Making Sense of Federal Student Loan Forgiveness in 2023

Season 2, Special Episode

In this special episode, Chris Walters, GradFin’s founder and CEO, joins us to discuss the current state of student loan forgiveness, current deadlines, and how borrowers can qualify for student loan forgiveness programs.

Transcript

Eric Sutton [00:00:08] Hi, everyone. This is Eric, and you’re listening to Financing Ambition, a Laurel Road podcast.

We’ll start with a quick update for our listeners. Immediately following the recording of this episode, the Department of Education quietly extended the May 1st deadline you’ll hear mentioned to the end of the year. To learn more, visit studentaid.gov or schedule a free consultation at laurelroad.com/forgiveness.

On today’s very special bonus episode, I’m joined by Chris Walters, the founder and CEO of GradFin – a company acquired by Laurel Road in 2022 – which specializes in student loan forgiveness. There’s so much happening in the world of student loans this year besides what we’ve been hearing about with Biden’s plan to cancel up to $20,000 in student loan debt for borrowers who earn $125,000 a year or less, or $250,000 or less for couples who file taxes jointly. And of course, the subsequent and still ongoing Supreme Court hearing on the constitutionality of that plan. There is also something very important happening with federal student loans in general, and I have personal experience with it that I will share on this episode, and that is a very important deadline is coming up on May 1st, 2023, for a one-time adjustment of qualifying payment counts to address past inaccuracies associated with federal income-driven repayment plans. So, Chris, I’m very excited to talk with you today to help student loan borrowers understand what they need to know about this important May 1st deadline and how Laurel Road and GradFin can help.

Chris Walters [00:01:59] Thanks for having me on the Laurel Road podcast. Super excited.

Eric Sutton [00:02:03] Awesome. Okay, so if you wouldn’t mind, let’s just get started with a quick introduction for our listeners so we can get to know you and your background and the mission of GradFin.

Chris Walters [00:02:14] Sure. You might not know this, Eric, but I also had 14 years of student loan payments after my Georgetown undergrad and Johns Hopkins MBA. There are over $1.6 trillion of student loans outstanding in America. 40+ million Americans have student loans. It’s actually the second highest debt in America behind mortgages. It’s higher than credit card debt. It’s higher than auto debt. So very, very significant problem that a lot of Americans are going through. And really complex repayment programs. And, you know, just going through that experience month after month, you know, we came out with GradFin, I founded it in 2015. The mission was to come up with innovative solutions to help student loan borrowers.

So, we start with a 30-minute phone consultation. It’s a free consultation to help student loan borrowers save and learn what the best repayment plans are. Generally speaking, there are usually three different options, refinancing being one of them, and then a slew of federal loan repayment options. And we really specialize in forgiveness. So, we have a solution for Public Service Loan Forgiveness (PSLF) borrowers, as well as income-driven repayment (IDR) borrowers. So, it’s about helping them navigate the complexity of the federal loan program where a lot of mistakes can be made. The overall goal is to help our members save.

Eric Sutton [00:04:00] That’s great. And obviously, with all the complexity you’re talking about, that brings enormous value to consumers. And we’re really thrilled to have you on board here at Laurel Road. So, let’s talk then about the student loan topic, Chris, that is probably first on everyone’s mind, which is the status of the Biden administration’s student loan cancellation plan with $10,000 or $20,000 in potential cancellation hanging in the balance for borrowers. So, what are the details of that plan exactly? And what do you think could happen with it?

Chris Walters [00:04:34] Sure. It’s a great starting point here, Eric. So, what’s at stake? So, the Biden Administration in August of 2022 released a massive loan forgiveness program so most borrowers could get up to $10,000 of forgiveness on their federal student loans. And if they took out Perkins Loans while they were in undergrad, they could get up to $20,000.

Of course, there are income caps, just like a lot of things that the federal government comes up with. If you’re single and you make up to $125,000, you would qualify. And if you’re a married borrower, then you would have up to a $250,000 cap. So, anyone making above that, they’re not going to qualify for this. So, millions of people applied right away in August, September, and October. And then there were a few lawsuits that came out and some of the courts took it up. And then the Supreme Court actually heard some arguments in February, and it was really widely reviewed by the press, because you know, a lot at stake. For example, if you’re under $10,000 in student loans, most of that’s going to get forgiven. If you have up to $20,000 and took out Perkins Loans, that could be forgiven. But really higher income borrowers, people that have over $100,000 of student loans, that’s not the target here. You know, you’re going to get potentially some forgiveness, but the lower income and the borrowers that have lower debt loads certainly would see forgiveness. So, this is going to impact millions of borrowers, and that was the plan. But, it’s being held up in the courts, and we expect the Supreme Court to make a decision probably in June or early July.

