, get their lender to make sure that they aware that the pause is ending and when they can start making repayments. But there are a lot of programs out there to help those who will have difficulty resuming those payments. Some people use the money for something else.

Speaker 1:

While they weren't paying on their student loans, they may have paid off the other debt which would have been advantageous to the borrower, because now they have other debt that is eliminated and they can focus on paying those loans back. So they will be hearing from their servicer and always tell students. You know you can always find out information by going to the national student loan clearinghouse, NSLDS. So every person who's ever received financial aid can log on to the NSLDS website and find out their entire financial aid history If you receive the Pell Grant, if you any federal financial aid you received is on the NSLDS system as well as loans, and who your loans are serviced by, how much did you borrow each year, whether you still owe. All that information is available on the NSLDS website. So, like I say, payment story back October 2023.

Speaker 2:

So if my payment, if a person's student loan payments, were on automatic draft back in 2020 and prior to that, is it going to automatically pick up in October or what needs to take place?

Speaker 1:

Now it advanced. Borrowers, too, contact their servicer to make sure because that's been in almost three years. So they need to go back and check because the borrower may have changed banking information, they may have changed their accounts. They may want to pay more or less, depending on what they qualify for. So check with your servicer to make sure what's in place. We've been told that at least 21 days before your payments are due that's on the federal website that you'll get some information from your loan servicer.

Speaker 2:

And what about students who graduated or their I guess grace period ended between 2020 and 2023? For example, they've never paid a student loan before, so they don't know what a payment is. They wouldn't, you know. Even if they know who their loan servicer is, what can they expect? That may be different, you know, for people that have been paying it for years and just had the pause.

Speaker 1:

Right, that's a good question, kim. So if they were in their grace period when the pandemic started, they haven't made a payment yet. So what they'll have to do is kind of go back to their exit information, because, you know, all students who receive student loans prior to graduation have to do exit counseling, and that exit counseling will tell them who your servicer is, how much you owe when repayment starts. So go back to that information or look it up online. For their service there aren't as many services as prior to, so they can narrow down who their servicer is. Go to the NSLDS website and look and see there are various repayment options that are available to students. So some students will say I'm able to pay because I'm making a good salary and I just want a standard repayment period. So a standard repayment period is 10 years, 120 months, and you make a payment based on how much you borrow. So that's what some students do.

Speaker 1:

But there are some other ones that are available for students who may be having difficulty since the pandemic maybe a job loss or a loss of resources that will not allow them to make their standard payment. There are options for them and one of them is the on-ramp to repayment program. So for the next 12 months, starting in October, if they can't make their regular payments, the government is helping out by not reporting those delinquencies to a credit report, and you can sure talk about how having a defaulted loan affects your credit. So they can do that, they can make lower payment amounts and it just gives them a chance to get back into the routine of paying a student loan debt every month. And if a student can, if a borrower can afford to pay through automatic billing, that's one thing, one less thing you have to worry about. For instance, if you get paid on the last day of the month, make your payment due on the first or the fifth of every month. That way you don't become delinquent, it establishes a good credit history and that sort of thing.

Speaker 2:

All right. So what's the name of that program again?

Speaker 1:

It's called the on-ramp to repayment program and so in October, when student loans become due again.

Speaker 2:

And let's say, if a borrower does not qualify and we'll talk about income-based repayment, but if you don't qualify for it and they say, hey, you owe $100, you're saying for the next 12 months, if that borrower is not able to make their payments, they could either choose to not make it or make what they can.

Speaker 1:

And basically you're saying that federal government student loan will not report it to any of the three credit bureaus Correct and they won't be placed in default or referred to a debt collection agency during that 12-month period from October 1 to September 30, 2024. So they do have time where they can get it together.

Speaker 2:

What about borrowers that were in default prior to 2020? They were in default prior to the payment pause. What happens with those borrowers now, especially if they still can't pay? Would they still get that same advantage?

