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The Biden administration has announced a moratorium on student loan payments. The pause will last until at least January 2023. In addition, interest on student loans will be waived and changes to income-based repayment plans will be made. However, Republicans have been opposed to broad-based loan forgiveness.
Biden administration extends pause on student loan payments
The extension of the pause on student loan payments until September 2022 came after pressure from Democratic lawmakers and advocates piled on Biden. But the extension also came with caveats. While some Democrats have praised the decision, others have criticized it. Those who benefited from the pause include those with Direct Loans and PLUS loans (for parents or graduate students). However, those who took out Federal Family Education Loans will not be covered by the pause.
The original pause was set to end on Aug. 31 but has been extended five times. This latest extension is the shortest of the six pauses. The previous pauses had given borrowers a full month’s notice. But with the current extension, borrowers will only have a few weeks’ notice. In addition, interest won’t accrue on the balance left after the pause ends.
The decision comes at a time when borrowers are facing an economic downturn. Consumer prices are skyrocketing, and it would be difficult for millions to make their payments. By extending the pause, the administration is giving these students a chance to get back on their feet. As a result, borrowers are encouraged to enroll in income-driven repayment programs, which can help them keep up with their payments.
Students whose student loans have a zero percent interest rate are eligible for an interest waiver. This waived interest applies to all interest rates accrued during a specified time period. The waiver does not apply to borrowers who have fallen behind on payments before the start of the zero-interest period. In some cases, payments may be suspended until December 31, 2022.
To get the waiver, students should contact their loan servicer and request an administrative forbearance. In this situation, the servicer will no longer need to send repayment instructions to the borrower and interest will not accrue. If borrowers cannot meet their monthly payments during this period, they should cancel any auto-debit payments set to be made on their accounts.
To qualify for the interest waiver, borrowers with federally-held federal education loans can apply for the benefit. However, it’s important to note that these loans will take longer to be forgiven. If you have private student loans, you’ll need to submit an application listing all of them to get the waiver. Private student loans are not listed on the U.S. Department of Education. If you have multiple federal loans, it’s best to consolidate them into a single Federal Direct Consolidation Loan. Consolidating your debt will also give you the opportunity to get an interest-free payment period. You can even make your payments suspended for a year or two.
Changes to income-based repayment plans
The Education Department is pushing out the normal income recertification deadline for borrowers enrolled in income-based repayment plans. This move is good news for those who are currently enrolled in an income-driven repayment plan, but it isn’t clear when the new rules will be implemented. Currently, over 9 million borrowers are enrolled in an income-driven repayment plan.
Under the new plan, payments for low-income students would be capped at 5% of their discretionary income, rather than the current 10%. Additionally, borrowers with both undergraduate and graduate student loans would pay a weighted average of both rates. Another major change would be the expansion of loan forgiveness criteria. Under the new plan, a borrower earning less than $12,000 a year would be eligible for loan forgiveness after 10 years of payments.
The new plan would allow borrowers to reach forgiveness after ten years, while the current IDR plans only allow for 20 to 25 years. The Biden administration has announced temporary changes to income-driven repayment plans, and it is possible the administration is planning larger reforms. The changes are not immediate, but they could affect future student loan repayment programs.
Republicans oppose broad-based loan forgiveness
While President Barack Obama has vowed to keep student loan forgiveness in place, many Republicans have voiced their opposition to this proposal. Virginia Foxx, the top Republican on the House education committee, has decried the plan as a “handout to the rich.” She is not alone in her criticism of the plan.
However, many Democrats are voicing opposition to the plan. For one thing, they fear it would send the wrong message to the unemployed and those without a college degree. Moreover, the plan could cost $1 trillion, according to a recent study by the University of Pennsylvania. Similarly, Colorado Sen. Michael Bennet said that the White House should have come up with a more targeted plan and found a way to pay for it.
The bill would provide targeted relief for borrowers who need it most. In addition, it would limit the Department of Education’s ability to unilaterally forgive student loan debt. It would also provide long-overdue reforms for graduate student lending.