Now Open: PAYE and ICR Plans | IDR Recertification Updates and More

Hey all, big news. The pay and the ICR plans are now officially open, so that is good news. It's an early Christmas present, you could say, from Department of Education. So I want to explain kind of what that means, so just so that people can be aware of what is going on with their loans. So again, pay, pay as you earn, as well as the income contingent repayment plan are now open for enrollment. So what does that mean? So Department of Ed has been basically not processing anything for many months, and now suddenly they're claiming that they're going to process things. So I want to explain a little bit about what that means and why it's important for you potentially. So a lot of people are in the save plan forbearance, probably eight or nine million people. Huge number of people are in the save plan forbearance. So if you wanted to switch out of the save plan forbearance into a different repayment plan, you can now supposedly do that. Now there's some restrictions, right? Pay as you earn is eligible. You're eligible for that one if you took out your first loan in October 2007 or after, and you also took out a loan after October 2011. So in other words, you have to be a new borrower as of October 2007, meaning you had no existing balance as of October 2007. So what is pay? Remember, pay is 10% of your income, and it's 150% of the poverty line as a deduction before you pay 10%. And then you get to make those payments for 10 years if you're doing PSLF or 20 years if you're not doing PSLF. And then pay is also a plan that is allowing you to file a married filing separate if you are married. So income contingent repayment, what is that you might say? That's an option that is great for very high income borrowers that only need a couple more years left to get PSLF or something like that. So ICR, the ICR plan is very high payment usually. The only exception is if you have a very high income relative to your debt, it works out to a 12-year standard amortization times two because this is just a really complicated formula basically. So who would use ICR? Basically a super high income physician who doesn't have a partial financial hardship, needs a little bit of time, maybe only a couple years or less towards PSLF, for example. So should you switch? That's a big question. So first off, if you wanted to switch, you have to go to studentaid.gov slash IDR. That's studentaid.gov slash IDR. Now if you wanted to apply to switch, you just literally fill out the application. Now the one thing I would note is according to these new rules around processing forbearance, Department of Ed is telling borrowers that if you apply to switch plans and the servicer needs extra time to process the switch for repayment plans, that they can give you essentially up to 60 days of extra time that could potentially count towards forgiveness. Now like many things Department of Education says, can anybody believe them? That's the real big question here because this is an outgoing Department of Education. This is a Department of Education that's got to be in power for barely a month longer. And will the Trump administration actually honor anything that's been promised by this Department of Education? I think that something like this regulation probably will be honored, and let me explain why. The pay plan and the ICR plan are wonky. They're not that, you know, it's not something that you would be super interested in striking down. Like the pay and the ICR plans could get struck down by a court, but that's because of the save plan and how much people hate, on the Republican side, hate the save plan and are suing over to block it. The pay and the ICR plan are simply derived from that law. That's the only reason they're being what's called enjoined right now from forgiveness. So the pay and the ICR plans, you actually cannot get forgiveness on those plans under the private sector forgiveness option at the moment because of the lawsuit. And so I think that that will be resolved very quickly when you see resolution on what they're going to finally do with that lawsuit. And so for folks that are on the save plan forbearance, let's think about that a little bit, okay? So I mentioned the pay plan. I mentioned who's eligible for the pay plan. Keep in mind if you have a no loan before July 2014, you're actually eligible for something called new IBR. New IBR is the same thing as the pay plan, except it's written into the statute of the law. So new IBR is a much better plan than the pay plan because it's basically guaranteed to you, whereas the pay plan is not. The reason they opened up the pay plan is because there's a ton of people out there that could get way lower payments in the pay plan than they would be able to get on the old IBR plan, which is for a lot of people the only plan that they're eligible for. It's guaranteed in the statute. So if somebody is on the same plan forbearance right now, you might say, well, should I switch? Here's a couple things to consider. First off, if you're planning to switch, the same plan forbearance theoretically could be eligible for PSLF buyback. So the question is, is do you trust the PSLF buyback program? The reality is PSLF buyback was promised by the same administration that's promising to allow people to sign up for the pay plan. So both of these are promises equally made by the Biden administration. So one would think that if the pay plan survives, PSLF buyback would survive too. And so if you think about the math behind the PSLF buyback, essentially they're going to calculate whatever plan you would have been eligible for, and they're going to supposedly take the lower of the two payments before or after, you know, that 12, if the forbearance is 12 months or less, they would calculate it that way. And so for a lot of borrowers, because they haven't recertified since the pandemic, the PSLF buyback number would be incredibly low, right? It would be maybe in the neighborhood of a few hundred dollars a month. Whereas if you recertified at the pay plan, you might have payments that would be way, way, way higher because you've had a big income increase since the last time you certify your tax return. So for anybody in PSLF, probably my suggestion would be to not switch. And the reason is because the PSLF buyback is probably a better way to go, given that the pay plan is being promised at the same time PSLF buyback is being promised, and it's being promised by the same people, right? So that would be a thought. I think it does depend on your individual circumstances and your risk tolerance. So if you are very close to PSLF, maybe only a few months away, you very well might think, well, I want to go ahead and throw my hat in the ring with pay, and it's possible that they potentially could grant you processing forbearance credit at zero dollars a month for up to one or two months. And that might actually be cheaper if your payment from pre-PSLF or pre-forbearance for the same plan forbearance in post, if those payment numbers would be kind of similar, then I think that you might want to consider