It’s unclear at this point where the Supreme Court’s going to go. There are various scenarios that we’ve looked at. If they approve it, that’s going to be a lot of clarity for borrowers and that’s going to help millions of people. But with a rejection, the Biden administration could do many things after that. They could reframe this in a different way. But it’s unclear how they’re going to move forward on that.

Eric Sutton [00:07:10] Right. And there’s lots of discussion. I’ve heard about the end of the current federal payment and interest pause and how that is tied into what happens with the Supreme Court decision, too. So besides all of what you’ve mentioned, is there anything else you think that’s important to know right now?

Chris Walters [00:07:27] Yeah, Eric, that’s an important point. So, all direct federal loan borrowers have had their loans on pause since March of 2020. And the big impact of the Supreme Court decision—and this is what the Biden administration came out with in earlier this year—is they said after 60 days, the payment pause would expire. So, all federal loan borrowers would have to start paying their loans 60 days after the Supreme Court decision. I think the impact of the Supreme Court decision potentially might weigh on the Biden Administration, where they might say student loan borrowers would need more time because they’re expecting to get their loans forgiven. So, they might extend the pause again, I’m pontificating, but that that could happen. You know, it’s been extended eight times, so I wouldn’t be surprised if they extend it again.

Eric Sutton [00:08:25] Sure. So, it’s like a bit of a wait-and-see kind of situation, which, you know, we’ve been in for quite some time now. But regardless of what happens over the next couple of months, there are other options I’d love to hear about. And I’m thinking specifically of PSLF for public service and nonprofit workers as well as about the IDR path to forgiveness for workers in the for-profit sector. And of course, that ties into this very important one-time account adjustment deadline we’ve been talking about. That’s coming up, right?

Chris Walters [00:09:08] Yeah. So, a lot of folks are sitting on the sidelines waiting for the Supreme Court decision to come out. But what they probably don’t know is there are two other really large proposals that the Biden Administration came out with. The first being the one-time adjustment for IDR plans. It impacts all payments that were made previous to the pause. So, any forbearance periods, any loan payments that were made while in military service, certain deferment periods, as well as payments that were made on non-direct loans. In January, actually, there was a proposal by the administration that expanded IDR plans, making it easier for people to get relief, reducing how much—especially undergraduate borrowers—they would have to pay on their student loans. So, all of these things are really important.

Eric Sutton [00:10:10] Right, so that’s sort of where our worlds really collided, isn’t it? And I’m really thankful that they did, Chris. So, I recently learned from a consultation that Chris and I had that there are 9.2 million borrowers out there who could be eligible for this one-time account adjustment and that I personally happened to be one of them. And the bottom line really is that it’s just an important deadline coming up for a lot of people. And there’s a good chance that if you’re listening and you have outstanding federal student loan debt, this May 1st deadline for a one-time account adjustment could apply to your situation.

So, I’m going to share my details in just a minute. But first, Chris, if you wouldn’t mind, could you break down the sort of details, high-level details, for us about who would qualify for the one-time adjustment and what type of loans would a person have to consider this path?

Chris Walters [00:11:13] Sure, Eric. So last year, the Biden administration realized—through a lot of past maybe mistakes by loan servicers or even the Department of Education—that federal loan borrowers, especially those in long periods of forbearance, that it was unfair to them and that wouldn’t qualify for IDR plans.

So, they acted on that. They said, alright, we’re going to have this one-time adjustment this year in 2023, and we’re going to fix all of that so that now those periods do qualify. The other thing they did, you know, they helped people in the military that were in military deferment, and also folks that had consolidated loans and didn’t know that that all the payments they made prior to the consolidation would get wiped out. So, all those payments would now count for IDR plan payments. But in in your situation, as well as 9 million other borrowers that have these so-called Federal Family Education Loans (FFEL)—these are legacy loans. They stopped issuing these in 2011 during the Obama Administration. These are loans that are primarily held by private financial institutions and backed by the federal government. But, you know, because they’re private in nature they’re not Federal Direct Loans, they wouldn’t otherwise qualify for a PSLF or any of the IDR plans.

