October 11, 2023 Personal Finance

What to Know About the Recent Student Loan Changes?

Federal student loans have changed a lot over the last few years, and more changes are bound to come. We have seen backtracked statements, moving rollout dates, and more. It is important to know these changes and how they affect your repayment plan and the future of your loan.

In order to prepare for the future, it is important to note the changes that have already happened. Here is a brief overview of student loan changes including when they took place and what they entailed.

Timeline of Student Loan Changes

March 2020 – Forbearance, or a temporary pause, is placed on all student loans because of the financial hardship being caused by COVID-19.

April 2022 – Income-Driven Repayment (IDR) plan and Public Service Loan Forgiveness (PSLF) are announced by the Education Department. The IDR plan means that repayment of a student loan would be based on your income, meaning many will be given payment cuts once it is put into affect.

October 2022 – The Joint Consolidation Loan Separation Act is passed by Congress. This allows “joint consolidation loan borrowers to separate their joint loan obligations and reconsolidate into new individual Direct Consolidation Loans.” Doing so allows borrowers better access to benefits that were not available before.

June 2, 2023 – A debt-ceiling deal is passed by congress. A part of this deal means that student loan payments will no longer be paused and payments will resume.

June 30, 2023 – President Biden’s proposal to erase up to $20,000 in federal student loans is struck down by the U.S. Supreme Court.

July 14, 2023 – The Education Department announces that the first major wave of loan forgiveness is coming for over 804,000 borrowers.

July 30, 2023 – Parts of the IDR plan goes into effect.

September 1, 2023 – Interest on student loans resumes accrual, meaning previously paused student loans will now once again start accumulating interest.

October 1, 2023 – Student loan payments resume meaning that forbearance, or the pause on payments is ended.

July 1, 2024 – The rest of the IDR plan goes into effect. You can apply for this now to see how you quality, and how this new plan will affect your payments.

After more than three years of student loan pauses, payments and accumulating interest are set to resume! Hopefully all student loan borrowers are ready to take back on these monthly payments and include them in their budget.

If you fall into this category, prepare now! Replan and re-evaluate your budget in order to make sure you have room for your student loan payments. If you need to know how much your monthly payment will me, contact whoever you have your loan through to find out and be prepared.

New Plans and Options for Loan Forgiveness

Public Service Loan Forgiveness (or PSLF) Adjustment or Wavier

The PSLF wavier, which provided public service employees with help or forgiveness of their student loans after working for 10 years ended October 31, 2022. It has now been replaced with the IDR wavier which still has the 10-year eligibility requirement.

Luckily, on July 14, the Education Department announced that loan forgiveness is coming for more than 804,000 borrowers who’ve been paying off their student loans for at least 20 years. In total, close to $39 billion in student debt will be automatically wiped out with this adjustment. Millions more borrowers will have three years of additional credit toward forgiveness under the new plans when their accounts are updated next year.

If you’ve been steadily paying off a student loan for at least 20 or 25 years (including forbearance) you’ll be student debt-free after the adjustment. If you borrowed less than $12,000, you’ll be debt-free even if you’ve only been paying off your student loan for 10 years.

In order to make sure you qualify for the new adjustments, consolidate all of your loans through StudentAid.gov before the end or 2023.

A New Income-Driven Repayment (IDR) Plan

The current income-driven plan called REPAYE is being replaced by a new plan called Saving On A Valuable Education, or SAVE. This new program is expected to cut down, and even halve the monthly payments for many people.

To gain access to this, you need to sign up! You can do this anytime between now and the new year, though the plan will not go into effect until July 2024. If you are already enrolled in the previous REPAYE plan, then you will automatically be moved to the SAVE plan in October.

If you are part of the PSLF wavier, but may still have a loan balance after it goes into effect, apply for the IDR as well to help you once payments resume. Reach out to your loan servicer to ensure you have all the paperwork done to get the most of all the benefits.

While there are other changes underway, it is important to make sure you keep informed in order to find the best way to pay off your student debt.