As an individual who has been highly critical of the GOP’s recent stance on student loans, I must admit that I was pleasantly surprised by their latest efforts.

Within their comprehensive package, some notable borrower-friendly proposals and ideas have the potential to empower individuals to make informed decisions about higher education. However, there are also some awful ideas that are potentially detrimental to current borrowers and future students.

In this article, I will delve into the details of this proposed legislation, shedding light on the areas that present opportunities for bipartisan agreements.

What’s in the Republican Student Loan Package?

The student loan and higher education reforms come from five new bills:

• The College Transparency Act (CTA)   
• The Understanding the True Cost of College Act  
• The Informed Student Borrowing Act  
• The Streamlining Accountability and Value in Education (SAVE) for Students Act
• The Graduate Opportunity and Affordable Loans (GOAL) Act

Some of these bills have bipartisan support and present a real opportunity to improve our flawed student loan system. Others are clunkers that would devastate borrowers and future students.

The College Transparency Act (CTA)

The College Transparency Act is bipartisan legislation cosponsored by Republican Bill Cassidy and Democrat Elizabeth Warren.

The bill would require detailed reporting on student outcomes including enrollment, completion, and post-college success across colleges and programs.

Adding transparency to the college selection process would be a huge win for borrowers. More information about job placement numbers, starting salaries, and student loan balances is always good.

Sherpa Tip: This is one area where the government has already made some progress. The Department of Education’s College Scorecard is an excellent resource for selecting a school.

The Understanding the True Cost of College Act

This particular act isn’t new, but it’s a good idea.

The objective of the Understanding the True Cost of College Act is to make it easy to compare financial aid offers from schools.

The act would:

• Require colleges to use a uniform financial aid offer form,
• Establish basic minimum information that must be included on page one of the uniform financial aid offer form, and
• Facilitate the creation of uniform definitions of various financial aid terms.

Like the CTA, this proposed legislation isn’t revolutionary, but it adds clarity to a confusing process, which is good.

The Informed Student Borrowing Act 

The Informed Student Borrowing Act is another attempt to increase transparency in the federal borrowing process.

This bill would change student loan entrance counseling from a one-time event to a yearly requirement.

It would also require that borrowers review median earnings for their particular program, completion rates, and projected monthly payments for their loans.

Lastly, borrowers must request a specific loan amount rather than having the school handle this calculation.

This is one of those bills that sounds like a great idea in theory, but it might not be so great in practice. Better informing borrowers is a reasonable goal. However, these new requirements could easily become burdensome hurdles that drive borrowers to risky private loans.

Careful implementation would be critical to this bill if it becomes law.

The Streamlining Accountability and Value in Education (SAVE) for Students Act

The SAVE Act is where things will start to get controversial.

On the positive side, it would automate enrollment in income-driven repayment. Under current federal law, automating IDR isn’t allowed, so this would be an improvement for borrowers.

Additionally, it would eliminate the nine current repayment plans and reduce the number to two. In the interest of avoiding borrower confusion, it is a step forward.

However, the terms of those two repayment plans become critically important. This is where the bill transitions from potentially helpful to awful for borrowers.

The 10-year repayment plan, like a cockroach in the apocalypse, survives.

The only other plan becomes the REPAYE+ plan, a new variation on the REPAYE plan. REPAYE+ would help borrowers with smaller balances qualify for forgiveness quicker, count certain deferments and forbearances toward forgiveness, and allow borrowers to make up missed payments to keep progress toward forgiveness.

Unfortunately, there are many downsides to this new plan. For starters, it would prevent the creation of President Biden’s proposed new repayment plan. The Biden plan is far more affordable than the proposed REPAYE+ plan.

The legislation would also prevent the Department of Education from creating new federal repayment plans.

The Graduate Opportunity and Affordable Loans (GOAL) Act

The GOAL Act is where things get ugly.

The stated objective of lowering the price of college is one that everyone can agree upon. College is too expensive, it is driving the student loan crisis, and it needs to get fixed.

However, the proposed legislation is not the answer.

To fix the problem of high education costs, Congressional Republicans want to eliminate Graduate PLUS loans and put restrictive caps on borrowing for graduate students.

The theory is that if people don’t have sufficient federal loans, they won’t be able to afford graduate school, so colleges will have to lower prices.

Pricing people out makes graduate school a privilege available only to the wealthy. If you think our healthcare and legal systems are unfair to the poor, imagine what would happen to those systems if only the wealthy could access medical or law school.

Sherpa Thought: This one is personal to me, and it is hard to be objective. If it weren’t for Graduate PLUS loans and the high borrowing limits, I wouldn’t have been able to attend law school. I wouldn’t have been able to serve my community as a prosecutor, and I wouldn’t be able to help borrowers as the Student Loan Sherpa.

