How Changes in the Student Loan Landscape May Affect You
Entrusted Legacy Law
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Aug 07, 2023
Pennsylvania - Greater Pittsburgh Area
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According to AARP, people aged 60 and older owe upwards of
$290 billion in student loan debt. Thankfully, many federal student
loan borrowers have experienced payment reprieves for the past few years due to
multiple payment pauses enacted during the pandemic by the CARES
Act and other loan relief efforts.
These pauses on making payments for federal student loans
are ending in August 2023, however. Interest will resume accruing on paused
loans effective September 1, 2023, and student loan payments will be due in
October 2023. To help borrowers get back on track with their payments, the
Department of Education is implementing several programs.
Resuming Payments
One of the new initiatives is a
yearlong “return-to-repayment” program designed to get borrowers back into
active repayment status. Between October 2023 and September 2024, borrowers who
miss payments will not be considered delinquent. Their loans will not be
reported to credit bureaus as delinquent due to missed payments.
In addition, they won’t be considered to be in default.
Although interest will still accrue, it will not be capitalized. The idea
behind this program is to give borrowers time to contact their student loan
servicers, explore their options, and hopefully enroll in an affordable
repayment option.
Fresh Start Initiative
Additionally, the Department of Education is implementing a
“Fresh Start” initiative. This program provides borrowers who were in default
of their student loans before March 2020 with a way to get their loans out of
default going forward. It allows them to request that their loans be removed
from default and put back into repayment status via a simple request to their
loan servicer.
This is significantly different from what borrowers
previously had to do to get out of default, which often included a “trial”
repayment effort before a loan was taken out of default.
The benefits of the Fresh Start program include allowing
borrowers to:
- start
paying their loans again regardless of prior missed payments,
- improve
their credit scores,
- avoid
administrative wage garnishment (AWG), and
- access
income-driven repayment (IDR) options quickly. (IDR options often result
in $0 monthly payments for low-income or fixed-income borrowers.)
Avoiding Administrative Wage Garnishment (AWG)
The ability to avoid AWG is significant. AWG can affect
people at all stages of life, including seniors. AWG allows a federal agency to
order a non-federal employer to withhold up to 15 percent of an employee’s
wages to pay a debt owed to the agency, such as defaulted federal student
loans. AWG can also mean receiving a lower tax refund or having a portion of
one’s monthly Social Security benefits withheld.
However, if borrowers take advantage of the Fresh Start
program prior to August 31, 2024, they can avoid a loan default that leads to
AWG.
The SAVE Plan
In addition, the Department of Education is implementing a
new IDR option in mid-2024 called the Saving on a Valuable Education (SAVE)
Plan. The SAVE Plan amends and replaces the REPAYE Plan.
Typically, the amount a student loan borrower with an IDR
plan must pay depends on their income and the size of their family. Effective
July 1, 2024, the SAVE Plan will protect more of a borrower’s income from
monthly payments. Compared with other IDR plans, the SAVE Plan will therefore
lead to reduced monthly payments. For details, check out this fact
sheet from the Department of Education.
Borrowers With Disabilities May More Easily Qualify for a
TPD Discharge
Effective July 1, borrowers with disabilities will have an
easier time qualifying for a total and permanent disability (TPD) discharge.
New rules allow the Department of Education to offer TPD discharges (often
automatically) to borrowers receiving SSDI or SSI who:
- have
an onset of disability date five or more years ago and have been receiving
Social Security Disability Insurance (SSDI) or Supplemental Security
Income (SSI) based on this disability for at least five years;
- SSDI
or SSI recipients who suffer from a condition on the Social Security
Administration’s List of Compassionate Allowances;
- SSA
beneficiaries receiving retirement benefits who met the requirements for a
disability discharge before they retired;
- SSDI
or SSI recipients receiving these benefits based on disability with a
three-year disability review period; or
- SSDI
or SSI recipients receiving these benefits based on disability with a
five- to seven-year disability review period.
Disabled individuals who do not meet these criteria and wish
to apply for a TPD discharge based on a doctor’s certification may now seek out
certification from professionals beyond those holding an M.D. Nurse
practitioners, physician assistants, and osteopathic doctors may now sign the
certification verifying a borrower’s disability.
Borrowers who receive a TPD discharge in this manner will no
longer be subject to a three-year income monitoring rule. However, if they
apply for new federal loans within three years, they may lose their TPD
discharge.
Forgiven Student Loan Debt Won’t Result in Taxable Income
(For Now)
At the moment, student loan debt cancellation is not counted
as taxable income to borrowers. This protection from additional taxes will
remain in effect until December 31, 2025.
So, if you are considering applying for a TPD discharge or
completing an IDR plan you previously started that would lead to loan
forgiveness, now may be the time to act. However, note that this rule only
applies to federal tax liability. Borrowers may still have liability under
their state’s income tax rules.
Contact Sharek Law Office at 412-547-955 or click here to
schedule a complimentary 15-Minute Call to see how we can assist you.
This article is a service of Sharek Law Office, LLC. We don’t just
draft documents; we ensure you make informed and empowered decisions about life
and death, for yourself and the people you love. That's why we offer a Life and
Legacy Planning Session, during which you will get more financially organized than
you’ve ever been before, and make all the best choices for the people you love.
You can begin by calling our office today to schedule a Life and
Legacy Planning Session and mention this article to find out how to get
this $750 session at no charge. Please note this is educational content
only and is not intended to act as legal advice.
- To view the original version of this article visit www.shareklaw.com/post/how-changes-in-the-student-loan-landscape-may-affect-you
- Seniors Blue Book was not involved in the creation of this content.
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