April 10, 2023 – Becca Craig
While you can’t control the student loan cancellation stalemate in the courts, you can take advantage of several student loan programs in 2023.
As millions of Americans gear up to resume student loan payments after a three-year hiatus, many are anxiously awaiting the Supreme Court’s ruling on President Biden’s student debt relief program. While borrowers can’t control the court’s stalemate, they are encouraged to take advantage of several programs designed to lower monthly payments and/or grant forgiveness. Don’t delay on acting upon these time-sensitive options!
In April 2022, the U.S. Department of Education (ED) announced several changes and updates to income-driven repayment (IDR) plans, including conducting a one-time adjustment of IDR payment counters. The changes announced aimed to bring borrowers closer to forgiveness after either 20 or 25 years of repayment.
While my previous article examined the details of the adjustment, there are two key ways to take advantage of these changes:
In late 2022, ED clarified that the soon-to-be updated payment count adjustments will be credited toward IDR forgiveness, and also count toward Public Service Loan Forgiveness (PSLF) if a borrower has certified their PSLF-qualifying employment prior to the account adjustment. This is a BIG deal and a remarkable opportunity for individuals who missed the Limited PSLF Waiver deadline last October to add payments to their PSLF forgiveness count. Employment can be certified by submitting an Employer Certification Form.
This clarification will also result in additional payment count credits for PSLF forgiveness hopefuls by now counting certain periods of deferment and forbearance for months beyond those provided by the Limited PSLF Waiver.
Borrowers are encouraged to stay tuned for additional improvements to the PSLF program this summer. Starting July 1, 2023, the updated updated program widely expands the eligibility for forgiveness. This includes:
Borrowers with eligible loans do not need to apply for this credit; it will be automatically computed. Borrowers possessing even the slightest notion that they could now qualify for PSLF under the previously stated regulation changes should seriously consider applying for consolidation to ensure they benefit from the one-time account adjustment and submit an Employer Certification Form for all past qualifying employment by July 1, 2023.
Student loan default, typically defined as having gone at least 270 days without payment, is more common than you might think. According to Pew survey data, about a third of federal student loan borrowers have experienced default; two-thirds of this group default multiple times. In the past, defaulted borrowers lost access to short-term relief options and were prohibited from applying for additional educational federal grants and loans.
To remedy this situation, in April of 2022 the Biden Administration championed to help eligible borrowers in default up to one year after the COVID-19 payment pause ends. While this is currently scheduled to conclude on June 30, 2023, payments will resume 60 days after.
As the namesake suggests, Fresh Start allows borrowers access to the previously denied benefits by fast-tracking the status of their loans from in collections” to “current”. Even more critical to most borrowers, the ability to enroll in an Income Driven Repayment plan and apply for PSLF will be restored.
Borrowers will be contacted over the next year, or they can opt into Fresh Start themselves by:
On January 10, 2023, the ED published a 179-page Executive Summary proposing an amendment to the regulations governing IDR plans by specifically amending the REPAYE plan. Effectively delivering on one of the tenants of the Biden administration’s plan announced last August, the ED contends their proposal would immediately reduce monthly payments and total loan outlays for current and future borrowers, especially for low and middle-income borrowers, community college students and borrowers who work in public service.
The new REPAYE plan aims to simplify access to IDR plans by reducing and nearly eliminating some of the complexities borrowers must wade through to enroll. Although the Biden administration aims to finalize changes to the new REPAYE plan by the end of 2023, provisions and rules are still in a state of flux. That said, it is important for borrowers considering their student loan repayment options to stay informed of proposed key updates:
Borrowers currently enrolled in REPAYE will not have to change plans but will automatically benefit from the proposed changes. Unlike precedents set by previous administrations, the Biden administration proposed phasing out new enrollments into the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plan, while limiting the circumstances where a borrower can later switch into the most recent (2014) Income Based Repayment (IBR) plan. Future parent PLUS loan borrowers will not lose access to the ICR plan and can continue to enroll after completing a Direct Consolidation Loan.
In an effort to increase access to equitable repayment across the board, the ED estimates that borrowers’ average lifetime payments per dollar lent would decrease by 40%, with borrowers in the lowest 30% of projected lifetime earnings seeing the greatest benefit. Still, there are certain financial situations where borrowers could benefit from remaining in their current PAYE plan. Borrowers should carefully consider current payment obligations, their terms and when the right time to switch to the new REPAYE plan would be (if at all).
As a wealth advisor specializing in student loan repayment planning, I understand how confusing and frustrating the different programs, federal student loan repayment plans, policy changes and legal battles can be. With these sentiments seemingly becoming the “new normal” of student loan repayment planning, borrowers can empower themselves and their student loan forgiveness strategy by staying informed, being vigilant and taking action.
*Please note that the department is aware of specific circumstances where existing state laws generally prevent doctors at nonprofit hospitals in California and Texas from working for the hospital directly. This change would cover those individuals as well as any other contractor whose employment is similarly barred by state law for all medical professionals working at nonprofit hospitals in California or Texas.
About the author: As a Buckingham Wealth Advisor, Becca Craig, CFP®, CSLP®, ABA guides clients through an evidence-driven, behavior-based planning process. Her specialization in student loan repayment planning allows her to provide clients a holistic financial framework in which they both accumulate wealth while simultaneously deploying strategies geared toward full loan repayment or forgiveness.
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