While deferments and forbearances might initially seem like a smart choice, they often lead to more problems. In fact, there are only a couple of circumstances in which a typical deferment is a smart decision.

The primary problem with deferments and forbearances is that borrowers are charged interest during the break in payments, so their balance grows.

The big exception to the “deferments and forbearances are dangerous” guidance occurs when a borrower isn’t charged interest. For example during the Covid-19 payment pause and the more recent SAVE litigation pause, borrowers were not charged interest.

Reasons you may want a deferment:

• Planning a major purchase like a car
• You are saving for a down payment on a new home
• The holidays are coming up
• You don’t start your new job for a few months
• You expect a raise in a few months
• Summer vacation should not be interrupted by student loans
• You are looking for a job/a better paying job

The reason(s) most deferments and forbearances are a mistake

Taking a break from paying your student loans is a bad idea from a financial and psychological point of view.

Financially, it is a terrible idea because of all the interest involved.

It isn’t just that you are not reducing your balance, the problem is that your balance is growing each month. If you defer on your student loans because of a financial hardship, the debt is only going to grow. Your issues, like your interest, compound each month you choose not to pay.

Another way of viewing the danger of a deferment is to remember that most lenders prefer borrowers take deferments early in repayment.

Most student loans include a six-month grace period post-graduation, during which no payments are required, but interest continues to accrue. During this time, the balance of the loan just grows. Deferments and forbearances increase lender profits. The only time a lender doesn’t want to do a deferment or a forbearance is if they fear that the borrower will never be able to pay back the debt.

From a mental standpoint, getting a deferment or forbearance on your loan can create bad habits.

In the six months you are not paying your loan, you may grow accustomed to spending money you really don’t have. Breaking bad spending habits is especially hard to do. The other problem with deferment is that you may think in the back of your mind that it will always be an option. However, for most loans, deferments and forbearances are limited. If you run out, and you really need another, you are out of luck. Therefore, you should never plan on using them and treat them as an option only in case of an emergency.

The Interest Free Forbearance Exception

If the big risk to a forbearance is the daily interest charges, our analysis changes dramatically with a forberance that doesn’t charge interest.

For most federal and private loan borrowers, opting for a pause in payments at 0% interest isn’t an option. Lenders don’t make any money, and borrowers don’t have any incentive to make payments. Five years ago, the idea of an interest-deferement was a pipe dream for borrowers.

The Covid-19 pandemic changed things. In March of 2020, federal student loan borrowers were put on a payment pause that did not charge interest. More recently, borrowers on the SAVE repayment plan were put on an interest-free forbearance while the legal challenges to block the plan are being litigated.

When these payment pauses happpen, the analysis changes. For the borrowers who find themselves with an interest-free forebearance, making payments is almost always a mistake. Borrowers have several great alternatives to choose from. For example, instead of paying down an interest-free loan, these borrowers can put money in a savings account, earn interest, and then make a lump sum payment as the interest-free forbearance is coming to an end.

When should you get an interest-charging deferment?

The answer to this question is pretty easy.

If you absolutely cannot afford to pay your loans, and you have no other choice, pick a deferment.

While deferment is a bad idea for the reasons already discussed, delinquency and default are much worse. Not only will you run into late fees and still get hit with the huge interest payments, but it will also hurt your credit score.

The key takeaway: Only seek deferment when you’re truly unable to make your student loan payments, not simply to avoid them.

Even in this emergency situation, a deferment only makes sense some of the of the time.

Obtaining a deferment may be a logical move if you’re waiting for your first paycheck from a new job. If there is no extra income in your future, and your bills are not going to change, a deferment won’t fix anything. Six months later you will be in the exact same position, except your loan balance will be larger.

Borrowers who cannot afford their debt and don’t see things changing need to work with their lenders to investigate options to get lower interest rates or change repayment plans.

Deferment and Forbearance Alternatives

Part of the reason a deferment or a forbearance is usually a bad idea is because better alternatives exist.

For borrowers challenged by federal loans, income-driven repayment plans offer the ability to get lower payments, potentially down to $0 per month. Though the monthly bill is identical to a deferment, it helps a borrower work toward forgiveness.

Private loans get more tricky, but with many options to lower interest rates, borrowers should be pursuing these options before settling for a deferment or a forbearance.

The post Student Loan Deferments are a Recipe for Disaster appeared first on The Student Loan Sherpa.

Supreme Court battles and political rhetoric might get all the headlines, but the little-known Payment Count Adjustment is the program changing millions of lives for the better.

This one-time program was created to help borrowers who were confused about repayment rules or got bad advice from servicers.

In most cases, borrowers don’t have to take any action to benefit. However, consolidation is a critical step for some borrowers, and it has a firm deadline.

One-Time Payment Account Adjustment Basics

This site has already covered this program in great detail, but the highlights are worth repeating.

Previous periods in which borrowers were on ineligible repayment plans will now automatically count toward Public Service Loan Forgiveness and Income-Driven Repayment Forgiveness.

Additionally, many deferments and forbearances will also count.

The program may not have a sexy name or get much media attention, but it is a great tool to help borrowers get the credit they deserve for payments made toward their student loans.

