What you need to know about the PSLF waiver
An emergency waiver was put in place in October, which could allow many borrowers to qualify retroactively Civil Service Loan Waiver (PSLF) months that were previously not eligible under the current PSLF rules. Many who were not on an income-driven repayment plan or had FFEL, Perkins, or consolidated loans after working at a qualifying institution can now retroactively earn qualifying months for the PSLF program. This is a very positive step for this program.
In order to get qualifying months, borrowers simply need to meet two criteria: (1) Work full-time for an employer eligible for the PSLF AND (2) must have been “in repayment” on their federal student loans while at that employer. This new waiver is only in effect until October 2022, then it reverts to the normal PSLF rules. Given this, now is the time to ensure that borrowers get their loans properly aligned with the PSLF program rules to continue getting eligible months after October 2022.
Steps to get qualified months:
- Make sure the borrower is with FedLoan and if not, the borrower should contact FedLoan and express interest in switching to them as a loan servicer to enroll in the PSLF program.
- Submit the PSLF Employer Certification Form (ECF) for each qualified employer that the borrower worked “full-time” while repaying. Borrowers can ask their HR team to fax it to FedLoan and/or upload this PDF directly to their FedLoan web portal.
- If necessary, start a direct consolidation ONLY of non-“direct” loans that the borrower wishes to obtain PSLF-qualified months.
- Borrowers should not consolidate ALL their loans as it is neither necessary nor recommended and instead they should only consolidate non-‘direct’ loans that they wish to include in the PSLF forgiveness. Make sure it won’t impact any other forgiveness programs they seek, such as a Perkins loan forgiveness or similar.
- Sign up for an income-driven repayment plan if you don’t already have one.
- Once all ECF forms have been submitted, verify the borrower’s eligible months on file with the Department of Education. FedLoan has a PSLF tracker on its website, but make sure these numbers are added to its official record as well, because FedLoan won’t be repaying its loans for much longer. The site indicates that it could take months and therefore it is advisable not to wait until October to start this process.
FedLoan Replacement – MOHELA
Although we thought FedLoan was going to leave us last year, by an act of God (and probably a lot of money thrown their way), the Department of Education got FedLoan to stick around for another year. MOHELA has been identified as the successor to FedLoan and borrowers who do not participate in the PSLF program will transition to MOHELA early this year. Those who are enrolled in FedLoan and the PSLF program will not currently transfer to MOHELA until later in 2022. We believe they will move them after the conclusion of the PSLF waiver in October.
Forbearance Period Extended to May 1 – New Revenue Recertification Opportunities
Many have already heard that the new COVID-19 forbearance period on federal student loans has been extended until May 1 of this year. This now opens up new opportunities for borrowers to decide when they want to recertify their income before/after filing their taxes or wait until their extended recertification date. Since borrowers can recertify their income based on their most recent tax return, they are technically able to make payments on their 2020 income through 2022 if they recertified their income just prior to filing their 2021 taxes. Doing so would allow them to perpetually recertify their income just before filing their taxes every 12 months and make payments that year based on their income from 2 years ago. This could be very beneficial for those seeking the PSLF program and trying to get as many years of qualifying payments as possible on a lower income.
It is encouraged to have borrowers complete their income recertification through the StudentAid.gov site to avoid mistakes from their loan officers. This site also asks them if they have had a “decrease in income” since the last time they filed their tax returns, but does not ask them if they have had an “increase in income” as the loan officers. This is often a big deal for clients experiencing a significant increase in revenue.
Impact of increasing pension contributions to $20,500:
Many borrowers who repay their student loans forget that their payment is based on their “adjusted gross income” and not simply their gross income. This means that any pre-tax pension contributions can offset their income and thus reduce their required monthly payment.
For borrowers who already earn an income above 150% of the poverty level, making a pre-tax pension contribution of $20,500 for 2021 could potentially reduce their effective payment by $171/month if they are on PAYE, REPAYE or the 2014 IBR reimbursement plans. For those who had the old IBR plan, the maximum contributions could now save them more than $256/month.
Refinance now or wait?
Many borrowers who are unlikely to qualify for federal rebate programs face a difficult decision about when/if to refinance. When making this decision, it comes down to three variables: interest rates, potential for federal loan program changes/forgiveness opportunities, and federal protections (disability discharge, death, plans payment, etc).
As far as interest rates go, no interest accrues on federal loans through May 1, but there could be a strong argument that interest rates will be much higher if they opt out. wait and refinance over the summer.
When it comes to government changes, some borrowers are already chafing at themselves for refinancing their loans too soon, especially those who did so just before the new PSLF waiver that would have qualified them for full duty-free loan relief. of tax.
The federal loan program is considered a very “cushy” setup and offers many options for borrowers to reduce their payment or have loans paid off in full if life changes in the future. Although potentially mitigated by insurance, some may want to stay with the federal government since their loans would be repaid upon death or permanent disability. This can be very attractive for those who are uninsurable due to pre-existing conditions.
With the volatility of federal loan programs lately, many borrowers are choosing to hold onto their federal loans until the dust settles after the COVID-19 forbearance program ends.
Resources to stay up to date
Keeping up to date with changes to student loans is often difficult, and the spread of misinformation is unfortunately quite widespread, even on some major news sites. It is important to ask yourself what is the affiliation of the site you are reading? Do you see a lot of ads for refinancing banks scattered around the article? This is usually a clue that the information is a pitch for student loan refinance offers. Without a detailed analysis of your loans, it’s not necessarily in your best interest. Also consider the author and their qualifications. Many sites do not publish their credentials, so be sure to watch out for those anonymous sites and articles.
Two sites that borrowers can comfortably rely on for information are Certified Student Loans Professional (CSLP) Blog as good as Ministry of Education website himself. There are many other sites that may post information before these two sites are updated, but if they are not yet on either of these two sites, it is important to seek advice from a trained or experienced professional. before a borrower makes any financial decision based on this information.
Michael Foley, CFP, CSLP, is a comprehensive financial advisor who operates his practice in Scottsdale, Arizona under the direction of the North Star Resource Group. Michael was educated at Duke University and holds his Certified Financial Planner designation as well as his CSLP®. Although Michael serves a diverse group of clients with their financial and student loan needs, with two medical parents, Michael has found a specialty in working with those working in healthcare. To schedule an initial consultation Click here.
Registered Representative and Representative Investment Advisor of Securian Financial Services, Inc. Securities and investment advisory services offered through Securian Financial Services, Inc. Member FINRA/SIPC. North Star Resource Group is independently owned and operated. 6720 N. Scottsdale Road, Suite 290, Scottsdale, AZ 85253. 4235145/DOFU 2-2022