Returning to Repayment on Federal Student Loans
Host Jonathan Hughes is joined by Betsy Mayotte, President and Founder of The Institute of Student Loan Advisors (TISLA). Betsy discusses when Federal Student Loans will re-enter repayment, what this means for borrowers, and what borrowers can do now to be prepared ahead of time. If you enjoy the MEFA Podcast, please leave us a review.
Resources Mentioned in this Episode
Jonathan Hughes: Hi everyone. And welcome to the MEFA Podcast. I'm Jonathan Hughes. Julie, how are you?
Julie Shields-Rutyna: I'm doing great.
Jonathan Hughes: Okay. Doing pretty well. I'm very excited about this show because we've got another great guest this week, founder and president of the Institute of Student Loan Advisors, Betsy Mayotte will be joining us.
And there's just about nobody who knows more about student loans than Betsy. She's contributed to the U.S News and World Report, Huff Post, and Yahoo among others, and is always a coveted speaker in person at any conference at which she appears. And Julie, what is she going to be discussing with us?
Julie Shields-Rutyna: Yeah. So she'll be discussing the end of the Federal Student Loans repayment freeze. And that COVID relief package and the resumption of repayment, as well as some of the new changes to the Federal Public Service Loan Forgiveness Program. And as you know, there is nobody better to talk about these things than Betsy. So you definitely want to stick around.
Jonathan Hughes: Now let's go to my conversation with the President and Founder of the Institute of Student Loan Advisors. Betsy Mayotte is the Founder and President of the Institute of Student Loan Advisors, a resource which gives student loan borrowers access to free, fair student loan advice and dispute resolution.
She's also regularly quoted in the media on student loan issues, including in the Washington Post, New York Times, Wall Street Journal, and the Boston Globe. And has contributed articles to the U.S. News and World Report, Yahoo, and Huff Post among others, including that Newsweek Magazine that you see behind her.
That's the cover story that they are quoted in. And I say all of this just to say how lucky we are to have her here with us today to discuss the resumption of federal student loan repayment as paused with the CARES Act. So Betsy, thank you for joining us.
Betsy Mayotte: Thank you for having me, Jonathan, I love talking about this stuff. I'm really glad that we're going to get this information out to your audience. It's really important.
Jonathan Hughes: I wonder if you could talk, because I did mention, you know, some of your background, but I don't think I quite yet. Could you just explain what led you, you know, your path and what led you to create the Institute of Student Loans?
Betsy Mayotte: The answer I sometimes give people is, you know, my father had a career in credit union leadership and my mother was a teacher.
So I tell people that education finance was my genetic destiny. But the truth of the matter is I've been involved in the student loan industry since the dinosaurs roamed, it feels like. It's been over 25 years at this point. And I spent the majority of my career as a compliance officer at a large nonprofit student loan organization in Boston.
And over the course of my career as a compliance officer, you know, my job was to have sort of a nerd level knowledge of student loan regulations and laws in order to make sure the company was doing what it was supposed to. But as sort of a side effect of that, I realized that because I had that detailed understanding of the regulations that could also be really helpful to borrowers.
So it started with, you know, sort of me getting the more complex cases on my desk. And then gradually I was lucky enough to work for leadership that let me evolve my role. So while state as a compliance officer, I also branched out into student loan borrower advocacy, and during that, and it was, I felt the two things went really great together because not only was I able to use my knowledge to help borrowers to have an impact.
But also seeing the way the regulations affected people in real life helped me as a compliance officer, because when I had the opportunity to influence those regulations, I had that experience to, you know, sort of submit as part of the conversation. So during that time I came to the, what I learned was that there were, first of all, that there were a lot of scams that were developing out there that borrowers were falling victim to. And then I noticed a lot of people were asking student loan questions on social media and that phonics to me, like, why would you ask questions to internet strangers where you don't know their credentials on something so important?