Cutting the cost of higher education has to be a priority, but we can’t do it in a way that restricts access to education.

Will the GOP Legislation Become Law?

President Biden would almost certainly veto the GOAL Act and the SAVE Act. Both acts would also have uphill battles in the Democratically-controlled Senate.

The legislation that creates more transparency in borrowing and school selection has a realistic chance of passage. Even if the particular acts announced this week don’t pass in their current forms, the ideas behind them have broad support. There is a good chance we will see some of these changes happen in the coming years.

Opportunities for Progress

Earlier this month, Republicans passed legislation that would have canceled the one-time forgiveness plan currently before the Supreme Court. Buried in that legislation was language that would have retroactively charged borrowers interest from the student loan payment pause.

The bill was sure to get vetoed by Biden, and it was seemingly crafted to punish borrowers.

In stark contrast, the new legislation package seems like a step forward. Some proposed bills may generate sufficient bipartisan support to become law.

If you have a healthy dose of optimism and squint just right, it looks like there is a chance Congress might make some progress on the student loan crisis.

The post Breaking Down the GOP’s New Student Loan Legislation: What It Means for Borrowers appeared first on The Student Loan Sherpa.

At the start of the process, borrowers had reason to worry. Biden was desperate for a deal, Republicans were uniformly opposed to most student loan relief programs, and borrowers didn’t have an army of lobbyists acting on their behalf.

The end result is pretty close to a best-case scenario for borrowers. It’s not a total win, but things could have been much worse.

Payment Pause Officially Ends August 30th

When President Biden announced the most recent payment pause, he said it would end 60 days after the Supreme Court ruled on the one-time forgiveness plan or 60 days after June 30th — whichever comes earlier.

Under the terms of the debt ceiling agreement, the payment pause will end 60 days after June 30th.

In other words, the new legislation formally ends the pause as previously planned.

Speaker of the House Kevin McCarthy has boasted that the student loan payment pause is “gone” as a result of the deal. He is technically correct. Both sides hope this “win” for Republicans is sufficient to get the necessary votes to pass the debt ceiling legislation.

The downside for borrowers is that it closes the door on future extensions of the payment and interest pause.

No Repayment of Back Interest, No Instant Start

The Republican House recently passed legislation that would have immediately ended the payment pause and retroactively charged borrowers for interest during the break.

Though the bill was seen as dead on arrival in the Senate and certain to get vetoed by the President, it laid out the Republican student loan goals.

Instead, the payment pause will end as scheduled.

A Hidden Benefit to Borrowers: By having a specified date for the restart in the debt ceiling bill, borrowers get some much-needed repayment restart certainty.

We can prepare for payments to resume — and critically — servicers can staff up and train for payments to resume in September.

No Changes to One-Time Forgiveness

Another demand of Republicans heading into the debt-ceiling negotiations was that the plan for up to $20,000 of forgiveness per borrower get canceled.

The deal struck by Biden and McCarthy doesn’t address the one-time forgiveness.

At this point, it appears both sides are content to hope that the Supreme Court rules in their favor.

Ending Lawsuits to End the Payment Pause

Several different lawsuits have been filed to end the payment and interest pause.

From the time they were filed, these lawsuits appeared unlikely to force any changes. If the new debt-ceiling bill passes as expected, it would likely end the lawsuits.

For the parties suing to end the payment and interest pause, their case centers around one key argument: Congress didn’t authorize the pause to last this long.

The text of the debt ceiling bill specifically authorizes the payment pause to last until August 30th.

For borrowers, this all but eliminates the risk of a federal judge issuing a ruling that immediately resumes student loan payments.

Biden’s New IDR Plan Stays Alive

Last year, the Department of Education announced a new proposed IDR plan to considerably lower payments for most IDR borrowers.

This was another item that many Republicans wanted to be addressed in the debt ceiling bill.

Fortunately for borrowers, the proposed IDR plan remains in development.

Administrative Regulations and Congressional Approval: Departments in the executive branch can draft certain new rules and regulations without getting explicit approval through Congress.

The Department of Education intends to go this route for the new IDR plan. A bill from Congress could stop it, but getting approval from the House and Senate isn’t necessary.

The Best-Case Scenario?

There was plenty of reason for student loan borrowers to be concerned heading into the debt ceiling negotiations.

The Biden administration desperately needed a deal to avert an economic collapse, and Republicans appeared fixated on ending multiple forms of student loan relief.

The bill’s inclusion of an end date for the relief is a mixed bag. Borrowers won’t be getting a further extension, but they get certainty of a restart date several months in the future, and it likely ends the lawsuits pushing for an immediate restart.

