Announcer: Listener-supported WNYC Studios

Brigid Bergin: It's The Brian Lehrer Show on WNYC. Welcome back, everybody. I'm Brigid Bergin, filling in for Brian today. Now something that's probably been on the minds of many people: student loans. For the past three years, federal student loan borrowers haven't had to make payments on their loans. In a few weeks, that's changing. Payments are due again at the beginning of October. While President Biden's loan forgiveness plan was struck down by the Supreme Court at the end of June, his administration has implemented other changes to the student loan repayment system that borrowers should be aware of.

Here to take us through those changes is Stacy Cowley, a finance reporter at The New York Times. Stacy, welcome back to the show.

Stacy Cowley: Hi, thanks for having me.

Brigid Bergin: Listeners, I want to hear from you. Are you going to have to start making payments on your student loans again? Do you have questions about it? Concerns? What impact will your loan payments have on your finances? We were just, before the break, talking about evictions. Are you worried about paying your rent now that your loan payments are restarting? Give us a call, tell us what you're going through, and ask your questions. The number is 212-433-WNYC. That's 212-433-9692. You can also text us at that number, and we may use your text on air.

Stacy, I want to start by asking for people who aren't familiar, can you outline who the players are when it comes to student loans and how the system works?

Stacy Cowley: Sure. The federal government is the biggest lender for Americans [unintelligible 00:02:02] to go to college. The Education Department directly makes these loans. Roughly 45 million people owe a combined total of $1.6 trillion in federal student loan debt. Yes. Since the pandemic, that debt has been on pause, starting in March 2020 under the Trump administration and then continuing all the way through until now. As an emergency relief measure, the government simply put those loans on pause and said interest isn't accruing and no payments are due, so this has been an enormous financial change for many people. For lots of people, their student loan bill is their biggest monthly bill. This has really been financially transformative for lots of people, but come October, these payments once again start being due.

Brigid Bergin: You mentioned October. Are there other deadlines we should also have in mind? When does interest start accruing again?

Stacy Cowley: September 1st-

Brigid Bergin: Oh my gosh.

Stacy Cowley: -so that date is coming very soon. September 1st, they basically turn the switch, flip the system back on, interest starts accruing. Borrowers will typically get their first bill sometime in September, and then the payments will be due roughly a month later, which is why the first will start in October.

Brigid Bergin: Okay, wow. When should borrowers expect to hear, either from the DOE or from their loan servicers, about resuming payments? Should they have heard already?

Stacy Cowley: Yes. They should certainly already be getting notices from their lenders that this is coming. Then September is when they'll get that first statement saying, here's what your actual monthly bill is and when it's due. One thing that's probably going to be throwing people is the servicer they hear from may be different than the servicer they were hearing from three years ago. Some of the largest servicers quit the program during the pandemic. Millions and millions of borrowers are being transitioned to new servicers, which is also adding a layer of confusion to this. Different names are showing up on the letters and things like that, so there is some real complexity to getting this thing restarted.

Brigid Bergin: Wow. Listeners, if you're starting to feel a little bit stressed, I understand. I'm right there with you, but Stacy Cowley, finance reporter for The New York Times, can help us navigate this. What are your questions about student loan repayments restarting? It's coming up quick. The number is 212-433-WNYC. That's 212-433-9692. You can also text or tweet @BrianLehrer.

There is this 12-month grace period President Biden is rolling out, right, Stacy? What should people understand about it? They're calling it an on-ramp period?

Stacy Cowley: Yes, that was a bit of a surprise announcement. That was not something the administration had previously indicated it was going to do, but President Biden did announce that they're going to have this 12-month grace period for repayment in which if you don't pay your bill, they're not going to report you to the credit bureaus during that 12-month period, so the consequences of paying late or not paying are going to be sort of softened during this first year.

You will still accrue interest and all those other things, so it is certainly in your interest to make the payment if you can, but I think that 12-month period is an acknowledgment that this is the first time that anything like this has happened. It's going to be a rocky process restarting it, and I think they're doing that in part to buy themselves some grace room as well. I think there's an expectation that the servicers themselves might make some mistakes in these coming months. This is intended to be a soft restart period to give everyone time to work out the kinks without bad consequences starting to hit people.

Brigid Bergin: Let's go to Lori in Westchester. Lori, welcome to WNYC.

Lori: Thank you so much for this topic. I have federal loans and private loans, and one of the private loans went to collection. I was paying without interest, religiously, every month, and then they asked me if I wanted to settle that loan. It was a $23,000 private loan. They asked would I settle it for $3,000. I scraped the money together over a few months, I paid it, and then the IRS hit me with a $6,000 capital gain tax. They said that's considered a capital gain because I saved $20,000. That's what I gained. Now I owe the IRS $6,000.

