Listener Mailbag: Your Student Loan Questions Answered

Hey everyone, today we're going to do a listener mailbag. I hope you're having a good holiday and I hope you enjoy today's episode. We'll probably just try to make it pretty chill, just get a lot of questions people have answered to up their minds. So let's listen to the first one. Hi, my name is Kate and I am seven years into my public service loan forgiveness. I have questions about the expanded access as it relates to the definition of full time under public service loan forgiveness. I recently changed my status at my employer to be a 32 hours a week so that I could spend more time at home with my kids and have a better work life balance. This has worked really well for us. But I am concerned that President Trump may change the definition back to whatever your full time employer believes is full time. Can he retrospectively look at my year or two, whatever the timeline looks like, and take away otherwise qualifying payments because it is no longer qualifying under his definition, even though it was at the time that those payments were made. So can President Trump retrospectively take away our otherwise now considered qualifying payments based on a change in his his rules or regulations? And should I go back to a full time status now to prevent any lost time in my public service loan forgiveness journey? Because I'm nearing the end and I don't want to lose any time. Thank you. So the answer here is no, there's not going to be any retrospective pullback. I mean, I think the thing we've got to think about is negotiated rulemaking. Going through the normal rules and process making procedures have to be done. It's part of the law. It's part of the way things are always done. So could they jump on this right away, make a committee, say we're going to change the definition of full time back to what it was? Yeah, they could try to do that. But in theory, they would have to publish the rule by November 2025 or to take into effect July of twenty twenty six because of the way the negotiated rulemaking calendar works. Would there potentially be a slow walking of processing a department of ed? Would you potentially have to explain yourself a little bit more? Would you get maybe more difficulty in getting things processed? The way it should be, it's possible. But generally speaking, as long as you look at the actual rules published in the Federal Register and you follow those rules, you can take advantage of all that and lock in all the credit you want until those rules are repealed and then it's on a go forward basis. And I think that something super technical like the full time definition for PSLF, I don't think that's going to be touched. I think that they're a lot more concerned about the broad stuff, like the save plan. And that's the kind of stuff I think they're going to focus on. So now let's take a listen to the next question. Hello, my name is Martin. I was calling to ask if you could put out any information you might know. My situation is I have a very old fell loan that I applied for PSLF for. It was denied because it was a spousal joint consolidation with my wife and I. My understanding was that they passed a law in Congress to be able to separate the spousal consolidation, separate the loan so that I can qualify for the PSLF. I was given a notice that I could apply for administrative forbearance, which I'm still on. The last news that I received was that I no longer have the same loan servicer. It was switched to Mojila. I don't hear a lot of information about spousal consolidation and people that might fall in that category waiting for PSLF. So if you could do anything related to that topic, that would be really awesome. Thank you so much. Spousal consolidation loans, it literally only impacts about 800 people, I think, in the entire country. So you think about 43 million borrowers for student loans, and it's something that only impacts 800 people. This is extremely important to Martin, and it should be. But the real problem we're dealing with here is because something only impacts like a few hundred people. This is the kind of breakdown in processes that happens with Department of Ed that is just not organized and not really doing what they're supposed to do. There's a literal law that was passed a long time ago saying that they're supposed to separate these consolidation loans. Basically, what happened is they made a law that allowed people to combine their loans into one consolidation loan, the spouses, but they never made a law to uncombine them. And so all these folks were caught in situations, in some extreme cases, where people were even being abused, domestic violence kind of situations, and they couldn't separate their student loans from their ex-spouse. And they also had to get joint income information from their ex-spouse for years to be able to afford the payments. So this is how messed up that spousal consolidation stuff was. Hopefully for Martin, he'll be able to separate out the spousal consolidation loan very soon, we hope. Now, I think that the key thing is just not giving up. With student loans in general, you can't give up. You have to realize this is a problem that's going to be taking place over the course of months, if not years. And the key thing to do is just to not have a huge amount of money going to this. If you need to be in administrative forbearance, that's a decent decision, especially if the loan's really large. You want to just try to first get it separated. Once it's separated, then you can look at, okay, is this better to go for income-driven repayment? Will they give me any credit for past payments? So I think the main thing is just having a deep breath and just taking your time with this. A lot of folks, for example, that have ever gotten a notice from the IRS, especially business owners, it happens pretty commonly, the IRS will sometimes misapply a payment from one year to a different year accidentally. Or maybe you didn't file out your HSA expenses or something, and they send you a piece of mail that's pretty scary that's