(Ep. 169) Common Student Loan Scams and the Potential Benefits of the ICR Plan

What's up, everybody. This is Megan Landris and Dan Rooker on the Student Loan Planner Podcast today with you. We are taking over and some of the topics we plan on talking about today are going to be some common student loan scams that we've been seeing a lot of lately. And we're going to talk a little bit about income contingent repayment, which is a plan that we almost never used to recommend, but weirdly it's starting to make sense for some PSLF waiver folks. And then of course, I feel like my goal every time I get on the podcast is to stress the technicalities of this PSLF waiver to keep you guys informed on what we need to know, what you need to share to help people be able to take advantage of this opportunity. So with that, Dan, thanks for hopping on the podcast with me today. I look forward to it. Me too. I'm really looking forward to this, Megan. What's really great about this space for advice is that it's constantly evolving. And behind the scenes, we know that if you check on studentaid.gov even once a week, you'll see new things. There's questions being posted, answered by education department officials, helping provide some clarity to this really, really complicated system. You are exactly right. And we have been hawking the website, just checking for updates. We've been listening to your feedback too on what's happening to you. So thank you guys out there for letting us know how your applications are getting processed and what kind of correspondence you've been getting from your servicers that is helping us help other people. So we appreciate it. So let's go ahead and jump in to talk a little bit about some common student loan scams that are happening right now. And there has been a huge uptick in this. I've had lots of clients reach out to me with kind of like voicemail recordings that they've sent over or like phone numbers for me to double check, like just checking if something is legitimate. They've got a phone call. Someone's reached out, said it was from the student loan servicer or from somewhere, and it was a call to action of some kind. So let's talk about the most common one I've been seeing lately. That's a student loan forgiveness scam. One example of this, let me just pull up the language that this person left on a client of ours voicemail. So it says, hello, my name is, I'm going to say Nick. We tried to contact you at your home and did not hear back. It looks like your student loan may be eligible for the recent stimulus forgiveness and relief legislation CARES Act. However, your application does need to be completed. This applies to all loan statuses, including those loans in default and garnishment. If you could please give your dedicated eligibility line a call. And then the phone number on this one was 888-731-9065. We can have this applied immediately. Please be aware that these benefits come on a first come first serve basis, though. Please make sure to provide your personal validation code. Sorry, I'm laughing because I can't get through this. So Dan, talk to me about what's wrong with this altogether. Like why, why does this at first maybe sound convincing and then talk us through like why this is a scam? I think that if a phone call, a voicemail starts out with asking you to fill out something or asking for your information, promising a too good to be true outcome or promising an outcome, especially when it comes to student loans, that's going to result in loans being gone tomorrow outside of what we talk about at the end. It probably is too good to be true. It's probably a scam. But there are a lot of different ways and tactics that, for lack of a better term, scammers use to try to get your attention. And I feel like that recording captured many of them. It did capture a lot of them, actually. So some of the other ones we'll talk about here in a second, they kind of were already touched on. But yeah. And so what's crazy about this one, too, is that it it says, you know, to call their dedicated eligibility hotline, basically, and that you have it's a first come first serve basis. So that is a big red flag right there, because what's been going on with the CARES Act is not a first come first serve basis at all. Public service loan forgiveness is not first come first serve basis. So that's kind of a red flag in and of itself. So it's been going on with the CARES Act. Nothing about the CARES Act specifically with payments being frozen, interest being frozen. Now the PSLF waiver that was enacted or talked about October 6th of this past year. None of this is a first come first serve basis. So that's a big red flag right there in and of itself. And then it later says to provide your personal validation code, which that does not exist. If someone tells you that you have a validation code for some kind of forgiveness, that is incorrect. This is a scam. Yep. You might receive a validation code if you were doing authentication to sign into something you've already signed into before. But if you're being offered something like validation code, a promise to make things better, this phone call coming to you instead of you reaching out to them, I would approach that phone call. If you answer it live, I would either hang up as quickly as possible or delete the voicemail. Another example of one of these. So I've had like I said, I've had clients send me these and they have a similar trend that this one went to the tune of, hey, this is such and such from FLA servicing, which maybe that sounds convincing if you're not sure who your loans are with. There have been a lot of transitions over the past year or two with servicers. But