Jonathan Hughes: [00:00:00] Hi everyone. Thanks for joining me on this special bonus episode of the MEFA Podcast, part two. Of my conversation with Betsy Mayotte about all of the changes to federal student and parent loan programs from the Big Beautiful Bill. Today we’re going to talk about public service loan forgiveness, as well as brand new caps on the amount that students and parents can borrow from the federal government to pay for college.

So this is really important for families deciding how they’re going to pay for college and perhaps even which college they should attend. So again, really important stuff, especially if you have students entering college in the coming years, you’ll definitely want to listen to this. So if you haven’t heard part one of those conversation, you may want to check that out.

Otherwise I will of course [00:01:00] be back to wrap things up, as always after the conversation. But now let’s jump back in. To my conversation with Betsy Mayotte.

Okay. So I have two other big topics that I want to talk about if that if you are okay with moving on from this

Betsy Mayotte: Sure.

Jonathan Hughes: Income-based repayment plan. And the first one is something that we mentioned already, which is public service loan forgiveness. Is, are there changes to the public service loan forgiveness program as well?

Betsy Mayotte: Yes and no. As I mentioned, even though they didn’t technically take PSLF away from parent plus borrowers, for those that borrow on or after 7/1/26, they’ve effectively made it unachievable for those, it used to be that in order for a payment to count towards PSLF, it had to be considered on time. And on time was defined as within 15 days of the due date. That regulation went away a few years ago, so now, you still have to make the payment, but if it’s late it’ll still [00:02:00] count for PSLF. One sort of nuance I noticed in HR one was under the RAP plan. So the RAP plan will count towards PSLF, but it has to be an on-time payment. Now, they don’t define on time in the legislation, so it’ll be up to the Department of Education to write a regulation to define what on time means. I expect they’ll probably define it the way they used to, which is within 15 days of the due date.

It’s also not impossible that when they write that regulation to fulfill the requirement in the RIP law that they may decide that all payments have to be on time again. That part is speculation on my part. What I know for a fact is that a payment under the RIP plan will have to be on time. However, the Department of Ed defines on time.

In order for it to count for PSLF or towards the RAP loan forgiveness, it’s itself. Now, there was a negotiated rulemaking session a few [00:03:00] weeks ago specific to PSLF. Negotiated rulemaking is the process that the Department of Education is required by law to use anytime they want to rewrite a regulation.

Such changes can only be prospective. They can never be retroactive. And they can never be contrary to federal law. Tuck those facts in the back of your mind as I continue to explain what happened and what may happen. This ne Greg was done in reaction to an executive order that was issued by the White House back in March.

Executive orders also cannot be contrary to federal law. The executive order dictated that the Department of Ed create a process where employers that would be considered eligible for PSLF under the law have their PSF eligibility removed if they quote, engaged in [00:04:00] substantial illegal activity. And that illegal activity was limited under that executive order to violation of discrimination law terrorist activity gender affirming care on minors.

And essentially protest activities. So this negotiator rulemaking was put together to write the regulations that would fulfill that executive order. I was chosen to be a primary negotiator at that session. Spoiler alert, I refused to agree to the proposal after three days of negotiations.

It doesn’t mean the proposal won’t go through. I feel very strongly and I’m not alone in this feeling that this executive order, and therefore these regulatory changes are in violation of federal law. If you look [00:05:00] at PSLF law, and for those nerds out there, if you want to look at it yourself.

Under the Higher Education Act, section 455 M, it defines a P-S-L-F employer government, and 501C3s under the law are considered PSLF eligible employers. And there’s no shady language around it that would give an ability for an if and but. So I think that the, I feel very strongly that the proposal, that the executive order, and therefore these. Proposed regulations are illegal at their face and that they will be challenged in court and that they will lose.

Jonathan Hughes: Do you know, I know this is a difficult question to answer, but about how long? Months, years it will take to resolve this question?

Betsy Mayotte: So the regulation’s not in place yet. The next step is the Department of Ed will be required to issue a draft version of the rule. And at that point, the public, anybody, [00:06:00] you, me, the mailman, the grocery store bagger. Your pet sitter has the ability to submit a written public comment about those regulations. After that, the Department of Events required to review all those comments and then they issue a final rule.

We expect them to issue the final version by November 1st, and it would be effective prospectively only, so only illegal activity. So things that actually break the law on or after July 1st, 2026. And then if such an entity is accused of something like that, there will be a process, I expect there will be a process in place where the employer will have the ability to defend themselves before their PSLF eligibility is removed.

And I also want to make it clear, I want to reiterate that regulations cannot be retroactive and the Department of Ed even. Said it themselves in the session that if this regulation goes through and [00:07:00] if an employer were to lose their eligibility because they were found to have engaged in these substantial legal activities any credits that an employee of that employer had already accrued would stick up until the date the employer lost their eligibility.

Jonathan Hughes: Okay.

Betsy Mayotte: So they just wouldn’t be able to accrue future PSLF credits after the date the employer lost their eligibility.

Jonathan Hughes: Okay. That’s good to know. Wow. Okay. I don’t, I’m trying to figure out what I can and should say here, but

Betsy Mayotte: What I want to say.

