Yesterday, the Department of Education announced the following in response to the COVID-19 crisis:

• All federally held student loans will have interest rates set to 0% for a period of 60 days.
• Federal loan borrowers will have the option to suspend payments for at least two months — this is called administrative forbearance. To request forbearance, borrowers contact their loan servicer online or by phone.
• Secretary DeVos authorized an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, 2020, or who becomes more than 31 days delinquent in the next 60 days.

A Slightly Helpful Interest Waiver

The good news: the government is footing the bill for all interest on federal loans for 60 days. As we wrote about last week, this means the government is giving up roughly $13.39 billion in expected interest income to help borrowers.

The problem: this 60 day interest waiver has very little impact. Payments won’t change so there’s no immediate relief. If a borrower has outstanding interest, payments will be applied to that interest first then principal. If the borrower is on an income-driven plan, they end up owing a slightly smaller tax on the forgiven amount in the future (1 in 4 borrowers are in this camp).

The Waiver in Practice

We took an anonymized sample borrower from our system (let’s call her Alice) to determine what the impact of the waiver looks like in the real world.

Alice is four years into an income-driven plan (PAYE) paying $173 / month. Her AGI is $40k / year, she has $100k in outstanding principal and $30k in outstanding interest on her federal student debt.

At 6%, her monthly interest charge is $500. Normally, she pays $173 then the rest is added to her outstanding interest ($327). The government already pays $98 / month of that interest for Alice since some of her loans are subsidized.

With the waiver, the net benefit is $500 less the $98: $402 / month. With the 2 month waiver, that’s $804 off her forgiven amount, not her total cost.

Alice’s Outcome

To translate: $804 less will be forgiven down the line, meaning her estimated tax on that forgiven amount has decreased $281 — 16 years from now — assuming a 35% federal tax rate.

GREAT! The 60 day waiver saved her $281, 16 years from now.

That’s nothing in the short or long run. This change feels very immaterial for most borrowers despite the immediate income hit for the government.

Aren’t most borrowers on fixed payment plans though?

Nope, most are on income-driven plans, graduated repayment plans or not paying at all. According to the FSA data center, only 30% of borrowers are on fixed payment plans.

It’s unclear how servicers are going to process this change too — from what we can tell, the quickest way to implement the change is to treat all federally backed loans as subsidized in their system (a process that already exists).

Unclear Administrative Forbearance

Last week we discussed the benefits of having the US declared a “disaster area” and allowing borrowers to voluntarily enter natural disaster forbearance. In this scenario, borrowers could pause payments, no interest would accrue during the forbearance and most importantly no interest would capitalize at the end of the period.

These types of scenarios happen from time to time — for hurricane relief, tornadoes and even the California wildfires. Most importantly, servicers understand how to apply this type of forbearance automatically so a process is already in place to handle it.

What Secretary DeVos has authorized yesterday is similar to natural disaster forbearance, without the guarantee that interest won’t capitalize.

What’s the big deal with interest capitalizing?

Alice has $30k in outstanding interest. If she enters forbearance, her payments do not count towards forgiveness (meaning she has to wait 16 years and 2 months for forgiveness) and the $30k is added to her principal. Any future interest charges are based on $130k in principal instead of $100k.

For Alice, her annual interest charge would increase by $1,800 once the pandemic ends. Assuming a 3% increase in AGI and staying single, Alice entering administrative forbearance right now would increase her forgiven amount by $26,391 and total cost by $9,236.

This is financially devastating for many borrowers. If Alice elects for this forbearance right now, she’ll pay over $9k for it later. And that’s assuming that she re-enters her current plan in 60 days.

Makes that interest waiver seem even more frivolous, wouldn’t you say?

Suspending Payments for Delinquent Borrowers

Not much to see here. This just stops the bleeding — if you’re delinquent, you are already suspending your payment 😅

Who benefits from this response?

There are borrowers who will benefit from this type of forbearance. If you have an income that is significantly higher than your student debt principal and you are on the Standard or Extended fixed payment plan, pausing payments for a few months can help your cash flow. Since you don’t have outstanding interest, this forbearance gives you time to save your cash or spend on necessities instead of worrying about your loan payment.

The truth is that most borrowers are not in this scenario. Most are losing their jobs and need help navigating to an income-driven option while collecting unemployment.

