All right, so this is a mobile edition of the College Planting Edge podcast. Andy Lockwood here joined by Pearl Lockwood today. Hello Pearl.
Hello, Andy. Hi, everybody so we are enroute home from upstate New York where we visited our daughter in an acapella concert at her college We've got about four hours in the car So I thought hey,
why don't we talk about student loan repayment? Specifically for all Yeah, you have been helping clients lower their student loan payments which just became do this for recording this the beginning of December and the all the student loan payments that had been I Guess suspended for the last three years.
Yes resumed in October. So the moratorium and the party is over and now we've got All sorts of people the world of her has begun all sorts of people staring at these huge Monthly loan payments that they probably didn't even realize they had or they were willfully blind to like Sticking they had this and hoping they would never come back So so today I thought we would talk a little bit about number one kind of a
mash -up of a couple of case studies that We've had with some parents who had several hundred thousand dollars worth of plus loans and number two just some sort of general tips or traps to avoid for People who are all of a sudden now facing this end of the party It's like musical chairs.
You know when you're dancing around and you can't find the chair. So There's something like 126 payment repayment option scenarios or some area is exactly There's you know all the income based off the public servant loan forgiveness.
There's Relief that Currently is not available to people who have parents loans plus loans But there is a way to magically like an alchemist Convert the loans that don't qualify into loans that do qualify for repayment repayment I know you've got a little bit of experience recently doing that so why don't you take it from the top and talk a little bit about the case study and then we'll use that sort of as a lens to
go through the rest of what you have to say. Alright sounds good but I guess the best or the most staggering case study of late have a family who has three children two and let's just we'll say simple their last child is a senior in in college now going to be winding down and the two older children have already graduated and so with the suspension of the loans coming to an end at least those two children's loans
have come due now and the monthly payment so let me start with the first premise if you have loans be it student or parent loans and you do nothing at all except pay the bill the default loan repayment situation that you're going to be in is called the standard repayment plan I don't think you should use the word default when you're talking about loans that's true it is it takes on two meanings but if you do
nothing else you are looking at having the standard repayment plan which is going to make you have the highest payments that are possible for you that is going to be your highest monthly payment okay so the first thing you got to know is what's the case study so these guys are looking at how much This family was doing nothing.
There's standard repayment was $4 ,000 a month This isn't by the way, this is not so exceptional because So these are two very similar situations,
but so Because they borrowed how much? Because they borrowed I'll put it to you this way. So they were talking now about two of their three children having completed college at private institutions So they would borrow Let's say they were not need eligible in both of their private schools So they were looking at paying the entire cost of attendance minus any maybe some merit aid The student may have gotten or the
student student loans as well, which is about the number That is how it is. So the number annually borrowed is is approximately $60 ,000 or so a year The total loan balance right now for this family is about $400 ,000 Okay,
so with that they're looking at paying $4 ,000 a month every month for the next 10 years Until they will be discharged of this debt obligation So it's totally repaid in 10 years totally repaid in 10 years,
right? So they're a little shocked by that It's payment. It's yeah, it's a big mortgage payment. That's right So what were you able to help them lower the payments to what number?
So when I was able to take their entire financial picture and analyze bottom line is okay, I will be getting them down to a payment of $750 a month from $4 ,000 and the the other similar family is around $1 ,000 a month around $1 ,100 a month for the other family,
right? So in both cases you're saving over 30 grand a year Right three grand a month plus three grand a year ,000 a year or something like that times 10 years.
So it's a significant, significant payment relief. And in our opinion, probably not that unusual. If you're listening, you know, maybe you have half of what they have,
maybe you have more of what they have, but real relief is possible. You would never look, I would say if you're an outsider and you were looking at these two families from the outside, you'd never think that they were,
you know, poor or low income. They're very upper middle class, both families, very nice neighborhoods. So how did you just explain how you, this is complicated,
but try not to overcomplicate it. Okay. How are you able to get this payment relief? It's fine. So before, you know, that $750 a month is getting them to the best repayment plan for this family in particular,
which their goal was the lowest monthly payment they can achieve because there are costs and benefits and things to analyze when going for any of these such repayment plans.