Jonathan Hughes: Yeah.

Betsy Mayotte: Don’t panic. Nobody should be making any significant changes in student loan strategy based on this proposal. First of all, I, again, I feel I’m not a betting woman, but. I will bet you a delicious pint of Guinness at the exact proper temperature that this will end up not surviving a court challenge.

Jonathan Hughes: Okay.

Betsy Mayotte: All right. And even if it does, even if I do [00:08:00] end up buying you that delicious pint of Guinness it’s not going to affect a lot of employers.

Remember? They have, it has to. I get a lot of questions. I work in a hospital and we provide gender affirming medical care to minors. Is it a, is it legal to do that in your state? If it is, then it shouldn’t be an issue.

Jonathan Hughes: Oh, okay. And this is this might sound like a flipping question, but it’s an honest question. Is the word substantial in substantial illegal activity? Does that mean anything?

Betsy Mayotte: I think it can be, it could be used in an arbitrary way. Let me give you an, let me give you a real life example. So that negotiated rulemaking meeting happened from. June 30th to July 2nd, that’s when the negotiations happened.

On June 30th, the Department of Ed issued a press release accusing Harvard of and I quote, violently violating [00:09:00] discrimination law. One of the other reasons that I. Refuse to give a thumbs up to this. Again, the elephant in the rule in the room is the fact that I strongly believe it’s illegal at its face, but the potential arbitrary nature of it.

The way the Department of Ed will decide if someone substantially violated or substantially engaged in illegal activities is. If a court says that the employer did, that’s fair judicial process, right? If there’s a settlement where the employer goes, yeah, I did it. That’s fair. They admitted it.

And again, there’s a process when you come up with a settlement. And then the third way is if they just plead guilty, which again, there’s a established process for that. But the fourth way is if the Department of Ed just decides on their own that the employer has engaged in substantial legal activity, and that was.[00:10:00]

Again, even if with take away the illegal nature of it in the first place, I had a huge problem with that because I think it’s arbitrary and I think the Department of Education, it’s not their wheelhouse to decide if someone engaged in terroristic activities. There’s other places that is their wheelhouse.

Jonathan Hughes: So now onto my other big topic, which is loan amounts. I think that there have been, or you can correct me if I’m wrong, but I think there have been changes to how much parents and students can borrow through the federal loan programs. Is that right? Correct.

Betsy Mayotte: So for this, they are, this is going to be a hill rather than a cliff. So for people that are in school now. Or have completed at least a year of their program and taken out a loan by July 1st, 2026, they’ll be able to use existing aggregate and annual loan limits for [00:11:00] the lesser of three years, or until they hypothetically should have completed their program. For example, if you’re in a two year master’s program.

And you’ve completed a year and borrowed a loan as of July 1st, 2026, you’ll still be able to borrow at the current limits for one more year because you’re supposed, the, it’s a two year program. You’re supposed to finish it in two years. If you don’t finish. In two years, your, your third year, you’ll have to borrow at the new limits.

If you’re in a six year program and you’re only a year in as of July, 2026, you’ll only be able to borrow at your existing limits for another three years. So it’s no more than three years. But for people who borrow for the first time. On or after July 1st, 2026. For graduate students, they get rid of grad plus loans altogether, so you’ll only be able to use Stafford loans. Your limit if for a grad student is gonna be $20,500 per [00:12:00] year. No more than a hundred thousand dollars lifetime limit. And grad plus you should say, is a loan that you can ask for whatever it is that you might need to pay for up the bill to cost of attendance minus other aid.

Jonathan Hughes: Yep. So that’s gone and there, it’s capped at $20,500 per year-

Betsy Mayotte: For Stafford Loans. Yep. If you’re a professional student, so you’re medical school, law school, et cetera. You can borrow up to $50,000 a year for a max of $200,000.

Undergraduate limits haven’t changed from what they are today. And the total lifetime limit that you’re allowed to borrow, including undergraduate debt is $257500.

So that’s basically the max you can ever do for undergraduate. Plus, if you went to. For a professional degree. Yeah, your max is 200,000 there. So the total lifetime limit is $257,500 for parent plus loans that acted like grad plus in the past where you could borrow up to the cost of attendance [00:13:00] minus any other aid the student received.

Now that’s limited to 20 grand a year per dependent student with a maximum per dependent student of $65,000.

Jonathan Hughes: Okay, so that’s per student. So if you have two children in school, you can borrow $20,000 for each.

Betsy Mayotte: Correct.

Jonathan Hughes: But they up to $65,000 per student?

Betsy Mayotte: Correct.

Jonathan Hughes: Okay.

Betsy Mayotte: The issue here is I have big concerns about debt and no degree. The highest indicator of default is not the people that owe six figures. It’s not income. It’s the people who. Took out student loans and never finished their credential. And so if someone reaches their cap, whether they’re a grad student and they’ve reached their a hundred thousand dollars cap, whether they’re a medical student, reached their $200,000 cap, [00:14:00] whether they’re an undergraduate student and they’ve reached their annual loan limits and their parent has reached the $65,000 limit for them, the only other option is private loans.

