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Federal Student Debt Relief - What Happened to the Federal Student Debt Relief Program?

Federal Student Debt Relief - What Happened to the Federal Student Debt Relief Program?

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Clarified What happened to the federal student debt relief

Federal Student Debt Relief - What Happened to the Federal Student Debt Relief Program?

The one-time debt relief program has been delayed due to two legal challenges. Whether or not the program remains legal will depend on how the Supreme Court rules.

President Biden's plan is designed to cancel up to 43 million student loans and offer targeted debt relief, fulfilling his campaign promise of preventing defaults when loan repayment resumes in 2019. This initiative aims to fulfill that promise while also helping prevent defaults during loan repayment restarts next year.

What happened?

Many Americans had hoped the federal student debt relief program announced by President Biden in August would make it easier to pay off their loans. Unfortunately, legal challenges from Republican-led states and conservative organizations have blocked its implementation, leaving millions of borrowers uncertain as to their prospects in the future.

On February 6, the Supreme Court will hear oral arguments on two of the most consequential lawsuits. If the court rules in favor of the Department of Education, then a nationwide pause on debt relief plans will be lifted and President Biden can move forward with it confidently.

If the court sides with lower courts in some Republican-led states, however, the program could be invalidated and borrowers would need to start making payments again - either on September 1, 2023 or 60 days after a ruling in favor of the administration.

Meanwhile, the Biden administration is advocating a different approach to student loan forgiveness. Dubbed "Plan B," it revamps income-driven repayment plans in an effort to help more borrowers reduce their payments and prevent negative amortization - when their loan balance continues to increase even after making regular payments - by providing access to forgiveness options.

It also introduces some income-driven repayment options to make it simpler for borrowers who weren't eligible under the original plans. It addresses some of the most frequent issues faced by borrowers, such as when their loan balance keeps growing and they can no longer afford to make payments.

One popular option, an income-driven repayment plan, can reduce monthly payments for millions of borrowers by altering how discretionary income is calculated. It may also offer them a longer payment schedule to ease their financial strains.

Some plans offer forbearance on certain federal student loans and concessions in the interest rate and payment amount for others, allowing borrowers to get relief while continuing to work. If these programs don't provide borrowers with enough assistance, however, they should reach out to the Department of Education to see what else can be done.

What do I need to do?

In August, President Biden promised up to $20,000 in student debt forgiveness for millions of federal student loan borrowers. But legal challenges from conservative groups have put a stop to the program.

Courts have ordered the Department of Education to suspend payments until its plan can be implemented or the lawsuits that were blocking it are resolved. If the courts rule in favor of the administration, payments could resume sometime in 2023.

If the Supreme Court rules against the administration, it could take years for student debt forgiveness to resume and become available again for borrowers. Furthermore, new programs would need to be launched and billions of dollars worth of debt relief provided for 40 million borrowers through new programs.

Some borrowers have been eagerly awaiting this relief since it was first announced. Illinois resident Megan Stemm-Wade, for instance, had been struggling to pay down her $39,000 in student loans due to interest-laden charges that seemed never-ending.

She wasn't sure how to proceed or if she'd even be eligible for assistance. However, President Biden announced he was planning on forgiving debt for up to $20,000 of her student loans - something which she believed could give her peace of mind and allow her to move forward with life.

To be eligible for debt cancellation, you must have federally held student loans that were distributed on or before June 30, 2022. This includes Perkins and FFEL loans as well as federal graduate and undergraduate students' loans.

Applying for debt relief depends on your individual situation and type of student loan. If you're currently or previously a student, the process is straightforward without needing any paperwork.

Applying online at the Department of Education website is easy. Simply complete the form with your name, Social Security number, date of birth, phone number and email address.

If you qualify, the government will cancel any remaining balance of up to $10,000. ED may refund the difference depending on how much was paid during the pause.

What do I need to know?

Last August, President Biden announced federal student debt relief that could impact millions of borrowers. Unfortunately, there are several obstacles standing in the way of its implementation and if these plans don't succeed in court, borrowers could find themselves waiting much longer to receive forgiveness than anticipated.

This month, the Supreme Court will hear two arguments regarding debt forgiveness programs. One is brought by Job Creators Network Foundation and two borrowers who don't qualify for full forgiveness; whereas, Arizona Attorney General Mark Brnovich and Cato Institute--a libertarian think tank--filed their respective arguments.

Even worse, a federal omnibus bill passed during the lame duck session of Congress diverted nearly all funding needed by the Education Department for its various student debt relief programs. This will cause delays that will impact tens of millions of borrowers - including those on repayment pause.

If you are a Pell Grant recipient and your annual income during the pandemic was less than $125,000 ($250k for married couples or heads of households), then you are eligible for up to $20,000 in debt cancellation through this program. This relief is specifically targeted to borrowers who have been most negatively impacted by the coronavirus pandemic and will help them resume making payments once the payment pause ends, according to the White House.

Another option is signing up for an income-driven repayment plan (IDR). These new plans offer lower monthly payments based on your annual income and family size, plus they may even cover any unpaid interest that accumulates over time.

Borrowers can apply for IDR with an easy online application. All they have to do is submit some basic personal details and sign a form acknowledging they will provide proof of income when requested.

You could apply for relief under the HEROES Act, which was designed to cancel student debt during national emergencies. While this could provide some comfort to borrowers affected by the coronavirus pandemic, its viability may be challenged in court.

What are my options?

Many federal programs exist to help you reduce or erase your student loan debt. These include federal loan forgiveness programs and income-driven repayment plans, which reduce monthly payments based on qualifying earnings after 20 or 25 years of qualifying payments.

Public Service Loan Forgiveness (PSLF) assists borrowers who work in various fields, such as healthcare, public service, education and the military, to earn credit toward loan forgiveness. Under President Biden's administration, modifications have been made to PSLF that offer an easier path towards forgiveness for qualified borrowers who have worked for a non-profit, government or military organization for 10 years or more - regardless of whether they are currently employed full time in such an position.

Another temporary fix for IDR (income-driven repayment) plans is a change that allows certain past payment periods, deferment/forbearance periods to count towards loan forgiveness. Some borrowers will see their progress towards forgiveness accelerate while others will have all of their balances completely discharged.

If you are currently behind on your federal student loans, the Department of Education has announced an initiative that allows borrowers to resume making payments without facing collection fees or other consequences. Once you make your initial payment under this initiative, you are no longer considered in default and can access many of the same federal programs that were previously available to you.

The Biden administration has also implemented an adjustment to federal income-driven repayment (IDR) plans that can expedite loan forgiveness for borrowers, even if they have never before enrolled in one. Under this program, past repayment periods that would otherwise not count towards loan forgiveness can now count toward IDR loan forgiveness, making it simpler to enroll in a new plan or make changes to your current one.

There are also federal and state-based loan forgiveness programs you can explore, though these won't eliminate your debt immediately. They typically require repayment over an agreed upon period such as 20 or 25 years, and some may include requirements for completing certain tasks before forgiveness is granted.

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