It’s unclear whether President Joe Biden’s student loan cancellation plan will now survive a Supreme Court legal challenge, but another federal program could still provide relief to many borrowers. Some are already seeing relief under the program and the government has just extended a major deadline for some borrowers to take special steps to qualify.
The help will come as a one-time adjustment to borrower accounts, some of whom have been making payments for decades. The adjustment will revise their accounts so that more of their payments count toward the required number of payments needed to qualify for loan forgiveness.
The adjustment could benefit millions of borrowers, eliminating outstanding balances for some and moving many others closer to canceling their remaining debt, the Department of Education said when it announced the plan nearly a year ago.
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Some background: Means-tested amortization plans allow student loan borrowers to make lower monthly payments — in some cases as low as zero dollars — based on their income and family size. Because payments are low, they don’t often make a big dent in the loan balance. But after payments over 240 or 300 months (20 or 25 years), depending on the specific plan, the remaining debt qualifies for forgiveness.
Now, under the new program, borrowers’ accounts will be reviewed and updated, and credit will be given for months that previously didn’t count toward the maximum repayment period — such as certain periods of deferment or deferment, when borrowers pause payments due to financial hardship. setbacks. (Periods when a loan was in default do not count.)
Based on the adjustment, some borrowers who have reached the necessary threshold have already been notified that their loans have been forgiven, a spokesperson for the Ministry of Education said in an email Thursday. More than 3.6 million borrowers will receive at least three years of forgiveness credit, the Federal Student Aid Office said.
The adjustment will apply even to borrowers who were not enrolled in income-driven plans, acknowledging that many were unaware of their options or were inappropriately turned away by their loan managers, the Department of Education said. In addition to correcting “historical inaccuracies,” the department said, it will create a new payment counting process to avoid future problems. An online tracker is expected to become available this year.
The one-time revision applies to all federally held student loans, including Plus Loans, available to graduate students and parents to help them pay for their children’s college.
Most account adjustments happen automatically, according to the Department of Education, but there are some exceptions. Older commercially held loans, such as Perkins loans and some made under the Federal Family Education Loan Program, may qualify for the one-time adjustment, but borrowers must first apply to consolidate them into a new direct federal loan. loan. These borrowers can now apply for a consolidation loan until the end of the year, the department spokesman said; previously the deadline was May 1.
Borrowers with one-time payment adjustments that make them eligible for automatic loan forgiveness through the Public Service Loan Forgiveness program will be notified first, the spokesperson said. After adjusting those accounts, the department then expects to adjust accounts for borrowers who qualify for forgiveness under means-tested repayment rules. The federal aid agency has said adjustments will be made this summer.
“Borrowers who qualify for forgiveness will continue to receive discharge once they reach the required months of payments,” he said, “and will not be repaid.”
Ashley Harrington, a senior advisor at the Federal Student Aid Office, asked borrowers to be patient, and she suggested checking the government’s income-based repayment website for news. (The site doesn’t necessarily flag updates, so borrowers should read carefully.) Harrington made her remarks on March 7 during a webinar hosted by Betsy Mayotte, the founder of the Institute of Student Loan Advisors, a nonprofit organization that provides student loan advice.
The recent avalanche of student loan amortization proposals, while welcome, has been hard for people to keep up with, Mayotte said, adding, “It’s really created a lot of confusion among borrowers.”
Here are some questions and answers about the income-related payment adjustment:
If the US Supreme Court strikes Biden’s loan cancellation program, will the income-driven adjustment program continue?
Yes, according to student loan advisers; the programs are separate. The plan under review by the Supreme Court would forgive as much as $20,000 in student debt for eligible borrowers. If the judges reject that plan, the loan adjustment plan will remain available, Mayotte said. And if the court lets the president’s cancellation plan go ahead, she said, borrowers may be able to benefit from both programs.
Will there be a new income-related repayment plan?
Yes. The Biden administration has proposed a new, more generous plan to replace current income-driven plans, to simplify things for borrowers. The administration has said it aims to make some parts of the new plan available this year.
If I consolidate my loans to get the adjustment, won’t the loan forgiveness clock be reset?
No. Normally, a risk to consolidating student loans is that the forgiveness clock is reset to zero and borrowers have to start over building credit to cancel their balances. But that’s not going to happen under the adjustment plan, Harrington said during the webinar.
However, there are other important factors to consider before consolidating. For example, the interest on your new loan may be different and your monthly amount may change.
More importantly, borrowers who consolidate federally held loans with loans that are not federally held to qualify for the adjustment may no longer qualify for the one-time debt relief plan being considered by the Supreme Court, said Abby Shafroth, an attorney at the National Consumer Law Center and an expert on federal student loans.
Borrowers who only have loans that are not administered by the federal government should “strongly consider” consolidating into a new federal loan before the deadline for the one-time adjustment, she said, because they wouldn’t qualify for the debt relief plan anyway. $20,000.
For a smaller group of borrowers who have both types of loans (federally and commercially held), the decision is more complicated. One approach, Shafroth suggested, might be to leave their federal loans alone and just consolidate their commercial loans into a new federal consolidation loan. With the consolidation deadline extended, borrowers have more time to weigh their options and perhaps consider the impact of the Supreme Court ruling, which is expected in the coming months.
How do I know if my loans may qualify for the special adjustment?
One way to find out, Shafroth said, is to confirm whether your loan payments have been suspended during the COVID-related break that began in March 2020. If so, your loans probably qualify. If you are still billed by your loan manager, your loans are not federal and you may need to apply for a consolidation loan.
Will the adjusted loan payments also count towards the public loan forgiveness program?
Yes. Many borrowers filed in the fall for temporary forgiveness under the public service program, which forgives student debt after 10 years of amortization for borrowers who work in government or nonprofit jobs. But if they missed that window to get payments that wouldn’t normally qualify for forgiveness, they could take advantage of the means-tested adjustment, Mayotte said, as long as the borrowers were in qualifying jobs at the time of those payments.
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