The federal student loan payment and interest pause has made life with student loans much more manageable.
For a brief window, things have actually been pretty easy for many — at least on the federally-held student loan front.
As a result, many borrowers may not have noticed major changes over the last few years. With repayment scheduled to resume later this year, it’s worth looking at each change.
Things in 2023 may look considerably better for borrowers than they did in 2020. Some changes are minor, while others represent a life-changing opportunity for borrowers.
#6 – The New Income-Driven Repayment Plan
Biden’s new repayment plan easily comes in last place in our rankings.
For starters, the plan is just a proposal and hasn’t become a reality yet. Secondly, we only know a few details about the plan.
That said, borrowers with only undergraduate student loans have plenty of reason to be optimistic. Monthly payments could be much lower, and forgiveness could come much sooner.
For now, this is a situation worth monitoring.
#5 – One-Time Student Loan Forgiveness
The change that got the most attention checks in at number five on our rankings.
Up to $20,000 of forgiveness per federal borrower is a huge deal. Whether or not borrowers win in court is an open question.
If the Biden administration wins at the Supreme Court, the one-time forgiveness program shoots up these rankings. For now, it is just another situation for borrowers to monitor.
Sherpa Tip: If you made any federal student loan payment during the payment pause, asking for a refund is probably a good idea.
Any borrower can request a refund, which could lead to many benefits, including maximizing forgiveness.
#4 – Income-Driven Repayment Count Update
All of the income-driven repayment plans provide a path to student loan forgiveness. Some take 20 years, and others require 25.
Over the years, one of the big criticisms of federal student loan servicers is that they steered borrowers towards deferments and forbearances instead of an income-driven repayment plan. As a result of these actions, many borrowers lost valuable time that could have been used as progress toward loan forgiveness.
To correct this issue, many previous deferments, forbearances, and enrollments in balanced-based repayment plans, such as extended repayment, will count towards IDR forgiveness.
It’s a change that hasn’t gotten much attention, but it will mean loan forgiveness years earlier for many borrowers.
In most cases, borrowers don’t need to take any action to benefit. However, there are a few circumstances in which borrower action is necessary. If you think you might benefit, be sure to read up on how the program works and enrollment requirements.
#3 – The Federal Student Loan Payment and Interest Pause
Halting payments and interest for millions of borrowers has been a massive change. It helped millions weather the uncertainty of the Covid-19 pandemic. For many borrowers, it allowed them to get their finances in order.
The payment and interest freeze also introduced many questions for borrowers and policymakers.
Why does the federal government need to charge interest on student loans?
What would happen to the federal budget if borrowers were not required to make payments on their student loans?
We now have three years of fascinating data for future student loan policy decisions.
#2 – The Limited Waiver on Public Service Loan Forgiveness
First, the bad news: the limited waiver program ended. The deadline for borrowers to enroll was October 31, 2022.
Now for the good news: many deserving borrowers qualified for Public Service Loan Forgiveness thanks to the limited waiver.
Before this fix, PSLF was a complicated program with complex rules, lousy servicer guidance, and a 99% rejection rate.
Borrowers who were enrolled in the wrong repayment plan could get credit for previously ineligible payments. Likewise, borrowers with ineligible loans could convert their debt and count their time in public service.
The Limited Waiver went back and reviewed previous public service activity and awarded credit to the borrowers who deserved it. It wasn’t a perfect program, but it proved to be life-changing for many public servants.
#1 – New Rules for Student Loans in Bankruptcy
Last November, the Department of Justice quietly updated the internal policy for handling federal student loans in bankruptcy. It got some headlines on the day the policy shift was announced, but since then, it has been off the radar of most borrowers.
Rather than jumping into the legal nuances of the shift, I’ll put it plainly: the federal government installed an express lane for student loan borrowers in bankruptcy.
In the past, bankruptcy attorneys turned away student loan borrowers due to the harsh student loan discharge rules. Under the new regulations, debtors and their attorneys will have a much easier path to discharging federal student loans.
If you are overwhelmed with federal student loans and unsure of how you are ever going to repay your debt, bankruptcy may now be a reasonable option.