But along the way, keeping in mind that they had their goal was having the lowest monthly repayment option. And in this case,
and frankly, in many cases, the way to accomplish that is by accessing the income based repayment plans, which are computed by figuring a percentage of the borrower's income,
each year, and I'll get into that more. This year's 10 % unless something changes. For many of these programs,
it's 10 % of the borrower's income that gets certified, and that is what the repayment is based on for that year. Every single year with the income -based repayment plans,
your income needs to be recertified with the government for that year, which dictates what your repayment is going to be that year. And Jess is a disclaimer, so this is the end of 2023,
there's all sorts of possibilities out there that these plans might be deemed unlawful by the Supreme Court or other legal challenges. Right,
I'll get into the ones. There definitely are. New ones could be coming up, so just, I do that disclaimer. Right, that's true. And interestingly, not to harbor this, but interestingly, the fact that they have parent loans,
plus loans, parent loan for undergraduate students, mentioned that they are not eligible for these repayment plans, but you are able to convert,
right, or consolidate, that's correct. Their loans. So, let me just explain that, because, yes,
there's a lot to this, a lot of moving parts here. Well, just from a 30 ,000 -foot view, the current loan that they have right now is not eligible to be for these plans, but you can change the nature of the loan by converting it or consolidate it into a type of direct loan that is eligible,
and then they can benefit from these plans. That's correct. And when you, if you were to call your server server, by the way, if you were to figure that out, who your loan server was and asked about this,
chances are they'd be like, "Huh?" And they're probably not even allowed to give you any type of advice, anyway, legally. So, either you frustrate yourself that way,
or you randomly stumble across something like this podcast, where I hope you've got an expert like Carl Towne, get how to do this. So, let me just explain the two main differences between income -based repayment plans and other repayment plans.
When I say other repayment plans, I am referring to, there's the standard repayment plan, which in this case was a $4 ,000 a month repayment,
monthly payment, which would have to happen $4 ,000 a month for 10 years before the debt is completed, paid, and then the other non -income -based repayment plans.
There's the graduated plan, which basically is the payments are off slow, but then some looks like a ballooning mortgage, somewhere along the way,
as your income is expected to grow, so do your repayments. The life of the loan, you're going to end up repaying more, you'll have a longer time to pay it in the graduated plan,
and at the end of the term, your debt is repaid. Then there's also the extended repayment plan, which basically would take your 10 years standard repayment plan and extend that to 20 years and have your payments,
of course, your interest is still accruing on that, and over the life of repaying that loan, if your interest will accrue, you will pay more, but at the end of the 20 years,
you too will be finished with your debt obligation. By contrast, the income -based repayment plans, such as the saved plan,
the repaid plan, the income contingent repayment plan, the income -based repayment plan, all right,
these are all far under the number of income -based plans that are tied to the borrower's income, which, depending on which one you're going to repay,
you're going to have to pay more, you'll have plan you're eligible for, will either be based on 10 % of the borrower's income, the repayment, or 20 % of the income.
So, of course, you would want to try to get to have it be based on your 10 % of your income so that you have the lowest payments monthly.
I'll ask you a question though. Is it true that in both cases, you're not paying off, you're not advertising the loan, so you're going to have more of a loan balance once you're done with the repayment plan?
With income -based repayment plans, yes. With the exception of the safe plan, and I will circle back to that in a minute. Hang on to that. So, that might be a reason to pay 20 % of your income instead of 10 % if you want to have less of a...
You have to weigh the monthly payment that you can live with because you're going in order to process what the income -based repayment plans do.
It enables you to get the lowest monthly repayment tied to your income at either a rate of 10 % or 20%.
And then, when that borrower makes monthly payments, watch out, vehicle on shoulder head. Wow. A little message from Waze right there.