Speaker 1:

Yes, so there's a new program called the Fresh Start Initiative and that's for loans that were in default. So the borrower needs to contact the holder of their loan. There are two ways that they can apply for the Fresh Start Initiative. One of them is online and that website is myeddebt, so it's my education debt, my edd, ebt, that edgov, and they can apply there. There's a phone number they could go 800 621 3115. So that number is 1 800 621 3115. So it's eligible for federal loans again, which means then they could there they qualify for the first order initiative. They come out of default, which means that improves their credit, and then they're also eligible for federal student aid again, which is very important because if that borrower wants to go back to get a master's degree or another certification or change career fields, then then now they can qualify for federal aid, which includes grants, scholarships and student loans again.

Speaker 2:

Okay, that's some good information. So let's talk about income-driven repayment plans. So for borrower calls and they can, maybe, maybe before they were making payments in 2020, but now they're either not able to make what the required payment is. Tell us a little bit. How does the income-driven repayment plan work? Who qualifies?

Speaker 1:

Well, with the income-driven repayment plan it's based on your income, so maybe you were paying X amount of dollars when now your income has decreased so you could get your payment lowered. But there's a new program and they're gonna put it out. It's gonna call it's gonna be called the save Repayment plan, which is the savings on a valuable education save plan. It's gonna replace the existing Repay program which was, you know, pay as you go. So borrowers on the repay plan would automatically get the benefits of the new save plan. So the save plan, like other income-driven repayment plans, it calculates your monthly payment amount based on your income and family size. So the save plan provides the lowest monthly payments of any income-driven repayment plan available to nearly all student loan borrowers. So the save plan will include multiple new benefits for borrowers. The changes will go into effect this summer. So on, the save plan Increases the income exemption Based on the poverty level. So basically what that means is the new plan can significantly Decrease your monthly payment amount compared to all other income-driven repayment plans. So your monthly payment plan is based on your discretionary income. That's the difference between your adjusted gross income and the 225% of the US poverty guidelines For your family size. So that means you will not owe loan repayments if you are a single borrower Earning $32,800 or less, or a family of four earning $67,500 or less. Borrowers earning more than these amounts will save at least $1,000 per year compared to the current income-driven repayment plan. So this save plan eliminates 100% of the remaining interest for both subsidized and subsidized loans After a scheduled payment is made under the save plan.

Speaker 1:

So what this means is if you make your monthly payment, your loan balance won't grow due to unpaid interest. For example, if a $50 payment in interest accumulates each month and you have a $30 payment, the remaining $20 would not be charged. So this change removes the need for your spouse to co-sign on your income-driven repayment plan. So the planning school's spouse on income for borrowers who are married or filing separate. So it's really going to have a lot of borrowers because some borrowers who are making below that $32,000 will not have to make any payments until their income increases. So they go through the process and they allow the IRS or the federal student loan access to their tax returns. It's going to automatically tell them when it's time for you to start making up payment because your income if it stays at that below $32,000. Eventually, those students won't be making as many payments because they qualify for the same plan.

Speaker 2:

Well, is there a maximum time period in terms of how long you can be on an income-driven? Because, as we know, there are going to be many individuals that may stay at a very low income level. They may stay below the poverty level their entire life. So is it safe to say that they would always be on this program, or does it max out after so many years?

Speaker 1:

They're still working out some of the things regarding that, so I'm not exactly sure how long they can be on that plan. Now, I know we had talked about some like deferments and forbearances. There are some time limits, but I don't think they've indicated exactly how long you can be on the same plan.

Speaker 2:

So let's kind of, since you brought that up, let's talk about what is the difference first about between a forbearance and a deferment.

Speaker 1:

Okay. So a deferment means you are not making a payment on your loan for a certain amount of time and that could be based on, for instance, someone who is recovering from a medical condition cancer. They can get their loan deferred if they're back in school. Maybe you got your undergrad degree and now you're going to work on, say, you're going to law school, you can get your loan in a deferment status. Maybe you're unemployed. So there are various reasons for a deferment. It just means that you are going to start repaying. You're going to start repaying back at a later time.

