Student loan forgiveness: What borrowers need to know in 2023

Washington
CNN
—

Student loan recipients are starting 2023 with a lot of uncertainty.

The fate of President Joe Biden’s major student loan forgiveness program It belongs to the U.S. Supreme Court, and it may be as late as summer for judges to decide whether the policy can take effect.

The epidemic-related pause in student loan payments continues. However, a reboot date is in the air, depending on when the Supreme Court will rule on the forgiveness program.

Meanwhile, significant changes are coming in July to the existing Public Service Loan Forgiveness program, which helps government and nonprofit employees. And a new income-focused repayment plan is being worked on that could reduce payments for some federal student loan borrowers.

Muddy presentation of Biden’s forgiveness program, made a mess for debtors. Here are some big questions about student loans this year:

at the end of February, The Supreme Court will hear the arguments Two lawsuits over Biden’s student loan forgiveness program that could provide up to $20,000 in debt relief for millions of low- and middle-income borrowers.

A decision on whether the program is legal and can move forward is expected by June. Until then, it is pending and no debt will be liquidated under the program.

Biden’s student loan forgiveness program has faced several legal challenges since the president announced the program in August. The Department of Education had received nearly 26 million debt relief applications by November 10, when a federal district court judge canceled the program.

Attorneys for the Biden administration say Congress has given the education secretary “widespread authority to alleviate the hardships federal student loan recipients may face due to national emergencies.” memory From the Ministry of Justice.

Plaintiffs, however, argue that the Biden administration has exceeded its authority and that other recent Supreme Court decisions ruled against aggressive executive agency actions. Judges, for example, restricted the Environmental Protection Agency’s power to make certain climate change regulations last year, and limited the federal government’s power to enforce epidemic-related regulation. eviction moratorium in 2021 and tenure Covid-19 vaccines in 2022.

For the third time in a row, federal student loan recipients are starting a new year without having to pay off their loans, thanks to an outbreak-related pause.

Payments were to resume in January, but Biden administration extends hiatus after the student loan forgiveness program was stopped by federal courts. Officials had told borrowers that debt relief would be granted before payments resumed.

The payment pause will last up to 60 days after the case over Biden’s student loan amnesty program is resolved. If the program is not implemented and the case is not resolved by June 30, payments will continue 60 days from now.

Borrower balances have been virtually frozen since March 2020, and most federal student loans do not require any payments. During this time, interest collection was halted and collections on defaulted debts were also put on hold.

Pause in payments for some borrowers provides an even greater benefit Much more than Biden’s forgiveness program can do.

The cost of years of hiatus government $155 billion By the end of 2022, according to the forecast of the Responsible Federal Budget Committee.

The Public Service Loan Forgiveness program allows certain government and nonprofit employees to seek federal student loan forgiveness after making 10 years of eligible payments – but it has been grappling with enforcement issues for years.

The one-year waiver that expands eligibility for the PSLF program expired on October 31, but some of these temporary changes It will be made permanent from July.

Under the new rules, borrowers will be able to get a loan to PSLF for late, installment or lump sum payments. Previous rules counted a payment as eligible only if it was fully made within 15 days of the due date.

In addition, time spent in certain periods of delay or indulgence will count towards the PSLF. These times include deferrals for cancer treatment, military service, economic hardship, and time spent in the AmeriCorps and National Guard.

Beginning in July, borrowers will receive some credit for past payments when they combine old loans into federal Direct Loans to qualify for the program. Borrowers had previously lost all progress towards forgiveness when they were consolidated. After July, they will receive a weighted average of current eligible payments to PSLF.

The new rules will also simplify the criteria to meet the requirement that a borrower be a full-time employee in a public sector job. The new standard will consider full-time work as 30 hours per week. The change will help adjunct faculty, especially at public colleges, to qualify for the program.

The Biden administration has proposed a new revenue-driven repayment plan aimed at making payments more manageable for borrowers, but it’s unclear when that will take effect.

Various income-focused repayment plans are already available for federal student loan takers, but the new offer may offer more favorable terms.

The new rule is expected to limit payments to 5% of the borrower’s discretionary income, lower than the 10% offered on most current income-focused plans, and also reduce the amount of income considered discretionary. It will also forgive any remaining balances after 10 years of repayment instead of 20 or 25 years and cover the borrower’s unpaid monthly interest.