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Student Loans

Student Loan Relief Extended With More Changes to Come

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The Biden administration has extended its moratorium on federal student loans until August 31, 2022. This means that until the August 31 deadline, student loan borrowers will not be required to make their regular student loan payments and their loans will not accrue interest.

While this extension was anticipated, many were surprised by an announcement from the U.S. Department of Education that they will also be using the period from now until August 31 to implement a forgiveness plan for those student loan borrowers in default. This plan will allow all borrowers to start with a clean slate when forbearance ends.

Why Has the National Period of Forbearance on Student Loans Been Extended?

Alarms have been growing over how the U.S. economy will be impacted when student loan repayment resumes. Over 40 million Americans carry student loans. Of those, nearly 7 million borrowers are in delinquency or default. Although most Americans have returned to work, record inflation and financial loss during quarantine pose challenges for financial recovery.

According to the Biden administration, analysis of recent data from the Federal Reserve indicates that millions of these borrowers would “face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability.”

What Makes This Period of Student Loan Forbearance Unusual?

More than 40 million federal student loan borrowers were set to resume repayments on May 1, 2022. This would have marked the end of a national forbearance on student loan payments that was implemented as part of a COVID-19 relief package in March 2020. During this special grace period, student loan borrowers have benefited from:

  • No mandatory payments on federal student loans
  • 0% interest on federal student loans
  • No collection of federal student loans in default

Originally, this forbearance was set to end January 31, but it was extended through May due to an increase in COVID cases related to the Omicron variant.

Many have called on President Biden to cancel student loan debt altogether. Instead, the president has signed a new executive order designed to make repayment easier for borrowers.

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How Is the Biden Administration Changing Student Loan Repayment?

Although President Biden has said he will not cancel student loan debt, his administration is working to make the transition back to repayment easier for borrowers. Some of the biggest changes so far surround income-driven repayment plans and Public Service Loan Forgiveness.

Income-based repayment plans set a borrower’s monthly payment at between 10-20% of their monthly discretionary income.

Borrowers Can Self-Report Their Income

Income-driven repayment (IDR) plans base your monthly loan payment on your income. There are currently four IDR plans, but they all work similarly: borrowers report their income and the Department of Education calculates their monthly payment. Most borrowers pay 10-20% of their monthly discretionary income (what’s left after you’ve paid for essentials like food and rent).

Borrowers must qualify for IDR plans based on their income and the size of their family. Until now, borrowers have had to submit a recent federal tax return, pay stubs, or a letter from their employer to prove their income and family size.

However, now the Department of Education is allowing borrowers with Direct Loans to self-report their income for the first half of 2022. In simple terms, borrowers will not have to provide documentation to be approved for IDR, which will help them get approved faster.

More Time to Recertify Income

Another big change to IDR plans is that those currently enrolled in the program won’t have to recertify their income until August 22. If you’re on an IDR plan, you can also choose to self-report your income through July 31 to be re-approved. (Self reporting will no longer be available after July 31.)

Limited PSLF Waiver Program

The Public Service Loan Forgiveness (PSLF) program forgives a portion of a borrower’s student loans after they have made 120 qualifying payments while working full-time for an approved employer. Approved employers include U.S. federal, state, local, and tribal governments. They also include some nonprofit organizations, AmeriCorp, and the Peace Corps. Qualifying payments are usually defined as full, on-time payments, and full-time work is defined as at least 30 hours per week at the same job.

In October 2021, the Department of Education announced temporary changes to PSLF rules to include borrowers with FFEL and Perkins loans.

However, in October 2021, the Department of Education announced temporary changes to PSLF rules to include borrowers with FFEL and Perkins loans, which previously did not qualify.

Borrowers can also receive credit for past periods of repayment that usually would not count toward the 120 payments required for PSLF. For instance, payments made before enrolling in the PSLF program now count toward the required 120 qualifying payments. Active duty time will also count toward PSLF for members of the military, and late and partial payments will also count.

The Department of Education is allowing borrowers with Direct Loans to self-report their income for the first half of 2022.

A full list of temporary changes to the PSLF plan can be found on StudentAid.gov.

Will President Biden Make More Changes to Student Loans?

The Biden administration is approaching student loan reform as an ongoing project. During his election campaign, President Biden outlined a number of changes he wants to see, some of which he is still negotiating with Congress.

A Single Federal Student Loan Portal

On December 13, 2021, President Biden signed an executive order directing many federal agencies (including the Department of Education) to streamline their customer service functions. One result is a new payment portal on the official federal student loan website (StudentAid.gov) where borrowers will be able to manage all their loans in one place.

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Currently, borrowers can view their loan information and apply for income-driven repayment or loan consolidation using the StudentAid.gov website. However, they may have to visit two or more other websites to make payments or apply for different repayment programs. This is especially true for borrowers with multiple loans managed by different loan servicers.

But using the new portal, they will be able to manage everything from one central location. This includes:

  • Applying for new loans
  • Managing current loans
  • Making payments
  • Applying for income-driven repayment
  • Applying for loan consolidation

The Department of Education has been working on this portal for years, but has not confirmed a launch date.

Using the new portal, borrowers will be able to manage everything from one central location.

Smaller Payments for Income-Driven Repayment

Income-based repayment plans set a borrower’s monthly payment at between 10-20% of their monthly discretionary income. However, during his presidential campaign, Biden proposed changing income-based repayment plans so borrowers would only pay 5% of their discretionary income.

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Not only would this allow borrowers to keep more of their money each month, but it would enable more borrowers to qualify for income-based repayment. Currently, any borrowers can apply for IDR plans. However, if your monthly IDR payment is equal to or higher than your monthly payment on the standard repayment plan, you do not qualify for IDR.

The Takeaway

While complete student loan forgiveness looks unlikely, the Biden administration seems determined to streamline processes for and open access to programs that will make repayment more manageable. In the meantime, loan consolidation and student loan refinancing remain good options for some borrowers who may not benefit from current student loan reforms.

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