Monday, May 16, 2022

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Students working to pay back federal loans

If you need help with repaying your Canada Student Loan, you may qualify for the Repayment Assistance Plan .

If youre having trouble repaying a provincial student loan, contact your student aid office. For repayment assistance with a loan or line of credit provided by your financial institution, contact your branch to determine what your options are.

Understand that by making your payments smaller, it will take you longer to pay back your loan. Youll end up paying more interest on your loan.

If you consider refinancing or consolidating your student loan, note that there are important disadvantages.

If you transfer your federal or provincial student loan to a private lender, you will lose any tax deductions on your student loan interest. You wont qualify for the interest free period while you’re in school and will end up paying more interest over time.

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“Why should taxpayers 70% of whom didn’t go to college pay back loans for people who have an obligation they haven’t fulfilled?” Foxx asks.

Foxx thinks this popularity question is a big reason behind Biden’s hesitancy to act.

“I do think the president maybe understands that broad loan forgiveness is not popular in this country, which is why, I think, he has not gone the route of doing what some in his party want to do.”

But polling suggests broad loan forgiveness would be popular, if done with some nuance. For example, a Grinnell College poll conducted in March found that 27% of respondents supported forgiving all student debt and an additional 39% supported forgiveness “for those in need.” In other polling from Vox/Data for Progress and the Harris Poll a majority of respondents supported broad, if limited, forgiveness.

Instead of acting unilaterally, though, this year Biden asked the Education and Justice departments to explore his legal options. The results are still TBD, more than six months later.

Since then, the White House has gone largely quiet on loan cancellation. Some advocates and many Democrats worry that, for whatever reason, the administration is intentionally dragging its feet. Not so, said Kvaal, the education undersecretary, in his interview with NPR.

Why Was The Payment Pause Extended Again

There are likely a few reasons the Biden administration decided to give borrowers more time. For one, it was under pressure from Democrats to do so.

“Since the beginning of the Covid-19 pandemic, millions of Americans have struggled to keep a roof over their heads, pay bills and put food on the table,” the heads of the Senate and House Education Committees, Sen. Patty Murray, D-Wash., and Rep. Robert C. Scott, D-Va., respectively, wrote to the White House in June.

“While the economy has begun to show promising signs of recovery, more than 9 million Americans remain out of work, and the economic and health disparities created by the pandemic are severe.”

Indeed, unemployment levels among young workers are still higher than they were before the public health crisis. And in a recent survey conducted for The Pew Charitable Trusts, more than 66% of student loan borrowers said they’re not ready to start their payments again.

Lastly, a recent change in student loan servicing may have worked in borrowers’ favor.

The Pennsylvania Higher Education Assistance Agency which oversees the loans of 8.5 million student borrowers announced last month that it would not renew its contract with the federal government when it ends in December. As a result, those borrowers will need to be matched with a new lender.

The U.S. Department of Education likely didn’t want to force these borrowers to begin repayment and then have to change their servicer two months later.

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Student Loan Forgiveness: Which Loans Are Eligible

Only direct loans made by the federal government are eligible for forgiveness. Stafford loans, which were replaced by direct loans in 2010, are also eligible. If you have other federal loans, you may be able to consolidate them into one direct consolidation loan that would make you eligible. Non-federal loans do not qualify for forgiveness.

In addition, borrowers with federal student loans who attended for-profit colleges and seek loan forgiveness because their school defrauded them or broke specific laws were recently dealt with a setback. On May 29, 2020, former President Trump vetoed a bipartisan resolution that overturned new regulations that make it much more difficult to access loan forgiveness. The new, more onerous regulations went into effect on July 1, 2020.

Can My Loans Be Forgiven

If you are having a tough time paying back your student ...

Federal student loans may be eligible for certain forgiveness programs, depending on your profession.

As described above, if you have an IBR plan, any balance remaining after 10 years will be forgiven if you spend those years in a public service sector such as the military, public education, or police work or work for certain nonprofit 501 organizations.

You can have up to $17,500 in loans forgiven if you teach in a low-income area for five years.

If you ever find yourself struggling with student loans, keep in mind that you always have options. Dont wait until youve missed several payments or have already defaulted on your loans get help as soon as possible to create a plan that works for you and your budget.

Meanwhile, keep an eye on Washington.

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Who You Need To Repay

You may have loans or lines of credit that you need to repay to the government and/or your financial institution.

In some provinces and territories, Canada Student Loans are issued separately by the federal and provincial or territorial governments. This means that you could have more than one loan to pay back.

Verify your contracts to determine where your debt comes from and where you need to repay it.

You’ve Got Options If You Were Denied Pslf

If your application for Public Service Loan Forgiveness was denied, you may be able to receive loan forgiveness under the Temporary Expanded Public Service Loan Forgiveness opportunity.

As part of this opportunity, the Department of Education reconsiders your eligibility using an expanded list of qualifying repayment plans.

This TEPSLF opportunity is temporary, has limited funding, and will be provided on a first come, first served basis. Once all of the funds are used, the TEPSLF opportunity will end.

Visit StudentAid.gov for detailed information on how to be reconsidered for loan forgiveness.

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Borrowers Will Have To Resume Student Loan Payments Soon

Because of the coronavirus pandemic, Congress and the Education Department paused interest and repayment requirements for borrowers with federal student loans back in March 2020. Now, a year and a half later, Cordray told lawmakers those payments will resume as early as Jan. 31, 2022.

“We know this will not be an easy transition,” Cordray told lawmakers in his opening remarks. “This is a defining moment for FSA, and it’s crucially important for millions of Americans that we succeed.”

The core of FSA’s plan to restart loan payments, Cordray said, “is clear communication, quality customer service and targeted support for those having trouble making their payments.”

