(Ep. 253) Traps to Avoid as Student Loan Payments Resume

Hey everybody, this is going to be an interesting episode, I think, because payments are starting again. You're going to see a payment come out. Some people do not have auto-pay set up, and some people that's a good idea. You want to turn off auto-pay right now. Not everybody. Some people. We'll talk about it. But there's a lot of traps that are going to happen with payments restarting, and we want to help you avoid those traps. We're also going to talk about what to do when your servicer messes up. So this is a cool, important episode for payments starting again after nobody having to make payments in over three and a half years. So we're going to talk about the apply for save trap, the connect to the IRS trap, the calling your servicer trap, and we're going to talk about what happens when your servicer messes up and what you can do about it. So first I want to talk about the applying for save trap. So what this is, is you've got to think about what is going on right now, right? The Department of Ed has come out with their solution for student loan payments restarting again, right? It's the save plan. That's their solution. Emphasis. That is their solution. They want everyone to sign up for President Biden's signature student loan reform plan, right? That's their incentive. So when a official gets out in the media, their job is not to go over the nuances of who should sign up and who shouldn't, you know, the financial planning implications. That would lose you elections, right? You got to come out, be simple, tell everybody to do something. That's what you're going to get from a political apparatus. And so that's really great advice for most people, but not for everybody. And so who shouldn't do this? If you apply for save, it's going to recalculate your income. They're going to ask you for your income. They're probably going to ask you to link your IRS data, and they're going to very likely use a more recent income tax return. And think about how this could go wrong for you. A lot of people, for example, do residencies and fellowships, right? Or, you know, make a smaller amount before making a large amount. So let's say you do that. And then let's say, you know, the last time you recertified your income was in residency, you're paying $300 a month, and you've since become an attending physician, and now you're making $300K a year, and your payments would be $2,200 a month on this new save plan, just hypothetically. I don't know if this is the exact number, but that's probably pretty close as to what it would be with that income level. And so you jumped your payment almost $2,000 a month, $24K a year. Wait a second. I thought Biden told me to apply for save, right? Remember, the servicers, department of ed officials do not have any kind of fiduciary duty to you. Their duty is to promote things that they're supposed to promote, and that's what the save plan is. So remember that the save plan's really good for a lot of people. It's not the best thing for everybody. So who is it best for? Let's say you, you know, never recertified your income. Well, then you're just needing to recertify for the first time, not as big of a danger, right? What about people that have very steady incomes? Save plan's probably a great plan for you. What about people with very moderate incomes? Save plan's wonderful. What about people that have rapidly increasing incomes and might eventually make six figures? If you can do the pay plan, it's probably better because if you look at the difference between save and pay, the difference is about a hundred a month for most people. Pay is higher by 100 a month, but it shaves off this final five years of payments for people with graduate loans. So if you're making six figures, you're talking about shaving off, you know, a thousand, 2000, even 3000 a month for a extra a hundred dollars a month along the way. Now what about the fact that pay has no interest subsidies? That's, you know, not really that big of a deal because probably there's not going to be an income tax bomb. So it's probably not going to even be relevant. So I personally wouldn't worry about that. I would worry about when am I going to be done? Nobody wants to keep their loans around for 20 years, but it's great to get it out of your life and move on, right? So that's why I think you really want to be careful about this applying for save push from the Department of Education, because again, it's not the best thing for everybody. So now let's talk about the trap of linking your Department of Ed data to the IRS. So this was a bipartisan bill, strong support across the aisle from both sides, and the idea was simply just to allow the IRS to basically share data with the Department of Ed so that people don't have to manually recertify their income. It is absolutely true from a behavioral finance perspective that every time you ask somebody to recertify their income, you're going to have some people fall off the wagon because they're not able to do that, right? And it's typically people with lower education levels, lower income levels, you know, people that are lower credit scores, so you're hurting people at the lower end of the income spectrum by not making it automatic. So naturally, Department of Ed wants everyone to just connect their IRS data and let Department of Ed just access that IRS data every year, and then they can do income-based, right? Problem with that is that's also not a great model for some people. And so who is it not a great model for? People who need to use alternative documentation of income. So if your income does not accurately reflect your tax return, then you have the right to recertify it with alternative methods. This most commonly comes up in community property states where people make less income than their spouse, and they file separately. The tax return shows an equal income because you split it 50-50, but your income might be much, much lower than that. And so that's why you might want to be able to use alternative documentation of income, but if you share automatically IRS data with Department of Ed, you're going to be possibly committing yourself to