President Biden's 2022 announcement of a student loan forgiveness plan promised hope for millions of borrowers burdened with student loan debt, particularly those who attended colleges such as the University of Phoenix, Kaplan University, American Intercontinental University, and Westwood College, which have faced closures and controversies.
This article provides an overview of the current status of student loan forgiveness, the impact of ongoing lawsuits, and important changes to student loan programs scheduled to take effect in 2023.
So, let’s get started.
Student Loan Payment Deferral and the Return to Repayment
During the COVID-19 pandemic, these payments were paused, and the interest rate on your loans was set to 0%, which means your loan balance did not grow. However, this interest-free period ended on September 1, 2023, and interest is now accruing again. This means if you don't make payments, your loan amount will start to increase.
Starting in October 2023, you'll need to start making payments again. The exact date when your payment is due depends on your loan servicer, but typically, they will send you a bill about 21 days before it's due.
Borrower Defense To Repayment
The borrower defense to repayment program offers relief to those who were defrauded by their colleges under federal or state law. Borrowers whose claims are approved receive refunds of all previous payments and a discharge of their federal student loans. Several important changes to this program are set to take effect on July 1, 2023:
· Claims may be decided on a group basis, expediting the processing.
· New categories of claims, including substantial misrepresentation and deceptive recruitment, will be considered.
· A preponderance of evidence standard will be applied, making it easier for borrowers to prove their claims.
· Mandatory arbitration clauses and class action waivers in college contracts will be banned.
· Decisions must be made within a specified time frame.
· A process for recovering costs from colleges will be established, although this may face legal challenges.
Interest capitalization, where interest is charged on interest, will be eliminated in several situations, including when borrowers enter repayment, exit forbearance, leave certain repayment plans, or enter default. This change aims to prevent the compounding of interest and reduce the total interest paid over the life of the loan.
The Total and Permanent Disability (TPD) discharge program will change. The three-year post-discharge monitoring period will be eliminated, as it often leads to loan reinstatement due to paperwork issues.
New qualifications for TPD discharge include a broader range of Social Security Administration (SSA) determination codes and expanded allowable documentation and certifying healthcare professionals. These changes aim to make it easier for disabled borrowers to obtain loan discharges.
Closed School Discharge
Borrowers who were enrolled when their college closed or who left within 180 days before the closure may be eligible for a closed school discharge. New regulations provide for automatic discharges one year after the college's closure date, as long as the borrower did not accept an approved teach-out or continue their education at another location of the college.
Borrowers who accepted a teach-out but did not complete it will also receive a discharge.
Public Service Loan Forgiveness
The Limited Public Service Loan Forgiveness (PSLF) Waiver, which includes expanded qualifying payments and deferment periods, will have some aspects made permanent. These changes provide more flexibility for borrowers seeking PSLF.
1. Fresh Start Initiative
The Fresh Start Initiative offers relief to the 7.5 million borrowers who were in default before the pandemic. When repayment resumes, defaults will be removed from borrowers' credit histories, and loans will be returned to their current status. Borrowers will regain eligibility for federal student aid if they choose a repayment plan and make payments within one year of the restart.
2. Bankruptcy Discharge
The U.S. Department of Justice and the U.S. Department of Education have established a new policy regarding when they will oppose a borrower's bankruptcy discharge petition for federal student loans.
This policy aligns with the Brunner Test, which defines "undue hardship" and specifies conditions under which student loans can be discharged in bankruptcy. The guidance provides detailed criteria for each prong of the test and includes a rebuttable presumption for certain circumstances.
3. New Income-Driven Repayment Plan
The Biden administration's proposed new income-driven repayment plan aims to reduce monthly payments for undergraduate student loans by half. Monthly payments are based on a percentage of discretionary income, with loan forgiveness after 10 or 20 years, depending on the original loan balance.
The plan also eliminates the need for annual recertification and ensures the government pays any unpaid interest to prevent loan balance growth.
What Borrowers Should Do?
Continuously monitor news and updates regarding student loan forgiveness programs and the resolution of lawsuits. The outcome of these legal challenges will influence the scope and eligibility criteria for loan forgiveness.
Consider Alternative Options:
While the future of blanket student loan forgiveness remains uncertain, other programs may offer relief. Explore income-driven repayment plans, Public Service Loan Forgiveness, and other options that align with your financial circumstances.
If you believe you are eligible for borrower defense to repayment or closed school discharge, collect the necessary documentation to support your claims. Proper documentation can expedite the application process.
Consult With Experts:
Seek guidance from financial advisors, student loan counselors, or legal experts specializing in student loan issues. They can provide personalized advice based on your unique situation.
Advocate For Your Rights:
Stay aware of your rights as a borrower and don't hesitate to advocate for fair treatment and transparency in the loan discharge process.
Borrowers need to stay informed, prepare the necessary documentation, and consider alternative repayment options as they await clarity on the future of student loan forgiveness. The closure of colleges like the University of Phoenix, Kaplan University, American Intercontinental University, and Westwood College has left many students in a precarious situation, and these changes are designed to provide them with much-needed relief.
As the legal battles continue to unfold and new policies come into effect, the landscape of student loans may shift, offering a brighter future for those seeking financial stability and freedom from the burden of student debt.