The Current State of Student Loans

The past couple of years has been a wild ride for federal student loans with rule changes, new opportunities, and court cases. There is still quite a bit left to be determined, but we now have some clarity on what the rules are. I am writing this on May 4, 2023 (keep that in mind because things can change), and here is where things stand on the main issues out there for borrowers (especially teachers) to wade through.

Everyone who has a federal student loan should look at their situation with fresh eyes as soon as possible to see what the best course of action is going forward. We can help you do that with a free student loan review:

Unfortunately, so many have no idea of the opportunities that exist (including full forgiveness) because they happen to be in the right situation.

Biden’s Student Loan Cancellation of $10,000 (or $20,000)

This loan cancellation policy was challenged a few times and two cases reached the U.S. Supreme Court.  The ruling is not expected until June.

It is probably a toss-up although many experts think cancellation will be outlawed due to the more conservative makeup of the Court.

The Dept of Education has stopped taking applications for this cancellation.  If you already applied, you will not have to do it again if the Court allows forgiveness to proceed.  If you haven’t applied, you can’t do it until they open it up again (if that ends up happening).

Payment Pause for Federal Student Loans

“The student loan payment pause is extended until the litigation over the program is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023, payments will resume 60 days after that.”

Assuming the Supreme Court will rule in June, the payment pause will likely not end until mid-August or September 1st.  Unless they change this again, expect September 1st.

They may change it again.  Some say if the Court blocks cancellation they will extend again.

Biden’s “New” Income-Driven Repayment Plan

There are currently 5 income-driven plans.  (ICR, IBR, New IBR, PAYE, REPAYE)

Biden was expected to add a 6th plan.  Instead, he is actually revising the REPAYE repayment plan that President Obama put in effect.  It will become more generous.  Here’s a few details:

• Payments would decrease significantly. 

• Specifically, they would exempt 225% above the poverty line instead of the current 150% when determining income-based payments.

• An individual who makes less than roughly $30,600 annually would still have a $0 monthly payment.  If you are a family of four a $0 monthly payment would be a household income of less than roughly $62,400.

• Couples could decide to file their taxes Married Filing Separately to lower their income when calculating the payment.

• Interest would not accrue on this plan so even someone with a $0 monthly payment wouldn’t see their student loan balance increase.

• If you owe $12,000 or less would receive forgiveness after 10 years instead of the 20 or 25-year forgiveness mark if you have more than that.

• There is more, but there is no need to overwhelm you.

PSLF Waiver

The PSLF Waiver deadline passed on October 31, 2022.  

But, after a few announcements about the IDR Waiver, this has effectively been extended.  December 31, 2023, is the new “deadline.”  Most of the opportunities that existed under the PSLF waiver can still be taken advantage of before the end of the year.

IDR Waiver

IDR Waiver - A plan to immediately wipe out remaining loan balances for many borrowers and cut the years until forgiveness for others.

The Department of Education will increase the payment count for federal student loan borrowers by performing a one-time account adjustment.  It will look back and give credit for any months that a borrower was in repayment status.

Payments on any type of repayment plan will now count toward forgiveness.

Any borrowers with loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if those borrowers are not currently on an IDR plan.

In many cases, if borrowers made qualifying payments that exceed the applicable forgiveness period (20 or 25 years), those borrowers will receive a refund for their overpayment.

This will put people closer to the 20-year (240 payments) or 25-year (300 payments) needed for forgiveness under the income-driven repayment (IDR) plans.

This one-time account adjustment is supposed to happen sometime in 2024.  Originally this was supposed to start happening by November 2022 and be completed by July 1st, 2023.  They are backlogged with so many things.

Borrowers who have commercially managed FFEL, Perkins, or Health Education Assistance Loan (HEAL) Program loans should consolidate their loans to Direct loans by the end of 2023 to get the full benefits of the one-time account adjustment.

The Department of Education finally released its guidance outlining how this will all work after almost a full year after they announced this change.