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What to Know About the Secure Act 2.0 and Student Loan Debt
With the Secure Act 2.0 signed into law, Americans will benefit from changes to retirement provisions designed to help increase savings and access to retirement benefits. These changes include automatic enrollments into employer-sponsored retirement plans, boosting catch-up contributions, tax incentives for employers, and more.
If you are ready to discuss how Payitoff can help, let’s chat!
One groundbreaking change: Retirement matching for student loan payments
The Secure Act 2.0 also allows employers to make matching contributions to retirement accounts based on an employee’s student loan payments. In other words, when an employee makes a payment on their student debt, employers can count that towards a retirement contribution that can be matched in the employee’s employer-sponsored retirement account.
This is huge news, because we know that one of the big roadblocks Americans face when saving for retirement are their student loans. In fact, 79% report student debt cuts into their ability to save for retirement. And, it benefits employers because it creates more opportunities for them to match payments, increasing their tax benefits.
An opportunity for retirement benefit providers, too
If you’re a retirement benefit provider offering 401(k)/403(b) benefits, or workplace benefit platform, this is an incredible opportunity to 1) capture increased enrollments and 2) offer competitive benefits to employers.
Here’s how the Secure Act 2.0 sets up these opportunities:
More Americans will be enrolled in retirement plans
The Secure Act 2.0 will contribute to more Americans being enrolled in retirement plans in a few ways.
The first way is mandatory enrollments. Starting Dec. 31, 2024, employers with more than 10 employees who offer retirement plans must provide automatic enrollment for their employees. While employees are free to opt-out, this will generally increase Americans who are enrolled. The Secure Act also makes automatic escalations of the amount an employee contributes over time to their accounts(again, the employee can opt-out if they wish). This means more Americans will be enrolled and the amount they will contribute overall will likely increase.
The second way the Secure Act 2.0 contributes regards part-time employees. Under Secure Act 2.0, part-time employees can access employers’ retirement benefits after a certain period of time worked. Again, this increases enrollments and contributions.
The bottom line is that this is an opportunity to capture this growth in employees accessing retirement benefits leading up to the execution of the Secure Act and after.
Employers will be looking for ways to adopted retirement benefits, or be competitive with them. Why? Because they’ll also be incentivized thanks to the Secure Act 2.0.
Employers are incentivized to contribute and offer plans
The Secure Act 2.0 has benefits in play for employers. Firstly, employers will be allowed to provide financial incentives to encourage participating in retirement plans, though it seems like Congress is still ironing out the details of what these incentives can look like.
Small businesses will be encouraged to begin offering retirement plans with ready-made “starter plans”, which cuts down on admin expenses. And, the Secure 2.0 provides tax credits for implementing retirement systems for small businesses.
Of course, there are also tax incentives to matching employees retirement contributions. And, thanks to the passage of the CARES Act, employers can also contribute directly to an employee’s student loan accounts as a benefit and receive tax incentives, too.
Bottom line: Employers will be looking to onboard retirement options, or increase competitive offerings, and overall enrollments and contributions will increase. This is a great time to adopt student debt options if you’re a retirement benefit provider.
In order to provide student loan retirement matching, you’ll need the right data.
Payitoff is the industry-leading provider when it comes to high-quality, reliable connections to student loan data. We’re fully SOC 2 compliant and auditable, and our data connections are fully scalable to support growing enrollments and future endeavors.
We make it easy to offer student loan retirement matching for employers, because setup only takes an afternoon to complete.
Workplace benefit leaders already use Payitoff to facilitate these matching programs.Want to make retirement matching for student loan contributions a reality for your employers?
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What you need to know about FedLoan ending their government contract
New year, new student loan servicer?
You may have heard the student loan servicer FedLoan ended their contract with the government Dec. 2022. If you haven’t…surprise! Happy new year! But don’t worry, this change should (hopefully) be a painless one for FedLoan’s 8.5 million student loan borrowers.
We’ll explain what this means for FedLoan borrowers, and what to expect next.
What does this mean for student loan borrowers?
If you don’t have any federal student loans with FedLoan, this won’t affect you!
If you do, your loans are being transferred to another student loan servicer. Most likely, this new servicer is MOHELA, but it could also be EdFinancial, Aidvantage (formerly Navient) or Nelnet. This transfer will happen automatically.
