The Court Cases Are Not Looking Good

Welcome to another episode of the Student Loan Player Podcast. We're going to talk today about why the court cases are looking so bad for some borrowers. And we're going to talk about what borrowers can do about it. Right, Megan? And we've got today our special guest joining us. I shouldn't say special guest, the right hand of SLP. Your right hand woman. The right hand of SLP, Megan McGuire. Welcome, Megan. Thanks. Thanks for having me today. So I'm just so excited to talk about borrowers and what borrowers can do to protect themselves that I forgot that you're supposed to be the one asking me the questions, right? Right. So let me interview you because today was a bit of an interesting day so far. We were at lunch listening to the court case hearings and I video recorded you making some really interesting reactions. So the first thing you notice though, when we first started listening to this case was that you said something to the effect of that the judge doesn't even know how ICR works, right? Yeah. I mean, you know, and if I'm charitable, I guess like, you know, judges all the time have to look at things that they really don't understand, right? That are in industries that they don't understand and like, you know, complex histories of things that they're not experts in. So I guess I want to say that that being said, it was still kind of shocking to me just how little a court that's making a decision on something that could affect millions of borrowers understood about the program they're ruling on. So that was a huge concern. So just for folks, you know, again, just in case there's new people listening, right? What is, what are all these court cases? What is going on? Right. So it's a bunch of lawsuits bought by brought by like Republican state elected officials trying to bring down the save plan because they view the save plan as a backdoor effort at widespread lung cancellation. Right. Right. And I like to joke, it's not really a joke, I guess per se, but it's like if a cost of student loan program is less than a hundred billion dollars, nobody cares. Right. I don't know why, but like you don't see lawsuits on a program if it's under a hundred billion dollars. If it's over a hundred billion dollars, there usually is a lawsuit. Right. Yeah. So I guess like that's why the lawsuit happened. And then it started in the most favorable place that the people trying to suit a block save could bring the lawsuit. Right. Which is the Eastern district of the court of Missouri, which would get appealed to the eighth circuit, which is like the most conservative in the whole country probably. Right. And so they did this intentionally, right. Knowing that it would get appealed to this court and that's where it's at. And this like court is going to make a decision. And like we listened to this hearing at lunch for the team team lunch. We went out just to listen to it, to try to help borrowers make sense of it. Right. And I guess the thing that struck me listening to it, I'll give my hot takes. Right. So this court not only doesn't understand how IDR and ICR works, like they're very hostile to the idea that the ICR statute permits forgiveness at all. So the judges kept saying, well, IBR like explicitly is authorized and ICR like just says repayment. Well, repayment means paying back what you owe. It was a very like just, you know, conservative leaning view of like a statute and they're just like, well, you have to pay back your principal and interest. Right. Yep. And then the way they kind of framed it, which I thought was interesting is they're like, well, Congress did income sensitive repayment, which was 10 years with the FFL loan program. And then they did ICR, which was, you know, not that generous and not many people could get it, but it was 25 years, which is a little bit more generous. And then in 2007 Congress passed IBR, which is even yet a little bit more generous to be more generous. So they were saying, well, Congress did intend for people to get forgiveness, but it was like a stepwise thing where it kept getting more and more generous, but they stopped at IBR, which is 15% for graduate students and 10% for new borrowers. New borrowers 2014. Yeah. Right. Well, and, and so like they were saying that, like, well that, that, that means, you know, the ICR statute usage to be more generous than the same plan is like not what Congress intended because they were trying to show this like pattern of Congress, getting more and more generous over time. And so like this eighth circuit argument is like the first time I've heard this argument, like no other court was questioning the ICR statute at all. Right. And then like the Republican plaintiffs like brought this argument because they're trying to bring down save. They need a like cogent legal theory to bring down save. And one of the ways to do that is just to take down the whole ICR statute that it's based on. Right. And so if they did that, like what would happen is like pay and repay would not be able to be used to get forgiveness. Right. So that's like, so that, so that so what this court is going to is at risk of doing and what the Supreme Court could also end up doing is saying, well, because the we want to make the same plan illegal, we're going to say the ICR statute is illegal, which would strike down other plans that people have come to rely on, like