President Biden’s up to $20,000 in student loan forgiveness is on hold as the Supreme Court deliberates.

As a result, the federal forbearance pause has been extended until June 30. If litigation has not been resolved by then, payments will begin 60 days after that.

However, the one-time IDR account adjustment may help borrowers get closer to loan discharge.

If you have private student loans or consolidate or refinance with a private lender, you are not eligible for federal student loan debt relief, like the federal forbearance pause and loan forgiveness.

Beware of scams. If you have federal loans, you do not pay to receive federal loan forgiveness or discharge. The loan forgiveness application is only available on StudentAid.gov and is currently not accepting applications due to the Supreme Court case. 

Borrowers should go to the FSA website to make sure their accounts have updated contact information and find out who their loan service provider is, as this may have changed since the beginning of the pandemic.

• Private vs. Federal loans
• Public vs. Private vs. For-profit schools
• Loan Cancellation vs. Discharge vs. Forgiveness
• Income-Driven Repayment (IDR) Plans

Total & Permanent Disability Loan Discharge

Borrowers who have a total and permanent disability are eligible for student loan discharge. This includes veterans who have a 100% disability connected to military service. Borrowers with a serious disability and receiving Social Security benefits are also eligible.

Last year, the Biden administration discharged $9 million for 425,000 disabled borrowers.

Closed School & Borrower’s Defense Loan Discharge

For-profit schools have been called predatory and a major reason for borrowers seeking student loan discharge under the “closed school loan discharge” and “borrower loan defense discharge” programs.

When these schools close, many students are left without transferable credits or promised degrees. 

Military veterans tend to be targeted to take advantage of the federal funding available to them through programs like the GI Bill.

Last year, the Education Department discharged $14.5 billion for nearly 1.1 million borrowers whose colleges took advantage of them under the closed school and borrower defense discharge. Westwood College, ITT, DeVry University, and Corinthian are some of the schools.

More than 100 for-profit schools are part of the Sweet v. Cardona closed school and borrower defense class-action lawsuit represented by the Project on Predatory Student Lending.

Deadlines

Borrowers that have commercially-held Federal Family Education Loans (FFEL), Perkins, and HEAL loans are eligible for the one-time payment adjustment if they consolidate their loans with Federal Student Aid by May 1, 2023. 

Default borrowers have until December 31, 2023 to use the Fresh Start Program to become in good standing and take advantage of the loan forgiveness and the one-time payment adjustment.

Resources 

There are several organizations and advocate groups for borrowers. Below are just a few. Many work with other borrower organizations, so if they can’t assist you then can most likely point you in the right direction.

Resources	Areas
Student Debt Crisis Center (SDCC)	Webinars on loan forgiveness applications, including ParentPlus and PSLF. Advocacy for borrowers.
Student Borrower Protection Center (SBPC)	Webinars on loan forgiveness applications, including ParentPlus and PSLF. Provides legal advocacy for borrowers’ rights.
The Debt Collective	A debtors’ union fighting to cancel debts and defend millions of households.
American Federation of Teachers (AFT)	Advocacy for educators on Teacher Loan Forgiveness (TLF) and PSLF.
Project on Predatory Student Lending (PPSL)	Representing students against the predatory for-profit college industry, Sweet v. Cardona.
National Consumer Law Center (NCLC)	Uses advocacy, education, and litigation to fight for economic justice.
Consumer Financial Protection Bureau (CFPB)	Tools and resources for borrowers to file complaints against institutions re: student loan debt.
Fresh Start Program – FSA Default Group	Assistance for borrowers in default on student loans.
Ombudsman Group – Dept of Education	Assist borrowers in resolving student loan issues, as a last resort after trying to resolve with loan servicer or college unsuccessfully.
NAACP	Advocacy for borrowers.
DOJ Guidance on Bankruptcy	Borrowers filing for bankruptcy have new guidelines.
Closed School Loan Discharge	Federal Student Aid (FSA)
Borrower Loan Defense Discharge	Apply on the FSA website

Originally published on Ronda-isms.com

Republished from Ronda-isms

Income-driven repayment (IDR) plans were considered a fix to a broken student loan system, offering borrowers monthly payments based income, unlike standard payment plans.

An additional benefit of IDR plans was that after 20-25 years of repayments, the remaining balance would be discharged. 

However, over 4.4 million borrowers have been in repayment for more than 20 years and haven’t received discharge.

