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2023 is here – and the big questions about student debt are still looming

From changes in repayment policy to a massive one-time debt relief plan, 2022 has proven to be an important year for student loans.

But questions have clouded student loan announcements, and answers are few and far between. We do not yet know how, when, or whether some of these changes will take shape.

As 2023 dawns, the biggest questions are emerging around student loans and what borrowers can do to prepare in the face of uncertainty.

Are student debt write-offs going on?

The lawsuits have suspended the rollout of President Biden’s plan to write off $10,000 student loan debt for eligible borrowers and $20,000 for eligible Pell Grant recipients. While 16 million borrowers have already approved the plan, they won’t see any debt forgiven unless the White House succeeds in court.

For now, borrowers should save money as if they were paying off their student loan in full and avoid unnecessary spending, says Scott Buchanan, executive director of the Student Loan Service Alliance.

“If loan forgiveness comes along, great, you have a windfall in some respects and extra money that you can now spend on other expenses,” he says.

When will patience end?

The duration of the deferral — an interest-free pause in student loan repayments that began in March 2020 — depends on the legal outcome of Biden’s debt relief plan.

We don’t know exactly when this will end according to the latest guidelines. In November, the White House extended the leniency for the eighth time. Repayments are now scheduled to resume 60 days after the resolution of lawsuits challenging the overall debt relief plan, or 60 days after June 30, 2023, whichever comes first.

This means that the interest-free pause may last until August at the latest, but borrowers should be ready to start repaying loans earlier. The Supreme Court will hear oral arguments in February, and a fast track decision is expected to follow in cases blocking Biden’s debt relief plan.

When can I sign up for a new income-based repayment plan?

When the White House announced a $10,000 per borrower student debt relief program in August, it also shared a program that received less attention but could help countless borrowers in the long run: a new income-based repayment plan option. At the time, it stated that the new plan would cap monthly student loan payments at “5% of the borrower’s discretionary income”, half that of existing IDR plans.

However, there are no clear deadlines for when borrowers can register. We don’t yet know exactly what the new IDR plan will look like in its final form, who will qualify, and when applications will open. The plan’s draft rules could come out tomorrow or in six months, says Betsy Mayotte, president and founder of the Institute of Student Loan Counselors.

“Draft rules may vary significantly between the draft and the final draft, but at least we will have a clearer idea of ​​what this new IDR plan might look like when we receive the draft,” Mayotte adds.

Can I pay off student loans in case of bankruptcy now?

Individuals in bankruptcy have long been able to ask for their student loan debt to be written off, but this has traditionally proven to be much more difficult than paying off other consumer debts such as credit card and medical bills. That’s because the borrowers had to prove to the judge that their student debts were causing undue hardship, which was an ordeal to get help.

That changed in November when the Ministries of Justice and Education jointly unveiled a new set of guidelines attempting to standardize the definition of “excessive deprivation.” The bankruptcy judge will still make the final decision on a case-by-case basis.

“Today’s guidance outlines a better, fairer and more transparent process for student loan borrowers in bankruptcy,” Vanita Gupta, Deputy Attorney General at the Department of Justice, said in a press release.

Borrowers can now file for bankruptcy under the new rules, but Stanley Tate, a student loan attorney, suggests that borrowers who have paid back loans for at least 20 years should consider waiting until the new IDR waiver is applied. to their accounts in July. before taking any action. (The White House unveiled a one-time IDR waiver, which is separate from the proposed new IDR plan, in April 2022. The waiver will count for every month you’ve spent paying off or taking time off from school for forgiveness, prompting some borrowers closer to finish)

“It could turn out that your loan is automatically cancelled…so there really isn’t any added benefit to going down that bankruptcy path,” Tate says.

What’s happening with the Joint Consolidated Loan Sharing Act?

In October, Biden signed the Joint Consolidated Loan Sharing Act into law. This will allow borrowers who previously pooled their student loans with a spouse (under a program that ran from 1993 to 2006) to permanently split them. It will also allow borrowers with consolidated spousal loans to access federal student loan write-off programs, such as public service loan forgiveness, after they have split their debt.

For those with consolidated loans, this new law will support “freedom from financial and domestic violence, the freedom to control your financial future, and the freedom to enjoy the same benefits as other borrowers across the country,” said Sen. Mark Warner (D- Virginia, sponsor of the bill, in a press release.

The Department of Education has at least 13,000 joint consolidation loans, according to Warner’s office. However, we still do not know when the law will be fully implemented, what the application process will look like and what documents will be required for this.

Sign up for Department of Education announcements on how and when to apply.

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