Barcos Foundation D&D Report: Shearing Through Student Loan Changes - A Guide for Barbers & Cosmetologists
When it comes to Student Loans, it’s not about you… It’s about the Benjamins.
Greetings, fellow stylists, groomers, and masters of transformation! The Barcos Foundation is back with another vital dispatch, this time specifically tailored to the unique challenges and opportunities within our vibrant community of barbers and cosmetologists. Our focus today? The shifting tides of student loans and how these changes directly impact your financial well-being.
Many of you invested in your passion and skills through cosmetology or barbering school, often relying on student loans to achieve your professional dreams. Understanding the recent changes in the student loan landscape is crucial to protecting your hard-earned income and ensuring a stable financial future.
Fresh Cuts to the Student Loan Rules - What's New?
Just like a fresh haircut can change your whole look, recent updates to federal student loan policies are reshaping the financial landscape for borrowers:
Involuntary Collections are Back in Style: The Department of Education has announced that the pause on automatically collecting on defaulted federal student loans ended on May 5, 2025. This means the government can now use the Treasury Offset Program to take your tax refunds, federal paychecks, and other federal benefits if your loans are in default. Furthermore, they're planning to start administrative wage garnishment later this summer, potentially taking up to 15% of your wages after giving you a 30-day heads-up. This is a serious cut to your income, so avoiding default is paramount.
IDR Processing is Back Online: Good news! As of May 10, 2025, the Department of Education has reopened and is fully processing applications for Income-Driven Repayment (IDR) plans. These plans can be a lifesaver, as your monthly payments are based on your income and family size, potentially making them much more manageable. Keep in mind that the SAVE (Saving on a Valuable Education) plan isn't currently available for new applications.
Spousal Income in IDR - A Temporary Trim: There was some initial buzz about the Department of Education considering your spouse's income when calculating IDR payments, even if you file your taxes separately. However, they've since reversed this decision. For now, if you file separately, your spouse's income won't be factored into your IDR payment calculation. This could mean lower monthly payments for many married professionals in our industry.
Potential Future Overhauls - A Look Ahead: There's a bill in the House that proposes some big changes to the federal student loan system. While it's not law yet, it suggests things like getting rid of subsidized loans for undergraduate programs starting July 1, 2026, putting caps on graduate and professional loan amounts, combining IDR plans, and even making colleges partially responsible for unpaid loans. These potential changes could significantly alter how future barbers and cosmetologists finance their education.
Focus on Repayment, Less on Forgiveness: The current trend from the government is a strong emphasis on borrowers returning to regular repayment schedules. Broad student loan forgiveness isn't anticipated, so understanding and utilizing available repayment options is key.
What These Changes Could Mean for Your Wallet:
These shifts in student loan policy can have a real impact on your financial health as a barber or cosmetologist:
Higher Risk of Income Loss for Those in Default: With involuntary collections restarting, if you've defaulted on your federal student loans, you face the immediate risk of losing a portion of your tax refunds or even your hard-earned wages through garnishment. This can significantly impact your ability to cover your living expenses and invest in your business or career.
Opportunity for More Manageable Payments: The reopening of IDR processing offers a valuable tool for those whose current loan payments are a tight squeeze on their budget. Basing payments on your income can provide much-needed breathing room. However, the current absence of the SAVE plan might mean other IDR options aren't as affordable for everyone.
Uncertainty in the Long Run: The proposed legislative changes create some uncertainty about the future of student loans. Changes to loan availability and terms could affect both current students and those considering further education or specialization in the future. The potential elimination of subsidized loans, for example, could increase the overall cost of education for aspiring professionals.
The Importance of Taking Action: With the renewed focus on repayment and the threat of collections looming, it's more critical than ever for barbers and cosmetologists to be proactive. Understand your options, communicate with your loan servicer, and take steps to avoid default or manage your repayment effectively.
Protecting Your Credit Score: Falling behind on loan payments or defaulting can seriously damage your credit score. This can make it harder to secure loans for equipment, a salon space, a car, or even impact your ability to rent an apartment.
Clipping Away at Default and Smoothing Out Payments:
Just like a precise trim can perfect a hairstyle, taking the right steps can help you avoid the pitfalls of student loan default and manage your payments effectively:
Keeping Your Loans in Good Shape (Avoiding Default):
Know Your Loan Details: Get familiar with your loan servicer, interest rates, repayment schedule, and what happens if you default. You can find all this information by logging into your account on the Federal Student Aid website (https://studentaid.gov/).
Consider an Income-Driven Repayment (IDR) Plan: If your income fluctuates or is lower compared to your loan balance, an IDR plan could be a game-changer. It adjusts your monthly payments based on your earnings and family size. You can apply for an IDR plan on the Federal Student Aid website. While the SAVE plan isn't currently an option for new applications, other IDR plans like Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) are available.
Talk to Your Loan Servicer: If you foresee any difficulty making payments, reach out to your loan servicer immediately. They are there to help and can discuss options like changing your repayment plan or exploring temporary relief measures.
Stay Current on Payments: Even a short period of missed payments can lead to delinquency and hurt your credit score. If you anticipate a problem, contact your servicer ASAP.
Getting Back on Track After Default:
If you've unfortunately found yourself in default, there are ways to work towards a clean slate:
Loan Rehabilitation: This involves making nine voluntary, reasonable, and affordable monthly payments within a ten-month period. Successfully completing rehabilitation removes the default status from your credit report. Contact the Department of Education's Default Resolution Group (myeddebt.ed.gov) to learn more and get started.
Loan Consolidation: You might be able to consolidate your defaulted federal student loan into a Direct Consolidation Loan. Typically, you'll need to either agree to repay the new loan under an IDR plan or make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you 1 can consolidate. However, if your wages are currently being garnished, this option might not be available.
Full Repayment: While often a significant hurdle, paying off the defaulted loan in full will immediately resolve the default status.
Taking a Break (Deferment and Forbearance):
If you're currently in good standing but facing a temporary dip in income or other financial challenges, you might be eligible for a temporary pause or reduction in your payments through deferment or forbearance:
Deferment: This allows you to temporarily postpone your student loan payments for specific reasons, such as unemployment, financial hardship, or being enrolled in school at least part-time. For some subsidized loans and during certain deferment periods, interest may not accrue. You can find deferment application forms on the Federal Student Aid website.
Forbearance: This also lets you temporarily stop or lower your loan payments. However, it's crucial to understand that interest continues to build up on all types of loans during forbearance. This accrued interest may be added to your principal balance when the forbearance period ends, increasing your overall debt. You can also find forbearance application forms on the Federal Student Aid website.
Important Tips to Keep in Mind:
Deferment and forbearance are short-term fixes, not long-term solutions. Interest can still accrue, increasing your total loan cost.
Exploring an IDR plan is generally a better long-term strategy for affordability issues than repeatedly using deferment or forbearance.
Be cautious of any companies promising instant student loan forgiveness for a fee. The Department of Education and your loan servicer will never charge you upfront for assistance.
Final Thoughts: Shaping Your Financial Future:
As barbers and cosmetologists, you possess valuable skills and contribute significantly to your communities. Understanding the nuances of student loan repayment is an essential part of building a secure financial future. By staying informed about these recent changes, exploring options like IDR, and taking proactive steps to avoid default, you can navigate these financial waters with confidence.
The Barcos Foundation is dedicated to supporting your success, both professionally and financially. Stay sharp, stay informed, and remember that seeking help and understanding your options are powerful tools in your financial toolkit. Here's to a future where your hard work leads to lasting prosperity!