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  • Bridget Sullivan Mermel CFP(R) CPA

3 Student Loan Mistakes to Avoid: Don't Miss Out!

3 Student Loan Mistakes To Avoid. With the new rules on student loans, there is a lot of confusion, and a lot of opportunity. But, you want to avoid mistakes. Student loans can be tricky. By the end of this episode you’re going to know three mistakes that you can avoid. We’re joined by Patti Hughes, CPA, CFP® and Certified Student Loan Professional.

In this episode, we discuss both the major things that people should know from the "old" rules, but also what opportunities they may be missing from the new rules.

#ACPMemberWisdom #studentloanforgiveness #studentloandebt

00:00 Welcome!

01:20 Mistake 1

04:33 Deadline 2

06:00 Mistake 2

08:59 Mistake 3

12:02 How long does it take?

12:59 Bonus Opportunity

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John's firm website:

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John: With the new laws that came out regarding student loans, there's lots of confusion, lots of action. On today's episode of Friends Talk Financial Planning, we're going to talk about three major mistakes that that people make, and by the end of this episode, you're going to know how you can avoid them and make sure you're doing the right thing for your student loans. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. And today we're going to be joined by a special guest. Please introduce yourself, Patti. We’re so glad to have you here.

Patti: Hi, thanks for having me. I'm Patti Hughes. I have a fee-only financial planning practice. I'm also out of Chicago, and I work with a lot of clients that do financial planning but also have student loans.

John: Thanks so much for joining us, Patti. This is going to be excellent. I’m looking forward to our conversation here today. Before we get started, though, I want to remind everybody to hit that subscribe button. That helps you get updates and other people find this great information on YouTube. So hit that subscribe button, and let's get into what mistakes people are making when it comes to this new student loan environment that we find ourselves in?

Patti: So there's a lot of different things that have been announced. Since April, they've had a lot of revisions with laws regarding student loans. One of the main things is that there’re a lot of deadlines that people aren't aware of. For example, for people who are pursuing public service loan forgiveness, they have to consolidate their loans by the end of October if they want to be included in this PSL waiver, as they call it. And it's a really great program.

The waiver program basically says that you'll get credit for any of the payments that you made, regardless of what type of loan repayment program you were in. And even these old loans are included. So for a lot of people, this is a really big deal, but they're not aware of the deadline. So by the end of October, they have to consolidate their loans into a direct federal loan to be eligible.

John: And from that public service side of things, we're talking about people that work for nonprofits and government agencies, maybe schools and hospitals that are nonprofit. It's a pretty wide swath of people that should pay attention to this October 31st deadline. Right?

Patti: Right. A lot of people don't understand that it's not the job that you do, but it's who you work for. In other words, if you work for a nonprofit hospital, if you work for a school, or if you work for government, you are going to be able to use this public service loan forgiveness. And a lot of people aren't aware of it, especially high-income people who are like doctors, who don't think they're included in this when they are.

Bridget: I could be a hospital administrator or like in some sort of sales position in one of these nonprofit organizations, but still be eligible for forgiveness.

Patti: Right. It's who you work for. That's what a lot of people don't understand. As a result, a lot of people are missing out on taking advantage of these benefits.

Bridget: And the other thing is that this program, even though there's been a lot of attention for the new program, is a little bit older, so that's why this deadline is coming up right away in October, right?

Patti: Correct. This has kind of been swept under the rug with all these new changes that were announced. This program, this PSL of Waiver as they call it was announced within the last year, but it's kind of been out of the press. It's something that's really important because some people can get all of their loans forgiven if they've got enough payments to qualify—it's 120 qualifying payments—but also what this waiver is allowing you to do is even if you made a partial payment or if you made a late payment or say you made a lump sum payment, they're allowing you to get credit for all these payments. This was never the case before, so it is really a big deal. And then the other thing is if your loans were in forbearance or deferment for twelve months or more consecutively, or 36 months or more cumulatively, then those are also going to count towards forgiveness. So there's some good provisions in there that a lot of people should be aware of.

John: That's great. And I know, Patti, that in addition to the public service loan, if you are working for a nonprofit, you might qualify regardless of income, there are some things based on income or those income driven repayment plans. There's a deadline for those coming up, too, right?

