We have all spent the last couple of years riding waves of hope and disappointment as the saga of student debt cancellation unfolded. Last summer, President Biden announced up to $20,000 in debt cancellation — a major step forward in recognizing the seriousness of the student debt crisis and how it drags down our economy. But then this summer, the Supreme Court struck down this plan and blocked the debt relief. Hope, disappointment.
While the fight for debt cancellation is far from over — the Biden administration is pursuing cancellation through new means at the Department of Education — the focus on this important push has obscured some of the quieter but still very impactful changes happening to student loan repayments.
As the student loan pause that borrowers have enjoyed for the last three years is coming to an end, repayments will begin in a student loan system that will look pretty different than in 2020.
First, a brand new repayment plan has been introduced. Saving on Valuable Education (SAVE) will lower monthly payments, allow more borrowers to have $0 payments, and limit the interest accrual for loans. For many people SAVE will be the best option, it can really be a game changer to make your loans more affordable.
Like other income-driven repayment plans, it calculates your monthly payment amount based on your income and family size, but will offer lower monthly payments than previous plans. You can also expect loan payments for undergraduate loans to go down next summer as the standard payment for most people will be lowered to 5% of discretionary income. And lastly, in a big change, your loan balance will not grow from interest if you are making your monthly payments.
As part of the SAVE repayment plan, there will be a temporary “on-ramp” for up to one year — which should help protect borrowers who fall behind or miss a payment. The on-ramp period protects borrowers from having a delinquency reported to credit reporting agencies. This prevents the worst consequences of missed, late, or partial payments.
Lastly, the Biden Administration has established Fresh Start, aimed at helping borrowers who were behind or in default on debt payments before the pause began in 2020. Fresh Start is a one-time temporary program that automatically gives borrowers benefits, including returning loans to “current” status on borrowers’ credit reports, removing negative default marks on credit reports, and access to federal student aid and other government loans, like mortgages.
These changes will be a lifeline for borrowers who will be facing confusion, uncertainty, and financial hardships after years of being free of the burden of student debt.
If you are an employer or involved in any other large organization, you can help spread the word about these options. Direct people to StudentAid.gov to make sure they are getting accurate information and avoiding the scammers who will be taking advantage of this period of uncertainty. Tell folks about the Student Borrower Protection Center or the Consumer Financial Protection Bureau if they are having difficulties with their loan servicer or have been targeted by a scam.
If you work in a government agency or non-profit organization where employees would be eligible for Public Service Loan Forgiveness (PSLF), make sure your employees and coworkers know about the program, and be sure your organization has a system in place to quickly certify documents needed for borrowers using PSLF.
While the SAVE plan and other changes are welcome improvements for borrowers, they do not replace cancellation. Millions of borrowers are now facing repayment when they thought they would finally be free of the burden of student debt. That’s why we will keep up the fight for debt cancellation and the broader reforms needed to address the student debt crisis at large.
In the meantime, borrowers will have better options than when repayment was paused in 2020. Let’s hope this is just the first step in improving a student loan system that has been failing borrowers for far too long.
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