All articles tagged with #repayment plans
The US government shutdown has halted operations at the Education Department, causing delays in student loan forgiveness and repayment plans, with over a million borrowers facing extended wait times and increased risk of missing out on benefits amid staffing cuts and backlog issues.
Approximately 460,000 student loan borrowers will be denied the Biden-era SAVE repayment plan as the program is deemed illegal and being phased out, leading to concerns about higher payments and reduced forgiveness opportunities, with new plans being introduced by the Department of Education amid ongoing legal and legislative changes.
Congress passed President Trump's 'Big Beautiful Bill,' which overhauls student loan repayment by eliminating existing income-driven plans, introducing two new options, and imposing new restrictions on borrowing and deferment, potentially making repayment more difficult for borrowers and reducing available assistance programs.
The Senate narrowly approved a bill that significantly reduces the number of federal student loan repayment options, caps graduate loan amounts, and affects current SAVE plan borrowers, with potential implications for future borrowers if the House passes the legislation.
Federal student loan borrowers who default on their loans may face wage garnishments and other financial penalties, such as losing eligibility for certain mortgages. Borrowers are advised to address payment issues early by exploring options like deferment, forbearance, or income-driven repayment plans, which can prevent default and its consequences. Once in default, borrowers must undergo a loan rehabilitation process to access more affordable repayment options.
The Social Security Administration is reforming its policies for recovering overpaid benefits, capping the clawback at 10% of a monthly check and extending repayment plans to 60 months. This comes after previous practices led to financial distress and homelessness for some recipients. The agency will no longer require beneficiaries to prove they aren't at fault for overpayments and will make it easier for them to request a waiver of repayment.
Despite the Supreme Court ruling against President Biden's proposal to forgive student loan debt, student loan forgiveness is not entirely dead. The U.S. Education Department is exploring other legal avenues to cancel student debts, albeit on a smaller scale. Additionally, the Biden administration has introduced new repayment plans, such as the Saving on a Valuable Education (SAVE) program, which offers more generous terms and multiple windows for loan forgiveness. However, the implementation of these changes is hindered by budget cuts and a lack of funding, leading to challenges in assisting borrowers and implementing other initiatives, such as overhauling the Free Application for Federal Student Aid (FAFSA).
The Biden administration is providing an "on-ramp period" until September 30, 2024, allowing borrowers to skip payments without defaulting on their student loans. During this period, borrowers won't be reported as being in default, but interest will still accrue. Defaulting on student loans can damage credit scores, making it harder to buy a car or house, and result in financial consequences such as withheld tax refunds or wages. Once in default, borrowers lose eligibility for deferment or forbearance and may be taken to court. It's important to consider switching to income-driven repayment plans to lower monthly payments, and borrowers who fell into default before the pandemic pause can apply for the Department of Education's "Fresh Start" program to remove the default from their credit report.
The Biden administration has introduced the Saving on a Valuable Education (SAVE) repayment plan, which aims to provide affordable student loan repayment options. The plan offers benefits such as affordable monthly payments, a cap on interest charges, and forgiveness after as little as 10 years. However, the plan may not be suitable for everyone, particularly those with mid-level loan balances or parent Plus borrowers. It is recommended to use the Federal Student Aid loan simulator tool to compare repayment options and choose the best plan based on individual circumstances.
Federal student loan borrowers will resume making monthly payments starting in October, after a pandemic-related pause that began in March 2020. Interest will start accruing again on September 1, and borrowers can expect their monthly payment to be the same as before the pause. Income-driven repayment plans are available for those struggling to afford payments, and a new repayment plan called SAVE offers generous terms for lower-income borrowers. The government is providing an "on-ramp period" until September 2024, during which borrowers are shielded from certain consequences of missing payments. Borrowers who fell into default before the pause can apply for the Department of Education's "Fresh Start" program. The Supreme Court blocked President Biden's student loan forgiveness program, but the administration has made it easier to seek forgiveness through existing programs.
The Supreme Court ruled against the Biden administration's plan to cancel federal student loans, meaning that borrowers must start repaying their loans on October 1. To prepare, borrowers should confirm their personal information, loan amounts, interest rates, and payment plans with their loan servicer. They can also use the Loan Simulator on StudentAid.gov to explore different repayment plans or consider consolidation. Additionally, President Biden announced the "Temporary On-Ramp" program, which provides a one-year grace period starting October 1 for borrowers who miss payments, protecting them from default, debt collection agencies, and credit score damage.
As student loan payments are set to resume soon, borrowers have several options to minimize the impact on their budgets. The Supreme Court struck down President Biden's student debt forgiveness plan, but the Department of Education has finalized the "most affordable repayment plan ever created," called the Saving on a Valuable Education (SAVE) plan. This income-driven repayment plan reduces monthly payments to 5% of discretionary income for undergraduate loans and forgives loan balances after 10 years of payments. Other tips include saving money in a separate account, checking employee benefits, cutting expenses, considering refinancing, exploring loan forgiveness programs, seeking advice from advisers, paying down loans before repayment starts, enrolling in autopay, contributing to retirement accounts, and researching state-based forgiveness programs. It is advised to avoid using credit cards for payment and to be cautious of scammers offering help with federal student aid.
Student loan payments are expected to resume soon, but borrowers can request a deferment or forbearance to postpone payments. Deferments are preferred as they do not accrue interest, but borrowers should try to keep up with interest payments during a forbearance. Borrowers can also opt for income-driven repayment plans or the new repayment option proposed by the Biden administration, which would cap monthly payments at 5% of discretionary income for undergraduate loans.