Sorry about that. Back to 120 on -time payments at that income -based repayment rate,
or 10 years of on -time repayment, at the end of the 10 years, whatever your loan balance is at that time gets forgiven.
However, and this is a big however, at that time of forgiveness, you will incur a tax back.
ban for the amount that was forgiven in that 10th year. So in other words, if you have $200 ,000 that gets forgiven, that's treated as income, so you'll pay taxes as if that was the income to you,
that forgiveness effect. So maybe you don't go with the 10 % income repayment, maybe you go with 20, just to reduce that, or you just kick the can down the road. Yes,
you're right, because while you're reducing your tax ban, so to speak, you're going to have to weigh that against now the increased monthly payment you're going to have to make for 10 years.
So it's truly, truly a cost -benefit analysis, and you have to figure out, every family has to figure out exactly that tipping point that works for them.
Well, this is like those 1 % mortgages, you know, where people would move into houses, I'm sure they'll be able to afford them the lowest monthly payment possible, and just hope that, you know,
the house is going to appreciate it when they sold it. And this is kind of the same thing where you're kicking the can down the road, so it makes me a little nervous. But for people who are really struggling out there with payments,
and they found themselves under all this debt, it is really a dramatic payment relief. And the other thing you do is plan for it, right? You can put aside money.
You have eyes wide open. Yeah, instead of paying, you know, normally paying $4 ,000 a month, and all of a sudden you're paying about $1 ,000 a month or less, you in theory are to the positive $3 ,000 a month.
Why not force yourself to put away, I don't know, $2 ,000 a month into a savings account so that in 10 years you'll have a lot more money sitting around,
and you can use some of it to pay the taxes that you owe. Assuming that you owe those taxes. I mean, that's a whole nother question. Or you can save the retirement. You know, freeze up that money again. You really have to analyze your own personal financial situation here.
And your mental capacity to do this. Exactly, which is hard for all of us. We might be surprised about the forgiveness aspect of that debt.
Supposedly, I don't want to even mention that. That's just speculation and probably outside the scope of you running through some of the big mistakes that people make, but it's not clear that everyone will owe taxes on these amounts that are going to be forgiven in 10 years into the future.
Right. By any means. And of course. You're co -pilot is talking again. Yeah. Continue straight for one hour and 36 minutes. Let's continue straight for one hour and 36 minutes.
There is a way. There is a way to get the sound out. Do that. Okay. So the exception to the tax bond are those seeking public service and forgiveness.
I don't know if I want to go too far into this, but suffice to say those who are employed by a government entity,
a not -for -profit entity, a qualifying not -for -profit entity, such an agency that if you have been employed or you've made 10 years of on -time payments at the end of the 10 years,
your loan balance is completely forgiven. Period. No tax bond. It's like teachers. It'd be government employees, local government employees, might be some doctors if they're working for community hospitals,
Friday people who are public servants, firefighters. Again, in order to even access the public loan forgiveness, you have to be enrolled in one of these income -based repayment plans.
Yeah. So let me get back to you now for those of you which are many, graduate plus loans or parent plus loans, as they are on their own.
If you do nothing. nothing, you would not qualify for any of these income -based repayment plans because these loans need to be consolidated to be characteristically changed into a different type of loan that has been eligible for these income -based repayment plans.
OK, so-- So in other words, if you have a plus loan, there's no way to get payment relief unless you transform it or consolidate it into a different type of government loan. That's correct.
What you would be able to do is you would have to consolidate completely in order to get away from the standard repayment plan altogether,
meaning-- and even if you wanted to get one of the extended repayment plans, a non -income -based repayment plan, just a better-- having your monthly payment.
So extended would mean changing from 10 to 20 years? Exactly. And in our case study, your monthly payments would go from $4 ,000 to $2 ,000. OK.
But you end up paying more interest over-- You'll end up paying more-- --than 10 years. Exactly right. That's right. So it's like converting a 15 -year mortgage to a 30 -year mortgage. Exactly like that. Lower your payments, but pay more interest over the life of the loan.