If you haven’t already, you’ll receive a notice from the Department of Education letting you know who your new servicer is.
Don’t worry: There won’t be any change to your loan status, balance, or rates, and you still won’t be required to make payments until the forbearance period is over.
Please back up. What’s a student loan servicer?
Your student loan servicer is the company collecting the payment on your student loan. It’s even possible you have more than one depending on how many loans you have.
If you don’t know who your student loan servicers are, don’t worry- most people have no idea. It’s a good idea to check because almost half of all borrowers have had their servicers change since March 2020.
How do I find out who my student loan servicer(s) is?
If you don’t know who holds your loans, you can find out by logging into the FSA site.
If you don’t have a login to FSA you can create one.
If your servicer was FedLoan, it’s also likely you have received a notice from the Department of Education alerting you about your new servicer.
FedLoan was my student loan servicer. What now?
Quite simply, your loans are now with another servicer. It’s a good idea to log-in to your new servicer and check to make sure everything is transferred over correctly. If not, you’ll need to contact both FedLoan and the new servicer to correct any issues.
When federal student loan payments start up again, this new servicer is where you’ll go to pay bills and see information about your account. Make sure to save your credentials. And in the meantime you can prepare for resumption of payments by taking some money-saving steps in the meantime.
Payitoff’s automated debt guidance helps financial institutions and apps offer customers a personalized digital experience resulting in better financial outcomes for all. Interested in finding out more?
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Payitoff Founder, CEO Bobby Matson accepted into Forbes Finance Council
Forbes Finance Council is an Invitation-Only Community for Executives in Accounting, Financial Planning, Wealth and Asset Management, and Investment Firms
NEW YORK, NEW YORK, Nov. 30, 2022 — Bobby Matson, Founder and CEO of Payitoff, a consumer debt infrastructure company, has been accepted into Forbes Finance Council, an invitation-only community for executives in accounting, financial planning, wealth and asset management, and investment firms.
Bobby Matson was vetted and selected by a review committee based on the depth and diversity of his experience. Criteria for acceptance include a track record of successfully impacting business growth metrics, as well as personal and professional achievements and honors.
“We are honored to welcome Bobby Matson into the community,” said Scott Gerber, founder of Forbes Councils, the collective that includes Forbes Finance Council. “Our mission with Forbes Councils is to bring together proven leaders from every industry, creating a curated, social capital-driven network that helps every member grow professionally and make an even greater impact on the business world.”
As an accepted member of the Council, Bobby Matson will connect and collaborate with other respected local leaders in a private forum and will also be invited to work with a professional editorial team to share his expert insights in original business articles on Forbes.com, and to contribute to published Q&A panels alongside other experts.
Bobby Matson will benefit from exclusive access to vetted business service partners, membership-branded marketing collateral, and the high-touch support of the Forbes Councils member concierge team.
“I’m excited to contribute and collaborate with Forbes,” said Matson. “Having run Payitoff since 2017, I’m looking forward to offering insight on the debt climate in America today, as well as how technology and business can make a positive difference in the situation.”
ABOUT FORBES COUNCILS
Forbes Councils is a collective of invitation-only communities created in partnership with Forbes and the expert community builders who founded Young Entrepreneur Council (YEC). In Forbes Councils, exceptional business owners and leaders come together with the people and resources that can help them thrive.
For more information about Forbes Finance Council, visit forbesfinancecouncil.com. To learn more about Forbes Councils, visit forbescouncils.com.
ABOUT PAYITOFF
Payitoff’s automated debt guidance helps financial institutions and apps offer customers a personalized digital experience resulting in better financial outcomes for all. We have over $1 billion in loan volume on platform and are backed by Lightspeed, Sound Ventures, Social Leverage, Struck Capital and many of Stripe’s early team.
Interested in talking to Payitoff?
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Student Loan Forgiveness: Frequently Asked Questions
Are you confused about what’s happening with student loan forgiveness? Join the club!
On Aug. 24, 2022, the Biden-Harris Administration announced a Student Debt Relief Plan that includes one-time student debt relief for millions of borrowers. Since then, there’s been a lot of confusion about details of the program.
Let’s break down the most frequently asked questions we’re hearing:
What’s a student loan servicer? Who the heck is mine?
Your student loan servicer is the company collecting the payment on your student loan. It’s even possible you have more than one depending on how many loans you have.
