Student Loan Marketplace Update for May
It wouldn’t be a May newsletter if we didn’t make some sort of predictable reference to showers and flowers. In reality, this month’s student loan news is more like my yard with a bit more weeds than flowers. In other words, we’ve got good news and bad news, with a little more of the latter. Good and bad, the headlines continue to roll in! Let’s get into it!
Biden’s Loan Forgiveness Faces Fresh Scrutiny
Our lead story covers President Biden’s two primary forms of loan relief and the increased inquiries into them. We dissected the two GOP-led lawsuits to block the SAVE plan and posted our dedicated findings on our blog. The lawsuits meticulously lay out Congress’ original intentions for IDR programs, stating forgiveness was meant to be a backstop for some borrowers, and not the goal for most. The SAVE plan, on the other hand, is accused of being a partial grant program which will only see about 60% of borrowed money actually paid back. The lawsuit further states the Biden administration’s cost estimate of $156B for SAVE is grossly understated, with the true cost being closer to $430B.
It doesn’t help that Penn-Wharton released a study in April estimating the cost of SAVE even higher at $475B. The study looks at both the SAVE plan and Biden’s yet-to-be finalized loan forgiveness plan. One searing takeaway from the study was that SAVE is projected to benefit 750k borrowers “residing in households” who earn an average of $313k annually. The anti-forgiveness groups continually claim Biden’s relief policies benefit the richest Americans. Unfortunately for Biden and the rest of the pro-forgiveness crowd, this study seems to strengthen that narrative.
Finally, Secretary of Education Cardona testified before the House education committee last week. While I was hoping to glean some useful takeaways from this lengthy hearing (that’s over four hours of my life I’ll never get back 🙄), it turned out to be the usual political grandstanding with Democratic members tossing layup questions about the department’s new initiatives while Republicans hammered on loan forgiveness, literacy rates, and Title IX concerns. Literally no helpful information about student loans came from his testimony. I mention it here only to reaffirm both sides are very dug in on this hot topic of loan forgiveness and who-holds-what authority.
Mohela Transfers 1M Accounts
Did you hear that Mohela voluntarily asked to pawn off roughly one million borrower accounts to other servicers because they needed relief? If you are aware of this, it’s probably only because you received notice that your account was being transferred. Most of the media failed to pick up the story. This is major news, however, and can be quite disruptive for those impacted! While account transfers are nothing new, they can be a pain the neck if your IDR payment plan, amount, or recertification date changes as a result. And by the way, that indicates there was an error. While it’s not supposed to happen, we see it all the time. What can be of greater concern is if your account history gets left behind, making it difficult to work through issues down the road. We always recommend retaining PDF copies of all significant servicer communications, like IDR recertification letters and forgiveness certifications. It’s also a great idea to download your detailed payment history annually, or any time your servicer changes.
Consolidation Deadline Extended for One-Time Account Adjustment
We’ve run this story multiple times, and I suspect most of you who need to consolidate have done so by now. But President Biden has extended the consolidation deadline, again, this time to June 30th, 2024. We’ve updated our blog on this story and linked it here, just in case anyone may not be fully up-to-speed. In short, anyone with FFEL loans or multiple Direct Loans can consolidate under this program, and the new consolidation loan will be credited for whichever loan had the highest number of qualified payments for loan forgiveness.
Direct Loan Interest Rates Announced for the 2024/2025 Academic Year
Now some unwelcome news for those still in the borrowing phase. The Direct Loan rates for the 2024/2025 academic year have been released, and they aren’t pretty: 6.53% for undergraduate subsidized and unsubsidized (up from 5.5% currently), 8.08% for graduate unsubsidized (up from 7.05%), and 9.08% for graduate PLUS loans (up from 8.05%). These are the highest rates we’ve seen since Direct Loans were first tied to market rates back in 2013. If you’re wondering why the government doesn’t simply lock rates in at some “reasonable percentage”, the answer is rates used to be fixed at 6.8% and 7.9% prior to 2013. But borrowers felt those rates were high in comparison to the ultra-low market rates at the time. So, they collectively lobbied for rates to be tied to fair market rates. And here we are.
More Servicer Issues
Finally, many borrowers continue struggling to get the correct payment amounts reflected on their accounts. The latest example came last week when a borrower tried to take advantage of President Biden’s promise no borrower would experience a payment increase before November 1st. After fighting to get their servicer to acknowledge the new policy (the customer service rep claimed they never heard of the new provision), we got two different supervisors on the phone. Shockingly, neither of them were aware of the change either! We sent them the above link literally during our call. Everyone needs to understand having a low payment isn’t just about freeing up your cash flow and kicking the proverbial can down the road. For many borrowers, a lower payment means increased interest subsidies and more loan forgiveness. Do not stop fighting to get the payment you deserve. And don’t hesitate to reach out to us if you want someone to help fight on your behalf.
Congrats Class of 2024!
On behalf of our entire team, I’d like to extend a heartfelt congratulations to all of the 2024 graduates. I’ll also give a big shout to all of the residents, fellows, and other trainees who will finally be starting practice this summer. Graduate health degrees don’t come easy, and they certainly don’t come cheap! You’ve all worked incredibly hard to get to this this point in your journey, and many of you still have a few years to go before you’ll reap the financial rewards of your educational investment. Whether you start at that exciting new practice next week, or you have more hours of training in your future, we celebrate you.
Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.