Going forward, if we're able to pay off any of these loans at a low cost, is that considered a capital gain? Are we going to be taxed for it?

Brigid Bergin: Stacy, any thoughts on that?

Stacy Cowley: Yes, you just fell into a common trap that does hit people. It's really unfortunate because people who are settling debts are pretty much, by definition, those who've been struggling to pay them. To suddenly get hit with a big tax bill is really problematic for many people, but this is a common and known pitfall of getting loan forgiveness. The IRS treats that as, you got this benefit in this amount, so they treat it as income in the amount of debt that was forgiven, so people do end up incurring tax bills on this.

For federal loans, there is some current regulation that has suspended that for the moment, so people who are having their federal loans forgiven right now are not getting hit with those tax bills. When it comes to private loans, yes, you will pretty much always incur that tax bill, which I know is a real hardship for many folks.

Brigid Bergin: Lori, I'm so sorry to hear that. Let's go to Roman in the Bronx. Roman, welcome to WNYC.

Roman: Hello.

Brigid Bergin: Do you have a question about student loan repayments?

Roman: I do. If a person has federal loans and is starting a job with the federal government, what is the policy on the loan forgiveness or repayment, what have you?

Stacy Cowley: Yes. For those who work for nonprofits or for government, federal, state, local, any of those, you typically are able to qualify for what's called Public Service Loan Forgiveness. The deal there is that you have to make payments for 10 years, so unfortunately, this does not get you out of making these payments right now, but at the end of the 10-year period, any remaining balance is eligible to be forgiven. It's very much in people's interest to indicate to their loan servicer that they do work for a nonprofit or the government agency, and that they are interested in pursuing Public Service Loan Forgiveness.

Brigid Bergin: That's a really great point, Stacy, because it's not just the federal government, right? It's nonprofit, and if you work for the government, is that correct?

Stacy Cowley: Correct. Yes, and like I said, federal, state, local. If you are a public school teacher, a civic worker, any of those folks, you will qualify under this program.

Brigid Bergin: That's great. I want to go back. We were talking about the on-ramp, the fact that the White House has made this announcement that some of the harshest consequences for late or missed/partial payments will be put off for 12 months, specifically reporting to credit bureaus and collections agencies, but it doesn't necessarily say that it will protect borrowers from all consequences. What are ways that failing to make payments over the next year might affect someone?

Stacy Cowley: Certainly, it's still every month you don't make your payment, the interest clock is running. Not making your payment continues to stack up longer what you're going to owe. That is going to be the primary consequence over the next year is that-- also, if you are pursuing something like Public Service Loan Forgiveness, where you are required to make the 10 years of payments, any month in which you don't make a payment does not count on that clock. You're still able to do it, but you don't get credit for that month.

Brigid Bergin: Listeners, we're talking about the upcoming start of student loan repayments coming in a few weeks with Stacy Cowley, a finance reporter at The New York Times. She can answer your questions about some of the changes, and make sure that you understand the programs that are being unveiled by the Biden administration. We can hear the experience that you're having. What is worrying you, or how are you changing your financial plans to adjust to this upcoming payment? The number is 212-433-WNYC. That's 212-433-9692. You can also text us at that number.

I know that when we were talking about this segment, Stacy, a lot of the producers even on this show had lots of great questions and concerns, confusion around how these student loan repayments were going to resume, so we're so glad to have you here. Let's talk for a moment about the SAVE repayment plan because from my understanding, it's changing a lot about income-based repayment. Can you describe some income-based or income-driven repayment plans?

Stacy Cowley: Sure. Adding to the complexity around all of this is the administration has just rolled out a brand new income-driven payment plan, which is going to largely replace some of the previous ones. The way income-driven payment works is that your payments are capped at a certain percent of your income. It's intended to guarantee affordability. If you're making very little money, you're going to owe a very small amount, in many cases, zero. If you are someone who is a minimum-wage worker, for example, you are pretty much always going to qualify for a $0 monthly payment.

What's changing now though is that the government has rolled out this new plan with a bunch of new provisions to it. They began rolling out pieces of it this summer. The two key things to know are that if you are already on the core, main existing income-driven payment plan, which is called REPAYE, you will be automatically converted to this new SAVE Plan. You don't have to do anything. They're just going to roll you over because this new plan will always be more favorable than that existing one. If you are not currently on an income-driven repayment plan though and you do want to participate in this, you will need to apply with your servicer. The government is really urging people to log on to studentaid.gov, see what payment plan you're in, make changes if you need to.