“Borrower participation in income-based repayment plans was stunted by confounding complexity, bad management, and predatory practices on the part of loan servicers,” Andre M. Perry, a senior fellow at the Brookings Institute, said in a recent article.

Last April, Biden announced an IDR reform one-time payment adjustment to remedy decades of forbearance steering on behalf of loan servicers.

The adjustments are separate from Biden’s up to $20,000 in student loan forgiveness and aren’t contingent on the outcome of the Supreme Court cases. 

Borrowers who have at least 20 or 25 years in repayment will see automatic forgiveness, even if those borrowers are not currently on an IDR plan.

Around 3.6 million borrowers would receive at least three years of credit toward forgiveness as a result, according to Federal Student Aid.

Who is eligible for the one-time IDR payment adjustment?

All William D. Ford Federal Direct Loan (Direct Loan) Program and federally owned Federal Family Education Loan (FFEL) Program loans borrowers are eligible.

Borrowers with commercially-held FFEL, Perkins, or Health Education Assistance Loan (HEAL) loans are eligible for the one-time payment adjustment if they consolidate their loans with Federal Student Aid by May 1, 2023. 

Default borrowers have until December 31, 2023 to use the Fresh Start Program to become in good standing and take advantage of the loan forgiveness and the one-time payment adjustment.  Time in default will not be counted toward IDR.

What if I have joint consolidation with my spouse?

We are still waiting for guidance on joint (spousal) consolidation loans under the Joint Consolidation Loan Separation Act. Check the FSA website for updates.

Are there income-restrictions?

Unlike Biden’s up to $20,000 in loan forgiveness, there are no income restrictions for the one-time payment adjustment.

How do I get the one-time payment adjustment?

The adjustment will happen automatically, unless your loans are in default or you have commercially-held FFEL loans.

Beware of scams. If you have federal loans, you do not pay to receive federal loan forgiveness, discharge, or the one-time payment adjustment. 

Default borrowers have until December 31, 2023 to use the Fresh Start Program to become in good standing and take advantage of the loan forgiveness and the one-time payment adjustment. Time in default will not be counted toward IDR.

Borrowers with commercially-held FFEL, Perkins, or Health Education Assistance Loan (HEAL)  loans are eligible for the one-time payment adjustment if they consolidate their loans with Federal Student Aid by May 1, 2023. 

How much time will be credited to my account?

Borrower will get credit toward IDR forgiveness for:

• any months in a repayment status, regardless of the payments made, loan type, or repayment plan;
• 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance;
• months spent in economic hardship or military deferments after 2013;
• months spent in any deferment (with the exception of in-school deferment) prior to 2013; and
• any time in repayment on earlier loans prior to consolidation of those loans into a consolidation loan.

What about PSLF borrowers?

PSLF borrowers will get the following credit:

• If you have 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance, you will receive PSLF credit for those periods of time if you certify qualifying employment.
• These changes will be applied automatically to all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans. If you believe you might benefit, you should update your employment certification history to reflect all periods of public service employment.
• Borrowers with commercially or federally held FFEL loans who consolidate those loans into Direct Consolidation Loans before the account adjustment is applied will also get PSLF credit.

What is the timeline for the one-time payment adjustment?

PSLF borrowers with 120 months and IDR borrowers with 240 or 300 months of payments will start to see their loans forgiven in spring 2023. 

All other borrowers will see their accounts update in the summer.

Some PSLF borrowers have already reported seeing zero balances as a result of the one-time payment adjustment.

How will I know the one-time adjustment was applied?

Borrowers should go to the Federal Student Aid’s (FSA) website to see if the adjustment has been credited to their accounts. 

Do I have to pay taxes on the one-time payment adjustment?

Any debt forgiven due to the one-time IDR account adjustment will not be subject to federal taxes as a result of the American Rescue Plan Act, which included a provision temporarily modifying the tax treatment of discharged student loan debt. 

However, it could be taxable in some states. Consult a tax professional.

Originally published on Ronda-isms.com

Republished from Ronda-isms

Income-driven repayment (IDR) plans base monthly payments on the borrower’s income, unlike standard payment plans.

An additional benefit of IDR plans is that after 20-25 years of repayments, the remaining balance is discharged. 

Payments borrowers made on loans while in Chapter 13 bankruptcy or through wage garnishment don’t count as IDR payments for loan discharge in 20-25 years.

