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Student Loan Forgiveness Part Deux

man with money on his face and sunglasses

Hey kids! I am writing a follow up to the student loan saga of 2023. The original post is here if you want to read up on the first plan by the Biden administration, as well as how to consolidate your loans.

I'm sure you are aware that the student loan forgiveness program was struck down by The Supreme Court. They think that Congress is the only entity that should provide student loan relief. Which sucks because Congress can't seem to pass anything these days and all they do is argue.

Hopefully someday, we will have a Congress that can make decisions and compromise with each other, like normal humans. Until that day comes, students will be stuck with the ridiculous system we have that compounds interest and lines the pockets of the servicers.

Yay Capitalism!! LOL

Anyways, back to student loans that you still have!

I've received a few emails from the DOE explaining what happened and the steps being taken in light of the forgiveness program being denied. Here's a quick list of what's happening, along with some links to articles that have some great detail on any section you're interested in looking into further. Although the forgiveness program being shot down is a bummer, we knew it was going to happen. However, the good news is this administration had a backup plan and there are some really great pieces to the new plan that will be financially beneficial to many Americans!

There will not be a generic forgiveness amount for anyone

  • No one will get the $10,000 forgiveness for all loans, or the $20,000 that was listed for Pell grant recipients. This forgiveness amount is dead and buried.

The automatic pause on payments will end

  • Your loans will begin accruing interest again on September 1, 2023

  • Your loan servicer will contact you with the due date for your first payment, which will be due sometime in October 2023.

There will be a payment ramp up timeframe

  • The DOE is not going to have any negative penalties or default actions for the first 12 months after repayment begins. If you do not pay your loans for the first year, it will not have a negative effect based on what is being stated. However, this doesn't mean that the payments expected will go away. You will still have those 12 payments expected. I assume if you don't pay, it will roll over each month to the 'current amount due', but will not accrue late fees. It will still accrue interest though. After those 12 months, then the payments would be deemed late and late fees and default status will be reinstated.

A new program will have additional ways to help

  • The new SAVE program is for borrowers with federal loans, including all direct subsidized, unsubsidized and consolidated loans, as well as PLUS graduate loans. Those with Federal Family Education Loans (FFEL) or Perkins Loans that are held by a commercial lender would need to consolidate into a federal direct loan in order to qualify. To consolidate into a Federal Direct Loan, see my post here.

  • The SAVE program with replace the current REPAYE plan. The SAVE plan is an income driven repayment plan that will use the borrower's income to calculate payments against the federal poverty guidelines. The old calculation for REPAYE used 150% of the poverty guidelines to calculate payments. The new SAVE plan will use 225% of the poverty guideline to calculate the payments. What this means is that 225% of the poverty guideline will be protected income. If you make less than 225% of the poverty guidelines, the government will not require any payments towards your loans. An example is a single person who earns less than $32,805 per year will not be required to make loan payments.

  • The new plan will also stop interest from accumulating for borrowers who qualify for $0 payments.

  • Married borrowers who file taxes separately, will not be required to include their spouse's income in their payment calculations.

  • Payments on undergraduate loans will be cut in half from 10%, to 5% of any income over the 225% of the Federal Poverty Level.

  • Original balances of $12,000 or less will receive forgiveness after 120 payments. For each additional $1,000 borrowed over that, 12 months of repayment will be added. The maximum repayment timeframe will be 20 or 25 years.

  • Borrowers who do not make payments for 75 days will automatically get enrolled in the SAVE program if the borrower allowed their tax information to be disclosed to the DOE.

  • Borrowers in default will get access the existing income based repayment plan and have the opportunity to show they qualify for $0 payments during the default.

  • Borrowers will receive credit towards forgiveness based on certain deferments previously taken during the loan. Moving forward, forbearances can offer a credit based on the type of forbearance.

  • Borrowers will receive credit for payments made prior to consolidation based upon an average of the principal balances, rather than having their progress reset.

Whew! That was a lot! But it is all worthwhile good information for anyone holding student loans. Be prepared for payments to resume soon! You will get a buffer of 1 year to mess up and not pay the loans, however I strongly recommend you make those payments so as not to get into trouble down the line. The government can and will take your tax return, garnish wages, and take you to court seizing assets if you don't pay your loans. It also tanks your credit score. So, let's pay what we can or apply for a deferment or forbearance ASAP!

I will make updates if anything significant changes in the above information.

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1 Comment

Aug 05, 2023

Good info, thanks!

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