The two big things that SAVE is going to do that's going to really be very different than the previous ones are that for any month in which you are making your payments, interest won't accrue. That's an enormous change, and that's going to really transform the repayment amounts for people. The idea is that you will only be due the principal. As long as you're paying your principal, your bill will not grow. That's pretty huge.

The other thing, and this is where things get really messy, [chuckles] income-driven payment plans are currently capped at 10% of your discretionary income. You won't owe more than 10% of your income. The SAVE Plan for undergraduate loans is going to cut that to 5%, so for many people, it will literally cut their payments in half. The catch, though, is that that piece of it does not take effect until next July. We are going to have this messy restart where people are going to start with one payment amount and then potentially have it reduced next July, but for this first stretch, the payments will still be due at the older higher rates.

Brigid Bergin: Wow. Just so that everyone is totally clear, who qualifies to enroll in SAVE?

Stacy Cowley: Anyone. It's not income limited or anything like that. Anyone who has a federal loan can qualify to enroll in this. Now if you're someone who makes a very high income, it might not save you a lot of money. It's not always the most advantageous plan, but for the vast majority of borrowers, income-driven payment will give you the lower monthly payment.

Brigid Bergin: Well, Stacy, I will tell you, we've got a lot of people who have called in with different stories of their student loan repayment challenges and questions. Let's go to Lisa in Staten Island. Lisa, thanks for calling WNYC.

Lisa: Oh, yes. Hi, thank you. I'm a school counselor with the Department of Education, and I have a loan. My understanding was that it was frozen during COVID and we didn't have to pay any payments, but that it would still count towards our 10 years of payments in time. Is that the case?

Stacy Cowley: Yes. That was another temporary benefit that happened during this pandemic is if you were someone who was pursuing Public Service Loan Forgiveness, as it sounds like you are, those months in which you did not have payments due actually do count on that time clock. It was a very rare thing that is unlikely to happen again, I would guess, but for now, you get that three years of credit. Which is again, a huge benefit for people who are on that pathway.

Brigid Bergin: Wow, that's great. Let's go to Steven in Brooklyn. Steven, thanks for calling WNYC.

Steven: Hello.

Brigid Bergin: Hi, Steven, you there?

Steven: Yes, I'm here.

Brigid Bergin: Great.

Steven: Yes, I'm here. Oh, hi. Steven from Brooklyn, adjunct professor at both CUNY and SUNY. Basically, when I've gone to see if I was eligible for any of the forgiveness plans as a state worker, I don't call qualify because I'm an adjunct part-time.

Stacy Cowley: Yes. That is a known pitfall of these programs as well is that, and a lot of college professors like yourself fall into this, you have to work at the nonprofit or government agency for a set number of hours each week, and because of the way adjunct schedules are done, you typically don't qualify. It's a known loop-gap here, which is really unfortunate for people who fall into that position.

Brigid Bergin: Steven, I'm sorry that you're falling into that gap. Let's go to Jenna in Newark, New Jersey. Jenna, thanks for calling WNYC.

Jenna: Hi. Yes, I'm calling because I've been lucky in that I've been benefiting from not having to pay and not having interest accrue since I graduated, but I am now having to choose, okay, what payment plan? It occurs to me that if I choose an income-driven payment plan, I feel like I'm committing myself to poverty for the next 10 to 20 years. Because if I suddenly rise out of that, then all of a sudden, I have a huge amount that I owe, right, or do I misunderstand something about the way it works?

Stacy Cowley: You can at any point-- one of the advantages of income-driven payment plans is that after 20 years, whatever remaining balance you have gets forgiven if you've met your monthly obligation. If you hit the point where your income rises significantly and the standard payment plan-- which basically the way the standard payment plan works is it takes your loan, divides it out over 10 years and just gives you whatever is due each month. If you ever hit a point where that's actually cheaper than the income-driven payment plan, you could switch. You can always switch back and forth between these plans at any time. If you do an income-driven payment plan now, you are not committing to be on that for the whole rest of your loan. You can switch out at any point.

Brigid Bergin: That's a great question, and I'm glad we were able to give some helpful feedback. Let's go to Darlene in Long Island. Darlene, I know a lot of people have the question that you're about to ask. Welcome to WNYC.

Darlene: Hi, thank you for taking the call.

Brigid Bergin: What's your question?

Darlene: My question is, my husband and I both work in schools, we took out Parent PLUS loans for our children, and I was wondering if we qualify for, I guess, that perk for working in a public sector?