If you don’t know who your student loan servicers are, don’t worry- most people have no idea. It’s a good idea to check because almost half of all borrowers have had their servicers change since March 2020.
If you don’t know who holds your loans, you can find out by logging into the FSA site.
If you don’t have a login to FSA you can create one.
How much relief will I get from the government?
Anyone who is eligible will receive $10k in tax-free student loan forgiveness. Some states may tax this forgiveness amount and you can learn more about that here.
If you received a Pell Grant when you went to school, you’ll be eligible for up to $20k in student loan forgiveness.
How do I know if I received a Pell Grant?
You can log in to StudentAid.gov to see if you received a Pell grant.
Do I have to do anything to claim my student loan forgiveness?
If you’re eligible for forgiveness, you’ll have to submit an application to the Department of Education in order to claim it. You won’t need your FSA credentials or proof of income to submit the application.
According to the Department of Education, in order to get your forgiveness by the time the student loan forbearance period ends, you’ll need to submit this form by November 15th, 2022.
When does the forgiveness form come out?
The Department of Education said they expect to make the form available be available some time in October 2022. However, keep in mind it takes a lot of work to modify the existing system to forgive $300 billion in student loans. Since the announcement, the Department of Education has only had six weeks to prepare.
Could forgiveness get delayed?
We can’t see the future, but we do know that as of this post, there are two lawsuits that could delay the forgiveness application if the judge grants a temporary restraining order. This would delay the application by 14 days and possibly more.
How do I know if I am eligible?
Your eligibility depends on your previous income, marital status, and whether or not you have federal student loans.
What info do I need to submit the student loan forgiveness application form?
If you know you’re eligible for forgiveness, you’ll need to have the following information ready:
- Tax filing status
- Annual Income from 2020 or 2021
- Address, City, State, Zip
- Telephone
- SSN
While it’s unclear whether a tax return or paystub will be needed to prove your income, it’s helpful to have that ready in case you need it.
Will applying for an Income-Driven Repayment plan make me ineligible for forgiveness?
No, not at all. Borrowers who qualify for IDR plans should still apply, as it will not affect their eligibility for forgiveness. Borrowers currently on IDR plans, as well as other federal repayment plans like PSLF, are likely eligible for forgiveness, too.
I already paid off my student loans, but I qualify for forgiveness. Will I get a refund?
Yes, you’ll get a refund!
Refunds will be processed automatically for borrowers after the cancellation is processed on their servicer account. Here’s what it will look like:
- The effective date used to determine the “eligible balance” is March 13, 2020
- If the eligible amount exceeds your balance today and you’ve made payments since March 2020, you’ll automatically receive a check from the Treasury refunding those payments up to the eligible amount
In other words, if a borrower’s balance was $10k March 2020, is $8k today and they are eligible for $10k in forgiveness, they will get a 2k check in the mail or to their bank acct.
Payitoff’s automated debt guidance helps financial institutions and apps offer customers a personalized digital experience resulting in better financial outcomes for all.
Interested in finding out more?
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Introducing Payitoff’s exclusive Refi marketplace with Sparrow
We’re proud to announce a big step in getting borrowers better student loan repayment outcomes: Meet our new, exclusive refinancing marketplace for student loans!
You probably know Payitoff provides our partners tools for their borrowers to leverage federal programs in order to save thousands on their student debt. But now, Payitoff also offers partners the ability to give borrowers refinancing recommendations on any student loan portfolio.
Through our exclusive partnership with Sparrow, borrowers can now choose from refi deals featuring over 10 different lenders, creating a competitive environment to help borrowers get the best deal possible.
And, it’s a tried and true strategy: Sparrow’s marketplace has already saved the average borrower $9,600 over the lifetime of their loans.
What’s refinancing, and why is it sometimes a borrowers’ best option?
95% of borrowers have federal loans, which means typically Payitoff can offer them money-saving recommendations by leveraging federal repayment programs and helping them enroll.
But what about borrowers who don’t qualify for any of those programs for their federal loans, have private loans, or both?
Often the next best step is shopping for a refinancing opportunity instead- a move that can also save borrowers thousands. When a borrower is eligible for refinancing, they can consolidate higher interest debts into a new loan at a lower interest rate (and often lower payment).
Since it’s our mission to get our partners the best financial outcomes for borrowers, we knew Payitoff’s “next best step” was finding a way to offer recommendations for refinancing that prioritized transparency, clarity, and action for borrowers.