The December 31, 2023, Deadline

For most borrowers, this account adjustment will happen automatically.

In most cases, it is scheduled to occur in 2024. That said, thanks to the adjustment, some borrowers have already reached PSLF or IDR forgiveness.

The problem category is borrowers with privately-held FFEL loans. These commercially-held loans are still technically federal loans, but they don’t always qualify for all federal programs. For example, borrowers with these loans had to make payments during the Covid-19 payment and interest pause.

Borrowers with these troublesome FFEL loans need to consolidate their loans into a federal direct loan to benefit from this program.

By consolidating FFEL borrowers will get full credit for their payment history from before the loan consolidation. Additionally, it will enable them to sign up for the new SAVE plan, which promises lower monthly payments.

Sherpa Note: FFEL borrowers who miss the deadline for the adjustment will still be able to sign up for SAVE if they later consolidate. However, these borrowers won’t get the benefit of the one-time adjustment. Thus, consolidating before the deadline is much better than waiting.

Moving the Deadline is Critical

Because some borrowers are required to take action to benefit, the success of the program depends upon borrower knowledge.

At this time, many borrowers are still learning about the one-time adjustment. Others haven’t heard about it yet. I know this for sure based on email exchanges with readers of this site.

The point of the adjustment is to help borrowers who didn’t get any guidance from their servicer or who got bad advice from their servicer. At present, servicers are failing the otherwise eligible FFEL borrowers by not informing them of the significance of the opportunity.

Dating back to the beginning of the repayment restart, wait times have routinely taken hours. The borrowers who did get to talk with a representative often got guidance that conflicted with what other representatives said. The Department of Education acknowledged the severity of the servicing mess when they withheld millions of dollars’ worth of payments to servicers for their failure.

By the time many borrowers finally get the help they need from their servicer, the December 31, 2023, deadline will have passed.

Avoiding Confusion

The current deadline also creates a potentially confusing scenario for borrowers.

Those who consolidate by December 31 receive a generous calculation method for determining progress toward PSLF or IDR forgiveness. Those who consolidate after July 1, 2024, will get created for the weighted average of their pre-consolidation progress. This calculation is less generous, but it won’t reset borrower progress toward forgiveness.

At this point, it isn’t clear how the Department of Education will handle credit for pre-consolidation payments for borrowers who consolidate in the first half of 2024. It would be absurd to punish borrowers who consolidate during this gray area, but for now, we don’t know what the Department of Education will do.

Moving the one-time adjustment and the generous calculation deadline to June 30, 2024, solves this issue. It also gives servicers time to get things squared away on their end and provides the Department of Education more time to reach out to potentially impacted borrowers.

Lender Incentives

Many borrowers leave comments and send emails alleging that they think their lender is somehow out to get them or intentionally making things difficult. I usually point out to these borrowers that incompetence is the most likely explanation. Servicers are overwhelmed and often confused, and this leads to mistakes.

In the case of the one-time adjustment, things are a bit more complicated.

To qualify, commercially-held FFEL borrowers must consolidate into a federal direct loan. For the borrower, their debt amount doesn’t really change. It just improves eligibility for forgiveness programs and repayment plans.

For the commercial lender, things change dramatically. Instead of receiving a monthly payment from the borrower, they receive a lump sum from the Department of Education, paying off the loan in full. In other words, they stop profiting from the debt.

I haven’t seen any evidence indicating that commercial lenders intentionally withhold this information from borrowers. However, I am saying there could be a significant incentive to keep borrowers ignorant about the one-time adjustment. The cure for this problem is for the Department of Education to make every effort to educate borrowers.

Hiding a deadline on New Year’s Eve will only raise more questions.

Previous Deadline Moves

Finally, it is worth noting that this deadline has already been moved multiple times.

When the one-time adjustment was first announced on April 19, 2022, the deadline to consolidate was by the end of 2022.

As the Covid-19 payment and interest pause kept getting extended, it also made sense to move the one-time adjustment consolidation deadline.

Servicers will be making the adjustment at some point in 2024 according to the Department of Education. Why impose an arbitrary early deadline on borrowers?

July 1, 2024, is the day the SAVE plan becomes fully implemented, and numerous other federal policies take effect. Moving the deadline to benefit from the one-time adjustment to June 30, 2023, addresses multiple issues and fits nicely with other federal changes.

The post The Department of Education Needs to Extend the One-Time Payment Count Adjustment Deadline appeared first on The Student Loan Sherpa.

As a borrower on the SAVE plan, I’m counting on its availability in the future. I know many of you are in the same boat.

Once again, borrowers are in a situation where they need to make long-term planning decisions about a program with an uncertain future.

To help navigate this challenge, we will take a look at the long-term outlook of the SAVE repayment plan. Because this assessment will require some legal analysis and political analysis, I’ll explain how I reached my conclusion for those who are interested.

The Long-Term and Short-Term Outlook for the SAVE Repayment Plan

Though scary for some borrowers, the vote in the Senate was doubtful to impact borrowers.

For Congress to end SAVE, a veto-proof majority was required. They couldn’t get a majority in the Senate, and the House never even took up the issue.

Thus, in the short term, SAVE is extremely secure.