much higher payments. The good news is you can revoke that consent, but if you've done it, it's at least going to affect you for a year or so, right? So the concern that I've got is I think what's happening, what we're seeing in our email inbox is, I'm going to give an analogy, okay? What did you eat for breakfast last Saturday? Do you remember? I'm going to guess no. What about three weeks ago? Do you remember? Probably no way, right? Now, maybe if you saw a picture where you ate brunch, maybe you'd remember, but most people don't remember those types of things. And so do you remember a phone conversation you might've had with a servicer three weeks ago where you updated your family size? Probably not. My guess is what's happening is the servicers are probably saying, hey, there's this new feature that you can connect to the IRS with, or when you apply for save, there's this thing that's probably going to say, hey, you want to connect your information to the IRS automatically? And they're doing that, and the servicers are just going and finding that income information and updating the payment and jumping it up a ton. So next trap is calling your servicer. So you might think, well, that's what I'm supposed to do, right? Think about it like this, right? Here's maybe an analogy. There was a time, I think, where there was an emergency landing for an airplane I was in, and everybody had gone home for the night, we landed, went back to the gate, and there was one customer service rep for like 250 people, and no options at all of what to do about it, right? And so the smart thing to do there was not to wait in line to talk to that poor customer service rep. It was to just leave and try the automated number and try to see if you could get rebooked to the general booking link. You could wait three hours in line, or you could just go book a hotel on your own and apply to your credit card for reimbursement for a travel interruption. So that's like an analogy that I give where calling your servicer one might waste a bunch of time for no reason. So when possible, use the student aid website or just submit a message instead. And then the other thing to think about is when you call your servicer, you are talking to, a good analogy would be the airline hotline customer service people in 2021 and 2022, when they were having absolute meltdowns of the system, right? Remember, Southwest had this apocalypse where three times in a row, they stranded all these people, and all these people were calling, and people were waiting three hours to talk to somebody. So think about the level of abuse that the phone servicer people or the reps in the phone lines are going to get from not everybody, and most people understand that these folks are low paid folks and a tough job, but a lot of people are upset and frustrated as they should be, and are going to unload it onto the customer service rep, right? So you're talking to somebody who's weary, underpaid, really kind of attacked from a lot of different sides. It's a human on the other end of the line, right? And so when you talk to that person, you're also talking to somebody that's underpaid. So if you think about what that means, is sometimes you get good people, sometimes you get people who are disengaged in the job, really don't want to be there, just doing it for a paycheck, aren't very good, whatever reason. And so you really would fall prey to something called representative roulette. So you think about representative roulette, that means that you don't know if you're going to get somebody really good or really bad when you call. And so that's a real risk, because if you get somebody that pushes you to sign up for a save, you have to recertify your income, and that resets your payment, that could cost you tens of thousands of dollars, especially if you had this rapidly increasing income since before COVID. So those are some of the traps that we're seeing out there. There are some other ones. Some of the other ones would be making payments while you're filing jointly, when you should wait and file separately to get a separate return. Almost nobody filed separate in 2022, because it was pretty clear that they weren't going to use 2022 tax returns when people were making the decision of how to file. And so people mostly just file joint, because it's cheaper to file joint and simpler. So most people file joint, and now we have to recertify, and people don't have separate returns to use. And if they make any of those mistakes from above, or from earlier in the show, like the traps that I talked about, then you're resetting that payment and getting a much higher payment, especially if you file joint in a lot of cases. That could be a huge impact. So if that happened, you might want to call your servicer, ask for a forbearance. You can do that on-ramp forbearance until October 2024. We think that a lot of people, especially people that are like Parent Plus borrowers that have really high incomes and are going to retire at some point, should just like literally wait that out completely, unless you're getting on the save plan and you have a really low payment, then just stay on it and don't get off of it just in case. But the on-ramp forbearance is something that can help a lot of people that will be able to get a much lower payment if you just put off a couple more months. Now, what happens when your servicer just totally messes up, like they totally give you the wrong payment? We've seen some really crazy things. We see a lot of cases. We're doing well over 1,000 plans, maybe like 1,100 or 1,200 plans a month, and that's not including the tens of thousands of emails and those kind of things that we get. So we see a lot of data, which is kind of cool in terms of being able to help people because we see trends and patterns. One of the patterns we're seeing right now is servicers are miscalculating their people's payments en masse. A lot of times it might be because one servicer, one spouse is at one servicer, another spouse is at a different servicer. It might be just because their systems are not right for some reason. It might be because of a lot of different loans, a complicated loan structure or