Sparrow was a dream-team match as a partner because they also embodied these values: “Transparency empowers borrowers with the foundational building blocks necessary to make confident decisions. Through our partnership with Payitoff, we cover the full spectrum of student debt – from public to private loans. Collectively, we widen borrowers’ aperture to an unprecedented amount of actionable information.”
-Harrison Hochman, Founder/CEO, Sparrow.
Better results for borrowers & lenders: How our Refi marketplace works
When borrowers connect their loans via Payitoff, they’ll get student debt guidance on their entire student loan portfolio of federal and private loans- a feature unique to Payitoff.
This means directly in-app, borrowers will be able to get holistic student debt guidance towards their next best repayment steps- and if that means they should refinance, they’ll be able to select their best loan options, pre-qualify, and move directly to the application!
This means for the first time anywhere, borrowers will be able to:
- Use student loan debt guidance on their entire (federal and private) student loan portfolio
- Apply for federal forgiveness programs directly in-app
- Pre-qualify for student loan refinancing directly in-app
- Access an embedded refinancing marketplace with 10+ lenders to select the best deal
This makes conversions easier than ever for our partners and also greatly reduces the effort it takes for borrowers to start saving. That means faster borrower results and growing wallet share!
And, with 10x the options vs other debt APIs offering refi, borrowers can get better repayment outcomes that create lasting customer relationships with your platform.
How Lenders and Financial Services Benefit
As the forbearance period comes to a close this year, millions of borrowers will be looking to refinance federal and private loans.
Payitoff partners can now offer refinancing options to their borrowers and generate revenue once the new loans are funded.
- New revenue stream: Earn refinancing revenue for each funded loan
- Early to market: Only provider offering a marketplace with the best rates and the ability to apply all in-app
- Fast to deploy: Leverage existing UI modules without building a new flow
As of today, borrowers already linked on our platform have the potential to save tens of millions.
The average loan balance Sparrow and Payitoff sees is about $60k- with an average interest rate of 7% – meaning this is a huge opportunity for student loan lenders and financial servicers to address borrower pain points and needs.
We’re excited to bring your borrowers the best refinancing outcomes with our new ultra-competitive marketplace with Sparrow.
Reach out today to learn how you can begin offering your borrowers access to better refinancing recommendations and deals with Payitoff.
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Up to $20k student loan forgiveness announced for 27 million borrowers
The Biden administration has just announced student loan forgiveness for millions of borrowers- a huge and unprecedented move that will positively impact borrowers and the financial services industry alike.
Source: CollegeBoard, U.S. Dept. of Education What this opportunity means for the industry
Not only will eligible borrowers receive up to $20k in student loan forgiveness, but 90% of this debt cancellation is going to borrowers who earn less than $75k.
In total, 43 million borrowers will receive relief from a large financial burden in only a few short months. With $330B forgiven total, this will wipe out the student loan debt of one-third of all borrowers!
This is a huge opportunity for financial services. Millions of borrowers can grow their wealth and will be making major life changes by:
- Investing more
- Paying off other debts
- Buying homes and cars they need
- Starting families
Source: U.S. Dept. of Education Remember, 44% of borrowers eligible for this forgiveness are ages 26-39, so the people getting the most forgiveness are the ones leading the spending categories above.
Make claiming forgiveness easy for borrowers
If you work in financial services, it’s likely many of these eligible borrowers are using your tools or platform right now, looking for a frictionless path to claim student loan forgiveness.
We’re the only embeddable b2b provider who automates enrollment into federal programs. Any financial app can leverage our existing loan automation so millions of borrowers can have an easy way to leverage their forgiveness come Jan 1.
You can help borrowers get the financial outcomes forgiveness brings with help from Payitoff all in-app. Talk to us now to get everything you’ll need up and running prior to Jan. 1.
Forbearance is finally ending…and most borrowers need a game-plan
And, let’s not forget the remaining two-thirds of borrowers are going to face payments resuming in just four short months. Since 90% of current borrowers are utilizing this payment pause, that’s a lot of borrowers in need of a game-plan for when payments begin. From refinancing to federal programs, borrowers have more options than they expect and we’re here to help every borrower get the best financial repayment outcome possible.
