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Aug 2022 - Student Loan Forgiveness Update & More

| August 30, 2022
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New Cancellation for Federal Student Loans and Delayed Repayment to 2023

On August 24, 2022, just a few days before federal student loan repayment was set to resume, President
Biden announced a plan for additional student loan debt relief. 

Federal student loan repayment was originally halted in March 2020 at the start of the pandemic. The new
plan extends the payment moratorium through the end of the year, offers partial debt cancellation, and
includes proposed updates to the Public Service Loan Forgiveness program and a new income-based
repayment plan.

What's new

Here is the new framework for federal student loans. 

Loan cancellation.

The plan will cancel $10,000 of federal student loan debt for borrowers with an adjusted gross income less than $125,000 ($250,000 for married couples filing jointly). The loan cancellation increases to $20,000 for borrowers who are Pell Grant recipients.1 (A Pell Grant is a federal
financial aid grant award to students from low-income households.) Eligibility is based on income from 2020 or 2021, but not 2022.

The Department of Education estimates that 21% of the borrowers eligible for relief are 25 years and younger, 44% are ages 26 to 39, and the remaining 35% are ages 40 and up, including 5% who are senior citizens. The Department also estimates that approximately 27 million borrowers (more than 60% of the borrower population) are Pell Grant recipients and will be eligible to receive up to $20,000 in debt relief.

Payment pause extended.

The pause on federal student loan repayment is being extended one "final" time through December 31, 2022. President Biden's announcement states that "borrowers should expect to resume payment in January 2023."4 In practice, borrowers should expect to hear from their loan servicer at
least three weeks before their first payment is due. 

Changes to the Public Service Loan Forgiveness (PSLF) program.

Borrowers who are employed by a nonprofit organization, the military, or the government may be eligible to have their federal student loans forgiven through the PSLF program due to time-sensitive changes. These temporary changes waive certain eligibility criteria for the program and make it easier for borrowers to receive credit for past periods of repayment that would otherwise not qualify for PSLF. These changes expire on October 31, 2022. 

Important note: Borrowers who might qualify for loan forgiveness or credit under the PSLF program due to these time-sensitive changes must apply to the program before October 31, 2022. Borrowers can visit the administration's PSLF website for more information. 

In addition, the Department has proposed allowing certain kinds of deferments and forbearances, such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service, to count toward PSLF.

A new income-based repayment plan.

The Department of Education is proposing a new income-driven repayment plan that does the following:

  • For undergraduate loans, caps monthly payments at 5% of a borrower's discretionary income (currently borrowers must pay 10% of their              discretionary income)
  • For borrowers with original loan balances of $12,000 or less, the loan balance would be forgiven after 10 years of payments (currently borrowers must repay their loans for 20 years)
  • Raises the amount of income considered non-discretionary, with the result that a borrower who earns an annual salary based on a $15 minimum wage would not have to make any payments (the monthly payment would be calculated at $0)
  • Covers a borrower's unpaid monthly interest, so that a borrower's loan balance won't grow due to interest as long as the borrower is making monthly payments (under current income-driven repayment plans, a borrower's loan balance can grow even if the borrower continues making monthly payments, because the interest keeps accruing)
  • Makes income recertification automatic, which will allow the Department of Education to automatically retrieve a borrower's income information every year instead of making borrowers recertify their income annually

For more information please continue reading by clicking on the following link:  Aug 2022 - Student Loan Forgiveness Updates

If you would like to discuss this or other planning needs please reach out to us at info@crescendowm.com  

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