then it goes on to say, you can give me a call back when you receive this message. I am just giving you a call in regards to your student loans. And we are starting pre-enrollment for all unforgiveness files and possible long. I think this is one of those like voicemails where it generates like the text, so it might be a little off, but impossible for loan discharge files as it's going to be a little bit more challenging as the deadlines come up. We don't want anyone to miss out on these programs. If you have a few minutes, I really just wanted to go over those details with you. But just in case, again, my number is and this person's number, this scam artist's number was 855-771-4442. But I hope to hear from you soon. Have a great day to opt out of future phone calls. Please call this separate phone number, which is very interesting. But yeah, so this one's talking about pre-enrollment for all any and all forgiveness programs. Does anything like that exist, Dan? No, you could get phone calls from your loan servicer, but I would only expect the phone call from your loan servicer after you've submitted an application on studentaid.gov. So if you submit an income driven plan application or a consolidation application, you're probably going to get a confirmation from studentaid.gov, which is going to be followed up by correspondence, email correspondence from your loan servicer, which might be followed up by a phone call. But I think the the main thing is they're doing that because you've done something already, not because they want to proactively reach out to you to help you take advantage of something. That sounds too good. That's a great way to put it, because that's exactly right. Like none of these servicers are going to come knocking at your door to help you qualify for forgiveness. They're just not. They're not going to help you fill out these forms by calling you and telling you to do it. This is something that you have to proactively do. You have to make sure that you're eligible. They can confirm things and answer general questions, but they're not going to be actively reaching out to you to do this. And so what you said is is perfect. You know, typically, if a student loan servicer is reaching out to you, it's because you've initiated contact with them by submitting an income driven application or by submitting an employment certification form. And they have a question about it specifically. So it shouldn't be something out of the blue. That's that's a red flag to look out for. That's a great recap of just some of the student loan forgiveness scams we've been seeing a lot of lately. I think they're going to continue because we're getting closer to the deadline of this PSLF waiver, which expires October 31st, 2022. So don't be surprised if you keep getting phone calls with like a rushed mentality, like call us back immediately. Again, if you're seeing some of these red flags or it's not feeling quite right, hang up or call your servicer directly to make sure that there's nothing you are missing. You know, if you have to do something so that you would want to initiate that contact, if you think maybe you need to. Now, another common scam. Well, we'll kind of go down the list of a few others quickly about just like other things that we have seen in the past. So one is a student loan consolidation scam. Tell me a little bit about that, Dan. Yeah, so you can combine your loans within the federal system, keeping them within the federal system through the process of consolidation and consolidation has a couple uses. Most recently, the hot topic is consolidating non-qualifying loans for the purposes of public service loan forgiveness. And we'll get to that later. Another use would be consolidating to get your loans out of default. And if you're a new graduate student, maybe you're consolidating your loans to get out of the grace period. Either way, when you go through the process of consolidation, the application is available online through studentaid.gov and it's free. If a company is volunteering to fill out that application for you and charging you a fee to do it, you know, generally speaking, that company has a perverse incentive to reach out to you. They want to reach out to you to make money off of something that is free, that is out there and available and that is self-guided and relatively easy to follow. And if you do have questions about how to follow the application, you have access to the Student Loan Support Center directly through studentaid.gov. And I also don't think this is the same thing as like delegation, like, you know, folks delegate their taxes being done with the CPA or they delegate their financial planning or they delegate their student loan planning with us. But this is something different because the application itself, it is free to do. And what they do, their tactic here is pretty aggressive. They'll get on the phone with you. They'll make it sound like this is the end all be all solution to all of your problems. It's consolidation. That's like their one trick that they've got in their pocket. And maybe it does make sense to do it, but is it worth, you know, so and I'm saying this because I know this is true. Some of these companies are charging thousands of dollars to do this as an upfront fee or like a contract with them for like a 12 month payment. I unfortunately had a coaching client situation where their aunt had student loans and she was kind of tired of dealing with them. You know, it was very frustrated with the student loan system, understandably, and got on the phone with with one of these companies. They called her. They made it sound like she could make her payment much, much lower if