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The first student debt cancellation plan proposed by President Joe Biden had a brief but intense life. Biden declared in August 2022 that qualified borrowers would have up to $20,000 in federal student debt forgiven. By November, federal judges had frozen the proposal. The Supreme Court declared the plan unconstitutional in June.
Following the Supreme Court decision, Biden stated in a press conference that “today’s decision has closed one path.” “Now, we’re going to pursue another. I’m never going to stop fighting for you. To help you achieve your goals and get the student loan relief you require, we’ll use every resource at our disposal. ”.
This fall, the regulatory procedure for this new route commenced, providing information about what it might contain. Its purview is more limited, it is supported by a different statute, and the earliest debt forgiveness possible is 2025.
But don’t count on success yet. This is what we currently know—and don’t know—about Biden’s “Plan B” for canceling student loans.
It’s time to log into your student loan portal (no really, stop putting it off!)
First things first. Many borrowers haven’t made any loan payments in months or even years. Or ever (I see you, younger borrowers)! Thats fine. This is a guilt-free zone. But now is the moment to reconnect with old friends or make new ones online.
Go to the U.S. governments federal student loan portal. Youll need your FSA ID to access your account. If you dont have one, or dont remember it, it could take some time. So dont delay.
After logging in, confirm that your contact details are current. If your email or brick-and-mortar address has changed, the U. S. Education Department and your servicer need to know.
In relation to servicers, you can discover who your current servicer is while you’re there. It might be a name you’ve never heard of before, such as MOHELA (pronounced moh-HEE-lah, in case you were wondering). Millions of borrowers got shuffled around during the pandemic. Dont be alarmed if youre one of them.
From there, youll need to go to your servicers website and add or update your contact information there too. Redundant? Perhaps, but you need to do it. If they cant find you, they cant bill you – but that wont keep your loans from ballooning with interest.
Take a moment now to save your FSA ID and old passwords somewhere, in case any of this forces you to go down a rabbit hole to remember them. Because you should establish the habit of checking in on your loans once a month or two going forward, if you didn’t already.
In case you are unable to access the government portal, you can always contact 1-800-4-FED-AID (1-800-433-3243) for assistance.
Figure out the repayment plan that makes sense for you
The kind folks at the Department of Educations office of Federal Student Aid have built a handy tool to help you do just that. Its a loan simulator, and it will ask you all sorts of life questions, like whether youre currently employed, or paying for health insurance, or married (with children). Itll ask you where you went to school, how much debt you have and how much income youre earning. And then it will let you choose your plan based on how you answer the most important question of all …
What is your repayment goal?
Do you wish to make the smallest possible short-term payment? or the long term? The conventional, “standard” 10-year plan is probably your best option in the long term. Compared to other, longer-term plans, you will pay the least amount of interest over time because you will have larger, fixed payments from the start.
Similar procedures apply to the “graduated” plan, but your initial payments will be smaller and increase in size over time so that you can still pay back the loan in ten years.
You might qualify for a $0 monthly payment!
If youre a young earner and want/need a low monthly payment, great. The Biden administrations new income-driven repayment plan, known as the SAVE plan, might be a good fit. If youre single and earn less than about $33,000, you should qualify for a $0 payment.
One of the many new benefits of this plan is that any interest that is not covered by your payment will be waived as long as you pay the government what it determines you can afford each month. For instance, let’s say you have loans that cost $60 in interest each month but only require a $40 monthly payment. The government will waive the remaining $20 in interest. But dont be fooled. Throughout the course of the loan, you might have to pay a significant amount of interest.
As an additional illustration, suppose you make $40,000 and have $32,000 in federal student loans that you must repay. The department’s loan simulator indicates that the most affordable option in the long run is to pay it back using the standard 10-year plan, which entails $322 monthly payments. Under that plan, you would have to repay about $39,000 in total, plus interest.
However, the SAVE plan would only require an initial $60 monthly payment from you. However, you would have to pay $49,400 in interest over the course of the loan. This is really important. It’s likely that a large portion, perhaps even all, of a $60 payment would go toward interest.
Your loan wont grow, but it wont shrink quickly either. Thats where loan forgiveness comes in.
Yes, loan forgiveness is still a thing
OKAY, deep breath. yes, the loan forgiveness landscape has been confusing. President Biden’s massive loan relief plan, which would have eliminated most borrowers’ student loan debt between $10,000 and $20,000, was overturned by the U S. Supreme Court. However, there are numerous and very real alternative options for loan forgiveness.
Like Public Service Loan Forgiveness. Granted, you have heard reports about the program’s poor management (many of which originated from NPR), but the Biden administration has since improved PSLF, making it simpler to use. Essentially, the guidelines remain unchanged: complete ten years of public service (with the government or a recognized nonprofit organization) and 120 qualifying payments, and your outstanding balance will be waived. If this appeals to you, you ought to think about the updated SAVE plan. Paying large monthly amounts upfront through the standard 10-year plan is pointless if you believe you will be eligible for forgiveness in that time. Furthermore, it’s okay if you worked as a teacher for three years, tried your hand at stock brokerage, and then returned to teaching. The years of service dont have to be consecutive.
Income-driven repayment plans also come with different levels of forgiveness. Usually, graduate school debt lasts 25 years, while undergraduate debt lasts 20 years. A new level of debt forgiveness for low-debt borrowers will also be included in the SAVE plan; individuals who borrow $12,000 or less will be eligible for forgiveness after ten years, though that feature won’t be implemented until July 2024.