And so that led me to believe between the scams and that experience, that consumers were looking for a third party that had no vested interest in their loans that could provide them with expert advice. And they knew that it was neutral and safe and correct. And I looked around for someone that was doing that kind of work. And I couldn't find anyone. So I decided to found TISLA and here we are.
Jonathan Hughes: And it's a free resource as well, right?
Betsy Mayotte: That's our, we're a 501 C3 charity. So anyone can email us with their questions or if they have a dispute and we answer most emails within a business day, and there's zero charge for that. We will never charge borrowers for anything.
Jonathan Hughes: We're going to be talking about this student loan repayment pause, and that is coming to an end. So can you tell us how this came about in the first place?
Betsy Mayotte: Yeah. So this is just the past, like two years in student loans. It's just been really interesting and exciting because there's been several things that have happened.
That nothing anywhere close to that has happened in my entire career. And, you know, let's start with these student loan repayment waivers that came as a result of the pandemic. Now, you know, prior to COVID, I've been through my share of disasters in the student loan industry. Hurricane Katrina, 9/11, the California wildfires.
And there has always been some sort of relief offered to Federal Student Loan borrowers, but that was in the form of a forbearance. So interest accrued, it was usually only for 90 days. So when the CARES act waivers came out, this was really unprecedented because, so technically they're calling it a forbearance. I'm calling it a waiver because it doesn't act like any other forbearance a borrower might recognize.
So, not only did it put payments on hold, it gave the borrower 0% interest. So they're not harmed because the payments are on hold and interest is still accruing. It also is showing up on their credit report, like they're in a repayment status and in good standing.
So it's not only not harming the borrower because the loans are on hold. In some cases, it might actually be helping them, especially if maybe they were in, they had their payment pause due to financial hardship prior to these months also count towards the number of payments you need to get forgiveness under either public service loan forgiveness, and temporary expansion of PSLF or the income driven plans.
As long as you're fulfilling the other criteria such as working full-time for an eligible employer, they're going to give you a credit, just like you made a payment. In fact, I've worked with dozens, if not hundreds of people, that have received forgiveness during COVID utilizing the COVID months. The COVID waiver is also for borrowers that may have defaulted during COVID.
Some of those defaults are being reversed because of these CARES act waivers. If the borrower was already in default, there's a program called rehabilitation where if you make nine payments on time in a row, they'll reverse the default and lower the collection costs. These covered waivers are counting for those rehabs as well.
So those people that have been able to get out of default without having to make those nine payments, the fact that they've extended those waivers to over a year and a half, is really something. I've worked with a lot of borrowers that have said that they would have defaulted because their income was significantly reduced due to the pandemic.
And I've talked to other borrowers that have paid off or taken a huge chunk out of their loans because they've been enjoying a 0% interest rate. So it's just had a real positive impact on thousands and thousands and thousands of people.
Jonathan Hughes: Well, I can tell you that one of those people is me. I actually paid off my student loan during this time due to, in least in part, to that 0% interest.
So I know it's been very generous to people. I didn't know it was quite as generous as that. Can you tell us, when is this coming to an end and what can borrowers expect?
Betsy Mayotte: While what they did provided immediate relief in a pretty simple way, like people didn't have to apply for it. For example, they just sort of gave it to everybody. There's a lot of research out there that shows that a big indicator of successful student loan management is simply the borrowers that make their first, 12 or 24 payments on time. Those people are way, way less likely to default than others.
And what that's about, it's about the habit of repaying. Just getting in the habit of repayment. And that's one of the, what's part of the psychology behind that loan rehabilitation program that I mentioned to you before is the reason you have to make nine consecutive payments, is part of it is showing good faith, but the other part is getting you back in the habit of making the payment.
One of the other issues is we've got 42 million people, all being taken off this waiver at the same time. Now I know that the department of education and the servicers have been working very hard to prepare for this, but the fact of the matter is you can’t prepare for this.
It's going to be a tidal wave and I think people are, borrowers are going to have, might experience extended wait times, reaching their loan servicers to ask questions. They should expect to have experienced longer wait times getting paperwork processed, like if they have to apply for a lower payment option or a deferment.
