Real Money, Real Experts

Student Loan Repayment: What you need to know with Ryan Law, AFC®,CFP®

• AFCPE® • Season 4 • Episode 18

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With the student loan pause coming to an end and a new repayment plan announced, we wanted to answer your questions. And who better to help us break down the new Student Loan SAVE plan than Ryan Law.

Ryan H. Law is an award-winning educator who teaches in the Personal Financial Planning program at Utah Valley University. He’s a Certified Financial Planner, an Accredited Financial Counselor®, past President of the AFCPE Board of Directors, and also a leading expert in student loans. 

In today's episode we discuss the benefits of the SAVE plan, how financial professionals can support their clients during this time, and 5 things we need to do now. 


Show Notes:
1:41 Why repayments may return
2:24 The current student loan landscape
6:45 How to best support your clients with these changes
8:27 Who is best suited for the SAVE loans
9:24 Borrowers and calling their providers
10:47 Ryan's recommended payment calculators
11:03 Benefits to switching to SAVE plan
11:52 Interest accumulation & rollover
13:26 Other elements of this plan to be aware of
13:59 Student loan forgiveness
14:43 The PSLF program
16:12 Budgeting for payments again
19:09 Other resources to look for
24:30 Ryan's 2 cents for clients

Show Note Links:
Studentaid.gov
https://ryanhlaw.com/student-loan-save-plan/

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Speaker 1:

Welcome to Real Money Real Experts, a podcast where leading financial counseling and coaching experts share their stories, their challenges, and their advice for helping people manage money in the real world. I'm your host, Rachel De , executive director of the Association for Financial Counseling and Planning Education for A F C P E.

Speaker 2:

And I'm your co-host, Dr. Mary Bell Carlson , an accredited financial counselor, or a F c and the President of Financial Behavior Keynote Group. Every episode, we're taking a deep dive in the topics that personal finance professionals care about, helping clients, building community, and your professional growth.

Speaker 1:

Today we're excited to welcome a returning guest to the show, Ryan Law. Ryan is an award-winning educator who teaches in the personal financial planning program, Utah Valley University. He's a certified financial planner and an accredited financial counselor. Ryan's website, Ryan h law.com , integrates insights from psychology, counseling and communication to support financial counselors and advisors. On his website, you'll find insightful articles, links to books he has written, comprehensive, A f C exam, study materials, and convenient access to requests for speaking engagements and consulting services. Ryan is also a leading expert in student loans, and with the recent announcement that the student loan pause is coming to an end and with the federal government announcing a new payment plan, we wanted to bring him back on the show to address the questions that you and your clients might be experiencing. Brian , welcome to the show.

Speaker 3:

Thank you. I'm happy to be back.

Speaker 2:

Ryan, it's good to have you back on the show. And we know that many Americans are gonna be affected by the return of student loan repayments. Now, we've heard this for several <laugh> years now that this will return. Mm-hmm . <affirmative> . So we'd like your first, let's just start there. What is your indication that they are going to return this time?

Speaker 3:

Well, we know that payments are definitely restarting because it was part of a law that was passed recently. And so we know that interest is going to start on September 1st, and then repayments will begin in October. So we know that there's nothing that can be done about that. The Biden Administration, department of Education and others have all said that they will restart in September and October

Speaker 2:

Of 2023, correct?

Speaker 3:

Yes. Okay.

Speaker 2:

Give us a little bit more, 'cause a lot has been happening in this student loan landscape, and it sounds like there's a new save plan coming out. Help us understand what's been happening and what this new plan is.

Speaker 3:

