[00:00:00] Hey, everybody. Welcome back to The Optometry Money Podcast, where we're helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner(TM) practitioner and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrists nationwide.
[00:00:27] And thank you so much for tuning in today. We are diving back into student loans. And specifically, we're going to be recapping a lot of the latest news and planning strategies now that, June 20, 24 has passed and there have been some important changes in the student loan landscape.
[00:00:45] And I just want to make sure that you are up to speed. So with that, let's go ahead and dive on in.
[00:00:51] Changes in IDR Plan Since July 1st, 2024
[00:00:51] And let's start with some major changes in income driven repayment plans. Now that July 1st has come.
[00:00:59] PAYE Plan No Longer Accessible
[00:00:59] And one of the important things is about the Pay As You Earn plan. And as of July 1st, 2024, The Pay As You Earn plan, PAYE, is no longer accepting new enrollees, meaning that if you are just entering repayment or if you are not currently on the Pay As You Earn plan. You cannot get onto the PAYE plan.
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[00:01:21] So if you were considering PAYE and did not take action already. this is a pretty big shift and if you are already on PAYE so if you're currently on it, if you already made that decision to hop on the plan before the end of June. you can continue with it. You don't have to worry, right? They're not going to remove you from the plan. They're not going to kick you off of it. As long as you are continuing to stay on PAYE
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[00:01:42] you can continue to benefit from 20 year forgiveness timeline.
[00:01:47] Now if you are a new borrower as of 7/1/2014, meaning that you took your first federal student loans after 2014, basically after seven of 2014. You have access to the new income based repayment plan, right? So this isn't necessarily a huge issue for you. If you want it to go for that 20 year forgiveness timeline, you can still use that new income-based repayment plan.
[00:02:11] But for those really it's for those that borrowed between 2007 and 2011. where this is a really important consideration. So that's one of the important things that came after June is that PAYE plan is no longer accessible unless you are currently already on it.
[00:02:29] IDR Account Adjustment Consolidation Deadline Passed
[00:02:29] another important update is the deadline to start that consolidation process for the one-time. IDR account adjustment has passed. So the account adjustment basically is helping to give credit for a pretty broad range of criteria for, for past payment history, towards forgiveness, Both PSLF as well as the private sector, long-term 20 or 25 year forgiveness.
[00:02:54] So if you had, payment histories of different loans that overlapped, if you had a FFEL loans that you needed to convert into Direct consolidated loans. That end of June deadline was the deadline to start that consolidation process in order to get a credit towards forgiveness for all of those past months, basically. And so now that June has come in past,that deadline has come and passed as well.
[00:03:20] So what does this mean for consolidation? Because in the past, if you consolidated federal student loans, you essentially lost all of your payment history towards forgiveness. You replaced those loans that you made payments on with new consolidated federal loans. Well that fortunately that's changed.
[00:03:40] That's no longer the case. when you consolidate your federal loans from here on out.
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[00:03:45] it no longer wipes away, all of your past payment, history and credit towards PSLF and long-term taxable income driven repayment forgiveness. Instead what's going to happen is it's going to give you a weighted average credit towards forgiveness based on all of the payment history of each individual loan.so that's, that's a much better outcome, but in my opinion needs to be carefully tracked to make sure that it's done accurately, because I can see this turning into a major headache and sort of a mess to figure out what is the payment history for each individual loan to make sure that weighted average is done appropriately. Or correctly, accurately.
[00:04:29] Hey everybody just wanted to give a quick edit. post recording here. If you look at the actual language about consolidation from studentaid.gov, it says that starting September, 2024. So this year, September of this year, Borrowers who consolidate will receive credit for a weighted average of payments that count towards forgiveness of the loans being consolidated.
[00:04:51] So technically this new calculation of consolidation with a weighted average starts September 1st. So, what does that mean with consolidation before September 21st? I I'm actually not certain. Does it mean that your loans will still have a chance to get that full credit under the one-time account adjustment, you know, especially if you have FFEL loans or other loans that overlap with older payment history. I guess it's possible.