Millions of borrowers are in need of guidance and these measures are not enough. We need voluntary natural disaster forbearance that counts paused periods as eligible for forgiveness — this one policy would cover all the bases and provide immediate relief for every single borrower.

If you’re a borrower or a company that helps borrowers, follow us to keep up on the latest in student loan tech and policy reform.

Yesterday, Trump announced a sudden change to student loan repayment in response to COVID-19: the government is “waiving federal loan interest” until further notice.

What does this mean?

While there’s still many unanswered questions, the TLDR is: if you have student loans that are federally-held, any interest charges are subsidized by the government starting 3/13/20. Monthly payments remain the same but are (supposedly) applied directly to principal.

The loan types affected by this are:

• Direct Stafford Subsidized / Unsubsidized
• Direct Grad PLUS / Parent PLUS
• Federally Backed FFEL and Perkins

These loan types represent $1.339 trillion of the outstanding student loan principal in America! (based on the FSA data center)

Most FFEL or Perkins loans won’t be affected by the change — they are largely backed by private institutions and universities. Same deal for refinanced or private student loans.

How long will this last?

It’s unclear how long this situation will last, but we can expect the freeze on interest charges to continue until the COVID-19 situation is resolved — this could be a month, 6 months, a year or more.

The cost to the government is pretty significant here: assuming a 6% weighted average interest rate, the government is losing $6.695 billion in interest income per month.

Also, servicers will see a 2x increase in call center costs the next few months given the possible call volume. If only 5% of borrowers call to ask about this change, you’re looking at an additional 2.25 million inbound calls — more than double the monthly call center volume for federal loan servicers (via TIVAS / NFP).

Once they sniff out these costs, my spidey sense says they’ll revert or change this policy pretty quickly.

Should borrowers keep making payments?

Definitely! If you’re a student loan borrower, this does not affect your monthly payment — it may help lower the total interest paid over time but you won’t feel an immediate impact on your wallet.

If you’ve had a sudden drop in income and need help making payments, you should apply for an income-driven repayment plan so you can take advantage of the subsidies (especially if the loan is negatively amortizing).

Was this a good idea?

While this is a net positive for borrowers (slightly less interest paid over time), it’s unlikely to make much of an impact — especially in the short term. Those on income-driven plans already rely on a forgiveness event in the future, so these subsidies slightly lower their tax bill (unless they are on PSLF, where forgiveness is tax free). Most borrowers will barely feel this change, if at all.

My friend Travis from Student Loan Planner alluded to this in a recent post, but a better idea would be to offer voluntary natural disaster forbearance. This provides instant relief to people who are having trouble making payments by allowing them to pause payments for 90 days.

Servicers already have a workflow in place to process these claims and all Trump would have needed to do is declare the U.S a “disaster area”. Even better, interest doesn’t capitalize under that type of forbearance.

We need to make this type of forbearance voluntary so borrowers whose payments count towards forgiveness (PSLF, IDR, etc) can continue on their plans uninterrupted.

Voluntary natural disaster forbearance would have an immediate and tangible impact on borrowers who could pause payments in their time of need. It would also save servicers millions of dollars in call center costs.

Instead, millions of borrowers are going to call their servicers for answers and be under-serviced due to the volume.

How does this affect the Payitoff API?

We’re keeping a careful eye on the way this will be executed. Right now, student loan servicers have to build a process for applying these subsidies and it will likely take months to be applied to accounts.

We’re going to incorporate the subsidies into our system once the Department of Education announces an approximate duration for change. In reality, the effect for borrowers is relatively minor since the average repayment period is 21 years — a few months of interest subsidies means a slightly lower overall total paid.

Directionally, the guidance will remain consistent. You can still rely on Payitoff to power incredible insights on the fintech platforms millions know and love — saving the average borrower $60k+ over the life of their loans.

If you’re a borrower or a company that helps borrowers, follow us to keep up on the latest in student loan tech and policy reform.

For student loan borrowers on income-driven plans, getting married can have a huge impact on their monthly payments.

Important Questions To Ask

Before tying the knot, there’s two important questions to ask a future spouse about their financial situation:

What was their adjusted gross income last year? Their AGI may be used to determine future monthly payments.