If they can’t afford to pay out of pocket, and I’m concerned that especially lower and middle income families might not get approved for a private loan. And if they are able to get a private loan, my concern is that the terms of that loan will make it really difficult to be affordable. To be repaid. To be repaid and because private loans typically, MEFA I know is.

The, not the norm for the rule. I know MEFA has more generous terms than many other private student loans, and no, they’re not paying me to say that people but most private loans are essentially credit cards that are harder to discharge in bankruptcy. There’s no, there’s very few, if any, lower payment options or other safety nets if [00:15:00] there’s a financial crisis.

If you have to take a private loan out to, finish the last year your degree, and it’s got an 18% interest rate and no lower payment options, and you have trouble finding work right away, that could, I’m concerned about that. And I’m even more concerned with the people that aren’t able to get a private loan at all, and now they can’t finish, and yet they still have to pay back their federal student loans that they already borrowed.

Jonathan Hughes: So taking all of this into account excluding what we said about the. Credit reporting and this stuff that’s just going back to normal. What should somebody who is thinking about college, either for themselves or for their children be thinking about. How does this color the picture of what they were perhaps planning before it?

Betsy Mayotte: It makes it all the more important for people to not just plan for the first year, but plan for the entire degree period. And remember too that it, it takes a lot of [00:16:00] students, if not more than half. Five years to finish a four year degree. So if you’re looking at undergraduate, you should be planning on five years.

And if they finish at four, awesome. But you should plan on five because 70% of students change schools and or degrees during their undergraduate career. And that’s what ends up making it take for a lot of people five years instead of the four. So you’re one going to if you’re going to need to borrow to afford the school, make sure that there’s going to be enough room in the aggregate loan limits.

To fulfill the tuition costs for the full four or five years. I’m a big fan. I was a big fan of this before because it’s a way of reducing overall debt in the first place. And also remember that data I just mentioned that 70% of students change majors or schools. So your college senior, that’s oh my god, the College of Betsy is my dream school and I can’t go anywhere else.

This is a 70% chance they’re going to change their minds.

So I’m a big fan of going to a [00:17:00] lower cost school, maybe community college. Here in Massachusetts, it’s possible to go to community college for free for the first year or two, and then transfer into the dream school. Not only does that lower the debt, not only does that lower the risk of running out of.

Borrowing power for federal student loans. But it also ameliorates the potential if your student is one of those that ends up changing their minds along the way. Going back to how I initially answered your question, the key here is it. Imperative that people plan for the whole thing instead of flying by the seat of their pants.

And I’ll worry about it layered and I’ll borrow what I need to borrow when it’s time tomorrow. Yeah. They have to plan ahead.

Jonathan Hughes: Is there anything else that you’d like to say to anyone who is either thinking about going to college and thinking about those limits or maybe in college now or struggling with repayment that have questions about.

Repayment. I, obviously I [00:18:00] please plug TISLA again but other than that is there any sort of overriding message you’d like to give?

Betsy Mayotte: It’s what I already said. I want to say it again. because it applies to people in repayment, it applies to people in college right now and people planning for college.

You’ve got time. Don’t make any panicked decisions or take any panicked actions. The soonest most of this stuff is going to take effect is next July. There will be additional guidance that comes out from the Department of Ed and other places along the way. The bill was signed three weeks ago.

Take a deep breath plan on educating yourself and don’t take any actions until more information comes out and you’ve had a time to absorb and plan. There’s not even any calculators out for the new RAP plan yet. And by the way, the new RAP plan, people, when it was first proposed, people were like, oh, [00:19:00] this is awful.

But if you read through it, it’s. It’s not awful. For borrowers that make $80,000 or less, it’s actually going to be less expensive than the existing income driven repayment plans other than save. But save was never going to survive in the first place ever. So you really can’t bump it up against save.

But for people that make 80 grand or less, the RAP is going to be cheaper monthly payment wise than IBR or page one or ICR. But anyway, take a breath. Read all the things. Your servicer’s probably not going to have a lot of information yet because it’s still early days. But you can reach out to, you can email TLA watch.

We’ve been trying to, Tesla’s been trying to update their website. We’re trying to update our calculators as well. I don’t know how long that’s going to take. And so on.

Jonathan Hughes: And the website for TISLA is again,

Betsy Mayotte: freestudentloanadvice.org.

Jonathan Hughes: All right. Thank you so much Betsy. This is really great.

Betsy Mayotte: My pleasure.

I love talking about this stuff.[00:20:00]

Jonathan Hughes: All right, Betsy, I can’t thank you enough for being with us and sharing your expertise, especially given how busy I know that you are. So folks, if you liked what you heard today and you want to hear more from us on planning, saving, and paying for college and career readiness, as always, you can follow the show and you can do that wherever you find.

Your podcast and of course, please remember to rate and review us. It just helps us to keep doing this show and getting it out in front of folks like you. I would like to thank our producer, Shaun Connolly. I’d like to thank Lisa Rooney, Lauren Danz, Christina Davidson, Meredith Clement, and AJ Yee for their assistance in getting the show posted.

Once again, my name is Jonathan Hughes and this has been the MEFA Podcast. [00:21:00] Thanks.