Speaker 1 00:00:08 What's up everyone. Welcome to the finance for physicians podcast. I'm your host. Daniel RI join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about
[email protected] let's. Jump into aids episode. Hey guys, how's it going? I, uh, once again, have some, some big student loan news to throw your way, and I wanted to, uh, get this out, uh, while it was fresh, I guess, as I'm recording this, it's been a couple days since this came out <affirmative> and it's probably gonna be, you know, a big benefit to quite a few guys listening. So I'm gonna talk through what, what these changes are and how they might affect you and, um, hopefully catch you up to speed on that. Okay. So, you know, the big student loan news just keeps coming.
Speaker 1 00:01:00 Uh, I'm sure most of you have heard by now, like the, the last big thing was the, uh, uh, COVID forbearance got extended again. Uh, I guess maybe not so, so big of a surprise anymore, cuz they keep extending it. But uh, that's extended now to, uh, August 31st, 2022. So that's a huge deal for sped. Those of you that would otherwise have had to make big payments that are going for PSL F so that's a home run for you, the PSL F crowd that would've otherwise had to make big payments, especially. I mean, it's good for everybody, but it's, uh, going for PSL, but it's especially good for those with, uh, those big payments. So, um, so that was, that was, uh, you know, one thing, but th this is a completely new development that is just adding to, I guess, the student loan generosity. Um, that's kind of the trend is that, uh, everything's getting more generous towards, uh, federal student loans.
Speaker 1 00:02:00 So anyway, this is gonna be apparently the, uh, the government says this'll affect quite a few people. They say it'll 40,000 people will have forgiveness immediately because of this. And then they said 3.6 million should have at least three years added to their qualifying payments for forgiveness. So the, the purpose of a lot of these changes recently is to help address what they claim are some of the failures in, uh, administrating these student loans. When student loans changed in 2007, eight timeframe, they became a lot more complicated. They went to the income-based payments and added all the forgiveness programs. It got super complicated then, and there was all kinds mess up and screwups and, uh, a lot of problems came of that. So the intent with a lot of these changes recently is to help address those failures and, you know, provide some relief to the borrowers that were harmed by those.
Speaker 1 00:02:57 So, you know, that's, that's all good, good stuff. So the first big thing, so we'll talk through, uh, there's a couple things that ha have ha uh, been announced that are gonna change. First big thing is to end, uh, what they called is forbearance steering. So, uh, forbearance steering, I've never called it that, but I know exactly what they're talking about. Forbearance steering would be like the student loan, servicers, uh, pushing people towards forbearance or making it really easy to do forbearance in my experience. So we've done a lot of work in our, you know, planning business with residents. Um, I've had conversations in the past a lot with, uh, a lot of conversations with, uh, some of the financial aid directors at some of the medical schools. And in my experience, what I have heard from people is that probably somewhere in the neighborhood of like half the residents, it seemed like at least in the past, uh, were in forbearance.
Speaker 1 00:03:54 This is before COVID cuz now everybody's in forbearance, but it's this COVID forbearance thing before then my experience, I would, I, I would always, if I had to guess, I would say about half of residents or, or fellows are in forbearance. I had a financial aid director once tell me that, that she thought it was over 50% of her residents were in forbearance or medical students that are graduating. They're starting out in forbearance, was what she was talking about. So what happens and I've worked with people that have gone this route, uh, a lot of times what happens is you start out in forbearance and once you're in forbearance, it's pretty difficult to get out. So many people, you know, typically when people start in forbearance at their, in their first year training, they stay in forbearance for the entire period. That's pretty common. I've seen it a ton of times.
Speaker 1 00:04:42 The government said, uh, that they thought 13% of all direct loan borrowers had at least 36 months of forbearance, but that's everybody. Um, I think the numbers are a lot higher for residents and fellows. So loan servicers make it super easy. They used to make it super easy. I guess that's changing. So loan servicers back in the day before COVID, um, it was super easy to get into forbearance. Um, in fact, like they kind of pushed it a little bit, like when in doubt it was like, well, just, you know, do this forbearance period and kind of let things shake out. It's no payments required, you know, sounds pretty good. And a lot of people do it cuz they're buying a house when they start training. In fact, the mortgage lenders push it too. They're like, okay, well, why don't you just do forbearance? And then we don't have to count any payment and get you the mortgage and then you can deal with the student loans later.
Speaker 1 00:05:33 So, um, there's a lot of, you know, pressures on those early training, uh, people to, into forbearance. And it's very easy in that prior environment, but the problem was like forbearance is about as terrible of a move on your student loans as you can make. I mean, it's, it's, it's the worst possible move most of the time. Um, mainly because you're missing out on PSL F qualification. Um, and in most cases, the crazy thing about it is in most cases like the payment they would've otherwise had to make was extremely low or maybe even zero. So like the income based alternative payment was typically, or is typically very low or maybe even non existence. So it's like at that point it's an absolute, like no brainer, terrible move forbearance is the bad move and it would've, it would've made so much more sense for them to go into some sort of income based payment.