something. But we're seeing in some cases people that are supposed to be paying 1,500 a month get charged 3,000 a month. That's wrong. And so you can use our website. I think it's studentloanplanner.com slash calculator. It should take you to our calculator that's really... It became the most popular page in our site for weeks because the federal calculator wasn't even working. And so for a while ours was the only one on the internet that actually worked. And so you can use that to see what your payment should be in terms of what your IDR payment needs to be in case you're worried that your servicer is messing up. Some other things to think about with payments starting up again. You have options. You don't have to be forced into anything. So yeah, you get an auto pay discount, maybe a quarter percent on your rate. That's certainly easier to be set up for auto pay. But if you are concerned that they're going to deduct a payment that is too high, disconnect your auto pay. You don't have to sign up for auto pay, right? If you are concerned about your payment getting recalculated, don't give consent to the servicer to access the IRS to share your income information. If you're worried about which tax status you should use, it's okay to put off making payments if you think your payment would go down because they have promised there's not going to be any implications of default or reporting to the credit agencies for people not making payments during this time. Now what's crazy is they also said, but we can't guarantee that. And we're like, what? So the ideal thing to do is just if you want to use that on-ramp forbearance, just to call your servicer and just get it applied as an official forbearance. They shouldn't ask questions because they're telling people to offer on-ramp forbearance. The government is telling people to do that. So that way it's an official forbearance status and you wouldn't have to, you know, extra not have to worry, right? So for payment starting up again, some thoughts, right? So let's say I know our calendar is not the best right now where you're absolutely overwhelmed. It's been extremely challenging and stressful trying to stay as up with the demand as we can. We're doing everything we possibly can to get as many people in the door to get plans that want them. Without increasing our prices, I guess we could do that, right? We could raise our prices double and then slow down the demand, but I don't want to do that because if you do that, you leave a lot of people out in the cold and only offer your services to the people who can afford to pay. And we kind of, you know, obviously any price does that, but I feel like for a few hundred dollars that's accessible to a lot of people and in a way that maybe like a thousand or more would not be. So that's kind of why we're trying to keep prices the same level where they're at. And I know that that's creating a shortage of the availability of consultants and we've been the whole team's working our absolute minds off trying to get qualified people trained up, linked up to the calendars, and we've been failing at keeping up with the demand. So we're only human, we can only do so much, but that's what's been going on. And so I think we're like up to November, we're going to probably get into, because the holidays, a lot of our consultants are humans and enjoy the holidays too, so they're going to be blocking off some time in the holidays, obviously to be with their families. And so the availability for like late November and December is going to be significantly less than what it is for other months. And so we're going to run out of spots, I think pretty quickly, you know, and I just wanted to be upfront with that so that anybody that hears this can have that be on them instead of on us, frankly, so we don't feel like we're to blame for not getting somebody the help that they wanted. I don't know, I'm just kind of riffing a little bit, guys, like it's, I understand what luxury hotel people and like national parks went through during COVID where like, despite your best efforts, like had just an overwhelming amount of demand and some of them like raised their prices to like what the market would bear, which is what a capitalist would do, I suppose. But, you know, they raised the prices to whatever, 3,000 a night, right? People pay it, let's do it. I mean, I don't know. Anyways, so go to studentloanplanner.com slash book if you need to schedule a plan, if you're a new client or an existing client, if you are a client of SLP Wealth, you can handle that through your advisor with SLP Wealth, you don't have to book a follow-up appointment if you're a client of SLP Wealth or a financial planning arm. And a couple more thoughts about repayments resuming again, it's going to be interesting to see how much student loans play a factor in the 2024 election. So one of the things that they are trying to do is do cancellation through negotiated rulemaking that's probably going to get sued over again, given the Supreme Court's current composition and are they going to do anything significant on cancellation through the election? I almost guarantee you they're going to have something that's going to be able to be used as some sort of campaign platform. And the thing is, is when you already, when you do something, you kind of have to do more to have something to run on, right? You can't just be like, Hey, look what we did. You also have to tell voters like, what are you going to do? And so they're going to have to propose some sort of change to the student loan program, like involving cancellation for the election season. I don't obviously think that they're going to do anything differently what they did with the save plan. I do think that's pretty locked in for especially the length of however long, like if Biden wins in 2024, you know, save is not, that's, that's the answer to student loans until 2029. They're not going to touch it because you've got to have 60 votes in the Senate to touch it. Republicans hate the save plan. So they're not going to want to agree to anything that kind of puts it in the law unless Democrats give on something like allowing loans to be capped, like