WASHINGTON, DC – JULY 27: Student loan holders participate in a demonstration outside the staff entrance of the White House to demand that President Biden cancel student loan debt.
Ever Countess | Getty Images Entertainment | Getty Images
There are a number of big changes ahead for borrowers seeking government loan forgiveness.
Signed into law by then-President George W. Bush in 2007, this program allows nonprofit and government employees to call in their government student loans after 10 years or 120 payments.
The Consumer Financial Protection Bureau estimates that 25% of American workers may be eligible.
However, problems have plagued the program, making people who actually benefit from the relief a rarity.
Borrowers often believe they are paying their way to foreclosure, only to find at some point in the process that they do not qualify, usually for technical and confusing reasons. Servicers have been accused of misleading borrowers and botching their deadlines.
Some of the upcoming changes aim to improve these issues. Here’s what borrowers should expect.
1. Payments will eventually resume
Most federal student loan borrowers have been able to pause their monthly bills since March 2020 thanks to a pandemic-era relief policy.
Currently, those payments are expected to decline in September, although some experts expect the Biden administration to push the restart date back another few months.
But experts say as the country pulls out of the pandemic, borrowers should be prepared for life again with a student loan bill. In the meantime, all months during the break will count towards your qualifying payments.
2. You will get a new servicer: MOHELA
Until recently, the accounts of borrowers seeking government loan forgiveness were managed by the Pennsylvania Higher Education Assistance Agency, also known as FedLoan. But FedLoan, which manages the loans of 8.5 million student borrowers, announced last year that it would not renew its contract with the federal government.
As a result, your new service provider will be MOHELA or the Missouri Higher Education Loan Authority.
“While the name of your service provider changes, almost every part of your experience will remain the same after the transition,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan services firms.
The transition is already happening, Buchanan said: “Some borrowers have already moved to their new service provider, others are in the process in the coming months. We are making this transition in waves to minimize any consumer issues.”
Borrowers should be sure to read all letters and emails from their service provider, Buchanan said.
More from Personal Finance:
The reconciliation bill is about $80 billion for the IRS
The Inflation Reduction Act aims to reduce insulin costs for Medicare users
The IRS will “absolutely” not increase audit scrutiny of middle-income individuals
Expect to have to set a new password to log into your new account and update your bank details and possibly your debit card information when you’re signed up for automatic payments and when billing resumes.
Because so many borrowers seeking government loan forgiveness complain that their count of qualifying payments has been undercounted, you should make sure MOHELA has your correct payment count, said higher education expert Mark Kantrowitz.
If there is a discrepancy, report this to your service provider as soon as possible.
3. New rules on qualifying payment numbers
The Biden administration announced in July that it would make debt relief easier for public employees. After a public comment period, the final rules will come into effect no later than July 1, 2023.
By then, officials will likely be able to have their payments credited during any deferrals or deferrals. Currently, these periods do not qualify.
Late payments would also no longer be excluded from a borrower’s total qualifying payments.
For now, experts recommend staying up to date on the status of the changes and requesting that any previously disqualified payments be counted if the opportunity arises.
4. Deadline for a second chance for discharge
Borrowers seeking debt relief for public employees were given the option to have their terms recalculated if they were disqualified based on their type of loan or repayment schedule. However, this limited waiver could expire at the end of October.
Therefore, borrowers should act now if they haven’t already, Kantrowitz said.
If you have either a Federal Family Education Loan (FFEL) or a Federal Perkins Loan, which are not normally eligible for government loan forgiveness but are now temporary, you will need to consolidate these into direct loans with your utility.
Certain periods of deferral or forbearance can now be taken into account.
Experts recommend applying for the relief even if you’re unsure whether your past payments fall under the new rules.
5. Broader forgiveness that can have little effect
https://www.cnbc.com/2022/08/13/changes-ahead-for-borrowers-pursuing-public-service-loan-forgiveness.html 5 changes for borrowers seeking government loan forgiveness