Also, federal ParentPlus loans are generally excluded from IDR plans, unless consolidated in the income-contingent repayment (ICR) plan.

Over 4.4 million borrowers have been in repayment for more than 20 years and haven’t received discharge.

“Income-driven repayment (IDR)… is converting the short-term problem of delinquency into a long-term problem of nonrepayment,” according to the Brookings Institute. “Our data shows that the share of loans in which the balance is increasing rather than being paid down is rising both over time and across origination years, to the point that a majority of loans now have a higher balance than they did initially. The only question is whether borrowers carry the nominal balance until they reach the end of the IDR repayment period, or whether the bad debt is acknowledged now and the balance written down in the interim.” 

Biden’s IDR Reform

Last year in August, the president outlined four proposed changes to IDR plans:

• Income exclusion allowance – raising the federal poverty level from 150% to 225% giving borrowers more income for basic needs considering the higher cost of living.
• Discretionary income – decreases the amount of borrowers’ discretionary income that goes toward loan payment from 10% to 5%, for undergraduate loans only.
• Interest elimination subsidy – eliminates the negative amortization scenario where the balance grows as interest accrues because the IDR payment is too small to cover the interest payment.
• Automatic loan forgiveness – decreases 20-25 years of payment to 10 years of payments for borrowers whose original principal was $12,000 or less.

In January, Biden outlined proposed regulations to income-driven repayment (IDR) plans as a follow-up to initial details outlined last August to reform IDRs.

The proposed rules have a significant impact on borrowers in the REPAYE income-driven plan with undergraduate loans and income less than $30,600 for individuals or $62,400 for families of four or more. 

Borrowers who are 75 days or less delinquent would be enrolled in an IDR plan with the lowest monthly payment and borrowers currently in default will have access to an IDR plan.

Biden’s proposed regulations would impact borrowers enrolled in the REPAYE plan. Borrowers enrolled in other IDR plans can switch plans once repayment begins. 

However, switching may not be necessary as ED will phase out new enrollments for ICR and PAYE plans, while limiting enrollment for IBR.

The phase-out of enrollment of ICR means ParentPlus borrowers who haven’t consolidated their loans won’t be eligible, something advocates have long criticized because many parents still have their own loans.

Another IDR reform is the one-time payment adjustment that Biden announced last April that rolls out this spring and summer.

Beware of scams. If you have federal loans, you do not pay to receive federal loan forgiveness, discharge, or the one-time payment adjustment.

Originally published on Ronda-isms.com

Republsihed from Ronda-isms

Any discussion about student loans, should begin with a basic knowledge of:

• Private vs. Federal loans
• Public vs. Private vs. For-profit schools
• Loan Cancellation vs. Discharge vs. Forgiveness
• Income-Driven Repayment (IDR) Plans

Federal vs. Private Student Loans

Student loan debt consists of private loans and federal loans. 

Private student loan debt accounts for 7.61% of all student debt and totals $131.1 billion. Private student loan debt is not eligible for federal student loan debt relief.

Over 40 million borrowers have federal student loans totaling around $1.6 trillion in debt and make up 92.7% of all student loan debt. Discussions regarding student loan forgiveness or debt cancellations are regarding federal student loans.

Beware of scams. If you have federal loans, you do not pay to receive federal loan forgiveness or discharge.

Federal/Direct Student Loans	Private Loans/Refinancing/Consolidation
Eligible for federal forbearance or loan forgiveness	Ineligible for federal forbearance or loan forgiveness
If you work as a public servant, your loans are discharged after 10 years of repayment under the Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness (TLF)	Not eligible for Teacher Loan Forgiveness (TLF) or Public Service Loan Forgiveness (PSLF)
If you die, loans are discharged	If you die, debt passes to your estate (spouse, parent, or loved one)
After 20-25 years of repayment in an income-driven repayment (IDR) plan, remaining balance discharged	Many require payments while you are in school, but some allow you to defer payments while in school.

The average college graduate has $37,102 in student loan debt, a 78% increase from ten years ago.

Baby boomers carry the most student loan debt averaging $43,678 according to a Credit Karma study of its members.

Once the federal forbearance pause is lifted, on June 30, 2023, the average borrower will experience a 17% jump in their student loan monthly payments, according to an Equifax student loan crisis report. Additionally, the report anticipates that after the pause is lifted and delinquency and defaults will increase, younger people with less credit history will suffer the most.

