If you are one of the 43 million Americans who have student loan debt, you may be wondering what exactly has been going on with student loans since COVID began. Throughout these 3 years, borrowers have been hearing many different things regarding their student debt. It all started when student loan payments were initially paused on March 13th, 2020, as the Trump administration extended student loan forbearance under the CARES Act. During this time, interest on the loans was changed to 0% to avoid balances increasing while payments were not being made.
Over two and a half years after the initial pausing of payments in 2020, the Biden administration released applications on October 14th, 2022, for potential student loan forgiveness. The forgiveness plan was as follows:
Eligibility
- Income Qualification:
- Individual AGI (Adjusted Gross Income) > $125,000
- Household AGI > $250,000
- Forgiveness Amount Qualification:
- Pell Grant Recipients - Forgiveness of up to $20,000 in debt held by Department of Education.
- Non-Pell Grant Recipients - Forgiveness of up to $10,000 in debt held by the Department of Education.
The Biden administration had continued student loan forbearance, and moved for outright forgiveness under the HEROES Act, a post-9/11 act that grants the president the right to waive/forgive student debt in connection with a war, military operation, or national emergency. After a prolonged legal battle determining whether Biden had the ability to grant forgiveness, this case went to the Supreme court to make the ultimate decision.
On June 30th, 2023, the Supreme Court ruled in a 6-3 majority that this was an unlawful exercise of presidential power since it had not been explicitly approved by Congress. This decision leads to the question many student loan borrowers have: what now?
Going Forward
Finding Your Student Loans - Step one is to identify where your student loans are held. Many borrowers may be unaware of where their student loans are currently held, as during COVID their loans could have shifted to a new loan provider. If your loans are through the U.S Department of Education, follow the steps below to find out who your current loan servicer is:
- Sign into https://studentaid.gov.
- Scroll down to “My Loan Services” and click on “View Servicer Details”. This will provide you with the company servicing your loans.
- Go to your servicer’s website and create an account. Once you have created your account, you will be able to access your student loans.
- On your servicer’s website you will be able to make payments, set up payment plans, etc.
Student Loan Interest - Student loan interest will resume starting on September 1, 2023. Congress recently passed a law preventing further extensions of the payment pause.
Student Loan Payments - Required student loan payments will begin in October. There has yet to be a determination on exactly when in October, as this is determined by your individual student loan servicer and will heavily rely on when they send out their first statement.
Exceptions - If you are currently still enrolled in school and have unsubsidized loans, your interest will start accruing on September 1st, but you will not be required to make payments until you are finished with school. Typically, there is a 6-month grace period from the point of finishing school and when payments start.
I Can't Afford My Upcoming Payments
Many borrowers may find they can’t afford their standard monthly payment when payments restart in October. Listed below are a few of the options borrowers can select when looking at loan repayment:
Graduated Repayment Plan - Payments start off low and gradually increase every 2 years until the loan is fully paid off in the term that was selected. Terms for these loans can vary anywhere from 10-20 years.
Extended Repayment Plan - These loans must be held with a direct loan borrower and be larger than $30,000. Payments may be fixed or graduated, with the term being up to 25 years.
Income Based Repayment Plan - *Requirement (Must have a high debt relative to your income) - Monthly payments can be either 10% or 15% of discretionary income. Payments are recalculated each year based on your updated income and family size. Depending on when you received your loans, the outstanding balance will be forgiven if you haven’t repaid your loan in full after 20/25 years. You may be subject to income tax on the amount that is forgiven. These payments will never be more than the 10-year standard repayment plan but typically you will pay more overtime than you would have under the 10-year standard plan.
Saving on a Valuable Education (SAVE)
Following the Supreme Court’s decision, the Biden Administration is developing the SAVE program which will replace the REPAYE (Revised Pay-As-You-Earn). The full details of this plan have not been announced yet, but the following information has been released:
- Temporary Grace Period – borrowers to enroll in a "temporary 12-month on-ramp” grace period from Oct. 1, 2023, to Sept. 30, 2024. Missed payments will not immediately harm a borrower’s credit.
- Discretionary income – Under REPAYE there was a 10% cap on discretionary income when determining a borrower’s payment. SAVE will lower this to a 5% cap.
- Interest – The Department of Education will stop charging monthly interest not covered by the borrower’s payment on the SAVE plan, so that borrowers will no longer see their loans grow due to unpaid interest.
There is still more information to come within regards to the new SAVE program which will not fully go into effect until July 1st 2024.
In Closing
Clearly, student loans have gone through a number of changes in the post-COVID years. However, with the Supreme Court’s recent decision and Congress’ ending of further payment extensions, the path forward for student loans seems a little more certain. Your team at Impact Wealth Planners will remain aware of any future developments in this area and be sure to provide additional updates on the topic, as necessary.
Sources:
https://studentaid.gov/manage-loans/repayment/servicers
https://www.investopedia.com/bidens-save-student-loan-relief-plan-7556263
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