Join Scott Bennett & Jennifer Edwards as they discuss some of the expected changes with PSLF (Public Service Loan Forgiveness).
In this episode, they go over:
This is the final episode in this season, as well as Scott Bennett's final podcast episode as our host, as he is embarking on a new adventure in a role as a Financial Advisor with TCI Wealth. Stay tuned for new episodes in Spring 2022.
Join Scott Bennett & Jennifer Edwards as they discuss some of the expected changes with PSLF (Public Service Loan Forgiveness).
In this episode, they go over:
This is the final episode in this season, as well as Scott Bennett's final podcast episode as our host, as he is embarking on a new adventure in a role as a Financial Advisor with TCI Wealth. Stay tuned for new episodes in Spring 2022.
How's it going everyone. My name is Scott Bennett, and thank you for tuning into the third decade podcast today, I'm joined by Jennifer Edwards. She is our lead financial mentor, a CFP, and, uh, really important to today, a certified student loan professional. And today we're talking student loans. Uh, hi Jen.
Jennifer Edwards:Hello, Scott. Good to be with you today.
Scott Bennett:The reason that we're touching on this now at the beginning of the December, 2021 is because just a couple months ago, the US department of education, uh, announced some, some pretty big changes and, and maybe not even changes, but they're looking at public service loan forgiveness a little bit differently. So we wanted to have Jen on to help us discuss these changes and what really could be game changer. For some people I've talked to some third decades who feel like they've kind of missed a boat on public service loan forgiveness, and that might not be the case anymore. Uh, but let's back up a little bit first, Jen, my first question for you is can you fill everybody in a little bit on what is public service loan forgiveness? Who does it apply to?
Jennifer Edwards:Of course. So the public service loan forgiveness program is, um, a way to get your federal student loan balance forgiven after 10 years of employment in the public sector. So if you work for like the government or in, u m, public education, u m, and any nonprofits, u m, those, u h, those years that you are working and paying on your, working in the public sector and paying on your student loans, u m, as long as those are federal loans, you can actually get y ou the balance of your student loans. F orgive after 10 years, it's just an incentive to help people maybe take lower p aying jobs, but working in the public sector. U m, and then this is gonna help you pay off your student loans. You won't have to pay as long, maybe pay as much that k ind o f thing.
Scott Bennett:Yeah. And, and for comparison as well, that that 10 years are really, as Jen will say, later, 120 payments is how, how the government really looks at it. It's, it's the amount of payments you have, which equates to 10 years. That is a lot less than the other, uh, income driven repayment plans for student loans. Correct. Jen.
Jennifer Edwards:Yeah. So if you're working in the public sector and you have a, repayment program that is under the, um, income driven umbrella, that would be like the income based repayment, the pays you earn, um, payment and the repay or the revised pays you earn, um, those are all 20 or 25 years, depending upon the exact program and your education level. Um, and those, so you do have to pay a, a lot longer, um, for those balances and also the, um, the forgiveness at the end of those, the way that the law is written right now, the forgiveness at the end of those repayment plans is also considered taxable income. So while you're not actually getting a, from the government, you will be considered, it will be considered that you have received some income from the government and, um, that will be taxable. Whereas in the PSLF program, your forgiveness is non-taxable. So there's, there's a couple of pretty, pretty important benefits to this.
Scott Bennett:Yeah, those are huge. And 10 years of payment versus 20 and 25 and having the loan forgiven and not seen as taxable income, which can be a big deal. Some people are having 50, a hundred grand forgiven and loans. And are having to take that as taxable income in one year. That's a pretty, pretty steep tax bill. They're
Jennifer Edwards:Gonna be yep. Need to get, need to get ready for that. If you're listening and you're not working in the public's sector, make sure that you're saving up and, and preparing for that. And you can, you can save up for that and take advantage of compound interest. You've got a long period of time, so you can still, you know, kind of invest that savings, but, um, definitely need to be prepared.
Scott Bennett:So this is you, you know, and what we're talking about today is strictly public service loan forgiveness, P S L F as we'll say, and the, the changes, as I said, that the US department of education has made, um, one of the, I think a, a big reason that the US department of education decided to make these changes and, and announce them is, you know, a few years ago, I remember the hot topic was how none of these things were given, getting forgiven. Right. And, um, there were news articles kind of popping up all over the place about, you know, throwing out 99% of all PSLF, applications denied for small errors and things like that. That being said, it is something to, I think that's where this announcement is coming from and where as Jen we'll get into, some of the leniency, i s happening. So, Jen, wh at, what are some of the specifics of that new announcement and, and when did it, when did this announcement happen and, and was it, was it expected or did it kind of c om e out of nowhere as it felt to me as somebody not super involved in student Loans?