Stacy Cowley: It does not qualify on Parent PLUS is my understanding, unfortunately. It is for the worker-- yes, it's for the recipient themselves. That's another known gap in this program.

Brigid Bergin: Wow, there are so many details that you need to stay on top of. Let's go to John in Plainfield, New Jersey. John, thanks for calling WNYC.

John: Good morning. My granddaughter has these loans from Sallie Mae, and I was just wondering, does she qualify for the loan forgiveness?

Stacy Cowley: Sallie Mae is a private lender. Again, it's worth taking a closer look at this just to make sure because Sallie Mae-- adding complexity to this situation. Sallie Mae was the former name of Navient, which was a federal loan servicer, but anyone who has current Sallie Mae loans, those are typically private loans, so they're outside the federal system entirely.

Brigid Bergin: Wow. We'll go to one more caller, and then I have a couple more questions for you, Stacy. Let's go to Bonnie in Hoboken. Bonnie, thanks so much for calling WNYC.

Bonnie: Hi. This is actually pertinent to the last call. I have loans that were originally Sallie Mae, and I'm now paying through Navient, but I'm considering reconsolidating them as federal loans, so they do qualify for reconsolidation. One of my concerns here is that because I've already been paying for a long time, almost- I have over 200 payments, but my payments-- I'm concerned that if I-- Well, let me ask this question.

If Biden is not reelected, could some of these things that DOE is implementing disappear? Because for me, I will not reach forgiveness in the next year, but I eventually would. If I reconsolidated to federal loans, I pay the quarter percentage higher, whatever it is, and I would end up paying more in interest if I do reconsolidate, and then I would not get the benefit of forgiveness of $10,000 or so when I hit my 300 payments.

Brigid Bergin: [expresses sympathy] Bonnie.

Stacy Cowley: Yes. I think you've hit right on some of the challenges here, which is that people are having to make calculations in a scenario of future unknowns. One thing I would say is, it's probably worth a call to the Education Department's Student Aid help hotline in your case. Because for people who've been making their payments on federal loans for a really long time, like close to 20 years, there's a bunch of one-time adjustments going on right now that can move those people a lot closer to forgiveness. It can be worth checking in and saying, "Hey, if I consolidate, where do I stand on that?"

The second part of your question about what a future administration can do, yes, that's one of the unknowns here is that just as President Biden went in and reshaped these programs, a future administration can do the same. The one thing about it is that it does take time. This is not something that a president can just wave a pen and it happens immediately. That's part of why the current program is rolling out in chunks. There's a whole bunch of statutory requirements around how you go about doing this, and it's a deliberately long process. It is true. A future president will have four years to make changes, and if they decided they wanted to change how these programs work, they can.

Brigid Bergin: There's so much to juggle here. Stacy, let's just take a step back. We've talked about some of the changes to these programs. If someone is not paying interest, that seems like a massive savings. Do we have a sense of how much these changes might affect people's payments and for how many people?

Stacy Cowley: Yes. Certainly, tens of millions of people are eligible to take advantage of this income-driven payment plan and will have lower costs because of it. For people's individual bills, this could make a difference for hundreds or even thousands of dollars. For the government, it's going to be expensive. One interesting aspect of this is that the projections on how much this new payment plan will cost the government over the next couple of decades is around $475 billion, which is actually more expensive than the debt forgiveness program the Supreme Court struck down. These are pretty sweeping changes.

Brigid Bergin: Are we hearing any of that kind of chatter from opponents who might try to seek to block this latest version of the program?

Stacy Cowley: I never rule out the possibility that there will be legal challenges, but we have not seen any so far on this one. The White House and the Education Department have both said, and I think they're right, that legal challenges are pretty unlikely to succeed on this one because the Department's authority to create the terms of these programs is so crystal clear in the law. I mean, they've been doing that for decades, they have the clear authority to do it. It's not as legally risky a maneuver as the debt cancellation plan was.

Brigid Bergin: Wow, so interesting. Let's go to a couple more callers just to round out our segment. We'll go to Olivia in Manhattan. Olivia, welcome to WNYC.

Olivia: Hi, thank you so much for taking my call. I'm calling because I work as a contractor for the State Department. My understanding is that something like 40% of the federal government workforce are actually contractors, and we work in offices like any other government official. For all intents and purposes, there's no difference between our public service and theirs, but yet we don't qualify, as I understand it, for the Public Service Loan Forgiveness Program because of how we're hired in, which is through a third-party contractor rather than directly from the government. Which seems like a pretty unfortunate loophole, considering that many of us will spend our careers in public service. I wanted to see if that loophole had been closed with this new SAVE Program, or if it's still the same problem.