Patti: Right. For the latest revision that was just announced, there’s the $10,000 worth of forgiveness if you make under $125,000 filing separately or $250,000 jointly. There’re also some deadlines with that because part of that new revision is that there's a final extension on the pause of the payments till the end of this year. A lot of people aren't aware that. They think that they’re going to have to start repaying the loans immediately, like in the next month or so, but now that has been extended until January 1.

The other thing is that with that one, the loans that apply for that are only loans that were taken out prior to June 30th. A lot of people aren't aware of that. And a lot of people are thinking, “Oh, I'm going to hurry up and take out a loan that's going to get forgiven.” So that's another misconception.

John: Yeah, those are super things. We got some deadlines coming up: October 31st and the end of the year. One of the things that we talked about before we hit record here was about refinancing and we've got this sort of conundrum, as I see it, anyway. Interest rates are going up. There's some appeal to lock in at lower rates, yet that's not always a good choice. Right?

Patti: Right. A lot of people are interested right now in doing a private refinance because they're looking at interest rates going up and they're saying, “Well, I should just jump in and grab whatever interest rate I'm offered. I'm thinking that they're going to go up, and I just want to refinance my student loans.” But part of the thing that they don't realize is that you lose forgiveness on any of these income driven repayment plans. For example, if your income goes down, your payment is going to be a lot lower, whereas if you do a private refinance, your payment is set for the term of the loan if it's ten or 20 years. So that's an important distinction.

And then the other thing is, if you do a private refinance, you can never go back to a direct loan and so you're never going to be eligible for any type of forgiveness. So that's an important distinction. And one other thing is that with the federal loans, you are offered forgiveness or complete discharge of the loan in the event of death or disability, whereas a lot of the private lenders don't do this. So those are some big mistakes that you really need to keep in mind.

John: Yeah, that's a really interesting interplay. As I'm listening to your talk about these things, Patti, one of the big takeaways I'm finding from this conversation is that it's not simple. You can't make these decisions in a bubble, concluding, “Interest rates are going up, so I should block in lower rates.” Well, maybe. Or you might conclude, “There's forgiveness out there, so I should just never refinance.” Well, maybe. It's this interplay of things that is important. And like so much of our general financial planning work it's not an event, it’s a process, and you've got to adjust to the ongoing things.

Patti: Right. And I think it's also important to run the numbers both ways to get an idea. If you're thinking about private loan refinancing, I always recommend that people go on a site called Credible to get an idea of what their actual interest rate will be. People are getting all kinds of things in the mail, and they call me and say, “Oh, I'm eligible, I can get 4% interest.” Well then when they look at their particular situation, sometimes the rates are much higher. And so, I always tell people to log into Credible, which is one of the sites that can give you a soft credit pull, and then you can get an idea of what your actual rate would be.

Then it's important to run the numbers to look at what would your payments actually be over the life of the loan when doing a private refinance. And then look at these income driven repayment plans and ask, “Which ones would you qualify for based on the dates of your loans?” And then look at some other factors like personal financial hardship. But run the numbers all the ways and then that way you're going to be able to make the best decision for your unique situation.

Bridget: Cool. The third thing that we were talking about is that there's been this whole pause during Covid, which started in March 2020. But there's a lot of people that have said, “I don't need a pause; I want to keep paying. I don't want this to keep going on forever.” The new legislation or the new executive order is saying that there's some opportunity for the people that have been making their payments during this pause. Can you talk about that?

Patti: Yeah. And that's a really big deal that a lot of people aren't aware of. This is important for people who continued to make payments during this pause, and a lot of the people who did that were on standard repayment plans because they said, “Well, why wouldn't I keep paying, because the interest is going to keep accruing through this pause.” A lot of people weren't aware of that. Since March of 2020, if you made no payments, the interest keeps accruing.

As a result, a lot of people said, “Well, I'm going to keep making the same payments, because I've got the money and I don't want to have the interest accruing on the balance.” So they did, but one of the things that they aren't aware of is that you can actually ask for a refund of the amounts that you paid during the pause. This really applies to people if, for example, their loan balance went under $10,000. If they still want to get the maximum of $10,000 forgiven, they need to get a refund of these payments, so the loan balance shows higher and then they'll get that amount forgiven.

