Public Student Loan Forgiveness UPDATED RULES
Generally, in my blog posts, I talk in fairly general terms about how this or that could affect you and your financial plan. As a CERTIFIED FINANCIAL PLANNER™ and financial coach, education is really just a part of my overall job description. I like to keep those who follow me up to date on the latest and greatest financial terms, so they can make the best, most informed decisions about how to handle their finances. Well, I'm here to tell you… today isn't one of those days.
Today instead of focusing on a term, or terminology we actually have some breaking news to cover. This news will be necessary to anyone currently dealing with a public student loan or public student loan provider. The Biden Administration just made some pretty bold moves (which we'll get into more below) that will affect a ton of Americans and their student loan forgiveness and repayments. Think you may be one of them? Keep reading to find out!
Let's start by talking about what exactly happened because for many, this whole deal may seem a little bit out of left field - and they aren't wrong for feeling that way. But, essentially, all of these actions and policy changes come back to one thing - the coronavirus pandemic. We've talked in the past about similar measures that have been taken as a form of relief in which the government suspended student loan payments and interest. And because of the pandemic, the Biden Administration was able to use emergency powers allocated to the executive branch through the HEROES Act of 2003.
The Higher Education Relief Opportunities for Students Act, or HEROES Act, allows the executive branch to bypass congressional approval and create waivers and modify regulations surrounding Federal Student Aid for individuals in the military or those affected by national emergencies, wars, or military operations. I understand that may all seem somewhat dicey, but here's what it means - during times of national emergencies (like the pandemic), the Department of Education and the Executive Branch (Presidential Office) may work together to temporarily change the rules for Federal Student Financial Aid.
On October 6th of this year (2021), it was announced that this just happened. The Biden Administration and the Department of Education are overhauling the Public Student Loan Forgiveness Program (PSLF) via a waiver that will allow more access to Americans who work in public service arenas with more relaxed rules for qualification.
What Does the Updated PSLF Waiver Program Do?
These measures are different than student loan forgiveness and other student loan programs that we've discussed previously. Many of you are wondering what all of this really means for you. Cool, another presidential order - all too often, those sound great but don't do much for the average everyday person. However, this one's different. It will affect many working in public service and how they deal with their student loan forgiveness. The effects of this executive order are multi-faceted, so let's talk about what all of this really means for you.
What is essentially happening is those who have been on track to receive Federal Student Loan Forgiveness are getting a second chance. If you're unaware, the current policy surrounding most forms of student loan forgiveness is as follows: One must make 120 on-time monthly student loan payments to qualify and apply for forgiveness. However, for various reasons, including some hindrances of the payment system, some who believe they should be eligible for student loan forgiveness get denied.
Also, traditionally not all those who'd like to be included in a forgiveness program may be. This is because there are restrictions on the types of student loans that may be forgiven. Another facet of the forgiveness expansion issued by the current administration and Department of Education is that all loans and repayment plans have temporarily been made edible so long as you've been making payments while employed through government or nonprofit organizations.
Lastly, those who've made qualifying payments under these new temporary rules may be entitled to a refund. This is because some payments would've not qualified in the past but now count and because the temporary waiver allows for those who may have made more payments than necessary. In other words, under the new temporary rules, many will have now overpaid to qualify. Therefore, those who've overpaid in one way or the other are eligible for a refund.
Who Qualifies Under the Waiver Program?
All in all, it's estimated that around 550,000 borrowers who did not previously will now qualify for Student loan forgiveness. This number is just an estimation, and while it's fairly low in the grand scheme of things, it's also a bit deceiving. The 550,000 person figure stems from borrowers who've applied for student loan forgiveness already. Still, it doesn't consider the number of people who may not have applied in the past because their loan type wasn't eligible for student loan forgiveness.
One of the biggest winners who now qualify is those whose student loans were deferred or had forbearance because of active military duty. However, they aren't the only ones with a big win under the new temporary rules. Borrowers who have held FFELP loans, or Federal Family Education Loan Program loans, will now qualify if their payments were made while employed full time by the government or a 501(c)(3) nonprofit. FFELP loans include Subsidized Stafford loans, Unsubsidized Stafford loans, Plus loans, and Consolidation loans. However, for your FFELP loans to qualify, they must be consolidated into a direct loan, and the borrower must apply for Public Student Loan Forgiveness.
Lastly, those making payments on their student loans through federal repayment plans will also qualify for student loan forgiveness. In the past, there were only a few specific ways in which you could repay your loan through a special repayment plan and apply (and be accepted) for Public Student Loan Forgiveness. However, through the new waiver, all repayment plans now qualify.
As you can see, tons of Americans who haven't qualified in the past will be eligible for student loan forgiveness. The only thing stopping them? Lack of information. If you're a financial planner, financial advisor, have student loans, or believe you know someone who has student loans and may qualify for the waiver, it's of the utmost importance to relay this information to them in some form or fashion.
Who Doesn't Qualify For Forgiveness?