As we look further into the future, it is hard to proclaim that SAVE is safe with the same level of certainty. That said, the longer SAVE exists as a repayment option, the more likely it is to survive indefinitely.

Legal Protections Coming to SAVE

The Department of Education created SAVE as part of the executive branch’s authority over student loans. Congress passing a law could eliminate SAVE, and the executive branch could choose to eliminate SAVE.

However, in the coming months, SAVE will soon become more secure.

Once the Master Promissory Note (MPN) adds language about the SAVE program, borrowers will have a contract with the federal government requiring SAVE. We don’t know what the new MPN will look like, and not all borrowers will sign it. However, the mere existence of a contract requiring the government to offer SAVE will make it much more difficult to cancel the plan.

To see this concept in action, take a look at the new rules regarding SAVE. Notice how every borrower is either better off on the new plan OR can keep their old one. Otherwise, the Department of Education faces potential lawsuits from borrowers who are angered that the department violated the terms of the MPN.

That said, beyond the fact that we don’t know what the new MPN will say, this is also a highly complex area of law. Government contracts are especially complicated because of sovereign immunity.

In short, a new MPN will make it more challenging, but not impossible, to eliminate the SAVE program.

The Political Realities of SAVE

Many government programs are controversial when first created, but the more time that passes, the safer they become.

For a historical perspective, look at Social Security. When the program was first created, there was enormous opposition. Today, when politicians argue about Social Security, they debate about the best ways to keep it viable long-term.

For a more recent example, take a look at the Affordable Care Act, also known as Obamacare. This legislation was highly controversial when it was first passed, and many Republicans promised to get rid of it. After the 2016 elections, Republicans had the White House and full control of Congress. However, they couldn’t generate enough political support to get rid of the program, with key Republicans voting against eliminating it.

The longer borrowers are on SAVE, the harder it will be for politicians to remove the program. Raising student loan bills is a hard way to get votes. This is why the opposition to SAVE moved quickly to stop the program. They know that the same vote in two years will be tough.

That said, the political winds shift occasionally, and SAVE won’t ever be as popular as Social Security or Obamacare. Thus, we can’t say for certain that surviving the first couple of years will guarantee long-term survival.

The Biggest Threats to SAVE

Now that we have covered the factors likely to keep SAVE in place, it’s worth looking at a couple of worst-case scenarios so that borrowers can make informed decisions in their student loan planning.

A New President Opposed to SAVE – This is probably the most significant risk to SAVE borrowers. At some point, a President who isn’t as friendly to student loan borrowers will likely get elected. Given the legal and political realities previously discussed, the sooner this happens, the bigger the threat.

A Super-Majority Opposed to SAVE – A dramatic change in the makeup of Congress would also threaten SAVE. However, the odds of such a super-majority happening in 2024 are extremely thin.

Notably, a lawsuit to end SAVE, though not impossible, probably isn’t a threat. Unlike the plan to forgive $10,000 for every student loan borrower, creating a new repayment plan is squarely within the Department of Education’s authority. Thus far, there haven’t been any noteworthy lawsuits filed to end the SAVE program.

Sherpa Tip: Participate in your democracy. Show up and vote for candidates who take positions you support. Call your elected officials and share your opinion on the issue.

This participation makes a difference and it is the best way to prevent any threats to SAVE before they happen.

Don’t Let Uncertainty Induce Panic

SAVE is likely to be here for the long haul.

If you are 15 years from reaching student loan forgiveness, it is reasonable to plan to use SAVE to get there. That is the purpose of the repayment plan.

Even though we can’t definitively say that SAVE will survive, we have high confidence. What we can say for certain is that not using SAVE is an expensive decision for many borrowers. SAVE doesn’t just lower monthly payments. For many borrowers, it provides a generous interest subsidy to keep balances manageable.

Don’t unnecessarily spend extra money you don’t have because you fear the worst-case scenario. We’ve all got bigger things to worry about.

The post Will SAVE Survive Long-Term After Nearly Getting Defeated in the Senate? appeared first on The Student Loan Sherpa.

The idea is that if enough borrowers refuse to make payments, the government will be forced to meet their demands and change student debt for the better.

Sadly, this approach seems ill-conceived and potentially ruinous for the participants.

Sherpa Thought: Many borrowers who strike do it for noble reasons. They see the federal student debt levels as a genuine crisis and are taking action to make a difference.

I have nothing but respect for someone willing to make personal sacrifices in the interest of everyone else. My commentary today isn’t meant to disparage or mock these people. Instead, it is about finding the most effective way forward.

Student Loans, Strikes and Protests

There is a rich history in our country of civil disobedience used to draw attention to major issues and to force change.

I’m not sure federal student debt is an issue where a strike moves the needle.

Even if millions of borrowers didn’t make payments, what would be accomplished?

The current administration has already been the most aggressive in advocating for borrowers. We have a new repayment plan, a huge interest subsidy, fixes to previous errors, expansion of bankruptcy protections, and they even attempted to cancel some debt for nearly all borrowers.

The opposition to this assistance appears unlikely to be influenced by a strike. They already know about the student debt crisis. They don’t care.

The extent and severity of the student debt issues in the United States are well documented.

