HomeBusinessA new federal student loan program will move millions toward forgiveness

A new federal student loan program will move millions toward forgiveness

It’s unclear if President Biden’s student loan cancellation plan will survive a legal challenge now before the Supreme Court, but a different federal program may still offer relief to many borrowers. Some are already seeing relief under the program, and the government just extended a key deadline for some borrowers who must take special steps to qualify.

The aid will come as a one-time adjustment to the accounts of borrowers, some of whom have been making payments for decades. Adjustment will review your accounts so that more of your payments count toward the required number of payments needed to qualify for loan forgiveness.

The adjustment could benefit millions of borrowers, eliminating outstanding balances for some and moving many others closer to forgiveness of their remaining debt, the Education Department said when announced the plan almost a year ago

Some background: Income-based repayment plans allow student loan borrowers to make lower monthly payments, in some cases as low as zero dollars, depending on their income and family size. Because the payments are low, they often don’t put much of a dent in the loan balance. But after making payments for 240 or 300 months (20 or 25 years), depending on the specific plan, the remaining debt is eligible for cancellation.

Now, under the new program, borrowers’ accounts will be reviewed and updated, and credit will be granted for months that previously did not count toward the maximum repayment period, such as certain forbearance or deferment periods, when borrowers stop payments due to to financial problems. setbacks (Periods in which a loan was delinquent will not count.)

After the adjustment, some borrowers who have reached the necessary threshold have already been notified that their loans have been cancelled, an Education Department spokesman said in an email on Thursday. More than 3.6 million borrowers will receive at least three years of credit toward forgiveness, Federal Student Aid the office said.

The adjustment will apply even to borrowers who were not enrolled in income-based plans, in recognition that many were unaware of their options or were improperly diverted by their loan servicers, the Education Department said. In addition to correcting “historical inaccuracies,” the department said, it will create a new payment counting process to prevent future problems. An online tracker is expected to be available this year.

The one-time review will apply to all federal student loans, including PLUS loans, which are available to graduate students and parents to help pay for their children’s college education.

Most account settings will happen automatically, according to the Department of Education, but there are a few exceptions. Older business loans, such as Perkins loans and some made under the Federal Family Education Loan Program, may qualify for the one-time adjustment, but borrowers must first apply to consolidate them into a new federal direct loan. These borrowers can now apply for a consolidation loan through the end of the year, the department spokesman said; previously, the deadline was May 1.

Borrowers with one-time payment adjustments that make them eligible for automatic loan forgiveness through the Public Service Loan Forgiveness program will be notified first, the spokesperson said. After adjusting those accounts, the department expects to next adjust the accounts of borrowers eligible for forgiveness based on income-based repayment rules. The federal aid office has said adjustments will be made this summer.

“Forgiveness-eligible borrowers will continue to receive downloads as they reach their required months of payments,” he said, “and their payment will not be returned.”

Ashley Harrington, a senior adviser at the Federal Student Aid office, urged borrowers to be patient and suggested checking the government’s information. income based payment website for news (Site does not necessarily flag updates, so borrowers should read carefully.) Ms. Harrington made her comments on March 7 during a webinar Presented by Betsy Mayotte, founder of the Institute of Student Loan Counselors, a nonprofit group that provides student loan counseling.

The recent spate of student loan relief proposals, while welcome, has been hard for people to follow, Mayotte said, adding: “It’s really caused a lot of confusion among borrowers.”

Here are some questions and answers about the income-based payment adjustment:

Yes, according to student loan counselors; The programs are separate. The plan being reviewed by the Supreme Court would cancel up to $20,000 in student debt for qualified borrowers. If the judges reject that plan, the loan adjustment plan will remain available, Mayotte said. And if the court allows the president’s payoff plan to go ahead, she said, borrowers could potentially benefit from both programs.

Yes. The Biden administration has proposed a new, more generous plan to replace current income-based plans, to make things simpler for borrowers. The administration has said aims to start making some parts of the new plan available this year.

No. Typically, one risk with student loan consolidation is that the forgiveness clock resets to zero and borrowers must start over to build credit to pay off their balance. But that won’t happen with the adjustment plan, Ms. Harrington said during the webinar.

However, there are other important factors to consider before consolidating. For example, the interest rate on your new loan may be different and your monthly payment may change.

It’s also important that borrowers who consolidate federal loans with non-federal loans to qualify for the adjustment may lose their eligibility for the unique debt relief plan being considered by the Supreme Court, said Abby Shafroth, an attorney for the National Center for Consumer Law and expert on federal student loans.

Borrowers who only have loans not owned by the federal government should “strongly consider” consolidating into a new federal loan before the one-time adjustment deadline, he said, since they are not eligible for the relief plan anyway. the debt of $20,000.

For a smaller group of borrowers who have both types of loans (federal and commercial), the decision is more complex. One approach, Ms. Shafroth suggested, might be to leave your federal loans alone and consolidate only your business loans into a new federal consolidation loan. With the consolidation deadline now extended, borrowers have more time to weigh their options and perhaps consider the impact of the Supreme Court decision, which is expected in the coming months.

One way to find out, Shafroth said, is to confirm whether your loan payments have been suspended during the covid-related lull that began in March 2020. If so, your loans will most likely qualify. If your loan servicer is still billing you, your loans are not federally held and you may need to apply for a consolidation loan.

Yes. Many borrowers applied in the fall for a temporary exemption under the public service program, which forgives student debt after 10 years of repayment for borrowers who work in nonprofit or government jobs. But if they missed that window to receive payments they wouldn’t normally qualify toward included forgiveness, they could benefit from the income-based adjustment, Ms. Mayotte said, as long as the borrowers were working in a skilled job at the time of those payments.

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