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Debt Negotiation App Lever is Payitoff’s Newest Partner
We couldn’t be more excited to announce our latest partner is Lever, an Australian debt negotiation app making its US market debut.
Powered by our API and smart debt guidance, in the US market Lever will be assisting borrowers specifically with student loan debt to help optimize their student payments.
Meet Lever
Lever started in Australia, where they help consumers negotiate with debt collectors through legal channels on their easy-to-use mobile app. The Lever app empowers consumers with the tools and guidance they need to settle their debt in a legal, transparent, and simplified way. Australian consumers have primarily used the app for help with paying down debt like utilities, phone bills, and loans.
While Australians don’t necessarily struggle with student loan debt the same way Americans do, of course debt still weighs heavily on people: 55% of Australians are struggling to pay their electricity and gas bills on time, 45% are struggling to pay their credit card bills and 39% their phone and internet bills.
After much success- Lever has saved Australian borrowers $54k in average loan lifetime savings- they’re aiming to help bring clarity to American borrowers with a struggle we at Payitoff consider every day: $1.6 trillion in outstanding student loan debt. Lever will support 98% of federal student loans.
“Our partnership with Lever will empower student loan borrowers to communicate directly with lenders and take control of their finances in an easy, accessible way.”
-Bobby Matson, Payitoff CEO
Financial clarity for borrowers is the key
Like Payitoff, Lever has a similar driving philosophy: borrowers need to be able to attain clarity when it comes to financial decision making, especially when it comes to their debts.
Lever founder and CEO Trent McKendrick commented, “The number one thing consumers can do to lower their debt is communicate with the parties they owe, but that’s incredibly difficult and intimidating to do if you don’t know your legal rights or what to ask for.” By “making an emotional situation more positive by giving consumers the tools and support they need,” Lever hopes to empower consumers facing the pressure and costly, temporary quick-fixes that too often result from outstanding debt.
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With the power of Lever and Payitoff together, we hope student loan borrowers nationwide can look forward to a new level of clarity and access to their lenders as they navigate a complex and evolving system. Check out https://www.leverdebt.com/ for more information on Lever’s app.
Want to know more about our industry-leading debt API, smart debt guidance, third-party payments, and other debt tools?
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We Raised $8.5M to Prepare the Financial Services Industry for the Student Loan Tsunami
We’re beyond excited to announce that Payitoff has successfully raised an $8.5M seed round led by Lightspeed Venture Partners with participation from Sound Ventures, Struck Capital and Social Leverage. This puts our total raised to date at $11M, with support from incredible investors like Lachy Groom, Ayo Omojola, Jim Esposito, Rohini Pandhi, Russ Fradin, Ryan Nece, Gokul Rajaram, Todd Jackson and many more.
Why Now?
At Payitoff, we’re building infrastructure to automate and optimize every aspect of debt management, starting with student loans.
This funding comes at a critically important time for our technology as the Student Loan Tsunami is coming in just a few short months: on February 1, 2022, the post-COVID resumption of student loan payments will hit over 43 million borrowers in the US all at once.
This will have massive impacts on our economy: saving, investing and spending across the board will be tighter for the average American. Every financial application will be affected in one way or another by the Tsunami.
The Root of It All
I know firsthand how debilitating this debt can be for borrowers because I lived the student loan nightmare myself. For over a decade, my wife and I were weighed down by six-figure student debt and unsure if we’d ever be able to start a family or own a home.
Frustrated with the status quo, I spent nights and weekends codifying student loan regulations and building a prototype to help us navigate our personal student debt crisis.
This technology, which in time would become core to Payitoff’s algorithm, helped us gain what every borrower seeks: clarity to make the best financial decision. We saved thousands of dollars — empowering us to start a family and move forward with our lives. Now we have a beautiful 3 year old, Mila!
Soon after, I realized we weren’t alone: every borrower could leverage this technology to gain the same insight we did.
Taking our Technology to the Masses
Our team has been working overtime to get our API infrastructure and technology into the hands of as many fintechs, financial institutions, and workplace providers as possible before the Student Loan Tsunami hits. Even though student loans are inherently the most complex debt in existence, Payitoff is dead simple to implement into a financial services platform and provides immediately impactful outcomes for both borrowers and the apps they use every day.
In fact, partners using Payitoff save the average borrower $240 a month on their student loan payments. This isn’t money they have to pay back either — much of the savings comes from federal and state assistance programs which are a headache to navigate independently, but can be instantly enrolled in using Payitoff.