eliminating plus loans, just having Stafford loans. You know, if I was going to guess what bipartisan reform might look like after this payment pause ends and payments are resuming, like maybe one day we'll get a scenario where Democrats agreed to eliminate plus loans. Maybe you increase Pell grants, like double Pell grants. You give like extra funding to minority serving institutions and historically black colleges and universities to make it so that those institutions are not so dependent upon parent plus loan revenue. And then maybe you, you codify the save plan to make it protected against the Republican administration that might want to write it out of existence. One of the things I just have to be honest with you guys, I love being honest with you and just telling you kind of what the current state of things is, is in the industry. We used to tell people for our consultants, the company in line was, there's no chance to save or that any income driven repayment plan goes away because it's written into your promissory note. That's a contract and that there's no chance that you, if you're on an existing plan, you'll get to stay on it. Right. I still think that's true for like the pay as you were in plan. And then any plan that's statutory, like income based repayment. But I think that what we would see in the event of Republican winning the presidency is it would take a while because of the calendar of how negotiated rulemaking works. But I think that there's a solid chance that you could see the same plan essentially reversed back to the repay plan. And I think that's exactly how they would do it. I think you'd literally see the same plan just reversed back to repay. And so what's the, what's the timeline on something like that? We'll say if you have a Republican win in 2025, they bring their committee of negotiated rulemakers together and they don't reach consensus, which means department of ed can do whatever it wants at that point. And so you have to get a rule published by November of a year to have it implemented in July of the following year. And so they probably won't get the rulemaking committee together in time to get a rule published by November of the year, a new president wins office. So that means that if the rule is published after November 2025, it can't take place until July of 2027. So really, I think realistically the same plan is safe until then. That's four years. It's a long time, right? That's also a long time for the same plan to gain political popularity and for people to really enjoy it and, you know, really push for it to be kept alone, left alone. Maybe the Republican administration decides instead of trying to eliminate it, they'd rather negotiate with Democrats to get caps on plus loans to try to limit the most extreme borrowing that's out there. But then again, I went to a presentation with some senior staffers on, um, from Capitol Hill once. And they told me that, um, when president Obama tried to cap plus loans and cap PSLF, one of the biggest pushbacks that he got, not only with, from HBCUs, HBCUs pushed back because of how high a percent of their revenue comes from the parent plus loan program. Um, obviously a lot of families that go to HBCUs are lower wealth than a family that might go to a, a richer school, uh, with a huge endowment, right on average. And so like, you know, they, the schools really needed a parent plus loans to be able to function. And so, and they really needed them to be unlimited because they didn't want to saddle their families with private debt that has much worse terms than the federal parent plus program. So that was an argument that really made sense. And then, so they, they left the parent plus loan program alone. But what I heard is that what, what really stopped the effort even more so than HBCUs on the congressional side was basically like your Notre dames, your university of Alabama's, your big brand name programs with huge footballs, huge football programs. They rely on out of state students that want to be a part of that atmosphere and that are going to, will be willing to pay like full price. Right. And the only way a lot of those students can afford to pay full price because most people don't have tens of thousands of dollars a year lying around to pay tuition with is to the parent plus program. So even if there is some bipartisan compromise, it's probably not going to happen because the incentives of everybody in the current system are just so strong to keep the current status quo. Probably you don't see anything change, but I just share that to say, you know, with payments starting up again, you might feel like some people might feel like, okay, I've got the same plan. I don't have to think about loans again. It's probably not that simple. I'd want to see who the president is in 24. I'd want to see who the president is in 28. And you know, if both of those are Democrats, the same plan sticking around. And if one of those times Republican wins, we would have to seriously look at what the options people should do would be. So I'm just sharing that so that people can know that, uh, you know, we're going into a period of payments resuming. The same plan is going to be around for at least four years, but it's, we're entering a period of high volatility with student loan policy. So you do, um, I should maybe say selfishly want to keep listening to shows like this so you can save as much money as possible. So if you need help, studentloanplanner.com book to schedule a call. And we'd love to get you on the calendar before we run out of spots in the IDR waiver is not an opportunity anymore after December 31st. So as long as you book before December 31st, we'll be able to take out any action that we need on the IDR waiver front. And then when January rolls around, I'm going to be talking a whole lot about people that need to sign up for the pay plan before that gets blocked for new entrants. So if you have any things you want to share for the podcast, like stories, questions, go to studentloanplanner.com slash voicemail and record a quick question for the show. We'd love to hear what you're going through as payments resume. Take care and have a wonderful week.