President Joe Biden could offer a “fresh start” in student loans for 7.5 million student loan borrowers.
This is what you need to know: and what it means for your student loans.
As Biden ponders enacting large-scale student loan forgiveness and extending the student loan repayment pause, he is considering a landmark new plan to help student loan borrowers who are in default on student loans. In April, Biden announced a plan to return student loan defaulters to good standing. Now the Biden administration may soon implement its plan to rehabilitate these student loan borrowers.
Student Loans: New Plan to Help Student Loan Borrowers
According to documents from the US Department of Education. obtained Per the Washington Post, the Biden administration is considering the following for a “fresh start” program for student loans:
- once the student loan payment pause ends, borrowers in student loan default would have one year to return to “good standing” with the Department of Education;
- to participate in this temporary program, student loan borrowers will need to contact the US Department of Education’s Default Resolution Group to enroll;
- During the one-year period, student loan borrowers in default on student loans would not see their wages, tax refunds, or Social Security checks garnished, for example;
- student loan borrowers can still apply for student loans;
- Student loan borrowers who are behind on student loan payments for more than seven years could see information removed from this credit report.
A student loan default occurs when a borrower defaults on at least 270 days of a student loan. In contrast, student loan delinquency occurs when a student loan borrower is at least 90 days behind on their student loan payments. The Department of Education recently shared more student loan program details with financial aid professionals.
Student loans: who is eligible for a fresh start
Here’s who qualifies for this new program to get a fresh start on their student loans:
- Any student loan borrower who is in default on federal student loans; Y
- This includes Direct Loans, FFELP Loans, and Perkins Loans from the US Department of Education.
Delinquent student loan borrowers are particularly vulnerable financially, especially during the Covid-19 pandemic. Progressive Democrats, such as Sen. Elizabeth Warren (D-MA), have warned the president that if the student loan payment pause is not extended, more borrowers could default on student loans. The “fresh start” program is intended to give borrowers a second chance with their student loans. Under this new plan, student loan borrowers in default on student loans may also be eligible for Pell Grants and work study. Student loan payments for federal student loans have been paused since March 2020. However, the student loan payment pause ends in a few days. Thus, student loan borrowers would have until August 31, 2023 to make overdue student loan payments and enter good standing with the US Department of Education. Republicans in Congress have questioned whether the Department of Education is ready to implement large-scale student loan forgiveness and other changes to student loans. Biden’s plan to help student loan borrowers comes at a critical time, as Republicans also unveiled a successful plan for student loan forgiveness.
Student Loan Forgiveness: Next Steps
Biden has been relatively silent on possible large-scale student loan forgiveness and any extension of the student loan repayment pause. That said, Biden paid off $3.9 billion in student loans this week. Its “fresh start” initiative represents another strategy to provide student loan relief to borrowers experiencing financial difficulties. Biden also recently delayed an announcement about a new plan for student loans. Biden’s specific student loan forgiveness and efforts to improve student loan repayment could be part of a broader strategy to fix student loans rather than enact large-scale student loan discharge. Alternatively, Biden could view these efforts as complementary to broad student loan write-offs. Regardless of how Biden decides, his best strategy is to take control of his student loans. Get started with these popular options to save money and pay off student loans faster: