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Federal Student Loan Planning under a Trump Administration

Christie_1Well, we are now midway into the second week of President Trump’s administration.  What can we expect and how can you deal with your federal student loan payments?

Importantly, there were no first day Executive Orders, and none so far other than the appointment of a new Secretary of Education.  I view that as good news.  That tells us that the new administration is not focused on student loans – at least not to the extent that it could have been.  We’ve seen orders withdrawing our country from WHO, and the Paris climate whatever, but nothing about PSLF, the IDR plans, or even the elimination of the Department of Education.

However, it’s coming.  There will be a week where student loans will be all the talk.  Do you wait until then to make decisions?  I don’t think that’s a good idea now.

Many of you know that we stopped doing strategy sessions for federal student loans over the past couple of months – mostly b/c we didn’t know what to expect from a Trump administration and most things were on hold by the Biden administration.  We put out new videos and blogs about key events that we knew were happening.  We planned on reopening our calendar for student loan strategy sessions started February 1.  Fortunately, that fits with what we are seeing out there now as well.

It appears that anyone in an IDR will likely be grandfathered in an existing IDR — even if those IDR plans are eliminated.  Why is that important?  Well, the Republicans are considering an IDR repeal in a reconciliation bill.  Current borrowers may be grandfathered into existing plans however.  Will this new IDR apply to only new borrowers?  Maybe.  It’s possible that a new IDR will be passed that will only qualify for loan forgiveness once they have paid at least the total amount they would have paid under a 10 year Standard plan — that would include principal and interest due for 120 months, regardless of earnings.  It would eliminate time-based student loan forgiveness after a fixed number of years – like the 20-25 year plans we have now.  That type of a plan would be good in that it would eliminate the huge amount of interest from extended forbearances and the like.  But it would not help those who were unable to complete their degree, or were unable to obtain jobs with high enough wages to repay their loans.  Those in low paying jobs could see forgiveness moving out to 30-50 years until they finally reach a point where they repaid the principal and interest that would have accrued within 10 years.  That’s fair, but frankly undoable for many.  Lots of our clients have probably repaid a large portion of what they borrowed, but we helped them to secure forgiveness of all the excess.  Someone who graduated owing 30k, that somehow turns into 200k over 20 years.

How can you protect yourself?  By enrolling into the right IDR now  – not SAVE or Repaye which is what SAVE was intended to replace.  Things like IBR, Paye or ICR.  Keep in mind that prior IDR payments will count if you switch to a different IDR plan.  You won’t lose them.  You will need to make a decision on how to file your taxes if you are married.  You can wait and try to remain on forbearance while this SAVE litigation continues and your payment will be zero, but I’m thinking it’s starting to get risky if you’ve been stuck in low paying jobs and haven’t paid much back on your loans.  Get back into an existing IDR, keep accumulating those IDR credits seems like the better plan now.

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