the pay and the repay plan and require people to decide whether or not they need to sign it for the income based plan if they still want to get PSLF or forgiveness. So it's a really big concern. It is a big concern. Now, what would you say though, to people who are going to ask because this has been in applications, it's been in promissory notes that people have signed for an income driven repayment plan. What would you say, or how do you react when you're thinking, oh man, the pay or repay could be completely taken out of the game. It's just IBR. What would you say to someone who's thinking like I signed on the dotted line and knowing that this plan was going to be available? I would say that like, you know, they're saying that it's fine that they're offering the repay and the pay plans. What's not fine is that there's forgiveness attached to it. Right. So forgiveness of interest and forgiveness of principle. So I think that that's their argument is, yeah, it's in the promissory note, but like they were promising something illegal in the first place. Yeah. I think that it starts to come down to intent. It seems like it, what was the intent of the law and or the statute and the intent wasn't to get a bunch of loans forgiven. And I think they're figuring that out. They're like, oh man, this is not good. Well, and, and, and like, and to be honest, like it's hard to figure out, you know, who to get angry at. Because like, you know, it's honest, to be honest, like I'm a little frustrated because, um, like let's say that somebody is really mad at you. Right. And you, and you taunt them and you like make fun of them and you like call them an idiot or whatever. Are you more likely to get punched in the face or not? Likely to get punched in the face. Right. More likely. Right. So some of the things the administration did that were, that was genius was like the IDR waiver, the PSLF waiver. Right. Like they were like the PSLF waiver. They were like, people could get up to two, you know, as much as $2 billion or two, you know, they were like, you could get at least $2 billion in forgiven loans. Like they were very much downplaying it. Right. They were very much stealth mode, trying to be careful, trying to eliminate what they said. And like, and it was working. And they were getting the IDR waiver done and they were getting the PSLF. It was sneaky, but it was smart. It was well-designed and smart. And then the SAVE plan, they did it. And it was like, let's have the SAVE plan day of action. Let's like accelerate loan forgiveness, like right before an election. Like let's like keep touting how the SAVE plan is, you know, the most generous plan in the history of, you know, and then they like did a cost estimate of the SAVE plan and they assumed that the cancellation plan was going to win and the Supreme court, even though everybody knew it wasn't. And so they estimated the cost at like 130 billion when that was assuming the cancellation plan failed. And when the cancellation plan didn't fail, the actual cost is more like 400, 500 billion. And it's just like, you know, I don't know. And a lot of people say, Travis, you're ridiculous. Like blame the, you know, Republican appointed judges. Right. That's a reasonable thought, but I guess what I'm saying is like, is the goal to like win political points or is it to actually help borrowers? Right. And I think that's my frustration. Right. So much of this stuff is like, you know, it's, it's, it's becoming like this, like, Oh, let's win the messaging game. Instead of like, let's actually help borrowers. Right. And so that's my frustration. So I guess like, you know, the, you know, the people realized the plaintiffs, Republican elected officials realized, well, I can bring this challenge because Biden being Nebraska was successful and then we can bring this in like the most hospitable court in the nation for us with the same like Mojito drive challenge. And this puts a lot of things at risk for a lot of borrowers. And it's like, and it's, but I want to also say like, while we record this, I also want to say it's not as much at risk as like people's finances are not as much at risk. If the worst case scenario does happen with this, the people would think. We don't have repay. And I think we've talked about that on multiple episodes leading up to this point, kind of preparing for anything. Like we, we're still not sure what's going to happen. Right. Cause today we're, we're not even exactly sure what this means. It's not over. Right. So, and like, let's say that it is. I mean, let's just, I like to say like, as a former bond trader, what you're supposed to do is just say, as let's say, okay, let's say the creditor stops paying you. Let's say the default, what assets can you see? It's like, like how bad does it get? How much money do you lose? Like that's the floor. What's the bottom? What's the floor outcome, right? So the floor outcome is, you know, that you have a very extreme eighth circuit decision. Trump wins the election, doesn't challenge it in front of the Supreme court. Right. Or that Kamala wins and you have a, you know, appeal to the Supreme court that makes the same decision, right. As the eighth circuit. So pay is gone. Repay doesn't come back. Save is gone. Right. So the only thing that exists is IBR. If that were the case, anybody with a partial financial hardship, which means that your required IBR