If the goal of the strike isn’t to raise awareness, it seems that forcing the hand of the government is the strategy at play…

Forcing the Government to Make Changes

There is an old saying, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

Some borrowers think they have leverage over the government and that a mass strike will force action.

They are wrong.

For starters, we know the government can function without receiving student loan payments. Payments have been paused for over three years, and the government has survived without those payments.

More importantly, we already own the bank. There are over 43 million borrowers in the United States. The “bank” running federal student loans is the United States government. Our government.

Calling elected officials, campaigning, and voting are all proven methods of changing things.

Payment Strike Consequences

The on-ramp certainly minimizes the risk, but there are still consequences.

It’s been argued that borrowers basically have an entire year before they need to make payments. They are wrong.

Waiting to get started on student loans could mean forgiveness takes longer, borrowers spend more in interest and miss out on valuable one-time programs.

Don’t Overestimate Crowd Size

The people striking have every reason to be vocal and loud. The more they bring to their cause, the better their odds of success.

The people who plan on resuming payments have no reason to share their opinions or motives. The people in this group likely want the strikers to be successful, so they probably won’t say a word.

Additionally, some might claim that they are not making payments because they have qualified for $0 per month payments on SAVE.

Don’t assume you are standing shoulder to shoulder with millions of other strikers because of a few comments you read online.

Real Talk

I was torn on whether or not to address this topic.

I recognize that by using this platform to highlight my concerns about the efficacy of a student loan strike, I’m only making it more difficult for the strikers to achieve their goals.

Ultimately, the core objective of this site is to provide insightful guidance to borrowers. It is a responsibility I take very seriously. Sometimes, it means delivering bad news, and sometimes it means telling people something they don’t want to hear.

I hope I’m wrong. I hope the debt strikers achieve their goals and our federal debts get erased.

I just don’t see it happening.

As for this borrower, when repayment resumes, I’ll be on the SAVE plan, counting down the months and years until my debt is forgiven.

The post Expert Thoughts on a Student Loan Payment Strike appeared first on The Student Loan Sherpa.

This is objectively awful advice.

The on-ramp is helpful because mistakes will hurt borrowers less, but it doesn’t mean borrowers should ignore their loans.

Those who wait will miss out on some excellent programs.

Interest Consequences of Waiting to Restart Payments

Some of the articles suggesting that waiting is ok acknowledge that there will be interest charges.

It is accurate to say that interest will accrue, but it overlooks the missed opportunity.

Many of the borrowers most worried about restarting payments can potentially qualify for low monthly payments on the new SAVE plan and qualify for a large monthly subsidy to cover interest.

Missing this opportunity could be a costly mistake for many borrowers, especially the growing number that are eligible for $0 per month payments.

Delaying Payments Delays Forgiveness

Student loan forgiveness is an excellent opportunity for borrowers with unaffordable balances to eliminate debt.

Forgiveness isn’t a quick fix, but it offers a light at the end of the tunnel.

Those who ignore their loans at the restart will lose out on valuable progress toward loan forgiveness.

Suppose you skip the first six months of payments after the restart. That move would push back your eventual forgiveness by six months. As a hypothetical, let’s say it moves forgiveness back from spring 2033 until fall 2033. If your salary today is smaller than what you earn in 2033, the money you save today will be much smaller than the extra money you spend in 2033.

Waiting to restart student loan payments means a longer wait for student loan forgiveness. It also likely means spending more on the path to loan forgiveness.

Missing Out on Temporary Programs

In early 2024, the Department of Education will update IDR payment counts for all federal borrowers. This one-time adjustment will move many borrowers closer to loan forgiveness.

To qualify for this program, some borrowers must consolidate their loans by December 31, 2023. If this deadline is missed, borrowers will miss the adjustment benefits.

Dealing with student loans and learning the many new rules now in place is a headache. Waiting to restart payments doesn’t prevent this headache. It just delays it.

However, delaying the restart could mean missing out. Now is the time to suck it up and get things figured out. Waiting a year to get serious about student loans could mean missing out on a tremendous one-time opportunity.

Think About Commentator and Media Bias

In many of the articles suggesting that borrowers don’t have to do anything for a year, there is a subtle, or in some cases overt, criticism of the President.

By downplaying the risks associated with not restarting repayment, the critique cuts deeper.

No matter your politics, it shouldn’t impact your student loan strategy. You owe it to yourself and your family to repay the debt in the most efficient manner possible.

Saying there are zero consequences to not making payments could make for a nice sound byte, but it doesn’t qualify as insightful student loan guidance.

“On-Ramp” Purposes

If not restarting on time is such a big mistake, what is the purpose of the “on-ramp” to the restart?

The idea behind the on-ramp is to help borrowers smoothly transition back to repayment.

Many people will miss payments because they have new servicers, and important letters and emails get sent to old addresses.

Rather than tanking a borrower’s credit report, the Department of Education is trying to minimize the damage.

Many have argued that this program is misguided.

It might be.

However, the one thing we can say for sure is that it isn’t a blank check for borrowers to ignore their student loans for another year.

The post Advice to Ignore Student Loan Restart is an Awful Idea appeared first on The Student Loan Sherpa.

Unfortunately, there is a prevailing myth that borrowers are irresponsible or trying to exploit the system.

