Student Loan Pause Extended and Student Loan Forgiveness Coming for Many Borrowers

Attention student loan borrowers! Today (August 24, 2022) President Biden announced the official word that the payment pause on federal student loans has been extended for the seventh time! The administrative forbearance is now set to expire on December 31, 2022. During these remaining months:

• Loan payments continue to be suspended on federally-held student loans and set to resume on January 1, 2023
• The interest rate remains at 0% until the end of the payment pause;
• Months during the administrative forbearance continue to count towards the 120-payment count for qualifying borrowers working towards Public Service Loan Forgiveness (PSLF) and 20 or 25 years required for income-driven repayment forgiveness.

Student Loan Forgiveness The administration also announced student debt cancellation to borrowers with loans held by the Department of Education. Who Qualifies for $20,000 in Loan Forgiveness? Borrowers with annual income during the pandemic of under $125,000 (for individuals) or under $250,000 (for married couples or heads of households) who received a Pell Grant in college will be eligible for up to $20,000 in debt cancellation. Who Qualifies for $10,000 in Loan Forgiveness? Borrowers who met those income standards but did not receive a Pell Grant will be eligible for up to $10,000 in relief. How do I claim the student loan forgiveness? There will be an income verification process. The Department of Education will be announcing further details on how borrowers can claim this relief in the weeks ahead. The application will be available no later than when the pause on federal student loan repayments terminates at the end of the year. This forgiveness will eliminate student loan debt for about 12 million borrowers out of the 43 million current federal loan borrowers. Public Service Loan Forgiveness – Limited PSLF Waiver Additionally, the Department is proposing long-term changes to the Public Service Loan Forgiveness (PSLF) program that will make it easier for borrowers working in public service to gain loan forgiveness. U.S. federal, state, local, or tribal government employees, or those who work for not-for-profit organizations, and have federal student loans—may benefit from loan forgiveness after 120 months of repayment. The Limited PSLF Waiver provisions, which allow federal borrowers to get credit for past time in repayment that previously was not qualified, is set to expire on October 31, 2022. Federal Family Education Loan (FFEL) or Federal Perkins loans must be consolidated into the Federal Direct loan program and the PSLF form submitted to the Department of Education by this date to take advantage of the flexibilities provided by the Limited Waiver. Most Direct Loan borrowers do not need to consolidate and simply must submit the completed PSLF form by the October 31 deadline. More details to come on the proposed changes to the PSLF program. Fresh Start for Some Defaulted Federal Borrowers – Action Needed The Department of Education recently released details on the Fresh Start initiative which was announced on April 6, 2022. Defaulted borrowers of the following loan programs are eligible:

• Defaulted Federal Direct Loans
• Defaulted Federal Family Education Loan (FFEL) Program Loans
  • Note: FFEL loans that defaulted after March 13, 2020 were retroactively returned to good standing due to an announcement back on March 30, 2021, so these loans are not eligible for Fresh Start benefits
• Defaulted ED-held Perkins Loans (not those held by schools)

Immediate benefits of Fresh Start include:

• Ability to apply for federal student aid
• Halted collections
• Opportunity to apply for government-backed loans, including mortgages
• Access to rehabilitate these federal loans in the future, if needed

Eligible borrowers will be notified later in 2022 of the steps required to maintain the above benefits and to take full advantage of Fresh Start, with the chance to get out of default and have the defaulted loans credit reporting updated from in collections to current. This will allow borrowers to utilize income-driven repayment plans, loan forgiveness programs, and short-term relief through forbearance and deferments. Defaulted borrowers must take these two steps:

1. Verify the loan holder has accurate contact information
   • The Default Resolution Group can confirm eligible loans and loan holder
2. Review correspondence from the Department of Education and take the appropriate action no later than one year after the end of the loan pause

For borrowers who will have remaining student loan debt after the promised forgiveness, we would encourage you to take this time to actively prepare for re-entering repayment in January. Get your finances in order, reach out to your loan servicer to understand your repayment options, and start setting aside your anticipated student loan payment in a savings account. This voluntary monthly savings will help your budget adjust to eventual required monthly student loan payment, and, as the forbearance winds down, the balance saved can be used as a lump sum payment to eliminate a portion of your student loan debt before it begins accruing interest again. This strategy will save you money on interest paid over the remaining term of your loan and may potentially reduce your monthly payments going forward. Look out for further updates on how you can take advantage of loan forgiveness and prepare for repayment in 2023.