In 2023, there was a push and pull on student loan debt that kept borrowers on tenterhooks, waiting for their loans to be cancelled.
Even though President Joe Biden’s loan forgiveness plan was overturned by the Supreme Court and the three-year payment moratorium was lifted, the Biden administration was nevertheless able to forgive the loans of over 3.6 million borrowers last year.
According to the Department of Education, around 40% of the 22 million borrowers who owed student loan debt had not made payments by mid-November since payments resumed in October.
“Faced with the impossible choice of feeding their kids, keeping a roof over their head or throwing an average of $400 a month into the Department of Education incinerator, borrowers are rightly choosing to keep themselves and their families financially afloat,” Astra Taylor, co-founder of the Debt Collective, the nations first debtors union, told CNBC.
Here are some things to be aware of with student loan debt as we enter the new year: borrowers are finding it difficult to make their first payments; there are more repayment plan alternatives than ever before; and there have been significant changes to the Free Application for Federal Student Aid (FAFSA).
On-ramp period — September 2024
An on-ramp transition period has been established by the Department of Education in order to “assist borrowers in successfully returning to repayment.” If a borrower makes partial, late, or skipped payments, this on-ramp will automatically place their loans into forbearance, deferring payments and allowing them to skip them without going into arrears.
“During this period, if you can pay your monthly bills, you should,” President Biden said in a June 30 press conference. “But if you cannot, if you miss payments, this ‘on-ramp’ will temporarily remove the threat of default or having your credit harmed, which can hurt borrowers for years to come.”
The Department of Education will not garnish wages or record a borrower as delinquent to their loan servicer during the on-ramp period, but they have no control over how credit score businesses account for missed or delayed payments. Interest on student loans will still accumulate during this time.
Only loans that were eligible for the three-year payment halt are eligible for the temporary on-ramp, which will run until September 30, 2024.
SAVE Plan payments get much lower
The new income-driven SAVE (Saving on a Valuable Education) plan will have significantly reduced monthly payments by 2024. SAVE offers the lowest monthly student loan payments based on borrower income and family size.
The monthly payment for the SAVE plan is currently 10% of the borrower’s discretionary income, or the amount they make above 225 percent of the federal poverty line. Undergraduate borrowers’ discretionary income will be reduced to 5% this summer, while graduate loan borrowers will pay back an average of 5% to 10% of their discretionary income.
Applying for the SAVE plan has allowed many borrowers to see their monthly student loan payments drop to $0. Even if the SAVE plan might not be the best option for every borrower, make sure to explore all of your payment options by using the online loan simulator tool at StudentAid.gov.
Potentially delayed financial aid awards in 2024
Due to “some minor issues,” relatively few students have been able to complete the Department of Education’s new FAFSA for the 2024–2025 academic year, the department reports.
Due to a 30-minute soft launch of the application on December 30 and 31, as well as January 1, many students have encountered difficulties and obstacles when attempting to access the form.
The Department of Education believes everyone will be able to complete the form on time and mentions on their website, “You will have plenty of time to complete the FAFSA form. If you do submit your form during the soft launch, your information will be saved and you won’t need to resubmit your form or any related information. If your form is unavailable when you or your family members try to access it, please try again later.”
By collecting more information from students, the new application aims to boost access to grants and scholarships. However, some families with several college-age children will no longer be eligible. The more recent form, which only has 36 questions instead of the prior application’s 108, provides a more effective method of importing tax and financial records.
In past years, FAFSA applications were due in October. The new deadline to submit the form will be June 30 of each year.
Employers matching student loan payments
Many people are concerned about retirement savings and debt repayment, but as of 2024, some businesses are providing a new perk to assist their staff in achieving both goals.
A Secure 2.0 Act clause dated 2022 permits companies to match an employee’s contribution to their workplace retirement plan with the amount of their student loan repayment. Included are workers who have SIMPLE IRAs, 403(b)s, 457(b)s, and 401(k)s.
Make sure your employers can match your retirement account contributions and student loan payments by asking them to do so.