And I think that in and of itself might lead to an increase in delinquency and default. So I'm a little bit nervous about that. And again, I think it's something we're going to experience. It's going to take a while for the dust to settle on that.
Jonathan Hughes: Can they actually contact their servicer and be counseled on which option is going to be the best for them before?
Betsy Mayotte: Yeah, a thousand percent. Yes. There are, servicers can go through the different repayment options with them.
If the borrower's ready with some numbers, meaning they should, what they should at the bars should have in front of them is there, or at least a ballpark adjusted gross income. Understanding what their family size is, having a general idea of what they can afford, whether, if they are married, whether their spouse has student loans, because that can be part of the calculation and what their spouse's income might be.
Those kinds, if they have that stuff ready, or even if they don't, again, at least if they have a ballpark, then their servicer can go through all the options and give them an estimate of what their payment would be under those different plans. Now, the borrower can also do this all by themselves. If they don't, if you're like me and hate getting on the telephone, if you go to studentaid.gov, they have something called the Loan Simulator.
And you can plug your numbers in and it will give you an estimate. Not only of what your payment will be, but also if you stayed on that plan, but the total amount you'd pay out of pocket over time. And if you are pursuing a loan forgiveness program, whether you would end up with forgiveness in the end. But the most important number of what I just listed is the amount you pay over time.
Jonathan Hughes: And why is that?
Betsy Mayotte: Well, the name of the game is to pay the least amount over time. So some people get hyper-focused on either getting the lowest payment possible or loan forgiveness, and, you know, unless you are pursuing loan forgiveness and are pretty confident you actually will get forgiveness in the end, choosing the lowest monthly payment usually means paying the most out of pocket. Interest accrues on student loans on a daily basis. And there is no minimum interest amount. So the quicker you pay the loan off, usually the least amount of interest you pay over time.
Jonathan Hughes: Now, I think, I feel like this is probably a good time to sort of back up a little bit again and just clarify. With loans that borrowers may have are effected by everything that we're talking about here in which loans are not really.
Betsy Mayotte: Really, really good question. What we've been talking about for the most part are Federal Student Loans. And within the Federal Student Loans, there is multiple federal loan programs, which can cause some confusion.
Uh, so back before 2010, there were two primary Federal Student Loan programs and they were both exactly the same except where they were doing. One program was called the Direct Loan program and the other was called the Federal Family Education Loan program, or the FEL. Now the third major one is Perkins.
And we'll just put that over, we'll park that one over here for a minute. FEL and Direct Loans. They both have Stafford loans. They both have Parent Plus Loans. They both have Grad Plus loans. They both did consolidations. And back then the terms of conditions were pretty close to identical. Whether you got a FEl or Direct Loan was not a choice that you, the consumer had.
It was based on what the school participated in, the school could either participate in one or the other. And up until about 2009, at least 80% of the schools utilized the FEL. And then in 2010, Congress got rid of it. So if all your loans were taken out after 2010, you, you have Direct Loans.
If they were any were taken out prior, it could be either one. And for the COVID waivers, COVID waivers were only applied in, this is again where it gets confusing for people, to federally held Federal Student Loans. And what that means is all Direct Loans and a small portion of the FEL and Perkins that have over the years had been sold to the Department of Education.
Most Federal Perkins are what we call commercially held. Perkins loans are held by the school and FEL loans are held by a private lender. They are federal loans, but they're held by a private lender. And those were not eligible for any of the COVID waivers. Now there's also private loans and state loans.
There's also institutional loans. Those were never eligible for the COVID waivers and whatever relief was made available to them was dependent on the lender and what they chose.
Jonathan Hughes: Excellent. Okay. Now, if you're not sure what type of federal loans that you have, if you have those Direct Loans, or if you have those privately held federal loans, or even if you have private loans, how can you find out?
