45% of 18-35 Year Old NYS Residents Have Student Loan Debt
Parachute Credit Counseling Offers FREE Assistance and Counseling
Bad News: Proposed Loan Forgiveness Program Struck Down by Supreme Court
Payments to Resume on October 1st
Good News: 804,000 Borrowers Will Have Their Loans Automatically Discharged via Income Driven Repayment (IDR) Plans—Program Extended; Parachute Can Help
NEW SAVE Repayment Plan Announced: Most Affordable Plan Ever Created
12 Month Grace Period: Borrowers Will Not Be Penalized for Missing Payments
Millions of Americans will soon resume paying their student loans, whether they want to or not. In their recent 6-3 decision, the Supreme Court rejected the much hoped for, yet controversial, student loan forgiveness proposal.
This means that interest will once again begin accruing on outstanding loan balances this September. Then, on October 1st, payments resume and 44 million Americans will be paying an average of $210 to $314 each month toward their loan balances (according to Wells Fargo).
However, there is hope that there may be other methods to facilitate student loan forgiveness and the U.S. Department of Education is hard at work on various strategies.
Late last week, the Department of Education announced a few positive steps, beginning with the news that 804,000 borrowers will have $39 billion in Federal loans automatically discharged due to Income Driven Repayment (IDR) Plan/IDR Account Adjustment. This program had disappointed many until very recently when great effort was put into fixing it. More info coming later in this release: many people could benefit so it is suggested that everyone look into it.
The Department of Education also announced the SAVE Plan (Saving on a Valuable Education) which they have called “the most affordable repayment plan ever created.” This new plan will cut monthly payments to $0 for millions of borrowers making $32,800 or less ($67,500 for a family of four) and save all other borrowers at least $1,000 per year. Additionally, it will stop runaway interest that leaves borrowers owing more than their initial loan.
And in a final announcement, in an effort to ease the transition to monthly payments, President Biden and the U.S. Department of Education stated that there will be a 12-month “on-ramp” period starting in October where “missed, partial, or late payments will not lead to negative credit reporting, default, or loans being sent to collection agencies.” Additionally, missed payments will not count toward loan forgiveness under any of the income-driven repayment plans or Public Service Loan Forgiveness.
We are currently facing a unique, unprecedented situation that will significantly impact millions—along with the entire economy–over the next few years.
Since March 2020, borrowers have had a pause in their student loan payments—with no interest accruing–due to the pandemic. This break let those with loans stay current on other bills and obligations, pay down other debt, or for some, build up their savings. The resumption of loan payments is expected to have an adverse economic impact with a slow down in overall spending and an increase in defaults and forebearances. Never in the history of the federal student loan system have over 40 million borrowers simultaneously resumed repayment after a three-year hiatus.
According to the Consumer Financial Protection Bureau (CFPB), about 20% of student loan borrowers have risk factors that indicate they could struggle when payments resume. More than 1 in 13 student loan borrowers are currently behind on other payment obligations, a rate higher than before the student loan pause started in March 2020 during the pandemic.
Student loan borrowers owe more in other debts now as well. The CFPB found that median scheduled payments on other debt obligations have increased by 24% for borrowers whose student loans will soon become due. In percentage terms, those increases are especially notable for younger borrowers—a whopping 252% increase from $65 to $229.
Income Driven Repayment (IDR) Plan/IDR Account Adjustment
As mentioned earlier, there are positive options available for student loan borrowers. One of these is the the Income Driven Repayment (IDR) Plan/IDR Account Adjustment which was recently extended until December 31, 2023. Income Driven Repayment (IDR) Plans allow borrowers to make payments on their federal student loans according to a formula based on their income and family size—the payments are deliberately meant to be smaller. Ostensibly this program had been in place prior to the pandemic but there were major issues with it, resulting in few people actually receiving the proper help to enroll in this program.
Last year, the U.S. Department of Education implemented IDR Account Adjustment to help student loan borrowers benefit from the program as it was initially intended. The Department worked to remove the confusion surrounding the program, making it more accessible and available to student loan borrowers. It also conducted a one-time adjustment of IDR payments to address past inaccuracies and improved their previous subpar tracking procedures.
On July 14th, the Department of Education began notifying 804,000 borrowers that they have a total of $39 billion in federal student loans that will be discharded in coming weeks. In total, more than $116.6 billion in student loan forgiveness for more than 3.4 million borrowers has been approved.
In final good news, there is no application required for the IDR Account Adjustment. Borrowers will automatically receive the benefits. A critical element, however, is that borrowers with non-Direct and non-government-held federal student loans need to consolidate those loans into the federal Direct consolidation program in order to benefit from the IDR Account Adjustment.
The U.S. Department of Education advises: “Borrowers who have commercially managed FFEL, Perkins, or Health Education Assistance Loan Program loans should apply for a Direct Consolidation Loan by the end of 2023 to get the full benefits of the one-time account adjustment.” Additional info available here: https://studentaid.gov/announcements-events/idr-account-adjustment
Parachute Credit Counseling—formerly known as Consumer Credit Counseling Service of Buffalo (CCCS)— recently announced that they are now offering free Student Loan Counseling—including assistance with the IDR Account Adjustment process and loan consolidation–throughout the eight counties of Western New York along with expert strategies for attaining financial stability.
The experienced, certified financial counselors at Parachute will help WNY residents consolidate their loans and review other potential relief options and changes to existing programs available to help borrowers reduce or eliminate their debt. Now is the time for borrowers to seek free and unbiased counseling. Call 716-712-2060 or visit https://parachutecreditcounseling.org/ for more information on our Student Loan Counseling Program and other financial counseling services we provide.