The meeting could start a process that delivers massive relief to student loan borrowers. A committee meeting might not sound like a big deal, but the negotiated rulemaking process created the new SAVE plan.

This time around, the Department of Education has some specific goals, and there is an opportunity for clever borrowers to influence student loan policy. Partial loan forgiveness appears to be a realistic goal for borrowers in this session.

Student Loan Rulemaking 101

The federal rulemaking process is a critical component of student loan policy.

Put simply, Congress creates legislation that addresses the big picture items. Laws passed in Congress established federal loans and created the Public Service Loan Forgiveness Program. Within those laws, the executive branch is charged with oversight and implementation.

Federal agencies use rulemaking to iron out the policy details. Recent rulemaking efforts created the SAVE plan and the new SAVE subsidy to help borrowers with interest.

Partial Forgiveness is the Big Ticket Relief to Watch

For the latest round of rulemaking, the Department of Education posed some very specific questions to the committee.

These questions give us a good idea of the goals of this round of negotiations.

Notably, the Department of Education asked the following questions:

• Many borrowers have seen their balances grow due to the accrual of unpaid interest such that many borrowers now have overall balances higher than what they originally borrowed. Are there ways to help borrowers who are in this situation that could put them on a better path for successful repayment?
• Congress and the Department have provided borrowers with many additional benefits for their student loans over time. There are many borrowers, however, who borrowed or entered repayment before the creation of those various benefits. Since those benefits were not available when those borrowers took out their loans, those borrowers may have struggled to repay their loans in ways that those taking on debts today may not. How should the Department treat loans that first entered repayment many years ago, including well before creating additional benefits? How should the Department apply the FCCS compromise principle to loans that the borrower is unable to repay in a reasonable amount of time?

Sherpa Thought: These requests from the Department of Education seem to be inviting a partial forgiveness solution.

Because the Supreme Court stopped forgiveness for all, the next round of student loan relief appears to be focused on borrowers with large balances and little chance of repaying the debt.

Retroactive SAVE and Other Partial Forgiveness Options

One answer to the Department of Education questions would be applying the SAVE subsidy retroactively.

Before this year, many borrowers on IDR plans saw their balances grow each month. This happened when the monthly IDR payment was smaller than the interest charges on the loan. Many borrowers saw loan balances grow far beyond what they had already borrowed.

As balances have grown, it has made repayment difficult or nearly impossible for some. Retroactively awarding a SAVE subsidy could lower balances to make repayment more reasonable.

However, the committee could choose to go in any direction. They may decide that the current SAVE program is sufficient. They may determine that a retroactive subsidy is insufficient and provide borrowers with more relief.

We are very early in the process.

The Big Challenge for Policymakers

Another item of interest is the Department of Education’s apparent recognition that student loan policy is too complicated.

The issue paper notes that “complex individualized reviews of borrowers’ circumstances that rely on extensive information not easily accessible from administrative data will not be feasible.” They want to create something straightforward and unlikely to cause further delays or confusion.

Forgiving some debt for every borrower is unlikely to survive in the courts. Partial forgiveness or targeted relief could quickly get complicated to the point where few borrowers actually benefit.

Time for Borrowers to Step Up

This is a tricky situation, begging for a clever idea.

The Department of Education has already outlined very specific goals, but the idea doesn’t have to come from the rulemaking committee.

Now is the time for creativity. If you come up with a solution to the questions posed to the committee, you could help yourself and millions of other borrowers.

Please share your thoughts in the comments of this article or send me an email. If we get some good ideas going, I’ll do everything I can to get them in front of the eyes of committee members.

The post Partial Loan Forgiveness Could be the Next Big Student Loan Policy Change 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.

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.

Before the announcement, the PSLF rejection rate was over 90%. The changes mean that many borrowers who justifiably earned PSLF can now get their loans discharged.

Sadly, many major student loan issues remain. As a candidate, Joe Biden promised to fix PSLF and make life with student loans more manageable. Now that Biden has addressed PSLF, more student loan fixes are likely on the way.

Cutting Payments in Half with a New Repayment Plan

One fix that could help the majority of student loan borrowers is a new repayment plan.