Do they have federal student loans? In most cases, the government will look at the total household federal debt and apply the percentage share to future monthly payments.*

As an example, if Lucy has $300k in federal debt and marries Steph with $100k in debt, Lucy’s share is 75% of the total burden ($300k / $400k). Both their incomes are used to determine the couple’s income-driven payment and multiplied by 0.75 for “Lucy’s share”, regardless of whether Steph is even on an income-driven plan.

Two Crucial Rules

There’s two important rules to keep in mind about income-driven plans:

1. REPAYE will always use spouse AGI regardless of tax filing status.
2. REPAYE has no monthly payment cap. Income spikes always affect the monthly payments on this plan.

While REPAYE has great subsidizing features when loans are negatively amortizing, it can be a real drag for folks who want to get married.

The other main income-driven plans — PAYE and IBR — both have monthly payment caps and allow the borrower to not include spouse income or federal debt if they filing taxes separately. It’s a good idea to consider these plans for borrowers who are planning to get married down the line.

Estimating Future Monthly Payments for Married Student Loan Borrowers

There are a myriad of complex rules determining how monthly payments are calculated for married borrowers on income-driven repayment plans.

Luckily, we’ve made it super simple for financial advisors using Payitoff to estimate changes to a borrower’s income-driven monthly payments over time.

Situation #1: Already Married

For folks who are already married, you can easily connect spouse accounts by creating a separate client, linking them and including the spouse’s current AGI.

Let’s say Lucy and Steph are already married. For this case, we can link Steph’s account and AGI from the Client Information tab:

Monthly payments automatically factor in the spouse’s federal loans and AGI:

Given their combined AGI ($107k), Lucy’s monthly payment in Feb 2020 under REPAYE should technically be $772.66. Since Lucy has 75% of the federal debt in the household, her monthly payment ends up being $579.50.

Situation #2: Getting Married

For single clients on income-driven plans, you can also show how getting married in the future will affect their monthly payment.

Let’s say that Lucy and Steph are planning to get married this year (2019). Lucy has graduate loans, files taxes as single and is currently 5 years into the REPAYE repayment plan.

Here are her income-driven options assuming annual AGI growth of 4%:

It looks like her current plan will cost $92,292.60 in monthly payments and incur a federal tax bomb at forgiveness of $106,027.40, bringing her total nominal cost on REPAYE to $198,320.

Since they’re planning to get married this year, their change in filing status will affect monthly payments in 2020 (the subsequent year). Let’s jump into the REPAYE timeline and add some new future scenarios to account for this.

We’ll change their tax filing status to married filing jointly and include a future spouse AGI of $50k in 2020 to see what happens to her payments.

There’s definitely a spike in monthly payments, moving from $243.19 to $567 on REPAYE. This changes the total cost of her plan from $198,320 to $299,254.45, an increase of $100,934.45!

That’s pricier than any wedding I’ve been to 💒

Filing their taxes separately won’t help her on REPAYE, since Steph’s AGI and federal debt will be included either way (see rule #1 above).

Let’s see what else we can do.

Situation #3: Spouse Gets A Promotion

What if Steph is a doctor in a fellowship and her AGI jumps to $400,000 on her 2022 tax return?

Whoa! What a big spike! Lucy’s monthly payments have gone from $616.42 in 2022 to $2,791.47 in 2023.

The total cost of REPAYE is now $559,892.00 and she can’t take advantage of forgiveness since the high monthly payments actually repay the full debt before the term is over.

We may want to consider having Lucy enter PAYE so we can take advantage of the monthly payment cap (see rule #2 above).

On PAYE, the total cost is $514,873.90, her monthly payment caps off at $3,451.63 in 2030 and Lucy can take advantage of forgiveness. Her payments still jump in 2023, but she has a ceiling on how high her payments can go.

As long as she switches plans before the income jump happens, Lucy will meet partial financial hardship requirements and save $45,018.10 on PAYE.

Situation #4: Filing Taxes Separately vs. Jointly

Lucy and Steph want to see whether the cost to filing taxes separately is worth the savings they’ll see in their student loan payments. You can now tell them!

Let’s say Lucy wants to compare the cost of PAYE vs. REPAYE if they filed taxes separately when they get married.

You can remove any future scenarios by selecting the “x” next to each one:

On PAYE, her total cost is changes from $514,873.90 to $217,160.53, saving $297,713.37 compared to filing taxes jointly. She avoids any monthly payment jumps unless she’s expecting AGI jumps of her own.