So, they made this fix. But the caveat is you have to consolidate, right? It’s a federal consolidation, it’s not a private refinance, it’s a federal consolidation that changes the underlying nature of the loan. It would change it from an FFEL loan or a Perkins Loan, and they would it would turn it into a Direct Federal Loan. In anything that’s Direct Federal Loan is held by the Department of Education. And really, the impact of that is huge. So, the urgency here is folks should really look at your loans, figure out if you have the right or wrong loans, if you have the wrong ones—meaning FFEL or Perkins—you have this opportunity right now to consolidate and make them eligible for relief and for forgiveness.

So that really has been our message recently. We’re talking to as many folks, as many financial advisor clients, and all of our affiliates saying, hey, let’s talk to your clients, let’s talk to your members and let’s help them figure this out because they might miss out on the opportunity.

Eric Sutton [00:14:10] Sure. Yep. And that that’s exactly what happened in my case. You and your team helped me uncover, you know, a really great situation which was life changing, to be honest. So, I’m going to talk about this a little bit for our listeners so they can get an understanding of what this consultation is like, and how it might turn out. So, I was one of those “relics” that had been on this old, graduated repayment plan since the nineties (the 1990s, just to be clear!) But in speaking to you, Chris, I think at one point during the work day about the value that GradFin brings to our Laurel Road members, and trying to get some clarity on that from you early on, and you and I launched into sort of a role play where you gave me an impromptu consultation so I could see firsthand what you and your team do and how you’re able to help borrowers like me.

So, the first thing you did is you asked me if I had FFEL loans, which is what you’ve been talking about. So, I wasn’t sure of the answer to that question. I wonder if many borrowers are aware of the type of loans they have, you know? Sort of a “set it and forget it” kind of thing. But I was able to look up my servicer right there on the spot and found that I did, in fact, have this older type of consolidation loan. And I had been paying on that loan for many, many years, like 25 years or something. And I had significant periods of deferment and forbearance there. I think I started out with, I don’t know, ten or 12 different loans right from every semester of school. And those then were consolidated into these FFELs and they just had a significant amount of deferment and forbearance associated with them. And then that re-upped after my FFEL consolidation, etc. So, it wasn’t long before that on your advice, I registered for the studentaid.gov website. I downloaded my Student Aid file as send it over to your team for analysis in no time. You and your folks found 281 qualifying payment months, which did obviously include those past periods of both deferment and forbearance. And turns out to be 41 payments more than I need to qualify for forgiveness of my undergrad loan balance under the IDR forgiveness program.

So, long story short, my consultation with GradFin resulted in putting me on a path towards $60,000 of student loan forgiveness, which really, actually at the end of the day, saves me $80,000 because that’s how much I would have paid with interest and everything if I had stuck with my old, graduated repayment plan until the end.

So, obviously, that’s incredible. And there’s not one but two cherries on top of this whole thing for me personally. And I wonder if that might be the case for some of our listeners too. And the first of that is that since I’m in all likelihood going to see a “forgiveness event” before January 1st, 2026, I will not have to pay any tax on that forgiven amount, which is obviously good news. And secondly, I may even qualify for a refund of the 41 overpayments that I made. And the jury, I think, is still out on that latter point. But, you know, things are looking good on that front, because we’ve already seen at least one servicer announce that they will be offering refunds for overpayments.

So, suffice is to say, Chris, that GradFin really worked for me, and I would have had no idea if you hadn’t sort of forced me into that role play consultation. So, thank you for doing that. Thanks for saving me $80,000 at the end of the day. And, obviously, I just want to impress upon our listeners that you just really don’t know that scenario that you’re in. There’s so much detail behind it and so much complexity, as Chris has been pointing out here all along, that just talking to one of the folks at GradFin, Chris and his team, and getting that expert guidance is, you know, a really great way to go. So then, Chris, you know, for listeners who could be in the same or a similar situation as me, what do you think they need to do next, especially before this upcoming deadline?

