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Student loans: Will there be changes ahead?
Any changes to student loan repayment being considered by the Biden-Harris administration were far from concrete as this edition of MTA Today went to press. A lot could happen regarding student loans in the months ahead — but that doesn’t mean that you should just wait and see. Borrowers need to have a plan of action, so please read on.
Payment forbearance was set to expire on Jan. 31, but on his first day in office, President Joe Biden extended that payment holiday to Sept. 30. Even though you won’t be required to make payments on Direct loans, you will be credited as having made a payment if you are a candidate for Public Service Loan Forgiveness. The payment suspension doesn’t apply to commercially held Federal Family Education Loans, Perkins loans or any private loans. Anyone holding these types of loans should contact the servicer or lender directly to see if any relief options are available.
The next steps depend on several factors, including whether another federal stimulus package is offered. The stimulus package that was passed in December — which was smaller than many had hoped for — could cause the administration to take aggressive action on student loans, and this could involve some measure of federal student loan forgiveness.
Members of the new administration have been outspoken in the past about forgiving up to $10,000 in student loan debt, which would effectively wipe out the balances of roughly 15 million loan holders. About two-thirds of borrowers owe more than $10,000, but a reduction of their balances would still make monthly payments more affordable. The American Rescue Plan, which the incoming president announced on Jan. 14, didn’t include any of the sweeping debt forgiveness measures that had been discussed, but that doesn’t mean those options are off the table.
Opinions vary, however, on whether it would be legal to forgive student debt by executive order, so counting on this happening would not be prudent. Plan to repay your current balances. If your debt is canceled or reduced, you will be pleasantly surprised.
Finally, what changes, if any, might we see in regard to loan forgiveness? Here’s a quick summary of what has been discussed. But please bear in mind that these changes would have to be enacted by Congress, and they could be changed significantly or dropped from any bill that makes it to the president’s desk.
- The $10,000 in loan forgiveness would probably apply to undergraduate loan balances only, not to loans used for graduate school, and would likely phase out for people earning $125,000 or more.
- Income-based repayment plans would be revised. Borrowers would pay 5 percent of discretionary income rather than the current 10 percent to 20 percent.
- Forgiveness of undergraduate loans for borrowers who provide a public service would be capped at $50,000, with $10,000 forgiven after each year of qualifying employment.
- Public Service Loan Forgiveness would not be replaced, but it would be overhauled to include more loan types and repayment plans. Half of the borrower’s debt would be wiped out after five years, and any remaining balance could be forgiven after 120 payments.
Those with Federal Family Education Loans, and especially those who also have Direct loans, should create a specific strategy for their current situation. Assistance is available to MTA members from Cambridge Credit Counseling. If you are unsure which factors to consider, please contact Todd Friedhaber by emailing firstname.lastname@example.org or calling 800.527.7595, ext. 5373, or contact Martin Lynch at email@example.com or 413.883.3390.
Also consider attending one of the free webinars that MTA Benefits produces with Friedhaber and Lynch every month. They are available to help members at no cost, and Cambridge Credit Counseling representatives are ready to discuss the impact of whatever changes are made by the new administration.