All her income-driven options are automatically updated so you can confirm PAYE as the most affordable option given these circumstances:

Awesome! Compared to her current schedule on REPAYE, we’ve found that Lucy saves $342,731.47 by filing separately and moving to PAYE.

Now, we can have a conversation with her CPA about whether this move would make sense given their tax situation.

Situation #5: Getting Divorced

Divorce has an immense impact on income-driven repayment and it’s really important to help provide clarity in these cases.

Let’s say Lucy and Steph want to explore what a divorce would mean for Lucy’s student loan payments if they’re filing jointly and she stays on REPAYE.

If they were divorced in 2026, Lucy’s monthly payments would drop from $3,145.64 to $464.96. The total nominal cost of REPAYE changes from $559,892.00 to $341,017.49, saving her $218,874.51 as a result.

Obviously, couples are never planning on getting divorced, so this functionality is more appropriate for cases where a divorce is in progress.

Thoughts to Consider

For borrowers who are on income-driven plans, there’s another consideration to take into account:

When will their spouse pay off their federal debt?

It’s important to keep in mind that the borrower’s share of federal debt changes year over year. If their spouse is on PSLF, their federal debt is completely forgiven after 10 years. Once that happens, you can expect the borrower’s payments to increase depending on how much of their spouse’s debt is forgiven.

The same goes for refinancing. If a spouse refinances their federal debt, it is no longer taken into consideration when estimating a borrower’s income-driven monthly payment.

A lot of folks get this wrong, so make sure you always run the numbers before considering any sort of refinancing offer.

We’re still working on a way to easily account for this future scenario in Payitoff, so stay tuned 🙂

Thanks for reading this far! We hope this has been a helpful illustration of a usually massively complex situation.

If you have questions or ideas, feel free to shoot us an email!

We love love love feedback. 😃

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*A spouse’s AGI and federal debt is not considered for borrowers filing taxes separately on PAYE or IBR income-driven repayment plans.

Anglia Advisors offers comprehensive financial planning services to their clients. Over the past few years, they’ve seen an increasing number of prospective and existing clients with significant student debt. The burden is extremely high for anyone with a graduate degree, especially legal and medical professionals.

When Anglia Advisors began to research programs available to student loan borrowers, they found a minefield of regulatory nuances. Repayment options felt impossible to forecast with any accuracy. Most available resources were in the form of scattered spreadsheets and online calculators.

They needed an accurate, simple resource — and fast.

Using Payitoff, Anglia Advisors saw a dramatic increase in efficiency delivering financial plans for clients with student loans. Some client cases used to take hours — now they could get answers in minutes.

In this case study, you’ll learn how Anglia Advisors used Payitoff to:

• Put their clients on a faster path to asset generation
• Leverage opportunities with Public Service Loan Forgiveness and additional federal programs
• Attract new clients to their service
• Find incredible saving opportunities, including a single client saving $599,192 based on findings within the platform

Download the Case Study Here

It’s hard to keep track of all the alternative forgiveness options available to student loan borrowers. Many exist based on occupation, state and type of loan. The nuances of each program are confusing, especially when it comes to federal teacher loan forgiveness.

TLDR: You can now check eligibility for Teacher Loan Forgiveness and see an estimate of savings on Payitoff.

Eligibility

To qualify, you need to:

• have Direct or FFEL student loans
• be a “highly qualified teacher” in a school or agency categorized as low-income or Title I
• teach for five consecutive years

Up to $17,500 will be forgiven after five years depending on the subject taught and the type of schooling (secondary vs. elementary).

Gotchyas

• You can’t overlap Public Service Loan Forgiveness and Teacher Loan Forgiveness
• PLUS loans and Perkins aren’t eligible, even if consolidated

If a borrower elects to do both PSLF and Teacher forgiveness, it will take 15 years to complete the program from start to finish.

When is this program useful?

Teacher Loan Forgiveness is a game changer in a number of cases:

1. Teachers who don’t want to teach for more than five years in a PSLF-eligible employer
2. Teachers who have a small amount of loans (less than $17k)
3. Teachers in the Standard, Extended or Graduated plans
4. Teachers whose Adjusted Gross Income is higher than their debt burden.

As an example, let’s take a look at Clint — a science teacher working in a low-income middle school in Arizona. He makes $75k / year, has $40k in Direct loans and started teaching in late 2016.

