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What The Student Loan Forgiveness Program Overhaul Means For You – Forbes Advisor

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The U.S. Department of Education plans to significantly revamp the Public Service Loan Forgiveness (PSLF) program, initially offering up to $4.6 billion in student loan debt forgiveness to tens of thousands of borrowers, with more than 550,000 others eligible for loan relief.

The changes announced Wednesday were a significant improvement to the notoriously troubled program that had a forgiveness rate of less than 6% in April, according to the most recent data from the Federal Student Aid office.

The program’s complex rules left many borrowers confused and without forgiveness, even after a decade of payments. But with the changes, the department estimates that more than 550,000 borrowers will be helped financially, with 22,000 of those borrowers immediately eligible for forgiveness. Here’s a look at what brought us to this point, the changes being made and how your loans could be affected.

Problems Plague Public Student Loan Forgiveness

On paper, the PSLF program sounded good: If nonprofit employees, government workers and other public service staff work for eligible organizations while making 120 student loan payments, their remaining federal student loans would be forgiven. But in practice, few borrowers successfully achieved this.

To gain forgiveness, borrowers had to have the right type of federal student loans and repay them using the right type of payment plan. Certain rules had to be followed to ensure each payment was eligible, and you had to work for an eligible employer as each of these payments were made.

But these things are difficult for most borrowers to track on their own. The Consumer Financial Protection Bureau also found that student loan servicers were providing inaccurate information to borrowers. That left many borrowers who had dutifully paid their student loans for a decade or more stuck with large amounts of debt and no forgiveness.

In addition, a 2020 report by the Student Borrower Protection Center and the American Federation of Teachers highlighted more issues with the program’s administration. The report detailed evidence of borrowers who were told they worked for eligible organizations, only to have their employment rejected later. The PSLF program’s poor recordkeeping was also found to be problematic, and borrowers had few options to appeal rejections they felt were incorrect.

What’s Changing in the PSLF Program?

To address some of the issues, the Education Department plans to overhaul the PSLF program, including simplifying the rules so it’s easier for federal loan borrowers to get forgiveness. Some of these changes are retroactive, so those who were previously denied may now be eligible. Others will be implemented through the coming year. Here are the biggest updates.

More Loan Payments Will Be Counted

For a limited time, federal borrowers can get credit for earlier payments that would not otherwise be counted toward PSLF. Any payment you made while working for an eligible employer can now be counted, even if you were enrolled in the wrong repayment plan, had the wrong type of federal loan or made a late payment.

To make sure past payments are counted, direct loan borrowers may need to submit a PSLF form by October 31, 2022. Those with Federal Family Education loans (FFEL) or Perkins loans must consolidate their student debt with a direct consolidation loan and submit a PSLF form by October 31, 2022.

You can find more details and see if you qualify for this limited waiver by visiting the Federal Student Aid site.

Borrowers in the Military Have Relaxed Rules

Military members can have the months they spend on active duty counted as PSLF payments, even if their student loans are in deferment or forbearance. Previously, months where student loans were not actively being repaid would not count towards PSLF.

According to the Department of Education, “Federal Student Aid will develop and implement a process to address periods of student loan deferments and forbearance for active-duty service members and will update affected borrowers to let them know what they need to do to take advantage of this change.”

Previously Denied PSLF Applications Will Be Reconsidered

The Department of Education is well aware that errors were prevalent in the review and processing of PSLF applications. To remedy this, the department will review all previously denied applications. Borrowers will also be able to submit an appeal next year if their application is still denied under this new process.

The Bottom Line

It’s been a year of considerable reform in the federal student loan system, and the changes to the PSLF program are the latest update in the Biden administration’s mission to ease the nation’s student debt burden.

The American Rescue Plan that was passed earlier this year permitted borrowers who get their student loans discharged or forgiven by the end of 2025 to not have to pay taxes on the canceled amount. And as of August,$9.5 billion in student loans had been forgiven for disabled borrowers and those who were defrauded by their schools.

To keep up with changes to your student debt, the Department of Education encourages borrowers to register for an FSA ID and ensure their contact information on StudentAid.gov is correct.

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