Melissa Harris-Perry: I'm Melissa Harris-Perry, and you're listening to The Takeaway.
More than 40 million Americans shoulder the burden of student loan debt, and for some, the weights so heavy, they're unable to buy a house, start a family, or begin a business. Even before the pandemic, one in seven borrowers were delinquent on student loan payments, which is why the Trump administration paused student loan payments at the height of the pandemic, and why the Biden administration has sought more permanent solutions to lessen the education debt burden, and its very real effects on families and the economy, but just as the student loan forgiveness party was getting started, somebody turned on the lights.
Now the Biden plan is tied up in court, and everyone is waiting to learn if the sweet sound of relief is going to restart or if it's time to queue up the morning music as a dream of respite perishes.
Betsy Mayotte is a self-proclaimed student loan nerd, and the president and founder of The Institute of Student Loan Advisors. She stopped by The Takeaway to answer all of our questions and yours. She started by talking about that party that's on pause.
Betsy Mayotte: We're in a anxiously waiting period. There was several court cases that were filed to try to stop that debt relief as a whole. Eventually, the White House just said, "Okay, enough of this," and they asked the Supreme Court to fast track it, to make the decision to bless it or not bless it as soon as possible.
Melissa Harris-Perry: How soon is as soon as possible likely to be?
Betsy Mayotte: They have committed to hearing arguments. If you look at their calendar, it's the end of February, beginning of March period, and that they would be issuing their rulings sometime towards the end of June, which if you look at typical Supreme Court cases, that is remarkably fast.
Melissa Harris-Perry: All right. I want to go to some questions. I want to start with a question from one of my producers here. This is Katerina.
Katerina: I have a few loans from undergrad and grad school, and they have different interest rates, so I'm wondering if we ever do get forgiveness, if we can choose which loans that is applied to.
Betsy Mayotte: Great question. I have good news and bad news, but the answer is mostly good. The borrower does not have a choice as to how that forgiveness amount will be applied to their loans. However, the Department of Education has published the order for which they will be applying this forgiveness. At the top of the list are loans that are in default. If you don't have any loans in default, they'll then look for the loan with the highest interest rate and apply the forgiveness to that loan first. If all your loans have the same interest rate, then they start looking at if the loans are unsubsidized or subsidized. In other words, they are going to choose from a financial perspective which loan is the best one to get forgiveness applied to it first.
Melissa Harris-Perry: You make the point about if you have loans in default. For some folks they have been saying, "Hey look, the pandemic was tough, but I kept making my payments throughout the period of the pandemic," so what if a borrower was, in fact, making payments throughout the pandemic?
Betsy Mayotte: If you were making payments during the pandemic and taking advantage for most federal student loan borrowers have been enjoying a 0% interest rate during the pandemic. If by chance you paid your loan down below the amount that you think you're going to get in forgiveness if the Supreme Court should bless this program, then you can call and ask for a refund of those payments.
To be clear, anybody who paid during COVID can call and ask for a refund of COVID payments, whether you should or not is dependent on whether you would stand to get that amount forgiven anyway. For example, if before COVID started, you owed, say, $12,000, and during COVID, you've paid it down to $7,000. Based on your calculations, you stand to get $10,000 forgiven, then it would be a really good idea to call and ask for $3,000 of that back. If say, before COVID you owed $50,000, and you've paid about $5,000 during COVID, bringing you down to 45 grand, the forgiveness amount isn't going to bring you down to zero, so there's no real value of asking for that refund in that situation.
Melissa Harris-Perry: There have been multiple pauses, restarts, pauses, and I never know whether I should ignore those emails coming to me or actually pay that loan. Are we on a pause right now?
Betsy Mayotte: We are. They extended the pause because of the court actions that have been going on. What they've stated is that payments are going to resume within 60 days after the Supreme Court makes their decision. At this point, again, the Supreme Court has indicated that's not going to happen until the end of June, so we're all anticipating payments to resume in August.