Or you can prepay without penalty. So you might be able to pay down that note. That's true. So in that case, though,
you would still need to consolidate your loans. And let me just explain. You may be unaware that when a parent and a grad student takes out a loan for each year that their student is in school-- let's say,
let's just use the four years-- the parent could, at the end of the four years, actually have for one student eight different plus loans.
because they fund per semester and they are each considered a unique loan. So the first thing you would have to do is consolidate those eight loans.
It could be anywhere from four to eight depending on the school, depending on how they fund it. That's important because a lot of people don't realize that they're not just taking out one loan for their kids and they're surprised,
right, when they're like, "No, by the way, I looked up what you owe and it's eight different loans." - Yes, exactly. - Where do you add that stuff up, by the way? How do they access their loan balances? So in order to obtain a loan in the first place,
you need to have your FSA ID, username and password. That is the same FSA ID that allows you to electronically sign a FAFSA, access the student loan website,
which is all accessible at student loans. I did this yesterday, I'm sorry, studentaid .gov. Studentaid .gov,
you go there, you hit login and you enter the borrower. So if it's the student looking at the student loan, the student would use the student's FSA ID,
username and password. If the parent is looking up the parent's plus loan, the parent would use the parent's own FSA ID, username and password at studentaid .gov.
Okay, all right. And at that, once you're logged in, you would be able to access all of your loan detail and see all of the outstanding loans,
which semesters and schools they are attributable to, all the interest rates which are varied. So some of the benefits, let's get into that, of consolidating your federal loans.
One, it gives you access altogether to some other loan repayment plan other than the standard repayment plan, which I've identified as the highest monthly plan. payment that you'll make.
When you consolidate your loans, you'll consolidate your loan into one single monthly bill and not have all these multiple confusing loans. Which is usually going to be a lower payment plan.
Which is going to be a lower payment plan. You'll have access to these forgiveness options with these income -based repayment plans. You'll have a fixed interest rate. And I think that's,
so, yeah, it simplifies your life now. Can I ask you a question? What if they can't figure out their FSA ID log -ins? What are they doing? If you can't figure out your FSA ID log -ins, you would still go to aid .gov and follow the prompts for,
you know, forgot my username, forgot your password. It's going to be based on your date of birth, your name, your social security number, everything that you use,
your security questions that you use to set up the account at some point originally when you started filing FSAs. That is,
that's how you would re -access it or, you know, re -active FSA ID if it's been a while. Anyway, getting back to what the single loan consolidation accomplishes.
But it's important to understand that a single loan consolidation will only access, if you're in a plus loan, the income -contingent repayment method,
or ICR, because-- This needs more evidence. The ICR, income -contingent repayment method, that is accomplished when you do one single consolidation of plus loans,
you can get into a repayment plan that is based on 20 % of your income. Okay, that's, okay, that's fine. But if you can do better, like have it tied to only 10 % of your income,
that's going to be a lower-- lower repayment when ultimately just remember where we're going. Yes, your loan is going to negatively amortize, meaning the loan balance will increase over time,
but you're making 10 years of on -time payments based on 10 percent of your income, of the borrowers' income, and I'll get more into that in a minute.
And as long as you can sustain that, and let's say for my case study, there could be $750 a month for 10 years, making $750 a month,
more like a very fancy car repayment instead of a mortgage repayment. At the end of the 10 years, even if their loan has been amortizing and growing,
the rest of whatever is owed at that 10 -year mark is forgiven. Okay, and you have 10 years where you're able to take the difference of what you are going to have to pay anyway and save it,
plan for the tax bomb, in any case, the combination of what you will have paid over the 10 years and the tax bomb hit in that 10 -year,
the tax consequence you'll incur from the forgiveness is far less than what you would have paid under any other scenario. Okay,
so how do you get into the 10 percent income repayment? You need to do what's called a double consolidation. You're going to have to,
so if in my case study, well, okay, so I'll just explain what's going to happen. Basically, we're going to consolidate a bunch of the parent loans that they currently have due,
and then when their third kid graduates, those plus loans are going to come due, and we're going to have to do another consolidation of all of those loans again because we're, that's the double,
that's the double consolidation, but then actually there's like a triple consolidation yet, because there's going to be yet another consolidation of those two remaining loans,
if you will, that have been now re -characterized from the parent plus loan. So it's like a triple lending. It's like a triple lending consolidation. Sort of like that.
