April 2024 Student Loan Update

Student Loan Marketplace Update for April

Let me open by noting this month’s update is a bit lengthy, even more so than last month. But we feel each story below is time sensitive and needs to be included. Keeping you informed is our top priority. Keeping our emails short…well, we do what we can.

President Biden Announces Plan B (or C) for “Mass” Cancellation

Even prior to its release, the media dubbed Biden’s latest student loan relief proposals as “mass” forgiveness. First off, I disagree. This is targeted relief specifically intended NOT to be categorized as mass loan relief so it can fly under the radar of the courts. Second, the new proposals closely follow what we (and the media) have reported on for months, with a few notable changes. So don’t believe the media hype, but do take the time to read the details here.

States Sue to Block Biden’s Forgiveness Plans…Again!

Sometimes I feel like I’m in the Twilight Zone! Several GOP-led states have filed a lawsuit to block President Biden’s latest loan forgiveness plans through the new SAVE plan. Republicans have generally been against the SAVE plan since its introduction last summer. For many graduate health professionals this may seem odd, because at first glance, SAVE isn’t all that different from REPAYE (aside from the 100% interest subsidy vs. 50% under REPAYE).

But keep in mind for undergraduate borrowers, SAVE is very different. It has a 5% payment formula and provides 10-to-20-year forgiveness for those with less than $22k in debt. In fact, Biden doubled down in February and granted SAVE forgiveness to 153k borrowers at a cost of $1.2B. This provision was not set to go live until July and was likely the trigger for the lawsuit. In short, Republicans feel the SAVE plan is too generous, and is yet another example of the President trying to circumvent the will of the court when it comes to “mass” loan forgiveness.

Don’t be surprised if this ends up back in the hands of SCOTUS and takes a year or so to flush out. We’ll keep you informed as the case develops.

Department of Education Takes Over PSLF Processing

I’ve long felt the government will take over student loan servicing bit by bit, eventually kicking out the servicers. We could be seeing the start of that process.

• Step 1: Take over PSLF responsibilities from Mohela. Effective May 1st, Mohela will no longer process PSLF forms or provide PSLF-related service. Instead, the Department of Education will take on those responsibilities directly. Processing will pause in May and June to facilitate the transition and is scheduled to resume sometime in July. You can still submit forms during this time.
• Step 2: More processing and account information through StudentAid.gov and less interaction with your servicer. This has already been announced and will happen over the next two years.
• Step 3: Servicers are entirely taken out of the equation as their contracts expire.

Now, I’m speculating on this last part, but I think it is coming. And whether that change is good or bad, only time will tell. On one hand, servicers are notorious for errors and are often accused of not giving borrowers the best advice. We’ve reported on these errors over and over. But when they mess up, they can be fined and sued. On the other hand, the private sector is generally more efficient than the government and has better customer service. We’ve all been to the DMV! If they drop the ball, who are you going to sue? Who gets fined? Again, time will tell. But major changes seem to be coming.

Servicer Errors Are Snowballing

Speaking of servicer errors, we’re beginning to see issues compound. When payments resumed in October, ALL borrowers enrolled in IDR plans prior to the payment pause were supposed to pick up with their prior payments. But for more borrowers than not, this did not happen. Instead, servicers basically told everyone to apply for SAVE. Yet Mohela (and possibly others) has randomly denied SAVE applications for reasons we cannot explain. And upon denial, many borrowers are put into “level” repayment plans. This is usually the equivalent of a standard 10-year payment. However, we saw one borrower get hit with a $6,000 payment (which way higher than her 10-year), and it was automatically drafted from her checking account! As a reminder, Biden’s IDR extension announcement last month was supposed to ensure that no IDR participant would see a payment increase before November of 2024. If your servicer denies your IDR application, or raises your IDR payment, turn off your automatic payment drafts and then contact customer service to push back on this. Or better yet, let us help you. 

Two Year Forgiveness Notices?

The White House published a press release on March 21st announcing another $5.8B of loan forgiveness, while also sending out “thank you” letters to around 380k borrowers who are within two years of achieving PSLF. That thank you note caused quite a bit of confusion. I can’t tell you how many inquiries we received asking about “two-year PSLF forgiveness”. There is no two-year or partial PSLF. It is a minimum of 10 years, and all or nothing. As we head towards the November elections, we expect to see many press releases promoting student loan relief. Some will be substantial, while others will be nothingburgers intended to grab headlines. As always, we’ll let you know which are worth your time.

Biden’s Budget Proposal

In Biden’s 2025 budget proposal, two promising loan provisions stuck out to us. The first is the elimination of origination fees, which are currently 4% for graduate PLUS loans. The other makes all loan forgiveness programs permanently tax-free. While the CARES Act made all plans tax free through 2025, that is temporary. We’d love to see these changes take effect. Unfortuntely, a president’s budget proposal is simply a wish list, and it has little chance of passing in its initial form when there is a split congress. So, we’ll see if these provisions actually make it through the ringer.

Update (or lack thereof) of IDR recertification Extension

The administration still hasn’t released further guidance regarding the IDR recertification extension. They basically said no one will recertify before October (for November payment changes), but they haven’t said exactly when people will certify AFTER that. We’ve observed, however, that loan servicers are pushing these imapcted recertification dates out exactly one year. This makes sense, as servicers obviously cannot handle the volume of 50% of borrowers recertifying in November. If you long to your servicer account and check your loan or payment details you should see this one year extension, if applicable.

Thank You

If you’re still with us, thank you for reading through all the way to the end. We know your time is valuable and this newsletter is longer than usual. But these issues are important, and we want to keep you up to date. Since it’s an election year, we predict lots of changes may be coming, which can be difficult for borrowers to digest. Just remember our motto: We’re tireless students of the student loan marketplace so you don’t have to be!