Latest Student Loan Changes and the Federal Repayment Suspension Extension

In response to the COVID-19 pandemic, the government deferred federal student loan payments on March 20, 2020. This relief effort also suspended defaulted loan collections and dropped the interest rate to zero percent until the bill’s expiration date. However, the office of Federal Student Aid extended the payment suspension multiple times in the last two years.

If you are a federal student loan borrower, you are likely anxiously awaiting the latest student loan reform regulations. Proposed legislation could require the Department of Education to forgive thousands in student loans and cut interest rates to zero. 

Current Payment Suspension and Proposed Student Loan Reform

The federal student loan payment suspension would have ended in May, but the government issued its sixth extension. The deferral now stretches until August 31, 2022. 

Several representatives proposed forgiving student debt, canceling interest charges, and changing the future of student loans. As of January 2022, the Biden administration canceled $15 billion in student loans through the following programs:

  • Borrower Defense to Repayment
  • Total and Permanent Disability
  • ITT Tech Students
  • Public Service Loan Forgiveness (PSLF)

Government sponsors often introduce new bills that change federal student loan regulations. Below is a list of the latest proposed legislation:

  • The Student Loan Relief Act would require the government to forgive a maximum of $25,000 for each federal student borrower. Status: introduced 2/11/22 
  • The No Student Loan Interest Act would require the government to stop and forgive all interest charges on federal student loans. Status: introduced 7/27/21
  • The Income-Driven Student Loan Forgiveness Act would require the government to forgive the outstanding balance for those who meet the requirements. Status: introduced 3/18/21

How to Prepare for Resumed Repayments

You should receive a billing statement at least 21 days before the payment date. The notice will detail the payment amount and when it is due. You can also get a payment estimate by contacting your loan servicer. 

Here are a few steps you can take to prepare:

  • Update contact information.
  • Review the Loan Simulator
  • Check for income-driven repayment (IDR) plans
  • Setup a budget-friendly repayment plan
  • Enroll in auto-debit payments

IDR plans can make payments more affordable since they consider your income and family size. Repayment plans can also consider other factors, like getting married or a new job. You usually need to recertify annually.

With these plans, the government limits your monthly payments to 10% of your discretionary income, and you could pay as little as $0 a month. You can structure repayment plans based on your primary goal, such as:

  • Paying off the loan as fast as possible
  • Having low monthly payments
  • Picking the monthly payment. 
  • Paying the lowest total amount
  • Paying the balance by a specific date

Some repayment plans can be better than others because of your eligibility for loan forgiveness. For example, PSLF wipes out your federal Direct Loans balance after 120 qualifying monthly payments. The paused payments could count towards loan forgiveness if you meet the other requirements.

If you were already on an IDR plan before the suspension, you can continue with the same plan or recertify for another one. For instance, you may want to recertify for a different IDR plan if your income is lower and you need a lower monthly payment minimum.

Here are the four income-driven repayment plans: 

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan) – Monthly payments are usually 10% of your discretionary income for 20 to 25 years.
  • Pay As You Earn Repayment Plan (PAYE Plan) – Monthly payments are usually 10% of your discretionary income, but not more than a 10-year Standard Repayment Plan for 20 years.
  • Income-Based Repayment Plan (IBR Plan) – Monthly payments are typically 10 to 15% of your discretionary income for 20 to 25 years, depending on your new borrower status.·      Income-Contingent Repayment Plan (ICR Plan) – 25 years of monthly payments that are the lesser amount of either 20% of your discretionary income or the amount you would pay on a 12-year income-driven repayment plan.
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