Jennifer Edwards:Yeah. And, and before I actually get into the answer to that question, I do wanna alleviate some people's fears about public service loan forgiveness, because, you know, it, it did have a lot of bad press on it and just understand that the way that the laws were written, most people don't understand all of the, nuances to these very, you know, complicated contracts that they're signing when they're taking out the student loans. But everybody who actually completed all of the requirements for PSLF for that first round of forgiveness actually did receive it. Many of the people who applied really, they, didn't even work in public service. They were just out there seeing whether or not they could, um, you know, throw in this application and make it stick. But then there were quite a few people who, who missed it for little things that they didn't understand, like not having the right kinds of loans, or maybe they paid ahead in a way that they thought was paying down principle. And then it only counted for one payment instead of, you know, the number of payments that they should have been credited for. So there, there are some people who, who definitely were under the assumption that, Hey, I'm working in public in the public sector, I'm paying on some federal student law loans, and this should apply to me. Um, and, and while they didn't technically, um, they weren't technically denied because the program just denied them for no good reason. It, the, the spirit of the, of the law in itself was, Hey, if you're working the public sector, we really wanna help you, uh, pay off your student loans in 10 years. So I just wanna it to make sure that people understood, they, they really should be able to count on this, on this forgiveness coming. Um, but you do have to make sure that you are following all of the rules and what this, um, new announcement from the department of ed is, is doing, is it's giving us for a limited period of time. So, um, the middle of October, when it was announced through the end of October, 2022, so October 31st, 2022, if you go, and you apply for the public service loan forgiveness program, updating your employment history. And, you may have to do a couple other steps like consolidation, those kinds of things, but for a limited period of time, some payments that didn't use to count toward your 120 qualifying payments may be considered as actually qualifying towards your, towards your public service. You know, the count, the number of, of payments that have to count toward that 10 years. So, um, that's, what's opening up is, is kind of a new, a new way for some payments to be counted that that previously couldn't be counted at all.
Scott Bennett:That's huge to have new payments count that didn't before.
Jennifer Edwards:Yeah, because there, the, the public service loan forgiveness was program was created in October of 2007. So we're really looking at about a 15 year period of employment. So there could be people who are gonna get forgiveness right now that didn't, weren't aware that they were gonna get it at all, because they maybe had the wrong loans for a while, or, um, they, they worked in public service before when they had the wrong kind of repayment plan, and now they're in private. Um, so yeah, they're gonna be, and then most people who are working toward this are gonna find that, that at least a few payments get applied that weren't there before. Um, but it's important to recognize that you it's, you really must apply, take, take some initiative on, on getting this, these, um, extra payments applied. You might have a second step of needed to consolidate some, maybe, um, family, federal education loans, the fell loans. If you see those on your loan, um, uh, on your loan summary, uh, you might wanna cons consolidate those or Perkins loans as into direct loans, because that's the only kind of loans that the department of education has the power to forgive. Um, and then the, the new quality is that it used to be that when you consolidated the fell loans or the Perkins loans, or, even other direct loans into a new direct loan, you, um, lost your payment history. So what's happening now is they're actually going to count all that payment history after the consolidation. So, um, you know, you're, you're move these into a different kind of loan and actually have all of those months that you paid will, still count toward the public service loan forgiveness if they were direct loans before.
Scott Bennett:So, and that, I think this is a really important distinction that consolidation, cuz for a lot of people who, who are thinking about student loans and because of commercials and stuff, when, when people think consolidation, they think consolidating to maybe a private provider, it's really important for people to think if you're gonna consolidate they, in order to, to qualify for this, you have to consolidate to direct department of education loans. You cannot consolidate to a private provider, no. Right.
Jennifer Edwards:Who is not right. And in fact, you know, private loans are not eligible for public service loan, forgiveness period.
Scott Bennett:So I think that that's a good point to, to, jump into my next question, is who exactly does this announcement apply to and who doesn't it apply to if, somebody's listening to this and they go, I, I think this could be me. Um, who, who is that person?
