Proposed changes to federal student loan programs are being discussed by lawmakers, and we can expect final versions of those changes within the next 90 days. As we know more, we’ll share details. Read on for what you can do to prepare if you have federal student loans.
Coach Lynn's Take
"While nothing is final yet, it's likely that we'll see some rolling back of student loan relief this year, and should start preparing now as much as we can to avoid significant stress later. If you have federal student loans and are on an income-driven repayment plan, take a look at your cash flow to see how much wiggle room you would have for payment increases. If you need help, we're here."
- Coach Lynn, Bolder Money Coach + Student Loan Expert
The Wait Continues for Millions of Borrowers
Last year, we waited to see if student loan forgiveness would be approved for 27.3 millions student loan borrowers who met a series of requirements, like owing more than they originally borrowed even though they regularly paid their loans, or making consistent payments for 20-25 years. It was blocked in court, and died.
Additionally, 8 million federal student loan borrowers had their loans placed in forbearance (meaning no payments can be made but interest still accrues) as the federal courts blocked Biden's new income-based repayment plan.
These borrowers applied for the Saving on a Valuable Education (SAVE) plan, an income-driven repayment (IDR) plan that lowers monthly payments to a reasonable amount based on income levels, and makes borrowers eligible for loan forgiveness after 20-25 years of payments.
Instead, they found themselves waiting to hear if the plan was allowed to continue, unable to make payments towards forgiveness, while their balances continued to accrue interest.
New Rollbacks on Student Loan Relief are Proposed
This week, the new administration proposed several changes to federal student loan programs to limit eligibility for forgiveness and restrict payment relief offered under the IDR plans.
In total, there are 42 million federal student loan borrowers, and 33% of those ages 25 to 49 rely upon an IDR plan to afford their student loan payments, making reduced monthly payments consistently for 20-25 years before applying for forgiveness. These changes could significantly impact their financial situations.
What We Know about Student Loan Changes
Lawmakers want to extend tax cuts to corporate, individual, and estate taxes, and find money to afford said tax cuts by canceling or reducing funding for programs like student loan forgiveness, income-based student loan repayment plans, and healthcare subsidies for low-income individuals. Kind of like a reverse Robinhood situation.
Discussions around the potential changes are ongoing, and while no final decision has been made, the possibility is real.
Several key programs could be affected:
- Public Service Loan Forgiveness (PSLF): This program offers forgiveness to borrowers working in qualifying public service jobs after making 120 qualifying payments. Other forgiveness programs include those for teachers or someone whose college misled them or violated certain laws.
- Income-Driven Repayment (IDR) Plans: These plans cap monthly payments based on income and family size and offer forgiveness after 20 or 25 years of qualifying payments.
- IDR plans include the 2024-enacted Saving on a Valuable Education (SAVE) Plan, which further reduced required monthly payments and time to forgiveness for many borrowers.
What We Don’t Know
Despite the ongoing discussions, several aspects remain unclear:
- Final Decisions: No official announcements have been made. Everything is still in the discussion phase.
- Scope of Impact: It's uncertain how many borrowers would be affected or how quickly changes would be implemented if changes were to occur.
- Alternative Solutions: There may be proposals oralternative solutions under consideration, but details are scarce at this point.
What You Can Do to Prepare
Amid the uncertainty, there are actionable steps you can take to safeguard your financial future:
Stay Informed
Keep up with the latest news and updates from reliable sources. Studentaid.gov is posting alerts as they receive more details on the proposed changes. We’ll also send an update as soon as we know more, so if you were sent this newsletter from afriend, subscribe to Bolder's #nofilter newsletter.
Review Your Loan Status
Take this time to thoroughly review your student loan accounts. Here’s a checklist of what you’ll want to understand for each loan.
From your loan servicer portal:
- Your current repayment plan
- Loan balance
- Interest rates
- The terms of any forgiveness programs you mightbe enrolled in
- Your history of past payments
From the Federal Student Aid site:
- The number of qualifying payments towards forgiveness
- Who your loan servicer is if you can’t remember
Prepare for Payment Increases
Review your monthly cash flow to see how an increase in student loan payments would impact your finances. One of our Bolder Money Coaches can help you understand where your money goes, and how to prepare for changes.
Lay out all income vs. expenses and goals, and see how much wiggle room you have if your student loan payment increases. If you don't have a lot of room (or any room), it's a good idea to start preparing now instead of waiting until a change happens. Review your source(s) of income to see how you can increase earnings, and assess your spending and bills to see what you can reduce.
By taking these steps, you can better prepare for whatever the future holds. Remember, you’re not alone in this – many are navigating thesame uncertainties, and together, we can advocate for a more secure and supportive system. Stay strong, stay informed, and keep moving forward.
Frequently Asked Questions about Student Loans
I can’t afford my payments, what should I do?
Most financial experts agree that you should call your loan servicer first to find out exactly what your options are. The Consumer Financial Protection Bureau also has great resources on what to do if you can’t afford federal or private student loans.
I applied for the SAVE plan and now my loan is in forbearance. Do I need to do anything?
No, while your SAVE plan loans are in forbearance, you don’ttechnically need to do anything. You could just wait for them to come out offorbearance. But there are some things to consider if you are close to making enough qualifying payments for forgiveness, or if you want to make payments again before forbearance ends. Go to the Student Aid’s SAVE Plan website to find helpful information about SAVE plan forbearance, including more FAQs.
I have private loans. Can I qualify for forgiveness or income-based repayment plans?
Private loans are not eligible for federal relief programslike forgiveness or income-based repayment. Typically, the only way to save money on private loans is by refinancing them to a lower interest rate or different repayment period.
Student Loan Resources
If you're a borrower living in California, you have access to free 1:1 help through the Student Loan Empowerment Network.
For borrowers anywhere in the US, find free help at The Institute of Student Loan Advisors.
If you need help with cash flow management concerning your student loans, consider working with one of our Bolder Coaches. You get 2 weeks free to make sure your coach is the right fit. Your coach will help you get financially organized, review your spending, set spending targets, and find ways to increase income and reduce expenses.
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