Yeah, you're right. There has been a lot happening in the student loan world, especially with , uh, the forgiveness that disappeared that the Biden administration had announced. And then this new save plan has been in place for a while. They've been talking , the administration has been talking about this plan, but it, it finally got put into place in the wake of that Supreme Court ruling, that that made the forgiveness disappear basically. So the new save plan, it has a lot of moving parts. Basically what the save plan is going to do is it's replacing the old repay plan, which stands for revised pay as you earn. So that plan is, is currently in place and the goal of the new save plan, they , they're trying to reduce the complexity because there's so many different income repayment plans, and they each have different provisions. So they're trying to reduce the complexity of that. They're also trying to provide affordable payments for lower and middle income borrowers. They're trying to stop negative amortization of loans, which means that basically your loan is growing because you can't, you don't , you're not paying the interest off each month. And then they're trying to decrease the number of people who are in delinquency or in default, which is a , a large number of Americans. So the goal, again, is to, is to do all of those things in really provide a better repayment plan for a lot of people. So there's three provisions of the plan that take place right away. In fact, they're already in place as of as of today. So the first thing is that they are changing the amount that's available for basic necessities. So without getting it into all the math, there's basically a formula that that is utilized to determine what's called your discretionary income. And the way that that formula is done is they take your, your adjusted gross income from your taxes, and they minus out 150% of the poverty level. So the idea is that you need a certain amount of income just to pay for your basic necessities. So that 150% has been in place for most of these income driven repayment plans, that they're raising that amount in this plan from 150 to 225%. So basically what that means is that there's going to be a lot more available that is protected from being taken for student loan payments. Basically, the second thing that is in place right now is that if you have a payment that is lower than your interest, that interest no longer gets added to your loan. So let's just say that somebody's got a payment of, of $30 a month or $25 a month if the , but the interest is accruing an additional, maybe the interest is $50 a month. So in the past, that additional amount, that $20 that wasn't covered would've just been added to your loan. But with this new plan in place with the save plan, that interest is no longer added to your loan. So in the past, maybe your, your payment, your total amount owed would've gone up by 20 or $30 a month. Whatever that that amount was, was that was accruing. But in now, with under this new plan, no interest accrues. So if you owe $10,000 and you're accruing interest every single month on another plan on this one, you will still owe $10,000 at the end of the year when they reevaluate what your payments are. So that's a , that's a huge provision of this plan that is different from every other student loan repayment plan out there. All of the rest of them allow interest to accrue every month. But this new one no longer does that. The third provision is that if you file your taxes married, filing separately, they no longer will bring in your spouse's income. Some of the repayment plans automatically brought in your spouse's income. But under this new plan, under, if you file your taxes married, filing separately, then your spouse's income will be excluded from both your family size and income calculations. So now we're not tax experts, and so, you know, I wouldn't tell anybody to just file married filing separately. You lose some benefits when you do that. So I would encourage you to talk to a tax advisor before you actually decided to do that.

Speaker 1:

You know, Ryan, there's a lot of new provisions and information that's being shared, and oftentimes the goal is to reduce complexity, but complexity exists . And so for counselors who are listening to this episode or reading the information about these changes, what advice would you give them to better support their clients as they're coming in and navigating some of these changes?

Speaker 3:

Yeah, that's, that's a great question. And the thing that I like about that is that this is complex. And so the thing that we need to understand as financial counselors is that there is the potential for a much lower payment for your clients with this new save plan. And so I would encourage, I would encourage you to go with your clients to student aid.gov where you can actually see what repayment is going to be under this new repayment plan. Because like I said, for most borrowers, this is going to drastically reduce their payment. In fact, the Biden administration, they say that most borrowers will, will have about a 40% reduction in their payment. That is significant for somebody that's got a even a hundred dollars payment to have that reduced down to 60, that can really change things for them and change how they're going to be able to repay these loans. So given all the complexity, just understand that, that yes, there , there is some complexity there you need to understand is that you can probably help your, your clients have lower payments and not just that, but next year the payments are cut in half, one more time. So we, it's going from 10% of your discretionary income this year down to 5% after July of next year. So you're going to see a further reduction in just a year.

Speaker 2:

Ryan, I wanna jump in and get into some of the particulars of this loan. So I guess my first question is, is who are best suited for these new save loans?

Speaker 3:

You have to have a direct loan. Those with the old F F E L loans or Parent plus loans, those do not qualify for this new plan. So there, there's going to be some consolidation that needs to take place with, for those, with the old F F E L loans because yes, you do have to have direct loans only, and that's who qualifies for this. The main beneficiaries of this plan are going to be lower and and middle income borrowers, people who, who make a significant amount of money are not going to see a reduction because there's actually no payment cap on this, on this plan. Like there have been on other income driven repayment plans. And so that's why it's important to make sure that you, you're not just guessing what the payment's going to be, but utilizing the Student aid website to see exactly what your payment's going to be under this new plan.