like, hey, we're going to charge you all these extra payments and penalties and stuff. And sometimes those responses take months for someone like the IRS, a government group, to process it. And so in the case of spousal consolidation loans, because it only impacts 800 people or so, it's going to take a long time for them to do their job. So just don't give up. I would contact your constituent services office at whatever senior senator you have for your state. If it's a smaller state, if it's a larger state, you might contact your congressperson, constituent services office, just to make sure that they know that you're seen and you're heard and that you have somebody in your corner helping you out. So let's listen to another question. Hey, this is Brian from Tennessee. My wife and I are having a baby in January. We file separately to reduce my payments on income-driven repayment while I go for PSLF. Going forward, who should claim our baby as a dependent? If my wife claims our baby on our tax forms, can I still claim a dependent on my income-driven repayment recertification? Would it even still make sense to file separately? Thank you so much. So for this question, it kind of depends on what they end up doing with family size, right? There's all these family size definition changes that happen with the same plan, and a lot of this stuff might eventually get unwound. In general, it's better for the student loan borrower if the student loan borrower is only one spouse instead of both spouses. It's better for the person who really needs to go for forgiveness to get the dependent on their tax returns. That's just because they're trying to move the system more towards a pure, let's look at the borrower's tax return system. When you do it that way, they're going to just look and see, is there a dependent here or not? It used to be that it didn't matter who claimed the dependent with the old system. With the new system, it probably matters a little bit more, but that rule could get thrown out. So I would just say out of an abundance of caution, if it doesn't cost you a lot of money to put the dependent on the primary borrower's tax return, it's probably better to do that. And yes, it's probably a good idea to file separately if your payment would be high if you had to include your spouse's income. Let's take another question. Hello, I'm currently in safe forbearance and considering switching to an IBR plan. My question is that my first loans were taken out in late 2012, but I consolidated all my loans in 2019 after graduation. If I switched to IBR, would I be moved to a new IBR plan or would it be the old IBR plan based on my first loan in 2012? Thank you. This would be the old IBR plan because if you have a new loan as of 2012 or you had one before 2014, you still had an existing balance as of July 2014 when you took out a new loan after July 2014, you're not a new borrower for IBR. Now the one positive thing is if they open up the pay plan as they're theoretically claiming they're doing, this is a perfect example of why somebody would maybe want to be in the pay plan because the pay plan is the same thing as new IBR and this person might not be able to access the new IBR plan because when they had their first loan outstanding. So great example of the usage case for the pay as you're reopening. 10% of income instead of 15%, it's a pretty big deal. Now for the next question. Hello, my name is Eric Schultz and I have a question for you. I'm on the pay plan. I know that I'm going to have to recertify my income at the beginning of 2025 and I haven't recertified in years. I'm wondering if when I recertify my income, should I also switch to IBR at that time when I need to recertify and would there be any consequence to switching plans? Thank you. So with the pay plan reopening, you don't need to switch to IBR unless it's struck down by the court. So I would certainly not switch unless I was mandated to if I was already on the pay plan and then I would also maybe think about what you need to do to prepare now for that recertification of your income. That means your 2024 tax return is going to be super relevant. Depending on when they ask you to certify in 2025, they also might look at your 2023 tax return if you haven't filed your 2024 taxes yet, either intentionally or by an extension. So those are some tips in general. You want to be really thinking about what are they going to ask you for if you do have to, let's just say they have to ask you to recertify in early 2025, what tax return would you have at that point? Do you need to be about ready to submit a different one? Those are some big, big high-level questions I think borrowers should be asking themselves. Now, next question. Hi, Travis. Thanks so much for taking my question. There's been a lot of conflicting information about consolidation. I have 12 federal loans. I'm about halfway through PSLF progress, so about 66 payments. And I did apply for IBR because I am in the SAVE program. My question is consolidation. I've been told by Mojila itself that that can hurt you because the loans are individualized and the progress with payments are individualized for those loans. And then I've heard other people say that Mojila told them that this can actually help you get more credit toward forgiveness. What is your take on this? What is the accurate information? I don't want to hurt myself. I have 12 federal loans and that's all I have, but it's about $123,000. So my goal as a federal employee is to get forgiveness. Just your thoughts on that. Thank you so much. So I think the big thing with consolidation right now is there's a lot of rules outstanding that we have to see whether or not these rules are struck down by courts. The weighted average consolidation rule for PSLF purposes is in this 2023 regulation. The weighted average rule for IDR non-PSLF forgiveness is in the 2024 regulation. So in theory, if you're consolidating for the purposes of PSLF, they would give you the weighted average credit for all the loans you put into the consolidation. That's probably something that saves you