(Ep. 227) How Congress Could End the Student Loan Pause and Cancelation

Hello and welcome to another Travis is a Cold edition of the Student Loan Planner podcast. We're going to cover today a couple key questions from our listeners. We're going to talk about two very different things and then I'm going to talk today about the likelihood that Congress is going to repeal the student loan pause and student loan cancellation and what's going to happen when Biden blocks it and what does it all mean. So I think this is a pretty interesting, you know, example case of the Congressional Review Act. So we're going to discuss that. We're going to talk about the scary headlines that will probably result in people freaking out in our inbox for a couple weeks before they realize it's not a thing. And we'll talk about the continued progress of the various student loan lawsuits that are out there. But first, I wanted to cover a couple listener questions. So let's hear the first one from Ben. Hey, Travis, question about the new PSLF regulations regarding physicians in California and Texas work for for-profit companies servicing nonprofit hospitals. Kind of a good example, but do you think these regulations are also going to apply to so that physicians in a traditional private practice setting who contract with nonprofit hospitals will qualify for PSLF? Seems like you get the best of both worlds with a higher private practice pay while still qualifying for PSLF. Thanks. So if you guys are not aware, the new PSLF regulations are massively different than the old PSLF regulations. Those are supposedly coming out in July 2023, but don't hold your breath. Department of Ed is uber delayed on everything they're doing right now because they don't have enough money to get it all done in a timely fashion. But presumably those regulations will come out at some point before the end of Biden's first term. And and so when they do, what they're saying is that if state law expressly prohibits direct employment of medical providers like California does for physicians, Texas is another big state that does this, that the PSLF regulations will be written in such a way that those physicians will get credit for PSLF. Now, what does it mean in terms of, you know, a private practice physician that contracts with a hospital? So I think that you'd have to be considered a, you know, full-time employee of a, you know, of a not-for-profit hospital in the sense of, like, through these regulations, are you a not-for-profit hospital employee in spirit? And I think that's what they're really going for. So I think it's really kind of up in the air as to how private practice physicians in California or Texas will be treated. If I had to guess, they'll probably, I think pure private practice physicians that are contracted through hospitals. But I think that there are potential scenarios where they write the rules in such a broad way that they often do that does include this group of people. So I would certainly, if I was looking at deciding whether or not to try to pay off my loans, and I lived in California or Texas and I was a physician, I would definitely slow walk that decision until these new regulations come out, we have time to digest them and publish some stuff on them and do a podcast episode about it because it's real important, could result in full forgiveness, especially for Kaiser Permanente physicians in Texas and California kind of places. You know, so just patience, it's a terrible answer, but patience, and we hope we'll have those regulations for you soon. Let's listen now to the second question. Hi, I have a question about consolidating together parent plus loans and consolidated graduate school debt that's currently on an ICR plan. I have a college freshman for whom I've taken out $32,000 in parent plus loans so far, and she has three more years to go. And I have a second student who's a junior in high school who will be going to college in a few years. My remaining debt for my graduate school education is $40,000, and I've been paying for nearly 21 years at this point. So I refinanced because it was an older loan. It wasn't eligible for the forgiveness pause until I refinanced. I refinanced to get the pause, the possible forgiveness, and to qualify me for an ICR plan, the income contingent repayment plan. So I'm waiting for the counts to come out and see whether I've been granted the full 21 years for that remaining debt. But the payments there are pretty manageable going forward for the last four or five years, assuming that I get the counts that I hope I will. My question is, knowing that I've got $32,000 in parent plus loans and that I have another six years of undergraduate to pay for, or actually seven years between my two daughters, I'm wondering whether it makes sense for me to consolidate the current amount that I owe, $32,000 before the deadline, along with my $40,000, so that that can enter into the remaining timeline for forgiveness of that 25 years. Or if it makes sense to just keep the grad loans separate from the parent plus loans, and once both of my kids are through college and I'm in the repayment phase, just focus on starting a new income-based