Talk Wealth to Me

#097 Student Loan News and its Potential Impact

August 06, 2021 Felipe Arevalo, Chase Peckham Season 4 Episode 19
Talk Wealth to Me
#097 Student Loan News and its Potential Impact
Show Notes Transcript

The world of federal student loans is changing. Especially for all of those looking to take advantage of the Public Student Loan Forgiveness (PSLF) programs. The Pennsylvania Higher Education Assistance Agency (PHEAA) or Fedloan, one of the largest student loan servicers and the only servicer handling PSLF loans recently announced it will not be looking to renew its contract as a student loan servicer. What does that mean to the millions who currently have Fedloan as their servicer? What should you do now to prepare? What should you be on the lookout for? Will your loan or forgiveness terms change? For this episode Chase sits down with our in house student loan specialist Felipe to get these answers and more.

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Intro:

Welcome to Talk Wealth to Me, a safe space podcast, where we chat about anything and everything related to personal finance. The information contained in this podcast is for educational and entertainment purposes only. It does not constitute as accounting , legal tax or other professional advice.

Chase Peckham:

Good morning, TV star.

Felipe Arevalo:

Hey, good morning, Chase. How's it going?

Chase Peckham:

Great. And by the way, you definitely have a face for podcasts.

Felipe Arevalo:

I agree.

Chase Peckham:

Not television. No, I'm just kidding. You looked great on the CBS morning news here locally in San Diego the other day.

Felipe Arevalo:

Yeah. I told my brother. Hey, I'm going to be on the news this morning. And he was like for a good thing?

Chase Peckham:

That's awesome. Well, you are, you are our resident expert when it comes to student loans , uh, you've worked with many, many, many, many people , uh, on figuring out their student loans and the different programs there are as far as , as getting breaks or getting deferring payments and those kinds of things. And we'll get into that in a second, but just the other day , uh , the U S department of education's primary student loan servicer announced that it was going to be exiting the federal student loan servicing business at the end of this year, which as a Forbes article, put, it could throw shock waves through the industry , uh, and, and confuse , which is already a confusing thing for most people, even more so. Um, but so explain to us, what does this announcement that the Pennsylvania higher education assistance authority made, who was the servicing arm of the department of education? What is this going to do to student loans in general?

Felipe Arevalo:

Yeah, so better known as FedLoans, which most people would see it and be like, oh, wow, I've never heard of the Pennsylvania, but I have a fed loans. Same thing, just a different name. Uh , it was actually my servicer for , for the most part paying when I was paying off my student loans back in the day. And really it's, it's everyone's servicer who is trying to take advantage of the public student loan forgiveness program. So that is a huge amount of people. And that is one of the most confusing parts to student loan repayment is people who are taking advantage of that public student loan. And, and now there's a lot of uncertainty who does it go to? Who will the new service or be will it, will they all move to one other servicer that specializes in public student loan forgiveness, will that make it easier to qualify? Would make it more difficult to qualify? What should I do? There's just so many question marks. I am just glad I'm part of that anymore. As far as being a borrower , uh , because in a perfect world, it should go very smoothly and it should transition over without a hitch, but that's not always how things work.

Chase Peckham:

No, but, and I would imagine Phil from one aspect that the new company probably that takes this over because there will be another company that takes this over.

Felipe Arevalo:

Right.

Chase Peckham:

From their end. It could be seamless in the fact that nothing much will change. However, the consumer itself is where there could be major issues. Correct?

Felipe Arevalo:

Yeah. So as a consumer in a perfect world , uh, your servicer can change and, and this is no different than.

Chase Peckham:

It happens all the time anyway.