Melissa Harris-Perry: All right. I love this next question. It's from another producer of ours, Monica.
Monica: Why is it that when you pay off your student loans, there are no benefits to paying it off other than not having the debt, obviously, but it doesn't help your credit, nothing actually happens other than you just get rid of the debt. Why is it that if you don't pay, it does hurt you, and if you do, nothing happens, and will that change anytime soon?
Betsy Mayotte: Monica, I love the question, too, only because I have been in this industry since the Earth cooled. I thought I had heard every question there ever was to ask, and I have never been asked this one. To say that nothing good happens when you pay off your student debt, I don't think that's necessarily true. For some borrowers, it does improve their credit score and certainly could improve their credit score over the long run. It certainly improves your debt-to-income ratio by eliminating a debt, which is something that is also taken very seriously into account when you try to take on new credits such as a car loan or a mortgage.
The reason not paying your loan negatively affects your credit is the credit score is a way of telling a future potential lender whether you're a good risk or not. If your credit score is low, it means that either you're not a good risk or you're not as good a risk as some others might be because you have paid debts late and not as agreed in the past, or sometimes a low credit score can also mean that you just don't have a history yet or much of a history where they can gauge you. It's essentially like a referral. If a friend approached you and said, "I want to borrow a $100." Your other friend said, "Ah, he borrowed money from me before and he never paid it back or he paid it late." That's an unofficial version of her credit score in and of itself.
Melissa Harris-Perry: Here's one from our intern David, who is finishing up one level of school and going on to the next.
David: As someone who's going to grad school in the fall and is going to be applying for loans, I guess, my question is how is all this going to impact that process?
Betsy Mayotte: It won't. This is not going to forgive future loans. This is a once-in-a-lifetime situation. We've never seen it proposed before. We will almost certainly never see it again. The stars had to be aligned in a very specific way for the debt relief to even be proposed in the first place. Nobody should be borrowing, including you anticipating future student loan forgiveness.
Melissa Harris-Perry: All right. I want us to listen to a call here about private student loans.
Caller 1: I've noticed that my private loan for student loans has gone up in the past few months twice now. They've given me notices of my payment amount increasing. Is that something that will be affected by the forgiveness program?
Betsy Mayotte: Private loans are not affected by this at all and will not be. Unfortunately, based on where we're at with the economy where interest rates as a whole are going up, it's not a surprise and is expected that private student loans that have a variable interest rate are going up sometimes monthly, sometimes quarterly. The best thing to do to counteract that, which could be difficult for someone who's still in school, is try to refinance those loans to a lower fixed rate, so it's not affected by the current market.
Melissa Harris-Perry: Great. Don't go away. There's a lot more on what's happening with student loan forgiveness.
Hey y'all, it's Melissa Harris-Perry, and you're back with The Takeaway. We're continuing our conversation with Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, and she's answering your questions on student loans and student loan forgiveness. Here's another one of our calls. This one's coming in from another one of our producers, Mary.
Mary: My question is a bit more hypothetical, but I see a lot of people online saying that Biden could just, by executive order, wipe out all student debt. I guess I'm wondering if that's true, but also, what is the actual mechanism for wiping out the debt, whether it's by this executive order idea or by the way that was initially proposed that's now in court.
Betsy Mayotte: I just want to point out that I am not an attorney. I'm just a student loan nerd. I will tell you that people a lot smarter than me that are attorneys, many of them have shared with me that they do not believe that the President of the United States, even under executive order, could wipe away all student debt. The thing about executive orders that I do know is that they can't be contrary to federal statute, so it's not like we don't have a king. The President of the United States has to follow the laws just like anybody else.
Now, there are some other attorneys that feel differently. They do feel that he would not be violating federal law if he used executive order to wipe out all student debt. Now what they're using, in this case, is there's something called the HEROES Act that was passed, I believe, in 2003 by Congress. In the HEROES Act, which means it's federal law, the President does have the authority to do things that are contrary to federal law in cases of national emergency. They're using the national emergency of COVID. The legal argument that they've used is the national emergency of COVID gives President Biden the authority to do something that's contrary to statute, in which case it means wiping away 10 or 20 grand of some federal student loan borrowers loans.
