Major changes to the forgiveness of student loans could come this week.
Here’s what you need to know – and what it means for your student loans.
As the first reported through NPR, the U.S. Department of Education is expected to announce a major overhaul of the civil service loan forgiveness program this week. The program – which helps officials get their federal student loans canceled – has been hampered by allegations of mismanagement, low approval rates and widespread confusion among student loan borrowers. Major changes should include two main approaches:
- Simplify student loan cancellation: Simplify the cancellation of long-term student loans through the federal rule-making process; and
- More student loan discount: Use executive action to make it easier for student loan borrowers to get their student loan canceled through relaxed rules and requirements retroactively.
Student loans: problems with canceling student loans
Since Congress established the Public Service Loan Forgiveness in 2007, the program has faced many challenges that have confused student loan borrowers, including:
- what student loan payments count towards the cancellation of the student loan;
- who types of student loans should count towards the cancellation of the student loan;
- which employers be eligible for a student loan discount;
- when student loan payments start counting for student loan cancellation;
Getting student loan forgiveness isn’t as easy as saying you “work in the public service” or have been doing so for 10 years. Student loan borrowers must work full time (at least 30 hours per week) for a qualified public service or non-profit employer, enroll in a qualified student loan repayment plan, make 120 monthly payments of student loan and make at least the majority of those student loan payments while enrolled in an income-based repayment plan. (Student loan cancellation won’t be available to everyone, but this plan is available now). With a rejection rate of 98%, many student loan borrowers seeking public service loan forgiveness who are drowning in student loan debt have invested 10 years of public service and still have not been able to get a forgiveness. student loan. (Here’s how to get a student loan discount).
Student loan cancellation: major changes
According to NPR, the Department of Education will implement the following major changes:
1. Count past student loan payments for student loan cancellation
If you have previously made student loan payments for your student loan cancellation, but they weren’t posted, it is now possible that those payments will to count. To account for past student loan payments, student loan borrowers will need to request a utility loan forgiveness by October 31, 2022.
2. Count past student loan payments made for FFELP loans
This is one of the biggest problems with canceling student loans. If the Department of Education changes this rule, there could be student loan relief for those borrowers who have struggled for years. (Here are 17 ways Biden can fix student loan cancellation). Prior to 2010, FFELP student loans were issued by financial institutions (not the US Department of Education) as federal student loans. Historically, borrowers who hold these student loans have found it difficult to include them in the forgiveness of student loans because the civil service loan forgiveness program only applies to direct loans such as Stafford loans. While student loan borrowers with FFELP loans can consolidate FFELP loans into a direct consolidation loan, their previous payments for FFELP loans did not count towards the 120 required monthly payments. Indeed, these student loan borrowers had to start over after consolidating in Direct Loan, even if they made 100 monthly payments, for example. Now the Department of Education can remove this rule and count past student loan payments, even for FFELP loans. If the Department of Education implements this rule change, it could be a game-changer for student loan cancellation.
3. Get credit for a student loan forgiveness if you used a bad student loan repayment plan
Some borrowers do not realize that only certain student loan repayment plans qualify for the public service loan exemption. For example, income-based repayment plans such as IBR or REPAYE are two examples of eligible student loan repayment plans. A new rule change would grant payment credit to any student loan borrower who has made student loan payments through an ineligible student loan repayment plan.
4. Student loan repayments made before student loan consolidation also count.
Similar to the problem with FFELP loans, some student loan borrowers have decided to consolidate their federal student loans while looking to get their student loan forgiveness. The problem with this strategy is that your student loan payments made before student loan consolidation may not count toward the 120 required monthly student loan payments. Under the rule change, student loan payments made prior to the student loan consolidation would now count toward required student loan payments.
5. Military members can count past student loan payments while on active duty
For all months spent on active duty, members of the military may receive credit for student loan payments, even if their student loan payments were withheld or temporarily deferred on student loans. .
6. Student loan cancellation can also be relaxed in these areas
Ultimately, the Department of Education could relax certain rules, in particular:
- broaden the definition of “public service” to qualify more student loan borrowers;
- provide “credit” for payments even if student loan borrowers have not made student loan payments due to forbearance, deferral, or other financial hardship;
- create a formal process for student loan borrowers who are rejected for student loan forgiveness to appeal their decision and correct any errors; and
- provide credit for student loan payments to student loan borrowers who have paid late or in installments.
Student loan cancellation: final thoughts
Student loans are changing, and this focus on student loan forgiveness is another example. The news comes after the surprise announcement this week that Navient will stop managing federal student loans. (Here’s why Navient abandoned your student loans). Until the Department of Education issues formal changes or recommendations for student loan cancellation, those changes may not be implemented. If Education implements these or other changes, expect the Education Department or your student loans manager to provide more details. It is clear that President Joe Biden is focused on improving student loan cancellation and simplifying student loan repayments so that more student loan borrowers can get financial relief. The education department, headed by Secretary Miguel Cardona, held hearings and solicited comments from the public for comments on the cancellation of student loans. The collective results of these efforts could help define the future of student loan cancellation. In addition to executive action, student loan cancellation has become a priority in Congress, even though Congress has not passed legislation on large-scale student loan cancellation. It’s also possible that Congress could act independently of the Biden administration to provide additional relief for student borrowers.
Remember that there are several ways to pay off a student loan. Whether your student loan forgiveness is in your future, make sure you understand all of your options for your student loans. Here are some popular ways to save money with your student loans:
Student loans: related reading
How to get approved for a student loan forgiveness
Student loan cancellation will not be available to these borrowers
Student loan cancellation won’t be available to everyone, but this plan is available now
How to get a student loan forgiveness
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