5 Potential Shakeups to Student Loan Repayments Expected in the New Year
The cost of college has risen rapidly. As the White House notes, the price has nearly tripled since 1980, even after accounting for inflation. With such a dramatic rise in cost, the need for changes to student loan repayments is more pressing than ever.
The Biden administration is taking the situation seriously, promising changes to the cost of college and how people repay their student loans. While there have already been legal challenges to some of the proposed changes, the administration is trying to do what it can to make college more affordable and equitable.
While some changes could be signed into law, others are mere hypotheticals at the moment. Here, we’ll take a look at some of the most notable changes that could go into effect by next year.
Payments Scheduled To Resume
Perhaps the biggest change around student loans is that federal student loan repayments, which were set to resume in January 2023, are still set to resume — but not until June 2023 after another recent extension of the payment pause.
Payments have been on an extended pause due to the COVID-19 pandemic, but borrowers should expect to start paying again in mid-2023. The White House stated, “The Administration is extending the pause on federal student loan repayments to allow for the Supreme Court to rule in the case on the student debt relief program. The pause will end no later than June 30, 2023. Payments will resume 60 days after the pause ends.”
Public Student Loan Forgiveness (PSLF) is a debt relief program that forgives the remaining balance on Direct Loans after making 120 qualifying monthly payments. However, many people have had problems qualifying, with as many as 99% of applications being denied, according to Department of Education data.
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The proposed change would forgive all outstanding debt for eligible borrowers who have served at a non-profit, in the military, or in federal, state, Tribal, or local government for at least 10 years, including non-consecutively. This change is in line with the Limited PSLF Waiver, which ended on October 31, 2022. The potential change would make this permanent and would go into effect in July 2023.
IDR Account Adjustment
In April 2022, the Department of Education announced changes to bring borrowers under income-driven repayments closer to forgiveness. The change would forgive student loans for borrowers who have made 240 or 300 months’ worth of repayments for IDR forgiveness. For PSLF, the number is 120 months.
According to Federal Student Aid, some borrowers were to have their loans forgiven in November 2022. However, others would see updates to their accounts in July 2023. No action is needed for those who already have federal student loans. However, those with FFEL and commercially-held student loans may need direct loan consolidation to quality.
Increase in Pell Grant Maximums
Pell Grants are needs-based federal grants that generally go to low-income families. Despite this, the Pell Grant maximum for 2021-22 is just $6,495.
To help cope with the rising cost of college, the Biden administration hopes to increase the federal Pell Grant maximum for the 2022-23 academic year. While the administration originally aimed to double the maximum, it compromised on that amount, saying it would increase the maximum to $8,670.
Push for Free Community College
Community college is already a more affordable path to post-secondary education than most four-year colleges in many cases. However, the Biden administration wants to take that step further, saying community college should be free.
It also says that colleges must keep prices low. While the administration didn’t provide specifics in its announcement, it’s clear that it is committed to making college more affordable for Americans.
One-Time Debt Relief Blocked
Earlier in the fall, the Biden Administration made waves when it said it would provide one-time debt relief of $10,000 for all federal student loan borrowers or $20,000 for Pell Grant recipients. The earlier announcement said that borrowers would have until December 31, 2023 to apply.
While it is clear that the Biden administration and to some extent the Department of Education want to make things easier on borrowers, the plans face an uphill battle. Biden’s student debt forgiveness plan has faced a series of legal battles, and has been blocked repeatedly. Most recently, on November 14, the one-time forgiveness was blocked a second time.
For now, it seems borrowers will continue to face challenges in having their student loans forgiven. The Department of Education says it is not currently accepting student loan forgiveness applications. However, it also says it is working to overturn the orders. In addition, it will hold the applications for those who have already applied and post updates as things develop.
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