Whether you are an undergraduate student who has taken out a Federal student loan to fund your education or you are a graduate student who has just finished your studies and now you are about to start a career, it is important to be aware of the changes that have been made to the federal student loan program. These changes include the ability to have your loan payment suspended, forgiveness of your outstanding debt for eligible federal student loan borrowers and changes to the federal student loan system.
Payment suspension
During the recent economic stimulus package, the federal government suspended interest on federal student loans for six months. It is part of a larger plan to help 20 million people get back on their feet.
This is a great opportunity for borrowers who have federally-held loans to get out of default, save money, and make the most of their payments. They can also earn credit towards loan forgiveness programs.
The government will not report delinquency during the time period of the payment suspension, so borrowers will not be penalized for paying late. As a result, borrowers may lower their monthly payments and avoid the nasty consequences of late fees and a default.
During the pause, the Department of Education will offer an income-driven repayment plan that has low monthly payments. The nifty little trick is that these low payments will not have a negative effect on your overall balance.
Public service loan forgiveness
Those who are employed in the public service sector may qualify for the public service loan forgiveness program. This program was established by the federal government in 2007. It has a number of benefits, including helping borrowers to pay off their debt faster.
The program allows borrowers to have a portion of their student loans forgiven, tax-free. This includes Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct Consolidation Loans.
To qualify for the PSLF, applicants must work full time in a qualifying public service job for at least 10 years. These jobs can be in the government, non-profit organizations, or in the private sector.
The program is designed to encourage people to work in high-need fields. However, not all public servants have been able to benefit from the program. The best way to determine whether you qualify is by submitting an Employment Certification Form to your employer.
Changes to the federal student loan system
Those who have been affected by changes to the federal student loan system may find they will need to prepare for repayment when the program ends in 2022. The new rules will change how many people receive relief, making loans a more attractive option for the vast majority of borrowers.
Under the new rules, public servants will be required to make 120 on-time payments while working at a qualifying employer. Students will receive credit for partial payments, lump sums, service in the military or AmeriCorps, and cancer treatment.
Graduate students will get a more generous plan, allowing for a longer period of time to qualify for forgiveness. The changes will help borrowers with incomes above $33,000 per year. The new rules will also help reduce the incentive for schools to raise tuition costs.
The Department of Education (DOE) has announced changes to the federal student loan system. These changes include measures to help students who were defrauded by colleges or failed to complete their education. Some of the proposals also make it easier for permanently disabled borrowers to have their loans discharged.
Forgiveness of outstanding debt for eligible federal student loan borrowers
Several legal challenges have arisen over the Department of Education’s student loan forgiveness program. The Department of Justice has asked the Supreme Court to reinstate the program. Meanwhile, the Texas federal district judge ruled that the program is unconstitutional. On October 21, the eighth US Circuit Court of Appeals placed a temporary administrative hold on the program.
The Department of Education is halting the application process until legal issues are resolved. It is expected that about five percent of applicants will not qualify. However, it is not clear whether the federal government will require documentation about borrowers’ income.
The Department of Education has already collected earnings data for nearly eight million borrowers. The plan to automatically pull this information from borrowers starting in summer 2023 will make the process easier. It will also eliminate the need for borrowers to recertify their income each year.
The plan also allows for a lower monthly payment for most borrowers. After twenty years of payments, most IDR plan borrowers will be eligible for debt relief. The amount of debt that will be forgiven is dependent on the borrower’s Pell Grant eligibility.