Finally, as you assess your chances of loan forgiveness, keep this in mind.
You may get retroactive credit toward forgiveness
If I could write this section in neon, I would.
The Education Department is currently looking over the records of millions of borrowers in order to grant them retroactive credit toward forgiveness for time spent on repayment that was previously ineligible, such as months spent in deferment, forbearance, or other repayment plans.
This implies that older borrowers who enroll in an income-driven repayment plan for the first time may be eligible for loan forgiveness after 10, 15, or even 20 years of back credit. This is a brief explanation of why that is occurring and what it implies for borrowers.
Doubting yourself? The first group of borrowers, over 800,000 in total, had their debts erased earlier this summer as a result of receiving this retroactive account adjustment.
And next summer could bring a mini-explosion of loan forgiveness. Again, thats when the SAVE plans new, 10-year forgiveness promise kicks in for borrowers with original loan balances below $12,000. Well, lots of these borrowers are in a position to get at least 10 years of back credit. Meaning, the moment the policy begins theyll qualify to have their debts erased.
Borrowers with old federal loans may want to consolidate
Existing loans for millions of borrowers are referred to as FFEL Program loans. They originate from the time when federal loans were guaranteed by the U.S. S. government but are kept in private banks’ possession, and these debtors have grown accustomed to being left out of earlier loan relief initiatives.
Nonetheless, FFELP borrowers still have time to be eligible for Public Service Loan Forgiveness or forgiveness under the significant, retroactive account adjustment that the Education Department is currently implementing. By the end of 2023, all they have to do is combine their previous loans into a single federal Direct Consolidation Loan, per the Education Department.
Consider enrolling (or re-enrolling) in auto pay
Consider signing up for auto pay if you have a tendency to pay your bills at the last minute and have occasionally missed deadlines. Youll even get a 0. 25% cut on your interest rate.
The Education Department advises that if you were enrolled in auto pay prior to the pandemic, you will probably need to re-enroll. So don’t just sit back and wait for the train to move without giving it a little shove.
There’s an on-ramp for all of this
In an effort to make repayment easier for borrowers, the Biden administration will not notify credit agencies of late or nonexistent payments for the next year. But dont take that as a license to wait. Interest will keep growing, whether or not youre making payments.
A borrower enters what’s known as default if they don’t make a payment for 270 days. Default is a terrible place that only Dante could describe. A borrower’s credit is destroyed by default, and the government can seize their income, tax refund, and Social Security benefits. In other words, the government will probably find an easy way—or a hard way—to get its money. Try the easy way first.
It’s okay if you are unable to make a monthly payment at this time; consider the SAVE plan. You may qualify for a $0 payment. Although it’s not as good as being on a repayment plan, calling your loan servicer and asking for a temporary forbearance or deferment is still preferable to defaulting.
1 Borrowers already in default are being offered a “Fresh Start”
This is a big deal, but this fresh start requires that you opt in – its not entirely automatic. If youre in default, you need to reach out to whoever holds your loan. That may be a guaranty agency. You can find a list of agency contacts here.
If your loans are still held by the U.S. Department of Education, you can initiate the fresh start process by going to this website or calling 1-800-621-3115. As part of that process, youll be able to enroll in the new SAVE income-driven repayment plan, which should help keep your monthly payments reasonable while also keeping you out of default. According to the Education Department, half of Fresh Start borrowers currently have a $0 monthly payment.
1 Don’t wait. Your servicer may be understaffed
The federal office responsible for overseeing student loans has been flat-funded for the year and is now passing on its budget crunch to the servicers it pays to deal with borrowers, according to a January NPR report. It allowed those servicers to reduce the hours of the student loan call centers a few months ago. Now do the math:
Depending on your servicer and the time you call, there may be a lot of hold music when more than 40 million borrowers return to repayment and loan servicers discontinue their services.
Try to get back on track online if at all possible. The loan tools provided by the Education Department may surprise you with how helpful they can be.
And don’t wait until October if you still have questions. 1 to call your servicer.
Edited by Nicole Cohen; developed and designed visually by LA Johnson
FAQ
Is student loan forgiveness going to happen?
The Biden-Harris Administration announced today the approval of $4. 9 billion in extra debt relief for 73,600 borrowers on their student loans The Administration’s adjustments to public service loan forgiveness (PSLF) and income-driven repayment (IDR) forgiveness are what led to these discharges.
How will I know if my student loan will be forgiven?
How can I find out if my student loans are forgiven? You will receive a notification letter from the loan servicer or Department of Education if you are eligible for loan forgiveness under PSLF, Teacher Loan Forgiveness, or IDR discharge. Your account settings will determine whether you receive the letter by mail or electronically.
Will student loans be forgiven 2023?
A lot of people with federal student loans went into 2023 expecting that President Joe Biden’s pledge to waive student loan debt would be fulfilled. That optimism was shattered on June 30 when Biden’s proposal to forgive up to $20,000 for each borrower making less than $125,000 annually was blocked by the Supreme Court in a 6-3 vote.
Is it too late for student loan forgiveness?
Student Loan Forgiveness Considerations As Student Loan Payments Resume. The Education Department states that borrowers must use the federal Direct consolidation program to combine their loans in order to be eligible for student loan forgiveness under the IDR Account Adjustment by December 31, 2023.
Read More :
https://www.npr.org/2023/08/31/1196875027/student-loan-repayment-forgiveness
https://www.ed.gov/news/press-releases/biden-harris-administration-announces-additional-9-billion-student-debt-relief