But let’s set the record straight. The truth is far more complex and nuanced than this oversimplified narrative suggests. It is time to move beyond the blame game and foster empathy and understanding for those navigating the complexities of student loans.

Nobody Goes to College to Game the System

Contrary to popular talking points, most individuals pursue higher education with genuine intentions.

Going to college solely to exploit the system doesn’t make sense. Consider the significant time, effort, and money invested in attending school.

Most students embark on their educational journeys to acquire knowledge, skills, and better career prospects. They seek opportunities for personal growth and professional development.

Thus, it is imperative to dispel the misguided notion that borrowers intentionally subject themselves to the hardships associated with student loan debt.

The Uncertainties of Higher Education

While higher education can be a transformative experience, it doesn’t guarantee success for every student.

Sometimes, despite their best efforts, individuals face circumstances that hinder their educational and career trajectories. Economic downturns, industry shifts, or personal challenges can impact graduates’ ability to secure well-paying jobs and meet their financial obligations.

It is crucial to recognize that individuals who struggle to repay their student loans are not solely responsible for their predicament. Sometimes, even with the best intentions, things don’t work out as planned.

By recognizing the uncertainties and unpredictable nature of life after graduation, we can reconsider the perception that borrowers willingly subject themselves to unfavorable circumstances.

Misleading Practices and Student Vulnerability

The landscape of student loans can be overwhelming and confusing, especially for young and inexperienced borrowers.

Regrettably, some educational institutions and lenders take advantage of this vulnerability, engaging in misleading practices during the recruitment process. They entice prospective students with false promises of high job placement rates, attractive career opportunities, and misleading information about program costs and outcomes.

These practices disproportionately affect vulnerable individuals, including first-generation college students and those from low-income backgrounds, who may lack access to proper guidance and information.

The tactics that some colleges employ serve to help the college’s bottom line at the expense of borrowers and taxpayers. These institutions often misrepresent the earning potential and market demand for certain programs, leaving students with unrealistic expectations and unmanageable debt levels.

Unaffordability: A Systemic Challenge

When borrowers find themselves unable to meet their student loan obligations, it is often due to the sheer unaffordability of the debt.

The rising cost of education, coupled with stagnant wages in many industries, creates a challenging financial landscape. It is crucial to recognize that the inability to repay student loans is not a result of laziness or irresponsibility but rather a systemic issue stemming from unmanageable debt burdens.

Today’s students face far more affordability challenges than their parents and grandparents encountered.

The Vilification of Borrowers and the Power Imbalance

In the discourse surrounding student loan debt, there exists a striking power imbalance.

On one side, we have massive corporations, lenders, and the political elite. On the other, we have former students who aspired to uplift themselves through education. Yet, inexplicably, it is the borrowers who are often vilified.

This narrative needs to change.

Rather than perpetuating blame and stigmatization, we must advocate for reforms that create a fairer and more supportive environment for borrowers. By addressing systemic issues, holding institutions accountable, and fostering empathy, we can shift the conversation toward meaningful solutions.

Final Thoughts on Irresponsible Borrowers

The irresponsible borrower myth is a fallacy that fails to acknowledge the complexities of student loan debt.

Nobody pursues higher education with the intent to exploit the system, and sometimes circumstances beyond borrowers’ control hinder their ability to meet their financial obligations.

Misleading practices and the unaffordability of student loan debt further exacerbate the challenges borrowers face.

Taxpayers are justifiably angry about the massive student debt issue in the United States. However, their ire shouldn’t be directed toward the borrowers struggling to make ends meet.

The post Debunking the Irresponsible Borrower Myth: Understanding the Realities of Student Loan Debt appeared first on The Student Loan Sherpa.

Other than a couple of notable exceptions, someone who is 18 has the full rights and responsibilities of an adult.

Why do we draw this line at 18? Is there that much difference between a 17-year-old and an 18-year-old?

Today we will dig into what it means to be an adult and examine how changing the definition of adult might impact college and student debt in the United States.

The Human Brain at 18

The consensus of the scientific community is that the teenage brain — even at age 18 — is still in development.

Most notably, the prefrontal cortex doesn’t reach maturity until about age 25. This is significant because the prefrontal cortex is the area of the brain used for rational thought. Teens often process information with their amygdala, the emotional part of the brain.

Put simply, the average 20-year-old doesn’t have the ability of an average 30-year-old to make rational decisions. Clearly, there are exceptions to this general observation, but there is a mountain of evidence to suggest that brains are not fully developed at 18.

The Implications for Student Loans

Borrowing money for school needs to be a rational decision. Someone considering a college or debt needs to consider the potential cost of school vs. the benefits. Even in the best of circumstances, the decisions made in planning and paying for college are complex.

However, many high school seniors don’t engage in this analysis. They look at things from the perspective of attending their “dream” school. They might not find it fair that a classmate has opportunities that they don’t. That teenager might decide they deserve to go to the expensive school, even if it isn’t affordable or a wise decision.

This sort of decision-making happens when someone doesn’t have a fully developed prefrontal cortex. Instead of engaging in rational thought, they use the amygdala and make and make an emotional decision.