repayment plan, whether that's a double consolidation, if that's still available at that time, or whether that's just the ICR plan. At that point, six years from now, I will be in my early 60s and pretty close to retirement. Thank you. So the parent plus stuff just totally blows my mind because so many people would do things differently with their entire life if they knew that these loopholes existed. So who does the parent plus max out my debt, send my kids to whatever the school they want to go to and borrow to pay it for? Who does that apply to really well, right? What I would say is if you're a good candidate for ICR forgiveness, so in other words, if you run the math and ICR is a decent repayment strategy for you as a parent, then the parent plus strategy makes tons of sense. If it only makes sense if you get access to repay, then I'd be a little bit more cautious. And that really depends on your personal situation and what your projected income will be in retirement. So a couple things on this, right? This is a plan that you ideally would plan ahead for so that you can really figure out, you know, am I a good candidate for ICR forgiveness? Does this fit with my lifestyle and my goals? If this is a strategy you want to pursue, a couple things are important. Take the debt out in only one parent's name, preferably the lower earning parent. If you take the loans out in both parents' names, you're screwing yourself over because you're signing it for two IBR payments instead of one. The other strategy, I think, is to sort of think about, you know, are you going to be taking out a lot? You know, taking out $100,000 is very different from taking out $30,000. If you're taking out $30,000, you know, you might as well try to pay it back because that's such a small amount, right? But if you're taking out a significant sum, you know, you want to be real strategic about, you know, how you decide to do that and, you know, where you send your kids because that'll affect impact where you send your kids to college too. This strategy also, frankly, works best for families with larger family sizes. If you have one or two children, you could do it this way, but the psychic cost, is it worth it? It depends on the family circumstances. So if somebody's going to make, you know, $40,000 in retirement, this Parent PLUS strategy is brilliant and you should absolutely do it. If you're going to make $100,000 in retirement, you might want to have a little bit more of the deeper conversation first. Now, in this particular listener's case, she's got her own loans and Parent PLUS loans, and so the question is, if you got 21 years of credit on your loans in your own name, you got $30,000 of loans for your child, like, what's the best path there? So I do think that that's an example of somebody that should do a consult because you could look through the different options of, take advantage of the IDR waiver to get that $40,000 forgiven in her own name, and now she's got $30,000, and could that freshman in college, you know, not have to take out so much debt and get out in an affordable way, and could the junior in high school go to a fairly cheap university and not have to do this 25-year strategy, right? Alternatively, if this is something that you know you're going to leave college with the freshman with $100,000 or more, you're already into it pretty extensively and you know that you're going to make a moderate income in retirement, then this Parent PLUS strategy makes tons of sense, and if anything, you should be looking at the nicest colleges, the most expensive colleges, maxing out the most money that you can get from the financial aid office for the Parent PLUS loophole strategy. And the double-consolidation loophole, again, I would borrow in such a way that that will not be a thing. If, you know, in other words, make the numbers make sense without the double-consolidation loophole, and then you'll be pleasantly surprised, right? Because the ICR plan is statutory, that means it takes 60 votes in the Senate to get rid of it, so 60 votes in the Senate's never going to happen for ICR to stop that. If anything, it would become more generous, not less. So if the math works out for ICR, then the math works out really great for other stuff, too. So now I want to talk about the main topic of today's pod, which is Congress overturning the pause and cancellation. So there is kind of a weird law called the Congressional Review Act that allows Congress to block executive rules with a simple majority vote, and it's not subject to the filibuster. So this is kind of crazy. So the Senators have initiated a formal proposal to end the pause and end cancellation, and they've got a significant number of Senators signed on already, and this means it gets to be voted on. So we are going to see a vote. It might have already happened in the, you know, a couple days before releasing this podcast, but, you know, it's very likely to occur that the House is going to vote to end these two programs, and the Senate, it seems like, will peel off one or two Democratic Senators to vote to end Biden's loan relief initiatives. And this is kind of what I think is going to happen. So if you look