money, simply because if you have different loans that get forgiven at different times, you still have to go on making those income-driven repayments on whatever's left over that doesn't get forgiven until the very last loan is forgiven, right? So in general, probably better to consolidate loans if you're going for PSLF, but what we've been functionally telling people right now is a lot of people, well, if you consolidate, you have to recertify your income. And so a lot of people's payments really soar, right? So what we kind of want to have happen is wait until people are forced to recertify their income where the payment has already gone up a bunch, and then also wait a little bit to see, you know, do any of these rules get changed at all in the first few months of the Trump administration? Do they get repealed? Do they get modified? And then we want that consolidation rule that gets you weighted average credit, we want that to be unquestioned, super solid. We can point to it. And we also want that payment to have already jumped up a whole lot if it's going to jump up compared to maybe when you last recertified your income is probably from 2018's tax return, which is forever ago. And so the reason so many people have low payments is because of that weird nuance of nobody recertifying their income in years. So those are some things that I think you really want to be real careful about. So let's take another question. Hey, Travis, here's a thought experiment. What do you think the odds are that Joe Biden in his waiting days in office decides to tell the education secretary, hey, screw it, just try and cancel absolutely as much as you can. We've been super deliberate and careful the last four years about payment counts and who gets what canceled and where and how, but now because we're running out of time, just let it rip, start canceling stuff. That's the question. Do you think that's crazy? Do you think it's even possible? Wow, I love this question. So not to be mean to the president, but he'd probably have to have, I don't know, the mental acuity to make that call. I don't know. I mean, that's kind of mean, I guess, because we've had all these changes, but those changes have been driven by staffers, mostly policy people at Department of Ed. It's been driven by the folks that are sort of the brain trust on student loans within the Democratic Party, consumer advocacy groups, right? So those groups are certainly pushing for that. And so let's say that President Biden or his administration said, yeah, we'll do that. Let's just cancel all of it. Well, they already did try to cancel, you know, the 10 to 20,000. Now the consumer advocate groups would say, well, the problem with that, where they messed up is they didn't do it automatically. They didn't immediately cancel it without going through any processes where it was open to being challenged by courts. They set up this income test where it had time to be challenged. And, you know, what would happen is in the waning days of administration, also we have potentially, you know, at the time I recorded this, I think we're a day away from a potential government shutdown. Maybe we'll see if there's a deal or not. Let's say that Biden just said, OK, cancel everything. Well, the Department of Education would have to send that automated message to the servicers to say, hey, everything is canceled by executive order. Now, the problem with that is if you have an executive that literally cancels all student loans, the next executive could uncancel all student loans. To be frank, there would be an emergency injunction. So let's say that Biden literally was like, all student loans are canceled effective tomorrow. But what happened is, is there would be an emergency injunction that would say, no, it's not all canceled tomorrow because the folks who, you know, like MoHILA, right? The MoHILA group that kind of has the Missouri Republicans have jurisdiction to be able to sue on behalf of MoHILA, according to the Supreme Court, they would file an emergency injunction because that would wipe out all their servicing revenue for MoHILA. That's just one example of the kind of groups that would block this. But they would file that emergency injunction and then it wouldn't happen and then Trump would become president, right? It's a fun thought experiment, but there's no chance of that happening. So let's take another question. Hi, Travis. I recently watched one of Megan's videos where she talks about a hack, an amazing hack where we can find out what our counts are towards our IDR forgiveness because we haven't seen the payment counts come up yet on the website. And I found out that I have no more than 12 months left to pay my student loans, which is awesome. However, I am currently on the Save Forbearance Plan and my income has jumped, which is great. However, I do not know if I will qualify for IBR. I would love to be able to get onto the ICR plan if I can. And I want to get these payments started so I can start paying in January, pay through all of next year and be done by next December. I want to avoid that tax bomb. What do you recommend? Do I apply for IBR when I may not be eligible for it? Do I wait for Save? Do I try to get on the ICR plan if it comes out? What are your thoughts? Thank you so much for doing this. Your videos have been so helpful and your emails. Thank you so much. What a great question. So the reality is, is if you apply for a plan, the processing forbearance, that the time it takes a servicer to get you onto the plan in between when you apply and when you get onto it, theoretically, according to the Biden administration, supposed to count towards income-driven repayment and PSL forgiveness. This is according to their own press releases. Is this actually going to count? I mean, that's what they're saying. So if you want to believe them, which obviously mixed track record there, but I would lean towards believing them on this. Something like processing forbearance is probably too wonky to attract a lot of attention. So I would probably apply right away for either IBR if I had a partial