Chris Walters [00:18:49] Eric, there is a sense of urgency here. So, first thing to do really is, is to look deeply at your loan types to see if you have these loans that are eligible. Also, if you’re in forbearance periods for a long period of time or economic hardship deferment or, you know, military deferment. And really our team, we do thousands of consultations a month, we have experts that we’ve hired from student loan servicers. And what they’re doing is exactly what they did in your situation. We want to look at the details. We want to look at your Student Aid file and uncover any opportunities we can find where we think you could benefit from some of the forgiveness opportunities. You know, a lot of folks might have private student loans as well as private loans that are not eligible. We’d potentially want to take a look at refinancing with Laurel Road, that’s another opportunity.

So, everyone’s different. Everyone has unique situations. I like to say when we look at your Student Aid file, it’s like your fingerprint. Everyone has a different Student Aid file. It contains all the history of your loans when they were disbursed, any forbearances, any deferments. So that’s what I would do. I would schedule a consultation and we can upload your Student Aid file and start reviewing it. And then then we’ll meet for the 30-minute consultation.

Eric Sutton [00:20:19] That’s great. And you know, one other value that you’re bringing to the table is once your members do enroll in either an IDR management plan or a PSLF management plan, GradFin can help you stay in compliance throughout the duration of that program enrollment. And that’s really invaluable because there is absolutely going to be maintenance work every year to make sure you’re staying on track, you’re keeping up with all the changing rules and regulations, which obviously is very tricky and time-consuming.

Chris Walters [00:20:53] Exactly. You know, every year you need to enroll in an IDR plan. And that’s technically, you know, something that’s over a lot of folks’ heads and a lot of things can happen. You can get married, have kids, a lot of different scenarios will play out, but we can help with that. And you know, with PSLF, there is such a high rejection rate because borrowers weren’t in compliance or they were filling out the paperwork wrong. So, we work with nonprofits and states and governments to help people get that paperwork filled out correctly. We actually have a pretty cool concierge system that automatically sends the paperwork over to your employer, and just does it in a seamless way. So, the big one, though, is our audit. And we’ve hired, as I mentioned, professionals that they came from student loan servicers, and their job is to audit and uncover potential mistakes that the borrower made or maybe some overlooked things that the servicers didn’t figure out. And our job is to help borrowers stay in compliance and make sure that all the past payments are accurate and counted correctly by the government. And so that audit is really the prime way that folks can sleep well at night, you know, knowing that they’re in compliance and doing everything right. So overall, we’ve helped our clients uncover over $30 million in forgiveness. I’m really proud of our team. And they really enjoy the work they do, digging deep and you know, going one-on-one with a borrower and helping them out.

Eric Sutton [00:22:58] And I should add that as you prepare for this analysis, this audit that you’re talking about, it would be good if you’re listening and you want to set up a consultation that you register for an online account with studentaid.gov if you haven’t done so already, because it can take up to three days to gain access to that federal website, which is where you have to download the My Student Aid file. So, you just want to get that out of the way as soon as possible.

And I also want to mention that although this current May 1st deadline we’ve been talking about is always subject to change, as we’ve seen, Chris, as you pointed out, with other federal deadlines around student loans over the past couple of years. Still, we do advise strongly that you take action sooner than later.

Chris Walters [00:23:43] Exactly. And I think the biggest takeaway here, Eric, is if you’re unsure where you stand, the best thing is to do a consultation so we can talk one-on-one and figure it out for you. But, you know, looking forward to helping the listeners if they want to set up a consultation they can go on laurelroad.com or Gradfin.com There’s various ways to do it, but I enjoyed this, Eric, thanks so much for having me on.

Eric Sutton [00:24:12] I’m happy to have you. And we’ll include a link in the notes of the episode to schedule that free 30-minute forgiveness consultation. Thank you, Chris, for joining me today and thanks to everybody out there for listening. For more information on student loan forgiveness and repayment options, you can follow Laurel Road on Facebook, Instagram and LinkedIn, and you can visit us online at laurelroad.com/forgiveness.

And please stay tuned for the next episode of Financing Ambition, where we’ll be checking in with some doctors who have extraordinary passions outside of medicine in part two of I’m Also a Doctor.

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Episode Notes

Learn more and schedule a free 30-minute consultation with a GradFin student loan specialist here.

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Disclosures: Only the US Department of Education is able to make a final determination of whether a borrower’s payment history is compliant with federal repayment programs. See studentaid.gov.

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