The current income-driven repayment plans charge between 10% and 20% of a borrower’s discretionary income each month. As a candidate, Joe Biden called for the creation of a plan that charged just 5%.

If President Biden created this new IDR plan, borrowers on plans like REPAYE and PAYE could see their payments cut in half. Some borrowers, such as those on the ICR plan, may see payments slashed by as much as 75%.

There is a reason for optimism on this front because Biden can create a new repayment plan without Congressional approval. There may be a debate over the President’s authority to forgive debt via executive order, but there is no question that he is allowed to create a new repayment plan. Notably, President Obama established the REPAYE plan via executive order.

Sherpa Tip: Lower monthly payments help many borrowers, even those who can currently afford their monthly bills.

Signing up for a more affordable repayment plan can help a borrower qualify for a home loan, pay off other high-interest debt, or set aside some extra cash for an emergency.

Speeding up Student Loan Forgiveness

PSLF, after ten years, is the fastest path to federal student loan forgiveness for most. However, there are other options.

For borrowers who don’t have a PSLF eligible job, forgiveness via an income-driven repayment plan is often a goal. At present, getting IDR forgiveness can take as long as 25 years and comes with a few significant hurdles.

Biden could shorten it to 20 years or less.

Biden could use the PSLF expansion as a blueprint to help borrowers who should have already earned forgiveness under an IDR plan. One recent report showed that over two million borrowers could have had their loans forgiven by now, but only 32 actually qualified due to poor loan servicing and complicated rules.

If there is a unifying theme to the many changes Biden has already made to student loans, each move fixed known issues. The problems with the path to IDR forgiveness are well-documented at this point and a reasonable next step for Biden.

Ending the Marriage Penalty for Student Loan Borrowers

Getting married has a considerable influence on federal student loan repayment. Married borrowers have more complicated rules for IDR plan selection, and it may impact how taxes get filed each year.

However, the problem for married borrowers isn’t merely more paperwork. For large numbers of federal borrowers, getting married makes student loan repayment more expensive.

Many newlyweds are shocked to learn that their monthly student loan bill is larger because of their marriage. For some couples, the financial consequences are so severe that they consider a divorce for lower monthly payments.

Sadly, Biden has not commented on this issue as a candidate or as President.

However, the marriage penalty is a significant problem with federal student loans and one that Biden should fix. If he creates a new repayment plan, he can make one that doesn’t impose a marriage penalty on borrowers.

Changing the Standard Repayment Plan and Procedure

The current system for borrowers entering repayment leaves plenty of room for improvement.

One of the first “bills” that borrowers receive is a notice of unpaid interest capitalization. No payment is required, but the statement looks identical to an actual bill. The unpaid interest from four years of college is often quite large. This is a scary and intimidating way to start repayment.

The first actual student loan bill also is an issue. Borrowers are automatically enrolled in the 10-year standard repayment plan. For most borrowers, the 10-year plan has the highest monthly payment. In many cases, the 10-year payment is unaffordable. Seeing the large bill causes some borrowers to panic, and some borrowers choose to ignore their student loans because they cannot afford the bill.

The Department of Education could automatically enroll borrowers in an income-driven repayment plan based upon their most recent tax return. This change ensures that borrowers receive an affordable bill and stay engaged with the repayment process.

At the very least, the Department of Education or loan servicers could contact borrowers before repayment starts and help with repayment plan selection before sending the first bill.

What About Student Loan Forgiveness for All or Debt Cancellation?

Sadly, blanket loan forgiveness for all borrowers looks unlikely.

Biden has resisted calls from Democrats to forgive debt through executive order. At one point, he did request a memo from the Secretary of Education about his authority to cancel debt for all borrowers. We were told it would take a few weeks to produce the memo. However, many months have passed, and we still haven’t heard about the memo.

[11/03/21 Update: The memo has been released, but it is heavily redacted and offers almost no new information.]

Both Biden’s statements and actions suggest that he is more interested in targeted help and addressing specific issues. Canceling out $10,000 or more for all borrowers appears increasingly unlikely.

The Next Steps for Borrowers

The Biden administration has already started the rulemaking process for additional student loan changes.

