You Won’t Believe All of These Changes to Student Loans
Tuesday, Sep 21 2021
The past 18 months have been full of change, including those to student loans. Focus Federal Credit Union breaks down what you need to know about short-term, permanent, and potential future changes to student loans.
How COVID-19 Changed Student Loans
Administrators paused federal student loan payments, interest, and collections on March 13, 2020. They then extended the suspension, which was set to expire in October. Now borrowers should plan for their student loan payments to resume in February 2022.
The student loan payment pause includes the following relief measures for eligible loans:
- Suspension of Loan Payments. During this period, you don’t have to make monthly federal student loan payments. If you made a payment, you can request a refund through your loan servicer.
- A 0% Interest Rate. The interest rate on U.S. Department of Education student loans is 0% from March 13, 2020, to Jan. 31, 2022. This change means your student loans will not accumulate interest during this period.
- No Delinquencies. Administrators aren’t reporting delinquencies, and interest accrued before March 13, 2020, will not capitalize. Meaning officials won’t add outstanding interest to your loan principal balance when the payment suspension ends.
What Changes to Student Loans are Permanent?
Some of the changes to student loan programs will benefit specific borrowers long-term.
Officials expanded the Borrower Defense to Repayment program in June. Established in 2016, the program provides partial relief of federal student loan debt to students misled or defrauded by schools. The program now allows borrowers to receive complete student loan forgiveness, along with refunds for past payments. The change will result in $500 million in student debt cancellation for 18,000 borrowers.
In August, officials announced the cancellation of $5.8 billion in federal student loan debt for more than 300,000 disabled borrowers. This change will cancel debt through the Total and Permanent Disability discharge program. Using data from the Social Security Administration, officials will start canceling college debt this month. The average loan amount is about $18,000.
Also, last month, the Office of Federal Student Aid retroactively waived interest on loans held by more than 47,000 current and former active-duty service members. Previously, only a small proportion of eligible service members had the benefit. New automation expands the benefit without additional paperwork.
What Future Changes to Student Loans are Coming?
The Department of Education is hosting a public hearing in October. They are looking at rewriting regulations governing key federal student loan programs. Proposals include:
- Broad Student Loan Forgiveness. President Joe Biden said he wants to lower student loan payments for borrowers. Options range from loan forgiveness of $50,000 for all federal borrowers, but the current administration said $10,000 is its target.
- Forgiveness for Public Service Employees. The current Public Service Loan Forgiveness program encourages students to enter careers like firefighting, teaching, government, nursing, military, and religious work. It requires borrowers to make 120 eligible payments, then administrators forgive the remaining balance. Proposals include allowing administrators to forgive half of the loan balance after five years.
- Simplifying Student Loan Repayment. The loan process can be confusing and overwhelming. Administrators want to develop simpler processes and paperwork to cut through bureaucracy. Considerations to simplify repayment include reducing the number of payments, making enrollment automatic, lowering payment amounts, and $0 payments for people who make less than $25,000.
How Focus Federal Can Help
If you are able, continuing to make payments on your student loan has benefits. You can pay off your loan faster and lower the total cost of your loan over time.
At Focus Federal Credit Union we know understanding the changes to student loans can be challenging. But knowing your options and what works best for you can help you now and in the future.