Student Loan News - Updates on Student Loan Programs

 

Student Loan News - Updates on Student Loan Programs

Whether you're looking for a bit of a break from reading the news or just want to stay on top of all of the latest developments, you should check out some of the student loan news that's been published recently. This week, we've got updates on student loan programs, including a new income-driven repayment plan and a proposed plan to share student loan data with the federal government.

Cancellation of student loans due to COVID-19 is not directly attributable to the pandemic

Despite the hype and the adulation of President Obama, the COVID-19 pandemic did not directly result in the cancellation of student loans. However, it does raise a number of related questions. Besides the fact that millions of Americans will be wondering whether they have to make payments in January, this new plan is also raising a number of legal issues.

While the administration has announced the new student loan forgiveness plan, a federal judge in Texas has issued a temporary stay halting the program. A coalition of Republican-led states has filed a lawsuit, arguing that the program exceeds the president's authority.


The debt cancellation scheme, though, is not the only way the government is addressing the student loan debt crisis. The government has also taken steps to aid federal student loan borrowers, such as providing an income-driven repayment plan.

The Department of Education has also made a large number of fixes to existing loan forgiveness programs, such as allowing borrowers to get debt canceled without having to pay off their loans in full. However, the debt cancellation scheme remains the most significant policy to help finance higher education since the introduction of modern Pell grants fifty years ago.

The Biden administration is claiming credit for the debt cancellation scheme, but the program is also facing a number of legal challenges. The Biden administration filed an emergency appeal with the Supreme Court last week. The administration is urging the court to bypass the lower court's ruling. It has also said it will give borrowers a choice of whether they want to be automatically canceled or opt out of the tax consequences.

The Department of Education's new plan will provide debt forgiveness to federal student loan borrowers who are Pell Grant recipients and meet certain income requirements. Those who qualify will receive up to $10,000 in relief. However, the debt cancellation scheme will not apply to private student loans. It also will not apply to commercially-owned FFELP loans.

The COVID-19 pandemic may have been the most important factor in the cancellation of student loans, but it's not the only one. In addition to the debt-relief plan, the federal government has also taken steps to help borrowers deal with their debt, including an extension of the moratorium on repayment of federal student loans.

Extension of payment forbearance until December 31

Among the many forays the Department of Education has taken to tame soaring student loan defaults, the extension of payment forbearance until December 31 has been one of the more talked about. While the ol' clout of the extension was on display, the real test is whether or not borrowers will be able to repay the loans in full. Among the many challenges facing student loan servicers is determining who is eligible for an extension and who is not.

While the extension of payment forbearance until Dec 31 has been a win for many lenders and the Department of Education, it may not be enough for the 40 million borrowers that were supposed to start making their monthly payments again in January. Many are suffering from the same financial hangovers, some of them are actually showing signs of improvement. While the extensions may not be available to everyone, there are other solutions to the forbearance quandary.

Among the many challenges facing student loan servicers are determining who is eligible for an extension and what they are eligible for. The CARES Act has been around since March of this year, but many homeowners are only now receiving forbearance. Many lenders offer the same benefits regardless of their federally backed status, while others have their own schemes in place. Some lenders may require a balloon payment to cover the shortfall of past due payments. Forbearance is not for everyone, so make sure to shop around and compare offers before making a commitment.

In the spirit of etiquette, homeowners should contact their loan servicer to find out if they qualify for an extension. This is particularly true of borrowers with VA or FHA loans, both of which require a more extensive application process. Assuming a loan servicer can offer you an extension of payment forbearance until Dec 31, the best time to apply is now. After you have your application in hand, you will need to decide whether or not you want to use this opportunity to save a few thousand dollars.

Income-driven repayment plan for student loans

Using an income-driven repayment plan can lower your monthly loan payments, but there are a few trade-offs. The monthly payment amount will depend on your income, family size and loan balance.

Most plans cap monthly payments at 10 or 15 percent of discretionary income, which is income after mandatory expenses are subtracted. Payments are calculated based on the combined income of you and your spouse. If your income has changed, you can request to have the payment amount adjusted.

Income-driven repayment plans can be a great option for borrowers who have exhausted other options. However, they can cause more interest to accrue, which can make the loan balance grow faster. If you are having trouble with repayment, you may be able to temporarily suspend your payments and consolidate your loans.

There are four income-driven repayment plans, each with a different repayment period, monthly payment amount and eligibility requirements. If you qualify for one of these plans, you will need to fill out an application and recertify your income each year. If your payment amount is recalculated due to changes in your income, you will need to recertify your income again.

If you are not able to qualify for one of these plans, you may be able to consolidate your loans and request a repayment extension. However, you will have to submit alternative documentation of your income, such as a pay stub.

The government has proposed a new income-driven repayment plan, which would cap monthly payments for undergraduate loans at five percent of discretionary income. This plan would be especially helpful to low-income borrowers.

Income-driven repayment plans are available for Direct Loans and FFELP. Some loans are not eligible for this plan, including Parent PLUS loans. In addition, the federal government pays 50% of the accrued interest on unsubsidized loans in the first three years of repayment. The remaining balance is eligible for forgiveness after 20 or 25 years of qualifying payments.

Income-driven plans can be a great option for a borrower who has a large loan balance and is struggling to make payments. However, they can also cause more interest to accrue, which can keep you in debt longer.

Submission of comments on proposed data-sharing plan

NIH is proposing a student loan data-sharing plan to make it easier for students to enroll in the Income-Driven Repayment (IDR) program, complete annual recertification, and meet the requirements of the Federal Direct Loan Program (FDL). NIH is accepting comments on the proposed plan and expects it to be enacted by the end of this year.

In order to comply with the new plan, the Department of Education would need to have access to borrowers' income data, and would have to automatically enroll borrowers in income-driven plans. The Department could also share the income data with the IRS and Treasury Department, or borrowers could opt in to the data-sharing program. The data-sharing plan would be documented in the documentation associated with the dataset. In order to ensure that the data-sharing plan is enacted, NIH will request progress reports from the Department. In addition, NIH expects to make data-sharing a condition of subsequent awards.

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