[00:05:19] It is possible that's the case. If you look again at the, the website, the webpage for the account adjustment, it says that. the payment account adjustment will be completed by September 1st, 2024. And they are suggesting, essentially saying that in order to make sure consolidation is completed before then, you should submit a loan consolidation application by June 30th. So you perhaps, if you consolidate before September and it's completed, before September, it is, I guess, possible just kind of looking at the language here. It's possible that you can still benefit from that a one time account adjustment. But we know for sure that September 1st and beyond. Consolidations will now have a weighted average of prior credit towards forgiveness.
[00:06:09] So that's what consolidation looks like inside of the federal student loan system from here on out. the other thing that's happening is that PSLF administration. Has moved away from Mohela and now directly to Federal Student Aid.
[00:06:25] So this isn't necessarily. something that's brand new, something that's been happening already. But Mohela's was no longer going to be responsible for administering the PSLF program. Mohela is still going to be one of the servicers, but you're no longer going to be required to use Mohela. And, Mohela is not going to be. Counting all that payment history. They're not going to be administrating the PSLF program specifically.
[00:06:50] That's all going to be done at the Federal Student Aid website and all that payments count and payment, history and progress towards PSLF is now going to be happening. Within the Federal Student Aid website directly. So I've seen some borrowers Have been moved away from Mohela To another servicer and basically Mohela does not need to be servicing all of these student loans anymore.
[00:07:14] Right. So that's something that you've seen happening. Ultimately, that's why.
[00:07:18] Adjustment to the SAVE Plan Calculation for Undergrad Loans
[00:07:18] And another piece of new that's happening as of July 1st, is that the SAVE plan payment calculations are going to adjust. Meaning that, if you think about the SAVE plan, how that calculates your payment, that starts with a measure of your income. By default, that's your adjusted gross income on your most recent tax return. Then it subtracts out a poverty line amount based on your family size. And then it multiplies that result by a percentage.
[00:07:47] And, for other payment plans, like Pay As You Earn and for SAVE before this point, that percentage is 10%. And now what's going to happen with SAVE Is that it's going to give you a blend, meaning that it's going to CA it's going to multiply that result by 5% for all of your undergraduate loans and 10% for all of your gradual loans, it's going to give you a weighted average based on. How much of your loans are graduate versus undergraduate. So if you have a decent chunk of undergraduate loans, I would imagine for an optometrist, most, if not, all of your loans are going to be graduate, but if you have a decent amount of undergrad loans, you may very well see your payment decrease. And what you're probably also seeing is that as a result of this payment calculation, as well as some of the court challenges, we'll talk about in a second. many of you may be placed on administrative forbearance for the month of July, at least. And, and so some of you may already see this payment calculation.
[00:08:48] You may see a payment due in July. You know, make sure you're making that payment, but some of you may have been placed on administrative forbearance, for the month of July, at least. And you'll likely see, your payments restart in August and what we know about this type of administrator forbearance is that it does count as credit towards forgiveness. there was a New York Times piece that said administrative forbearance was not going to count for forgiveness, but I believe the rules state that this type of forced administrative forbearance does count as a credited month towards forgiveness. So if that's the case, just wait to see how that unfolds and then start to make payments once those payments restart.
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[00:09:27] so that's something that's happening as of July 1st.
[00:09:30] Court Challenges to the SAVE Plan
[00:09:30] Now let's talk more about the SAVE, right? Because the SAVE plan is going through some challenges right now in the court system. And these are important challenges to keep an eye on. And so let's talk a little bit about what's going on and what to do about it, right?
[00:09:45] What to think about all this? So in late June, as a result of court challenges. really for multiple states joining together, challenging different parts of the SAVE plan. in late June, federal judges in Kansas, and also separately in Missouri, issued preliminary injunctions, meaning pauses, against parts of the SAVE plan.the Kansas ruling halted new provisions like that 5% calculation for undergrad loans from going into place from, from happening. And the Missouri ruling blocked all loan forgiveness under the SAVE plan.
[00:10:25] The Biden administration appealed these decisions and on June 30th, just before we all headed into the week of 4th of July, the US Court of Appeals for the 10th circuit granted a stay on the Kansas injunction specifically, meaning that the Department of Education can move forward with lowering monthly payments and that new calculation for undergraduate loans, at least for now.