Felipe Arevalo:

Right? And this is no different than, you know, when we talked to, to the expert and they're telling us about the Mr. Credit and the mortgage industry and everything like that, where you might have your mortgage with one bank and all of a sudden, it's all, you're paying it back to someone else or, you know, so the terms don't change, you know, when you switch from one service there to the other, but it's a completely different company. So you have new, you had to create a new login . If you log in online payments, go to a different address, a new customer service team, hopefully they do better than the last one, but you never know, you know, FedLoans was, it was pretty easy to work with for most people. So, and that the timing is also very unfortunate. As you know, as of right now, this could change student loan payments are going to start back up for everyone, you know , after September. And now you add in the uncertainty of, I haven't made a payment since, you know, pre pre COVID because they've been on, you know , the special , uh, no interest, no payments during COVID. And all of a sudden, all I got to go back to making payments, do I have to reapply for income-driven repayment plans because you apply for those every year and you haven't applied for them in the last year. What plan am I in? When will my payments start? And now who am I paying it to? Who's my servicer. It's just a lot coming down on these student loan borrowers right now.

Chase Peckham:

And it's probably difficult for the student loan for the borrower already, just for the mere fact that they've got to remember that they've got to do that , uh, and not doing it for a year and a half. And just remembering in normal times, just to re-up every year it's you have to put it on your calendar to remind yourself, right. I mean, that's something that they have to do.

Felipe Arevalo:

Or open your mail.

Chase Peckham:

Right? Cause it all looks like junk mail.

Felipe Arevalo:

Well , it all looks the same. Right? And , and it's something where if you, because it's been awhile , maybe you didn't even realize that I'm not getting a statement or I moved and haven't updated my information with FedLoans. So if you're a borrower and you have FedLoans, go on there, update your contact information with fed loans. If moved, if you have don't use that email anymore, you know, or you started blocking the emails from them, go ahead and make the changes so that they can contact. You, update your contact information with the department of education or federal student aid, because they're going to need your con whoever the new servicer is, is going to need to contact you. And if you have an updated your new address, your new phone number, your new email, and they can't get ahold of you, that that can cause some serious problems down the road.

Chase Peckham:

So they should do that now they should go in and make sure everything's current with the, with the current servicer. So when that change happens, everything's up to date because things could get lost anyway. Right?

Felipe Arevalo:

Right.

Chase Peckham:

Things like that happen.

Felipe Arevalo:

Yeah. And we always recommend to keep your address is up to date with all your creditors in general. Does that always happen? No. Um, you know, I just moved recently and it's a kind of a pain sometimes updating your address with creditors.

Chase Peckham:

It just gets tiring.

Felipe Arevalo:

Yeah. I mean, some of them you got to do, and then you, you think you're done, but then you're like, oh no, the auto department of that bank is different than the credit card department, which is different than my regular checking and savings department. So you're telling me I have to go and update it with the same bank, three different times for it to actually get everything moved over. And that's a lot of work. And if it's not difficult,

Chase Peckham:

It's a giant pain in the as,

Felipe Arevalo:

It's a pain. Exactly. That's exactly what it is. And I was like, Sarah , did you update them? And she's like, no, that bank you have to do because they have you as the primary,

Chase Peckham:

Yup.

Felipe Arevalo:

That's the one with most calls too . You got all the easy ones and I got one , that's a pain, but it's something where if you have changed your address or just, just in general, log into your FedLoans, contact FedLoans, update your contact info, go onto students , uh , studentloans.gov or the federal student loans website, make sure that department of education has your most up-to-date address. So then when your information does go to the new servicer, you have the ability to, they have the ability to contact you because that's going to be important. Otherwise, you know , then you're having to look around to see when it's transferred and who has it . And the new servicer is.

Chase Peckham:

Yeah. And I guess what's been in the news a lot lately, especially since the new administration has taken over that, you know, there was, there's been talk of, you know, forgiving student loans and all that kind of stuff. Um, what does this, how does this play into that? If at all?

Felipe Arevalo:

I don't know, that it does. I think that's a bigger topic with, with student loans is , is trying to get that amount. We're trying to get those student loans forgiven partially or fully, but, you know, regardless of who your servicer is, your, your student loans, your federal student loans are still going to be with the of education.

Chase Peckham:

Right it's not going to matter .

Felipe Arevalo:

It's not going to matter whether FedLoans has them or Navient or one of the other ones. Uh, it's not going to matter if they get forgiven, they're going to be forgiven regardless of who's servicing them and vice versa.

Chase Peckham:

That's a whole different discussion that I don't want to have. We've all paid back, our student loans. Can you imagine now everybody, oh, here, just forget it. But for those of us, who've already paid that crap back.