at the 2024 Senate map, it looks very, very bad for Democrats. You've got them defending seats in places like Montana, West Virginia, Ohio, I believe. I mean, if you look all over the map, this is not a favorable map for Senate Democrats. You've got a lot of moderates running. These moderates need to show some measure of independence because, you know, there's, you know, a lot of different opinions about the way politics is trending, right? I think probably, you know, I think most political observers sort of view Democrats sort of better than expected successes in the midterms, mostly as a reaction to the overall political environment of suburban voters being turned off by President Trump, right? So I think that, you know, in 2024, will those, you know, will that still persist, or will we have a more normal type electoral environment? I don't know, but I know that the 2024's map is a lot tougher than 2022. And why does that explain how people would vote in the Senate on student loan relief, and why they might, even some Democrats, might vote to end a lot of these relief programs? So the issue is that the CBO came out with a pretty whopping number for the cancellation program and for the IDR program. So we're talking hundreds and hundreds of billions of dollars. It is the most expensive executive action in American history. And if you are a senator from, you know, a state that has a new emerging progressive sort of energized majority or energized voter base, like Georgia, right, with Senator Warnock, running on student loan cancellation in a positive way could have some really good impacts, right? But if you're running in a state like West Virginia or Montana, are you going to run in favor of student loan cancellation? I mean, there's not that many people with college degrees in those states compared to the nation overall, I think. I mean, West Virginia, I think, has the lowest percentage of bachelor's degree holders in the nation, I want to say. So if you're talking about something that is going to very disproportionately benefit very educated voters, right, will you see some senators vote to end these programs that are Democrats? And I think the answer is probably yes. Apparently, Senator Cortez Masto, I believe her name is, came out in opposition to President Biden's student loan programs a couple days ago. So she's considered a possible. Probably, I would think Manchin might vote to end these programs because of his, you know, kind of sort of, you know, deficit hawk kind of ideology. And then you might, and that's actually all you would need to basically get this, get these programs overturned. So, you know, if you think about what's happened in the past, though, I want to talk about what's happened in the past. I believe nine Democratic senators voted to end the COVID emergency several months ago. Now that's interesting, right? You have a large number of moderate Democratic senators who voted to end the executive power that Biden needs to do all these student loan programs. So if Congress passes a law to end the student loan pause and student loan cancellation, does that mean this is the end of the road for these programs? No, it does not. And why is that? Well, let's talk civics, middle school civics, right? You have a bill that's voted on by a majority of both houses of Congress, and it goes to the president's desk. And what can then the president do? The president can veto it. President Biden obviously would. So he would veto this bill that would end the student loan pause and student loan cancellation. And that bill would go back to the houses of Congress for an override vote. With an override vote, you need two-thirds of senators and two-thirds of representatives to overturn something. So if you think about the current political climate, are you going to get two-thirds majority to overturn President Biden? No way. You probably wouldn't even get 60 votes in the Senate to overturn these policies. So that raises the question, well, why are they even doing it? And keep in mind that in D.C. a whole lot of things are done for political optics. So if you think about, you know, why would some moderate Democrats vote to end these programs? A couple reasons. One is they get to take this vote and know that they're not actually going to be taking anything away from their constituents. So if you have a couple moderate Democratic senators defect and vote to end these Biden student loan initiatives, and this bill goes to President Biden's desk, you can make a vote very easily in the back of your head knowing with 100% certainty that there's not going to actually be any changes to the current policy, right? So if you're a moderate Democratic senator, this is kind of a little bit of a win-win because you're worried about, you know, being blamed for inflation. You're worried about if there's a little bit of a recession that you get blamed for it because government's overspending. This is a very real concern of someone that's like, you know, a moderate Democratic senator in Montana, that's somebody that's, you know, more of a progressive senator in a blue state's not going to have to worry about, right? And so if you take this vote to look like