Repaying Federal Student Loans after SCOTUS Ruling

Hi everyone. Welcome to MEFA podcast. My name is Jonathan Hughes and I am here again with another special shortened episode of the MEFA Podcast. We are going to be talking about the Supreme Court decision that just struck down the Federal student loan forgiveness plan put forth by the Biden administration and what borrowers can expect and what they should be thinking about now.

And to do this, we have a good friend on the show and a luminary in this field, national expert, Betsy Mayotte. So we'll go straight to that talk now, and I will be back after this interview with the wrap up, so if you're listening to this or, or watching it, you probably know that on June 30th, the Supreme Court struck down President [00:01:00] Biden's Federal Student Loan Forgiveness Plan.

And this seems like the end of the road, although it may not quite be the end of the road, and we'll talk about that, but it's certainly big news. And to break all this down, we have with us a nationally renowned expert on federal, federal student loan policy. She's been quoted in the Washington Post, the New York Times, the Wall Street Journal, and the Boston Globe, among many others.

And she's a good friend of ours, founder and president of the Institute of Student Loan Advisors, Betsy Mayotte. Betsy, welcome back to the show.

Betsy Mayotte: Thanks for having me. It's exciting times in student loans these days. Right.

Jonathan Hughes: This is like the biggest student loan news that I can remember. So let's break it. Let's break it all down. So we know, as I said earlier, the court struck down that the Biden administration's Federal Student Loan Forgiveness Plan, I imagine you read the decision or the summary of the decision. What was their reason for doing that?

Betsy Mayotte: Well, there were two issues at hand and, and to be honest with you, as we got closer to the SCOTUS [00:02:00] decision, there were a lot of us that were becoming a little more cautiously optimistic that it would actually go through. And that was because of some other opinions that came out in the weeks before this one did. So one of the big hurdles that sort of had to be overcome here for the plaintiffs to succeed in, in getting the debt relief canceled was whether or not they have what's called standing now. Basically, you know, you can't just sue because you don't like something.

You have to have what's called standing. And what's standing is, is you have to show where you were harmed or you will be harmed by this. And there was a big question as to whether the states, the state of Missouri was sort of one of the leads here. Could even had standing, could they show that this, those states would be harmed if this debt relief went through?

And there was a, there was a lot of people that didn't think, and still don't think that they could prove that. So that [00:03:00] was the first surprise is that the Supreme Court actually did end up finding that these states had standing. And if you go back and read the opinions, especially the dissents.

They seem to really sort of contradict what some of the other opinions that came out weeks before seem to say. So there's still people that are really kind of salty about the fact that they even found that they had standing to begin with. So then the second prong became that, you know, the second question in this case was whether.

The President really could use the Heroes Act, or was he sort of overstepping the intent of Congress by putting, you know, Congress put language in the Heroes Act that essentially said that during a national emergency, the President is the authority to do things that are contrary to federal law, which normally the President can't, because we have a President, not a king, and essentially what the Supreme Court ended up saying is that this program was so expensive. If Congress had intended to [00:04:00] do it, they would've done it. And that, therefore President Biden, they said, did, supersede the intent of that language and the Heroes Act. So that's why at least that's, you know, the reasons the Supreme Court gave for not letting this, this debt relief go through.

Jonathan Hughes: What is the Biden Administration's response to this?

Betsy Mayotte: Oh, well, they were ready. They announced a few things right after the Supreme Court decision came out on Friday. One of them is the much anticipated new repayment plan, which is essentially a retool of an existing plan called Repay.

Jonathan Hughes: Okay.

Betsy Mayotte: But they're also calling sort of this new version, the Save Plan. But to be clear, Save and Repay are going to be the same plan. We're not getting another plan. They're just retooling the rules for, for Repay and this will save many borrowers, I suspect a lot of money in monthly payments and may actually end up providing some forgiveness [00:05:00] in the long term for borrowers that may not have seen forgiveness.

They're implementing some of it right away, but not all of it. But the parts that they're putting in place before repayments restart in the fall could actually lower payments for borrowers at least a little bit. And just, you know, to answer your listeners' questions that they probably have in their head.

If they sign up for the Repay Plan now for that matter, or any time before repayments restart, they won't have to do anything. To have the new calculation apply to them that will automatically convert to the new calculation before repayments restart. We don't really have a lot of time to go into all the details of the Save Plan.

But if people are interested if they go to Reddit, I made a post last Friday with the details of the Save Plan, and then in the coming days we will be adding language to our website, which is freestudentloanadvice.org about that plan as [00:06:00] well. I'm actually just finalizing sort of a side-by-side comparison of all the plans. I'm hoping to get that posted tonight, but we'll see.

Jonathan Hughes: And the subreddit is, what is it?