financial hardship based on my last tax return, or if I knew I didn't have one, I'd immediately apply for ICR, which is effectively a standard six-year plan for really high-income people. You would get on that plan. You would make the payments for 12 months or however many months left you have left to go. And then at the end of that period, you would get forgiveness. And hopefully the forgiveness would happen before the end of 2025, because that is when the American Rescue Plan provision that makes student loan forgiveness tax-free expires, and then student loan forgiveness becomes taxable income again. So if that provision is retained from horse trading, we'll see what happens. But with the unified Republican control, there's a chance that it won't be retained. It's not something you need to worry about. Keep in mind, if you have assets lower than your liabilities, the debt's forgiven tax-free because it's called insolvency exclusion. So you're only taxed on the forgiveness if you're non-PSLF and if you have a lot of assets. And so if that's the case, then you just gotta work with smart tax professionals or financial planners to mitigate your taxable income in the year you get forgiveness if it's even a problem at all. So let's take a few more questions. Hi there. I've been monitoring the PSLF subreddit group, and I've seen that several people have applied for new IDR repayment plans. And of course, they were supposed to be put into a processing forbearance following that. But they reported that they were denied that processing forbearance by their servicers who told them that they don't qualify for a processing forbearance because they're already in an administrative forbearance. Obviously, that administrative forbearance is related to the SAVE litigation. Have you heard anything about servicers denying folks that 60-day processing forbearance, which obviously would qualify towards their PSLF credit total? And if so, what do you recommend doing if that happens to anyone? Thank you. Great question. So I think the problem here is the processing forbearance is not something that you can request a specific length of. If it was, everyone would request an exact 60-day processing forbearance for any time they change their repayment plans, right? So a processing forbearance is something that is given to somebody at the sole discretion of the loan servicer. If you submit your information because you're switching to the IBR plan and the loan servicer processes it in less than 30 days, that's their right. They don't have to give you a processing forbearance. So I think that if the servicer takes a while to process your application because they are just backed up and you happen to luck out and you get a two-month period where you're not making payments and those two months qualify for PSLF, that's different. So I think that the PSLF subreddit, the place that they're messing up, is thinking that they can call the servicer and get a 60-day processing forbearance and request it. And that's not something that is allowed. Basically, the whole idea was that they wanted to make it so that borrowers didn't lose credit for PSLF while the forms were being processed, however long that takes, not that you could get a processing forbearance intentionally to get periods of non-payment. And that's especially going to be enforced in a Trump presidency, I would think. The only other question that I'm getting a lot of lately, and I thought I would just mention this, a lot of email questions coming in. A lot of people are asking about, what can Trump do? What can President Trump do to loan forgiveness? And am I in trouble? I think that he's going to do a lot more, I think, than he did the first term, because this is an administration that's got a lot more understanding of how to wield power. And this is also an administration that is really focused on more working-class voters, I think, than even the coalition in 2016 was. And so I think that you're going to see them target as much as they can, like unlimited student loan borrowing, IDR payment plans. But one political reality is really critical to think about, and that's that they have no margin for error in Congress at all. You've got a razor-thin majority, even smaller, I think, than last time, right? So you've got a razor-thin majority, and they've appointed a few House Republicans to administrative posts in the administration, so your margin is even smaller. So literally a few special elections going the wrong way could flip control of the House. And when you think about literally 220-something members, every single one of those members is like a king. And a 50-50 Senate, where it's a 50-50 Senate, or even close to a 50-50 Senate, that is really difficult to get anything through. So I think that you're going to see any very controversial legislation. Lobbyists will be able to make a number of Congresspersons squirm in their chairs about making a big change, because you're talking, again, about just a very tiny majority. So I think that the big things they'll try to achieve are through the courts, through executive actions. And I'll probably do another podcast about this in the future, because it's an interesting idea, I think, to think about, well, what can they change? The one thing that unifies Republicans more than anything, I think, is tax policy. So I definitely think they'll do a tax bill. I definitely think they'll do some stuff around immigration and things like that, or they'll certainly try to. But it's things like student loans. It's kind of like, well, do you have the political will to put that into the big bill that you need all the votes for to pass? And I'm not sure that they have that. We'll be monitoring things, of course. If you need a student loan consult, studentloanpenner.com slash book. If you want to leave another question for a future pod, we'll feature. If you have anything on your mind, just go to studentloanpenner.com slash voicemail. We'd love to feature you in a future podcast. That's studentloanpenner.com slash voicemail. Thank you again and have a wonderful holiday.