you're standing up to your own party to block hundreds of billions of dollars in spending to kind of boost your bona fides as a moderate, that could be attractive to some senators enough to make this vote actually pass. And then it goes to the president's desk, he vetoes it, it goes back, it fails to get overridden. Where are we now? Exactly in the place where we started. Now what it does show is a little bit of a willingness to talk about ending these programs and stopping these programs, but note that nobody really seems to care about this new IDR plan. Now, you know, it's kind of interesting because the CBO thinks that it's hundreds of billions of dollars too. We actually did an estimate on the new IDR plan. I think it's more like a trillion dollars over 10 years for a lot of different reasons. So one of the things is the congressional budget modelers do not adequately anticipate how many people are going to file taxes married filing separately with this new plan. So if you could potentially cut your payment from a thousand a month to a hundred a month and all you have to do is file your taxes separately, then a lot of people are going to do that. And the CBO budget model does not really fully account for that, in my opinion. If you have almost no cost for going to school, a lot of new schools are going to establish themselves and they're going to establish low quality programs to try to capture a lot of these additional dollars that have zero marginal cost. Again, the congressional model does not adequately account for that. A lot of people, once you realize that you do not need to pay back your loans anymore because there's these new, you know, repayment options that are super generous, are going to borrow additional marginal dollars that they know are not going to have to be repaid. So it really comes down to what people will probably do with this new repayment plan if it goes through. And the impacts, I think, are going to be really massive and they won't be realized all at once. It's going to be something that's going to be gradual. People that listen to this podcast are probably going to take action right away. But people that, you know, do not listen to this podcast, your normal everyday college student is probably going to have a little bit of a delay before they start reacting to these new rules with the way they manage their personal finances. So anyhow, the bigger deal with these regulations, I think, is the new IDR plan, but that's not really getting that much attention in the grand scheme of things. So that's a good, that's good news for people who are hoping on that plan to go through, right? So where do we stand with the other stuff going on right now? So we're still waiting on the Supreme Court to make a plan. That's not expected until May or June. When that comes out, we'll know a lot because we've got the COVID emergency expiring May 11th, supposedly. We've heard so many times it's going to end. It'll be interesting to see if it actually does end. Now, when it ends, I think there's a high likelihood that some random Nebraska pension fund might seek to bring a lawsuit against the IDR waiver. That's one of the things that keeps me the most concerned right now, is for our borrowers that have FFEL loans, we have not gotten firm, you know, data from Department of Education about how they're going to count payments. That could change at any moment. But we did have a Department of Education spokeswoman that was on a webinar recently, and she specifically stated that you would get payment count at least of the loan with the most numbers of payments that if you consolidated before the IDR waiver deadline. She said it in her slides. I've got some sources that say that that wasn't that reliable that she said that, so that's a little concerning. But I mean, I think that what we're thinking is that if you have these commercially held FFEL loans, you've got to say, what is the least risky thing that I can do right now? So if you have FFEL commercially held loans, these are loans from before 2010, these loans could get cut off at any moment from the IDR waiver. And if they do, you'll lose the ability to consolidate and get a ton of credit. So if I had commercially held FFEL loans right now, I would just consolidate everything together and just take the risk. There's risks both ways, and you can't eliminate risk. It's not possible. You have to make a choice. And the least risky choice in our minds right now is to consolidate everything together if you have commercially held FFEL loans. If you have direct loans, I might wait a little bit because those will not get cut off by a lawsuit most likely. So if you do need to consolidate your loans, we looked through the federal aid site, and actually the URL to consolidate to get to the consolidation page is super ugly. It's really long, and it's got a dot action at the end of it. It's just really a bad URL. So we made an easier one. So if you go to all you have to do is spell studentloanplanner.com and then slash and then spell consolidate. And if you press that, it's going to take you to the right student aid webpage that you can process a consolidation application at. So I just wanted