Speaker 2:

And Ryan, if you were a borrower and you called your student loan provider, do they run through various options with you or would you recommend doing this all yourself?

Speaker 3:

Hypothetically, yes, they should, but the student loan servicers are extremely overwhelmed right now. They are trying to update their systems. They've been, they haven't been taking payments for three years now. There's this new plan in place. So they call wait times apparently are very long, and they're not spending a lot of time with any borrower who calls in just because again, they're overwhelmed, just like, you know, borrowers are as well. And so I would recommend initially either working with a financial counselor who understands this, or a financial planner who understands this, but then getting into the student aid.gov website and checking your payment there and seeing what it's going to be based on this new plan. They may not have it completely accurate that yet they're still working on it, but it's better than it has been. So you'll you'll find that , yeah, you'll find the payment. You should be able to find the payment under this new plan on there. There's also others that have put out calculators for the save plan that should help you determine about what your payment will be. But you will get a bill at least 21 days before it's due, and it will tell you exactly what your payment is. But you do need to make sure you're on this plan if you want, if you want that your , your payment to reflect that.

Speaker 2:

And you said the calculators are also on the student aid.gov website. Are there other calculators you would recommend?

Speaker 3:

That's the best one. I would go with the, the Department of Education one before I used a private one, but the private ones I've checked have been pretty accurate as well. So if you come across one, it's, it's probably pretty close.

Speaker 2:

Next question, what are some of the benefits? Why should someone switch to the save plan? Yeah,

Speaker 3:

One of the main benefits is that interest no longer accrues. So if you're not making a high enough payment, your interest doesn't get added to your loan anymore. So let's just do a quick example. Let's say that, let's just say, Mary, that you've got a payment of $50 a month and your interest is accruing $75 a month. So clearly your payment isn't covering all of that interest. You're, you're paying 50 of it, but 25 is just, is is out there. So on other plans, that 25 has been added to your loan with this new plan that no longer happens, that $25, it just, it disappears. It's, it , it doesn't accrue onto your loan anymore. That is a huge benefit for most of our most borrowers out there.

Speaker 2:

I wanna ask you a question specifically around old interest, because a lot of times when you have an old plan and you transfer it to a different plan, the old interest on that plan accumulates and really is rolled into the principle. Does that happen with the save loan? That

Speaker 3:

Is provision called capitalization, where that interest gets added to the loan with in July of next year, that disappears for all of the plans except for one of them. And, and that's just an anomaly out there. So, but what's going to happen is that , uh, interest is not going to be automatically added to your loan anymore. So

Speaker 2:

Ryan, there's this idea of capitalization, which really means your old interest from an old plan rolls into the principle of the new plan. So if someone were on an old student loan plan and moved it to the save loan, does the old interest roll into the principle for the save loan?

Speaker 3:

Not with this new loan, that that is a provision that is in place right now where interest is no longer going to be capitalized or added to the principal balance when you switch from one income driven repayment plan into this one. Now there is an exception to that. It's the income based repayment plan that one, according to law, they have to capitalize the interest. But if you're switching from pay as you earn into this new plan, then that that's, that interest is not going to capitalize.

Speaker 2:

And that is true for all of the student loan plans that no longer is capitalization other than this one income based repayment.

Speaker 3:

That is correct. Yes. And that starts right away. So that's in place right now where that capitalization has , has disappeared.

Speaker 1:

Ryan, what other elements of this plan should counselors be aware of as they're guiding their clients and trying to figure out the best options to navigate unique situations?

Speaker 3:

Yeah, one thing to be aware of this new plan, you won't find it on the Department of Education website or your servicer yet. What they're doing is they're changing the old repay plan into this new save plan. So if you wanna be on this save plan, you need to make sure that you are on the repay pay plan. If you are, it's going to be automatically switched over to the save plan before your first payment is due. Ryan ,

Speaker 2:

A lot of these student loan plans have a forgiveness element. Does that still remain for the other plans? And is that also true for the save plan? Is there a forgiveness element after paying for so many years?