payment is lower than the standard tenure, it would still qualify to sign up. Right. And you could still get PS left. You could just sign up for that IBR plan, pay your 10 years for PSLF and then you'd be done. And then if you wanted to get forgiveness over a longer period of time, cause you're in the private sector, then if you took out a new, your first loan as of 2014, which, you know, it's funny is like I'm kind of old now. Like when I started SLP, I was, I felt young, you know, but I'm kind of old now. So it's like, actually most, most of our clients, at least half are new borrowers. I do think that's important to remember. Yeah. IBR, I think for a lot of borrowers that you used to work with at the very beginning, 2017, 2018, like old IBR was the plan at the time compared to pay or repay because that's the age demographic of who you were working with at the time. 15% of discretionary income, 25 year timeline to forgiveness. But IBR is also a 20 year term and a 10% of discretionary income. If you borrowed after 2014. And so like you're saying, that's the pay plan. That's literally the pay plan. So a lot of people are actually eligible for that. Um, even uh, my double consolidation people who borrowed loans recently. And funny enough, like the double consolidation is part of the rule, the same rule. Then double consolidation doesn't have that July 20, 25 timeline, which is the only good thing. But you know, like, so it's like, so parent plus folks and there's, and there's family size changes. Like your family size for married filing separately might be the same as a family size is, and people could double count it too. Right. So they bring back the family size to get, cause that was another thing that they did to kind of quickly recap that it used to be the family size calculation. It would reduce the adjusted gross, sorry, not adjusted gross income, discretionary income that you were working off of when you were calculating your payment. So it was a lot more generous for people filing separately. Now they, it's not as generous. So if I can explain that just like an example. So let's say you have a family size of four and you're, you both have loans and you're both on pay. Like the old rule was with file separate and each of you claims family size of four. Right. So if you have a, you know, a poverty line of 30,000, 1.5 times the poverty line, 150% of the poverty line is a 45,000. Then like if you file a joint, you just deduct the 45. But if you file separate, then you each get to deduct the 45 before they take the 10%. And then, and the new rule is like, well, no, family size of four, one borrower claims three, one borrower claims one. You don't get the double dip. Right. They basically took away the double dipping. But if this whole thing is thrown out, that comes back in a positive way. In a positive way. So like, in other words, like the pay plan now would be even more generous. Right. So if the pay plan is even more generous, like via the new IBR plan and some, and in a bizarre kind of way, like some borrowers actually might save a couple thousand dollars a year. In certain situations, this can work out well. So I don't want everyone thinking that this is like the worst news ever and that you need to go stress about this right now. Well, I think there is some of that, but I think also you might still be better off than you think. I think you just may not have even been looking at the IBR plan previously because we didn't have to, we had the pay plan. Well, yeah. And, and, and, and, you know, one thing I'm thinking about is the people that are in this campaign for parents, a nonzero number of those people do need to pay off their loans. No, they need to pay off their loans or ready to pay off their loans and are just logically waiting until their interest subsidy ends. Right. And so there is a subset of people that like knows that eventually their save plan payment would get recertified, but everybody's on these 2018 2019 tax return like certified plans, right? Like, so save plan, people are on like, you know, they're paying, you know, 300 a month, 400 a month, and they're getting all these subsidies, even though their income's way higher and they, you know, once they have to recertify their income, they won't get any interest subsidies on the same plan if it wasn't repealed. Right. Right. So in other words, like there's a lot of people that wouldn't get the subsidy anyway. And you know, those people will not be super affected because they wouldn't have got the subsidy anyway, if say it gets repealed. Right. So you guys are using, this is kind of a placeholder for now, rightfully so let's take advantage of it. But, um, but yeah, now, now that's, we got to get down to business. And like the people doing, you know, IBR. So it's like, well, the people that are younger who haven't had as much time to build up assets, those folks still have access to pay. And if this new rule struck down, it might be even better via the new IBR plan. And then if people are older and you get, you know, taken off of pay put onto the old IBR plan where it's 15% of income, 25 years until forgiveness. The only positive you could say is, well, at least you've had more time to build assets. And the idea would be if you're probably a great forgiveness candidate under pay, you're probably a great forgiveness candidate under IBR, old IBR too. Yes. Like, you