Tell Me More About Income
The rules are complicated, but the gist is simple: Payments are calculated based on your earnings and readjusted each year.
After making monthly payments for a set number of years usually 20, sometimes 25 any remaining balance is forgiven.
Monthly payments are often calculated as 10 or 15 percent of discretionary income, but one plan is 20 percent. Discretionary income is usually defined as the amount earned above 150 percent of the poverty level, which is adjusted for household size. PAYE usually has the lowest payment, followed by either I.B.R. or REPAYE, depending on the specific circumstances of the borrower, said Mark Kantrowitz, a student aid expert.
Theres a dizzying variety of rules. Consider spousal income.
REPAYE has a marriage penalty, while I.B.R. and PAYE will use just the borrowers income if they file a separate return, joint income if they file a joint return, he said. REPAYE, he said, uses joint income regardless of tax filing status.
Got all that?
But they remain a more manageable solution for many borrowers.
Enrolling in I.D.R. now is a great next step, particularly if you lost your job during Covid, or your spouse lost their job and you are experiencing a drop in income, said Mike Pierce, executive director of the Student Borrower Protection Center.
Did Any Interest Accrue During The Covid
The interest rate during the entire COVID-19 payment pause is 0%, so no interest has accrued during this period.
Any previous unpaid interest will not capitalize during thepayment pause and through June 30, 2023, six months after the payment pause is scheduled to end. The earliest interest will capitalize would be July 1, 2023. GreatLakes will reverse and delay any interest capitalization that has an effective date of March 13, 2020, throughJune 30, 2023.
For more information about interest capitalization, see”Top Six Ways to Reduce What You Owe“and scroll to section #2.
How Can I Qualify For A Deferment
Deferment is available under several different circumstances, including when:
- youre enrolled at least half time in a post-secondary school
- youre a parent who received a Direct PLUS Loan or an FFEL PLUS Loan
- youre enrolled in an approved graduate fellowship program
- youre disabled and enrolled in an approved rehabilitation training program
- youre unemployed or unable to find full-time employment
- youre experiencing economic hardship or serving in the Peace Corps
- youre on active duty with the military, or have been on active duty within the past 13 months, in connection with a war, military operation, or national emergency, or
- youre receiving treatment for cancer. You may also receive a deferment for six months after treatment ends.
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Midterm Elections Are Coming
With the November midterm elections right around the corner, the president may be hesitant to address the divisive student loan situation. Biden supported canceling at least $10,000 of federal student loan debt during his 2020 presidential campaign, but Democrats and Republicans have remained divided on whether student loans should be forgiven on a large scale.
Some proponents have called on Biden to cancel upwards of ,000 in student loans per borrower, whereas opponents have shut down the idea of broad student loan forgiveness entirely. Soaring inflation has become another complicating factor, with broad student loan forgiveness having the potential to increase the buying power of a significant number of Americans at a time when policy makers are looking to tamp down consumer demand.
Restarting student loan payments two months before an election would be political suicide, according to higher education expert Mark Kantrowitz. Other than the political considerations, there is no valid justification for a further extension to the payment pause and interest waiver, he says.
Student Loans: The Covid
As much as everyone wishes Covid-19 would disappear, the pandemic hasnt faded. With the emergence of the highly-contagious Omicron variant, Covid-19 infections are increasing in cities such as New York City. Thats impacted at least some student loan borrowers not only from a health perspective, but also from a financial and mental health perspective too. .
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When Will Student Loan Payments Likely Resume And What Should Borrowers Do
Student loan payments will resume starting on Sept. 1, which leaves millions of borrowers waiting for word about whether they will have to begin repaying their student loans after a nearly two-and-a-half year break.
Because experts generally agree that the pause will be extended, its more a question of how long the pause will be extended. Farrington says a 60-day extension would put it right before the midterm elections, which seems politically too short. He says setting the deadline at the end of the year could be a possibility, but it might not be a good one given all the holidays.
I believe we will likely see an extension until Jan. 31, 2023, says Farrington. As to whether this will be the last one, its uncertain. I do think the administration is trying to extend the pause as long as possible so they can sort out any potential forgiveness plans or other student loan reforms.
Farrington adds that the president can continue to extend the pause as long as there is a state of emergency. As long as that continues to be extended, so can the payment pause, he says.
Right now is the time to assess your debt and find what forgiveness programs you are eligible for and if you arent eligible for forgiveness, you should identify what is the best and cheapest way to pay back your student loans, Aguilar says.