Speaker 3:

Yes, on both accounts. So most of all of the income driven repayment plans have a forgiveness element, like you said, after 20 or 25 years. And that still remains in place with this new plan. There is also forgiveness built into it. And so basically is after, after 20 years of repayments, if you have only undergraduate loans, then any, any remaining amount is forgiven. If you have graduate loans, then it's 25 years before those, those, the remaining balances forgiven. Well,

Speaker 2:

Let's talk a little bit about the public student forgiveness program as well, because several of our listeners are in that space With that, are they able to apply for the save loan under the public student loan forgiveness program?

Speaker 3:

Yes. Payments under the save plan will count towards those 120 payments that they need to make for a public service loan forgiveness.

Speaker 2:

And for any of our listeners out there that aren't aware of what the public student loan forgiveness program is, can you give a high level overview of that?

Speaker 3:

Yeah, basically what that is, if you work in the public sector, so you work for the government at some level or you work for a nonprofit corporation, then after 120 payments, which is basically 10 years of payments, any remaining amount on your loans is forgiven tax free . So that, that's the very high level overview. There's a lot of details that that are in place about that plan. And I would encourage you if you are eligible for that to work with somebody who understands public service loan forgiveness. But , but that plan is, is, is going to be very beneficial for a lot of people. And we've seen a lot of forgiveness over the last couple of years for people who have hit that, those 120 payment threshold. And one benefit is that credit during the pandemic, the three-year panda pandemic pause, all of those count as payments towards public service loan forgiveness or towards forgiveness under the income-based repayment plans. So basically everybody who's been in repayment the last three years but hasn't made any payments, you've got three years or 36 payments built up in there.

Speaker 1:

Ryan, I think a question a lot of counselors are dealing with right now, or some anxiety that is happening around this is that these loans have been on pause for several years and a lot of families have sort of rebuilt their budgets around these not being in existence, and I think there was maybe even a hope that they , they wouldn't return. So what advice would you give counselors now as they're navigating helping , you know, clients sort of return to this, I don't know if you call it new normal, but having to return to pay these loans or to have a regular payment built into their budget. But for even the , the families that cannot afford to pay right now, what kind of options do they have and what advice would you give?

Speaker 3:

I think that's such an important thing to look at. The pandemic, realistically, a delta blow to Americans across the board and people all around the world. And then inflation has kicked in from the supply chain and other things in place. And so we've seen an increase in our grocery budgets. We've seen an increase in rent. Most of our utilities have gone up quite a bit. So the , I know the goal early on of a lot of people I talked to is they said, I'm just going to set aside the money that I'm going to owe for my student loans. But then reality set in, and like you said, it's been, it's been taken into their budget. If you had an extra $200 a month that you were paying to your student loans, suddenly that's going to groceries and gas and other things like that. And so it is going to be difficult for people. And so there is a, they've created what's called the an on-ramp, a one year on-ramp. The , the Department of Education has created this one year on-ramp, and they said that if you miss a payment, if you make a partial payment or you make it late, they're not going to report it to the credit reporting agencies. They're not going to put you into default, and they're also not going to refer you to a collection agency. Now, interest may accrue during that time, so you wanna , you don't wanna just skip loan your loan payments for a year and say, oh, I , I don't have to worry about this because of the on-ramp. But if you are struggling and if you, because of your, your budget and inflation and everything, talk to your servicer, find out what options are available, they may be able to hold payments off for a little while, while , while you're trying to get your feedback under you, maybe your , if your income has gone down or your family size has grown, you may, your payment may be zero under this new repayment plan. So don't just assume what your payment's going to be or don't assume that you can't make that payment. Check with your servicer and, and see if your payment can be reduced even for, for a little while because again, it's tough for a lot of people out there and they're, they're having this new payment that's going to be coming back up in a month or two is going to be very challenging for people. So make sure that you are checking with your servicer and, and talk to a financial counselor who can help you with your budget and they can help you to see where you might be able to cut back and get that payment in place.

Speaker 2:

Ryan, this has been a lot of really helpful information and this is a pretty big change. Uh , you've not just mentioned one change, we've mentioned several changes here, right? So we'll definitely point people to your article on the , so save plan, we'll point people to the student loan website. Are there other resources that they should be looking for?