know, if you're a pharmacist with 200K of loans, a hundred K of income, like the pay plan is really good. But if you were kicked off of on, on the old IBR, you'd still rather do old IBR. Yeah. You might have to be more intentional about saving and reducing AGI and doing tax planning for married filing separate to exclude spousal income if that's applicable, but it, it still could be a good option. I think there's like two groups of people that would really get hurt with this. And I say really get hurt. I'm going to say like the one that would get mildly hurt and the one that would get really hurt. So the one that would get mildly hurt would be like a physician in private practice that doesn't have quite a high enough income to justify paying it off. Like maybe like a primary care physician with like 250K of income, 300 ish K of loans, right? Private sector. Yeah. They don't, private sector, they don't qualify for PSLF. That person might be a great page you're in candidate right now, but if they got pushed onto old IBR, the five extra years, the five extra years, the 5% extra income might make a big difference and they wouldn't go for forgiveness. But if you, and so you can say the same thing about like a dentist or dental specialist, right? Like if they're making a really high income at the very end of their career, like those extra five years really hurt in terms of whether or not you should go for forgiveness. And in that case, well, it's like, well, you know, income driven is still an option that keeps your payment low. So get all your other finances rock solid, walk all that stuff down. And then, you know, decide, you know, maybe the student loans, you know, I'd say it's like burning, burning the bridge behind you, crossing the Rubicon, right? Like that's what refinancing your loans is. It's like, you know, you're forever giving up all of the future pandemics that could happen that could breach your interest. I mean, hopefully that never happens again, right? For non-student loan reasons. But, but you know, so that's, that's one group of people that's less bad. And then the really bad is the, and I want to say this in probably a weird example. I'm going to use an example. Like the really bad scenario is the high income surgeon that has had low payments for a long time because of the, all the pandemic stuff that has a fairly modest amount of debt relative to their income because that's in an academic hospital. So like the scenario I'm worried about is the PSLF borrower who is, you know, no longer has a partial financial hardship, right? So that they are, they're six or seven or eight years into PSLF. They have maybe two years left to go and the elimination of all these plans requires them to switch to the IVR plan and now they have to recertify their income. And when they go to do that, they have a 400K income, a 250K loan debt and they make too much to actually have the partial financial hardship to get onto the PSLF plan in the first place. Right. So like now they have two years left to go under the old regime. They could have like gotten, you know, capped payments or something like that, right? If they'd been not switched off of the pay plan or IVR plan on to save and or they could have paid temporarily paid, you know, 3,500 a month for two years and gotten PSLF on the rest. But those folks under if this worst case scenario happened, could be completely cut off from PSLF. And I'll say this, like the only good news about that would be that at least the lower income specialties, the lower income public servants, like still could get PSLF even in this apocalyptic scenario. Right. So it would be only the higher income folks that would get really hurt by this. And going back to intent, that was the intention of PSLF. It was, right. You know, to help folks with possibly lower incomes. Well, can I real talk though? Yeah, go ahead. I mean, the real talk is that might've theoretically been the intention, but the lobbyists made sure that that wasn't the actual outcome. I mean, so the whole, the whole reason is like, you know, why, why are dentists not eligible for PSLF? Why are veterinarians not eligible for PSLF? Right. You know, like why are private sector pharmacists not eligible for PSLF? And the reason is the AMA, the AMA, the American Medical Association, lobbyists got ahold of the people writing the loan regulations and got like not-for-profit hospitals counting and like got like a lot of the not just government. Yeah. Like got a lot of loopholes in place for physicians to get PSLF and they were really smart about it. And you know, I mean in a lot of, you know, and it's sort of like, you know, it's kind of like anything in politics, like the people who have the power, the organization, the lobbying influence, right? Like those folks get disproportionately more of what they want and like, you know, organizations that are smaller, less organized, less well-funded, less of a coordinating lobbying effort, get less of what they want. Right. So when we saw this even in like, you know, you know, like, you know, hospitals in California that get access to PSLF, you know, how did that happen? Like there was some big lobbying. It was a big lobbying effort. They're very coordinated. They advocated for their members. And you know, frankly, if you're, if you're one of those folks, like, yay. Right. Like you should feel good about that. Like they advocated