Biden Nears Decision On Student Loan Cancellation Moratorium Extension
WASHINGTON President Joe Biden is expected to announce Wednesday at the White House that he will cancel $10,000 in federal student loans per borrower making $125,000 a year or less.
He is also expected to extend the federal student loan payment pause for several more months, according to multiple sources familiar with the matter.
Although Biden had previously said he would make an announcement on student debt cancellation by the end of the month, the White House has insisted that no final decision had been made yet.
“The President will have more to say on this before August 31,” White House spokesman Abdullah Hasan said. “As a reminder, no one with a federally-held loan has had to pay a single dime in student loans since President Biden took office, and this Administration has already cancelled about $32 billion in debt for more than 1.6 million Americans more than any Administration in history.”
It is not clear whether there will be additional criteria for qualifying for student loan forgiveness.
The expected announcement comes as Biden is facing criticism from student debt relief advocates over his drawn-out decision-making process that has left millions of borrowers unclear about whether they would have to start making payments when the moratorium expires at the end of August.
Roughly 45 million Americans have student debt. The Federal Reserve estimated that in the second quarter of 2022, Americans owed more than $1.7 trillion in student loans.
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What Happens To Borrowers Who Were In Default
Borrowers in default will automatically be given a “fresh start,” according to the US Department of Education. All defaulted accounts will be returned to good standing, and any delinquencies will be “cured,” allowing borrowers to repair their credit and access programs like income-driven repayment plans and Public Service Loan Forgiveness, a student loan relief program designed for borrowers who work for the government or nonprofit organizations.
Since the federal student loan payment pause began in March 2020, collections on defaulted debts have been put on hold.
In an , Secretary of Education Miguel Cardona said, “During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs.”
If Your Income Has Changed
If you experience a change in income and still want to keep your payments going, the best way to lower your payment to something more affordable is to apply for income-driven repayment. Youll get a new payment that is based on your family size and a percentage of discretionary income, and it will be in effect even after relief has expired. You can apply online at studentaid.gov.
If you are already enrolled in an income-driven plan, make sure to update your income if it has changed due to the economic downturn.
If you were supposed to recertify your plan before Dec. 31, 2022, you’ll now have an additional time to do so. IDR recertification dates have been extended until at least March 2023. Borrowers will be notified when it is time to recertify.
Temporarily, borrowers with direct loans can self-report their income when applying for or recertifying an IDR plan. That means you own’t have to submit tax documentation, but you will need to select “I’ll report my own income information” in Step 2 of the IDR application. This option ends Feb. 28, 2023.
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Rehabilitate Any Loans In Default Before Collections Resume
The CARES Act promised an additional reprieve for federal student loan borrowers in default: a halt to collections and garnishments of wages and other monetary benefits. The Department of Education has also said it would refund $1.8 billion worth of recent seizures.
To avoid such penalties in the future, strategize how to get your loans out of default. Your options for federally owned debt include the following:
|What to know|
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With Payments Paused Canceling Student Loan Debt Still On The Table For Biden Administration
Canceling student loan debt through executive action is “still on the table,” said White House press secretary Jen Psaki, after the Biden administration once again delayed the restart of federal student loan payments earlier this month.
The White House has faced continued questions about what the administration will do about the student loan debt crisis since the president took office more than a year ago. Psaki made the remarks during an interview with the podcast Pod Save America in Washington, D.C.
The White House announced last week it was extending the pause of federal student loans through August 31. That pause, which has been in place since the beginning of the coronavirus pandemic, was set to expire on May 1, but had already been pushed back multiple times under first the Trump and then Biden administrations.
“So between now and August 31st, it’s either going to be extended or we’re going to make a decision, as Ron referenced, about canceling student debt,” said Psaki, acknowledging previous remarks by White House Chief of Staff Ron Klain, who said in early April the administration would make a decision before the previous May 1 deadline or extend the pause as well.
Meanwhile, some Democratic lawmakers are calling for the president to cancel $50,000 in student loan debt, arguing Biden has the power to do so immediately.
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What You Should Do Between Now And Aug 31
Pentis recommends first to contact your federal loan servicer to confirm your ongoing eligibility for the pause and discuss options for handling repayment once the moratorium ends. If your servicer is not especially helpful, take on the research yourself or work with a certified student loan or credit counselor at an accredited nonprofit counseling agency.
If you decide to work with a student loan counselor or agency, its important to ensure theyre fully certified as there are many student loan forgiveness scams.