Betsy Mayotte: The student loans. If you go to the student loans subreddit it's, I believe it's one of the pinned posts right at the top.

Jonathan Hughes: Okay. And so this is the response or one facet of the response to the supreme-

Betsy Mayotte: One facet of the response. So the other thing they announced, which actually was a surprise to me is they're essentially going to try to take another bite of the apple of the broad forgiveness. But this time they're going to try to do it under the Higher Education Act, and they're gonna do it through the negotiated rulemaking process, which, you know, can take at least a year, if not longer.

So, and we don't know what that's going to look like. We don't know if they're going to try to duplicate what they tried to do with the Biden-Harris debt relief that, that the Supreme Court struck down, or if they're going to try to put different parameters around it based [00:07:00] on the legal arguments that were made under the Supreme Court.

So again, we don't know what it'll look like, who it'll apply to. When it'll be available, but it's not going to be tomorrow and it's not going to be before repayments re restart. But I was pleasantly surprised, very surprised actually, to hear that they weren't going to take another shot at it.

Jonathan Hughes: And, it's through the Higher Education Act. Does that mean that this would be through the congress?

Betsy Mayotte: No. No. And yes. I mean, this isn't a bill. He's, he is using an existing law that was passed by Congress whenever, you know I didn't go back and look to see which section to see when section, I think it's 492 of the HEA that they're putting it under, went into effect. And then they're going to use the regulatory process to try to use that section of the HEA to implement some sort of forgiveness. So, the next logical [00:08:00] question that I usually get at this point is, does that mean that this is definitely going to happen or is this also at risk for legal challenge?

It's still at risk. You know, whenever the negotiator, rulemaking process is completed. Someone might argue that the regulations that are developed go beyond or are contrary to the part of the HEA, congress could come in and try to change the HEA before the negotiator rulemaking process is over.

So it's not a hundred percent slam dunk by any means, but it is somewhat of, in some ways a safer route than the one they used for the one they tried to use in the first place.

Jonathan Hughes: You raise a good point that this isn't going to happen in time to, to, you know, sort of be applied before people start to enter repayment again, because in addition or on a separate track to these loans, being forgiven and not being forgiven.

There are all of these loans that have been in a [00:09:00] repayment pause ever since the Covid pandemic, and that is ending, so those loans are going into repayment. So all of the Federal student loans that were in a pause are entering repayment. And when is that happening?

Betsy Mayotte: So the pause technically ends on August 30th. And I know this is going to sound weird, but the Department of Education has said that interest will begin accruing on September 1st. I don't know what happens to August 31st in this case, but that's what they've announced in writing is so interest will begin accruing again on September 1st. And most people should expect to see their first payment to be due in October.

Jonathan Hughes: And so what would you say to anybody who now has, whether they thought they were going to get their loans forgiven or they did not? Now they have their repayment resuming for the first time in three years. What would you say people should do to start to prepare for this?

Betsy Mayotte: Yeah, so a lot of stuff has happened [00:10:00] in the last three and a half years. Not the least being that 17 million accounts change servicers. So the first thing people need to do is to log on to student aid.gov and make sure they know who holds their loans. From there, they should log into their servicers account and make sure all their contact information, snail mail, email, phone number, are all up to date, and then start opening all the things because you don't want to miss any important deadlines and when your next payments due and so on.

They'll also be information being sent to you about all the changes. This new Save plan, for example. There's some other programs, you know, for borrowers in default. There's the Fresh, the Temporary Fresh Start program. There's a one-time income driven plan adjustment coming up that is a temporary thing.

You don't want to miss information about any of that, so get in the habit of opening all your student loans stuff. You also, while you're there, you should look at what your payment amount's going to be. Your payment amount should be the same as [00:11:00] it was before the Covid pause. If that payment's not going to be affordable to you, or if you think the new Save plan might be more beneficial to you, now's the time to start looking at the different repayment options and if you think you need a different one applying for it.

Also, if you were on automatic payment prior to the pause, you're going to have to re-sign up for that. They're not going to automatically turn that back on. That would be a disaster after, excuse me, three and a half years. People may have changed banks or not been expecting it and so on. I don't know if you can, you know, as of the date you and I are talking, Jonathan, I don't know if people can resign up for ACH today, but they should be able to do it in the, in the fairly near future.

And then, you know, down as we get closer to repayment, restart, people just should be prepared at, like I always say, to put on their patience pants. This is- we've been going through an extraordinary once in a lifetime period [00:12:00] in student loan policy and events. And re repayment, restarting for 40 million people all at exactly the same time, is also going to be an extraordinary event. And while the Department of Education and the servicers have been preparing for that for years now you just, the system just wasn't built for it. So people should expect longer hold times. If they need to call their servicer and perhaps even longer wait times for paperwork to get processed.

