President Joe Biden will delay his new plan for student loans.
Here’s what you need to know — and what it means for your student loans.
According to reporting from Business Insider, the U.S. Department of Education will delay the release of a new income-driven repayment for your student loans. Student loan borrowers were hoping to learn this month about a new income-driven repayment plan that could save them money. This announcement is related to 3 major announcements on student loans that Biden could make within weeks. However, the Education Department says that the new plan will not be finalized in the final rulemaking that will be available by November 1. Instead, the income-driven repayment plan may not become available until at least July 1, 2023.
“Failing to deliver a finalized [income-driven repayment] rule by November 1st means that borrowers will either need to wait another year for the promise of a truly affordable repayment option or imperil their financial wellbeing as the Department and its servicers — with their history of incompetence and abuse — rush to implement yet another repayment plan,” Persis Yu of the Student Borrower Protection Center told Business Insider.
Student loan forgiveness: new plan
Biden has said he wants to improve student loan forgiveness so that more student loan borrowers can qualify. This includes a potential announcement on student loan cancellation by the end of August. Currently, student loan borrowers can lower their monthly federal student loan payments through an income-driven repayment plan such as IBR, PAYE, REPAYE and ICR. After 20 years (undergraduate student loans) or 25 years (graduate student loans), student loan borrowers can get student loan forgiveness for their remaining student loan balance. The Biden administration hasn’t released details on the new student loan plan or how it could simplify student loan repayment. With income-driven repayment plans, student loan borrowers make a monthly student loan payment based on their discretionary income and family size. The goal is to make student loan payments more affordable while also providing student loan forgiveness.
According to a report last month, 9 million student loan borrowers are eligible for student loan forgiveness. However, less than 150,000 student loan borrowers have received student loan forgiveness through public service loan forgiveness. The Student Borrower Protection Center found that less than 15% of 9 million public service workers with student loan debt have filed paperwork to track their progress toward student loan forgiveness. Further, the Public Service Loan Forgiveness program has canceled student loan debt only for 130,730 student loan borrowers, which is less than 2% of the eligible population. At times, This means that 98% of eligible student loan borrowers will have an opportunity to get student loan forgiveness.
Biden proposes to make limited waiver for student loan forgiveness permanent
Biden has proposed major changes to student loan forgiveness, including a temporary, limited waiver. Among other benefits, student loan borrowers can “count” previously-ineligible student loan payments toward student loan forgiveness, including both late and partial payments as well as payments made under the wrong student loan repayment plan. Earlier this month, Biden proposed to make the limited waiver for student loan forgiveness permanent. Without this proposed extension, student loan borrowers have until October 31, 2022 to apply for the limited waiver. The extension of the limited waiver will benefit all federal student loan borrowers, including Perkins Loans and FFELP Loans borrowers as well as student loan borrowers who made student loan payments during military service. Without a new, simpler income-driven repayment plan, some student loan borrowers have expressed concern about the restart of student loan payments. The combination of student loan payments and no student loan cancellation — coupled with no new income-driven repayment plan — could become a nightmare scenario for borrowers. The student loan payment pause is scheduled to end on August 31, 2022, which means student loan borrowers will start making federal student loan payments for the first time in two-and-a-half years. The good news is that you have several weeks to prepare for the end of the student loan moratorium. Here are some popular ways to prepare for the restart of student loan payments:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)