The Student Loan Significance: This analysis is critical in student loans because borrowers can be shackled to this debt for life. Those who face financial hardships often discover that student loan rules are far more harsh than credit card or mortgage debt.

Additionally, student debt is typically incurred at a much younger age than most credit card, mortgage, or other consumer debts.

In Defense of Making 18 the Age of Maturity

The science on aging isn’t clear on an exact age or definition of maturity.

On one hand, this makes sense. Just as people grow at different rates, brains mature at different rates.

On the other hand, this presents a significant issue. How do we define an adult for the purposes of signing a student loan contract? What happens if the age gets moved to 25?

If an 18-year-old student can’t sign up for a student loan, it might mean they can’t attend college. Are we doing more harm than good if we change the age-based rules?

Turning 18 also provides a clear, bright line. Some people may reach maturity before, others after, but everyone is on notice that things change at 18.

Additionally, college presents an opportunity for growth. Even if not fully mature, an 18-year-old leaving home for the first time has the chance to make mistakes, learn, and grow. Precluding someone from attending college because they are not fully mature could be a step backward.

Protecting Vulnerable Populations

The most helpful change might be the simple recognition that people are still learning, growing, and evolving at age 18.

It doesn’t mean they can’t make adult decisions. Instead, it means they are a more vulnerable segment of our population.

Think about all of the tools and resources that we have available for seniors. As a society, we recognize that some people have declining cognitive abilities beyond a certain age. Because of this, we create policies and tools to protect seniors from abuse. Things are far from perfect on this front, but it is better than doing nothing and leaving seniors to fend for themselves.

If an 18-year-old is vulnerable to making a decision based on emotion rather than reason, we must find a way to protect this age group from potential abuse.

Rethinking Bankruptcy and College Recruitment

If a potential student doesn’t have a fully-developed prefrontal cortex, they may be especially susceptible to recruitment based on emotion. Some for-profit colleges have a well-documented history of “pain points” recruitment — these schools used fear and pain to induce students to enroll.

Maybe the answer is to prohibit colleges from making an emotional appeal to encourage students to enroll. Perhaps we should penalize the schools that use these tactics if they lead to lousy student outcomes.

Along the same lines, we should reconsider how student debt gets handled in bankruptcy.

The history of student loans in bankruptcy is particularly cruel if we consider it from the perspective of not-yet-mature students who made decisions with devastating consequences. Recent policy changes show how easy it would be to help out former students who made ill-advised borrowing decisions.

The Constitutional Basis for Treating People Differently by Age

Most people know that someone who is 18 has their right to vote guaranteed by the 26th Amendment to the Consitution.

However, this isn’t the only mention of age in the Constitution. Article I of the Constitution says that an individual must be 25 to serve in the House of Representatives and 30 to serve in the Senate. Article II states that someone must be at least 35 to become President.

The founders recognized that people lacked the maturity for certain offices until far beyond the age of 18.

It’s time we all started thinking differently about the maturity of the average student loan borrower.

How to Protect Students Right Now

Public policy changes don’t happen overnight, but there are many steps that parents and advisors can take to help the young people in their lives.

Telling an 18-year-old that they are too young, emotional, or immature will probably only lead to an emotional response.

However, you can guide them through the rational thoughts necessary to pick a college and pay for an education.

Similarly, if a school is making an emotional plea to a student, you can point out that they are trying to manipulate the student into making an irrational decision.

There are no easy answers to this issue, but if we ask the tough questions, we can improve things for all.

The post Brain Development, College Planning, and a Lifetime of Student Debt appeared first on The Student Loan Sherpa.

Criticism can be hard to hear — especially when it is justified.

For many years, it’s been my personal policy not to identify scammers by name. I know it would make this site more useful, and I also know that a list of known scammers would be a great resource. Sadly, I’m not able to provide this form of assistance.

I wish my reasons were better or more noble, but in the interest of transparency, I’ll explain how we reached this point. More importantly, I’ll share how I can still help if you have questions about a potential student loan scam.

My History with Scammers

In the early days of this site, around 2014, I caught wind of a student loan scam from a friend.

She was actually thinking about giving them money!

The scammer site had a very polished look, and the “volunteers” on the phone were quite convincing.

I had a phone call with the scammer, recorded things, took extensive notes, and published a detailed article explaining why this was a scam. I included the name of the company in my article.

This article received a lot of attention and reached the top of the Google rankings for the company’s name. I was successfully warning many people and helping them avoid an expensive scam.

Things Get Ugly When You Shine a Light on Scammers

I shouldn’t have been surprised when the scammers came after me, but it still caught me off guard.

They left numerous harassing phone calls. They plastered negative comments about me on this site and others. Eventually, they threatened lawsuits and said they would have me disbarred.

The lesson I learned is that scammers don’t play by the same rules the rest of us do. They can say whatever they want. They don’t care if accusations are truthful.

The scammer operation that I outed was part of a fairly sophisticated organization. I was — and still am — a single person running this site.

I didn’t realize it at the time, but this company was pulling in millions of dollars duping student loan borrowers. My negative article was a threat to their business. They were willing to fight dirty, resulting in a terrifying experience for me.

Ending the Situation

I was certain that everything I published was truthful. I also knew there were laws in place to protect individuals from malicious lawsuits like the ones I was threatened with.

