For debtors seeking loan forgiveness for public service, a number of significant changes are forthcoming.
After 10 years, or 120 payments, the program that George W. Bush, the then-president, signed into law in 2007, enables nonprofit and government employees to have their federal student loans forgiven.
25% of American workers, according to the Consumer Financial Protection Bureau, may be qualified.
The program has, however, been beset by issues, making it uncommon for people to really receive the help.
Borrowers frequently assume they are paying their way toward loan cancellation only to learn later on in the process that they are ineligible, usually for complicated technical reasons. Servicers have received criticism for deceiving borrowers and failing to meet deadlines.
Some of the future adjustments are intended to address these issues. Here is what debtors ought to anticipate.
Payments will ultimately start up again
Thanks to a pandemic-era relief provision, the majority of federal student loan borrowers have been permitted to postpone their monthly payments since March 2020.
Those payments are currently anticipated to resume in September, though some experts anticipate that the Biden administration may push back the commencement date by further months.
However, when the nation recovers from the pandemic, experts advise borrowers to be ready for life with a student loan payment once more. While the suspension is in effect, any months count toward your qualifying payments.
You’ll have a new service provider: MOHELA
Up until recently, the Pennsylvania Higher Education Assistance Agency, often known as FedLoan, was in charge of managing the accounts of students seeking public service loan forgiveness. The federal government’s contract with FedLoan, which managed the loans for 8.5 million student borrowers, was not renewed last year, according to the company.
The Missouri Higher Education Loan Authority (MOHELA) will therefore be your new servicer.
“While the name of your servicer is changing, nearly every part of your post-transition experience will remain the same,” proclaimed Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade association for companies that service federal student loans.
The change is already taking place, according to Buchanan: “Some borrowers have already moved to their new servicer and others are in process in the coming months. We are conducting this transition in waves to minimize any consumer issues.”
Buchanan advised borrowers to make sure they read all correspondence from their servicer, including emails.
If you are registered in automatic payments and when the bills resume, be prepared to change your banking information, including your debit card information, and set a new password in order to get into your new account.
You should confirm that MOHELA has the exact number of qualifying payments since so many borrowers seeking public service loan forgiveness complain that their qualifying payments were undercounted, advised higher education expert Mark Kantrowitz.
In the event of a discrepancy, let your servicer know as soon as feasible.
Changes to the rules for what payments qualify
In July, the Biden administration announced that it would make it easier for public employees to obtain debt forgiveness. The final rules will be implemented no later than July 1, 2023, following a public comment period.
By that time, public employees should be able to have any deferments or forbearances taken into account when calculating their pay. These times do not currently qualify.
Late payments would also no longer be deducted from the total qualifying payments of borrowers.”
For the time being, experts advise staying updated on the status of the changes and requesting that any previously disqualified payments be counted when the opportunity becomes available.
Limitation period for a second chance at relief
Borrowers pursuing debt cancellation for public employees have been given the opportunity to have their timelines recounted if they were disqualified due to the type of loan or repayment plan they used. However, that limited waiver may expire at the end of October.
As a result, borrowers should act now if they haven’t already, according to Kantrowitz.
You must work with your servicer to convert any Federal Family Education Loans (FFEL) or Federal Perkins Loans—which ordinarily do not qualify for public service loan forgiveness—into Direct Loans if you have them.
Now, some periods of forbearance or deferment may count.
Even if you’re not sure if your prior contributions will be accepted under the revised guidelines, experts advise filing for the relief.
A wider pardon could have no effect
A decision on the White House’s course of action regarding student loan forgiveness is anticipated this month.
According to Kantrowitz, loan forgiveness should have no effect on debtors who are pursuing public service loan forgiveness unless their balance is fully paid.
This is due to the fact that the majority of borrowers who pursue PSLF are enrolled in an income-driven repayment plan where their monthly payment is determined as a percentage of their income. As a result, the debt cancellation shouldn’t affect that payment.
“When your loans will be forgiven anyway, forgiving part of them sooner doesn’t change anything, with a few small exceptions,” Kantrowitz said.