We should trademark that. Oh, let's do that. Get on that. It's upon that final characterization, this double consolidation is completed that you then it opens up access to all of these repayment plans that are tied to the 10 % of income,
which is really your best scenario. If, of course, this is all based on the fact that you have a borrower whose income is such that when put in the repayment copper,
if you will, the calculations, you benefit because your income is low enough that you're able to take advantage of these repayment plans, that your income does not meet the income threshold for these plans.
So a couple questions. How do you figure out the threshold number one and number two? A loaded question. Is there a sometimes easily overlooked but sneaky way to meet that income threshold?
If you're married, finally. Yes, of course. Okay, so the main way. But what's the threshold? So there is a loan repayment calculator on the federal site that will tell you based on your metrics.
It's going to be based on your, you put in your own, your own income as the borrower, and you're able to see based on how many people in your family,
et cetera, the balance of the loan, what your income threshold is going to be. Is it based on cost of living in different geographic? Yes. areas? So unlike the federal financial aid system overall,
which does not really contemplate your cost of living, this is based on income, I guess, variations from zip code to zip code.
Right. Yes. That's good. So I would think that a lot of people who would just assume that I'm qualifying actually might qualify. That's right. And then the other thing to look at again,
and this is why I'm hopping on, you got to really look at and what you were getting to is the way, the way most frequently that the income of the borrower can qualify for these income -based repayment plans is when we separate out that borrower's income,
income tax filing from the spouse's income, which would otherwise be booting them out of qualifying of eligibility for these income repayment plans.
So the way that a married, typically filing jointly couple would accomplish this access isolating the borrower's income is by filing married and separate.
Now, when I say married and filing separate, I automatically get like a jerk back in gutterly inside of me from every accountant that's out there saying,
"Well, what about all those tax benefits that are to be lost when you're no longer filing married and jointly?" Yes. That was a good impression of an accountant. Of an accountant, of today's accountant,
the way accountant. Okay. So... Well, to be fair, we're not accountants. No, we're not. You need to actually run this by an actual accountant. Yes. But you've also got to balance the two scenarios.
That's correct. And the two scenarios are, it is true and generally speaking, there are tremendous benefits to be had by... by filing married and joint.
But what has to be made and measured again in an income -based repayment plan, if you're going to, and in this case, so my fact pattern,
my borrower, said the benefit that I typically get from filing married and joint is about maybe $3 ,000 a year of savings.
Right. Not per month. Right. But now I'm talking about giving them a savings of $3 ,000 a month for 10 years. Yeah. So the tax benefit that you get from it,
it pales in comparison to the benefits to be had by filing married and separate, because we're separating his, the borrower's income away from his wife,
who has some income represented in this married and joint filing, so that this family can qualify for the lowest monthly repayment plan possible. By the way,
ironically, isn't the, I don't know if it's this couple or the mirror couple, but one of those couples, they're both CPAs. Yeah. That's true. That's true.
Okay. They figured, I mean, they understood. They understood this, exactly. Yes, you're losing this benefit, but borrower, you're gaining that benefit is basically where it's at with this,
with this. But if you are a parent plus borrower whose income, you know, for many self -employed business owners, for example, what you actually show on your personal tax return may be,
you know, what income flows off to you personally may be significantly low enough to qualify for these income -based repayment plans. So then the question is,
okay, well, I'm going to be giving up some tax benefits by no longer filing married and joints, because I'm going to file married and separate. Well, well, this is all a number. number crunching exercise.