Jennifer Edwards:Yeah. So for sure, um, it's going to apply to people with federal student loans. So if you, um, never took out federal loans, then this wouldn't apply to you at all. If you have paid off federal loans, this is also not going to apply for you, but if you are still paying on any federal loans, um, even if you, um, you know, i f as long as you haven't already, y ou received your forgiveness and you haven't already paid them off, u m, then this is, this i s, c ause I mean, if they're paid off, t hen t hat you don't need t o forgiveness, right? So this is taking care of leftover balances. That's what forgiveness is doing. So if those, if you have federal student loans and you're still paying, haven't already received forgiveness or paid them off, and then you work o r, you know, currently work or have worked in the past, u m, in some full-time capacity in the public sector. So that, that applies to the, you know, most governments, um, organizations, not, those who contract with governments though. So just be sure, you know, if it's somebody who contracts with the government organization, but their employer, isn't the government, um, that might not apply as a public service organization, education, public education, any tax e xempt, u h, 501c3 or, o r a, not f or p rofit that is not tax exempt under the section 501c3 of the IRC or the internal revenue code. So there are some organizations like hospitals, u m, certain therapy groups, s ome things like that, or, u m, like a, a, an organization that performs law, s o services, u m, pro bono or something like that, that, u m, you're not sure f or, it doesn't may not look like a, not f or p rofit, but, u m, because they're not a 501c3, but that doesn't necessarily mean that they're not a n onprofit. So just make sure, um, that, you know, whether or not your employer is, uh, a nonprofit. There's a, you go to the, the website, um, the student aid.gov, um, just like it sounds student aid.gov is the official, um, website for the department of ED. And that's where all of, you know, that's where you're gonna need to rely on that information, not just, you know, a secondhand blog or something like that, that's where the official information is. And you can see right there, if you just type in PSLF in the, in the search bar, this limited waiver will, pop up. And there's a, there's a help page. There's a lot of, um, informational pages that you can click on to see who exactly qualifies as that kind of employer. Um, so if, if you have a question about that, you can find that out. So if you're working currently or have worked in the past, um, in a, nonprofit government or education and have federal loans, and you're still paying on them, this will apply to you.
Scott Bennett:Got it. Okay. That's, yeah, that's really helpful. And sounds like as, as you keep talking about it and you hinted at this before, it might take a little bit of digging and research and a little bit of effort, but we're talking about for some people, a really kind of game changing type of, of thing. If you have lots of student loans and you are in the public sector working, and maybe your income isn't, um, because you are in the public sector, you don't have the highest come. This should be something you look into, for sure.
Jennifer Edwards:. There are some health healthcare professionals. I know with large student loan balances, law professionals, I know with large student loan balances that work in the public sector, um, you know, teachers
Scott Bennett:Even with, with their masters degrees.
Jennifer Edwards:Y eah, definitely. Y eah. But remember this doesn't apply to private loans. So a consolidation, we do sometimes get those terms mixed up a consolidation is just paying off more than one loan and, and consolidating it into one loan. So, u m, that can be done just by consolidating several federal loans into one federal loan, and it stays at the federal level. And, and then really we should be thinking of the, using the term refinance. When we mean taking a federal student loan b ack and putting it into the hands of a private lender, and that's usually done to lower a n interest rate and, a nd usually involves both steps of consolidating some federal loans and, you know, usually come o utta school with more than one disbursement. So, You know, you're doing both of those when you refinance, but really a private refin, you don't refinance federal loans. You only refinance into private loans and you can refinance pr ivate l o ans. Yeah. And you can refinance a private loan into another private loan if you want to.
Scott Bennett:They're, and they, a lot of times they'll sell them as consolidations to people as well. Oh, you have all of these loans. It's really confusing to know which ones let us package them all up for. And so you only have one payment and, and maybe sometimes the interest rate is lower, but we,
Jennifer Edwards:But understand, you don't need to, if you're, if you're like, oh, I wanna take six loans and consolidate them into one loan, you can do that through the department of ED without having to refinance with the private lender. And, and also the department of ED has already, all your servicers will turn it into one payment. You're not, if you come outta school with seven loans, you're not making seven different payments. They've already done that for you. So don't, don't think that, that that's gonna be, u m, you know, a reason to refinance is not to just, oh, I don't like having seven payments. Y ou, you're not gonna have seven payments anyway.