she were to consolidate. And they charged her twelve hundred dollars to do that application and they ghosted afterwards. And yeah, the consolidation got done. But what was also wrong is that these companies ask for your login information and how these consolidation scams like hook people is because they get the consolidation done by logging into your account and doing it for you or submitting the paperwork for you, having you sign it maybe. And then when they apply for the income driven plan for you, they lie about your income. They put in a written statement about what your income is. It is not true or you didn't even know that they did it. And it generates a very low monthly payment for you, which you're you know, you as the borrower might be happy with because that's what you wanted. You wanted things to be easier. You wanted your payment to be cheaper, but you don't know how it got there. And that paperwork is in your name and should have your signature on it. So those are some really big deal red flag things there that you want to look out for with these consolidation scams is that you never want to give somebody your login information. They're probably not doing something ethical or honest with your applications anyways. And consolidation itself is not the answer. Like, that's not the end game, if that makes sense. Yeah. Consolidation is a bridge to get somewhere else and may be the best move now, but may not be if you're nearing the end of a forgiveness period on whichever plan you're on. If you have questions about the consolidation application, it takes about, it says online on SUNYAID.gov, it takes about 30 minutes to complete. So twelve hundred dollars in fees for a 30 minute application where they might reduce your income or increase your family size without your permission. Not worth, not worth going that route. And if you have questions, call, call the Department of Ed Support Center. I'll list that 800 number here. That's 800-557-7394. Good. Well, I think that that covers the consolidation scam. One of the other common ones we see is with lawsuits. And this is also commonly, or sorry, this is more recently maybe something to take into account because there was a recent lawsuit with Navient where they had settled for private student loan borrowers and for federal student loan borrowers. We have another podcast episode that Travis did on that topic. So definitely go check that out if you have questions about it. But talk to me a little bit about how these lawsuit scams work typically, Dan. Oh, this is another one of those too good to be true promises. So someone's going to call you. They're going to say that they're from such and such law firm. You never heard it before. They're going to claim that they can settle your debt and that they'll be able to just take care of it. That might happen for somebody somewhere out there, but it's just highly, highly unlikely. And I would seek out on your own side of time, seek out a student loan attorney, an attorney who specializes in student loans, who has a number of Google reviews online, or maybe he was introduced through another financial professional on that. But if someone is proactively reaching out to you saying they already know what your loan balance is and they can help you settle it, that's a big red flag. Also, a class action lawsuit for whatever thing that it's covering, in this case, student loans, a class action lawsuit rarely results in a large amount of money being awarded to the people participating in that class action lawsuit. So the restitution payments, for example, with that podcast episode that Travis did recently, for as much money was awarded in the settlement, it amounted to for federal borrowers, two hundred sixty dollars per person. That was one of the largest settlements in recent history that garnered media attention. So if that's the high number, even if you were getting a legitimate phone call for a lawsuit, I wouldn't expect big numbers. Yeah, and settling your debt is not impossible. We're definitely not saying that. It's just very difficult to do. And it does involve working with a student loan attorney or a consumer debt attorney. It involves fees that you're paying this attorney. So it's not something that's easy to obtain. And there are definitely more legitimate ways to go about getting loan forgiveness or having just an efficient repayment plan that you can pursue that doesn't include this, I'll say, quick and easy way out that the scammer is making it seem like it is. So, yeah, I think that's a great recap of some of the most common ones. Any others that you want to touch on? There's a pretty good article on Student Loan Planner that lists out a couple other common ways that scammers try to get your attention. If you just Google Student Loan Planner, Student Loan Forgiveness Scams, you'll find that article and goes much further in depth beyond this podcast. Awesome. Yep. Yeah. And anything we ever talk about on the podcast, we probably have a couple articles on it or on the blog. So let's actually roll into kind of a more technical topic relating to the PSLF waiver. And that's the Income Contingent Repayment Plan. Weirdly helping people obtain this PSLF waiver or like taking advantage of this waiver as much as we can. So let's back up and maybe talk about what is the ICR plan? Yeah, the ICR plan is the oldest of the income driven plans. I commonly describe it as President Clinton's plan in consults. And it's the oldest of the four or I guess technically five. If you want to consider the new income based repayment plan, a different plan than the old income based repayment plan. The ICR plan stands for Income Contingent Repayment, and