Every other aspect of the legislation appears to be a clear win for borrowers. Both the one-time forgiveness plan and the new proposed IDR plan are still alive.

Things could have gone much worse.

The post Debt Ceiling Agreement Mostly Good for Student Loan Borrowers appeared first on The Student Loan Sherpa.

The proposed legislation comes on the heels of the Government Accountability Office (GAO) determining that Biden’s loan forgiveness plan could face expedited review in Congress.

The effort to overturn loan cancellation is noteworthy but unlikely to impact whether or not borrowers receive the planned forgiveness.

The Senate Resolution to Cancel Biden’s One-Time Forgiveness Program

A recent GAO ruling means that the one-time forgiveness plan falls within the authority of the Congressional Review Act. This law allows for an expedited Congressional review of actions taken by the President.

Most notably, this review process allows Congress to roll back presidential actions without the threat of a Senate filibuster.

What does this complicated legal process mean for borrowers?

It means there could be a vote in the coming days that would overturn Biden’s debt cancellation plans.

The Troubling News for Borrowers

The scary part of the Republican effort is its great chance of passing.

Without the threat of a filibuster, Republicans need a simple majority in both the House and the Senate.

Republicans already have a slim majority in the House, and several moderate Senate Democrats, including Joe Manchin and Catherine Cortez Masto, have been critical of Biden’s loan cancellation plan.

There is a real chance that a majority in the House and the Senate will vote to overturn the plan for up to $20,000 of loan forgiveness per borrower.

The Safety Net for Borrowers

Crucially, even if the Republican plan gets a majority in Congress, Biden can veto it.

In other words, it doesn’t stop the loan forgiveness plan even if it passes.

What about the Supreme Court Case? The one-time forgiveness plan is also under review before the Supreme Court. The actions taken by Congress shouldn’t impact how Congress rules on the case.

However, the Supreme Court can decide without the risk of a Presidential veto, which means the Supreme Court case remains the primary threat to borrowers’ hopes of loan cancellation.

The Republican Goal

If Biden can easily veto the effort to stop loan forgiveness, what is the point of proposing the legislation?

Like just about everything else in Congress, it is about politics.

Republicans can use a veto to claim that Biden is out of touch with everyday Americans who don’t want loan forgiveness.

More significantly, forcing a vote can put some Democratic Senators in difficult positions. Voting for forgiveness might upset some independent voters. Voting against forgiveness will surely upset student loan borrowers.

The post The Latest Threat to Loan Forgiveness Shouldn’t Worry Borrowers appeared first on The Student Loan Sherpa.

The headline terms are 0% interest and streamlined Income-Driven Repayment. Both would be an improvement.

Unfortunately, the LOAN Act is likely to cause more issues than it fixes.

The Leveraging Opportunities for Americans Now (LOAN) Act Basics

Under the LOAN Act, new federal student loans would not charge interest. Instead, they charge a financing fee when the loan is first borrowed.

For undergraduate students, there is a one-time financing fee of 20%. For graduate students and parents, the financing fee jumps to 35%.

The default repayment plan is an income-based repayment plan that charges borrowers 10% of their discretionary income. However, borrowers would have the option of repayment on a standard 10-year repayment plan. Borrowers that quickly could have the financing fee partially refunded.

Notably, the income-based repayment is automatic. Borrowers wouldn’t have to apply each year manually.

The Problem with Rubio’s 0% Interest Loan

The idea of 0% interest usually sounds too good to be true. In this case, it is definitely too good to be true.

The massive “finance fees” mean borrowing money for school is still expensive.

For example, suppose you borrow $10,000 to pay for a year of graduate school. By borrowing that $10,000, you agree to repay the government a total of $13,500 (the original $10,000 plus the 35% financing fee).

How does this loan compare to a traditional loan that charges interest rather than massive fees? If you borrowed the same $10,000 for school and repaid the debt over ten years, that equates to a 6.3% interest rate.

The math gets complicated quickly, but the important takeaway is that there are still borrowing costs associated with these loans. Calling them 0% interest loans without this context is highly misleading.

The Biggest Issue with the LOAN Act

Rubio’s plan is a fascinating thought exercise.

In theory, it makes borrower costs far more straightforward. It also simplifies repayment.

The Rubio approach might make sense if we were designing a federal student loan system from scratch.

Unfortunately, we already have an extremely complicated system in place. We have too many loan types, too many servicers, too many repayment plans, and too many rules. Simplicity should be the goal.

The LOAN Act creates two significant complications to federal student loans.

1. It makes a mess for current students. Rubio’s plan would mean that all new student loans were issued with hefty financing fees. How does a student who has two years of old loans and two years of new loans manage their debt? How do borrowers and servicers handle two completely different federal systems?
2. It makes paying for college more confusing. If the LOAN Act becomes law, it would be difficult for students to compare federal loans against private loans. How does an 18-year-old student compare a private loan with a 0% interest loan with a massive financing fee?