He’s on the Extended Repayment Plan, which will take 25 years to pay off and cost him $79,283.63 in the process.

With Teacher Loan Forgiveness, Clint will have $17,500 of his loans forgiven June, 2021, saving him $32,410.60 compared to his original payment plan. That is a massive difference!

Running Clint’s numbers on Payitoff

We’ve made it dead simple to determine eligibility and savings for the Teacher Loan Forgiveness program.

Navigate to “Forgiveness Programs” and enter the teaching history. You can also search for the school to confirm that it’s eligible for the program:

We’ll determine the teaching requirements for that state, which of their loans are eligible, and how much will be forgiven.

You’ll automatically see the savings once you generate a report:

Applying for Teacher Loan Forgiveness

After five consecutive academic years, fill out this form to apply for the Teacher Loan Forgiveness program.

Make sure you specify which loans you want forgiven, otherwise the servicer will choose for you. On Payitoff, our forecasts apply forgiveness to eligible loans starting with the highest interest rate unless you specify a different order.

If you are applying for forgiveness of loans that are with different loan servicers, you must submit a separate form to each of them.

fin

We hope this feature set helps you save time when determining the tradeoffs of Teacher Loan Forgiveness. If you have questions or product ideas, feel free to shoot us an email! We love love love feedback. 😃

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Thanks to Nicolle Matson

The skinny on a “not-so-normal” consolidation option

The word “consolidation” has a pretty consistent definition in lending: take a set of loans and group them into a single loan, using the weighted average interest rate for the new loan.

In Student Loan Land, consolidation usually comes to mind when refinancing a bunch of student loans into a single private loan at a lower interest rate. There are huge tradeoffs to refinancing — mainly the loss of deferment protections and income-driven options if the loans are federal.

As it turns out, there’s a way to consolidate the loans with the government and do the opposite — open up further repayment options!

The Basics

Federal Direct Loan Consolidation works the same way as a normal consolidation with a few differences:

👍 The new loan is a Direct Loan. This qualifies the borrower for new income-driven repayment options such as REPAYE and PAYE.

👍 Direct Consolidation Loans are eligible for PSLF. You can read more about the benefits of Public Service Loan Forgiveness here.

❗️ The repayment schedule is reset. If payments were made on a forgiveness plan with old FFEL loans, those are wiped from the record.

❗️Any outstanding interest is capitalized. If interest has been accruing on the consolidated loans, it’s immediately added to the balance.

Two other interesting things happen:

✅ If any of the consolidated loans are Parent or Graduate loans, the new Consolidated loan keeps track of it for estimating repayment terms.

✅ If any of the consolidated loans were subsidized, the government will break the Direct Consolidation into two loans: Subsidized and Unsubsidized.

You can choose the repayment plan for the new loan — 10-Year Standard is the default. The term on the Direct Consolidation Loan could be different depending on the amount of student debt the borrower has.

When It’s Useful

There are two common cases where a Direct Consolidation makes sense:

1. The borrower is going for PSLF and has old FFEL loans from undergraduate years.
2. The borrower wants to switch to a different income-driven plan.

We’ve seen borrowers consolidate just a single loan to help achieve one of these outcomes!

NOTE: #2 should absolutely never happen unless you’ve run the numbers on switching plans (including capitalizing interest).

For example, if you do a Direct Consolidation of FFEL loans which are midway through IBR 2009, you’ll be resetting the forgiveness clock on those loans. Instead of seeing forgiveness in 12 years, you’ll have to wait 20 years on PAYE.

This action can dramatically increase the total paid on the debt over time. Please proceed with caution!

Simulating Direct Consolidation

At Payitoff, we recently found a way for you to run these numbers. If we detect an older loan that could benefit from Direct Consolidation, we’ll flag it in the opportunities section of the Overview:

Once you click on “Consolidate FFEL loans into Direct Loans”, you’ll see all the loans that are eligible:

After clicking “Consolidate”, these loans will enter the Standard 10-Year plan and simulate all the actions described above, including interest capitalization, the subsidization split, repayment schedule reset and more. You’ll be able to compare all the repayment options with the newly consolidated loan.

At the moment, we don’t have “undo” functionality for simulations. We recommend running a report without Direct Consolidation first then comparing that to the simulated version!