it calculates a payment based off of your income and it uses 20% of your discretionary income. And the definition for discretionary income is a little more stringent than the definition of discretionary income for the other plans. But it does have a weird quirk, and that is that it's the lesser of 20% of your discretionary income or the 12 year standard plan adjusted based on your income. And that last piece is the weird quirk that has tripped me up in the past. And why this is important or why we're talking about this plan is because with the PSLF waiver, it's allowing people to get credit towards PSLF that otherwise would not have been able to get credit for prior payments. And that's pushing people much closer to forgiveness, if not immediately getting loan forgiveness. But let's say somebody is still working in public service, but they, you know, maybe they have eight years of credit towards PSLF now with the waiver counting those prior eight years of payments. Well, we've got two more years to go or 24 payments more to go. And we have to be on an income driven plan going forward. Like the requirements for PSLF have not changed for going forward. It's only what they're looking back at that's changed. But going forward, we still have to be on an income driven plan. And this can limit people whose income might be too high for one of the plans that require a partial financial hardship. So pay as you earn an income based repayment. Those two plans have a requirement that your payment has to be below a certain threshold. But if your income is high enough to where we, you know, we're higher than that threshold, then we're not eligible for those two plans. Well, then the other option is we can go on repay, which that payment plan has no cap. It is one of the cheaper plans. It's 10 percent of discretionary income, but it could be very expensive to where maybe we just pay off the loans and the last little bit we have left towards our 120 payments. So this is where we started to turn our attention to income contingent repayment, because this is a weird way to be on an income driven plan potentially. But if our balance is low enough, it can maybe create a payment low enough, even factoring in our income with this weird ICR equation. It could make us eligible for PSLF going forward. But did I explain that in a way that makes sense at all? If anything, that's just proof that the system is complex and having to bring in the oldest plan into a consult or arriving at the oldest plan by process of elimination is something that has come up more recently and more often simply because of this limited waiver window and counting past payments towards PSLF on any plan. The ICR plan just has a little more time to breathe as a potentially popular plan. Is it having its moment right now? Maybe I think it's having its moment in the sun for a couple of years. And this is not going to be relevant to most people. This is this is for folks to kind of identify who could maybe entertain this or at least run the numbers to see if you should consider this. This is for somebody who is very close to 120 payments, but is not quite there yet. And they have a very small balance, maybe in comparison to their income. They still work in public service. They still plan on working in public service. And we need to get qualifying payments until we we hit 120. So that that's kind of the makeup of the person that that could maybe consider this. And you can run run the numbers. There's a couple of places that you can check this. Where is that at? You could go to our website, studentloanplanner.com and go to the calculators and pull up the Parent PLUS calculator. Pull up the Parent PLUS calculator because we have built that to assume that you've consolidated Parent PLUS loans and the only eligible plan within the income driven system or the income driven plans that are available is the ICR plan. Or at least that's the farthest one to the left. I think we do write in what would happen if you did double consolidation. But that's a whole nother topic. For the purposes of trying to figure out what your ICR payment would be, which is either 20% of your income or limited to the 12 year standard plan adjusted by your income that you put into that calculator, you can use it there. You can also pretend to consolidate your loans on studentaid.gov. So go to studentaid.gov, manage my loans, consolidate my loans, start the application. And in there is a calculator that estimates what your payment would be. Or you could do a consult with us and we'll walk through that. We'll give you a good estimate of what the 12 year standard plan payment might be adjusted by your income. Yeah, it's a very interesting development. Again, like I feel like every time I've been on the podcast recently, I say, oh, this is so interesting. This is a new thing. Like and it's there's just so many little nuances that we're finding to continue to to fine tune our planning and to continue to be more and more efficient with taking advantage of this PSLF waiver. Now, with that said, let's continue to roll in the direction of of technicalities with this limited waiver with PSLF. So, Dan, take it away with some some prior nonprofit work comments that you had. Yeah, this is coming from a couple of recent consults. I feel that this happens to people. Sometimes you leave a job because it felt like the next job was the greener pastures on the other side. And then you realize maybe it wasn't so great on the other side and you would consider going back, if not to the same company, to the same space. And for the folks out there listening who have passed nonprofit work since October 1st, 2007 through today, and, you know, maybe