You will see the numbers in black and white and you decide, you know, in this case, it's un -equivocal. In this case, you're saving $3 ,000 a month. Yeah, in this case, the answer is who cares?
Okay, right. Okay, so now the double consolidation, the happy rubber captive. So as long as I do a double consolidation,
you know, getting all these tons of loans that I'll end up having, be it gradual plus or parent plus that are going to be outstanding when I'm finally ready to pay back,
I got to consolidate them a couple of times, you're saying, Pearl, great, great, great. Okay, however, here's, there's always another shoe to grab, right? Well, here's my other shoe.
This holds double consolidation, I guess loophole, loophole to, you know, or, or access points, if you will, to these very favorable repayment plans is expiring on July 1st,
2025. What? So I know it sounds like, well, just let's speed up and just do the double consolidation as quickly as you can, you know, get them done and get them done. So that sounds fine.
And now what it is, here's another little linchpin, the linchpin, isn't that a word? Yeah, I'm waiting. It takes approximately three,
close to the six months to accomplish a loan consolidation altogether, a first loan consolidation, there are just delays and delays, because now that the government,
the government, that's true. But now that all these repayments are due, and frankly, there are a lot of new plans and a lot of questions being asked,
and maybe not a whole lot of knowledge and a whole lot of fabulous record keeping on the government part. part, unfortunately, but what my experience is,
is it's taking about three to six months to accomplish these loan consolidations, and all of these loan consolidations have to occur and be completed before July 1st,
2025, so that you do so that you can access and be sufficiently enrolled in one of these income based repayment plans. So while this delay is happening,
are they paying the higher repayment amount? So that's another very important point. There's an on ramping program right now,
because the government is actually acknowledging that this is a bit of a cluster, keeping it clean, cluster fudge,
and as such, okay, now let me just, this is a bit on the loaded side, because straight from the student loan site,
from the student aid site, it says it discusses clearly that it is having an on ramp program that is between now and September 2024,
between which you can get your ducks in a row and take care of any consolidations and figuring out maybe what kind of loan forgiveness,
eligibility, public loan forgiveness, and on ramping, if you will, to these repayment plans between now and September of '24,
where they're not going to penalize you for if you do not make payments yet. Now while they're saying that,
they're also saying while this is all true, where you should be making your wish come true. and not making repayments can add to the loan balance, and all those things are also true.
But there's no penalties or credit issue? There's no credit issue, we're penalized right now, between now and September of '24. So,
the choice is really, you know, at the borrowers option. You can still make your monthly payments, if you're at all nervous about it, then you should make your monthly payments as they stand now,
which are the standard payments, which for, let's say, one of my clients is going to be 4 ,000 a month, until the consolidation goes through, which could be three to six months,
and they've got to keep in mind, the first one that's going to happen, it's going to be the first thing, or the single loan consolidation which will get you to that extended plan, it'll have your monthly payments,
but you're not yet at the point where you can enter the income -based repayments, you've got to accomplish it with the double consolidation, so now, you have to wait for that second consolidation to be completed,
before you can enroll in the income -based repayment plan. So those are three to six months each? That's right. So that's going to be a year from now? That's right. You'll still be doing this in December of '24?
Right. And at that point, you're bumping up against being within six months of the time that this double consolidation strategy goes away? Unless,
of course, the government steps in and extends. The old extended, exactly, which we've seen before. It depends on who gets elected as president, what they do, all sorts of unknowables.
So I will just mention parenthetically, because in discussing the income -based repayment plans, I mentioned that, and this is true of whether they're tied to 10 % of the income or 20 % of the income.
the loan negatively amortizes, meaning the loan balance grows as you repay the loan. But I had also explained,
if you're going for the loan forgiveness after 10 years of the 10 years of on -time repayments, monthly repayments, the loan balance, whatever it is at that loan point,
gets forgiven and you have a tax bond. Bob sounds so warlike. I know, I know, but that is actually how it is referred,
however, there is one such repayment plan that is out now that does not have this taint of negative amortization or this negative amortization effect,
which is very sizable. That is the save plan, however, it is my speculation and chit -chat amongst the gurus that be in this area that the save plan is going to,
like the Biden -Harris loan forgiveness of $10 ,000 and $20 ,000 respectively that did not pass constitutional master a couple months back.