The Process

Once you’ve found whether it makes sense for the borrower to apply for a Federal Direct Consolidation Loan, there are a few steps:

1. Fill out the Federal Direct Consolidation Loan Application Form. Be very clear when filing out “Loans to Consolidate” and “Loans to not Consolidate” sections of the form.
2. Request a repayment plan to accompany the Direct Consolidation application. For income-driven options, the borrower needs to fill out an IDR Plan Request instead.

This can all happen online as well.

We hope this was a helpful primer to Federal Direct Loan Consolidation. If you have questions, feel free to shoot us an email! We’re here to help 😃

What Actually Happens?

If you have a client who is currently in school or deferring loans, it is often difficult to determine what repayment will look like for them. Lots of questions come up…

• What will their monthly payment be?
• What kinds of options will be available to them?

From The Top

Let’s take a quick look at the process of entering repayment.

Once a student takes out a loan for their education, interest begins accruing immediately (unless the loan is subsidized*). Luckily, the interest is not added to the balance — it just gets tallied every month the loans are “in deferment”.

There are several types of deferment. The most common are In School or In Grace Period. The grace period is a six month period post-graduation or withdrawal where the borrower is not obligated to make payments.

There are two important things that happen by default when loans are transitioned from “Deferred” to “In Repayment”:

• Interest capitalizes: Any outstanding interest is applied to the balance
• Monthly payment is set: The loans enter a 10-Year Standard Repayment Plan, where the monthly payment is determined by the new balance.

These are the default actions. It’s up to the borrower to tell their servicer which repayment plan they’d like to be on — that’s where Payitoff can be helpful.

Simulating Repayment

Once you sync your client’s loans or upload the MyStudentData file, our system will detect whether the loans are currently in deferment.

From there, we’ll tell you which loans are going to enter repayment

Once you click “Enter Repayment”, each loan listed will be put on the Standard Repayment plan with an updated payment:

This simulates the process as if the client were to enter repayment today!

From here, you can compare any of the federal programs available against the default repayment schedule, including income-driven options.

More Simulations

We plan to build more simulations for other common situations:

• Direct Loan Consolidation
• Cash windfalls
• Switching to another income-driven plan

We‘re also going to introduce “Undo” functionality in case you want to revert to the prior scenario.

If you have questions, feel free to shoot us an email!

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*Subsidized loans are available to students with financial need. Interest will not accrue during deferment periods. Learn more about subsidized loans here.

The Public Service Loan Forgiveness program is a federal program where a student loan borrower gets tax-free loan forgiveness if they:

• have Direct Loans
• work full-time at a qualifying employer* for 120 months in repayment
• are on an income-driven repayment plan**

Let me be clear: PSLF is NOT a repayment plan!

It’s a special program layered on top of an already-complicated repayment process for student loans. After 120 cumulative payments any outstanding interest is capitalized, attached to the outstanding debt and forgiven tax-free.

This can result in huge savings for heavily burdened clients, especially new doctors, dentists or lawyers.

As mentioned, the 120 payments don’t need to be consecutive at all! They can spend a year at a private sector job, then return to public service and finish the PSLF program.

When to PSLF

Public Service Loan Forgiveness comes up a lot for financial advisors using Payitoff. Often, their clients are deciding whether it makes sense financially to work in the public sector for 10 years or pursue alternative career options.

This is an incredibly important life decision.

You’ll want to consider PSLF for the following cases:

• Your client is considering a job in the public sector with a slight pay cut
• Your client is already in public service and is in repayment

How to PSLF

If you’re planning to have your client pursue PSLF, there’s two ways to ensure a positive outcome.

1. Every year, they need to fill out the Income-Driven Repayment Plan Request Form a month before the due date to re-certify their income. If they miss the deadline — one year from submission date — their interest will capitalize!

2. They should submit the Public Service Employment Certification Form. This isn’t required, but is extremely useful in confirming all their payments qualify each year.

#2 should also happen any time they switch employers.

Once they’ve hit the 120 payment mark, there’s a third form which actually asks the government to forgive the burden.

If you’re unsure whether your client’s employer is a qualified 501(c)(3), you can search directly within Payitoff. Check it out:

Ain’t Got Direct Loans

Unfortunately, only payments made on Direct loans will count towards that 120 total. There’s another group of loans called Federal Family Education Loans (FFEL) which were very common pre-2010. If your client has FFEL loans, they can still qualify for Public Service Loan Forgiveness by doing a Direct Consolidation.