As an attorney, I also recognized the reality of the situation. At the time, I was a young prosecutor with no reputation or connections. I built the Student Loan Sherpa in my spare time to help other borrowers. My integrity being called into question was a serious issue. Any potential lawsuit could still cost me time and money.

It was all very stressful.

I eventually took down my article. Larger sites had picked up on my observations, and the word was out. I’m not proud of the decision, but I don’t regret it either.

The happy ending, from my perspective, is that the FTC eventually shut this company down. The defendants in the case were permanently banned from ever working with student loan borrowers.

Eventual Goals for the Student Loan Sherpa

I’d love to go after student loan scammers in the future.

I’m confident that investigating them and publishing my results would help many unsuspecting borrowers.

Sadly, this sort of operation is quite risky and expensive. I’d need a team of attorneys on call to address threats and litigation. If this site continues to grow, expect to see a list of known student loan scammers.

Current Policy

For now, I have to be practical.

When I come across a student loan scam, usually from a reader question, I take the following three steps:

• I alert the FTC and the attorney general’s office of the state where the scammers are located.
• I publish an article that describes the scam generally if it is a new format or scheme.
• I tell the reader it is probably a scam and direct them to the appropriate resources for resolving scams.

Sadly, I’m not able to name names or shine a light on the specific companies and individuals perpetrating scams. At this time, I can’t handle the potential risks and negative consequences.

Getting Help

Even though this site isn’t able to live up to its full potential in fighting scams, there are plenty of tools currently available:

• Learn the signs of a potential student loan scam.
• Steps to take if you think you have fallen for a scam.
• Contact the Sherpa to discuss your concerns about a specific company.

If you have any concerns about a person or company potentially being a student loan scam, please use the above link to send me an email. I am happy to offer a far more blunt assessment to individual readers with specific questions.

The post Why This Site Doesn’t List Scammers by Name appeared first on The Student Loan Sherpa.

In the case of bulls, unlearning a commonly-held misconception is interesting.

When it comes to student loans, the stakes are raised considerably. The things you don’t know can lead to costly mistakes. It’s why falsehoods accepted as facts are so dangerous for borrowers.

Today, I will push back against some commonly-held beliefs about student loans. The sooner everyone gets the facts right; the more people will be able to avoid bad decisions.

Student debt is good debt.

I’ll start with the most expensive myth of them all. Some claim that borrowing money to pay for school is “good debt” because you are investing in yourself. Spend some money today; earn way more in the future.

Student debt is not good debt.

We can debate whether or not there was a time when student loans met the good debt standard. However, it is absolutely false to say that all student loans are good debt today.

If the degree’s value doesn’t match the expected return, it is a bad investment. Today, many students run up massive debt chasing degrees that are not worth the investment.

If you are headed to school, or you know someone headed to school, it is critical to assess whether the cost of the program is worth the investment.

Student loans can’t be discharged in bankruptcy.

Some borrowers are stuck with student loans they have no meaningful chance of ever repaying.

For these borrowers, filing for bankruptcy to discharge the debt could be the best option.

The existing law for bankruptcy does make it difficult to get student loans discharged, but it certainly isn’t impossible. In fact, recent changes to how the federal government handles bankruptcy petitions for student loan borrowers could make a bankruptcy discharge significantly easier.

Taking bankruptcy off the table as a solution to handling student debt could be a huge mistake.

Refinancing and consolidation are the same things.

The comingling of the terms refinancing and consolidation is less of a myth and more of a misconception.

In both a refinance and a consolidation, a brand new loan is created, and the money from that loan is used to pay off existing loans.

In the student loan world, it’s generally accepted that consolidation refers to the federal direct loan consolidation process. Refinancing is used to describe what happens when a private lender pays off existing student loans.

Using the dictionary definition, calling a private refinance a consolidation is technically correct. However, by using the terms refinance and consolidation interchangeably, we risk confusing borrowers. By using refinance exclusively to describe the process offered by private lenders and using consolidation exclusively to describe the federal process, we avoid confusion.

For some borrowers, federal consolidation is an essential step in their repayment journey. For other borrowers, private refinancing is a great opportunity to lower interest rates and save money.

Unfortunately, both consolidation and refinancing are permanent changes, and mistakes can be very costly. If we get everyone on board with the terminology distinction, we can help borrowers avoid expensive misunderstandings.

My debt will never get forgiven.

Many borrowers subscribe to the theory that federal student loan forgiveness is impossible.

For some, it seems too good to be true. For others, reports of 99% rejection rates made impossibility an easy conclusion to reach.

The reality is that student loan forgiveness comes in many different forms. These options are nowhere near a quick fix, but forgiveness provides a viable path to debt elimination for many borrowers.

My loans will eventually be forgiven.

Some borrowers look at forgiveness from the other extreme. They assume their loans will eventually be forgiven.

Assuming that forgiveness is inevitable is a colossal mistake. For starters, qualifying for forgiveness usually takes some careful planning and years of closely following program rules.

Just because you can qualify for forgiveness does not mean you will qualify for forgiveness. If borrowers assume forgiveness is easy or requires zero effort, they risk wasting years of payments and starting from scratch.

It is important to push back against student loan myths and misconceptions.

