Biden’s Student Loan Forgiveness Plan: What Borrowers Need to Know

Biden’s Student Loan Forgiveness Plan: What Borrowers Need to Know

The Supreme Court is yet to announce its verdict on the Biden administration’s sweeping student loan forgiveness plan, but the Department of Education has warned borrowers to prepare for their bills to resume 60 days after the announcement, which is expected to be by the end of August. Higher education expert Mark Kantrowitz predicts that the most probable scenario is that repayment will restart in September. Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers, has confirmed that lenders are actively preparing for the bills to restart in September.

While the Biden administration has extended the pandemic-era payment pause on federal student loans several times, experts believe that another extension is unlikely now that the national and public health emergencies have ended. Borrowers may be left with only a few months before they have to adjust their budget to include a monthly student loan payment averaging around $400.

What Can Borrowers Do?

Here are three things that borrowers can do to prepare themselves:

1. Check Your Servicer

During the Covid-19 pandemic, three of the largest companies that serviced federal student loans – Navient, the Pennsylvania Higher Education Assistance Agency (also known as FedLoan), and Granite State – announced that they would no longer be doing so. As a result, about 16 million borrowers will have a different company to deal with by the time payments resume or not long after. Experts advise checking that your servicer has your current contact information so that you receive all the notices about the upcoming change. Affected borrowers should receive multiple notices, says Buchanan. If you mistakenly send a payment to your old servicer, the money should be forwarded by the former servicer to your new one.

2. Review Your Payment Plans

If your circumstances have changed since the pandemic began, it may be time to review the payment plans available and find the one that best suits your current situation. The law has also changed, making student loan forgiveness tax-free until at least 2025, and this policy is likely to become permanent. This change may make income-driven repayment plans more appealing since they come with lower monthly bills and borrowers will no longer be hit with a massive tax bill at the end of their 20 or 25 years of payments. Meanwhile, the Biden administration is working to roll out a new income-driven repayment plan that would reduce some borrowers’ payments by half. If you can afford it, the standard repayment plan is just ten years. To calculate how much your monthly bill would be under different plans, use one of the calculators at Studentaid.gov or Freestudentloanadvice.org.

3. Economic Hardship or Unemployment Deferment

If you’re unemployed or dealing with another financial hardship, you’ll have options when payments resume. Experts suggest putting in a request for economic hardship or unemployment deferment, as these are the ideal ways to postpone your federal student loan payments because interest usually doesn’t accrue under them. If you don’t qualify for either, however, you can use a forbearance to continue suspending your bills. But keep in mind that interest will rack up, and your balance will be larger when you resume paying.

It’s crucial for borrowers to prepare themselves for the resumption of student loan payments. Checking with your servicer, reviewing your payment plans, and exploring deferment options are some of the steps borrowers can take to be ready for the bills to restart in September.

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