Warning!! If your client is partially through income-driven repayment with their FFEL loans, a Direct Consolidation will reset the forgiveness clock.

For example, if they are halfway through the Income-Based Repayment Plan (yes, this is different than IDR) and they consolidate, they will start from zero for their forgiveness term. Any payments made prior to the consolidation will no longer count.

The Future of PSLF

PSLF doesn’t appear to be going anywhere. All of the bills currently circulating Congress support grandfathered PSLF candidates. If your client is on track for PSLF, the government can’t legally pull the rug out from under them. PSLF is literally on the Master Promissory Note.

That said, in my view PSLF is not exactly a sustainable program — don’t expect it to last forever.

I hope this has been helpful! In a future post, I’ll be discussing the recent data around PSLF and dive into the lesser known Temporary Extended Public Service Loan Forgiveness Program.

*A qualifying employer is considered to be:

• Any federal, state, local, or tribal government organization
• A 501(c)(3) non-profit organization
• Peace Corps or AmeriCorps
• A not-for-profit that’s not 501(c)3 designated, but meets other requirements related to public service, federal, state, local, or tribal government organizations

**All income-driven plans qualify, as well as the 10-year Standard Repayment Plan. However, it makes zero sense to be on Standard Repayment since the loans will be paid off by the time they’d be forgiven.

Few things are more stressful than the uncertainty of income-driven repayment plans for student loans.

Imagine how your client feels when their financial health is tied to the government — every income change and new family addition affects their financial outcome. It’s hard to make informed decisions in this environment!

We want to help with that. Today we’re launching Payitoff Scenarios, a way to see how future life events affect your client’s income-driven repayment.

Let’s break down how it works.

Major Life Changes

Right now, we support two significant life scenarios:

1. New Income
2. New Family Member

When you are exploring an IDR timeline, you have the option to add any of these scenarios. Let’s look at an example.

Doctor, Doctor!

Say your client is a soon-to-be doctor making $30k / year in residency. They’ve recently entered repayment and are expecting an income jump of $300k in 3 years. They’re on the Revised Pay As You Earn plan (REPAYE) and qualify for Public Service Loan Forgiveness.

Without the income jump, REPAYE looks like a good deal since the subsidies control the interest and the forgiven balance is far lower:

But once we add the future scenario, it becomes clear that REPAYE will ruin your client’s cash flow down the line:

Their monthly payment jumped from $106.02 to $2,587.18.

That’s insane! Since they’ve recently entered repayment, it might be a wise choice to move your client in a scenario with a monthly payment cap. How about when they enter PAYE?

Much better. This time, the monthly payment only jumped from $106.02 to $1,478.28. Now we have predictable cash flow and a lower total cost. In this case, PAYE is a clear winner.

We’re planning to introduce more life events down the line, but these two are definitely the ones that most significantly affect income-driven outcomes.

Give it a spin — we’d love to know what you think!

The National Student Loan Data System (NSLDS) is the central database for any federal aid provided in the United States. As part of the system, they allow any borrower to have access to a snapshot of all their federal loans or grants used to pay for education.

The snapshot is called a “MyStudentData” text file. It can be very handy when needing to drill into the details of a loan’s history – from origination to the current status!

We’ve already been able to help advisors gain access to this information through Payitoff Sync.

However, we’ve noticed that some advisors prefer not to send a link to their clients or aggregate accounts if they already have a MyStudentData file. Also, it is largely seen as a reliable “source of truth” when verifying federal repayment options (especially among student loan experts).

Uploading a MyStudentData File

On Payitoff, advisors can now upload this MyStudentData file and gain access to the entire snapshot within seconds. Here’s a peek of how it works:

How Do I Find This File?

You’ll need to ask your clients to follow the steps below in order to get the file:

1. Go to this NSLDS site and log in with an FSA ID. If you don’t have an FSA ID, you can create one by clicking on “Create an FSA ID”.
2. Press “Accept” on the next prompt.
3. Click on the MyStudentData Download icon.
4. Read the confirmation message and press “Confirm”.

Here’s a pdf handout of these instructions that you can send to a client. Instead, you could also share this video explaining how to get the file.

More To Come

We’re constantly working to improve the planning process for financial advisors whose clients have student loans. We’d love to hear your thoughts on these new additions — and we have many more in store for the future!