to do that for our listeners because we are trying to help you guys out getting the most credit, getting the most years towards forgiveness if that applies to you. I think that the IDR waiver is really transformational, but it's being implemented poorly. And ultimately, if that's the case, you've got to be willing to take some uncomfortable actions to try to get as much credit as you possibly can. So let's talk a little bit about the other stuff going on. The SoFi lawsuit, we'll talk about that. That is really strategic. And the reason I say it's true strategic is because the way the company did it is still very fascinating to me. So if you're a SoFi executive, what do you want? You want the pause to end, but you want as little brand damage as possible, right? You want both of those things. And I think that the reason they filed the suit is because they knew with very high certainty the Biden administration was going to break their word and extend the pause again when they lost to the Supreme Court. I actually agree with this. I think that's probably what was going to happen. I initially thought that they would let the pause end, but the reality is the way the Solicitor General answered the questions of the Supreme Court, she basically kept the door open to doing another pause extension. I mean, the Supreme Court asked her, one of the justices asked her, well, you know, could you do a pause 10 years from now? Could you cancel that 10 years from now as a result of the pandemic? And the Solicitor General was like, oh, haha, no, you know, but she also didn't define what a period shorter than 10 years was, because they have said repeatedly that they do believe that they can take emergency actions after the emergency ends due to impacts of the pandemic. And so that's probably another round of litigation that's going to happen at some point. So basically, SoFi saw that and decided that it was in their interest to sue to block another pause extension, and they needed to start that process now to have a ruling by the end of the year. And I initially thought, well, why didn't they file for an injunction? Why didn't they do what the people opposing cancellation did, which was to ask for, you know, an emergency nationwide injunction against cancellation? That's a little bit different, because you've got, you know, once they started processing cancellation, that was the game, that was, it was over at that point, right? So that's one reason why they asked for an injunction against cancellation. SoFi actually supports cancellation, probably because they view it as the easiest path to repayment resuming again, and interest resuming again. But why didn't SoFi ask for an emergency injunction to end the payment pause? So I think, again, the reason goes back to wanting to take as little brand damage as possible. If you forcibly end the payment pause earlier than Biden stated in August of 2023-ish, then people will blame you a lot harder. If you file a lawsuit to end the payment pause, you know, on or after the date that Biden said would be the final pause for the third time he stated this, then people will be mad, and people will be very upset, but it's not going to be the same level of anger, right? So if you think about anger, there's levels of it. You know, there's anger that gets 1% of your voters calling the office and screaming at you, and then there's anger that gets 50% of the voters screaming at you, right? And I think that was the strategy here, was for SoFi to very much anger a very vocal group of people, a group of student loan borrowers that would not want to do business with them anymore because of this decision. But by basically just trying to end the pause when Biden said it was going to end for the third time, you know, they're trying to avoid taking on additional brand damage by asking for an injunction to end the pause immediately. So that's good for borrowers because what it means is that, you know, we're not going to have an unexpected end to the pause unless the Supreme Court asserts itself and expands, you know, what they are looking at with this cancellation case. So that's also possible but probably unlikely. I think if you had to say what is the most likely end of the pause at this very moment, I'm going to guess around September 30th just because it specifically states in the NSLDS files already that payments will resume September 30th. Why did they say that? It's because that Biden said that the pause would end no later than June 30th, 60 days after June 30th. So that means, you know, August 30th and then add a month to that and then that's where they came up with a September 30th date. So if the Supreme Court comes out with their announcement earlier than June 30th, then the pause is supposed to end 60 days after the Supreme Court makes up its mind. So theoretically that September 30th date could get moved up. But in reality with the pause lasting more than three years, is that really all that likely for them to move that date up? Probably not for operational reasons. And so that's probably why that date probably stays around that September 30th date. And what I would anticipate is one of two things is going to happen. And