Speaker 3:

Yeah, if I can just give a couple of pieces of advice for everyone, for, for what do we do now? Because again, payments are going to come due starting in October. So number one, know who your servicer is. Apparently during the pandemic, about 40% of all borrowers got a new servicer and a lot of them don't even know it. Maybe they got a piece of mail two years ago from their new servicer, but most people don't know. So student aid.gov again, is where you're going to go to check who your servicer is and then make sure you're watching for mailings from them. So don't just throw out mail or email if it's from the Department of Education or if , if it's from your servicer, you want to make sure that you are checking those because it could have your new payment in there. And they'll , you'll be able to check everything by, by utilizing the , your servicer's website or student aid.gov. So that's the first thing. Know who your servicer is. Second thing, make sure your contact information is, is up to date . Again, a lot of people, it's been three years and so a lot of people have moved. Maybe they have a new cell phone number or something. So make sure all of your contact information is up to date so that they can get hold of you. Third thing is to check your repayment plan. So again, if you want to be on this new plan, if you wanna be on the save plan, you need to be enrolled in repay. If you are enrolled in repay, it's automatically going to switch to to this new plan. Fourth piece of advice is to check your bank account. So if you auto debit your payment, and if you've done that in the past, make sure your bank account is still correct. And I would encourage people to use auto debit that way. It just automatically comes out of your account each month. You don't have to worry about it, it's just taken out automatically the same day. You don't have to worry about being late. So, but make sure your bank account is still active, make sure it's the correct number and everything like that. And then fifth last piece of advice is to be patient with the servicers. They are dealing with a lot right now and they're trying to figure out how to, how to add this new plan in and how to start repayments. So if you need to talk to your servicer, be patient, have a call them and, and you may be on a long wait time. And so just be prepared for that if you are calling your servicer. Ryan,

Speaker 2:

I've got a follow up to that. I think when something big like this changes, it's also ripe territory for identity theft and for all kinds of deceptive mailings. So you said watch for emails and mailings. How can someone know the difference between a con and the real thing?

Speaker 3:

Yeah, the biggest thing is to make sure it's from the correct website. And so if you get something from, I don't know, accounts@studentaid.gov, that that's a legitimate web website. But if they've cloaked, you know, if they've cloned it or something and made it, they've misspelled student aid or something like that, then you know it's, it's going to be false because you're right Mary , and I've already seen, I've seen advertisements saying like, oh, enroll in the new save plan and, and you know, through us and we'll help you to do that correctly. And it's, nobody's advertising that , that those are scams. I mean, you enroll in that through your servicer. You don't contact an outside agency and give them your information because you're just, like you said, you're providing them with, with what they need for identity theft there. So work through the legitimate website. So student aid.gov is the most important one. And then whoever your servicer is, so nelnet.gov or whoever your servicer do.com , sorry, it's nelnet.com , whoever your servicer is, make sure you're utilizing their direct website and the emails and mailings are coming directly from those companies. Yeah,

Speaker 2:

Really good advice. And I would even add, if you get something in the mail or get something in the email that you don't click on the link per se, but you go to the website and verify that information and make sure like you're saying the small things really matter, you can guarantee that when changes like this happen, that will be on the rise. Yeah.

Speaker 3:

In fact, what I've seen is I've seen websites where they say, oh, provide us your updated bank account information and, and we'll, yeah. And so right there you're providing them your routing number, your login , all that information. So yes, I would agree, Mary, go directly to the website and you can, any messages that they've sent will be archived on their site, and so you can go to your servicer and make sure that that message was from them because they do need to recertify income. They're going to have to check your family size , check your mailing address. I would agree. I would go directly to the website to do those things and not click on the link.

Speaker 2:

And final question, is there a timeline that people should be acting to do this or should it wait till September, October timeframe?

Speaker 3:

Yeah, the timeline, I would start today immediately. I would do those, those five things that I mentioned. Know who your servicer is, check your contact information, check your repayment plan, check your bank account, and, and just be patient. I would do those things right away. If you're listening to this and you, you, you're not sure who your servicer is, log in today to student aid.gov and , and find that out. I would take steps right now rather than waiting, especially if you wanna be in this new repayment plan, you need to, you potentially need to switch your payment plan to repay so that you can be put into this new one in October. So do that right away.