they left the nonprofit space because it just wasn't working out for one reason or another. I wouldn't close the door to public service loan forgiveness if you haven't closed the door to going back to the nonprofit space. So get that count done, and then you can pick up where you left off in the future, even if moving back to the nonprofit space isn't today. And that's come up a couple of times, and I've shown the numbers in a consult, and I'm not saying that I completely changed their trajectory. I just put in, planted the seed for maybe they would go back. Maybe if work that they're doing right now becomes not so as fun as it used to be, maybe they'd go back. Yeah, and I think that's a good thing to point out, because you may have totally left public service, may not think you're going back. But this is a limited time waiver to where we could never go back and get credit for those prior payments. So we might as well just do it, do that, take that extra step to get that credit just in case, because plans change. And we see that all the time. We have follow-up consultations with folks where plans have changed, and they could have sworn they were going to go private practice, and they were going to love it, and the money was going to be great. And then a year or two later, they're back in public service because they really just liked that better. You know, whatever the reason is, like, things change. So you might as well go ahead and claim the credit, even if you never need it, because we're never going to be able to do it again. And you might be kicking yourself later if you did end up going back into public service and not being able to get credit and having to start, like, from scratch on your payment count. So I think that's a great point. Just a note, you know, just to keep the foot in the door, may not ever need it, but I think it's there just in case. So let's go through a few questions that have popped up on studentaid.gov recently. I'm going to read them off, and Megan's going to read us the answer and also throw in her thoughts on the answer. First question is, I recently received a letter from FedLoan Servicing with updated qualifying payment counts. Does this updated qualifying payment count include those related to the limited PSLF waiver? I am so glad they added this, and they must have added it, like, in the last week or so. The answer to this is the Department of Education is working with FedLoan Servicing to update the payment counts. Letters that have been sent by FedLoan Servicing prior to the week of February 7th, which was only last week, I mean, I guess two weeks from now, once you hear this podcast, only letters sent prior to the week of February 7th, 2022, those are not going to include payment counts under the limited PSLF waiver. So if folks have gotten a confirmation about their payment count and they're panicking a little bit because it doesn't look like the waiver has been applied, it hasn't. So don't worry. For your most up-to-date information, you can continue to look at FedLoan Servicing's portal. They will be continuing to update that as the months go on. Now, their timing on this, they still say several months. Give them several months to process this. But I think it's good for us to know that the waiver hasn't totally been updated. Those payment counts, I mean, for the waiver haven't totally been updated. So if that's a big concern of yours right now, hold on, because I think there's going to be some updates to come. Second question, and we've poached these questions from studentaid.gov and specifically these questions because these are newer questions. My consolidation loan was just disbursed and the employment certification on my PSLF form was just approved. How long will it take for my payment accounts to be updated? Initially, after consolidation, borrowers will receive a letter from FedLoan Servicing that might not include payments made on older loans that were most recently consolidated. Which we have seen, you know, the correspondence that folks are getting is very confusing because it doesn't show any past payment counts towards the PSLF waiver when they were told to consolidate and that's, you know, that was the step they had to make. And so it goes on to say, but during the next several months, borrowers can expect to see their payment count adjustments after their consolidation loan is disbursed. And a PSLF form with employment certification is approved. So that is the second step to the consolidation. You know, the consolidation needs to be done. Then we need to submit the employment certification form for all past eligible employers. So this is just to show that, you know, again, updates to payment counts will be coming. It's not alarming though that it's not showing a payment count update yet. This next question I love because this has been a question behind the scenes with us and, or just a question that comes up. And it's one of those questions when a borrower asks you in a consult, you go, I don't know, I got to go look that up. So I have more than 120 payments on my FFELP loans or FFEL loans, and I just consolidated into direct loans so I can receive PSLF forgiveness. Will I receive a refund on payments made before I consolidated? And the answer to this is no, unfortunately. Payments in excess of 120 can only be refunded if paid on the consolidation loan. So the direct loans originally, this applies to both FFEL loans and direct loans that consolidated into a direct consolidation loan. So this is good to know because I think Travis called this too. And it sounded clear-ish that folks with FFEL loans weren't going to get refunds, but it wasn't completely clear. And I think