Public vs Private nonprofit vs For-profit schools

Depending on the type of school you attend, your tuition and costs will vary. 

Public Colleges/Universities	Private Non-Profit Colleges	Private For-profit Schools
Funded by the state and federal government, includes community colleges.	Tax-exempt receiving funding from tuition, investments, and donations (ie Northwestern University, University of Chicago, New York University, Duke University).	Puts tuition revenue into people — splitting earnings among owners, investors and shareholders at the institution — rather than back into the school (ie ITT, Corinthian, Westwood, and DeVry University).

Public institutions receive funding from the state and federal government and tend to be the least expensive. 

Private nonprofit colleges are tax-exempt and get funding from tuition, investments, and donations. They tend to be more expensive than public colleges and universities. 

For-profit schools’ costs vary, but more than 70% of for-profit students borrow federal loans and  account for 50% of all student loan defaults. Also, for-profit students are three times more likely to default on student loans and six times less likely to receive employment after enrollment compared to public college students per a NBER study.

Loan Cancellation vs Discharge vs Forgiveness

The terms are used interchangeably, but they actually have different relief for borrowers. 

Loan discharge happens after being in repayment or an event occurs, like the death of the borrower. There are several types of loan discharge, like income-driven repayment (IDR), disability discharge, closed school discharge, borrower’s defense discharge, and death of the borrower.

Loan forgiveness is usually offered due to your job, like Teacher Loan Forgiveness (TLF) or Public Service Loan Forgiveness (PSLF).

Loan cancellation is like the up to $20,000 in debt cancellation proposed by the Biden administration, currently before the U.S. Supreme Court.

Loan Cancellation	Loan Discharge	Loan Forgiveness
Cancellation of debt, like the up to $20,000 in debt cancellation proposed by Biden that is currently before the U.S. Supreme Court	Discharge happens after years of repayment or an event occurs. Income-driven Repayment (IDR) Total & Permanent Disability Discharge Closed School Discharge Borrower Defense DischargeDeath of the borrower	If you’re no longer required to make payments on your loans due to your job, this is generally called forgiveness. For example: (1) Teacher Loan Forgiveness (TLF); or (2) Public Service Loan Forgiveness (PSLF).

Income-Driven Repayment (IDR) Plans

When you start repaying your federal loans, you have several options. Income-driven repayment (IDR) plans base monthly payments on the borrower’s income, unlike standard payment plans.

An additional benefit of IDR plans is that after 20-25 years of repayments, the remaining balance would be discharged. 

Federal ParentPlus loans are generally excluded from IDR plans, unless consolidated in the income-contingent repayment plan.

Resources for Borrowers

There are several organizations and advocate groups for borrowers. Below are just a few. Many work with other borrower organizations, so if they can’t assist you then can most likely point you in the right direction.

Resources	Areas
Student Debt Crisis Center (SDCC)	Webinars on loan forgiveness applications, including ParentPlus and PSLF. Advocacy for borrowers.
Student Borrower Protection Center (SBPC)	Webinars on loan forgiveness applications, including ParentPlus and PSLF. Provides legal advocacy for borrowers’ rights.
The Debt Collective	A debtors’ union fighting to cancel debts and defend millions of households.
American Federation of Teachers (AFT)	Advocacy for educators on Teacher Loan Forgiveness (TLF) and PSLF.
Project on Predatory Student Lending (PPSL)	Representing students against the predatory for-profit college industry, Sweet v. Cardona.
National Consumer Law Center (NCLC)	Uses advocacy, education, and litigation to fight for economic justice.
Consumer Financial Protection Bureau (CFPB)	Tools and resources for borrowers to file complaints against institutions re: student loan debt.
Fresh Start Program – FSA Default Group	Assistance for borrowers in default on student loans.
Ombudsman Group – Dept of Education	Assist borrowers in resolving student loan issues, as a last resort after trying to resolve with loan servicer or college unsuccessfully.
NAACP	Advocacy for borrowers.
DOJ Guidance on Bankruptcy	Borrowers filing for bankruptcy have new guidelines.
Closed School Loan Discharge	Federal Student Aid (FSA)
Borrower Loan Defense Discharge	Apply on the FSA website

Originally published on Ronda-isms.com

With rising college costs, it is important to have a plan and be educated about the different options.

It is always good to consult a financial advisor to discuss your short-term and long-term financial planning goals. Here’s a quick overview of 529 and Coverdell college saving plans.