5 Ways Student Loan Borrowers Can Get Ready For Changes This Year As Loan Forgiveness Fad
Just as President Joe Biden wraps a mixed legacy of student loan forgiveness, President-elect Donald Trump prepares for a return to the White House in less than two weeks. He will be taking over a federal student loan system in the middle of unprecedented turmoil.
Biden has scored some major successes in the form of, for example, absolutely overhauling the Public Service Loan Forgiveness and Total and Permanent Disability Discharge programs, as well as making more borrowers eligible for loan forgiveness under income-driven repayment, or IDR, than ever before.
But Biden was eventually compelled to scrap multiple student loan forgiveness programs. And SAVE, which is the central piece of his agenda on student debt relief, is on life support, facing a legal challenge.
In the meantime, millions of borrowers remain trapped in something like forced forbearance, and others are in default and about to feel the fist of the federal government’s draconian collections powers.
While the environment may feel uncertain (or worse), it’s not too late for borrowers to take some steps to avoid worst-case scenarios when it comes to their student debt. Here’s what you can do, beginning this month.
Prepare For Repayment Without The SAVE Plan Or Mass Student Loan Forgiveness
Not all student loan forgiveness programs are going away. Public Service Loan Forgiveness, TPD Discharges, and borrower loan forgiveness under the Income-Based Repayment plan continue to be available today. But borrowers should proceed with the understanding that mass student debt cancellation — programs that would instantly discharge this obligation for millions of people in a single sweep — is not going to happen.
Now, the Biden administration has officially abandoned plans for loan forgiveness for borrowers who have so-called runaway interest, borrowers who first entered repayment over 20 or 25 years ago, those who attended so-called low-value institutions, and borrowers who are facing personal hardship and financial distress.
These initiatives are unlikely to be revived by Trump, who will soon be back in the White House (later this month). And the SAVE plan now increasingly seems doomed, likely to be swept from the books either by the courts or by the incoming Trump administration.
So, the SAVE plan aside, means borrowers will need to take a hard look at the available repayment plan options for their student loan. These options include various methods for spreading out the loan payments to pay off the balance over time like Standard, Extended, and Graduated plans.
In general, the longer the repayment term on those plans, the lower the monthly payments, but the more a borrower ultimately pays in total over time, due to additional interest that must be repaid over the longer repayment term. And there are other I.D.R. plans to look to as well, which link borrowers’ monthly payments to their income.
Think Twice Before Seeking Student Loan Forgiveness Under I.D.R. Plans
Some borrowers may want to seriously consider IDR plans if they aren’t already enrolled. Those who have remained stuck in the AVE plan forbearance may also want to, someday, begin preparing to transition to a different IDR plan, given that the SAVE plan may not exist for long.
In addition to the IBR plan, the Biden administration recently moved to make ICR and PAYE plans available again. These are all IDR options. However, all these plans have different benefits, unique repayment calculations, and eligibility requirements that could prevent borrowers from enrolling, depending on the IDR plan in question.
Payments under any of these plans can be much more than they would be under the SAVE plan. You need to know which plan works for your individual situation. The Education Department has a loan simulator tool that you can use to estimate your monthly payments under different scenarios.
Though borrowers have time until 2025 to start repaying their debt, and hundreds of thousands have already been granted forgiveness, now may be a good time for borrowers to consider things about their income and tax filing status ahead of 2025, especially IDR plans, as tax season approaches. IDR plans typically base monthly payments on the adjusted gross income, or AGI, number from the federal tax return.
Borrowers should work with a tax adviser on whether they can take steps to lower their AGI — by, for example, contributing more to retirement, or filing taxes separately from a spouse — in a way that could lower their AGI and therefore their student loan payments under IDR plans.
See If You Receive Extra Credit Toward Student Loan Forgiveness Under IDR Account Adjustment
The IDR Account Adjustment is one of the Biden administration’s more successful student loan forgiveness efforts. This program, which was launched in 2022, is intended to fix longstanding issues with IDR plans that stopped many borrowers from advancing toward 20- or 25-year loan forgiveness.