Sherpa Thought: It is also worth noting that the LOAN Act wouldn’t actually do anything to fix the student loan crisis. It doesn’t lower college costs. At best, it only makes living with the debt more manageable.

Massive reform is a good idea, but any real changes will have to address the cost of school.

What the LOAN Act Gets Right

Federal law currently prevents the IRS from sharing income information with the Department of Education unless the borrower authorizes the disclosure. This rule is why borrowers must certify their income each year to stay enrolled in income-driven repayment plans.

Rubio’s plan to automate IDR enrollment has been discussed for years by members of both parties, but it hasn’t ever become law.

There is bipartisan support for automated IDR enrollment, and there isn’t a good argument against it. Hopefully, Congress can pass some legislation to address this fixable issue.

Does the LOAN Act Have Any Chance of Passing?

Rubio has introduced this proposed legislation on multiple occasions, and it has never passed.

Republican support for the bill seems very limited, and Democratic support appears nonexistent.

In other words, the LOAN Act is unlikely to become law, no matter how many 0% interest headlines you see.

The post Rubio’s LOAN Act Promises 0% Interest, but it Doesn’t Deliver appeared first on The Student Loan Sherpa.

Congressional Republicans want to take away Biden’s authority to extend the help for borrowers.

Even though the proposed legislation will never pass, it has several significant implications for borrowers.

The Student Loan Integrity Act

GOP Reps. Jim Banks and Bob Good want the federal student loan payment and interest waiver to end on May 1st, 2022.

Their proposed legislation would eliminate the executive branch’s authority to modify or waive student loan terms under the HEROES Act. In other words, it takes away Biden’s ability to extend the student loan relief.

Why the Student Loan Integrity Act will Never Pass

While many Republicans have taken issue with the payment and interest freeze, they don’t have enough support to pass this bill.

For starters, the bill is unlikely to even get a vote in the Democratically controlled House or Senate. Even in the unlikely event that the bill were to pass, President Biden almost certainly would veto the legislation.

The proposed legislation appears to be nothing more than political grandstanding.

What the Bill Means for Borrowers

Even though the bill has no hope of passing, it could be trouble for borrowers.

Biden is under heavy pressure from members of his own party to extend the relief and offer some form of debt cancellation. Thus far, Republican opposition to the student loan aid has been relatively minimal.

The political calculation for Biden gets more complicated as opposition to student loan help grows. Independent voters unaffected by student debt may see continued support to borrowers as a handout. If resistance to the student loan relief increases, Biden may proceed with the repayment restart.

The flipside of this equation is that many Republican voters benefit from the student loan payment and interest freeze. If Republicans are too vocal in opposition to the assistance, they risk alienating some of their voters.

How the Bill Could Help Borrowers

Legislation from Republicans isn’t much of a threat to the current pause on interest and suspension of payments.

The big dangers have always been judicial intervention and Biden deciding to end the relief.

The extent of the President’s authority regarding federal student loans is somewhat ambiguous. The big debate right now is whether or not the President can cancel student debt. Some might argue that the President can’t keep issuing extensions and charging zero percent interest.

Proposing this legislation makes it less likely that the courts will step in to force student loan repayment to resume. Introducing legislation to prevent the President from extending the relief is a tacit admission that the President currently has the authority to extend the relief. If a lawsuit ever gets filed to end the student loan help, lawyers can argue that the Republicans didn’t get what they wanted from Congress, so now they are taking it to the courts for a do-over. It hurts their legal argument, and it looks bad politically.

For borrowers, the big threat to the student loan aid is President Biden deciding that it should end…

Making Sure the Student Loan Relief Doesn’t End

Borrowers can influence whether or not the student loan relief gets extended.

Call your elected officials to let them know you are not ready to resume payments. Let them know how student loan bills would impact your life.

Calling and emailing Congress might seem hopeless. However, under the right circumstances, it can make a huge difference.

The post Republican Bill Would End Federal Student Loan Relief appeared first on The Student Loan Sherpa.

The bill is estimated to provide $775.5 billion in debt relief for over 45.4 million Americans.

For student loan borrowers, the Student Loan Relief Bill is welcome news. Even if it doesn’t pass, it is a positive step forward.

Student Loan Relief Bill Details

Congressman Gonzalez has proposed that $25,000 of debt be removed from every federal student loan balance. For borrowers with larger balances, the debt with the highest interest rate gets forgiven first.

The forgiveness would apply to all federally-held loans and federally guaranteed loans, such as FFEL Loans. The initial draft of the bill does not include any limitations based upon borrower income.

