Money Rehab with Nicole Lapin - What's Going On With Student Loan Forgiveness?

Episode Date: February 27, 2023

For a while, you couldn't scroll Instagram without seeing an update on the student loan moratorium. And now... crickets. But there's still a lot going on behind the scenes. Today, Nicole catches you up; and for those of you who do have student loans, Nicole outlines what you need to do now.

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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. It's time for some money rehab. Do you know that four panel meme cartoon of a sleeping woman and her brain wakes her up with a question? Yeah, that was me and student loans. We heard so much about them back in the fall, but recently not so much.

So I had to ask, what is the current situation with student loans? The answer is complicated. Right now it's working its way through the court system and there's a lot to unpack. So let's start this update off with a little history, shall we? All the way back in March 2020, the Secretary of Education under Donald Trump suspended student loan repayments and stopped those loans from generating any interest under the HEROES Act. The HEROES Act was passed post-9-11 to enable the Secretary of Education to alter student loans so that members of the military who got called up, or survivors of 9-11, wouldn't be forced to pay back loans when their lives had suddenly been changed. wouldn't be forced to pay back loans when their lives had suddenly been changed. As long as the president declares a state of emergency, which Trump did on March 13, 2020, the Secretary of Education can suspend or cancel student loans without going through what's called a notice and comment period,

which is basically an opportunity for the public to comment on a law. And you might be like, Lapid, do I really need this history lesson and all this information to understand what's going on with student loans right now? And the answer is, yeah, yeah, you need to understand what's going on here because the student loan forgiveness program is on pause while two cases work their way through the Supreme Court. One of those cases is Biden versus Nebraska. It argues that the HEROES Act doesn't give the Department of Education those powers and that it goes against the laws that govern federal agencies. It seems pretty clear that the law does give the DOE those powers, and the case was thrown out

in a lower court, only to be brought back later. It will be interesting to see how the Supreme Court handles this case because they've agreed to hear it, which means they must think it has some merit. The other case, called Department of Education v. Brown, was brought by two students. One of them is Alexander Taylor, who is suing because he didn't receive a Pell grant, so he can't have one forgiven and isn't able to collect the full amount of aid being offered. He's basically suing because he didn't grow up poor. The other, Myra Brown, is claiming that she is injured by the law because she has private loans, not federal loans, so her loans won't be forgiven. loans, so her loans won't be forgiven. Local news reports show that her company received $48,000 in PPP loans, of which she paid back $4. Deal with that information, which you will.

Now, this is obviously not an organic lawsuit. These two didn't just wake up one morning and both decide to sue the federal government. Brown and Taylor are being supported in their suit by an advocacy organization called the Jobs Creators Network. The JCN is against the Paris Agreement, $15 an hour minimum wage, and in favor of drilling for oil on public lands. Just to give you an idea of their politics. So these are the two lawsuits that are holding up student loan forgiveness. We're going to talk about what all of this means for you, but before

I get there, I want to stick with the story at the federal level just a smidge longer. For one thing, on the federal side, it's going to be a paperwork nightmare. People have moved. They've stopped using their school email addresses because they graduated or they don't remember the password to their payment account. Bureaucratically, turning back on student loan payments is going to be very difficult. That's not the only part of this story. We need to talk about what happens if or when the student loans get turned back on, because there are people who haven't made a payment in the three years the loans have been frozen. They have structured

their financial lives much differently than they thought they would have if they were paying their loans. They had babies. They bought houses. The interest rate has gone up. Borrowers have taken on new debt. And everything has gotten more expensive. The end result? People are going to have a hard time paying off these loans if they aren't given some sort of ramping up period to adjust to it. So we do need to think about what not canceling the debt looks like and what this means for you. To start off, are you one of those people? Have your loans been on pause? They may get canceled, but if they don't by June 30th, you need to have a real hard look at the effect restarting those payments could have on you

because the loans will restart 60 days after that. You're going to have about six months to get your budget in order if you're going to need to repay your loans. Now, the loans that may be forgiven are from before June 30th of 2022. The Biden administration has made other changes unrelated to the pause. These changes will stay in place no matter what happens with student loan forgiveness. This January, they rolled out changes to their repay, with an E at the end, payment plan. Under the plan, you would pay 5% of discretionary income for 20 years or 10 years if you owe $12,000 or less. Under the old plan, you needed to start making payments if

you made 150% of the federal poverty level. 150% of the federal poverty level is, by the way, a whopping $21,900. Under the new plan, your income needs to be 225% of the federal poverty level or $32,800. Under this plan, if you made $90,000 a year, your payments will go from $568 a month to $238. By the way, you need to have qualifying federal loans for this plan, and your payments will go up when you make more money, honey. So if you're a medical student specializing in plastic surgery, this may not be the way you want to repay your loans. But if you're planning to be an art

teacher at a non-profit working with disadvantaged children, this really could be a great way for you to deal with your loans. The other big change to student loans recently has to do with bankruptcy. Historically, student loans have been notoriously difficult to get rid of because the federal government made it very difficult for people to discharge their debt in bankruptcy. The Biden administration changed its enforcement approach and will no longer actively fight people from discharging their student loans. This new policy could end up being very useful for a lot of people if student loans aren't forgiven and they suddenly need to start repaying. For today's tip, you can take straight to the bank.

If you're someone whose student loans have been paused, this is your call to action. Go and find your paperwork, figure out what your monthly payment would be, and think about what restarting repayment would look like for you. Does your job offer help with student loans, or do you now qualify as a public servant who could get loans forgiven? If you needed to restart payments in August, could you? If you can't, how can you get to a place where you could? It may never come up, but it could, and if it does, you'll have some idea of what you get to a place where you could? It may never come up, but it could. And if it does, you'll have some idea of what you need to do. 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.