I've said this before but I thought I'd say it again. I think that the Supreme Court either, let's say the Supreme Court says it's okay for Biden to do the cancellation. They'll do it, they'll be excited, they'll start repayment, you know, six days after that. That would be the scenario where it'd be very surprising that payments would resume possibly much sooner than September 30th, right? Probably not likely though. Probably they lose at the Supreme Court and then what does Biden do? If he thinks that, you know, extending the pause for a fourth final time would cause this, you know, SoFi case to rule against his ability or future president's ability to pause loans in the future, he might decide that it's worth it to just let the pause end and then try to make the cancellation stuff blamed on the Supreme Court. Basically have another foil to run against in 2024, right? Supreme Court took away right for reproductive access and student loan cancellation. That's what he'll say and that's what he'll be very happy to run against I think in 2024. So that's kind of one path if he doesn't want to have his future powers hemmed in and then if he doesn't mind that and wants to continue fighting to sort of look like, you know, the champion of student loan relief like he has tried to be the past several months and years, then I think that he might try to extend the pause again and then I think that this SoFi lawsuit would be the thing that ends it. So if he does that, what he'll do is listen to Senator Warren who's been calling on him to cancel debt via the Higher Education Act from the very beginning and if he tries to cancel it via the Higher Education Act, that would put a really even bigger pause on student loans because that would probably take a year or more to implement because it's just you have to do regulatory process, you have to do rulemaking where you do a rulemaking process where you have to have comments and accept comments and reply to comments so it'd be a very extended process which is something that might pause student loans all the way through his you know presidential election for 2024 and that's why SoFi sued is because that's what they're trying to avoid is just to cut off that long tail possibility which if it did happen probably would put several more student loan refinancing companies out of business, possibly SoFi out of business too. A lot of people thought I was a real idiot on Twitter when I said that that's one of the reasons why they sued probably was to reduce their own risk of bankruptcy and people were saying oh you know SoFi's margins are so great on their deposits, you're an idiot, you didn't listen to their earning calls at all. I'll admit I didn't listen to their earning calls but you know I said that and then a couple days later the SVB collapse happened and then bank stocks were plummeting and it's like oh looks like the banking sector is not as safe as everybody was saying on the earnings calls right I mean you know the the banking environment's really difficult because you've got short-term rates that are really high and long-term rates that are the same or lower and so banks typically you know borrow at short-term rates which tend to be lower and lend at long-term rates which tend to be higher and what a lot of the banks are facing is this these mismatches you're either kind of a smaller bank and you need to pay up big with your deposits to be able to keep capital because you're a small bank you know or you took on a bad bet like in the case of Silicon Valley Bank they bought a bunch of long-term bonds with a very high duration what that just means is that when interest rates go up your bonds lose tons of value and so their bonds lost I think 20 or 30 percent of their value something like that because they bought long-dated bonds and it was just the balances for deposits they had on their balance sheet were way bigger than the value of their bonds that they owned and so people realized that so they started pulling their money out really fast because the first person that pulls their thousand dollars out gets a thousand bucks and the last person might have gotten zero so that's kind of how bank runs work right so I don't know we've got a lot to develop still we've got a lot of big shoes to drop with the IDR waiver rules FAQ the new repayment plan final rules the Supreme Court case and you know student loan repayment pause this congressional bill it'll probably try to end the pause and cancellation they'll probably get vetoed still a lot to take in so I would just say you know be patient just relax things are gonna probably be beneficial for student loan borrowers versus hurt you so that's the good news so we'll cover all the details and give you all the updates so thank you for listening to the student loan planner podcast and if you want to ask a question for our voicemail line go to studentloanplanner.com slash voicemail and if you want to book a plan now before we have the rush when the IDR waiver comes out go to studentloanplanner.com slash book and pick any time in April or May so you can reserve your spot before the calendar gets rushed when thank you everybody and have a wonderful rest of your week