The bill language also states that any debt forgiven would not be considered taxable income.

Chances of Passage

Unfortunately for borrowers, this particular bill looks like a long shot.

Congressman Gonzalez previously introduced this exact legislation at the start of the pandemic, and it received very little attention.

Additionally, there are no cosponsors to the bill, nor has companion legislation been introduced in the Senate.

The biggest challenge for any student loan forgiveness legislation is currently the Senate. With Republicans, thus far, uniformly opposed to student loan cancellation, getting the 60 votes necessary to pass appears highly unlikely.

Could President Biden Cancel the Debt? The authority of the President to cancel student loans is a much-debated legal question.

My read of the situation is that President Biden is unlikely to issue an executive order on forgiveness-for-all.

How to Plan for Forgiveness

Even though this particular bill may not become law, the possibility of forgiveness still exists.

For borrowers, the situation is complicated. If you aggressively pay off your federal loans now, you could miss out on forgiveness if it happens. However, if you just hope for forgiveness, you could spend far more than necessary on interest.

I’ve previously covered the strategy on planning for forgiveness in more detail, but the short version is that the possibility of forgiveness probably means borrowers should focus on debt unlikely to be forgiven, such as private loans.

The Benefits Even if the Student Loan Relief Bill Fails

A decade ago, the idea of canceling all borrowers’ student loans was rarely ever discussed or suggested. Today, it is a very mainstream position supported by many prominent Democrats.

Additionally, support among voters continues to grow. One recent poll showed that 60% of voters support some form of student loan forgiveness.

Even if the bill doesn’t pass, getting a vote would be huge. Any member of Congress who votes against forgiveness would have to explain their opposition to the popular and helpful legislation.

How to Support the Bill

As voters, we can have a considerable influence over how our elected representatives vote.

Take a few moments to contact your representative in Congress to express support for the Student Loan Relief Bill proposed by Congressman Gonzalez.

When there is extensive support for a bill, it may cause many politicians to reconsider their position. They may decide that coming out strongly in favor of forgiveness helps their chances of getting elected. At a minimum, they may decide that opposing loan forgiveness is a risky move.

The post Democrats Introduce Student Loan Relief Bill That Would Forgive $25,000 Per Borrower appeared first on The Student Loan Sherpa.

The calls for student loan forgiveness continue to grow louder in 2022. Members of Congress are calling on President Biden to cancel student loans through an executive order. Borrowers don’t care how the loans get forgiven, but many expect some or all of their federal debt to be canceled.

Some media reports claim that the President has the legal right to cancel student debt through an executive order. Others claim Congressional approval is the only way for it to happen.

Putting on my attorney hat, I’m not convinced there is a clear answer.

This confusion makes student loan planning and strategy difficult. The possibility of federal forgiveness or debt cancellation is the student loan question I am most frequently asked by my friends and family. In this article, I’ll share my understanding of the current legal and political hurdles. I’ll also explain how it should impact student loan repayment strategy.

Does the President have the legal authority to forgive student loans through an executive order?

Executive Orders from the President can make a huge difference for student loan borrowers.

Barack Obama created the Revised Pay As You Earn (REPAYE) plan through an executive order. Donald Trump used an executive order to freeze federal student loan payments and interest during the Covid-19 pandemic.

According to Warren and others, the Presidential can also cancel or forgive student debt. However, others claim that the President does not have this authority.

In my investigation into this issue, I reviewed a comprehensive legal analysis from a team of Harvard lawyers. They concluded that Congress has already given the President authority to cancel student debt.

The analysis from the Harvard team is compelling, but there are a couple of problems.

1. The attorneys investigating the issue were members of the Harvard Project on Predatory Lending. This particular team has done an excellent job advocating for student loan borrowers in court. However, this history of borrower advocacy also means that they may not be best suited for an objective analysis of the current legal and regulatory framework.
2. The Harvard team couldn’t identify an explicit right for the President to cancel debt via executive order. Instead, their statutory analysis found that debt forgiveness is permissible based upon a collection of existing laws.

I tend to agree with those who think the President has the power to forgive student debt via executive order. However, I can’t say for certain how federal judges might rule on the case. There are strong arguments on both sides of the issue.

The only certain thing is this: if the President attempts to cancel large amounts of federal student loans, the issue will definitely end up in court.

Joe Biden and the Politics of Student Loan Forgiveness in 2022

Biden is unlikely to try to cancel student debt through an executive order. On multiple occasions, he has said that he is unlikely to forgive student debt via executive order.

Even if Biden did have a change of heart on the issue, it would be a very risky political move.

Image a situation where Biden said that $10,000 was going to be forgiven for every borrower. Lawsuits would almost certainly get filed immediately.