Borrowers should periodically check on student loan news to stay on top of any changes.

Those who wish to get more proactive should reach out to their elected representatives to share their specific student loan concerns. Mentioning proposed changes already in discussion will also help.

Finally, requests for comments from the public appear in the federal registrar. For example, a few months ago, the Department of Education asked for public input regarding the Public Service Loan Forgiveness Program. Keep an eye on the Education Department’s page on the Federal Registrar for additional opportunities to comment.

The post What Student Loan Fixes are Next from Biden? appeared first on The Student Loan Sherpa.

Typically, I caution borrowers not to get excited about student loan proposals in the news. This particular instance is no exception. However, there is a reason for optimism. First, the proposed changes will not require action from Congress. Additionally, by fixing PSLF and lowering IDR payments, Biden would deliver on a significant campaign promise.

The Proposed Changes to Federal Student Loans

The Biden Administration is discussing numerous changes to federal student loans. Among the noteworthy topics of discussion:

Fixing Public Service Loan Forgiveness (PSLF) – Qualifying for PSLF has been notoriously difficult. As a candidate, Biden pledged to make PSLF less confusing. He also wants to award partial forgiveness to borrowers that have completed at least one year of certified payments.

Borrower Defense to Repayment – The Obama Administration created the Borrower Defense to Repayment to help federal borrowers defrauded by their colleges. Donald Trump’s Secretary of Education, Betsy DeVos, gutted the program. Biden has already canceled over a billion dollars under the program. He appears poised to remove many of the now-existing hurdles put in place by Secretary DeVos.

Discharges for Borrowers with Total and Permanent Disabilities – One of the consumer protections with federal student loans is that borrowers who become disabled may have their debt forgiven. However, many former borrowers had their debt reinstated because they failed to submit required follow-up paperwork. One report found that only a small portion of the eligible borrowers received the relief they were entitled. Addressing the unnecessarily complicated process could help many disabled borrowers.

Gainful Employment – A regulation added during the Obama years, the Department of Education created the gainful employment rule to penalize the schools that didn’t help graduates land jobs. Many student advocates are calling for additional requirements for the colleges that profit from federal aid.

Income-Driven Repayment (IDR) – The current IDR plans require borrowers to pay 10, 15, or 20 percent of their discretionary income towards their federal student loans. Biden wants to lower this number to 5%. The move would cut monthly student loan payments in half for many borrowers. Others could see an even more significant drop.

Reason for Optimism: The Rulemaking Process

The changes in discussion with the Department of Education are the first step in the rulemaking process.

I’ll skip the detailed rulemaking procedure and jump to the essential details for borrowers.

1. It takes about one year. Biden taking the first step is noteworthy, but borrowers shouldn’t expect instant results.
2. Passing a law through Congress is not required. Generally speaking, the purpose of rulemaking is to create specific regulations from broader legislation mandates. Congress could pass a law to overturn regulations made in the rulemaking process. However, getting a student loan bill through Congress is unnecessary for many of the proposed changes.

For added context, many of the Obama-era student loan rules came from this process. Thus, rulemaking is one way that the executive branch can directly impact the lives of student loan borrowers if Congress refuses to act.

More Borrowers Getting Student Loans Forgiven/Cancelled

Many borrowers are eagerly looking for student loan forgiveness for all.

The idea of mass debt cancellation has major appeal, but there are legal and political issues that might prevent it from happening.

Taken as a group, the changes in discussion could result in forgiveness for a significant number of borrowers. Additionally, these changes may also provide borrowers with the opportunity to have more debt forgiven. For example, if a 5% IDR plan were created, borrowers that qualify for forgiveness under PLSF or standard forgiveness would ultimately have more debt discharged.

Can the Next President Undo the Changes?

The risk of a future President undoing any progress achieved through rulemaking is a legitimate concern. Former Secretary of Education, Betsy DeVos, gutted many Obama-era regulations, like the gainful employment rule and the borrower defense to repayment.

However, other Obama-era policies survived. A notable example is the PAYE and REPAYE repayment plans. President Obama lowered monthly IDR payments from 15% of discretionary income to 10%. If President Biden created a 5% plan, it has a good shot at surviving in future administrations.