So to the save plan is going to come under constitutional scrutiny because essentially what it's enabling a borrower to do is have an income based on 10 % of their income,
sorry, a repayment plan based on 10 % of their income. So if, for example, you have a person who makes little to no income and married or not,
but if they're not, or if they file separately and therefore the kind of thing that is going isolate their low income, their repayment, their monthly repayment could be as well as like 200 bucks in some cases,
or zero. But anyway, after 10 years, they have the tax bomb, they pay, you know, they repayment with the same plan,
there is no negative amortization. So your loan balance is not continuing to grow like all the other repayment plans. Ah,
so the taxpayers pick it up. Precisely why. There is some constitutional question about whether the safe plan, so what's already been actually affirmatively discussed,
there is a world in a safe plan if and when the safe plan fails, it will all default into the repay plan,
which will be based still on 10 % of the income, however, will be subject to the negative amortization, like all the other repayment plans. So, I don't know if you know this,
but is the Constitution a challenge based on just overreach again, just like under the Heroes Act? I think it's going to be on overreach, and... I think it's going to be on as opposed to by congressional legislation,
I guess. Yeah. Okay. That's what's there. So anyway, it's not so easy getting from point A to point B, which is, you know,
point A, paying a huge amount in monthly payments, point B paying, in this case, I guess 25 % of the actual payments. But why don't you talk a little bit about some of the other mistakes that people make in this process,
which is I know we had to get from A to B, but we just spent a lot of time on that. And then that's where I brought because this has been a very complicated podcast already,
and we have three hours to drive. Okay. Okay. So I've given some of the income -based income -driven repayment plan considerations.
There's negative amortization, understanding that there's a difference between making monthly on -time payments and paying enough to be paying off the principal loan balance.
There's a difference between being current with your loan service or it doesn't mean you're paying down your loan. That's important because we found that a lot of people don't really understand that.
Just because you're making the payments that are acquired doesn't mean that you're going to be debt -free. You've got to look at the terms of what you're signing up for. Right.
And this is a plan, of course, that you have to be committed to for the duration. So there is a lot to get your head around and to consider, because once you're on the path,
as we're discussing, the loan balance increases, and et cetera. So you've got to be in it for the long haul. You have to understand... To be fair, I keep saying stuff like this,
but we're operating right now under the scenarios that we are experiencing currently. You know, all the relief programs that are currently available, but they almost definitely will change for the good and the bad.
So as of December 2023, this is the best information you can get. Again, understanding what happens at the end of the income -based plan term,
the year of your loan forgiveness will be a tax form at the end of the 120 -on -time payments, unless you qualify... Tax tsunami. Tax tsunami. Tax consequence. Unless, of course,
you qualify for public service loan forgiveness, which we touched on. The other failure to understand the income cutoffs with the income -driven repayment programs, there's a crossover of income in two.
So basically, if your income is a high one year during that 10 years of repayment, it may end up in that year. getting bounced back up to that standard repayment monthly payment for that year until your income goes back down for example.
But there's graduated amounts also like if you... No, with the income based repayment you certify your income each year and that drives your repayments for that next year.
So your repayment amount in other words can change? Yes, if your income does or if your income does. But if your income doesn't... And if it gets too high then you're backing the standard payment.
Yes, but it doesn't mean you've booted out of what's going to happen at the end of the ten years of getting the loan forgiveness and that whole thing but you'll never pay more than the standard repayment amount.
But what I'm saying is in a particular year on the course of that ten years of repayment in an income based repayment plan should your income be high for example let's say you have a required retirement disbursement in a given year or you retire in a certain year and there's a payout your income may be artificially high in a given year and in that year you'll have to kind of suck it up for that year and have a
higher payment potentially. Potentially, again. It'll never be more than what you would pay in the standard repayment plan. That's correct. It's capped at that.