Felipe Arevalo:

If they're going to toss me a refund for the money paid. I mean,

Chase Peckham:

Yeah but who is they? We're the government, right ?

Felipe Arevalo:

Right.

Chase Peckham:

The money comes from us, Exactly. Anyway, that's a whole different discussion.

Felipe Arevalo:

That's a whole different podcast it would be very interesting. Uh, yeah . We may have to get a guest to counter our point of view on that one. And that could be very interesting,

Chase Peckham:

For those people that , That, that don't know, talk to us a little bit about the public service loan forgiveness and what that is in the first place and what they were doing in that process, for those that don't even know about that and whether they even have that option .

Felipe Arevalo:

Yeah. So the public student loan forgiveness is set up. It was, it's been going , uh, for a couple of administrations now.

Chase Peckham:

I believe around, I believe since 2009 10,

Felipe Arevalo:

Something like that. It was under president Obama early on.

Chase Peckham:

In his first term .

Felipe Arevalo:

Yeah. And, and it's something where it was set up where you can, if you work in the correct industries, non-profits , um, you know, certain government industries, qualifying job.

Chase Peckham:

Teachers,

Felipe Arevalo:

Teachers that kind of thing, and you make 120 on-time payments under an income driven repayment plan. You could then qualify to request the remaining part of your balance on your student loans to be forgiven, which sounds great. And really it's something where I have been working for a nonprofit for over 10 years, that would have been a cool feature to take advantage of ,

Chase Peckham:

Sure would have.

Felipe Arevalo:

Um , you know, but, but there's, there's a couple there's there's caveats to it. You have to be on the income driven repayment plan.

Chase Peckham:

And so what is that?

Felipe Arevalo:

So the income driven repayment plans, there's a couple of different ones and it really just depends on where your income fits.

Chase Peckham:

Six, six to be exact right?

Felipe Arevalo:

Compared to family size. Uh, it sounds about right. I , I,

Chase Peckham:

I, I believe there's six different programs.

Felipe Arevalo:

Some are used a lot more than others.

Chase Peckham:

Yeah.

Felipe Arevalo:

And, but you don't have to, if you decide to jump onto one, you don't have to try and figure out which one works best for you.

Chase Peckham:

I think you fit in one.

Felipe Arevalo:

The thing will tell you, right, you'll fit into the bracket. You may have one or two choices, and , but you'll clearly be able to see this one's better than that one.

Chase Peckham:

Gotcha.

Felipe Arevalo:

Um , so it's income and family size, and it's something where you, you have it, you get put on a monthly lower, usually that's gotta be a lower monthly payment amount for a year. And, you know, based on your income and family size, and that could be as low as $0. So you could be making a $0 payment on your student loans and still technically be making on time payments. Now, while you're on those, if your low monthly payment doesn't cover your finance charges, your balance is going up. And that's something that's very important for people to remember that, you know, if you have a income driven repayment plan and you're taking advantage of it for, let's say five years, and all of a sudden you get this really great job, or, you know, your family situation changes, maybe you get married and your spouse makes a lot of money. And now you're filing your taxes jointly and your household. Income is shot up or whatever it is you might owe more than you did five years ago. And all of a sudden, or you change employment , you get this great job at some big company that doesn't qualify for that anymore. You may owe a lot more than you did five years ago, six years ago, seven years ago when you first started.

Chase Peckham:

So you're basically deferring it,

Felipe Arevalo:

You're deferring it.

Chase Peckham:

But I mean, it depends, you might be paying a lot less.

Felipe Arevalo:

Right,

Chase Peckham:

Or nothing at all.

