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A Student Loan Update

The student loan payment pause is ~allegedly~ coming to an end soon - but no matter how many times they say “for the FINAL time”, I’ll remain skeptical.


We have to believe it is getting close due to how top of mind the entire situation is, but the fact remains; student loan policy is a total mess right now. Current guidance is that payments will start 60 days after the current debt-relief court case is resolved, or August 30, 2023 - whichever comes first.


There are so many changing dates, rules, laws, new plans, old plans, waivers, IDRs, PSLFs, and so many other things going on. As if the student loan landscape needed any more complication.


With all the changing dates, let me make sure I give this advice upfront; make sure you know who your servicer is and that your contact information is updated with them. There have been a few changes in servicers (all PSLF-pursuers should be with Mohela) and the servicer is responsible for keeping you up-to-date on the upcoming dates of payments, recertifications, etc.


I want to put this out there in advance of my writing below: student loans are one of the most complex planning topics I give advice on. It is almost impossible to give broad based advice, because there are so many different strategies to getting your loans paid off.


A few comments on these:

  • My writing below is largely for those pursuing forgiveness. This may be taxable, or tax-free forgiveness through PSLF.

  • Maybe you don’t even know that you’re going for forgiveness, but you’re paying as little as possible through an income driven repayment plan - some of this is relevant to you.

  • If you are paying your loans to zero (i.e. not pursuing forgiveness) and have refinanced out of federal loans; there is not much beneficial advice for you other than make your payments, and refinance to a new company if they have something better to offer.

As always, my blanket advice is to control what you can, and that is especially relevant with where student loans currently stand. Here are some things to stay on top of, and numbers to know in preparation for student loans to start once again.


1. What is the amount of your last student loan payment?


This is important because the current guidance is that student loan payments will start again at the same amount you were paying when the pause was implemented. Your last required payment was February or early March 2020.

As long as you didn’t recertify your income since the COVID pause, the payment should start again at the same amount that it ended. For many people, this payment amount is a smaller amount than their current income would require, as many incomes have increased over the past few years. For some, this is a SUBSTANTIALLY smaller amount.


An example I’ve seen from working with young physicians is somebody who was in residency when the payment pause started - and their last payment was only a few hundred dollars a month because of their lower residency income. But, over the past almost three years, they’ve moved to an attending position and their income has gotten well into six figures.


Even so, the fact remains; as long as you did not recertify your income since the pause, your payments will start again at the same amount that they ended, even if your income has substantially increased. This is huge in continuing to get PSLF-creditable payments.


If you’re not pursuing PSLF and remaining on an income driven repayment plan in this situation; know that your loan balance will continue to grow, as the payment will not be enough to cover the interest. In this situation, you need to factor in how big the balance will grow, because that balance will be taxable income at forgiveness.


2. Income Recertification Date


When you are paying loans based on your income, or utilizing an Income Driven Repayment plan (IDR), you need to certify your income and family size each year in order to calculate how much you should be paying. This is typically based on your tax return.


This is a very important date that should be clarified with your loan servicer. The current guidance is that there will be no recertification required prior to July 2023 - and if your recertification date falls before that, it should be pushed out an extra year.


As an example, if your recertification date is May 2023, you won’t actually have to recertify until May 2024. This needs to be clarified with your servicer, but this can have big implications and benefits to the PSLF-pursuers.

If you don’t need to recertify until May 2024, then in my prior example you can continue to make payments based on your residency income until that recertification date - and all these payments count towards PSLF, on top of the now 34 months of non-payment through the rest of the year from the COVID pause.


Another planning item is that some individuals file separate returns from their spouse to get lower income-based payments - if your recertification date isn’t until mid-2024, then this upcoming 2022 tax return may not have an impact on your loan payments (since you’ll file a 2023 tax return prior to recertifying). This may result in wanting to do a joint return for 2022, then switch back to filing separately for 2023.


I think the income recertification date is one of the most important dates for individuals, especially those going for PSLF.


If you’re in a situation where your income has actually gone DOWN, it may make sense to recertify before your payments start, so that your income-based payment will be lower now than when the payments were paused. You do not need to wait for your recertification date if your income has gone down and it will lower your monthly payments.


3. Date of last employment certification / PSLF credited payments


The last thing you want to stay up on is your last employment certification and PSLF credit up to this point.


I want to make sure I’m very clear on this: an employment certification form is different from recertifying your income.


You want to be certifying your employment if you are pursuing PSLF, which will track your payments towards PSLF along the way.


If you haven’t done an employment certification form (ECF) recently, I recommend you do that. Even though you’re getting credit for the COVID pause, you still need to certify that credit through filing an ECF.


This will give you an update on how many payments you’ve made towards PSLF - and how many you have left to get to 120 payments.


If you’re not pursuing PSLF then this isn’t relevant to you. But if you’ve had PSLF work and no longer do, it may still be worth getting the credit, as you may return to a PSLF-eligible employer some day.


Final Thoughts


With so much uncertainty around what student loans will look like coming out of these court cases and the Biden presidency, planning for the future of student loans can be a futile task. The most important thing to maintain is a strategy for payoff (forgiveness or not) and controlling what you can, as I’ve outlined above.


There is even more that I haven’t mentioned in this blog, because of the uncertainty of what it will look like, including the pending IDR waiver, a proposed new income-driven repayment plan, and the current $10k - $20k federal loan forgiveness that looks more and more likely will get blocked by the courts.


One thing is for sure; Biden has made it clear that this is an important part of his agenda and he is making sure something changes that will benefit borrowers. In the meantime, pay attention to upcoming dates you need to know, and sit back and continue to benefit from the ongoing legal challenges.


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