The killjoys behind the lawsuits would argue that Biden doesn’t have the authority to forgive the debt. The courts could halt the forgiveness while the lawsuit is pending. During that time borrowers would be extremely confused. Do I still have to make payments? What happens if I pay money now and borrowers win in court? Worse yet, some borrowers may assume their debt is forgiven and get terrible news when the collection calls start.

Biden wants to avoid this type of chaos.

Alternatively, Biden could sign bipartisan legislation passed by Congress. As part of an economic stimulus package, Congress could choose to include that same $10,000 in student loan forgiveness.

As someone with the goal of being a unifier, getting forgiveness legislation through Congress is the better option for Biden.

What are the chances that some debt gets forgiven?

At this point, it should be clear that nothing is set in stone.

There are two proposals currently being discussed.

Cancel $50,000 worth of student loans – This option has been advocated most notably by Elizabeth Warren and Chuck Schumer. They both believe that the President can cancel the debt with an executive order. Biden canceling $50,000 worth of debt is unlikely due to the political and legal hurdles previously discussed.

Forgive $10,000 in a stimulus package – This forgiveness option has already passed in the House of Representatives. The Senate is a big obstacle. Republicans appear to be uniformly opposed to student loan forgiveness as a means of economic stimulus. This loan forgiveness is more likely than the $50,000 debt cancellation, but still a somewhat long shot.

In short, student debt forgiveness or cancellation in 2022 is unlikely. However, unlikely events happen all the time. Borrowers should expect that it probably won’t happen but account for the possibility that it might.

The Best Hope for Forgiveness in 2022

The ongoing payment and interest freeze may back Biden into a corner.

One recent poll found that only 29% of people expect payments to begin on May 1st, as currently scheduled. The majority of people expect either another pause or some form of loan forgiveness.

With each pause, Biden gets closer to the November midterm elections. Many voters may blame Biden and the Democrats when they get their first student loan bill.

There isn’t an obvious exit strategy to this dilemma for Biden. At some point, the Covid-19 relief will have to end. Biden could announce loan cancellation and the payment restart at the same time. Learning that some debt got erased may help voters swallow the bitter pill of the payment restart.

Sherpa Thought: One idea that hasn’t gotten much attention is making 0% interest permanent on federal student loans.

It wouldn’t fix all of the issues with student debt in the US. However, I’d argue that 0% interest on federal loans is a great investment by the government.

How do borrowers plan around debt cancellation uncertainty?

Right now, it is actually pretty easy to deal with this variable.

Borrowers can plan for the possibility of student loan forgiveness in 2022 AND protect themselves if it doesn’t happen.

Federal student loan interest rates are 0%, and borrowers are not required to make payments. The student loan interest and payment freeze is likely to continue well into 2022.

Borrowers should use this time to build up an emergency fund and save money for future student loan payments. If the debt gets forgiven, those funds can be used for any other purpose. If the debt isn’t forgiven, borrowers have a stash of cash to pay down their balance. Those that made payments during the interest and payment freeze should request a refund.

Finally, even though refinance rates are near historic low levels, borrowers should resist the temptation to refinance their federal loans. A federal refinance would be a mistake because it converts the debt into private loans. Borrowers with private loans can proceed with refinancing because the forgiveness proposals would not impact private debt.

The post Student Loan Forgiveness in 2022: The Legal and Political Issues appeared first on The Student Loan Sherpa.

Congress passed multiple stimulus relief packages. The legislation included many forms of help for struggling Americans. Additionally, there has been extensive discussion about student loan forgiveness or cancellation.

Enter the scammer trying to take advantage of complicated events in the news and student loan desperation…

Sherpa Tip: I’m especially worried about this particular scam because it sounds like an actual government program recently announced by the Department of Education.

The Scam Email: Act Now for Student Loan Forgiveness from Stimulus Relief Legislation

A reader recently forwarded the following email. Fortunately, she didn’t fall for this scam. However, she thought it might be helpful to alert others who receive a similar email. Rather than including the entire email, I’ll quote a few relevant sections.

It looks like your student loan may be eligible for the recent stimulus forgiveness and relief legislation, however, your application does need to be completed. This applies to all loan statuses, including those loans in default and garnishment.

After mentioning this “new legislation,” the email creates some urgency:

We can have this applied immediately. Please be aware that these benefits come on a first come first serve basis though.

The email ends with contact info for the scammers and a strange note:

If you don’t have student debt please ignore this message.

The scammers also had the first and last name of the reader and included her name in the subject of the email. They also added a verification code, agent id, and physical address in Nevada. These items are nonsense but give an appearance of legitimacy.

The Red Flags in this Email

This particular email contains numerous red flags that should help borrowers avoid the scam.

