The Student Loan repayment on-ramp will end on 01 October 2024 and now the Supreme Court has extended the restriction on student loan forgiveness. Recently, the Biden administration has come up with some new changes and new plans that borrowers must learn about.
Student Loan Forgiveness Update
The Biden administration started the SAVE plan last year to provide relief or support to students seeking higher education. The repayment plan lets students pay the student loan based on their family size and income, as it is an income-driven plan. To provide relief to the borrowers, the government plans to forgive the student loan. Initially last year, the administration planned to forgive at least $10,000 of loans of certain borrowers.
However, the student forgiveness plan was legally challenged by Republicans saying the Biden administration was trying to attract voters through the student loan forgiveness plan. Due to legal action, the Supreme Court has blocked the student loan forgiveness plan. However, after the Supreme Court ruling the government has been trying to revive the plan or find alternative options to provide relief to the borrowers.
Following their effort, the Democratic policymakers have introduced a new plan to expand student loan forgiveness and provide key relief to borrowers. Last year, the Biden government implemented the repayment on-ramp plan, which will also end on the coming 01 Oct.
What are the new plans introduced for the Student Loan Forgiveness plan?
Under the new plan introduced by the Biden administration, the student loan forgiveness would be expanded through the following way:
- The new bills allow the Parent Plus loan borrower to access the student loan forgiveness plan, meaning the Parent Plus loans will be eligible for income-driven repayments. The Parent Plus loans allow the parents and guardians to support their child’s education and often these loans have higher rates. Initially, parents with a Parent Plus Loan were limited to ICR, which put parents in a difficult situation. The borrowers can opt for the Student loan forgiveness plan including IDR, SAVE, IBR, and PAYE.
- The Parent Plus borrowers will be entitled to loan forgiveness on their child’s behalf if their child is entitled to forgiveness based on his medical grounds.
- The Parent Plus borrowers will be automatically entitled to student loan forgiveness if the child for which they have taken a loan has been forgiven under the Borrower Defense to Repayment program.
- The Parent Plus borrowers can apply for PSLF if the child meets the eligibility of the student loan forgiveness program based on government or non-employment.
Changes that will occur in Student Loan Forgiveness from 01 Oct
The 12 month Student loan repayment on-ramp will come to an end in a few days, let’s see what changes the borrowers can expect in the coming dates:
- From 01 Oct 2024, the missed out or due payment will no longer count in student loan forgiveness as forbearance under the PSLF or IDR plan as the program will end by the end of September. Initially, the missed out payment was used to count under the forgiveness program but now we are back to the old rules.
- The borrower will have to pay the late fees for due payment. According to the rules, minimal charges will be applied to the late fees.
- After the on-ramp program, the negative credit reporting will again continue from 01 Oct 2024 for the missing payment, hence, the missing payment will now affect your national credit. However, some agencies may not report the due payment until 90 days, but you may be entitled to late fees.
- In case, the borrower misses continuous payments, he/she may be subjected to serious consequences. Initially, the on-ramp plan saved the borrowers from such consequences by giving them 270 days to complete their payment. But now, with the program ending, the defaulted borrowers will undergo the student collections system, which can add up the penalties and exceed the balance amount.
What happens next under the Student Loan Forgiveness?
The court has extended the restrictions on the Student Loan Forgiveness plan for another two weeks, so the Education Department can’t forgive any principal and interest. However, if the litigation worked out well and the new bill eventually became a law, it would benefit many borrowers such as:
- Parent Plus borrowers
- Borrowers who have repaid their loan for 20 years and graduate loans for more than 25 years.
- Borrowers had greeted balance than the initial loan amount
- Borrowers who have never applied for IDR plans
- Borrowers who have applied for programs that come under Low-financial value programs under the Education Department
The Student debt loan forgiveness crisis is still evident, though the Biden administration plans to provide alternative options, the legal proceedings will still halt such initiatives. With the current extension, it is highly unlikely that borrowers will get student debt relief anytime soon.