Get Rid of Your Student Debt, and Get on with Your Life

Use the improvements that the Biden administration is making to the student loan repayment system to create a plan to get rid of your student debt and get on with your life.

Greetings, Talking About Money community.  As always, I am glad that you are here.  🙏🏽

If you are reading this post in the summer of 2023, what a tumultuous time it is.  People are trying to get back to “normal” after the pandemic, weather patterns across the globe are chaotic, inflation and employment are confounding expectations, and the Supreme Court decided that President Biden’s plan to cancel some student loan debt was unconstitutional.  Student loan borrowers have been informed that they will resume payments in October of this year.  The wait is over, and it is time to face reality.

After an almost three-year pause, 44 million Americans who are student loan borrowers are going to experience a major shock to their systems – and finances – as they try to reintegrate student loan payments into their cash flows.  Some borrowers may have taken advantage of the pause to build up their emergency funds or better yet, save for retirement or a down payment on a home.  Others, who were majorly cash-strapped before the pandemic, simply may have breathed a sigh of relief in being able to pay their bills each month.  Regardless, each borrower now needs to make a payment plan and get to work.

Amongst the doom and gloom of student loan repayment, there are glimmers of hope.  This is because while Americans were on pins and needles waiting for the Supreme Court ruling, the Department of Education was working on revisions to the student loan repayment system that might even be more beneficial to current and future borrowers than was the one-time pandemic plan. 

What are the coming changes, you might ask?  Let’s dive in and see what is in store:

First, start planning for your student loan repayment now.

Take some tips from NerdWallet and start getting ready to resume your student loan payments.  Prior to October, make time to identify your student loan servicer by logging into https://studentaid.gov/.  Then reach out to your servicer directly to update your contact information.  While you are at it, ask how much you might owe when payments resume, how much your monthly bills could be, and what payment plans are available to you (like income-driven repayment plans).

If you are worried about how restarting student loan payments might affect you, be aware of the On-ramp Transition Period.

According to a briefing issued by the White House on June 30, 2023, you will have some reprieve in the event that you have trouble fitting your student loan payments into your monthly cash flow.  In a process that will run from October 1, 2023, to September 30, 2024, student loan borrowers who miss monthly payments during this one-year time frame will not be considered delinquent and will not be reported to credit bureaus, placed in default, or referred to debt collection agencies.  Also of note is that while your student loan payments will still be due and accruing interest, interest will not capitalize at the end of the 12-month on-ramp period.  This is an automatic program and you do not need to take any action to qualify for it.

Have you been paying your student loans for more than 20 years?  Be aware that the new Income Driven Repayment (IDR) Account Adjustment might forgive your debt.

Friend of the Blog Adam Minsky, my go-to guide in understanding all-things student loan, has a great explainer in this Forbes piece..  The Income Driven Repayment (IDR) Account Adjustment is a one-time program that will forgive $39 billion in student loan debt for 804,000 borrowers who qualify for it (though it is reported that this number could grow). 

In this program, the Department of Education will provide borrowers with credit toward a borrower’s 20- or 25-year IDR student loan forgiveness term for periods that previously did not count, even if you are not currently enrolled in an IDR program.  For all you do-gooders out there, this credit can also be applied toward Public Service Loan Forgiveness (PSLF) program.  Those of you who qualify for this relief and reach the 20- or 25-year threshold for student loan forgiveness as a result of the retroactive credit under the IDR Account Adjustment, you will see your balances discharged automatically!

Have you been in default with your student loans? The Fresh Start Program might be for you.

As you can already see, the Department of Education in the Biden Administration has been working hard to provide student loan borrowers with relief.  In another piece from NerdWallet, the Fresh Start program aims to help borrowers with loans previously in default by giving them the opportunity to re-enter their student loan repayment in good standing. 

For participants to get the full benefit of this program, you must enroll with the Department of Education's Default Resolution Group by September 2024.  You will first establish a new long-term payment plan, and then your loans will be transferred to a new loan servicer and default marks will be removed from your credit report.  Further, all collections activities will be suspended until the Fresh Start initiative has ended, meaning no more wage garnishment, seized tax refunds and child tax credits, withheld Social Security payments (including disability benefits) and collection calls.

Are you looking for a more affordable payment plan?  The Saving on a Valuable Education (SAVE) Plan replaces the Revised Pay As You Earn (REPAYE) plan and could save you major $$$.

Back to Adam Minsky to learn more about the new SAVE repayment plan.  There are key features that will make your monthly loan payment noticeably lower.  First, this plan exempts more of your income (225% of the federal poverty limit, to be exact) from the program’s repayment formula.  For some borrowers, that will reduce your monthly payment to $0.  Further, the repayment formula will be between 5% and 10% of your discretionary income, depending on your specific mix of undergraduate and graduate school loans.  Finally, the SAVE Plan accelerates student loan forgiveness to as few as 10 years for borrowers with balances of $12,000 or less, then steps up to 25 years for other borrowers.

The SAVE Plan hopes to solve other problems that borrowers face.  For married borrowers, the SAVE Plan will allow them to exclude spousal income from consideration by filing their taxes separately.  To lessen the burden of the annual income recertification, the SAVE Plan will make this automatic.  The SAVE Plan replaces the Revised Pay As You Earn (REPAYE) plan, and its features will roll out starting this summer and will be fully operational by July 2024.  Borrowers who are already enrolled in the REPAYE plan don’t need to do anything; they will be automatically converted to the SAVE Plan.

What’s in the works for the future?  Proposed amendments to the Higher Education Act might create a whole new student loan forgiveness plan.

Finally, not to rest on their laurels, the Department of Education is promoting a bill to amend the Higher Education Act called the LOAN Act, “To amend the Higher Education Act of 1965 to double the Pell Grant award amount, improve the Public Service Loan Forgiveness program, and reduce interest rates, and for other purposes.”  It’s early days still, and the process of turning a bill into a law involves public hearings, comment periods, and the like.  Stay tuned for opportunities to voice your support to continue to improve the student borrowing landscape across the United States.

As you can see, the Department of Education was indeed hard at work while the rest of us were walking protest lines and/or biting our fingernails waiting for the Supreme Court ruling to be announced.  While by some markers these new initiatives do not match the prosed $10,000 or $20,000 debt cancellation plan, some experts forecast that these student loan repayment changes might have an even greater impact on student loan borrowers in the future, as they will apply to everyone who borrows money to go to college.

What do you say?

What are your thoughts on the Supreme Court ruling, and the Biden administration’s response?

What impact do you think these changes might have on you, or the clients that you serve?

What would you like to see in the student loan framework going forward?

Share your thoughts with this insightful and supportive (and did I mention good-looking?) community, either in the Comments below or on LinkedIn.  Thanks, stay safe, and be well.