Stacy Cowley: Yes, you have hit on yet another gap in how this works, and no, that's still very much in place and has not been closed and is pretty unlikely to be closed because it's a very tricky gap to attack, in that the program is based around who your actual employer is. If it's the government or a nonprofit, you qualify for forgiveness. If you work for a typical private employer, you don't. In the case of contractors, your paycheck comes from the contract company, and they are a for-profit enterprise. Yes, even though you're doing virtually indistinguishable work from the government employees, that's a known pitfall here.

Brigid Bergin: [groans] Lots of known pitfalls. We're going to give you a couple more callers, Stacy. Let's go to Bob in Queens. Bob, thanks for calling WNYC.

Bob: Hi, you're welcome. My question is, I owed about $20,000 in student loan and interest. The loan company contacted me this year and told me if I paid off the principal, which was about $14,000, they would grant me amnesty for the interest that was due, so I jumped on that with both feet. Now my question is about the caller earlier, that you said that since they were forgiven, they were going to get a figurative tax bill from the IRS. Now in my case, I paid off the principal. All I was granted amnesty for was the interest. Will I get hit with a bill from the IRS on that?

Stacy Cowley: Typically, yes. It sounds to me like those were probably private loans and, yes, the IRS is going to view whatever amount on paper was written off and forgiven as income to you. Yes, it's worth consulting an accountant or someone about this.

Brigid Bergin: Bob, sorry to break the bad news. Let's go to Alex in Brooklyn. Alex, thanks for calling WNYC.

Alex: Hi, how are you doing?

Brigid Bergin: Doing well.

Alex: Hello? Okay, great. I am an artist. I'm a musician. I have a master's degree. I have been paying on the income-based repayment plan for 15 years. I've also been teaching at multiple schools for 15 years on a part-time basis. My whole thing is that I appreciate what's happening, but it needs to go a lot further. The 20-year, 25 in some cases, forgiveness needs to be bumped down to 15. There needs to be a solution for part-time nonprofit employees and educators like myself who are freelancers. The interest rates are way too high, they're predatory, they need to be lowered. There's just so many ways that we can address this that it's not going far enough.

Stacy Cowley: Yes, I think that's a common piece of feedback is that the student loan system still needs a whole lot of comprehensive changes, and it's challenging. It's a very complicated system, and it's hard to close all the loopholes and everything, but yes, I think there is certainly attention in Washington to the desire from many constituents to see further changes here.

Brigid Bergin: Well, Stacy, I so appreciate all your perspective and insight on the program. Before I let you go, you've given some great suggestions to our listeners about places to get more information. If you had to just kind of your top three most important suggestions for people who are facing repayment in the coming weeks, what should people be doing? Contacting their accountant, contacting their servicer? Top three things to do between now and September 1st and the beginning of October.

Stacy Cowley: I highly recommend anyone with federal loans, go ahead, log on to studentaid.gov and review the information there. Make sure you know who your new servicer is, take a look at what payment plan you're enrolled in, see if income-driven repayment is going to be more advantageous for you because if it is, you want to make that switch. Also, for some folks, this is the time to consolidate.

I did want to update my previous answer. I took another look. Parent PLUS loans do qualify in some cases for Public Service Loan Forgiveness. It's another one of these weird where some do, some don't. [chuckles] It's, again, highly recommended to log on, see what you've got, talk to your servicer. The servicers are really stepping up. They know they're going to get hit with lots and lots of phone calls over the coming months. I think that 12-months grace period is partially intended to acknowledge that everyone's going to be spending a few months figuring out all these new rules.

You could face long waits over the next couple of weeks and things like that, be prepared to be patient, but I'd say most people probably want to have a conversation or some online interactions with their servicer in the next couple of months to make sure they are on the most advantageous plan they can be.

Brigid Bergin: Absolutely. Darlene in Long Island, did you just hear what Stacy said? You and your husband's Parent PLUS loans may qualify. Definitely talk to your loan servicer. We just wanted to let you know. Reiterate that message.

We're going to leave it there for now. I've been speaking with Stacy Cowley. She's a financial reporter at The New York Times. Thank you so much for coming on.

Stacy Cowley: Thanks for having me.

 

Copyright © 2023 New York Public Radio. All rights reserved. Visit our website terms of use at www.wnyc.org for further information.

New York Public Radio transcripts are created on a rush deadline, often by contractors. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of New York Public Radio’s programming is the audio record.