[00:10:51] Right? So that part of it is going to continue to happen. At least for now. However that appeal decision did not impact the, the injunction on forgiveness.
[00:11:01] So that pause on any forgiveness under the SAVE plan from that Missouri ruling continues. This pause on forgiveness under SAVE does not impact that one-time account adjustment that's happening. So you'll still get credit towards forgiveness for past payment history under that policy. It also should not, from my understanding, impact PSLF.
[00:11:25] So as long as you're continuing to work for a qualified nonprofit and following the rules and you are proving your employment history. You should still continue to receive credit under PSLF. So if you're at the doorstep of forgiveness from either of those. And you find that you cannot get forgiveness right now under SAVE. One thing that I may consider talking about with clients and exploring with clients and doing the research on is whether it makes sense to switch repayment plans, just to go ahead and get that forgiveness.
[00:11:59] So something to just keep in mind, right. If you're continuing to see that as these court rulings progress. That you still cannot get forgiveness under SAVE, something you might consider if you're about to get forgiveness.
[00:12:12] So that's where we're at now. Right? The, the appeals will continue on. despite these challenges, though, it's important to say that the SAVE payment plan is still operational. It's still accepting new enrollments. You can definitely hop onto the SAVE plan, it's operating currently, as it should be. But keep in mind that the situation is fluid.
[00:12:34] What Optometrists Should Consider with SAVE Uncertainty
[00:12:34] So, what does this all mean for you as an optometrist? Regarding the SAVE plan itself it's hard to say where this ends up.these court cases very well may end up in the Supreme Court potentially later this year, October, November, December. And we simply don't know what the result's going to be.
[00:12:51] Right. I don't have a crystal ball. I would only be speculating, unfortunately.the SAVE plan for now continues to operate as it should. So, I don't think we should be panicking. I don't believe we should be making hasty decisions. If you're currently on the SAVE plan, I would probably suggest to a client we're continuing as we go.keeping an eye on what's going on and we do need to understand though, there is some uncertainty here. And then make decisions as we see decisions happening in the court system, as facts come out. And we know information with certainty. For now, continue as you are. And wait to see what happens and then we can make adjustments as we go.
[00:13:31] Here's some strategies, some thoughts to consider.
[00:13:34] First, you do want to evaluate your repayment options. I mean, the SAVE plan is still on the table and if it was the plan that made sense for you, you might be benefiting now from the reduced monthly payments under the new calculation. You may very well be on administrative, forbearance, which as we talked about through the, as a rules state, you should, I believe be receiving credit towards forgiveness for that particular type of forbearance.
[00:13:58] Secondly prepare for uncertainty.
[00:14:01] I mean, with all of these legal proceedings, it is, It's important to keep an eye on it. It's important to maintain some flexibility in your own financial life and your own financial planning. give yourself the ability, the, the grace, the opportunity to make changes as you go. And stay informed about these potential changes. And stay informed about how these potential changes could affect your repayment strategy.
[00:14:24] It's very possible. The SAVE plan goes away. I mean, that is within the realm of possibilities I've seen. other opinions, which I respect say that that's very likely a possible outcome. Especially depending on how the election goes.since SAVE was created by executive action and not by a congressional action, not by actual lawmaking.
[00:14:50] Like IBR was like ICR was. Perhaps the courts rule that the Biden administration overstepped its authority by creating it. So what could that mean? Well, it's possible that we revert back to old payment plans, like before COVID. for example, perhaps SAVE reverts back to Revised Pay As You Earn. And perhaps PAYE opens back up with it. So, if that were to happen, we can start to think about, well, how would that impact the decision of which repayment plans to use, of whether to go for forgiveness or not. Of how to file taxes, right? Because as we know, re Revised Pay As You Earn, did not allow spouses to file separately and to exclude your spouse's income. So how does that change? That decision-making. I mean, these are all things that we can start to think about , as we get more certainty around the outcomes here.
[00:15:40] but it could also be that current enrollees in SAVE are sort of grandfathered in and, and maybe new enrollees cannot get into the SAVE
[00:15:47] so there's, there's in my opinion, a pretty wide range of outcomes, but we do need to keep an eye on what happens and be open to making decisions as we go.