Scott Bennett:Right. So to me, the, the biggest thing with this announcement is it seems like the, the broadening of the types of payments that will now qualify towards borrowers minimum 120 that might have, might have qualified before, but might have been looked at a little bit more stringently or something. So what, what are those, what are those changes in terms of the types of payments that are now counted with this announcement in October? Um, and, and that people could, could maybe have that little look back for and say, huh, did any of the payments I make qualify towards PSLF
Jennifer Edwards:Sure. So payments that, um, were may aid under a, standard type of a repayment program, a regularly amortized program, like the standard 1 0 y ear, t he graduated or an extended program, those are not income d riven repayment plans. And it used to be that the only payments that would count toward the 1 20 were ones that were made under an I DR. So now if you had, maybe you had, u m, maybe you had a standard repayment for a while, and then you switched to an IDR. If you had an income, you know, go d own and you couldn't afford that higher payment anymore, but you w ere working in the n onprofit when you were making those standard 10 payment, y ou k now, standard payments. Those will now count. So, u m, you know, ones that were traditionally amortized, those are now gonna count as long as they're, again, just federal loans, u m, p ast payments made on those f ell and Perkins loans, and even sometimes there's some federal programs for some health services that are like only specific for doctors and those kinds of things, u m, used to be that once you consolidated to try to get into the program, that would make you eligible for PSLF, that you would lose that payment history. So a lot of people didn't up consolidating because they didn't wanna lose the payment history on those Fell and Perkins loans, cuz they were, they were moving toward forgiveness already. Um, and you know, of, of the other kind the 20 to 25 years. Um, and so they didn't, um, consolidate those. So if you consolidate them now there's this special accomodations being made for past payments on these federal loans, even though they weren't direct loans before you consolidate them now into direct loans and they will consider those, um, past payments to count toward the PSLF program where they didn't use to. Um, and then, and then a lot of people, you know, this is really the one that I think the servicers need to make penance for. And that's kind of what's happening here is sometimes this, it was a servicer's fault. People would be making like maybe just a few dollars less than what they were supposed to, or it came in a couple of days late because of weekends or holidays or, um, you know, just different reasons that you might be, um, a little bit late having a partial payment. Um, those are all gonna count now. So if you can, so show, Hey, I was supposed to pay 150, I paid 148 and they said it didn't count because it was a, wasn't a full payment. Absolutely. That's, that's one of those ones that they're expecting to catch now and, and have count towards your 120. Another. type is early payments overpayments or, or paid ahead payments. So a lot of people didn't don't understand that income driven repayment plans are, they don't behave like traditional amortized loans, and we go into that in a different podcast to review that if you're wondering how those work, but when you pay ahead, let's say you, you got a lump sum from somewhere and you said, okay, I owe$300 per month. I'm gonna throw a thousand dollars in here this month instead of just 300. U m, and, and you thought that that might pay o ff$ 700 toward the principal amount that you have, u m, in your, in your federal student loan balance. That's not how income driven repayments work. And so that thousand dollars would only count as a one month payment. And so if you were like, well, actually it really covers three months of payments. If I owed$300 per month, that a thousand dollars covers that month. And then the way that they count'em is it's paid ahead. But because you only actually made a payment in that one month, it didn't get counted as three payments. It got counted as one payment, even though you didn't, you didn't really owe any more money for three more months. So<laugh> those kinds of crazy things where people thought they were doing a financially responsible thing by paying off principle. Um, and the way that IDRs work just didn't happen that way, if you go, and you're like, I really paid ahead. Some payments should be counting for some extra months. Um, those, those kinds of payments will count early payments. Sometimes you paid maybe at the end of a month. And so it counted as twice in one month, and then you didn't pay the following month and you thought that it was gonna, you know, just the dates landed where they did. Um, all of those little things they're, they're gonna wanna catch, but, but the big thing is these, you know, these Fell and Perkins loans and then some of these other payment plans, but everybody's probably gonna find at least a payment or two that, um, didn't get credited that could now be credited.
Scott Bennett:And is it on, is it on the borrower where themself, like for that, for that payment, right? Um, that you brought up the thousand dollars that somebody paid that the lump sum, um, that only counted towards one when maybe it should have counted towards three or four, is it on the borrower themselves to calculate that or in doing this process and kind of reapplying are borrower supposed to try them to do that, look back and calculate that?