Betsy Mayotte: So all your Federal Loans are listed on the Department of Education's website, which is studentaid.gov. And if you're not, if you have loans prior to 2010, you don't know if they're FEL or Direct, you can log in there and you can tell that the. The easiest thing to do is call your loan holder, your servicer, and ask them, do I have FEL or do I have Direct? And they'll tell you. Private loans aren't going to show up at studentaid.gov. You would find them the best, if you don't know where they are, you don't know who holds them, check your credit.
Jonathan Hughes: Can you explain basically who a servicer is, what it is? And if somebody doesn't know who their servicer is, what can they do?
Betsy Mayotte: Sure. A servicer is essentially a contractor that's been hired by the lender. And in some cases, that lender is the Federal Department of Education. In the Direct Loan program, the lender is the federal government. So as servicer, as a contractor, that's been hired to maintain the loan and collect the loan.
So they're the ones that are going to answer your questions if you cal. They're the ones that are processing your payments, they're the ones that are billing you for your payment. And up until the loan actually defaults if you become delinquent on your payments, they're the ones that are going to be sending you those new reminder letters or making nudge reminder phone calls too.
And also to try to help you get current, or if you need a deferment, and that kind of thing. And if you don't know who your servicer is, studentaid.gov, it will tell you who the servicer is. And the contact information for that.
Jonathan Hughes: What do you think students or graduates, maybe some of whom haven't made payments yet, what will they expect to be seeing in terms of notifications, or you know, messages from their service leading up to their assumption of repayment?
Betsy Mayotte: Well, before I answer that, I think this is a great time to remind people that now is a great time to make extra sure that the Department of Eeducation and your loan servicer have up-to-date contact information.
So if you don't, if they don't have you up-to-date. You're not going to get that information and not getting that information. If you ended up going delinquent because of it because you didn't realize that you needed it, your payment's due again, that's not a defense to default, so it could negatively affect your credit in a real way.
Even in either a mild way, just by showing you are 90 days delinquent or in a huge way, if you do end up defaulting. So you want to make sure they have up-to-date contact information. And then you want to make sure that you open your mail. If you're like me, who, you know, pays all their bills online, it can sometimes take a minute for you to open your mail.
So if you have student loans, you want to make sure that you're opening all your mail. It's going to give you information about income driven plans and how to apply for them. And who's eligible for them, information about deferment. If the, you know, there's been a, you mentioned there's been a lot of news about servicers lately. A lot of that news is around services playing in student loans anymore.
So, loans are transferring to different servicers. These letters are going to let you know if your loan transferred and the contact information for who that new servicer is.
Jonathan Hughes: I wanted to ask one more thing, and it's not about the resumption of federal student loan payment. It's about the sort of the other federal loan topic that is frequently discussed in the media. And that is the Public Service Loan Forgiveness option. And you alluded to that earlier, and I know there's been some significant and temporary changes, and I don't know if you wanted to discuss the changes or not.
Betsy Mayotte: Yeah. I mean, listen, this topic by itself. How long has the podcast? We've got like five, six hours, right? We have it all written out. I would like to say in plain English. And we also have an FAQ document that also contains case studies. I don't know, shameless plug, on our website, which is freestudentloanadvice.org.
So if they go to freestudentloanadvice.org. Go to the forgiveness tab, they'll see public service loan forgiveness, and all the things, plus more explanation and a link to that FAQ document. They're all right there for you.
Jonathan Hughes: Freestudentloanadvice.org
Betsy Mayotte: Right. And then if they have questions, even after that, just go to our contact page and email us through the contact page.
And like I said, we answer most questions within a business day.
Jonathan Hughes: Thank you so much. This was as great as I thought it was going to be. And so it's great to see you again. Great to have this conversation. And good to have this resource for folks who may need it. And so hopefully you'll come back and talk about Public Student.
Betsy Mayotte: I love talking about this stuff. So whenever you like, let's do it.
Jonathan Hughes: Thank you so much, Betsy.
Betsy Mayotte: Have a good day. Thank you. Thanks.
Jonathan Hughes: All right. Well, that is our show. Until next time, goodbye everybody.