Student Loan Stimulus Legislation

Many student loan borrowers think student loan stimulus legislation should exist. Unfortunately, it does not. If this legislation actually happened, it would be headline news and easy to verify in many different ways.

First Come First Serve Benefit

Scammers often try to create urgency. If you are told to “act now,” it should be a huge red flag. The only temporary student loan program with limited funding is the Temporary Expanded Public Service Loan Forgiveness program. This particular program has been around for years.

Please Ignore This If You Don’t Have Student Debt

This particular scammer just knew names and email addresses. They targeted student loan borrowers because so many people are impacted by student debt. This is a common practice. If someone knows your name and knows that you have student loans, it does not indicate legitimacy.

A Hotmail Account Instead of a Federal Student Loan Servicer

If such a program existed, notification would almost certainly come from the Department of Education or a federal student loan servicer. A random Hotmail account means it is undoubtedly a scam.

Calling Out Scammers by Name: In the early days of this website, I identified scams by the name of the company to help borrowers. I wish I could still do this, but it just isn’t possible at this time.

Legitimate Government Stimulus and Forgiveness

This particular scam email is especially troubling because it sounds similar to an existing government program.

Last October, the Department of Education announced a Limited Waiver on Public Service Loan Forgiveness. One of the Covid-19 relief bills authorized this temporary program, but it expires on October 31, 2022. The limited waiver helps borrowers who were on the wrong repayment plan or who had ineligible loans.

If you are trying to decide whether you are looking at a scam email or an actual government program, check out the studentaid.gov detailed explanation on the limited waiver. Contact your federal loan servicer if you think you might benefit.

If you suspect you are being scammed, try to fix things right away.

Avoiding this Scam and Others Like It

Although it made it through Gmail’s spam filters, formatting issues made this email appear to be spam. Hopefully, this makes it an easy one for most people to ignore.

However, sometimes the scammers are more convincing. This particular scammer knew the name associated with the email address. Given the number of database hacks we read about in the news, it shouldn’t come as a surprise that scammers can get this information. If this scam was a little more convincing, it might have been very effective. People are desperate for student loan help, and many will act if there is even a chance it is legitimate.

For this reason, borrowers need to be on high alert for the many student loan scams out there. If you think you have been scammed, there are steps you can take to address the situation immediately.

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Sadly, there is no positive spin to be put on legislation recently re-introduced in the Senate by Marco Rubio. The bill is objectively bad. Despite Rubio’s stated intention of offering help, it would do more harm than good for student loan borrowers.

Rubio wants to create an automatic one-year deferment on student loan payments for victims of terrorist attacks. On the surface, this is an almost comically small amount of help for borrowers and terrorism victims. Twitter had fun with the proposal, but looking beyond a few obvious jokes, the bill is somehow worse than it first appears.

A Deferment is a Bad Choice for Many Borrowers

At first glance, a deferment looks like help. A struggling borrower who can’t afford payments gets a break for an entire year. The downside to a deferment is that the loan continues to charge interest, but those who can’t make payments are often willing to live with the consequences.

The problem with a deferment is that there are better alternatives available. For many borrowers, enrolling in the Revised Pay As You Earn (REPAYE) Plan is the best alternative. If an unemployed borrower signs up for REPAYE, they can qualify for $0 per month payments. These $0 payments can be renewed year after year until the borrower finds a job. Additionally, borrowers on REPAYE get a federal interest subsidy, so less interest accrues during the $0 payment period. Best of all, REPAYE counts towards multiple federal forgiveness programs.

Unlike REPAYE, time on a deferment is limited and does not count towards forgiveness. Plus, the lack of an interest subsidy makes a deferment more expensive than REPAYE.

Even if the Rubio bill became law, most borrowers should steer clear of this help.

Automatic Deferment Might Further Hurt Terrorism Victims

Rubio’s website mentions his desire “to provide automatic federal student loan deferments to any survivor of a terrorist attack.”

An automatic deferment could be financially devastating to some terrorism victims with student loans. For example, suppose a borrower is working towards Public Service Loan Forgiveness (PSLF). Time on a deferment usually does not count towards the required 120 payments. Thus, these borrowers, victims of terror attacks, would be forced to work an additional year in public service if they received an automatic deferment.

Even if a borrower could decline the automatic deferment, it means an additional headache for a terrorism survivor.

The danger of an automatic deferment impacts other borrowers as well. Some federal borrowers have large amounts of uncapitalized interest. Going on a deferment causes interest to capitalize. This interest capitalization would create larger balances and make repayment more difficult.

Rubio’s Bill Offers No Help for Private Loan Borrowers

A deferment could help borrowers with private student loans.