The post Biden Takes First Steps on Big Student Loan Changes appeared first on The Student Loan Sherpa.

Can you feel it?

For the first time, federal student loan forgiveness looks like a real possibility.

President Biden asked his Secretary of Education, Miguel Cardona, to prepare a memo on the President’s legal authority to cancel student loan debt. On this surface, the Biden asking for a memo is hardly a revelation. However, the contents of the Cardona memo could change the lives of millions of student loan borrowers.

Biden’s Gradually Evolving Position on Federal Student Loan Cancellation

During the 2020 Democratic Primaries, Elizabeth Warren and Bernie Sanders both got a ton of attention and support for their calls to forgive large amounts of student debt. Candidate Biden did not support these policy ideas, despite significant popularity within the Democratic party.

Eventually, Biden came around on student loan cancellation. Kind of. Instead of forgiving $50,000, he only wanted to cancel $10,000. Rather than doing it through an executive order, Biden thought the change should come from Congress. Just last month, during a town hall when a borrower asked about $50,000 of forgiveness, Biden was clear: “I will not make that happen.”

Now Biden is exploring the President’s authority to cancel up to $50,000 of student debt without passing legislation through Congress.

Has Biden changed his mind, or is this memo an attempt to appease the progressive wing of the party?

The Significance of a Memo Request

When was the last time we heard about the President of the United States asking for a memo?

The mere request of a memo on Presidential executive order authority has generated national headlines. Once again, student loan cancellation is back in the national discussion.

Naysayers are already complaining that the memo will say Biden can’t forgive the debt and this whole exercise is political theatre. However, if Biden wanted to get progressives to back off, he could have just asked for the memo in private. Secretary Cardona could have prepared the memo, and when Senate Democrats asked about loan forgiveness, Biden could point to a memo that says he lacks the authority to cancel loans.

Instead, we have borrowers across the country excited about the possibility of help they desperately need. We also have a President showing a willingness to adjust his position on the issue.

What Will the Cardona Memo Say?

This is the $10,000 question.

Literally.

If Biden’s Secretary of Education comes back and says the President has the authority to cancel student loans, Biden almost certainly has to cancel at least $10,000. His public position has been that he supports $10k of forgiveness, but he thinks it has to come from Congress. If his team says Congress isn’t required, Biden either has to go back on his word, or he has to cancel $10,000 worth of debt. If he had zero intention of canceling any debt, he wouldn’t have requested the memo in the first place.

However, Secretary Cardona may conclude that the President needs approval from Congress to cancel loans. He might also conclude that the law isn’t clear, and this issue should be left up to the courts. Either of these outcomes likely means that Biden won’t seek loan cancellation.

This site has previously examined this exact legal question. My take at the time was that things are unclear, so Biden was unlikely to forgive the debt. Now Biden is asking for clarity.

It is also worth noting that a team of Harvard attorneys found that the President of the United States can cancel student debt via executive order.

What Happens Next?

President Biden’s chief of staff, Ron Klain, gave a timeline of “a few weeks” on the memo.

If the memo concludes that Biden can cancel the debt, expect the administration to try to get something done by the end of September when the current federal payment and interest freeze expires. Even if Biden does issue an executive order canceling $10,000 or even $50,000 in student loans, expect litigation challenging his authority. It will be many months before borrowers know definitively if loan forgiveness is going to happen.

If the memo says the President can’t cancel loans, it may mark the end of the loan forgiveness debate during the Biden Administration.

Regardless, in a few weeks, borrowers will learn whether or not federal student loan cancellation is a real possibility or highly unlikely.

The post Biden Changes His Mind on Student Loan Forgiveness appeared first on The Student Loan Sherpa.

The history of student loan legislation tells us a few things. First, the more influential groups are the ones most likely to get their needs addressed. Second, the more severe a problem, the more likely it is that something will be done. Finally, we know that the easy fixes are much more likely to happen than the challenging ones.

Armed with both a historical context and an understanding of the issues most affecting borrowers, we will predict the following…

Will all Federal Student Loans ever be forgiven?