Melissa Harris-Perry: All right. I've got one here from a parent.
Caller 2: I was wondering what happens to Parent PLUS Loans or parent assistance loans for their children that went to college?
Betsy Mayotte: I'm pleased to say that Parent PLUS Loans were included in this proposal. If the Supreme Court allows it to go through, and assuming that the parent borrower as income meets the threshold, which is just a gross income of 125,000 or less for a single borrower and an AGI of 250,000 or less for a married couple, then they will be just as eligible for this debt relief as a student borrower is.
Melissa Harris-Perry: One last call here, and this is asking about for parents.
Caller 3: I have a lot of student loan debt, and it is compounded over the years by about $7,000 or $8,000 because I've had to be in forbearances and deferments for economic hardship. My question is-- I'm still short of the 120 because of all of those forbearance and deferments. I heard that there was something where those would be counted. That's my question. What is going on with that?
Betsy Mayotte: I assume this caller is talking about the Public Service Loan Forgiveness program. Under Public Service Loan Forgiveness, if a borrower makes 120 payments that are based on their income while working full-time for either an eligible non-profit organization or a government employer, then the balance of their loan is forgiven. Now there's been a couple of temporary waivers that have been put into place during COVID that allows borrowers to have months that normally would not count for PSLF to count.
Some of those do include some periods of forbearance, of deferment, as the caller mentioned. Now, one of those waivers is expired. It expired on October 31st. The waiver that is going to count some of those deferments in forbearances is just starting. The Department of Education applied it or is applying it to borrowers who are at 120 now. Everybody else will not see that applied to their account until probably this summer.
Melissa Harris-Perry: Let's say it all goes-- You said that the Supreme Court is deciding, and with relative swiftness here, whether it's a bless or not, this Biden-Harris plan, let's say they come back and say, "You know what? No." What is your understanding of what the Biden administration might have after this?
Betsy Mayotte: They could take another bite at the apple if their legal department has found another potentially legal pathway to do it. They could offer another proposal. I don't know if they would do that. I feel like they probably put their best eggs in that basket to begin with. They could work with Congress and try to get Congress to do it legislatively. The margins are so slim in Congress right now as far as Democrat to Republican, and this issue is such a political hot potato. I'm not sure how successful that might be either or, like I said, they could try a different legal argument.
Melissa Harris-Perry: I love when you said earlier you've been doing this since the Earth cooled. I I know the feeling. As we go out, let me just ask, is there any general advice that you give to folks, either as they're starting their educational journey and trying to think about what constitutes good decision-making around this, or maybe at the back end of their journey where the decisions have been made one way or another? What is your overall takeaways when it comes to student loans?
Betsy Mayotte: I have a few. The first and most important one that I always tell borrowers is to read all the things. A remarkable number of emails that we get from borrowers that are reaching out to TISLA for help started off with, "No one ever told me." Unfortunately, that's usually not the case. I strongly encourage people to understand their rights, and the benefits and their responsibilities by reading the student loan promissory note.
I know that doesn't sound like a lot of fun, but it really lets you know what to expect and make sure there's no surprises down the road. Another takeaway is, one of the things we like to say in this industry is that if you live like a lawyer, when you're a student, you're going to live like a student when you're a lawyer. That is just a cheeky way of saying, don't borrow more than you need to. Don't borrow assuming forgiveness.
The vast majority of student loans are going to have to be repaid by the borrower. Now, there are programs for relief out there and there are forgiveness programs. Again, under the read all the things, I encourage people to look into those and educate themselves. Again, the vast majority of student loans will end up being repaid by the borrower.
Melissa Harris-Perry: Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, or TISLA. Betsy, thanks so much for joining us and for answering all these questions.
Betsy Mayotte: It was my pleasure.
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