Senators Warn of ‘Extraordinary Financial Hardship’ If Student Loans Resume
As part of the American Rescue Plan stimulus relief, there has been a moratorium, or pause, on student loan payments since March 27, 2020. Federal student loan interest rates have also been set to 0%, but the policy as a whole is set to expire on October 1, 2021.
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Earlier this week, Senators Elizabeth Warren, Tina Smith and Edward J. Markey sent letters to CEOs of all the federal student loan servicers requesting them to outline the steps they are taking to transition debtors back into payment schedules once the policy expires.
“Millions of borrowers have had relief from their student loan payments and interest for more than a year during the COVID-19 pandemic — but they now risk being thrown into extraordinary financial hardship when their payments resume […] we support canceling $50,000 of debt for each borrower to relieve this burden on our economy, but in the interim, we are requesting information on how your company is preparing for this transition to repayment and the steps it is taking to ensure that it adequately supports borrowers” the letter stated, as reported by CNBC.
This comes on the heels of recent data released by the Department of Education that shows canceling $50,000 in student loan debt would wipe out the entire loan burden for 36 millions borrowers. Just the cancellation of $10,000 in student loan debt would provide full relief for 15 million borrowers.
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In a hearing back in April, Senator Warren stated that the country is facing a “student loan time bomb” that will throw millions of families off a financial cliff when it explodes, claims CBS.
Although the push for student loan forgiveness has intensified within government walls, the deadline is near approaching and a solution has not been set in stone yet. Here are some options for student loan relief in the event the October deadline rolls around and you still need some help:
Revised Pay As You Earn Repayment Plan ( REPAYE)
This plan has monthly payments that are equal to 10% of your discretionary income, divided by 12. The total monthly payment is based on your adjusted gross income, family size and total eligible loan balance. Only Direct Loans qualify for this type of plan. PLUS, Federal Direct Consolidation containing at least on Federal Parent PLUS loan and FFEL Loans are not eligible.
Original Pay As You Earn Plan (PAYE)
This plan is identical to REPAYE, except in order to qualify you must also be a new borrower as of Oct 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011.
Income-Based Repayment Plan (IBR)
The IBR Plan has monthly payments that are equal to 15% of your discretionary income, divided by 12. These monthly payments go down to 10% of your discretionary income if you are a new borrower This plan is for both FFEL Program and Direct Loans. Parent PLUS Loans and Consolidation loans including at least one Parent PLUS Loan are not eligible for IBR.
Income-Contingent Repayment Plan (ICR)
This plan has monthly payments that are lesser of what you would pay on a repayment plan with a fixed monthly plan over 12 years OR 20% of your discretionary income divided by 12. This is the only available income-driven plan for parent PLUS loans. The Department of Education notes that “Although PLUS loans made to parents can’t be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).”
Should you not have the means to make any payments at all, then you might default on your loans. In this case, there is a grace period of 6 months after graduation or 15 days after the due date to make a payment. Your loan will typically go into default after 270 days of non-payment, wherein the government can then start garnishing your wages, take away professional licenses and report you to credit agencies. This is certainly something to avoid, so look up which repayment plan is best for you and all its details here.
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Last updated: June 24, 2021