2023 Student Loan Updates: What You Need to Know and What You Should be Doing Now

by Michelle Clifton, former financial aid officer at Babson College Have you been keeping up with the various changes to the federal student loan program? Let’s review the one-time account adjustment and some permanent upgrades to the Public Service Loan Forgiveness (PSLF) program—both coming this summer. In case you missed it, back in April 2022, the Department of Education announced a one-time account adjustment for Federal Direct Loan and ED-held Federal Family Education Loan (FFEL) borrowers. This is an opportunity that will benefit borrowers for income-driven repayment (IDR) forgiveness and PSLF. A quick refresher on PSLF and IDR forgiveness: Public Service Loan Forgiveness (PSLF) is for borrowers who work full-time for a government or not-for-profit organization(s) and make payments under certain plans on their Federal Direct loans. After 120 months of payments (10 years), any remaining balance is forgiven. Income-driven repayment (IDR) forgiveness is for federal loan borrowers who make payments under an income-driven repayment plan for a long period of time. These borrowers can get their loans forgiven after 20 or 25 years (depending on the plan—did you hear about the proposed IDR changes?) The problem with IDR forgiveness is that there has been no place for borrowers to track their progress, and it seems servicers have not all been tracking accurately either. During this one-time account adjustment the Department of Education will be going back and counting any time a borrower was in repayment (under any repayment plan) as months towards IDR forgiveness. They will start tracking this on borrower’s accounts on the Federal Student Aid websitein summer 2023. Not only will they count time in repayment, but they are counting time in deferment prior to 2013 (however, not in-school deferment) and they are making up for the fact that many servicers were what they call forbearance-steering, where they were encouraging borrowers to take a forbearance when they could have been using an IDR plan to make progress towards forgiveness. Forbearance taken 12 months or more at a time, or 36 months or more cumulative, will also count towards IDR forgiveness, in addition to the time in administrative forbearance under the loan payment pause. This prior time in repayment and/or deferment/forbearance will also count towards PSLF for any months where a borrower was also working full-time for a qualifying employer (government or not-for-profit organization). This is essentially a last chance opportunity for those who missed out on the Limited PSLF Waiver that expired on October 31, 2022. In most cases, this is going to be automatic! However, any borrowers who still have other types of federal loans including privately-held Federal Family Education Loan (FFEL), Health Education Assistance Loan (HEAL), or Perkins Loans must consolidate into the Direct loan program by May 1, 2023 in order to have their loans included in this one-time account adjustment. The consolidation application is available on the Federal Student Aid website. Additionally, for anyone working towards PSLF who has not submitted a PSLF form in the past year, we encourage you to do so by this spring so that when your payment counts are updated this summer, it will include all possible qualifying months for PSLF. The PSLF form can be generated through the PSLF Help Tool. All you need are your dates of qualifying employment and your employer(s)’ EIN which can be found in box b on your W-2. Now let’s review the permanent changes coming to PSLF effective July 1, 2023:

• Full-time is now a flat 30 hours—this is a huge win for healthcare workers!
• Adjunct faculty must be given credit of a minimum of 3.35 hours of work for each credit hour taught.
• They’ve redefined which deferments count as qualifying months towards PSLF. In-school deferment and general forbearance still do not count but there will be an option to have the time counted if a payment is made that is equal to what they would have been if in repayment.
• Time under administrative forbearance is counting towards PSLF (without having to make a payment) as long as borrowers are and have been working for a qualifying employer during this time. If this goes until August 2023, and a borrower has been working full-time for a qualifying employer since the pause started March 2020, that will be 41 months out of 120!
• Consolidation is not going to restart the clock anymore, but they will now take a weighted average of the existing qualifying payments.
• Contractors who provide services that cannot be provided by employees due to state law can have the qualifying employer certify their employment.
• A formalized process to request a review for reconsideration if errors have been made.

The federal loan payment pause is currently set to end by August 2023 or earlier—what can borrowers be doing now?

• Borrowers should take a moment to confirm what type of loans they have and who is servicing them. There have been so many changes in the past year for federal loans. Log into the Federal Student Aid website and review each loan and confirm the servicer, loan type, and amount. For those who have a new servicer, create an account on their website and confirm both the servicer and FSA have up-to-date contact info.
• Use the Loan Simulator to estimate monthly payments to start planning.
• Remember, federal loans under the loan payment pause are still set to 0% interest so any payment now will go towards the principal balance and for those not using an income-driven repayment plan, bringing down the principal can lower the monthly payment that will be recalculated once loans finally do go into repayment, save interest over time, and help make repayment more manageable. If you can tackle it during this time, make it a priority or if you have higher interest debt like credit cards, take care of those now so that you can focus on your student loans with a little less stress when the time comes.