Biden this week rolled out new flexibility for student loan payments. Here’s what you need to know

Many student borrowers will soon have an easier path to debt cancellation, after the Biden administration announced several changes to income-driven repayment plans.

The changes, announced earlier this week, include permanent updates to the Public Service Loan Forgiveness Program (PSLF) and adjustments to the number of payments for millions of borrowers on income-driven repayment plans .

About 30% of all student borrowers are enrolled in income-based payment plans, which are supposed to protect borrowers from unaffordable debt by linking monthly payments to income. After 20 or 25 years of payments, depending on the plan, any remaining debt is forgiven. Thanks to the cancellation of civil service loans, borrowers working in the public sector can see their loans canceled more quickly – after 10 years of payments.

But borrowers have struggled to navigate both schemes, with many missing out on the benefits due to complicated rules. These changes are intended to address these issues.

The updates announced this week are entirely separate from the one-time student loan forgiveness program announced by President Joe Biden in August, which aims to provide up to $20,000 in student debt forgiveness to eligible federal borrowers (you can read more about how to apply for this program here).

They also only apply to student borrowers, not Parent PLUS loans.

Here’s everything you need to know:

Public sector workers should submit their documents for loan forgiveness as soon as possible

The temporary civil service loan forgiveness waiver – a series of rule changes implemented a year ago to help borrowers by streamlining an arduous and complicated process – will expire on October 31.

Under the tax holiday, loan payments that were previously considered ineligible for the PSLF program (because the borrower held the wrong type of loan or were in the wrong type of payment plan) are considered. for cancellation.

The Department of Education says some 236,000 borrowers have so far received more than $14 billion in forgiveness under the limited waiver. Last year, the agency estimated that more than half a million borrowers could benefit from the program.

If you have student loans and have worked for an eligible employer (this includes all levels of government, as well as schools and nonprofits), you should complete the waiver paperwork as soon as possible. Borrowers with older private loans will need to consolidate their loans first, then all borrowers will need to complete what is called the Employment Certification Form. Read this guide from the Department of Education for a breakdown of the steps.

While many benefits of the limited waiver will be extended through changes announced this week (more details below), the Department for Education says there are two reasons why public sector workers should act before the Monday deadline.

First, borrowers will no longer be able to count the same period of public service work for teacher loan forgiveness and public service loan forgiveness after the waiver expires.

Second, borrowers will need to be employed by a qualifying employer to be eligible for their loan discharge after the waiver expires. In other words, the waiver makes borrowers eligible for forgiveness now even if they quit their qualifying job (as long as they worked and made loan repayments for the required 10 years). After Monday, that flexibility expires and borrowers will need to apply for their loan release while still employed at qualifying employment.

Finally, to receive the benefits of the waiver, note that you only need to start, not finish, the process before midnight on Monday.

Borrowers with income-driven repayment plans will get a big boost

From the end of this year, the Department for Education will revise payment numbers for millions of borrowers to move them along the path to forgiveness – potentially years ahead of schedule. In some cases, changes will result in immediate loan forgiveness.

As part of the recount, borrowers will get credit for forgiveness for any month they were in active repayment status, whether their payment was late, the type of loan they had, or the repayment plan they were in. were. The revisions are also designed to give borrowers credit for the duration of their loan forbearance: periods of more than 12 consecutive months or periods of 36 cumulative months will count toward cancellation after the adjustment.

The one-time change was announced in April, but the Department for Education only released details of how it will work this week: Some borrowers will have their loans canceled as early as next month, but most borrowers on repayment plans based on income (who are not eligible for an immediate rebate) will have their payment statements adjusted in July.

Borrowers working towards the PSLF are also eligible for revisions to the number of payments – an extension of what was available under the temporary waiver.

The key? You must have loans held by the federal government to qualify. If you have Federal Home Education Loans (FFEL) or private Perkins Loans, you will need to apply to consolidate them by May 1, 2023.

The permanent evolutions of the PSLF program aim to simplify the program

Rather than extending the limited PSLF waiver, the Department of Education is making permanent changes (some of which were part of the waiver) to the program that will take effect in July 2023.

“We are taking bold steps that will automatically bring the hardest-working public service workers closer to forgiveness and make permanent changes to reduce the bureaucracy that has plagued the PSLF program,” said U.S. Secretary of Education Miguel Cardona. in a press release this week.

These changes include new rules that will allow borrowers to receive PSLF credit on late payments, installments and lump sum payments. They will count more deferment periods (including for cancer treatment, military service, and economic hardship) toward PSLF credit, and they will also make it easier for entrepreneurs to certify their employment to qualify for the program.

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