Let's just use an example. If somebody paid down the loan so that they've got a $6,000 balance right now, they can get a refund of $4,000 so that the loan balance goes up to ten and then they can get the full $10,000 forgiven as opposed to getting $6000 forgiven. So it is a really big deal, and a lot of people aren't aware of it.

Bridget: If they asked for their loan to be forgiven in the meantime, can those who kept repaying and then asked for the loan forgiveness still ask for a refund of the payments that they made that were pre-loan forgiveness? How does that work?

Patti: It's not automatic. You have to contact your loan servicer, so it's definitely not an automatic thing and it's not something that they're typically going to tell you about. That's why I think it's really important for people to know. My friend’s daughter was in this situation. She had student loans, and the balance was pretty low, and she said, “I just want to keep paying on this and get it paid off.” Well then at the end of it, her loan balance was way under $10,000, so she’ll be able to ask for a refund of what she paid during this pause and then she'll be able to get the whole $10,000 forgiven. It's a really big deal.

Bridget: Yeah, I know somebody in that situation as well. This brings up another point. A month ago, the website said, “Yeah, you're good; this will get forgiven.” But the balance keeps showing up; it doesn't look like it has been forgiven. Can you address that situation?

Patti: What I've heard from different people is that there is a real backlog with all of these changes that have gone on. Since April, they just keep announcing more changes. And so, I think one of the problems is that so many things have changed that there is a backlog. But as long as you went through the proper channels and they say it's going to be forgiven, it will be. They're telling people just to be patient, that it could take a number of months to get this done.

Bridget: Now we have a bonus idea, too. Since we're filming this in September of 2022, there’re some people who haven't filed the taxes for 2021. I know it seems like a long time ago, but they've got an opportunity too—just in case. Let’s talk about that.

Patti: So what a lot of people don't realize is that when you're looking at that $10,000 of loan forgiveness, they specifically said, “We're going to look at 2020 and 2021 adjusted gross income.” So that does not mean both years; either year could qualify. If your adjusted gross income is below, say, $125,000 for a single person in either of those years, you could qualify for the forgiveness.

So if you have not filed your taxes for 2021, it makes a lot of sense to try to get your income below $125,000 in whatever way you can do that. A lot of people, if they're married, can file separately for that one year, so that the one spouse who has student loans and their income is below $125,000 can get forgiveness. So that's one strategy that you can take. It just requires looking at your tax return and trying to come up with some ideas on how you can get that adjusted gross income below the threshold.

John: That's awesome, Patti. Thanks for that. This may be a good place to wrap things up. We had a piece of bonus advice, and we named three major mistakes. We talked about thinking twice before you refinance your student loans. Pay attention to deadlines coming up, especially if you're on an income replacement plan or if you're on a public service loan plan. And if you've paid off your loans, if you kept on paying loans during the COVID pause, consider getting a refund or requesting a refund if your balance is below $10,000 to make sure you maximize the forgiveness.

And then if you're one of those people who hasn't filed for 2021 tax returns, think about that. There's our bonus plan and other some really valuable things. I really appreciate you being on here, Patti, and sharing this with our viewers. Both Bridget and I are members of the Alliance of Comprehensive Planners. That's how we know Patti. She's also a member of ACP, which is a nationwide group of tax-focused, fee-only, holistic financial planners.

And if you like what you hear on our show here, visit to find an adviser in your area. And this is a good time to mention that both Bridget, Patti, and I also work with clients all over the country. As you heard Patty say, she's fielding phone calls from all over the place and dealing with these issues. Patti, for people that want to reach out to you directly, how do they get in touch with you?

Patti: The best way would be through email. I have a website: Lake Life Wealth Advisory Group. I've got a contact form on there, and it's usually the easiest way.

John: Great. Lake Life Wealth Advisory Group. We'll put something on the show notes so people can reach that. Thanks so much again for being on here.

Patti: Thank you.

Bridget: I'm Bridget Sullivan. I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer, and I have a fee-only financial planning practice in Middleton, Wisconsin. Our guest today has been Patti Hughes. She has a fee-only financial planning practice in Chicago, Illinois. And before we sign off, let's remember everybody hit that subscribe button so that other people can find these shows. Thanks so much, you guys.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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