The problem with across-the-board student loan forgiveness is that it is costly. If the federal government were to wipe out the existing debt, the amount forgiven would exceed $1.5 trillion. Presidential candidates Bernie Sanders and Elizabeth Warren have both proposed sweeping student loan forgiveness.

Even though the economic advantages of a “student loan stimulus” would be huge, we don’t think it will happen.

While forgiveness would help many borrowers, it wouldn’t fix the student loan crisis. As a new generation of college students heads off to school, more debt would be incurred, and the problem would appear again. Future students might even expect that their loans would be forgiven based on prior forgiveness. This could cause yet another debt bubble and even higher tuition prices.

Unless federal student loan forgiveness for all is accompanied by a plan to address future students, the odds of it ever happening are extremely low.

Even though federal loan cancellation is unlikely to become a reality, things look much brighter for federal borrowers seeking Public Service Loan Forgiveness. There are multiple layers of protection to help ensure the programs continued existence for current borrowers.

Will the many Income-Driven Repayment Plans be combined into one?

The variety of federal student loan repayment plans makes things confusing for many borrowers. As a result, many have proposed the creation of one single income-driven repayment plan to make things less complicated.

The problem with this approach is that the one plan selected would either have to be better than all of the current plans, or the existing plans would have to be kept in effect for all current borrowers. This is because the current repayment plans are written into the student loan contract that borrowers sign with the government. Eliminating these plans would likely require replacing them with something better.

For one single income-driven repayment plan to replace all of the others, it would have to have the low payment requirements of PAYE, the favorable interest treatment of REPAYE, and the protections for married borrowers of IBR. Such a plan would make things much easier to understand for borrowers and save many of them a great deal of money.

Over the years, many new repayment plans have come along. There is a good chance that a new income-driven plan will be created that will replace all of the other existing plans. Such a plan is likely far off in the distance, but it is a genuine possibility.

Will forgiven student loans always be taxed?

The taxation of student loan forgiveness is often called the forgiveness tax bomb.

The IRS treats forgiven debt as income. With most forms of student loan forgiveness, if the lender forgives $50,000, the government will tax the borrower as though they made an extra $50,000 in that particular year. The notable exception is public service loan forgiveness.

This is one rule that seems ripe for change. If the IRS treats forgiven credit card debt as income, such a move makes sense because that individual comes out ahead because of the forgiveness. Forgiven student debt seems like it should work differently. Grants and scholarships are not treated as income for tax purposes, so if a student loan is converted after the fact to essentially a grant or scholarship, why should it be taxed?

Many of the student loans that are currently forgiven happen because of death or permanent disability. Because these borrowers are already facing a difficult time, imposing a tax seems cruel and unnecessary. As a result of the hardship the tax can cause, there is a wide range of support to change the taxability of student loan forgiveness.

We still suggest borrowers set aside money to prepare for taxation of any forgiven student debt, but there is a very real possibility that the tax bill may not ever come due for many borrowers.

Will employers get a tax break for helping out with employee student loans?

Several representatives in Congress have proposed plans that would allow employers to make student loan payment contributions and get a tax break. Like money put in a 401(k), student loan payment assistance wouldn’t be treated as additional income. This would allow employers to offer another benefit to attract top talent, and it would help borrowers pay off their debt faster.

This plan has support from several large financial services companies that would profit from such a system. It would also be very popular with many voters. For this reason, we think it is highly likely that a tax break for student loan contributions becomes a reality. This could be the next significant change coming to student loans.

Will the government help borrowers with private loans?

Private lenders frequently cause the most dire student loan situations. Borrowers who don’t make enough money to keep up with their payments face serious trouble. Private lenders offer no repayment plans based upon income, and borrowers who fall behind often face devastating financial consequences.

One fix that could help many borrowers would be to restore bankruptcy protections to student loans. This idea would force lenders to work with borrowers a little bit more, but it could also result in higher interest rates and more difficulty qualifying for a private student loan. Though there is support for the restoration of bankruptcy rights for student loans, the lenders the successfully lobbied for the changes remain influential to this day.

