Important Student Loan Updates

Do you have federal student loans? Then you might have some forms to file this October. My name is Carrie Sorenson and I am an Accredited Financial Counselor who writes for Breathing Room (although I usually write about physical activity and health topics). I wanted to share this important information to make sure you can take advantage of these programs if you qualify.

There are two main programs you will want to pay attention to:

  • Federal Student Loan Debt Relief
  • Public Service Loan Forgiveness 

Both of these programs have important things happening this month and you’ll want to pay attention to make sure you don’t miss out. Here are the important details about both programs:

Federal Student Loan Debt Relief

In August, the Biden Administration announced that they would forgive up to $20,000 for some federal student loan borrowers. Over the weekend, the Department of Education announced that the application is live! You can find it here: https://studentaid.gov/debt-relief/application

The application is available in English and Spanish, is very brief, and only asks you to provide some basic information about yourself like your name, social security number, date of birth, and contact information (it WILL NOT ask for your FAFSA ID). It also asks you to self-certify that you meet the income guidelines. In order to qualify, you must have income that is under $125,000 for an individual or under $250,000 for people who are married and file taxes jointly or with one person listed as head of household. If you are unsure, go back to your 2020 and 2021 tax returns. If your income was under the limit for at least one of those years, then you qualify for the forgiveness. You may be asked to provide proof of income in the future, but not at the time you submit the application. 

You have until December 31st, 2023 to complete the application.

On a personal note, my husband and I both have student loans and completed our forgiveness applications this weekend. We were impressed with how simple and easy the application process was!

One note of warning, be careful of scams! Filing for forgiveness is free and the Department of Education will never ask you for any money in order to process your application. If someone is asking you to pay to file the application, that person is trying to scam you. 

Public Service Loan Forgiveness 

This program is for people who are working in public service (typically for a nonprofit, the military, or in federal, state, tribal, or local government). Under this program, your remaining loan balance is forgiven after you make 120 qualifying payments. This is usually 10 years or more of payments and often makes sense for people who are making payments under an income driven repayment plan.

Initially, the program required specific documentation and had strict rules that made it difficult for many to achieve loan forgiveness under the program. However, recently a waiver was passed that makes it significantly easier for borrowers to make qualifying payments and have their loans forgiven.

In order to take advantage of this waiver, you must complete an application before the October 31st deadline! So, if you think you might be able to take advantage of this program, you can visit https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service. There, you can check to make sure you qualify and apply for forgiveness. 

If you have questions about your specific student loan situation, check out https://studentaid.gov/ for additional resources on a variety of topics!

Important information for student loan borrowers during COVID-19

The CARES Act provides automatic suspension of principal and interest payment on federally held student loans through September 30, 2020. An Executive Order directs the Department of Education to extend these benefits until December 31, 2020.

Important facts about student loans

Photo by Andrea Piacquadio on Pexels.com
  • The interest and monthly payments on federally held loans are suspended through September 30, 2020.  
  • Consumers do not need to contact their student loan servicer or take any action on federally held student loans.  
  • Make sure the servicer has up-to-date contact information and check your mail or email in order to receive any updates or information about your loans.
  • Suspended payments through September 30, 2020 will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met.  

How do I know if I qualify?

The student loan payment and interest suspension only applies to federal student loans held by the Department of Education. Some federal student loans under the Federal Family Education Loan (FFEL) Program are owned by commercial lenders and some Perkins Loans are held by the institution or school you attended. Your FFEL lender or school may choose to suspend interest and payments on a voluntary basis, but they are not required by law to do so.  If you need more information contact your servicer to find out if these options are available to you. Use the link https://studentaid.gov/manage-loans/repayment/servicers to see the list of federal student loan servicers. 

What should I do if I have federally-held student loans?

You don’t need to take any action.  From March 13 through September 30, 2020, the interest rate is set to 0% and payments are suspended for student loans owned by the federal government.  It is suggested, however, to make payments or continue making payments on your student loans, if you are financially able to do so.  Any payments you make after March 13 have been applied directly to principal. By doing this it will help pay off your loan faster.  

Student Loan Debt, Education, College

What should I do if my student loan is already in default? 

The CARES Act requires the Department of Education to stop the collection of defaulted federal student loans, including garnishment of wages and the offset of tax refunds and Social Security benefits, through September 30, 2020.  There is no additional action required from the consumer for federally owned loans. Contact your loan holder to find out about your options regarding other defaulted federal loans you may have. Use this link https://studentaid.gov/manage-loans/default/get-out to learn how to get out of default.   

What should I do if I have private student loans?

