Student Loan Repayment Solutions - Updates
Public Service Loan Forgiveness (PSLF) Waiver
An emergency waiver was put in place back in October, which could allow for many borrowers to retroactively get qualifying PSLF months that were previously not eligible based on current PSLF rules. Many who were not on an Income-Driven Repayment plan or had FFEL loans, Perkins loans, or consolidated after working at a qualifying institution can now retroactively get qualified months towards the PSLF program. It is a very positive step for the program.
To get qualifying months, borrowers must meet two criteria: (1) Working full time for a qualifying PSLF employer AND (2) must have been “in repayment” status on their Federal loans during their time at that employer.
This new waiver is only in effect until October of 2022, and then it reverts to the standard PSLF rules. With that in mind, now is the time to ensure borrowers are getting their loans properly aligned with the PSLF program rules to continue getting qualifying months past October of 2022.
How to Get Credit for Payments Toward PSLF Qualification
1. Ensure the borrower is with FedLoan and if not, the borrower should reach out to FedLoan and express their interest in moving to them as their loan servicer to enroll in the PSLF program.
2. Submit PSLF Employer Certification Form (ECF) for each qualifying employer that the borrower worked at “full time” while in some sort of repayment. Borrowers can have their HR team fax it over to FedLoan and/or upload this PDF directly on their FedLoan website portal.
3. If necessary, start a Direct consolidation of ONLY the non “Direct” loans that the borrower wants to get qualified months for PSLF.
a. Borrowers should not consolidate ALL of their loans as this is not necessary nor recommended. Instead, they should only consolidate the non “Direct” loans that they want included in the PSLF forgiveness. Ensure this will not impact any other forgiveness program they are seeking, such as a Perkins loan cancelation or the like.
4. Enroll in an income-driven repayment program if not already on one
5. After all of the ECF forms have been submitted, verify the borrower’s qualifying months on their Department of Education record. FedLoan has a PSLF tracker on their website but verify these numbers as they are to be added to their official record since FedLoan will not be servicing their loans much longer. The site advises that this could take months, so it is recommended not to wait until October to start this process.
FedLoan Servicing is replaced by MOHELA
Although we thought FedLoan would be leaving us this past year, through an act of God (and likely much money thrown their way), the Department of Education has gotten FedLoan to stay on for one more year. MOHELA has been identified as FedLoan’s successor, and borrowers not on the PSLF program will be moved over to MOHELA early this year.
Those currently enrolled with FedLoan and in the PSLF program will not be transferred to MOHELA until later in 2022. Our guess is that the move will occur after the conclusion of the PSLF Waiver, which ends in October.
Forbearance period extended through May 1st
As a result, borrowers have some new opportunities with student loan recertification.
Many have already heard that the new COVID forbearance period on Federal student loans has been extended through May 1st of this year. It now opens up new opportunities for borrowers to decide when to recertify their income before/after they file their taxes or wait until their extended recertification date.
Since borrowers can recertify their income based on their most recently completed tax return, they can technically make payments on their 2020 income through 2022 if they recertify their income before they file their 2021 taxes.
Doing this would allow them to perpetually be recertifying their income right before they file their taxes every 12 months and making payments in that year based on their income from 2 years ago. It could be quite advantageous for those seeking the PSLF program and trying to get as many years of qualifying payments completed as possible at a lower income.
To prevent loan servicer errors, we encourage borrowers to complete their income recertification through the StudentAid.gov site. This site also asks if there has been a “decrease in income” since the last tax return filing but doesn’t ask if they have had an “increase in income,” as the loan servicers will ask. It is frequently a big deal for clients going through a significant income jump
Retirement contributions can favorably impact student loan payments
Many borrowers making payments on their student loans forget that their payment is based on their “Adjusted Gross Income” and not simply their gross income. This means that any pretax retirement contributions can offset their income and thus lower their required monthly payment.
For those borrowers who are already earning an income above 150% of the poverty line, making a $20,500 pretax retirement contribution for 2021 could potentially reduce their effective payment by $171/mo if they are on PAYE, REPAYE, or the IBR 2014 repayment plans. For those on the old IBR plan, max contributions could now save them upwards of $256/mo.
Should I refinance my student loans or wait?
Many borrowers who don’t qualify for federal forgiveness programs have to decide about refinancing: should they or when? When making this decision, it comes down to three variables: interest rates, the potential for Federal loan program changes/forgiveness opportunities, and Federal protections (discharge upon disability, death, payment plans, etc.).
When it comes to interest rates, there is no interest accruing on Federal loans through May 1st, but there could be a strong argument that interest rates will be much higher if they choose to wait and refinance over the summer.
When it comes to governmental changes, some borrowers are already beating themselves up for refinancing their loans too early, especially those who did so right before the new PSLF waiver, which would have qualified them for total tax-free loan forgiveness.
The Federal loan program is seen as a very “cushy” setup and allows many options for borrowers to lower their payment or have the loans totally discharged if life changes in the future. Although potentially alleviated with insurance, some may want to stay with the Federal government since their loans would be discharged upon their death or permanent disability. This may be very attractive for those who are uninsurable due to preexisting conditions.
With the volatility in the Federal loan programs lately, many borrowers are choosing to keep their loans Federal until the dust settles after the COVID forbearance program ends.
Student loan borrowers and advisors: Keep up to date on the rules
Staying up to date on student loan changes is often complicated, and the spread of misinformation is unfortunately quite prevalent, even on some major news sites. It is essential to ask yourself, what is the site’s affiliation you are reading?
Do you see lots of ads for refinancing banks sprinkled around the article? It’s usually a clue that the information is a pitch for student loan refinancing offers. Without a detailed analysis of your loans, this isn’t necessarily in your best interest. Also, consider the author and their qualifications. Many sites don’t post their credentials, so be sure to watch out for those anonymous sites and articles.
It is vital to seek counsel from a trained or experienced professional before a borrower makes any financial decisions based on that information.
Finding Student Loan Repayment Solutions
- StudentAid.gov is a great place to start. You can check all of the important announcements here.
- This CSLA Institute’s blog which you are reading will post expanded explanations of student loan repayment programs and rule changes.
- If you are a borrower or relative of a student loan borrower, search our database for financial advisors who have specific knowledge of income based repayment plans and student loan forgiveness. Access the CSLP Advisor Database here.