Speaker 1:

Forbearance means you cannot make your payments. You know you're working, you're not sick, you don't have, you're not caring for someone who is sick, you're not in school. You just can't make your payments. So basically, the biggest, biggest forbearance is the economic hardship and that's a maximum of three years. But what's important to know, those are two separate things. The firm is in forbearance, but what happens is a student, is a borrower, is paying interest on those loans while they're in deferment status and while they're in forbearance status. So, even though they can't make the payments, if they could possibly make some of the interest payments, that would be helpful as far as not having the interest capitalized to whatever their remaining balance is.

Speaker 2:

All right. So we've got the on-ramp, we've got the save, we've got income driven. What about just loan forgiveness altogether? Are there legitimate programs or who would qualify, or how could you qualify for actual loan, for student loan forgiveness?

Speaker 1:

Okay, the big program is the public student loan forgiveness program and this is for borrowers who have made at least 120 payments on their student loan debt. This is not only for the subsidized and unsubsidized. This also qualifies for parent borrowers parents who borrowed from the Parent Plus program. So if you've made 120 payments 10 years and you work in certain areas, you can qualify for forgiveness. One of them is working for the federal government, the state government.

Speaker 1:

I just had a niece recently who has been a teacher for the last 15 years and she called me and was like this doesn't sound real. And then she read me the information and all of her loans were forgiven. She had undergraduate degree and then she got a master's in education from a small private Christian college. So she had a lot of loan debt and she was like I said you just got a raise. That's basically the way I explained it to her. So she worked, she paid on her loans for 10 years and now she's gotten them forgiven. I have a co-worker who had a Parent Plus loan for her son to get his undergraduate degree and she had paid for 10 years and he hasn't been out of school 10 years. But with the Parent Plus loan. You start paying on those loans as soon as they're dispersed, if you don't defer them. So she had been making payments throughout and now she's completed her public loan forgiveness.

Speaker 1:

If you work in an area like a police officer, a fireman, first responders, those qualify people in the education profession. If you work for a nonprofit organization, those organizations do qualify for loan forgiveness also, so they have various ones. What I advise borrowers to do is each year that you have made a payment on your loans and you you need to get a certified letter from your employer. So at the end of 10 years you may have worked four or five different jobs that qualify. At that point then you have to go back to each employer and say please verify my employment at this agency from 2000 to 2002 or from 98 to 2000. So each year go to your HR professional and say I need you can go online to the public service loan forgiveness site, get the form that you need for that and then take it to your HR. So when you're done making those 120 payments, you have all of your documents in hand that you can send over to a qualify for the public loan forgiveness program.

Speaker 2:

So let me get clarification. Is it 10 years or 120 payments, whichever comes first? Because, for example, let's just say before the payment pause, maybe I was at a made nine years of payments and now it's been a three year pause. If I didn't make payments, do I have to go back and make that one year of payments, or is it or maybe it's based on the fact that I made 120 payments, even if it hasn't been 10 years.

Speaker 1:

Well, basically from the first example, you would have to go back and make. If you hadn't made 120 payments and you had paid on your loan for nine years, then you need one more year of payments to qualify. But if you were making payments, it's really I'm not sure how you would make 120 unless you were making two payments a month within that period to try to pay it off Cause. Most of the times, if you're making a monthly payment, you can elect to pay more, which would reduce your loan indebtedness, or pay more towards your interest. But if you make a, unless you specifically ask them, I want this to be recorded as a separate payment. Any additional amount that you pay would probably just go toward that particular month that you paid. So you need 10 years or 120 payments to qualify.

Speaker 2:

Of course, that's a long time to keep up with payments and bank statements. So where would I go to find out, to see how many payments I've made or how many payments a borrower has made?