this makes it completely clear that those who have made over 120 payments on their FFEL loans that are now getting that immediate loan forgiveness, you'll get the immediate loan forgiveness, which is great. But unfortunately, we will not be getting a refund. Only those with direct loans that had paid in excess of 120 will be able to get the refund through the PSLF waiver. And I think it's helpful to think about that last comment you just made, Megan, through the lens of if you're applying for PSLF, traditional PSLF, and you have made an overpayment on your direct loans, when you apply, you can check that first box to say, I just want to find out how many payments I've made. And then there's two more checkboxes, one of which you have to select when you reach the end. And the first checkbox says, essentially, I'll keep making a payment while you process my application. And if I make an overpayment, the implication is there, they'll refund the overpayment to you. The other checkbox says, stop making my payments, place my loans in forbearance while you process the forms here. And the risk there is that you're not actually at 120 yet, and you have to go through the process again, resubmit the form. So that last piece of it, like, will I receive a refund on payments made after I consolidated, not before. After you consolidate, yeah, you'd receive a refund of overpayments. But unfortunately, not for overpayments prior to consolidation. One other note just on this, because we've seen this again also, is the PSLF help tool is not quite smart enough to know that your prior payments before the consolidation now can count towards the PSLF waiver. So it may not allow you to select that you have made 120 payments. So let's say you're someone that has FFEL loans, you know, you've made, you know, 15 years of payments. Well, you technically could say you think you've made 120 payments on the loans, but the PSLF help tool is not going to recognize those prior payments yet. Because it's just, again, it's not smart enough to take into account the waiver. So if you have to say no for it to let you move on through this application, saying no, that you haven't, you don't think you've made 120, that doesn't mean that they're not going to go back and check. They are going to go back and check. And if you've made above 120, then you're good to go. That's something that folks have been a little confused about. And it's just the, it's a processing issue, like a technical issue that they have not updated because the PSLF waiver is so limited. They probably don't think it's worth it to update. But just one note there. I've got one more question before we move into extra credit question time, if you want, Megan. Sure. I'm going to handpick from this list that you put together. So this question goes, I was told that consolidating my loans will start my payment count at zero on my consolidation loan. Is that true? No. So only under this limited waiver, your payment count will not start at zero when you consolidate. You will receive credit on your consolidation loan for payments made on your existing loans. Under normal PSLF rules, consolidating your direct loans and PSLF would have resulted in a payment count going down to zero. I'm super happy that they clarified this because Lauren and I on our podcast episode, we, you know, this was how we were reading it, but there wasn't anything completely clear saying it. So this does confirm that the language is what we were thinking is that it's not going to restart anybody's count to zero if we consolidate during this waiver period. But it will if we consolidate after October 31st, 2022. So that's important to know. Now we've confirmed it. There's no risk in consolidating if we're eligible for PSLF to correct a payment count, like we've talked about on previous episodes, or to take advantage of the waiver, even though the correspondence you're going to get says that it does. You can refer to studentaid.gov for this language and see it word by word what I just described. And I think that when you do get correspondence, the loan servicers, not always, but in recent correspondence we've seen, if you look at the top of the letter, they might even say that the language below doesn't take into account the limited waiver for PSLF. So don't panic when you get the letter saying that it's starting your counts to zero. Yeah. And that's the key. Like it's almost like they just copied and pasted the same language at the top of all this correspondence that says, you know, it starts out, hey, so-and-so, by the way, there is a PSLF waiver going on. Here's the link to it for you to figure it out. And then it's the standard language that's always existed. So it's very confusing, but that's comforting to know that it is clearly written out there that consolidations will not restart our payment count to zero if we were to do that now to correct a payment count or take advantage of the waiver. So, man, we went through a lot today. How are you feeling about our questions that we touched on? I think we hit on a few, and I'm sure that there's going to be more questions, Q&As posted to studentaid.gov and far more questions beyond what they could possibly post from borrowers out there. So if you have questions that you'd like answered on the podcast at some point in the future, let us know. Yep. info at studentloanplanner.com. Write your questions, comments, let us know what you're seeing. If anything is different than what we're talking about, let us know. But thanks for hanging out with us today for this consultant takeover with Dan and myself. I hope you guys have a great rest of your day wherever you are today, and we'll see you next time.