Written By Travis Hornsby, CFA®, CFP®
Is there anything scarier than student loans? With Halloween just around the corner, student loan experts Lauryn Williams and Meagan McGuire share scary updates from 2020 and terrifying student loan stories.
Both Williams and McGuire are part of the Student Loan Planner® team of consultants. Williams has helped 646 borrowers and consulted on over $114 million in student loan debt, while McGuire has done 455 consults and managed $62 million in student loan debt.
Spooky student loan changes in 2020
It’s been an unpredictable year for student loans. “There have been a lot of changes that have been kind of spooky for people this past year,” said McGuire. “Most are in regard to federal student loans.”
Besides a few lenders offering disaster relief forbearance opportunities, private loans have seen little change in 2020.
Here’s an overview of changes to get you up to speed:
- President Trump waived student loan interest on March 13, 2020.
- The CARES Act went into effect on March 27, 2020, pausing payments and freezing interest at 0%.
- The Department of Education announced a plan in June 2020 to sign new contracts with five new student loan servicers by the end of the year, but the move was postponed until December 2021.
- President Trump further suspended interest and payments through the end of the year on August 8, 2020.
“That is where we’re at now, as far as what has been implemented,” said McGuire. Congress has been going back and forth on another stimulus package that includes language for student loan relief, but they haven’t come together with a compromise yet.
In the first week of October, President Trump said he was putting negotiations with Congress on hold to focus on the upcoming election.
“We’re not sure exactly how things are going to play out as it pertains to the election, but we know we at least have until December 31,” said Williams about the suspension on student loan interest and payments.
Student Loan Planner® is closely following the proposed changes and negotiations in Congress. The team expects some guidance before the end of the year on whether the suspension will continue.
The mysterious recertification process
One big question on student loan borrowers' minds is whether they should recertify their income-driven repayment (IDR) plans.
“When you’re on an income-driven plan, you have to recertify income every 12 months,” said McGuire.
“Everybody that had to update their income between March and December 31, which is probably almost everybody, does not have to recertify prior to December 31 as part of the administrative forbearance.”
But you can recertify your income as part of your repayment strategy.
“So much of student loans is all about strategy,” said Williams.
For instance, if you’re unemployed or your income has changed significantly, updating your information can give you a lower IDR payment amount when payments resume.
Scary student loan stories
Terrifying mortgage advice
An upcoming graduate – Erin – is excited about becoming a doctor, but her student loan balance is a scary $280,000. It affected her ability to buy a house, and the bank wouldn’t approve a mortgage because of her student loans – even with a cosigner.
“The mortgage broker’s advice was to pay $200,000 towards the student loans to get a mortgage on the house,” said Williams.
Erin’s solution was for the borrower’s mother to purchase the home and put it in a trust for Erin to inherit.
McGuire and Williams explain how the situation could have turned out differently.
“Your mortgage broker is not a Certified Financial Planner,” said Williams. “That was not good advice to say just go pay the loans off and then come back.”
A better strategy is to leverage the federal student loan repayment options to work to your advantage. “The thought process is that we’re not paying off this debt,” said McGuire. “We’re going to go towards that forgiveness threshold.”
Even if she wasn’t working at a non-profit, she’s a good candidate for pursuing longer-term forgiveness for her student loan balance.
The haunted house of bankruptcy
Rick has a student loan balance of $350,000 and feels like there’s no hope outside of bankruptcy.
“This raises some eyebrows already because we know student loans aren’t generally discharged in bankruptcy,” said Williams.
Rick lost his job, and his loans went into default, but he eventually made it onto an IDR plan. Now, Rick is 62 years old and trying to protect his Social Security payments.
“This is a terrifying story,” said Williams.
An IDR plan from the beginning could have brought a lot of relief for Rick. “Each income-driven plan has forgiveness associated with it and has a maximum repayment period,” said McGuire.
Being on an IDR plan could make his monthly student loan payments affordable even if his only income is Social Security.
“If Rick were to pass away with these federal student loans, these loans would pass away with him,” said Williams.
How to get out of your student loan haunted house
While the student loan changes this year and these horror stories could give you nightmares, it doesn’t have to be that way. With the right strategy, your financial future could look different.
“With a plan and good information, these things would not have been quite as scary,” said Williams.
A consult with one of our student loan experts can give you the clarity you need. To discover your options and get a student loan repayment plan that fits your life, book a consult today.
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