Student Loan Forgiveness Updates

by Jesse Campbell
in Managing Student Loans

Student loans have long been a topic of concern and confusion for borrowers. Recent developments and nuanced details in repayment plans can impact borrowers' financial futures significantly, so it’s important to know what’s changing so you can better manage student loan repayment.

Newer actions by the Biden administration — including the SAVE Act and the Secure 2.0 initiative — aim to ease the financial strain for millions of Americans who have student loan debt. But how successful have these efforts been in providing relief for borrowers, and what should you know about next steps?

Adjusting to life after COVID-19 loan forbearance ends

Many borrowers became accustomed to the temporary relief provided by the COVID-19 forbearance period – with many hoping for President Biden’s student loan forgiveness plans to move forward. During this time, some folks directed funds that would have gone toward student loan payments to other expenses, such as upgrading their living situation or covering car payments.

Now that payments are resuming, borrowers may have a hard time readjusting. Rising inflation and increased costs are making it hard to make student loan payments that may have once been more manageable. According to CNBC, 40% of student loan borrowers failed to make a payment in October 2023 when payments resumed.

On a recent episode of MMI’s Long Story $hort podcast, Amy Lins, a financial educator at MMI said, “We are seeing a real increase in people calling us for assistance, not just specifically with student loans, but with all of their debts. We've seen a huge year-over-year increase, nearly a 51% increase, and the people calling in for financial counseling in that ‘I'm a student loan borrower age group’ is definitely on the rise.”

Student loan servicer challenges

Beyond the impact on borrowers, the return to student loan repayment has been fraught with challenges over the past few months.

Student loan attorney Adam Minsky, another guest on Long Story $hort, noted that student loan borrowers aren’t the only ones struggling. “Loan servicers are seemingly overwhelmed, and there's been a lot of widespread reported problems,” said Minksy.

Loan servicers have faced overwhelming demand, resulting in widespread issues for borrowers such as:

Receiving incorrect billing information.
Being quoted inaccurate payment amounts that do not reflect their obligations.
Encountering long hold times and dropped calls as they attempt to reach their providers.
Experiencing lengthy processing times as they await being placed into specific repayment plans.

The U.S. Department of Education recently acted in response to these issues. The department imposed financial penalties on some loan servicers and placed millions of borrowers into administrative forbearance. This forbearance effectively postpones or pauses payments while the chaos is sorted out. Additionally, any months that borrowers spend in administrative forbearance will count as progress toward payment timeline requirements of federal student loan forgiveness programs.

New federal student loan forgiveness programs aim to provide relief for Americans

SAVE Plan

The SAVE Plan has emerged as a promising solution for those managing smaller student loans. Introduced by President Biden in August 2023, it’s an income-driven federal student loan forgiveness program. One notable improvement is the reduction in payment amounts and repayment timeframes, particularly for borrowers with smaller loan balances. Here’s why it matters:

Qualification: If you meet the criteria and have the right debt-to-income ratios, the SAVE Plan may significantly lower your monthly payment. Student loan forgiveness updates that rolled out in February 2024 adjusted the criteria, making this program available earlier (after only 10 years of loan repayment on an IDR instead of 20-25) so borrowers can get more help, sooner.
IDR (income-driven repayment) account adjustment with SAVE: This initiative provides retroactive credit or forgiveness periods. By participating, borrowers can accelerate their progress toward student loan forgiveness, potentially shaving off years of repayment. If you’ve been on an IDR making regular payments for 10 years, and borrowed less than $12,000, you might be eligible for forgiveness of your balance. It’s important to review the changes to see how the new student loan forgiveness guidelines might offer you quicker repayment on certain loans under SAVE.
Deferment and forbearance: While the administrative chaos is being resolved, borrowers placed in administrative forbearance could still count this time toward loan forgiveness under SAVE, the Public Service Loan Forgiveness (PSLF), and other income-driven repayment programs.

There will be more student loan forgiveness updates rolling out in July 2024 as this program evolves, and as recently as April 2024, President Biden announced plans for future student loan forgiveness programs.

The Secure 2.0 initiative

Another development is the Secure 2.0 initiative. This legislation, signed in 2022, focuses on retirement savings for student loan borrowers. It allows employers to “match” the amount an employee put toward student loan payments with a contribution to a retirement account, mirroring the structure of traditional 401(k) matching programs.

This groundbreaking change enables borrowers to simultaneously save for retirement while tackling their student loan debt, providing much-needed flexibility for individuals balancing financial priorities.

Account adjustments and consolidation

This latest change from the Biden administration makes it easier for borrowers to potentially count past payments toward IDR plans – even if you never officially enrolled in one. This adjustment may be automatic for some borrowers, but it’s still worth checking in with your servicer. For example, you may need to consolidate your loans, apply for PSLF, or enroll in an IDR.

What’s on the horizon for student loan forgiveness?

More changes are on the way. “They're trying a different pathway with the new plan," said Minksy. "It's going to be under the Higher Education Act, which has a different source of authority for canceling student debt. It's never been attempted on a mass scale, but they're in the process of trying to develop a new plan. They're targeting several groups or categories of borrowers based on the type of loans they have, or their history, or their financial circumstances.”

This plan is still being developed, but final regulations on this new effort could be released possibly as early as this spring. Borrowers may not be able to take advantage of the program until 2025, but there's some suggestion that they could implement what's called Early Implementation Authority to make the program available this year.

Seek trusted guidance for student loan forgiveness options:

In a digital age overrun with information, finding trustworthy sources for student loan advice is key. While social media platforms like TikTok may offer quick tips, borrowers should exercise caution and seek guidance from reputable sources.

When you can better understand the complexities of student loan repayment options, you can navigate the student loan maze with confidence, securing a brighter financial future.

As always, MMI is here to help you do just that with confidential counseling. Our knowledgeable team is ready to help guide you through this process with our student loan counseling program.