Jennifer Edwards:Well, I just wouldn't trust them.<laugh> I, if, if this was my balance and I was expecting forgiveness and, you know, I had student loan and I was trying to get this forgiven as soon as possible, I would go back and look at the records myself and calculate how many I think should apply. And then, um, you know, what, what we're gonna suggest that every, every borrower due is to actually write a physical letter, explaining to the department of education, you know, detailing how many payments you think really should be applied. And, um, you know, I was in the public sector for this period of time. Then I moved to the, I was in the public sector. Then I moved to the private sector. Then I moved back and, um, you know, so this period of time back here should count. Um, or I was on a military deferment. And even though my loans were in forbearance, interest was still accruing on those, even though I was in the military in an active duty and I wasn't making a payment, they're, not promising for sure that they're g onna give somebody who wasn't making any payments b ecause they were in forbearance on a n a ctive, on active duty. They're not promising that, but they're suggesting that, that they might consider those. And so if, you wanna say, Hey, I was, I was serving my country, putting my life on the line to defend us. And I, you know, I wasn't making a payment, but c ertain r eally make your case, u m, detail, how many payments you think should be applied? U h, the department of education has to deal with physical letters differently than they deal with electronic communications. So, u m, y ou know, this, this could amount to thousands of dollars and for some people, tens of thousands of th e d ollars could be a very large amount for people. And even if it's just a few hundred, if you think about the, the number of hours that you might spend on that and how much that might yield you, um, you might wanna just carve out some time to go back and look at that at least figure out how many months you were working in public service and how many months you believe you were, you know, you were making payments, even if you don't go into the detailed, well, you know, if, if you can't find your statements, you know, your bank statements to show all of that, just be like, I was working here for this many months and I was, I had student loans and I was regularly making them, nobody can say that I was, um, you know, getting into default or anything like that then. Right. Um, definitely have a good case there. They've said that they're going to do this on behalf of borrowers and that, um, you know, people shouldn't have to, you, you just still need to apply and, and cuz that's certifying your, income that's that's where it's coming from is that you're in the public sector, but I would didn't trust them to, to be sure to count all of those exactly. Right.
Scott Bennett:As detailed as you would be.
Jennifer Edwards:Cause just think about it you're, you know, it's your money and you have a greater stake in it than they do. So
Scott Bennett:Yeah. You touched on this a little bit before, but I, I think the most important question and my last one here, before we wrap up is what should someone do if they think so you're listening to this and you think, or, you know, somebody who this might apply to, what should their order of operations be? How should they go about this to, to see if they, they might have some and, and what's the process.
Jennifer Edwards:Yeah. So first of all, all federal student loan borrows should update all of their contact information with their servicer and go to make sure that they know how to get in touch with them. Um, so, you know, if your email's outta date or anything like that, they, they need to be able to contact you. Um, as, as all of this is happening and that's, that's the case for all student loan, borrowers, not just those for PSLF, especially as we're coming out of the cares act forberance program. Um, I mean, defer deferment. So just make sure that your contact information is up to date and download your student loan records, all of your payment history, make sure you you're keeping that on a PDF somewhere safe, um, to, uh, make sure that you have that there's gonna be a lot of servicer changes, changes happening, um, fed loan who used to process all PSLF applications is not gonna be a servicer anymore. And you just don't want your payment history or your information to get lost in the transfer. If you find that you need to verify with the new servicer that you actually do have this much, um, in terms of your payment, history or balances. Um, so second, if you, if you work now, if you've worked in the past or even if you are like you worked, you used to work in the public sector, you're now in the private sector, but you're thinking you might go back in to the public sector in the next little bit. Um, you know, you could, at this point, you want to reapply for the PSLF um, so check your payment history, review the kinds of loans you have. Um, and, and, and then apply again, telling them, you know, if you are working in the public sector, it lets them know that you're currently eligible for, for this program, review your payment history, employment history, make sure that they have that correct determine how many payments you think should count. Um, and if you have other loans, so look at the kinds of loans that you have. Again, student aid.gov, anybody who has federal loans needs to have a login to that website. And you can go to the loan summary and see if you have any other loans besides direct loans. Um, you would need to consolidate those into direct loans to participate in this, in this extended, it's called a limited waiver program, um, to account those toward the, the 120. So your past payment history will account, so apply to the PSLF program, check your loan history, update your contact service information. There's only one application. It all says the same thing. It says, you know, public service, loan, forgiveness program, temporary extended public service loan, forgiveness, it updates your status, um, employment status, and in income information just on that one. And it can be done online. There's a, there's even a help tool. Now that walks you through kind of where you need to go and, and what you'd need to say there. And I also do need to, um, let everybody know that this does not apply to parent plus loans. So those are federal loans, but they, they don't apply to the limited waiver, only the ones that were taken out by the borrower themselves.
Scott Bennett:Okay, well, thank you, Jen, for, for filling us in Jen is also gonna write a blog post on this, cuz it is super important that people can refer to as well. And thanks to everybody so much for listening. This, this will be my last podcast with the third decade podcast as I am going on to other adventures, uh, still be very involved with third decade. I'll be a volunteer financial mentor, uh, from this point on. But, uh, the third decade podcast will take a little bit of a break. We'll continue posting podcast episodes in the spring. Um, in the meantime, in our newsletter, we're going to post other podcast, personal finance podcasts that we find helpful and useful. So feel free to check those out as well. So, uh, thank you so much for listening and we will, or third decade, we'll talk to you again in the spring
Speaker 3:And.