Felipe Arevalo:

Plan, you might be able to cover interest and , and, you know, depending on where your income and family size comes up, you might end your loan balances and APR. You might be breaking, even in which case you, at least won't owe more, but, but it's something where after 10 years is what 120 payments comes out to in math. They used to say 10 years, but it's 120 payments. Uh, that's assuming you made a payment every year. So I don't know exactly how that's going to work with the last year and a half or whatever, where people haven't been making payments. I don't know if that stopped people's timer. Um, you know, for the last year and a half, I haven't looked into that. That would be a good thing to look into, but, you know, you make those payments whatever's leftover, you can request to have it forgiven and, and, you know, that's a great benefit to, to a lot of people, if they can get that amount forgiven . And it's something where , um, initially , um, the public student loan forgiveness , uh, had a very low success rate. Uh, it was a lot of people who were applying that were getting declined because, you know, they made their payments. Weren't on time. They weren't under the correct repayment plan. They , uh, you know, it's 120 payments on the plan, 120 on-time payments. If half the time your payments were showing up late, they may not have counted. You know, if you didn't have the correct verification of employment, and now it's eight years ago, where was I working? How do I verify that, you know, that could be difficult. And that's where if you're on the public student loan, forgiveness track, and you're , so you're with fed loans. If you have any of those documentations showing that you were approved onto the income-driven repayment plans, showing your payment history, that they've been on time for the last 10 years, your employment verification forms, all of that information, you want to try and save in case somewhere along the way in the transfer that information doesn't get sent over to your new servicer, whoever that happens to be. And that's where the big, Ooh , this could get really dicey part of it is, you know, if it doesn't work right, like it should. Um,

Chase Peckham:

So you just have to be diligent? You just got to keep on top of it.

Felipe Arevalo:

Yeah.

Chase Peckham:

Like any other bill that you're going to have.

Felipe Arevalo:

Yeah. This one will be a little extra work for those on the Public student loan forgiveness, just because there's that extra level of what if , uh , you know, if, and this happens Chase, you know, we hear about all the time, oh, mortgage we've talked about in another , um, podcasts where it's like, oh , the market went from one mortgage servicer to the other.

Chase Peckham:

It's happend to me three times.

Felipe Arevalo:

One payment. That one payment doesn't go through type of thing. Uh, you know, it, when my student loans changed to FedLoans from, I believe, great lakes back in the day, and there was that there's that one payment, it just got lost somewhere in the shuffle where you made it to the old servicer and then the new service , or gets your loans and says your payment was due. You haven't made it. And, and you know, that could be , uh , you know, it could take a while and you want to make sure that that payment counts towards the 120. And you want to make sure that, you know, that that money doesn't just kind of get lost in the shuffle. And they usually will do a good job of eventually figuring that out. But it's a little bit of a , uh, it could be a little bit of a headache there.

Chase Peckham:

Yeah. Unfortunately I think that's just kind of the way it goes. So bottom line is, this is , uh , you know, it's getting a lot of news, but this really shouldn't outside of the normal changing of the services. Uh, they're not going to change the rules based on whoever the new servicer is.

Felipe Arevalo:

Right. The rules should stay the same, the rules, if the rules change, it's not going to be by the servicer . That's going to be the department of education, federal student aid. Uh, it's not the servicer. Doesn't get to set your terms. Uh , they just basically service the loan. Your interest rates will stay the same. Your repayment options will all stay the same. And it's something where you shouldn't have to worry about it, but it's better to be prepared and have that backup plan just in case. You're one of the people who inevitably, you know, have issues. And it's something where, you know, it could happen where, you know, things don't transfer over smoothly. And it'll be interesting to see if they select a servicer that's been doing it already, or if they select, or if there's a new one that comes in and just kind of takes over everything Fed Loans was doing , um , you know, or if they reach into one of these servicers who have been servicing student loans, they just weren't doing the public student loan forgiveness.

Chase Peckham:

What about those people that are doing auto debit, like had it on auto debit forever. Um, it was just a normal practice, right? You're just, you're used to it coming out. Um, and then it , we, everything got suspended for a year and a half now, for those that are on auto debit, will it just resume when this happens or should they, well , as you've been mentioning that this entire time stay diligent and check on all of it , that

Felipe Arevalo:

If your , if your servicer isn't changing at some point,

Chase Peckham:

But even if your servicer is changing.