The other hurdle to federal involvement with private loans is the trillions of dollars in federal loans. The federal government is already dealing with many borrowers struggling to keep up. Allowing borrowers to move their debt over to federal student loans would create many more struggling borrowers for the government. Such a change seems unlikely.

Is free tuition a possibility?

Any long-term solution to the student loan crisis has to address the high cost of college. Each year, more and more student debt is created. Each year, the student debt crisis gets worse.

Some states are already experimenting with free college, and it has the potential to gain popularity. The genius of this approach is that all college doesn’t need to be free. There just needs to be a meaningful opportunity for higher education. If private colleges want to keep getting students, they will have to show they are worth the investment. By creating competition to drive college prices down, the cost of education will better reflect the value of education. When this happens, the student debt crisis will be well on its way to becoming history.

There is support for a nationwide free tuition plan and it is being discussed in many states. Free college is a real possibility, but it is far from being a sure thing.

Final Thoughts

Those that speak up will be the ones who are heard.

Student loan borrowers may not have the money to hire lobbyists, but we certainly have large numbers. Show up at the polls every election and make sure your elected representatives know how important student loan issues are in your home.

The more vocal student loan voters are as a group; the better things will become.

The post The Future of Student Loans: Predictions on Forgiveness, Free Tuition and Repayment Plans appeared first on The Student Loan Sherpa.

After much anticipation, Joe Biden has finally released the full details of his student loan plan. Even though Biden doesn’t promise massive student loan forgiveness like Elizabeth Warren and Bernie Sanders, there is still plenty of good news for student loan borrowers.

Biden is calling for significantly lower monthly payments and earlier forgiveness under Income-Driven Repayment plans. He would expand Public Service Loan Forgiveness and make community college free.

Possibly the most exciting aspect of the Biden student loan plan is that it costs far less than the Warren and Sanders plans and is arguably more likely to become a reality.

Biden on Debt Cancellation, Student Loan Forgiveness, and Free College

Elizabeth Warren and Bernie Sanders have both released comprehensive plans to forgive most or all existing federal student debt. Warren and Sanders have also proposed free college for students pursuing a four-year degree.

Biden’s plan is not as generous.

For graduates, Biden isn’t proposing any blanket forgiveness for borrowers. For future students, Biden is supporting free community college for up to two years. However, he won’t be pushing for four years of college, despite previous support for free public college.

In short, Biden’s position on many student debt issues will be far less generous than the ones advocated by Warren and Sanders.

The good news is that Biden is still proposing some ideas that would help many current borrowers…

Biden Looks to Lower Student Loan Bills

Though Biden isn’t promising to eliminate student loans if he is elected President, he is promising to lower student loan bills.

At present, borrowers on an income-driven repayment plan are expected to pay 10%, 15%, or 20% of their discretionary income towards their student loans. The percentage depends upon which income-driven repayment plan is selected.

As President, Biden would lower the percentage of income-driven payments down to 5%. Many borrowers would see their monthly student loan payments cut in half. Others would see an even bigger reduction.

Biden has also said that borrowers earning less than $25,000 per year would not be expected to make any payments. Additionally, these borrowers making less than $25,000 per year wouldn’t have any interest accumulate on their debt. This means that unemployed borrowers would essentially be able to pause their student debt until they find new work.

Another significant change under the Biden plan would be the way student debt is forgiven under the Income-Driven repayment plans. Under the present rules, borrowers can have their loans forgiven after 20 or 25 years, and the forgiven debt is treated as taxable income. The taxation of this forgiven debt can result in a massive bill from the IRS. Biden would make all IDR borrowers eligible for forgiveness after 20 years and eliminate the tax bill.

Biden on Public Service Loan Forgiveness (PSLF)

Borrowers pursuing Public Service Loan Forgiveness (PSLF) currently face an all-or-nothing. No debt can be forgiven until all 120 PSLF payments have been certified.

Under the Biden plan, borrowers could receive up to $10,000 per year for up to five years of public service. Any remaining debt would be eligible to be discharged after ten years of public service.

Biden would also simplify the current complicated PSLF program so that borrowers working eligible jobs are automatically enrolled in the program.