Okay, so mistake. I'm just going to understand the timing of all this with plus loans. If you don't know the deadlines and the timing of the plus loans,
the double consolidation rules and when that goes away and the fact that it takes three to six months per consolidation. Okay, and to that end there are paper consolidations and digital consolidations that are possible to kind of work around that time crunch that you're facing.
Why would you choose? and why would you choose to do paper versus? Because you can stagger those. You can't do more than one electronic consolidation except every six months.
So in order to speed or hasten that time order, not get caught by the door slamming, so to speak, you would just consolidate one by paper right away.
And then when you have, you're ready to do the second consolidation, you do so electronically or you can do the first one electronically and not have to wait six months before you accomplish the next consolidation.
You can do two months later with paper consolidation. Okay. So another mistake is not understanding the tax considerations with income -based repayment plans,
like not knowing how to file your taxes properly, to qualify for the repayment plan is married and joint versus married and separate, you're failing to take advantage of tax strategies to lower your adjusted gross income as the borrower to best of all yourself of the repayment plan.
So if you know that it's right. That's an answer. Understanding the tax benefits against your loan repayment benefits. Other considerations, generally speaking, when it comes to borrowing and repaying,
and this is more forward -working for those that are pursuing certain careers, you have to measure and make sure that the debt level you're incurring is going to be able to be paid back by that career one day.
Not that you have a crystal ball, but if you're going to spend four years at an elite university with a gender studies major and get out and expect to be able to use that for you to pay down $250 ,000 worth of loans,
think again. If you are, you may start out in the public sector and be mentally on your way to a public service loan forgiveness.
forgiveness for your graduate plus loans. But then you may, that's true. I started my career off as an assistant district attorney for Queens County of Hackenheath,
Presquita. No, I didn't actually ever pack heat. Thank God, you're the last person I should pack heat. Thank you, the last person, the very last person. Suck a little ass in our family. Okay,
thanks. You may start out in the private sector but then you know year four, year five you decide to switch over to the private sector and then you're no longer on a path for public loan forgiveness.
You only have five years worth of public loan forgiveness credits so that's not going to work. These are all considerations. The other thing is sometimes, borrowers who are employed by the public sector unknowingly,
either they could stay with the same employer and sometimes say, "Oh, I'm the same employer, but they changed the payroll company, such and such." Some people feel they're getting paid the same, but all of a sudden,
that employer is no longer a qualifying employer on the public service loan forgiveness database. So there are a lot of moving parts here and a lot of considerations to be had with all of these repayment plans.
Are we wrapping up? Yeah, we're wrapping up. Okay, so many moving parts, as Marja said, is confusing. If you want our help, that is a service that we,
Meeting Pearl, provides. She can take you by the hand and get you from where you're at, stress, struggle, and huge payments to the promised land of lower payments.
I guess the best way to check that out is to go to our site for our separate sister business, which is yesterdaysdebt .org.
and if you do sign up for the consultation with Pearl, we can give you a coupon code for all 200 and that will get 200 bucks off.
Just put that in there, wait for the shopping cart to update and just because you listen to this episode, you're already making money. It's an instant scholarship but obviously everything we're saying here is not to be considered a guarantee or you know results may differ,
you're an adult, you get this, the examples that she gave of the two clients will almost certainly have results that are different from yours which doesn't mean that yours may be worse,
they may be worse but who knows, they could be better also but they are different. So go ahead check out the site and for any bits of wisdom you want to wrap up with.
I hope you found this helpful and this is definitely cutting edge stuff because this repayment obligation is just upon all of us now and I'm here to help,
if I can, I'll let you know. You always can. Alright, thanks for listening and we'll be back with another episode in the very near future. You should make sure you subscribe and give us a rating too,
if you don't mind, to make sure you never miss out on any of this information. Bye bye.
