Money Rehab with Nicole Lapin - Were You Hurt By the Government's $39 Billion Mistake? Find Out!

Episode Date: July 19, 2023

Recent headlines on Wall Street make it seem like student loan forgiveness is back on, but, it's not... The real story doesn’t have anything to do with the recent student loan forgiveness ruling from the Supreme Court. The truth is, we're talking about a $39 billion oversight by a government partner— an oversight that might mean you're owed money (and an apology, if you ask us!).

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money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Here's your weekly roundup of the biggest headlines on Wall Street and how they affect your finances. Student loan forgiveness is back on. Well, no, it's not. Sorry. But if that's what you thought because of the headlines, I can totally understand why. The real story doesn't have anything to do with the recent student loan forgiveness ruling from the Supreme Court,

but who could tell from all the coverage or the political spin? So I'm going to give you the real scoop on why some 800,000 people will have $39 billion of student loans forgiven. When you borrow money from the federal government to pay for your education, the feds back the loan, but the paperwork is handled by private companies that service those loans. These companies were supposed to manage the paperwork for the government. They would accept payments for the loans, record the payments, and handle loan forgiveness. But these companies didn't do any of that. They had one job, processing loan payments, and they still failed. They kept such poor records that sometimes

borrowers would be transferred between loan servicing companies and their entire payment history would be erased. In other words, these companies had no idea how much people were paying on their loans. Obviously, that is a huge blunder that should have never been allowed to happen. But the complete failure of these companies to do their job had major implications for one type of borrower specifically, those on income-driven repayment or IDR plans. These plans allow borrowers to pay down their loans for 20 or 25 years at a rate based on their income. And by the end of that period, the remaining balance on the loan would be forgiven. IDR plans were supposed to be the savior of those who chose to work in fields that required an advanced degree but didn't pay very well.

An MBA from Harvard, for example, costs the same as a master's of social work from Harvard. But the two have very different earning potentials. Beyond public servants, many people qualify for this type of loan forgiveness because going to college didn't provide them with enough income to pay back the loans they took out or because they were forced to drop out before finishing their degree. So as I said, IDR plans are supposed to give loan forgiveness after 20 or 25 years, but that wasn't happening. In review of the records of 4 million borrowers who had been paying for two decades or more, only 32 people had their loan forgiven. 32! And again, that's out of 4 million eligible people.

In many cases, these were borrowers who took out loans for secondary degrees necessary for their jobs as teachers, social workers, and nurses with the understanding that they would be able to have those loans forgiven once they had paid for long enough. But that didn't happen. So what's being billed as student loan forgiveness here isn't. It's just the government trying to correct a massive and devastating mistake by the private contractors they hired. Currently, the government estimates that 800,000 people qualify to have their loans forgiven or even partially refunded as part of this accounting correction. Those that qualify are borrowers who have direct loans from the government or federal family education loans, including the Parents Plus loans. Eligible borrowers must have paid for 20 or more years. I know the freeze threw off the math, but that works out to 240 to 300 months worth of loan payments. Given the individual nature of

these payment plans, it's hard to say exactly how many payments it takes to qualify. But any period spent in forbearance or deferment other than in-school deferment from before 2013 also counts towards your total paid. I know this is a whole web of confusion, but this week the Department of Education will start notifying borrowers if they are going to get a refund for overpayment of their loan. If you're one of those people, you can expect to get a check within a month of that notification. Because this is really a correction of a record-keeping mistake, it's very unlikely to be blocked or legislated. It also looks like as this internal audit is conducted, more eligible borrowers will be discovered. So this is a story we're going to be watching very closely as it continues to evolve. In another story we're

keeping an eye on, what is up with Shein? Did you notice that Shein, the fast fashion company, has been all over your feeds and in the news in the last few weeks for their influencer trips? Because I did, and it made me wonder, WTF is going on here? So I followed the money trail, as I do, and I found out. Allegedly, Xi'an is in talks to go public. Valued at $60 billion, the company has been negotiating with the New York Stock Exchange, the Nasdaq, Goldman Sachs, Morgan Stanley, JPMorgan Chase, the U.S. Securities and Exchange Commission, all the major players over a possible IPO offering. In other words, they want to be able to sell their stock on the public market where retail investors like you and me could buy it.

But Shein is a Chinese company with a bad reputation, so the path to going public is not straightforward, and it risks drawing attention to some of the sketchy fast fashion business practices that have allowed it to thrive. that have allowed it to thrive. One of Xi'an's many money-saving hacks is taking advantage of a loophole in the tariff law that doesn't tax imports under $800. To get around that, Xi'an ships individual packages. On all those packages Xi'an ships, it pays $0 in tariffs.

By comparison, the Gap Corporation, which also manufactures clothing in China but ships in bulk, paid $700 million in import duties in 2022. That's a good deal. That is a great deal, in fact, for Shein, but a lousy one for the American public. Shein and its competitor Timo don't want anyone to notice and close this tax loophole. A Shein IPO could call attention to Shein's business practices in a whole new way, so they're trying to be really careful here. The company wants to maximize the funding opportunity with this new stock offering while minimizing the risk of too much

governmental scrutiny as to how they can offer such low, low prices. Plus, a lawsuit in California last week by three designers alleges that Sheehan stole their designs and used them to train an algorithm that then created clothes for Sheehan to manufacture. It is not clear what shape this story will take yet, but it is certainly clear that it will affect Sheehan's IPO play. The final story we're really watching closely here at Money Rehab is a possible strike at UPS. And I promise I'm not ignoring the elephant in the room, the strikes in Hollywood. We are going to have a full episode on that soon.

But for now, UPS. Union workers at UPS are dissatisfied with wages, and members have approved a strike, so it's looking like a real possibility. In this tight labor market, new hires are making almost as much as workers who have been there for years. And this lack of pay gap seems to be one of the major sticking points of contract negotiations. Last fall, we saw rail workers threatened to strike and the federal government unilaterally blocked them from doing so. To head off such an action by the administration this time, the head of the Teamsters union has asked Biden to avoid similar actions. On the other side of the bargaining table, UPS has already begun training non-union workers to

fill in should a strike happen. Current estimates suggest that a 10-day strike could cost the American economy $7 billion and have the biggest price tag of any strike in at least a century. As of the time of this recording, they haven't gone on strike yet, but if they do, this will have major implications for the economy and we'll all have to likely dust off our supply chain expert hats and get down to speculating about what potential damage this could do. For today's tip, you can take straight to the bank. If you wanna support a company that has a reputation

for being great to work for and that can save you money, consider booking your next rental car through Costco's travel site. Yeah, Costco has rental cars as well. Who knew? And no, I promise this is not an ad at all. It's just an easy way to save some serious money on your rental car the next time you're

traveling. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you.

Thank you for listening and for investing in yourself, which is the most important investment you can make.