By the way — we’re still the only provider whose API allows for electronic enrollments into these programs, which means borrowers can be approved for better outcomes in just 10 days, versus the industry standard of 6 weeks.
For the businesses using our technology, this means:
- increased spending, investing and ADB
- incredible retention and account primacy
- improved debt-to-income ratios within a month
Optimized for Impact
Our mission is to build a balanced borrower ecosystem, where incentives are aligned across the entire industry.
Our partners are motivated to adopt Payitoff because they, too, see the need to help borrowers in the face of the student debt crisis. After all, servicers want more borrowers in repayment and financial institutions want to empower borrowers to achieve financial goals like buying a car or home. Payitoff is changing the game fundamentally by creating a win-win-win for everyone involved.
In fact, partners using Payitoff save the average borrower $240 a month on their student loan payments.
To the Next Chapter
With this new seed capital, we’ll onboard dozens more fintechs and institutions in advance of 43 million student loan borrowers re-entering repayment on February 1, 2022. This unprecedented event is an opportunity to both expand our reach and make a positive difference in the lives of millions of borrowers who are struggling just like my wife and I were.
Thanks to our talented team, incredible investors and everyone who has helped Payitoff in our journey so far. We couldn’t have done this without you.
Tackling the oncoming Student Loan Tsunami is just the beginning of how we plan to help financial services empower borrowers in the future, with expansion into more debt verticals and financial products on the horizon.
To the next chapter — I’m looking forward to sharing more with you as Payitoff continues to shake up what’s possible in this space.
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P.S. Interested in saving borrowers billions? Apply to our open roles in engineering, sales, customer success and operations here.
About Payitoff
Payitoff is building infrastructure to automate and optimize every aspect of debt management, starting with student loans. The company partners with fintechs, workplace providers and financial institutions to provide technology solutions that produce better financial outcomes for their customers, the borrowers. Payitoff was founded by Bobby Matson in 2017 and the company is headquartered in New York, with a remote-first team dispersed across the country. To-date, Payitoff has raised a total of $11M in funding, from Lachy Groom, Lightspeed Venture Partners, Social Leverage, Sound Ventures and Struck Capital, as well as angel investors, including: Ayo Omojola, Jim Esposito, Rohini Pandhi, Russ Fradin, Ryan Nece and Todd Jackson.
Follow Payitoff on Twitter and Linkedin, and learn more at www.payitoff.io.
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10% of student loan borrowers are newly unemployed
Credit: New York Times and the U.S Department of Labor According to the U.S Department of Labor, over 22 million Americans have filed for unemployment over the past month. Obviously, this is an unheard-of amount of job loss, but how does it affect student loan borrowers?
Roughly 1 in 5 Americans have student debt, so a conservative estimate would suggest that 4.4 million student loan borrowers have recently lost their jobs completely.
10% of all student loan borrowers are recently unemployed — and that’s a conservative estimate!
We know these borrowers are the most vulnerable financially, so these numbers could easily be much higher.
What can we do?
Borrowers who have no taxable income and are not yet receiving unemployments benefits can request an income-driven plan right now that will lock in $0 / payments for the year.
Borrowers need to act on this now while it’s still available to them — there’s no better time.
For most income-driven plans, large government subsidies cover the interest charges, even outside the current forbearance enacted by the CARES ACT.
If you work at a company whose customers have student debt, schedule a 30-min session with our team to discuss how we can help level-up your suite of financial wellness tools and help your customers solve student debt for good.
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CARES Act: The Reality For Borrowers
On March 27th, the CARES Act was signed into law and had far reaching changes to the existing COVID-19 rules for borrowers. For all federally-held student loans:
- Monthly payments are automatically suspended
- Interest is set to 0%
- Wage garnishment of defaulted loans is halted
This “suspension period” is in effect from March 13th — September 30th and these changes are applied retroactively. The “suspension” periods count towards forgiveness programs (including PSLF) and are registered with the credit bureaus as on-time payments. Anyone who has made a payment after March 13th can request a refund.
Servicers have their work cut out for them. Similar to the PPP loans for businesses, the guidelines are fluid and ever-changing. We want to share what we know and how the student loan ecosystem at large is going to be affected.