Over the last decade, I’ve noticed that people are more willing to discuss student loans and their finances.

This is a huge step forward.

The next step forward requires us to be careful about what we accept as fact. When a friend or family member shares their student loan plan, they may leave out important details. Worse yet, they might even subscribe to some of the myths we’ve covered today.

Borrowers shouldn’t feel obligated to correct every mistake that someone makes when describing their loans or their plans. Nobody wants to be that person.

However, it is constructive to question something that is potentially inaccurate. Here are a few phrases that can help correct a student loan misconception without causing conflict:

• I thought I had read something different.
• Have you looked into [blank]?
• You might want to double-check that because if you are wrong, it could be really bad.

Nobody wants to be told they are wrong or made to feel ignorant. However, helping people unlearn student loan myths and misconceptions is critical.

The post Five Dangerous Student Loan Myths to Unlearn appeared first on The Student Loan Sherpa.

Most recently, a group of representatives, including Elise Stefanik, the chair of the House Republican Conference, proposed new legislation that would dramatically change student loan repayment in the United States.

The Plan to End Student Loan Forgiveness

The comprehensive legislation, titled the Responsible Education Assistance Through Loan (REAL) Reforms Act, calls for several significant changes that would impact student loan borrowers.

The proposed legislation:

• Immediately ends the student loan interest and payment pause,
• Eliminates the Public Service Loan Forgiveness program for all new borrowers,
• Limits the amount of debt graduate students can borrow by ending the Graduate PLUS program,
• Ends the current income-driven student loan forgiveness program,
• Blocks the President and Department of Education from creating new income-driven repayment plans,
• Ends interest capitalization,
• Caps interest accumulation to ten years, and
• Streamlines all of the IDR plans into a single repayment plan.

While the plan does offer some improvements over the current system, such as ending interest capitalization and capping total interest, the proposal would negatively impact most borrowers and future students.

Sherpa’s Analysis: I’m not going to take a deeper dive into this particular plan at this time for a couple of reasons. First, as proposed legislation, it could change significantly before becoming law. Second, this bill in any form is unlikely to become law.

However, the mere fact that the legislation has been proposed could have a significant impact on borrowers. This article will focus on that impact.

The Short-Term Risks of the REAL Reform Act for Student Loan Borrowers

This bill doesn’t represent an immediate threat to Public Service Loan Forgiveness or Income-Driven Repayment.

It won’t get a vote in the House of Representatives, and there isn’t companion legislation in the Senate. Even if it did get a vote, it wouldn’t pass. Furthermore, even if this legislation somehow did pass, it would almost certainly get vetoed by the President.

The concern for borrowers comes when Republicans eventually get their turn in charge of Congress and the White House. (There are only two political parties in the United States, and control shifting back and forth between the two is inevitable.)

The Long-Term Concerns for Borrowers

Significant changes to the law in the United States rarely happen overnight. Overturning Roe v. Wade was the result of decades of work on the right; likewise, passing the Affordable Health Care Act was the result of decades of work on the left.

Ideas get introduced, they get debated, and Americans gradually adopt opinions.

Public Service Loan Forgiveness and Income-Based Repayment were created with bipartisan support. Republican President George W. Bush signed the PSLF legislation into law.

Today, efforts to make repayment more affordable or expand loan forgiveness don’t enjoy the same bipartisan support.

If the sentiment behind the REAL Reforms Act grows, it represents a major risk to borrowers planning on PSLF or IDR forgiveness. The more Americans that oppose higher education or student loan relief, the more likely it becomes that a bill like the REAL Reforms Act can pass.

Can Congress Cancel Student Loan Forgiveness Programs?

Changing student loan laws is about more than just public sentiment.

From a legal standpoint, the ability of Congress to end student loan forgiveness programs is a tricky question.

All borrowers sign a Master Promissory Note (MPN). The MPN is the contract between the borrower and the government. The MPN is the document that creates the legal obligation for the borrowers to repay their loans. One noteworthy aspect of the MPN is that it contains language for Income-Driven Repayment and Public Service Loan Forgiveness.

This contract should provide some comfort to borrowers whose financial planning depends on the existing forgiveness programs. However, this protection isn’t absolute. There are a lot of complicated legal theories and concepts that go into this issue. This topic will undoubtedly be the subject of future legal research and scholarly writing.

For now, borrowers should understand that they have some protections beyond the existing law. However, proposals like the REAL Reforms Act should still be a concern.

Borrower Strategy in Uncertainty

If you are a borrower concerned about the growing support to end student loan forgiveness, there are several different things you can do to make a difference.

• Push back on false narratives – Opponents to loan forgiveness like to call it a program that only helps the rich. Point out that rich people don’t need to borrow money to pay for school. People form opinions based on social media discussions, and sharing facts can help the cause.

• Let your representatives know how you feel – Politicians go to great lengths to keep getting elected. If enough people voice support for student loan relief, politicians will act accordingly.

• Vote – In a democracy, we all get a say. If the people who represent you are proposing legislation that is unfair or hurts your pocketbook, vote for someone else.

The post Should Borrowers Worry about Republican Plans to End IDR Forgiveness and PSLF? appeared first on The Student Loan Sherpa.