For example, lower payment options or deferments and so on. So, you know, plan ahead for that reason, but have patience. You know, everybody is going to be in the same boat and no one borrower is more important than another. So Just keep that in mind.

Jonathan Hughes: Well, you mentioned the income driven repayment plans. I wonder if you could just go over, and I know it's a long, it can be a long answer, so but I, I do think it's worth it to sort of just, if you can give the broad outlines of the new Income Driven Repayment Plan or the Save.

Betsy Mayotte: I'll try. So the existing income driven plans, and when I say [00:13:00] IDR, I mean income driven plans, which is an umbrella term for all of them.

Right now we have what's called old IDR. New IDR pay as you earn, revise, pay as you earn or repay and income contingent repayment or LCR. All of those plans are exactly the same except where they're different. They all use what's called your discretionary income, which is your adjusted gross income, minus an allowance based on the poverty level of your family size and state.

And then they take either. 10, 15 or 20% of that amount depending on the plan. And that's your payment amount you know, divided by 12. That's your payment amount. The, the repay plan uses 150% of the poverty line for your family size, and then 10% of the result of that is your, you know, divided by 12 is your payment amount under the Save [00:14:00] revision. They're going to take 225% of the poverty level rather than the 150. So that alone should lower people's payments. And then starting next year, for people with only undergraduate loans, they're going to use 5% of that result rather than the 10%. For people with graduate loans, they're still going to use 10%.

If you have both, they'll do a weighted average. They'll do a weighted average. Proportionate weighted average. So between increasing the poverty level, subtraction to 225%, and for undergraduate loans lowering from 10% to 5%, that you know, could save or cut in half people's payments. Now all of these plans also have a forgiveness component baked in, including Repay. Currently Repay forgives at 20 years. If all you have is undergraduate 25 years if you have graduate loans, that [00:15:00] does not change under the Save plan. But one of the other really big benefits of the revision is that it has a very generous interest subsidy. So if your calculated payments are less than the amount of interest that accrues every month and you're on this plan, the government will forgive the rest of the interest, even if you decide to pay more. So, for example, if you're accruing $200 a month in interest, your calculated payment is a hundred dollars a month, the government's going to forgive that other a hundred dollars, even if you choose to pay a thousand.

Jonathan Hughes: Wow. This is one of the new developments that was announced.

Betsy Mayotte: Yeah. Now all the income driven plans, with the exception of income contingent, already have some interest subsidies that work in a similar way, but they're much more limited.

Jonathan Hughes: Is this why some people have described this, and I don't know if this is a term that's a pejorative term or what, but as a sort of backdoor to [00:16:00] forgiveness policy, these income-based repayment plans?

Betsy Mayotte: Yeah. Conservatives especially are sort of outraged by the generosity of this plan. And are viewing it as a sneaky way of, you know, the other term I've heard from conservatives is that it's essentially turning student loans from a loan program to a grant program.

Jonathan Hughes: Yes, I've heard that too.

Betsy Mayotte: Yeah, so, and then of course, more left-leaning makers are saying that this plan doesn't do enough and it's nowhere where near a replacement for the Biden-Harris Debt Relief. So you can't please everybody all the time. Right. And when it comes to student loans, most of the time you really can't please anybody. Right?

Jonathan Hughes: Well, let me ask you toward that, I do sort of see discourse about student loans, just back and forth on, on various social media platforms and whatnot. And so this question came up of forgiven [00:17:00] amounts. And I know that some of these plans at least, your forgiven, the student loan amount is taxable. Is that across the board for all of the programs or are there somewhere it does not?

Betsy Mayotte: So if your loan is discharged for say like disability or death. It's not taxed. Nothing's taxed right now through until 2026. And so anybody who gets forgiveness before 2026, don't, don't, they don't have to worry. From a Federal level, there's a couple states that are still taxing at the state level. Forgiveness amounts, I have high hopes that Congress will extend. That moratorium on the taxability of forgiven amounts, but we won't know if they're going to do that till we get really darn close to the deadline, I suspect.

Jonathan Hughes: Okay. Now, for your standards for borrower out there, who thought they were going to get their loan forgiven, maybe they applied for forgiveness and now they [00:18:00] realize that they are expected to enter a repayment. You know, there's so much information, misinformation, opinion, mixed with sort of facts out there. It really is overwhelming, and I think I've sort of hinted at this even for people like me who this is their, this is their profession. So you know, for borrowers who are struggling to kind of get their heads around all this and what it means for them what would you advise them to do?

Betsy Mayotte: Well, the first thing I would advise them to do is take a deep breath. All this information isn't even a week old at this point. There will be additional- in fact, we are, last night the Department of Ed published 18 more pages of new information and more detailed FAQs around some recent changes to public service loan forgiveness, for example. They're going to continue to do that as we get closer to repayment, restart.