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Student Loan Relief Was Championed By Progressive Democrats In Congress
For months, progressive members of Congress, including Senate Majority Leader Chuck Schumer and Sen. Elizabeth Warren , have been relentless in pressuring Biden to extend the student loan payment pause. Rep. Alexandria Ocasio-Cortez called student loans ridiculous, while Rep. Ayanna Pressley referred to student loan as policy violence. Importantly, Bidens harshest critics havent been Republicans, but progressives Democrats who are members of his own political party. Mounting pressure from progressives in Congress, as well from leading advocates and organizations, may have been a critical factor in Bidens decision to extend student loan relief. . While progressives called for an extension of student loan relief beyond February 1, they differed in the length of that extension. For example, some advocates championed a three-month or six-month extension, while others sought to continue the student loan payment pause until the end of the Covid-19 pandemic.
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Replenish Your Emergency Fund If You Can
If youre wondering whether to save money or pay off debt, the answer is clear but only through December. While the penalty-free student loan interest freeze remains in effect, refilling your rainy day fund should be a priority. This way, youll have a cushion in case you need to dip back into the fund to afford loan payments down the road.
Generally, its wise to carry three to six months worth of expenses in your accessible savings account. With the future of the unemployment rate uncertain, though, the more savings you sock away, the better off youll be.
Plan For Your Payments
Once youâve confirmed who your loan servicer is and how much you can expect to owe each month, look at your budget and make sure itâs something you can afford. If not, take steps now to reduce your monthly spending or consider ways you could earn additional income to more comfortably afford your loan payment.
When payments restart, youâll also likely need to re-enroll your loan into autopay, if desired. Even if you previously used automatic payments before the pause, most borrowers will need to sign up again.
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What The Pause Has Done For Borrowers
The pause was initially intended to ease financial pressure on borrowers during the early days of the pandemic.
All of this time without payment has helped borrowers manage their finances. Borrowers didn’t have to pay, on average, $210 per month, according to a March 2022 report from the Federal Reserve Bank of New York. Most borrowers improved their credit standing, and 44% reduced their use of credit cards, according to a March 2022 report from California Policy Lab. Those who did make payments about 18%, according to the New York Federal Reserve potentially lowered their debt faster by taking advantage of 0% interest.
Many borrowers will have had their debt canceled before the restart begins. Since the start of the Biden administration, at least 1.6 million borrowers have received more than $32 billion in student debt discharges through improvements to existing student loan forgiveness programs like Public Service Loan Forgiveness and borrower defense to repayment.
But some borrowers won’t be able to make payments even after forbearance ends it’s good to explore your repayment options well before then.
Will There Be Another Extension
At this point, it doesnt look likely that the Education Department will extend the forbearance period for the eighth time, especially due to the mass forgiveness measure. While another extension is not impossible, federal student loan borrowers should prepare to resume making regularly scheduled payments in January and be on the lookout for the forgiveness application thats expected to be released in October.
Youll receive a billing statement from your loan servicer at least 21 days before your first payment is due, and you may receive additional communication about the end of the forbearance period before that. You can use these final few months of the payment pause to make interest-free payments, focus on private student loan payments or pay down high-interest debt, like credit card debt.
However, if youre concerned about making payments again in January, you have options. If youre looking for a lower monthly payment, consider enrolling in an income-driven repayment plan or Public Service Loan Forgiveness which has temporarily loosened its eligibility requirements through Oct. 31 or apply for federal forbearance if you dont have the resources to start up payments. You can also think about refinancing with a private lender if you can get a lower interest rate and you arent worried about losing federal benefits.
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How Does The Payment Pause Affect My Cancer Treatment Deferment
If you had been granted a cancer treatment deferment prior to the beginning of the COVID-19 payment pause,your loan was placed into the payment pause. If your cancer treatment deferment would have ended after December 31, 2022, your loans will be placed back into that deferment automatically on January 1, 2023. You will notneed to recertify your cancer treatment deferment before payments restart. The earliest you might be asked torecertify is July 1, 2023. Great Lakes will send notification of your new recertification due date before itis time to recertify.
Whats The Downside Of Broad Forgiveness
While broad student loan debt cancellation could deliver financial relief to millions of Americans, the implications of such a significant policy move are complicated, CNNs Katie Lobosco writes.
And on its own, the action would do nothing to bring down the cost of college for future borrowers or help those who have already paid for their degrees.
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