Speaker 1 00:06:29 So that that's all been happening. I've been very well aware of it. I've seen it firsthand a ton of times, uh, is completely happening. And I think it's good that they're addressing it. So the question is what are they gonna do about it? So, uh, the first thing they're they're promising to do is a, what they call this one time account adjustment, uh, to count to count the, the forbearance, some of these forbearance periods toward IDR, which is like the long term 20 or 25 year forgiveness and PSL F forgiveness. So I'll talk about what the details of this, but, uh, the first thing they're doing is adjust doing a one-time adjustment to start to count some of these forbearance periods that have been half happening towards the big forgiveness programs. So what are they gonna count? So there's two defining qualifiers that they're gonna count.
Speaker 1 00:07:27 So first thing is if you had forbearances for more than 12 consecutive months. So like say you had say you were in forbearance for 15 straight months or even 13 straight months in that situation, it triggers in their system and they're gonna count 'em all towards forgiveness. So that's the first qualifier is if you had periods of forbearance for greater than 12 months, those would now begin to count towards 20 or 25 year forgiveness and or PS sell F forgiveness. Second big thing is for those of you that had forbearances for more than 36 months cumulative. So like if you've been in forbearance, when you add it all up for more than 36 months, then the trigger goes off there too. And then they're gonna count 'em all to, uh, IDR, uh, and or PSL F forgiveness. So, you know, as you might be thinking through this, um, you know, think about like training periods for a lot of people, uh, in, in medicine it's like, uh, some of these training periods are pretty long as you might expect.
Speaker 1 00:08:38 That's, there's some pretty big numbers. Um, like I know of people that were in forbearance for, you know, six or seven years in training and, uh, quite a few of those people. So for those kind of people that are ultimately going for PSLF, especially that's a home run and it may even make IDR, which is the 20 or 25 year, year forgiveness, more appealing, cuz you're adding like seven years back into the picture of qualifying payments. So it's a huge deal for those people in training that were in that those longer, long term periods or forbearance potentially a game changer where it, you know, makes IDR much more appealing or, you know, makes PSL F happen way sooner. So it's gonna be automatic on, uh, their end, the loan servicers are gonna supposed to be, uh, doing reviews and uh, figuring out who's affected in, you know, counting those.
Speaker 1 00:09:38 Uh, also you might be wondering like, well, what about people that had less than so people that didn't trigger those two qualifiers maybe had six months of forbearance or two months here, two months there or whatever. Uh, so they're also, uh, they also mentioned that, uh, for people under 12 months, you can, you can still file a complaint if you were steered towards forbearance and I'll link to the, the link they gave to, to do this, which I would encourage doing. If you feel like in any way you were steered towards forbearance, you, you might as well, you know, go that route. And it seems like they're being fairly generous with all this in order for it to count though, for PSL off, you still have to be qualify at a qualifying employer. So, you know, they're not going to count periods where you were like in school or, you know, at a job that didn't qualify for PSL F so that's still an underlying requirement, but, um, but either way it's huge deal, particularly this particular change is a huge deal for those of you that had, that had opted into the longer term forbearance periods during training.
Speaker 1 00:10:44 So the, the second, um, big change they're making, uh, to help in this forbearance steering is to increase oversight of the loan servicers. Basically, they're, they're gonna eliminate at the ability to opt into forbearance by text or email. That was a bad idea. Never should have done that in the first place. So that's no longer, uh, available also they're gonna audit servicers regularly. Um, they're gonna basically clamp down on servicers to try to restrict their use of forbearance. Cause really forbearance rarely makes sense. It's in most, probably like 95% of people, maybe more 99% of people we work with. It's like a terrible decision. So it should be like the last, last, last, last resort that people should have available. So I think that's a good move. So the first big thing they're trying to get solve, uh, help, uh, correct this forbearance problem and solve it going forward.
Speaker 1 00:11:41 Second, big problem they're trying to address is tracking towards IDR forgiveness. So that's the 20 or 25 year forgiveness. There's not a really good, solid way to track your progress for 20 or 25 year forgiveness. And that's a really long time, which makes it even more important to track progress. So what they're doing, there's two big things here happening. So number one, there's gonna be a one time revision of all IDR payments to the, to address the PA the past problems. So there was a lot of problems there as a result of, uh, you know, not having good methods here. So all direct and FFL loans. So basically all federal loans, any months that a payment was made, it's gonna count towards the 20 or 25 year forgiveness. So this could potentially be a really big deal for some of you that are in non PSL F jobs.