Speaker 1:

Ryan, I feel like you may have just given us your 2 cents, but we do at the end of every interview, offer the opportunity for our guests to give their 2 cents. Is there anything else you would like to leave with our listeners today?

Speaker 3:

I would say that the most important thing is, is as financial counselors understand that people are, are scared and they're worried about what's going to happen here in the next couple of months. A lot of people were hoping for that 10 to $20,000 worth of forgiveness. It would've wiped out loans for a lot of people. But that is not going to happen. And so be, be an understanding ear when your clients call and they're worried and empathize with them, just take some time and listen to them. That's the most important thing you can do when your clients are calling in and they're worried is to really listen to them and, and validate how they're feeling. And so if they're, if they're concerned about the future, if they're concerned about these repayments, just listen to them and, and help them feel validated for, for being concerned. They have every right to be concerned about this happening and, and you can help walk them through the process of looking at different repayment plans. Even if you're not an expert in this, you can help to you understand student loans probably better than the average person out there. So, so again, study this, make sure you do understand it, but do listen to your clients and help them through this process.

Speaker 2:

Ryan, this has been awesome information and I know there'll be a lot of questions after this episode come out. So please tell our listeners today where they can connect with you.

Speaker 3:

The best way to do that is on my website that was mentioned in my intro, so it's ryan h law.com . Again, that's ryan h law.com. And they can, they can email me on there or they can, they can read articles about this. You mentioned that you'll link to the article that I've written about this save plan. Maybe we'll do this again in the future. Maybe we'll do a webinar or something where we can explain the details of this in in more details. So yeah, we can, we can look at that as well.

Speaker 2:

Great. Thank you so much, Ryan.

Speaker 1:

Mary, I'm really glad we, we did this episode today. I think it's so timely and so relevant and so many of our listeners are financial counselors, financial educators, financial planners. They're working in this space and right now, more than ever, people need guidance and support to navigate this time. As Ryan said, I think there's a lot of fear and very valid fear of just a change that is coming and navigating our current environment with these payments that they haven't had in several years. And so I loved just how clear Ryan was in terms of five easy steps you can do right now. Sometimes just taking that first initial step is what gives people that feeling of comfort that they're taking that step to get to move in the right direction. But what I would just say to our listeners today is take the time to really get familiar with this new plan. Ryan offered some great resources and continue to offer resources on this and just be an advocate and a support system for the community that is going through this. If you don't offer these services, you know, refer people to find an afc.org. It's a great resource. Please utilize what you've learned today and continue to share it and educate those around you.

Speaker 2:

Yeah, I agree Rachel. I feel like I teach this, so I feel like I've been usually pretty up to date on what's happening in the student loan space, but this safe plan is a real game changer for individuals and for practitioners. So there is a lot to uncover. It also, it's like a domino effect, right? You change one thing and it changes the whole tide going forward. So if you're comfortable in the plans used to know it's time to get out of that comfort zone, up your game to know what's happening. And the space is changing rapidly with lots happening continually. So I liked Ryan's advice at the very end is don't wait. I kind of baited him towards that question because I think a lot of us tend to, especially something that's overwhelming, we tend to put off, right? We procrastinate and say it'll take care of itself at some point. But just like you said at the end, this is happening and it's happening now, ironically, <laugh> , as he mentioned too, the website's still going up, information about the plan. Mm-hmm . <affirmative> is still happening, so you're kind of building the plane where you fly it a bit. But I think you've gotta , especially if you're an expert or helping others with their student loan plans, you don't have the luxury of waiting till all the details are ironed out. You've gotta jump on this information today and I would strongly encourage anybody that is interested in learning more about this to reach out via Ryan's website. He has a lot of really helpful information there. And follow Ryan, he's always been kind of my go-to when changes in this space take place. So very helpful information, a lot to uncover and get up to speed on.

Speaker 1:

If you enjoyed the show, be sure to leave us a rating and review. It helps other listeners find the show. And also check out our website, af cpe.org/real money real experts where you can find a guest form . We're always looking for new guests and new topics. Thanks for listening. We'll see you next time.