for your interests and they succeeded. And, um, and so I don't know, I think that what will happen. So this, this is my like prediction, right? All right. What will happen is if they take away everything but IBR, there will be an outcry. The judges, the judges that are making this decision, have no clue what they're doing. Right. They don't understand. They don't understand what they would be doing if they ripped this apart. And so if that were to happen, you would get millions of borrowers upset, angry. You would have people that are two years away from forgiveness that, that cardiothoracic surgeon, the brain surgeon, right. That like, you know, is, is a very like educated constituents going to be reaching out really upset to their local like Congress person or Senator. Right. And there will be this huge outcry and people will be so mad. Might be a boycott. Yeah. Well this, and this is not a, this is not fixing Medicare or social security. This is not a, even though it's very expensive to fix some of these programs, it is not anywhere close to fixing like the big things. Right. Yeah. So this is the kind of thing that if you've got enough angry, educated people, lobbying their, their representatives that they would very likely listen and pass something. Right. So, and, and, and to, and maybe, you know, if, if you want to ascribe some, some, uh, you know, some, some, some positive motives to somebody challenging this, it would be that that's what they want. They want Congress to say what they want, you know, now, uh, Democrats would say, well, Congress did say what they want. Right. And that's what the fight's about. But you know, I think that that would be, what I think would happen is if you have a massive battle, uh, or if you have a massive outcry, if they would stop something, repeal something, you would see, um, a lot of like, you know, momentum behind getting new legislation in place that would make it possible for some people to access the, you know, some version of the repay plan or the save plan or, you know, make IBR, like have no payment cap. For example, they could make it revise that to make it possible for people to get loan forgiveness. So to kind of help with those, those particular pain points. Right. And you said too, you thought, you thought that there might be something where yes, we maybe, maybe we're boiled down to just IBR, but you think there could still be a chance that it's positioned more or it turns more into something like repay, like you're just saying, like no payment cap, maybe a lower payment, well they're not as generous subsidies. The moderate Republican senators proposed eliminating IBR and replacing it with repay and codifying it. Like they were like, and their, and their, and their argument was like, president Obama passed this. Like president Obama wanted the repay plan. Like he thought that was an improvement on IBR. So like, why don't we just take that and just say, cause everybody, I think in Washington agrees there's too many payment plans, right? Exactly. That's what I was gonna say is it's already complicated. And I think everyone's on the same page with things need to be a little more simple. And that was the purpose of save, but save is also, it had ulterior motives of being very, very generous, some sneaky forgiveness in there. But yeah, I mean, and, and like, I think they could have achieved it if they just kept their mouth shut. I'm just, I'm just going to say that, like, I mean, I don't know, but that's just, they didn't. So it's like, you know, and I guess, you know, in politics you want to celebrate your achievements. I mean, shoot, if I did something really cool, I want to tell people, I tell everybody, I can't keep secrets, right Megan? I want credit. I tell everybody, I'd be like, Hey guys, guess what I did? You know? I mean, so I'm a little hypocrite here, but you know, I mean, so, so I guess if you're a borrower, the gist is, if you're like so confused, you're so overwhelmed, like don't be, there's still all these things you can do. Filing separately. So actually a couple of things like filing separate for taxes and tax strategy is more important than ever. Yes. I think you've stressed that multiple times and that's very, very true because it gives you the most flexibility in your options because that's what you want right now is you want options, right? You don't want to be backed into a corner and have to wait until the next tax year to make decisions or make changes to something. So if you're not using us for taxes, like, you know, cause we have very limited spots available for that. Like if you're not using us for taxes, I would say probably file separately, probably extend your taxes, file an extension. Potentially extend cause that helps with the recertification. It gives you some flexibility there on when and what income you're reporting. And lower your AGI every single way you can. Like, you know, 401k, HSA, QBI, FSA, Dependicare, everything you possibly can do to lower your taxable income because you know, solo K or whatever, like just because that will give you the greatest chance to have a partial financial hardship to get onto the plan if you need to. Community property States to like if your spouse has plans to contribute to, like that's another Avenue because half the income is going to be split between you two anyways. Yeah. But there's a lot more strategy with