TLDR: These changes are great news for borrowers in general. The government basically put in place a new loan status that is very similar to natural disaster forbearance, but honors those periods as counting towards forgiveness. Now is a great time for borrowers to evaluate repayment options and switch, especially if they’ve lost income recently. Many can lock in $0 payments for the year.
6.5 month COVID-19 suspension
Without any action from a borrower, they will enter a COVID-19 specific status where $0 payments are the new normal until September 30th. Servicers are required to rollout these changes starting April 11th per the regulation in the CARES Act.
Borrowers can still voluntarily make payments, but we’re not sure who in their right mind would. Possibly PSLF candidates who are worried about FedLoan messing up their PSLF count? Or someone who wants to accelerate prepayment on a fixed payment loan? Either case would be financially unwise since the loans are at 0% interest, making this an actual pause where you can build up cash reserves.
Servicers are expected to stop collecting direct deposit payments at the end of this week. If borrowers want to make sure they don’t have to pay during this suspension, they can turn off auto-pay to make sure funds aren’t being withdrawn.
Interest set at 0% — for longer
The CARES Act extended Trump’s interest waiver where the government is giving up roughly $6.7 billion in interest income per month.
Given the duration of this suspension period (6.5 months), the grand total in lost income to the government is $43.55 billion.
So the bill was actually closer to $2.24 trillion 😁
Refunds!
If a borrower has made a payment since March 13th, they can request a refund — if they don’t, the payment will be applied first to outstanding interest then principal.
Requesting a refund will always be preferable since the payment still counts. Also, borrowers on income-driven plans (in many cases with outstanding interest) are relying on a forgiveness event. Paying more today means less forgiveness for them tomorrow, so they’ll want to keep payments from being applied to their outstanding interest.
The good news: servicers are great at refunding borrowers. They already have solid processes in place so borrowers can feel comfortable that if they ask for the refund they will get it.
However…. getting on the phone with a servicer is going to be extra tricky right now. We’ve seen several examples of call center shortages given the overwhelming call volume of inquiries. Lots of servicers are communicating closed call centers and relying on alternative channels to connect (social media, email, etc):
FedLoan Homepage a few weeks back The best move if a payment was made after March 13th: contact a servicer to confirm that the payment will be refunded (typically this takes 60 days).
Wage garnishment of defaulted loans is halted
Borrowers who are in default for more than a year on federally-held loans start to have their wages garnished, tax refunds withheld and / or social security benefits taken to help repay the debt.
The default process deserves its own post, but borrowers in this category have opportunities to recover through either rehabilitation or consolidation.
The CARES Act puts this process on hold — prohibiting ED from garnishing wages, tax refunds or Social Security benefits to collect defaulted loans during the suspension period. Any action that was currently in progress is halted and any wages garnished through an employer after March 13th are refunded.
Open Questions
The “suspension” period begins March 13th. What about borrowers who have already entered the COVID-19 administrative forbearance?
It would seem that the servicers are planning to evaluate the status of a borrower’s account on March 13th, halt each loan’s status, then rewind it once the period ends October 1st.
Curiously, we’re hearing conflicting guidance on what happens if you’ve made changes to your plan since March 13th. Having the “frozen” version start April 11th could be disastrous for many borrowers.
As an example: if you’re a candidate for Public Service Loan Forgiveness and you entered administrative forbearance last month, it’s possible your account will be considered in “forbearance” when the servicer freezes the account. In order for the suspension period to count for forgiveness, you need to be in repayment!
We’ve seen borrowers wait years for an accurate count of their PSLF payments — so we’re not exactly confident this process is going to go smoothly. We’re keeping a careful eye on how this is being executed so we can share insights as we digest them.
Moving Forward
16.6 million Americans filed for unemployment in the last three weeks. With 1 in 5 Americans having some kind of student debt, there’s at least 3.3 million borrowers who just became unemployed in the last 21 days.
There has never been a more important time for borrowers to get great guidance on what do here. For borrowers who are experiencing a sudden drop or loss of income, enrolling in income-driven plans ASAP can lock in low payments (many at $0 / month) for the year while still taking advantage of the “suspension” period. Borrowers making adjustments now can lead to large savings down the line.
We’re happy to see these measures put in place for borrowers — now it’s all about how the servicers execute on that promise. We’ll be here to provide clarity and transparency through what is going to inevitably be a stressful and uncertain time for all student loan borrowers.
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