Though these new measures are broad-scoped and will affect tons of Americans, they, unfortunately, won't help everyone. We've talked a good bit about those who will qualify and receive benefit from these temporary changes, so let's go ahead and talk specifically about three groups of people who won't benefit. Firstly, those who've already receive forgiveness won't qualify for any of these changes. This is sort of lukewarm but also somewhat disappointing news. Those who've refinanced non-qualifying loans already will also not qualify for the benefits of these changes. Lastly, those who've taken Parent Plus loans will also not qualify. (Unless you can qualify for a loophole!)
What are Ineligible Payment Credits?
As we talked about, a considerable part of this new waiver and the regulation change of the public student loan forgiveness program is that many payments which weren't qualifying in the past will now be qualifying. An excellent example of this is payments made correctly by borrowers but were muddled up through their provider's payment processing. Others include those who made payments that were slightly too high or too low. (Side Note: isn't it strange that one of your student loan payments would not qualify for student loan forgiveness because you paid too much? That just doesn't seem right.) However, issues like these which have been overlooked in the past, are a part of this whole waiver deal, and they'll be reinstated as eligible through credits.
So obviously, that leaves the question: if you're mostly on track for public student loan forgiveness, but a few of your payments got messed up like those described above, how exactly do you go about getting those credits?
While we're not sure exactly who will be, we'll sort of have to watch and see where the dominos fall - we can say that some will automatically receive these credits. Over the next few months, some who are lucky will automatically relieve these credits. Unfortunately, others won't be so fortunate and will need to apply for credit through the waiver system.
Some Borrowers May Receive an Over Payment Refund.
Not only is the credit system going to receive a bit of an overhaul regarding eligible payments, but it will also rectify some wrongs that have been done. Those who've now been deemed to have made their eligible payments will be able to receive refunds for those months now considered overpaid.
Let's quickly recap how this is possible. One way you may be eligible for a refund is because your previously ineligible loan type or repayment plan is now valid. This is because the waiver and order are creating a bit of a backlog of payments. In other words, not only are the loans now eligible, all previous payments made to the now eligible loans are qualifying. Because of that, you may have continued payments past the date you would have been able to apply for student loan forgiveness - this money can be refunded to you.
If you were in a program or loan type that was eligible at the time, you might also qualify for a refund. This is because those payments that may have been too large, too small, or denied because of some technical error will now be changed to accepted payments (through the credit system we talked about earlier). Those payments that are changed from denied to accepted and now count towards your student loan forgiveness could cause you to have overpaid. This would also make you eligible for a refund.
Like we previously talked about, some of these credits are going to be automatically issued. However, some of them aren't going to be. So if you believe that you've made payment that may be converted to qualifying, you should get on this and begin the process of contesting them as soon as possible. If those payments aren't converted automatically but perhaps should have been, you may be leaving money in the form of a refund on the table.
Additional PSLF Waiver Steps Required
First of all, we need to take care of some housekeeping. If you don't have an Federal Student Aid ID (FSA ID), get one. If you have an FSA ID, make sure that all of your information is current and up-to-date. For many, it's been a long time since we've thought about our FSA IDs - which means that you need to give yourself as much time on the front-end as possible to find your usernames and passwords. A quick note: If you can't remember your FSA ID, don't create a new one. FSA IDs are limited to one per person, and it could seriously mess things up if you attempt to create a new one.
FSA IDs and having your contact information updated are essential. This is the Department of Education's way of communicating with you, which they've gone on record saying they'll be contacting borrowers directly to let them know how they'll be affected by these changes.
Next, you'll need to check and see which type of federal student loans you have. If you already have a Direct Plus student loan, you're in the clear. However, if you have other types of loans, you may be in for a little more work.
If you have Perkins Student Loans or FFEL loans, you'll need to check and see if your employment history is eligible for student loan forgiveness. Using this tool, you'll be able to check and see if your employer has already been listed as being acceptable for student loan forgiveness. Don't forget, to be eligible, you'll need to have made payments while working for the government or a 501(c)(3) nonprofit organization.
If you have a Perkins or FFEL loan and qualifying work history, you'll need to consolidate those loans (the Perkins and FFEL) into Direct Loans. This is a free process that shouldn't take more than an hour to complete. If you need additional guidance or help through this process, I'd suggest reaching out to a financial professional that specializes in student loans. They'll be able to help you understand what you're doing and understand if it's the correct move for you. This (as well as the next step) needs to be completed before October 31st, 2022.
Lastly, it's now time to submit a Public Student Loan Forgiveness form. This must be done before October 31st, 2022. Once this is completed, you can expect a result (approval or denial) within two weeks.
A Final Note from a College Planning and Student Loan Advisor
Obviously, this is a metric ton of information. However, it's crucial information that has the potential to help a tremendous number of people. So, if you feel that you're one of those who may benefit from the new Public Student Loan Forgiveness Waiver, but you don't know what to do, please call or email to schedule an appointment with me. Together, we can create a financial plan that helps you plant the seeds to a fruitful future for you and your family!
Until next time...this is Melissa Making Cents!
Melissa Anne Cox, CERTIFIED FINANCIAL PLANNER™, is also a College Planning and Student Loan Advisor and Financial Coach in Dallas, Texas.