How Biden Compares to Other Candidates

Even though we do not yet have the full details on Biden’s student loan plan, there is no doubt that it will not be as generous as the ones offered by Sanders and Warren.

However, one noteworthy aspect of his plan to lower monthly payments is that it can be accomplished via executive order. This means that he can lower borrower payments without needing any legislation to pass through Congress. This was the method that President Obama used to create the Revised Pay As You Earn (REPAYE) plan.

For Warren and Sanders to deliver on their promises, the legislation will have to get through Congress for them to sign. We think this could be a huge challenge.

Thus, the Biden plan isn’t the most generous, but it has a higher chance of becoming a reality.

April 2020 Update: A Proposal for Loan Forgiveness

To help families affected by the Coronavirus, Biden is now calling for full student loan forgiveness for borrowers who earn less than $125,000 per year who attended:

• undergraduate public colleges and universities
• private Historically Black Colleges and Universities (HBCUs), and;
• private underfunded Minority-Serving Institution (MSIs)

Biden also notes that there would be an appropriate gradual phase-out on the forgiveness so that borrowers who earn just over 125k do not miss out entirely.

For some borrowers, this would represent a massive improvement on the original Biden student loan plan. Those who attended most private schools or graduate schools will not be as fortunate.

While there have been calls for additional student loan forgiveness, the chances of Biden taking action remain slim.

The Best News for Borrowers

At this point, most of the leading Democratic candidates have released a plan to address the student loan crisis.

This development is significant for borrowers because it means that addressing student loan debt has become a bigger priority for the Democratic Party. During the Obama Administration, some steps were made to address the student loan issues faced by many Americans, such as the creation of new income-driven repayment plans and measures to keep for-profit schools in check. However, student debt in the United States has only gotten worse in subsequent years. If the Democratic Party makes addressing student loans a top concern, borrowers are more likely to get some help in the future.

The terms of the debate have made a significant shift for the better. The discussion is no longer about whether or not we should help student loan borrowers. Instead, the debate is about the best way of helping borrowers.

The post Biden Student Loan Plan Offers More Hope for Borrowers appeared first on The Student Loan Sherpa.

The comments, however, were both alarming and illuminating into the viewpoints held by many Americans not currently paying student loans.

According to one commenter:

“She made her decisions. Let her live with them. I’m tired of 50% of my income going to support people like her.”

Added another:

“[S]he is morally obligated to pay off the loans. If her loan is forgiven, why should I as a taxpayer be on the hook. I got a state university education because that is all I could afford, so I really don’t what to pay for her private school foo foo degrees. She can still get a higher paying job. I hope she gets her head out of the sand and starts living like a grown up.”

These two comments are representative of the more than 4,000 comments that the article received. They are also representative of how many taxpayers view the student loan crisis.

The Message Problem for Student Loan Advocates and Borrowers

The subject of the Post article is worried she won’t be able to get PSLF.

Many readers see this from only a taxpayer perspective and conclude that I shouldn’t have to pay for her college.

The issue is being framed wrong by borrowers and advocates. Students working towards PSLF have a deal with the government. The government agreed to forgive certain student loans if people agreed to work in public service for at least 10 years. Many started careers in public service based upon that promise. They made decisions that cannot be undone. Now the same US Congress that created this deal is thinking about backing out of it before it has to live up to its end of the bargain. How is that fair?  

Making the discussion about basic fairness helps people have an easier time understanding the perspective of student loan borrowers.

Most everyone has a basic understanding of what is fair and what isn’t. Individuals, companies, and the government should be held to the terms of the deals they strike.

The Post clearly set out to tell the story of an average borrower with legitimate concerns about her future. Unfortunately, the way it was presented left many people with the impression that the subject of the profile, and other student loan borrowers, were undeserving of the government honoring the terms of the original deal.

An Issue In Living Rooms Across the Country

This issue is not confined to the national media.

The 40 million-plus Americans who have student debt need to take a second look at how they communicate student debt grief with their friends family and colleges.

Telling people how hard things are won’t change minds. Everyone has challenges and everyone has bills. Many people are incapable of offering any sympathy for financial woes.

