Terry Savage: News on student loans, consumer protection

Consumers just got some good news about a student loan forgiveness extension and about protections on credit card late payment charges, resulting from a Supreme Court ruling on the Consumer Financial Protection Bureau. Here’s what you need to know:

The deadline for applications for student loan forgiveness has been extended to June 30, 2024. This is the one-time income driven repayment (IDR) account adjustment, which has already seen $153 billion in student loans forgiven, and set millions of other borrowers on a path of lower monthly payments and eventual balance forgiveness.

The terms of this plan are so generous that anyone who has student loans (or parental PLUS loans) should be examining this opportunity. This one-time adjustment plan was designed to provide loan forgiveness for those who have been paying on undergrad loans for 20 years, or for those who have been paying on graduate school loans or PLUS loans for 25 years. It reduces current payments and accelerates total balance forgiveness.

To be eligible for this payment reduction or forgiveness, the first step is to do a federal consolidation of all your federal student loans and enroll in an IDR program (not a fixed payment plan). Even if you had months or years in forbearance, or were making lower monthly payments, all those months count toward getting your loans forgiven.

Once you consolidate, you’ll get a new monthly payment, based on your income. But even if you currently have a high income, if you have been paying for all those years, you might soon be eligible for forgiveness of the remaining balance, including all the interest that accrued. And if your loan is forgiven by 2026, all of the amount erased is tax-free.

Many parents have taken out PLUS loans for their undergraduate children. These also may be eligible for forgiveness. But whether you have one or more student loans, the first step is consolidation and then enrollment in an income-contingent repayment (ICR) plan. That paves the way for an analysis of when the balance may be forgiven. The decision is based on the signing parent’s income — as well as the number of years the loans were in repayment status.

Parents who have their own old student loans, as well as PLUS loans for their children now in college, will get a combined payment history with all loan balances reflecting that original start date — setting them up for forgiveness of the entire consolidated loan amount.

Yes, this is complicated. You can get details and worksheets at StudentAid.gov. But if there’s a lot of money involved and a short deadline, it may be worth paying for professional assistance. Attorney Rae Kaplan (www.FinancialRelief.com) has already succeeded in getting $19 million of loan balances forgiven for her clients — a number that will grow now that the deadline for completing the filing has been extended to June 30.

The Supreme Court issued a long-awaited ruling against a challenge to the funding mechanism of the Consumer Financial Protection Bureau. The Court said the Agency could continue to be funded directly by the Federal Reserve, instead of by Congressional appropriation.

While waiting for this ruling (7-2 in favor), several new rules and regulations issued by this agency had been halted by lower courts. Now it appears those rules — many challenged by the financial services industry — will go into effect quickly.

The most notable is the CFPB’s rule that would have capped late credit card payment fees at $8. Currently, and until the rule goes into effect, card issuers can charge up to $30 for a first offense and up to $41 for subsequent late payments within six billing cycles.

The financial services industry, which collects roughly $10 billion in late fees, filed suit against the CFPB. Not only did they challenge the agency’s authority to impose the cap, but they warned the difference would be made up in other ways, such as higher interest rates on balances.

Bankrate.com analyst Ted Rossman notes that despite the current “stay” in the order, many card issuers have already implemented other fees, including a $1.99 monthly charge for receiving a paper statement.

Notably, Congress itself set up the CFPB and approved the current funding structure when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The agency has been aggressive in protecting individuals — so much so, that some in Congress and in business object. And that’s The Savage Truth.

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(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)