The “on-ramp” initiative lets the Education Department give borrowers credit for time spent toward their IDR loan forgiveness threshold that may otherwise not have counted, including payments made under other types of repayment plans and certain periods of deferment and forbearance.
Millions already received loan forgiveness under the program. And right now, the Education Department is finalizing the implementation of the account adjustment. Those who don’t qualify for immediate loan forgiveness could still receive what is called a “bump” that credits them toward their progress in income-driven repayment, or IDR, loan forgiveness in 20 or 25 years, shortening the time left in repayment.
Borrowers will need to watch for communication from the Education Department or their loan servicer over the next few months because the department should have detailed information available to borrowers about how much IDR credit they have — and how many months or years remain before they qualify for student loan forgiveness.
This can help borrowers prepare and plan for the remaining time they will spend in repayment. Some servicers may have this info already, so borrowers can reach out to their loan servicer; just note, that servicer information may not yet be updated or reflect the final “count” under the adjustment, as the IDR Account Adjustment is still being implemented.
You can do a PSLF Check-Up If You Want Public Service Loan Forgiveness
Those applying for student loan forgiveness under the PSLF program may be especially worried about the current upheaval. Millions of PSLF borrowers paying under SAVE would have benefitted from the decision, but will instead remain in forced forbearance as the legal challenges to the SAVE plan continue, unable to make any forward progress to ultimate loan forgiveness while accruing undue interest.
Others aiming for PSLF can’t do so if they’re not able to enter an IDR plan, since IDR processing has been largely interrupted since August due to the block on SAVE under the injunction specifically blocking the SAVE plan. And, because it can’t make matters too easy, the PSLF system recently went through a servicing platform transition to StudentAid. gov system that was just finished last summer, leading to some residual processing delays.
This is a perfect time for PSLF borrowers to review their progress, and ensure everything is in place as they keep moving forward with their student loan forgiveness application. Actions should include:
View your PSLF Tracking information at StudentAid. gov to verify that all payments were appropriately credited.
If it’s been six to 12 months since you last certified your employment, you can use the PSLF Help Tool to certify your employment. This is the only way your PSLF payments can count toward the 120 months needed for loan forgiveness under the program.
An important part of tracking your progress starts before your PSLF qualifying payments stop: Get in the habit of monitoring your PSLF qualifying payment count. If you notice a problem, you can request a review through the PSLF Reconsideration portal, but you must do it within 90 days of receiving a letter about qualifying payments or qualifying employment.
Assess if you’re on the right repayment plan for PSLF, especially since the SAVE plan forbearance (which doesn’t count toward loan forgiveness) is in effect for the time being.
Make it a practice to periodically download and save key records, including your PSLF Tracking details from StudentAid. gov, important letters and notices, and your payment history from your current loan servicer.
By keeping tabs on PSLF progress, borrowers might be better positioned to spot mistakes that could lead to the troubled program inadvertently denying them the possibility of student loan cancellation, and undercut the likelihood that — despite all the continued upheaval — they’ll eventually be able to access student debt relief through the program. So far more than a million borrowers have been approved.
Default To On Track For Loan Forgiveness
As early as this month, the Education Department’s vast collections apparatus will begin to slowly reactivate after a nearly five-year freeze. That will put federal student loan borrowers in default squarely in the government’s sights. Borrowers who default on their federal student loans could soon be the target of draconian measures, including negative credit reporting, massive collections costs and penalties, administrative wage garnishment, interception of federal tax refunds, denial of new federal student aid, and even offset of Social Security benefits.
The good news
Borrowers who default on their federal student loans have a number of options — including Direct loan consolidation and federal student loan rehabilitation — that can restore their loans to good standing after default. That could enable them to enter IDR and PSLF, and, one day, have a chance at student loan forgiveness. It is now time for defaulted student loan borrowers to assess their options for resolving default and begin taking steps to bring their loans back into good working order.