Unlike federal loans, private loans don’t have forgiveness options or repayment plans with federal subsidies. As a result, a deferment during a hardship might help.

Unfortunately, the full text of the proposed legislation makes no reference to private student loans. These borrowers do not receive any relief.

The Worst-Case Scenario

Senator Rubio’s bill could devastate some public servants. Instead of delaying PSLF for a year, some borrowers might miss out entirely.

One of the less known federal programs is Temporary Expanded Public Service Loan Forgiveness (TEPSLF). Under TEPSLF, borrowers who enrolled in the wrong repayment can still qualify for PSLF, provided they meet all other requirements. Congress created the TEPSLF program to help borrowers who were given inaccurate information by the federal student loan servicer. The problem with TEPSLF is that there is limited funding, and once the funds run out, the program ends.

If a borrower was delayed for one year due to an automatic deferment from a terrorism attack, they might miss out on the TEPSLF relief. In many cases, this could mean missing out on over $100,000 worth of loan forgiveness.

Terrorism Victims and Student Loan Borrowers Deserve Better

The worst-case scenario is an unlikely event. However, it could happen if Senator Rubio’s bill becomes law.

Well-crafted legislation shouldn’t create devastating outcomes for terrorism victims. Well-crafted legislation should offer relief that is better than the options already available.

Senator Rubio is either pretending to care, or he hasn’t put in the time and effort necessary to come up with a bill that actually helps. Either way, he needs to do better.

The post Rubio Shows Incompetence on Student Loan Crisis appeared first on The Student Loan Sherpa.

This article will focus on the concerns of the taxpayer rather than that of the individual borrower. This site has previously addressed the reasons individual borrowers should be wary of student loan forgiveness programs.

The Cost of Student Loan Forgiveness

The federal government holds well over a trillion dollars in student debt.

Many borrowers will pay off their student loans in full. However, all federal loans are eligible for multiple varieties of student loan forgiveness.

Based upon current enrollment numbers, the Public Service Loan Forgiveness (PSLF) program will cost well over $20 billion dollars. However, this number could swell considerably as more students enroll.

Plans calling for massive debt cancellation may be unlikely to become a reality, but they would cost over a trillion dollars.

While forgiveness programs might produce some benefits to the broader economy, student loan forgiveness still comes with a hefty price tag.

Borrowers Mistakenly Assuming Eligibility

Looking beyond the numbers, one issue with the current student loan forgiveness programs is that many borrowers mistakenly assume they are eligible.

When the first cohort of borrowers applied for PSLF, an astonishing 99% were rejected. At the time the 99% rejection rate circulated, we speculated that there were a number of reasonable explanations for the rejections and that approval rates should go up. Approval rates did go up, but approximately 98% of applicants are still being rejected.

Congress stepped in to fix problems with the difficult approval process, but only 6.3% of borrowers received approval under the temporary expanded program.

The high rejection rates demonstrate a critical failure of the loan forgiveness program. The disconnect between borrower expectations and actual outcomes is evidence that there is a major issue with the policy.

Is Student Loan Forgiveness Fair?

Student loan forgiveness programs and proposals introduce several questions of fairness.

• Is student loan forgiveness fair to the families and borrowers that worked hard to prevent or eliminate student debt?
• Does student loan forgiveness disproportionately benefit higher-income households?
• Is student loan forgiveness fair to the taxpayers who didn’t attend college?

In the case of Public Service Loan Forgiveness, it would be hard to argue that the program isn’t fair. Qualifying borrowers have to commit to at least a decade of non-profit work. These borrowers fill important needs and forgo the opportunity to earn more in the private sector.

Forgiveness proposals that call for a mass cancellation of student debt are more challenging to justify. The non-partisan Brookings Institute found that Elizabeth Warren’s plan to forgive $50,000 of student debt for all borrowers would disproportionately benefit higher-earning households that don’t need the help.

Unintended Consequences on College Costs

As previously discussed, many borrowers think they are eligible for forgiveness only to be rejected.

Presumably, many of these borrowers took out loans during college under the assumption that they would eventually qualify for forgiveness. One of the hidden dangers of forgiveness programs is that students may make risky borrowing decisions during college. The existence of student loan forgiveness programs arguably creates a moral hazard.

Dangerous borrower impacts more than just the borrower. A study by the Federal Reserve Bank of New York found a causal relationship between expanded federal financial aid and tuition increases. In other words, when students can borrow more money to pay for school, the school can charge more for tuition. If student loan forgiveness programs create more student loan borrowers, tuition for all students will increase.

As the New York Fed noted, the benefit of expanding federal aid programs is that it expands access to college. The challenge from a policy perspective is balancing the need to increase access to college with the desire to keep tuition prices in check.

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