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SuraLinkWritten by Dalton Bradshaw, CPA
In the fall of 2022, the Biden Administration unveiled its plan for student loan forgiveness, invoked by the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act), which also included revisions to the Public Service Loan Forgiveness (PSLF) programs and income-driven repayment plans. Upon its introduction, the Secretary of Education estimated that the plan would provide some form of relief for approximately 43 million borrowers. For more specific information on the details of the plan as it was originally introduced, please refer to our November 2022 article here.
Since its introduction, the plan has faced staunch opposition, notably from the GOP and several state legislatures, and recently made its way before the Supreme Court (SCOTUS). In a decision issued on June 30, 2023 (No. 22-506), SCOTUS determined, in a 6-3 vote, that the Secretary of Education did not have the authority under the HEROES Act to directly cancel student loan debt. For now, the decision has effectively derailed the Administration’s plan, but hope remains for some borrowers.
Reaction to SCOTUS decision
Following the ruling, the White House doubled down on its efforts and issued a list of new actions (in a fact sheet) that it plans to take to deliver on student loan forgiveness. While the fact sheet does not offer many details, it appears that the administration’s revised efforts seek to invoke the Secretary of Education’s power to “enforce, pay, compromise, waive or release” debt granted by the Higher Education Act of 1965. This power is typically used in instances where the Secretary is canceling or forgiving a portion of debt from a borrower already in default.
The Biden administration issued a public notice of its intent to establish a negotiated rulemaking committee surrounding student loan forgiveness under the Higher Education Act shortly after the decision. According to the notice, there was a virtual public hearing on July 18th in which the Biden Administration requested public comments. Following the hearing, the Department of Education is taking the topics of discussion into consideration and beginning the negotiated rulemaking process this fall, in an effort to codify regulations surrounding student loan forgiveness.
Additionally, the Administration finalized a more affordable repayment plan, known as the Saving on Valuable Education (SAVE) plan. The SAVE plan is a more robust income-driven payment plan that seeks to lower monthly payments by:
- Reducing the discretionary income repayment limit from 10% to 5% for undergraduate loans
- Increasing the amount of income considered non-discretionary
- For original loans of $12,000 or less, forgiving balances after 10 years rather than 20 years
Finally, in an effort to ease borrowers back into payments, the Administration is creating a temporary twelve-month “on-ramp” to repayment. Although interest will accrue beginning this fall, any unpaid interest will not be capitalized into the loan balance at the end of the period. Additionally, the department will not report borrowers to credit bureaus, refer them to collection agencies, or consider them to be in default during this time.
What can borrowers expect next?
Since the initial pause in 2020 in response to the COVID pandemic, borrowers have not been required to make payments and interest has not accrued on their federal student loans. Beginning in September 2023, interest will begin to accrue on outstanding federal student loans. Payments will resume for borrowers in October 2023, and they can expect to receive their bill sometime in late September/early October.
To avoid missed payments or correspondence, prudent borrowers should take the following steps in preparation for the upcoming payment resumption:
- Verify who your student loan servicers are by logging into your account at StudentAid.gov
- Update your address and phone number
- If you were previously on autopay, ensure your payment information is up to date
- Evaluate your repayment options, particularly income-driven repayment plans (you may apply for a recalculation if you have previously acquired an IDR certification and have since had a significant change in income)
We will continue to closely monitor developments surrounding student loan forgiveness and provide updates in a timely manner. If you have any questions or concerns about how these changes may affect your specific situation, please contact your BMSS advisor at (833) CPA-BMSS or visit our website for contact information.