Student Loan Update- Where are we now?

2023 is a big year for student loan borrowers. Here are a few of the things that are happening this year:

• The Supreme Court is currently hearing two cases about student loan forgiveness.

• Student loan payments are set to resume around September 01, 2023.

• Borrowers with Direct Loans in Income Driven Repayment Plans will receive a one-time count adjustment.

• Borrowers who applied for Public Service Loan forgiveness under the waiver that ended 10/31/2022 will start to see loans forgiven in early 2023.

• The Biden administration proposed a new Revised Pay As You Earn payment plan—a revised REPAY plan. 

There’s a lot happening in the world of federal student loans during the first half of the year. If and how the proposed changes will affect your loans depends on the types of loans you have, your loan repayment history, your employment history, and decisions by Congress and the Supreme Court.

The fate of student loan forgiveness lies with the Supreme Court

There are two cases before the Supreme Court that will determine the fate of student loan forgiveness for millions of borrowers. You can dive into the details of the case here and here.  Most borrowers are waiting to find out if they will receive forgiveness or not. That answer is expected in late June. Until then, borrowers should continue to prepare for payments to resume. 

Payments are set to resume

Federal Direct Loan student loan repayments have been paused and interest set at 0% since March of 2020. The pause started as a temporary waiver of interest and payments, initially lasting a few months. As the pandemic response drew on, student loan relief measures were extended again and again. Now more than 3 years later borrowers are preparing for payments to resume. 

Much like every other detail around student loans the exact date that payments will resume is not fully known. Here is the official guidance on when payments will resume:

The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that.

Student loans will resume either 60 days after student debt relief is permitted or 60 days after June 30, 2023.

The one-time payment count adjustment adds to the confusion for borrowers

The Income Driven Repayment Account Adjustment- A One-Time Fix

Income-Driven Repayment (IDR) is a type of student loan repayment plan that bases your monthly payment amount on your income and family size. While there are benefits to these repayment plans, they also increase the total interest paid and can leave you owing more as time goes by. Income Driven Repayment Plans are designed for the remaining balance to be forgiven after 20-25 years of repayment. Unfortunately, many borrowers did not understand the rules to qualify for repayment and ended up not receiving forgiveness even after paying on their loans for decades. 

To address these issues, the Department of Education announced the Income Driven Repayment Account Adjustment. This lesser-known account adjustment allows the Department of Education to make a retroactive credit to payment counts for borrowers in Income Driven Repayment plans. Under the program time towards forgiveness will now include:

• Any months in a repayment status, regardless of the payments made, the type of federal loan, or the specific repayment plan;

• 12 or more months of consecutive forbearance, or 36 or more months of total forbearance;

• Any months spent in economic hardship or military deferments after 2013;

• Any months spent in any deferment (except for in-school deferments) prior to 2013; and

• Any time in repayment on earlier loans prior to consolidation of those loans into a consolidation loan.

While the changes above apply to Direct Loans, borrowers with non-Direct Loans or FFELP loans can still benefit from the program. Borrowers have until May 31, 2023 to consolidate from non-Direct Loans or FFELP loans into a Direct Consolidation Loan. 

FFELP Borrowers: Consult with a Certified Financial Planner® professional who specializes in federal student loans to determine if consolidating into the Direct Loan program makes sense for your situation.

Public Service Loan Forgiveness issued under the one-time waiver notices are being sent to borrowers

For those in public service, the one-time waiver fixed a lot of issues with payment counts and payment history that had prevented borrowers with 10 or more years of service from qualifying for loan forgiveness. Borrowers who completed their application and certified employment prior to 10/31/2022 began receiving notices of their updated payment counts in January of this year. Many borrowers are receiving notices of their loan balances being forgiven. 

If you work in public service and you have federal Direct Loans or FFEL program loans and you missed the one-time PSLF waiver, all hope is not lost. The One-Time Payment Count Revision for Eligible IDR Borrowers may be able to help you. 

Act now to consult with a Certified Financial Planner® professional who specializes in federal student loans. 

If you have Direct Loan program loans, the count adjustment will be automatically applied. If you have FFEL program loans, you will have to consolidate into the Direct Loan program to benefit from the count adjustment. 

The revised REPAYE plan. 

You can read more about the proposed repayment plan here.  The proposed repayment plan would cut monthly payments in half for undergraduate loans., capping payments at 5% of discretionary income. Borrowers with only grad school loans will have to pay 10% of discretionary income. Borrowers with loans for both undergraduate and graduate school would pay between 5-10% based on a weighted average. For most borrowers, the new revised REPAYE would result in lower monthly payments. 

Managing student loans can be confusing in the best of times. It is doubly so during a year when so many different programs are being proposed, being implemented, or being litigated. For borrowers with Direct Loan program loans, many of the changes discussed in this article will be automatically applied, if and when they are approved. For borrowers with FFEL program loans, consult a Certified Financial Planner® professional who specializes in federal student loans. The only way to benefit from blanket forgiveness or the one-time count adjustment is to consolidate into the Direct Loan program. However, doing so comes with pros and cons unique to each borrower's situation. 

You can find more information at StudentAid.gov and by visiting your loan servicer’s website.