Felipe Arevalo:

well, if your service is changing, you definitely need to set up Auto debits. They won't, your new servicer. Won't be able to debit your account like fed loans did. If, if you're moving from fed loans to someone else, they'll have to set up like a new online log in and you'll have to , uh, you know, set up payments and giving your banking info and all that again. And if you're used to auto payments, like most of us are, you know , car payments on auto. The, this is on auto, that's an auto, you know , it is going to be one more thing that you need to set up and, you know, but you may not have been making payments the last year and a half. So you may not be used to that auto debit coming out of your account anymore. And then you've got to just adjust your budget and realize that it could start back up. There are talks to try and extend the , the, the current program again , uh, through, I think they want to do it through March for no payments, no interest. And, and I've talked to some people who have said, you know, what's cool about this is I could , you know, fortunately still afford this payment, every single payment I sent go straight to principle.

Chase Peckham:

Because they still can make it right?

Felipe Arevalo:

You can still make payments. Yeah. And I know some people are like, you know what, I'm making great progress because I just kept sending the same payment I've been sending before. And no nothing goes to interest rates, it's just coming straight off the top, which then makes you have a year and a half of 0% APR.

Chase Peckham:

Basically interest free.

Felipe Arevalo:

Right? So, so it's something where, you know, some people who are fortunate enough to , to have been able to do that, have continued to make those payments, but it's something where you really want to , uh , stay on top of it. And , and you know, this is that thing Chase. And it sucks that we even have to say it is now we know you. And I know, and everyone else in America knows that 8 million people are waiting for something in the mail saying, we are now your student loan servicer, or a call or an email, please give us your banking information so that we can set up your payments. And you have to be careful because unfortunately there will be those out there who try and exploit that.

Chase Peckham:

Scams.

Felipe Arevalo:

And those scams are going to be out there. And guess what? There's 8 million people is that what FedLoan services. That's a big opportunity for scammers. And, and it's unfortunate that we have to say it, but you have to be on the lookout for that. You know, if you have a student loan and all of a sudden you get an email from one of these other servicers saying, we now have your FedLoan account, you know, click here to create your account login or , or something like that. You've, you've got to be careful, you know, what did emails from these other services look like? You get an email from Navient , but it's misspelled differently. I don't know how to spell Navient to begin with. So, you know, is it the right one? Is that really your new servicer so just kind of keep on top of it , uh, you know, log into the federal student aid website, verify that's your new servicer , uh, and , and, you know , check your credit report. It might take a little longer to show up on your credit report than it does on the federal student loan aid website, but log in there and verify that that's your new servicer, or maybe you get their contact info from there and then call them and set things up that way just to avoid falling victim to a scam.

Chase Peckham:

So what about, let's say it's been a while since you've put in information about your like employment certification and all that kind of stuff, should you go ahead and do that with the current company before that gets turned over? So basically that you've updated all your personal information address and all that stuff. Is it diligent to just re submit all that stuff prior to, or should you wait until the new servicer comes along?

Felipe Arevalo:

Really it doesn't hurt to do both , uh, you know, go in there. And if, if FedLoan is, I don't know how FedLoan is doing it, you know, they may say you don't have payments coming in right now because there's no, and this could be part of the reason they decided to get out of the student loan servicing game is because, you know, it's something where it could be easy right now. There's no payments being made. There's no, or there's no payments being required there. You don't have to submit income driven repayment plans or anything like that because everyone's payment is zero and this might be a good time for them to , so I don't know if you even can at the moment , uh, to answer your question, but you definitely will want to, as soon as it does transfer over, and if you can with FedLoan, then yeah, go ahead. And , and, and that process takes a while though. So it might still be going by the time.

Chase Peckham:

Gotcha. But I mean, at the same time then, because you were talking about scams just a second ago and the fact that those could be very prevalent coming up , uh , there will be a lot of those. So you shouldn't follow up and answer any email that you get, or any mail that you get, you need to, anything you get, you need to look online and find out if they're truly as a new servicer.

Felipe Arevalo:

I would.

Chase Peckham:

Yet contact , uh , yeah. Before you do anything , uh , just because they're going to take, they're going to prey on people with that, you know, having anxiety in this situation that,

Felipe Arevalo:

Right,

Chase Peckham:

that are confused, don't know what's going on. So you , before you do anything and don't click on anything that says go here , uh , you need to make a phone call , uh, and, or look online to see who the new servicer is. If even if , if that's even happened yet, but it's going to be a while.

