Changes to Student Loans
By: Michael LeForce
Q: There have been so many changes to federal student loans over the last few years, and I’ve heard there are more coming. As a college graduate with a federal student loan, what do I need to know about these changes and how will they affect my payment plan?
A: Student loans have undergone quite a few changes over the last few years. Backtracked statements and moving rollout dates have only made the headlines more confusing. As a borrower, though, it’s important to keep up with these changes and stay informed about how they will impact you. Here, we’ve outlined the important changes you need to know about and included steps you might need to take to benefit from these adjustments.
A brief overview of recent student loan changes
First, let’s take a look at the timeline of student loan changes of the last few years:
- Mar. 2020 - Forbearance (a temporary pause) on student loans is enacted by the federal government in response to financial hardships caused by the coronavirus pandemic.
- Apr. 2022 -The Education Department announces an Income-Driven Repayment (IDR) plan and Public Service Loan Forgiveness (PSLF).
- Oct. 2022 - Congress passes the Joint Consolidation Loan Separation Act.
- June 2, 2023 - A debt-ceiling deal is passed by Congress. A provision in this deal prevents any further payment pause extensions on federal student loans.
- June 30, 2023 - President Biden’s proposal to erase up to $20,000 in federal student loans is struck down by the U.S. Supreme Court.
- July 14, 2023 - The Education Department announces that the first major wave of loan forgiveness is coming for over 804,000 borrowers.
- July 30, 2023 - Parts of the IDR plan went into effect.
- Sept. 1, 2023 - Interest on student loans resumes accrual.
- Oct. 1, 2023 - Student loan payments resume.
- July 1, 2024 - The rest of the IDR plan goes into effect.
Forbearance ending on Oct. 1, 2023
After more than three years of student loan pauses, payments are set to resume this October. In the meantime, though, interest will begin accruing again on Sept. 1. Borrowers who’ve grown accustomed to skipping their monthly payments will need to readjust their budgets for these “new” bills.
Steps to take: If you have an open student loan, prepare for the change in your budget instead of waiting until it hits you by surprise. Review your budget to see whether you have room for this new expense or if you need to make some major adjustments. If you are unsure of how much your monthly payment will be, contact your loan servicer now to find out.
PSLF account adjustment, or waiver
On July 14, the Education Department announced that loan forgiveness is coming for more than 804,000 borrowers who’ve been paying off their student loans for at least 20 years. In total, close to $39 billion in student debt will be automatically wiped out with this adjustment. Millions more borrowers will have three years of additional credit toward forgiveness under the new plans when their accounts are updated next year.
If you’ve been steadily paying off a student loan for at least 20 or 25 years (including forbearance) you’ll be student debt-free after the adjustment. If you borrowed less than $12,000, you’ll be debt-free even if you’ve only been paying off your student loan for 10 years.
Steps to take: The adjustment is mostly automatic. However, if you have a loan from the Federal Family Education Loan (FFEL) Program, Perkins or Health Education Assistance Loan (HEAL) Program, you must apply to consolidate them at StudentAid.gov by the end of 2023 to enjoy the full benefits of this adjustment. The consolidation process can take a while, so get started as soon as you can.
A new IDR plan
The existing income-driven REPAYE plan is being replaced by a new, broader plan called Saving on A Valuable Education, or SAVE. SAVE is expected to halve the monthly payments for many borrowers.
Steps to take: Borrowers can sign up for this new plan before forbearance ends this fall. However, the full plan will not take effect until July 2024. If you are already enrolled in the REPAYE plan, your loan will automatically be moved into the SAVE plan in October.
Also, if you qualify for the PSLF waiver above, but you’ll have a balance remaining after the adjustment, you’ll need to sign up for an IDR plan when payments resume this fall to keep building credit toward loan forgiveness. If you believe you are in this category, be sure to contact your servicer to get your paperwork submitted soon. This way, it’ll be set up to go into an IDR plan as soon as forbearance ends.
Student loan servicer switches
In April 2023, the Education Department signed contracts with five federal student loan servicers, which are expected to go live in 2024. Eventually, the department plans to launch a central servicer portal at StudentAid.gov, but for now, it’s important to know the name and contact info of your servicer. If the department transfers your loans to another servicer, your current and new servicers will notify you of the change.
Steps to take: Make sure your contact information is up to date with your current servicer.
Other student loan changes underway
There are several other changes underway for student loans:
- Fresh Start program for delinquent or defaulted loans. Borrowers with past-due loans now have more opportunities to get them back on track through the new “Fresh Start” program. Eligible borrowers must sign up for Fresh Start within one year of the end of forbearance on myeddebt.ed.gov or by calling the Education Department at 800-621-3115.
- Updated bankruptcy guidance. The departments of Education and Justice jointly released updated bankruptcy guidance in November 2022 to standardize the requirements for borrowers to discharge their federal student loans in bankruptcy.
- Joint Consolidation Loan Separation Act. Passed in October 2022, this law allows consolidated student loans of spouses to be separated so that each partner can access debt relief for their loan.
Use this guide to stay informed on recent student loan changes.