switching because that payment forbearance, processing forbearance could be zero dollars for a couple months potentially. So there's all kinds of stuff with this, guys. This is not easy. This is highly complex. I do think that at some point we will see the courts react, and the 8th Circuit in particular, it's been taking its sweet time with this lawsuit. They will probably make a major ruling at some point, and who knows what it's going to strike down. And we're obviously going to be following that for you. I do want to get to a couple of questions that people have. So some of the folks are talking about, you know, essentially if they're on the same plan with lower payments, you know, then what pay would give you should you hold off? You know, again, I think that given that both options are being promised by the same people, I would probably hold off because those payments should be eligible for buyback as long as you keep track of them. And that's a big if, because a lot of borrowers I know don't keep track of their loans, obviously, and, you know, we want to make sure that people do. So if you, you know, know you're going to be doing PSLF buyback, you got to keep track of all of this period of paused payment credit, basically, right? All of the period of paused, you know, what could be payment credit, you have to kind of keep track of it so you know that you can do a buyback later because it's very specific in the requirements. And it's really, frankly, quite ridiculous. Now, if I look at a couple of these other questions, a lot of people looks like they have questions about save and PSLF, right? So I would probably say, again, like if you are already on the same plan forbearance going for PSLF, hopefully you are really close to getting PSLF. You know, I think that there's probably some benefit to people switching over to pay if you are not that close to PSLF if that's your lowest payment option, simply because you want to evaluate all of the different things to consider, right? So like, do you have a payment that would go, you know, if you did switch over to pay, would your payment go way up? If your payment would go way up, then I would say you probably don't do it, right? But if your payment would not go up by that much, it's probably a good idea to do it because it's probably better to get into a plan where you're actually making credit for sure, not having to rely on this PSLF buyback stuff, which may or may not exist in like five years. I think PSLF buyback will almost surely be here in six months or one year because it takes time to repeal things through normal procedures and rulemaking. But you know, in four or five years, it very well could not be here. Now, some folks are also asking about the ICR plan. Is there anything at all with the ICR plan that we could do? You know, I think that, you know, the ICR plan, remember, is only good for people who have no other option. So most cases with ICR, I see people not needing to file separate because there's a cap in the payment, which is why they reopened it. Because the cap in the payment, if you want to think about what would I pay on this under a six-year loan, so take your student loans and make it a six-year payment term, that's roughly what the cap is in the ICR plan. That's why they reopened it. And then last question it looks like people have is updates with income-driven recertification. Essentially, you know, what's the latest on the IDR recertification, you know, saga? When are they going to start processing IBR applications? I think that this probably is a sign that they've been trying to get all their act together behind the scenes to start the process of being able to just open the floodgates and processing IBR applications. But Department of Ed still relies on the servicers to be able to actually process this. And we are going into the thick of the holidays as we speak. So if you are the servicers, you have a new administration coming in, right? You've got an oldest administration going out. The servicers are going to be told probably tomorrow, hey, go ahead and start processing all these IDR applications again. Then it's going to be Friday and nobody at the servicer, frankly, is probably going to want to work because you're about to go on this long holiday week. And then you have the week of Christmas. Very little is going to get processed then. Then you have the week of New Years. Very little is going to get processed then. And you also have a backlog of hundreds of thousands of applications for income based repayment that are sitting in people's desks, many of which are in paper form. So the servicers, I think, are very likely going to look at all this mess and they're probably going to say, yeah, yeah, we're working on it, quote unquote, right? And I think the Biden administration is trying to tell the servicers, wink, wink, nod, nod, put people into processing forbearance so we can backdoor count their non-payment as months of qualifying credit for forgiveness. So I would not be surprised at all if Biden administration is basically like, hey, servicers, wink, wink, nod, nod, take all the time you want to move people from the save forbearance to pay or from the save forbearance to ICR or IBR. And that way that will allow us to get extra credit for borrowers with no payment, which I think is probably one of the goals here. And the, you know, other thing to consider is all the IDR recertification dates. Many of them are showing 2026. I, again, think that's a function of the Biden administration telling the servicers what to do, but guess what? In a month, that all changes, right? You have a new administration coming in that can tell the servicers something different. So I would absolutely be ready to recertify my income on income driven repayment. I would be ready to do it early in 2025. So that means you need to pay attention to how you file your 2024 taxes. I know this is a lot for folks. I know it's confusing. I know it's head spinning, but guess what? It probably can wait until after the holidays, right? Whatever you have to do, don't stress. Ultimately, if you do absolutely nothing, there's still ways that you can take advantage of doing nothing for most people. And if you do need to actively do something, most people that would want to actively do something would do so because they just want to be done. And they would rather do something rather than nothing. And that's just a bias towards action versus inaction. So we will be following this super closely for you. So you don't have to stress so that when you get some scary email notification from Department of Ed, you don't have to worry about it so much. If you want tips like this in your inbox, just put IDR in the comments. So you can just comment IDR like dog IDR. And so, you know, not IBR, IDR. If you put it in the comments and we'll send some stuff over to you about just ways that you can handle all of this mess and not be as stressed. Wish you a wonderful holiday season. If you have any comments in general, also put them in the, in the chat below, but write out IDR if you want some tips like this in the future. Thanks so much.