The other thing is the loan servicers didn't get this information any quicker than we did. They found out about it the very moment that we did. So if you're calling your loan servicer today, asking them for detailed information [00:19:00] about, say, this new Save plan, they might not know yet. It takes a minute to train and, and provide accurate language to the thousands of call center reps that are out there.

But one I suspect once, especially once we get into like the beginning of August, calling your loan servicers a great first step to getting help on helping you get your arms around this. By then, they should have had time to appropriately train their frontline workers. I also, again, suspect there'll be additional information on the Department of Ed's website.

And of course, as always, our organization and other organizations that provide free student loan advice we, our inbox is already overflowing with people with questions as new information comes out. I have been burning the midnight oil to update our website as the second this information comes out in a way that is a, a reliable way.

So keep an [00:20:00] eye on our website as well for updates. Especially. Our Public Service Loan Forgiveness Page, which I have already updated. I'm about to make pretty significant updates to our repayment plan pages with information about save. The Department of Ed's calculator hasn't been updated yet. Neither is ours. That's also going to take a minute. But you know, I would suspect before repayment restart, you should be able to use those calculators. To figure out if Save is the best option for you or if one of the other plans is.

Jonathan Hughes: Any time that does sort any sort of announcement or any, any sort of news about student loans. I always think of, we always think of, I think of the people who are scammers essentially and perpetrating scams. Do you expect people to be getting notifications about student loan forgiveness from these places? And what would you have them look out for?

Betsy Mayotte: A thousand percent. That activity is increasing and will continue to increase, I would suspect, over the next 12 [00:21:00] months as repayments restart and they're going to be taking advantage of people's vulnerability and anxiety around repayments, restarting, and of course all the confusion around all these new changes that are happening. All of a sudden this is. You know, their superpower is to take advantage of these situations. Number one, you never have to pay for help with your student loans.

There is not a person or entity on the planet that can get you access to a program or that you're not already eligible for and can apply for, for free or access to that program any faster. Then you can do yourself by working directly with your loan servicer. A lot of these, a lot of these scammers are very clever.

Their logos or their language infer that they are partnered with the Department of Ed or one of the official loan servicers. If you're ever in doubt, don't respond to the phone number or phone call or letter or email that you got. Go to Google and look up the correct [00:22:00] accurate email address or phone number for your loan servicer or the Department of Education.

And you know, if you find that you have encountered a scammer, please, please, please report them. The more reports the Federal Trade Commission gets, then the more evidence they have to act against these bad actors. And so ftc.gov is where you would go to file that complaint. Can also file a complaint with the Consumer Financial Protection Bureau.

In the Department of Education, but really the FTC and your local attorney general, your state attorney general's office, but honestly, the FTC is the one that has really been doing a lot of the heavy lifting when it comes to trying to, to snuff out these scammers.

Jonathan Hughes: And if people do want to take advantage of your free service for help with their loans, where can they find you?

Betsy Mayotte: freestudentloanadvice.org is our website. I strongly encourage you to check out the language on the site first if we've done our job right. We've answered your question [00:23:00] already, but if you still have questions, you can use the TISLA email on our contact page. Not the Betsy email, but the TISLA email and we try to answer questions within a business day.

The other thing is, is if you I encourage employers to start providing information to their employees about student loans and repayment, restart. You're a great information channel. You're a trusted source, and providing help to your employees can positively affect your bottom, your own bottom line by reducing financial stress.

And you could do that. Provide these resources. Without it costing you anything, or if you wanted to bring in more robust help for their employees, you can do it at a pretty low cost. So I think we're all on deck for repayment, restart. So I encourage any entity to consider being a good communication channel for legitimate resources for their constituencies. [00:24:00]

Jonathan Hughes: That's a great idea, Betsy, thank you so much for joining us. I hope you get to take a rest at some point soon.

Betsy Mayotte: There's no rest for the Wicked and I'm from Massachusetts, so I'm wicked, wicked.

Jonathan Hughes: All right, Betsy. Thank you so much.

Betsy Mayotte: Yep. My pleasure. Take care.

Jonathan Hughes: All right, folks. Well, I hope you enjoyed that, and I really want to thank Betsy Mayotte for lending us her time and her expertise in this very busy time for her. And folks, if you liked what you heard on the show today and you want to hear more from us, on all topics related to planning, saving, and paying for college and career readiness.

Well, you can follow the show wherever you get your podcasts and please remember to review us. It helps us keep doing what we're doing and, and getting the show out to folks like you. I want to thank our producer, Shaun Connolly. I want to thank AJ Yee and Lauren Danz for their assistance in posting the show today, [00:25:00] and once again, my name is Jonathan Hughes and this has been the MEFA Podcast, thanks.