Many private lenders have already implemented forbearance options that allow borrowers to postpone monthly payments.  Some of the private lenders also are waiving late fees and will not file negative reports to consumer reporting agencies.  Additionally, private lenders also offer their own reduced payment options.  Contact your student loan servicer to find out what is available to you. 

Graduating? Time to Manage Your Student Loans

The saying usually goes “With April showers comes May flowers” but typically with May flowers, comes students graduating from college. While some students may already have jobs lined up after graduation,  others are just beginning their search. On the minds of many graduating seniors is how they will repay their student loans acquired over the last few years. 

Celebration Education Graduation Student Success Learning ConceptThe first thing a graduating student needs to do is figure out how much money they owe. Federal student loans can be tracked through the National Student Loan Data System. It will list each loan as well as a total for all loans acquired. Private student loans are not part of the database, so grads should check their own records. Another option is to check your credit report at AnnualCreditReport.com. This site will provide detailed information about your credit history, including any private loans you have taken.

When it comes to repaying your federal student loans, I suggest you visit studentaid.gov. The site provides information about repayment, including options for repayment as well as a checklist of items for people who took out loans. 

Typically, you have a six-month window before you need to make your first payment which you are then automatically placed on the Standard Repayment Plan. It is set up as a typical 10 year fixed payment. There are other repayment options, but always keep in mind – the longer you take to pay off the loan the more interest you will pay.  Choosing a Federal Student Loan Repayment Plan provides an overview of various repayment options. 

The spread of COVID-19 and the passage of the CARES Act affect student loan repayment drastically. All federal student loan borrowers are placed in forbearance (means you do not need to pay) from March 13, 2020 till September 20, 2020. Although you are not required to make payments, you still have the option. Most federal student loans will accrue 0% interest during this time. For more information about the impact of the CARES Act on student loans, visit studentaid.gov.  

My colleagues in Extension created a series Factsheets on student loans which is very useful and can help you get more information on what to do when it comes to paying back your loans. The Consumer Financial Protection Bureau also has good information that you should check out. During this pandemic you should take time to learn more about your student loans and the best way to pay them back. Your decisions now can affect how much you pay back in the future and other aspects of your financial life.

 

Public Service Loan Forgiveness: Who is it for?

image-from-rawpixel-id-1247-jpeg.jpgEarning a college, graduate, or professional degree is an accomplishment to celebrate, but once school ends, the reality of paying back student loans begins. Most direct student loans offer a six month grace period, with interest subsidized by the federal government, intended to provide the borrower with sufficient time to find employment. But for the millions of students who graduated in the spring of 2019, that grace period is ending. Fortunately, the federal government has many options to ease the burden of student loan payments.  

If you work for the government or a nonprofit organization, you might be eligible for Public Service Loan Forgiveness (PSLF). This is a federal program designed to provide an incentive to attract job seekers to employment in much needed, but often lower paying, service work. Those who qualify for PSLF can have their student debt balance paid in full by the federal government, however, there are many rules to follow.   

Qualify!

Loan Forgiveness Debt Filling Application ConceptIf you want to be eligible for PSLF, keep in mind that you must do qualifying work, for a qualified employer, make qualified payments, for a qualified amount of time, under a qualified plan.  

The key word is qualified.  

  • Qualifying work –  Full-time employment, defined as 30 hours or more per week, or work that your employer considers full time. Part time hours at different qualified employers (see below) can be combined to reach the 30 hour minimum. There is a notable exception for religious work. Time spent on religious teaching, worship, or proselytizing does not apply toward the 30 hours.   
  • Qualified employer – Any government organization or a nonprofit organization recognized under section 501(c)3 of the Internal Revenue Code, or federal tax code.  Any level of government is acceptable. It could be a local, state, federal or tribal agency. However, if you work for a for-profit government contractor, a labor union, or a partisan political organization, your loan payments will not count toward PSLF.  
  • Qualified payments – A minimum of 120 payments are required before your debt can be considered for PSLF, and are only counted if they are on time (no more than 15 days after the due date), and paid in full. Payments are only considered qualified if they are made while you are working for a qualified employer. 
  • Qualified repayment plans – Borrower payment plans include all income driven repayment plans. There are several income driven repayment plan choices that a borrower can select. As the name implies, these repayment plans are based on the borrower’s income, as well as on other considerations, such as family size. 

Where can I learn more?  

Is Public Service Loan Forgiveness a good option? The best source for more detailed information is the Federal Student Loan Website.  Many rules must be followed to qualify for PSLF and it is important to follow the rules carefully to reap the benefits of this program.