[00:15:55] And one of the unfortunate realities around student load planning when using income-driven repayment plans towards forgiveness is the political uncertainty around it. And this is one of the constant bullet points of all of my student loan consultations with clients, whether it's with ongoing clients, whether it's for short-term consultations. And especially over the last five years.
[00:16:17] And any long-term financial planning decision that relies on government policy inherently has a healthy dose of uncertainty.this is the same with investing in retirement accounts, making decisions around Roth versus pretax accounts. It's the same with any long-term retirement projections or estate planning projections. Or any other longterm projections and, and planning decisions.
[00:16:43] It's the same with long-term tax planning. Laws change, policy changes, political parties change. And when we're making decisions over a 10 or 20 or 30 or 40 year period and beyond we have to accept some level of uncertainty. And try to build as much flexibility into our lives as we can and make adjustments as we go. And unfortunately it's no different with student loans.
[00:17:09] And in fact, sometimes it's, it seems like it's heightened with student loans. In certain periods of time, this really political, really big political football that's just kind of kicked back and forth. And that's why I see a lot of mistrust of IDR plans and, and going for forgiveness. And, and there's often this desire to simply pay down the loans regardless of the, of the loan amount. In many ways, I think the mistrust is kind of irrational, but in a lot of ways that mistrust of government policy is earned.
[00:17:41] But I don't think this changes the general approach to student loan planning, unless there's a much larger change to, to income driven plans. You know ultimately at certain debt to income ratio is maybe student loan sizes of 1.5 times your income, or two times your income and beyond. Given a certain family size and the way you file taxes. It's still can likely make sense mathematically. To go for forgiveness with an IDR plan versus paying down your debt entirely.
[00:18:13] Meaning that given certain factors going on in your life. The likely outcome mathematically can be to go for forgiveness rather than paying it down. That general approach to me, doesn't change with what happens with this court case, unless there's a major change to income driven plans. And we still have, for example, IBR plans, income-based repayment. that's based on congressional law-making rather than executive action, right?
[00:18:40] So we still have income, different plans that are going to take a lot more maneuvering to. To change rather than what we're seeing with the SAVE plan. So I think that's still the case and what certain career goals and what certain personal finance goals. Such as preparing for practice ownership. You know it still can make sense to temporarily use income driven repayment plans to free up cashflow to plan for that higher priority goal.
[00:19:09] And to get you there. But you do need to balance the math with your own personal values around debt, and this is no different from any other financial decision. If you still feel really strongly about paying down the debt. And it's going to help you to sleep greater at night. And if you were aware of the math. If you're aware of your different decisions and the trade-offs you're making with your cashflow. Then that's the decision you need to make.
[00:19:37] That's that's the right decision for you personally. Personal finance is personal, and we need to take into account your own personal values and priorities when making these decisions.
[00:19:46] And then lastly, consider getting professional advice. So unfortunately this stuff is complicated. I would say overly complicated at times. And it's changing all the time. it might be worth consulting with your financial advisor, with your financial planner. one who specializes in student loans to make informed, educated decisions.
[00:20:06] And so to wrap up. the student loan landscape is changing once again with the closure of the PAYE plan, ongoing legal challenges to SAVE. and while the SAVE plan is still available and operating and offering potential benefits. It's important to stay informed and keep an eye on, keep an eye on what's happening. follow my podcasts, follow the content that I'm putting out, there are a few, a small handful of really good authoritative sources of student loan information out there. So, keep an eye on what's happening. Consider the sources of information. And consider getting professional advice to navigate all this.
[00:20:45] So hopefully this is a helpful short episode on everything that's happening right now with student loans as we've passed July 1st.
[00:20:52] If you have any questions. Feel free to reach out to me at podcast@optometrywealth.Com. you can check out all of the resources and links I mentioned in this episode at the show notes which you could find out the education hub at my website. www.optometrywealth.Com. And while you're there, feel free to schedule a no commitment, introductory call. we can talk about whatever's on your mind financially, and I can share how we help optometrists all over the country navigate this really fun student loan and tax planning stuff and so much more. Thank you so much for listening to The Optometry Money Podcast.
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