community property States because we could either use the tax return income that's split in half for the household income or we could use alternative documentation of income. There's a lot of different things we could do with, with you guys. And, and, and please don't do anything illegal. Like I keep seeing all these, well I keep seeing all these like kind of like I would call them like Tik Tok type of tips and like hot takes, but like some are okay, but some are really cool. So one is like, one is that, Oh, well you can just, you know, give them, you can just maximize your 401k with one pay stub and then show like a $0 income and then you can have your payments be $0 a month for the whole year. Even if you're making $300,000 a year. Um, no, that's fraud in my opinion. Like I think that's like very clearly fraudulent and like if the department of ed or GAO or anybody ever like audits these programs, right? Like anybody that's doing the most aggressive stuff to get in trouble, like could get, you know, cause it says under penalty of perjury, you know, and so like there's some very different than like if you lost your job and you apply to recertify, cause that's like rightfully so you're out of income. And we're okay with like saying some aggressive strategies of course. Like we're like, you know, if we like to push the limits. Yeah. And like based off of what the rules say, you know, so it's like if you, if you, if you're in between jobs, like if you quit one job and you're going to start another in a month, well you haven't started it yet. Is it true that your taxable income is zero at the moment? Yes, it's true. But like, but I just think that, you know, what's going to happen is when these cases get decided, people are going to be more like, there's going to be a lot more people coming out of the woodwork, right? Like, right. And then, you know, depending on, and you might feel like it's your, you know, it might like feel good to feel like you could maybe cheat the system a little bit. Cause you feel cheated, right? Behaviorally you might feel that way, but we've, we've got to stay above board. Well and we can do PSLF buyback, right? Like, so all the people that are stuck a little bit because PSLF buyback I think is still a crucial part in this situation because we don't exactly know what's going to happen with these save forbearance months, right? Like we know right now they're not counting, but depending on what happens here coming up, if save is no more, if we don't have pay, we don't have repay. PSLF buyback is still something we can lean on to go back and purchase these months of forbearance or potentially purchase months back to a certain point that weren't going to count for PSLF cause they weren't, you know, I don't know. What do you think about this? This is my question. Well, someone texted me something crazy the other day and they were like, this person had loans from before 1986 before a lot of the loans programs got formalized and they were like, and they were like, um, can we help this person? And they were like, their loans are in an Excel spreadsheet. Like they called Department of Ed. They were like, what? And like, they're like, loans are in a, you know, an Excel spreadsheet. And he's like, well, they're in default. This person can't afford it. Like, can we just, this was a department, like a Department of Ed official asking like the person who maintained the file. They were like, can we just delete the row in the spreadsheet, the Microsoft Excel spreadsheet? Can we just like press delete? I just have it go away. And they were like, I don't see why not. And then they just deleted it. What? Okay. So tell me, tell me that that's like, that's like awful that you run a program like that. I mean, it's great for the borrower, right? But it's like, that's, I'm saying that story so that people know how bad like the systems and the data is. And so what's going to happen with PSLF buyback is you're going to have to be your own advocate. You're going to have to calculate your own payments. You're going to have to calculate like, and it could be off of the IBR calculation, which I think we've been coaching folks on being the worst case scenario, which could still be a good case scenario if you're that close to PSLF. But the point is just you're going to have to be your own advocate. Um, and you know, if you need the help, we can, we can help and you can get the help through the podcast. You can get the help through, uh, through the SLP business or the SLP wealth business. And you know, there's a lot of different ways that you can get help, uh, including free or paid. So yeah, we do one-on-one consultations to help you navigate this, uh, on a personal level. But also I think we're giving you a lot of ammo to be your own advocate, like you're saying, and just know what your options are. So you at least know what direction to walk in. Once we have an idea of where the wind is blowing after this whole situation settles. So we'll say two things before we close. One is if you need a plan, studentloanplanner.com slash book or reach out to your advisor if you're a wealth client. And then if you are just wanting to ask a question, go to studentloanplanner.com slash voicemail and we'll feature some listener questions and upcoming pod. This is Travis and Megan with the student loan planner podcast. Have a great rest of your week. Thanks. Okay.