Speaker 1 00:12:40 If you've been been, if, if, if you've been making payments for a long time on federal loans, or maybe some of you have like these old, uh, low interest rate, federal student loans, you know, they didn't clarify like how far they're gonna go back. You know, hopefully it's forever, but I can, I know there's plenty of people, you know, we work with that have had gotten sued loans a long time ago, like back 15 maybe plus years ago. What is the year? 20 20 12, 20 2002. Yeah, 20 year, like say I, I guess my student loans, um, I was get, I had some student loans in like the early two thousands. So like 2001, 2002, 2003, that timeframe at that point, the federal student loans were actually really low interest rates, like 2% type, maybe three at, at the most. So there's a lot of people that have these student loans that are super low interest rate.
Speaker 1 00:13:36 They're just paying the minimum payment, cuz like, you know, not, it's not a big deal to have that low interest rate debt. It's, they're kind of like viewing it as a, you know, good debt. There's other debts that are higher priorities. Uh, so if that's you like this could potentially change the game on those, uh, depending on how many payments of those they, they count because they're gonna count, they're claiming to be counting all types of payments in the past towards 20 or 25 year forgiveness. So, uh, including before any consolidations and including direct NFE L loan, so any type of federal loan and they're even gonna count, uh, months in deferment before 2013, except for in-school deferment towards IDR. So basically like much more generous treatment of, um, IDR, uh, payment calculations, that's all gonna happen. And then the second thing is they're gonna fix the whole IDR payment counting process or methods by adding like servicer guidelines, track progress for the borrowers.
Speaker 1 00:14:40 Also you're gonna be able to track IDR your IDR payment count on the student aid website. So that's the government website, it's student a.gov website, which is great because I mean, I think that's where it should be tracked. Uh, no matter which servicer you have so that that's, um, you know, plus on top of that, there's one more thing actually on the, the IDR payment accounting going forward, they're saying they're gonna count, uh, you know, future deferment or forbearance towards IDR qualifications. So that's, you know, completely different. I mean that, those up to this point forbearance are deferment. None of that counts towards any of these forgiveness programs. Now they haven't mentioned anything about those counting towards PSL F so that's important the distinction to make like this second. So I I've mentioned two big changes with this big news. First thing is in ending the forbearance steering and that the, the big changes with that affect everybody in the PSL F crowd plus people potentially eligible for 20 or 25 year forgiveness.
Speaker 1 00:15:47 You know, the PSL F is gonna be much that's the 10 years givenness. So that's gonna outweigh if you're eligible for both PSL, F's always better. So that first big change, the forbearance steering changes, that's affecting everybody with IDR eligibility and PSL F and then the second big change is specific. So the being able to track, uh, progress, uh, is specific to, uh, those of you guys with IDR only. So second program is only for that 20 or 25 year forgiveness and is not for PSL F so they did, uh, address some of the PSL F issues when that PSL F waiver came out. That was, I think, you know, maybe the, a first wave of some of the more recent, big news related to student loans. So, um, check that out if you have, uh, if you're going for PSL and you're not aware of that yet, that would be good to understand.
Speaker 1 00:16:44 So, but, uh, either way, this is huge. This is a potentially big deal for those of you. I mean, I think the one takeaway is if I have federal student loans, I'm gonna be super cautious about refinancing until I understand this, especially if I've had it for a while. Like I would make sure to look to understand how this is gonna affect you. If you have federal student loans still and, uh, you know, it, it could change your plan completely. So if you're working with us one on one, uh, definitely reach out. If you have like specific questions, it'll be on our radar to, to, uh, address in, uh, future meetings. But I think it's gonna be a big deal. I think it's gonna have a lot of, uh, positive effect towards those of you with federal student loans, I guess. And then the last thing I'll say before we jump off, uh, tho those of you that have had that have, uh, refind or gotten out of the federal system and, um, you're listening to this, hopefully you've turned it off at this point, but I feel for you that it stinks to miss out on these kinds of things.
Speaker 1 00:17:52 And some of you probably would've gotten huge benefits from, um, some of these programs, but, um, I'm sure. So most people that do go that refinance route are doing it for responsible reasons. And at the PO that point in time, it was the responsible move. So don't be yourself up, up to by add for that at the end of the day, like when you're old and you know, things are going well, like the student loans are gonna be like a thing in the past. It's not gonna have massive effects on your future life. So, um, hope, hope this is, um, helpful to you. And, um, please reach out if you have, um, if you want to kind of dig more into any of these big, recent changes or anything else, um, comes to mind for topics you'd like, like us to cover in the future.
Speaker 1 00:18:36 Look forward to talking again next time and, uh, hope you have a great day as always. Thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our
[email protected] for all sorts of additional content. See you next time. Finance for physicians is not an investment tax legal or financial advisor. All content included in this podcast is for informational purposes only and should not be considered financial tax or legal advice. Material presented as believed to be for reliable sources and no represe are made by finance for physicians as to another party's informational accuracy or completeness, all information or ideas provided should be discussed in detail with an advisor accountant or legal counsel prior to implementation. If you don't have an advisor or would like a second opinion, feel free to check out our website for recommended advisors.