Speaker 1:

Contact your student loan servicer. That's another great observation, because you do have borrowers who consolidate. So they may have received some undergraduate loans from one institution, then they go to medical school or they go to get a master's in public administration, mba, and they have a different loan servicer. So in order to help those borrowers manage all of that, they consolidate, which would allow them to maybe have a lower monthly payment for a longer period of time, because with some consolidations we have borrowers who are paying back up to 25 year repayment schedule. That's almost like a mortgage. So it just depends on, but keeping up with yet from your servicers is the best way to keep track of what you've done.

Speaker 2:

All right. So we've discussed a lot of different repayment options or lack thereof. It can be maybe a little bit overwhelming for a borrower. Is there a site? Are there counselors available? If I'm just confused and I really wanna get some professional advice or opinion should I do income driven? Should I do save? Should I do on-ramp? Is there a place that I can go to get some information to figure out which program is gonna be best suited for me?

Speaker 1:

Yes, there is. The federal government has a really easy to read and understand comprehensive site called Student Aid, s-t-u-d-e-n-t-a-i-d, dot-g-o-v, and it covers anything financial aid from grants and scholarships to loans, and there's also a live chat feature on that website. But then also you can call the federal Student Aid hotline, which is 1-800-4-F-E-D-A-I-D, so that's 1-800-4-F-E-D-A-I-D, so all of those are available. And then, while the students in school knew going to college, keep records, ask questions, even talk to you, maybe your family members who have borrowed the pros and cons or I wouldn't have borrowed as much if I would have taken out a smaller amount, because it's a struggle now paying it back and that sort of thing.

Speaker 2:

And I imagine there are gonna be other people that are gonna be a little hesitant. I mean, not only is it overwhelming in terms of all the different options, but we know they're gonna be scam artists. We've already heard about it. I've already seen a lot of news stories. So what are some red flags that a student loan is a scam?

Speaker 1:

Asking you for money upfront is not a good idea, because that shouldn't be. And these programs are free. There's no charge to apply for public service loan forgiveness. If you decide to go with the saved plan or the current repay plan, are you gonna do the fresh start on RAP? They can't do anything for you. They're selling you a false hope, false promise, and then by the time that you notice that you're being scammed, you can't find them again to try to recoup your money. So redefine print, ask questions and don't pay for something that's free through the federal government.

Speaker 2:

All right, any ideas on what may come down the pike next to any new proposals or any plans that maybe they haven't been approved yet but they're in the works, that we can at least see a light at the end of the tunnel? I?

Speaker 1:

think they're looking at something, but they have not released anything concrete yet. But we expect something coming down later this year, so there's a little hope.

Speaker 2:

All right, before we wrap up, maybe if you could just take a moment and just kind of rename some of those websites that you've done just for our listeners.

Speaker 1:

Even though it's a podcast, you can hit pause and rewind, but maybe if you just kind of recap some of them, Okay, just to get a good comprehensive background on all financial aid, the federal website is studentaidstudentgov, so you can go there for a lot of information based on loans and all of the different programs. How did you qualify? And, like I said, it's very it's written at a level that you can understand and not have a lot of questions. They'll have what the plan is, what it means for you, what changes are coming in. Keep it in contact with your student loan servicer and you can go to your national student loan direct site, nslds, which is nsldsedgov. So the government websites usually end in goved. If you see something with financial aid, that doesn't that more than likely is someone trying to get access to your information and they shouldn't be. And then the office of student financial assistance where I work, we have a website that's pretty comprehensive and it's m-y-l-o-s-f-a dot l-a dot g-o-v, so that's available also.

Speaker 2:

Well, thank you. Deborah I will definitely stay in contact with you because I'll be watching for changes to see what happens, and we'll probably have to have you come back as they make more updates. I'm looking forward to it Kim, Thank you.

Speaker 2:

If you've exhausted all your options to pause or forgive your student loan payments, here are a few tips to prepare you for repayment. Changing your payment plan may reduce how much you have to pay each month and may make it a little less of a burden to get back to paying student loans. Take steps to recertify your income-driven repayment plan. This can really help you reduce your payments as well. And then check out neighborsfcuorgcom For more information on how to use the money you have, make the money you need and save the money.

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