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Student Loans: Biden Could Deliver ‘Fresh Start’ To 7.5 Million Student Loan Borrowers

President Joe Biden could deliver a “fresh start” on student loans for 7.5 million student loan borrowers.

Here’s what you need to know — and what it means for your student loans.

Student Loans

As Biden mulls whether to enact wide-scale student loan forgiveness and extend the student loan payment pause, he’s considering a historic new plan to help student loan borrowers who are in student loan default. In April, Biden announced a plan to return student loan borrowers in student loan default to good standing. Now, the Biden administration may soon implement its plan to rehabilitate these student loan borrowers.

Student loans: new plan to help student loan borrowers

According to documents from the U.S. Department of Education obtained by the Washington Post, the Biden administration is considering the following for a “fresh start” program for student loans:

  • once the student loan payment pause ends, borrowers in student loan default would have one year to return to “good standing” with the Education Department;
  • to participate in this temporary program, student loan borrowers would need to contact the U.S. Department of Education’s Default Resolution Group to enroll;
  • during the one-year period, student loan borrowers in student loan default would not have their wages, tax refunds or Social Security checks, for example, garnished;
  • student loan borrowers can still apply for student loans;
  • student loan borrowers who are behind on student loan payments for more than seven years could have this credit report information deleted.

Student loan default happens when a borrower misses at least 270 days of student loan payments. In contrast, student loan delinquency occurs when a student loan borrower is at least 90 days late on their student loan payments. The Education Department recently shared more details of the student loan program with financial aid professionals.

Student loans: who is eligible for a fresh start

Here’s who qualifies for this new program to get a fresh start on your student loans:

  • Any student loan borrower who is in student loan default on federal student loans; and
  • This includes Direct Loans, FFELP Loans and Perkins Loans held by the U.S. Department of Education.

Student loan borrowers in default are particularly vulnerable financially, especially during the Covid-19 pandemic. Progressive Democrats such as Sen. Elizabeth Warren (D-MA) have warned the president that failure to extend the student loan payment pause could place more borrowers into student loan default. The “fresh start” program aims to give borrowers a second chance with their student loans. With this new plan, student loan borrowers in student loan default also can become eligible for Pell Grants and work study. Student loan payments for federal student loans have been paused since March 2020. However, the student loan payment pause ends within days. Therefore, student loan borrowers would have until August 31, 2023 to make past due student loan payments and enter good standing with the U.S. Department of Education. Republicans in Congress have questioned whether the Education Department is ready to implement wide-scale student loan forgiveness and other changes to student loans. Biden’s plan to help student loan borrowers comes at a critical juncture as Republicans also unveiled a blockbuster plan for student loan forgiveness.

Student loan forgiveness: next steps

Biden has remained relatively silent on potential wide-scale student loan forgiveness and any extension of the student loan payment pause. That said, Biden canceled $3.9 billion of student loans this week. His “fresh start” initiative represents another strategy to provide student loan relief to borrowers who are struggling financially. Biden also recently delayed an announcement on a new plan for student loans. Biden’s targeted student loan forgiveness and efforts to improve student loan repayment could be part of a broader strategy to fix student loans instead of enacting wide-scale student loan cancellation. Alternatively, Biden could view these efforts as supplementary to broad student loan cancellation. Regardless of how Biden decides, your best strategy is to take control of your student loans. Start with these popular options to save money and pay off student loans faster:

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