Felipe Arevalo:

Yeah. It's something where it's better to be safe than sorry, unfortunately, and it's unfortunate that it has to be this way, but you know, you can't trust an email. Uh, you can't trust a letter. You know, letters are a little bit more official, but emails are so easily, easily manipulated. You really don't want to, you know, you could go to a studentaid.gov, the, the student aid website and log in with your credentials there.

Chase Peckham:

And, and that's the way you're really going to find out.

Felipe Arevalo:

Yeah. And they update their , the student loan servicers update them weekly. So you get something in the mail or you get something via email and nothing popped up, you know, check next week. And if nothing's popped up there or it hasn't changed there, then you can pretty much be.

Chase Peckham:

And they will probably have look , you know, big headlines look out for this scam and all that information on there as well.

Felipe Arevalo:

Yeah and it's something where you, you also might get something from FedLoan prior to the change saying, I would hope so saying, you know, cause they're supposedly they're working with the department of education and federal student aid in the transition process. So their , their contract ends, but they're not just cutting it off at that point. They're going to work their way through the transition as they should. And , and it's something where you will probably get correspondence ahead of time from FedLoan saying, Hey, beginning on this date, or sometime in this month, your student loans will now be served well, will be serviced by ABC student loan servicer or whoever they happen to be. So it shouldn't come as a surprise where, you know, you wake up in the morning and you're like, oh, it looks like my student loans got transferred to this one. You know, it, I would , I would hope that you would get correspondence prior to that change, you know, because not everyone watches the news, not everyone listens to our podcast . I know, I like to think that everyone listens to this, but you know, some people won't hear about it. And if they student loans isn't at the top of their mind at the moment, they might not know until they get something from their new services . So hopefully they open their mail. Hopefully they open their emails from their current service in this case, FedLoan. And hopefully one of those says, Hey, look, your student loan , uh , is going to be serviced by this company.

Chase Peckham:

And again, be diligent. And double-check , don't just take that mail for granted. There are great scammers that make things look very official, look very real on a regular basis. Um, so just, just make sure that , uh, you do your due diligence and Phil, thanks a lot. I mean, I learned a ton from this. I didn't even know this was happening. I mean, I I've been so far out of student loans for so long. Um, and , uh, it , it's great that we have you to, to discuss this kind of stuff as it, as it comes forward or, and it moves along. So thanks

Felipe Arevalo:

And no problem. And it's something that happens. I mean, there was another student loan service much smaller than federal loans who doesn't do public service , loan , forgiveness, also getting out of the game. So it just happens. And you know, it's one of those things where it might be an inconvenience for most people though. It should just be a smooth transition. At least we hope

Chase Peckham:

I wonder if people understand that the student loan forgiveness is not a one size fits all that in that, that, that, and not only from the standpoint of your income driven, but the fact that not all servicers do this. So it just might depend when you're going to get a student loan. It's very important that you do your due diligence, knowing who you're getting the loan through.

Felipe Arevalo:

Yeah. Well, if you get your department of education loan for those students, you can just go out and get the loan from the department of education, financial aid, and they'll place you, once you graduate with a servicer, if they place you with another servicer, that isn't the one that's doing the public student loan forgiveness. Once you go through the application process, it'll make you transfer them over to whatever servicer it happens to be.

Chase Peckham:

So it's not that they're crap out of luck.

Felipe Arevalo:

No, no, you can like, if you let's say I was finishing school and I get placed with a different student loan service servicing company That, that doesn't , uh , do the Public student loan forgiveness. And I wanted to take advantage of it. I can through the process at some point, it'll say, you know, like if you consolidate your loans, you can pick who your servicer is. But if you put on there that you're interested in the public student loan forgiveness, and you've qualified for that, it removes all the other options. And it makes you click on FedLoan because they're the only ones who do it. So in the future, it'll remove all the other options to make you click on whoever the new company is.

Chase Peckham:

Thanks very much. I think this is some incredible information and it's probably not as scary as a lot of the headlines make it sound.

Felipe Arevalo:

It's. I hope not .

Chase Peckham:

We'll leave it on that. [inaudible] .