The key is to focus on how unfair things are. Student loan servicers say one thing then do another. Some colleges make grand promises about jobs and future salaries, but fail to deliver.

If the argument for addressing student debt is about the hardships faced by borrowers, nothing will be done. Groups ranging from the homeless to military veterans are facing much greater hardships.

The argument for student loan reform needs to focus on the fundamental unfairness and corruption of the system.

For-profit colleges and lenders like Sallie Mae are making a fortune off the hopes and dreams of young people in this country. Many students are duped and stuck with a lifetime of debt to show for it. If the discussion is about holding large corporations and the government accountable for their promises, borrowers will garner far more support.

The Message Problem Applies to More than Public Service Loan Forgiveness

The same arguments used in opposition to Public Service Loan Forgiveness are used in response to proposals to restore bankruptcy protections to student debt.

Here again, arguing that borrowers are struggling will not convince people. The discussion needs to go back to fairness. Why are people able to declare bankruptcy if they get in over their heads on mortgage, business, or credit card debt? If businesses trying to further themselves and the economy get this protection, why shouldn’t students who are doing the same thing?

Why is it that a billionaire real estate mogul is able to declare bankruptcy when his casino loses money, but an 18-year-old whose college debt didn’t pay off doesn’t have the same option? How is that fair?

Bottom Line

Student loans are a real problem in many homes.

Convincing both the public and the powerful that student debt needs to be addressed on the national level requires more than just showing financial difficulty.

Borrowers have been wronged in many ways, and that is the argument that should be made.

The post Student Loan Advocates and Borrowers have a Message Problem appeared first on The Student Loan Sherpa.

The scam is really simple. Student loan borrowers receive a call about their student loans. The call ID shows up as a US government number if googled. The scammers apologize for an incorrect interest calculation on the borrower’s account. To fix the extra interest charge a refund will be issued. They just need your bank account information.

What makes this scam so dangerous?

The scary part about this scheme is that it is so reasonable. Many careful borrowers could fall for this one. Several items within the scam will not raise red flags.

• Call comes from a number associated with the US government – Borrowers who are smart enough to google the number that shows up in their call ID will be lulled into a false sense of security. That is because these scammers are able to spoof the call ID system to get a reputable phone number to show up.
• There is an accounting error and too much interest has been charged – This is a common issue that happens all of the time with student loan companies. Most borrowers will not be surprised to hear that this is the issue.
• The caller wants to issue a refund – This is the final step in the scheme. By this point, borrowers who are not careful will gladly share their bank account information because they are getting a refund… not being charged extra. As soon as the bank account information is shared victims see money disappear rather than get deposited into their account.

Identifying the red flags

Even with a clever scam such as this one, there are a few red flags that should alert borrowers.

• The caller doesn’t know anything about your account – The people behind these calls will not know the name of your student loan company or the balance of your account. At most, they will know your name. When you call a financial company, you have to prove your identity. When they call you, make sure they prove theirs.
• Accounting errors are treated differently – Student loan companies are not in the habit of giving money to borrowers in repayment. While interest calculation errors are common, the way this is corrected is to adjust the principal balance. There is no reason that a lender would issue a refund.
• They can’t credit your account or issue a check – When someone calls offering a “refund” ask them to credit your account or to issue a check. With any reputable lender, this will not be an issue. The only people who will take issue are scammers who want nothing more than your bank account information.

Avoiding scams

The good news with this particular scam is that so far it has only been reported from a small county in Northern Kansas. The bad news is that variations on this scam are likely on their way.

At this point, the best practice for dealing with your student loans might be to only discuss personal information when you make the call to your lender. Insisting on being the person to initiate phone calls could be tedious and might cause a headache or two, but it is a good way to play things safe.

Regardless of the situation, if you find yourself on the phone with any financial company and things seem off, get their contact information and end the call. Give yourself a couple of hours or even a couple of days to think things through. Talk it over with friends or family if you have any doubts. The people who get scammed often realize the red flags were there, they just didn’t notice them at the moment.

If you have been the victim of a scam

• This post explains the various remedies and resources available to student loan scam victims.

The post Scam Alert: Lender Refunds for Extra Interest Charges appeared first on The Student Loan Sherpa.