One of the biggest challenges that Cordray and FSA face is accommodating borrowers who have lost work during the pandemic and will need help adjusting their payments. For help navigating this return to repayment, check out this FAQ.

Stafford Loan Aggregate Limits

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Students who borrow money for education through Stafford loans cannot exceed certain aggregate limits for subsidized and unsubsidized loans. For undergraduate dependent students, the maximum aggregate limit of subsidized and unsubsidized loans combined is $57,500, with subsidized loans limited to a maximum of $23,000 of the total loans. Students who have borrowed the maximum amount in subsidized loans may take out a loan of less than or equal to the amount they would have been eligible for in subsidized loans. Once both the subsidized and unsubsidized aggregate limits have been met for both subsidized and unsubsidized loans, the student is unable to borrow additional Stafford loans until they pay back a portion of the borrowed funds. A student who has paid back some of these amounts regains eligibility up to the aggregate limits as before.

Graduate students have a lifetime aggregate loan limit of $138,500.

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How Do I Make Payments

Once bills are due again, only if they are due youll be responsible for sending your monthly payments to the companies that hold your loans.

If you dont know where to send a payment, check with your schools financial aid office. The financial aid office will be able to tell you who your loan servicers are. You can then contact your loan servicers directly with specific questions.

You also can retrieve loan information via the National Student Loan Data System. Now more than ever, its vital you know your balance details.

Be aware that your payments are due even if you dont receive the bills. If you move after graduation, or you have relocated during the CARES Act pause, tell your loan servicer your new address to ensure you receive bills and can stay on top of your payments when if they resume.

Consider changing your loan due date to make budgeting easier. The monthly payment might be due before you receive your paycheck. Contact your loan servicer to see if your payment date can be switched to a more convenient day.

What To Do If You Have Private Student Loans

Even if there was new legislation or executive action that grants mass student loan cancellation, it would only apply to federal student loans not private student loans. Private student loan borrowers havent received much government relief throughout the COVID-19 pandemic, but there are still ways to make private student loans more manageable.

If you have private student loans, you can get ahead of any financial challenges by starting a dialogue with your lender and discussing your options to refinance or modify your loans. With rates at historic lows, now is a great time to refinance student loans and get an interest rate significantly lower than your current rate. Shop around and compare rates from several lenders to ensure youre getting the lowest rate possible.

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What If You Cant Afford Your Monthly Student Loan Payment

Perhaps you were up-to-date on your student loans before the pandemic but your financial situation has changed significantly since the current deferment period started. You may even be facing a student loan payment you can no longer afford and a situation where your loans could be in default in a matter of months.

In that case, you can check into setting up an income driven repayment plan now, if possible, or requesting an extension on forbearance until you believe it will be possible to start making payments, says Simpson. No matter what you do, Simpson says you shouldn’t bury your head in the sand.

Jeff Cimini, Retirement Product Management at Voya Financial, also says individuals can look to their employers for help.

“Many companies today offer support in this area, with some even offering direct payment support for student loan repayment in which employers make direct after-tax contributions to the servicers of their employee’s student loan debt,” says Cimini.

“For those who might be seeking new employment opportunities, or those in the workforce, consider asking your benefits administrator about the options available to you.”

Repayment Plans With Loan Forgiveness

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If you arent working in a public service position, you may still be able to get a portion of your student debt forgivenbut it will take longer. Federal income-driven repayment plans, which are designed to help graduates who would have trouble making payments within the standard 10-year time frame, also allow for some debt forgiveness after a certain period.

These plans include:

  • Income-Based Repayment . Maximum monthly payments will be 10% to 15% of discretionary income. Forgiveness eligibility comes after 20 or 25 years of qualifying payments.
  • Income-Contingent Repayment . Payments are recalculated each year based on gross income, family size, and outstanding federal loan balance generally, they’re 20% of discretionary income. Forgiveness eligibility is after 25 years of qualifying payments.
  • Pay As You Earn and Revised Pay As You Earn . Maximum monthly payments will be 10% of discretionary income. Forgiveness eligibility is after 20 years of qualifying payments. The government may even pay part of the interest on the loan.

In addition, if you work for a federal agency, your employer may repay up to $10,000 of your loans per year, with a maximum of $60,000, through the Federal student loan repayment program.

Your student loan servicer handles the repayment of your federal student loans, so work with the servicer to enroll in a repayment plan or change your current plan. You can usually do this online at the servicers website.

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Biden Has Focused On Preexisting Forgiveness Programs

The Biden administration’s approach to student loan relief began with improving, extending or expanding a handful of programs that were already on the books.

“We’re working really hard to get students the relief that they’re entitled to” through these preexisting programs, Undersecretary of Education James Kvaal told NPR on Friday.

While it’s not loan forgiveness, Biden extended the pandemic pauseon federal student loan payments that pause is now slated to lift in February. His other actions essentially keep promises the U.S. government had already made to borrowers rather than make new ones. For example:

Through these efforts, the Education Department says it has discharged or is in the process of discharging roughly $12.7 billion in student debt, affecting more than 638,000 borrowers.

While these moves were cheered by borrowers and advocates, they were not without controversy. The top Republican on the House Education Committee, Rep. Virginia Foxx of North Carolina, , calling it “an abuse of executive authority” and “too significant of an issue” to act without Congress.

Broader loan forgiveness would be even more controversial.

In February, Sen. John Thune, R-S.D., responded to some Democrats’ demand that Biden forgive as much as $50,000 in student debt per borrower by calling it “incredibly, fundamentally unfair” to students who have already repaid their debts.

“In fact, Democrats’ ‘solution’ is likely to make things worse,” Thune said on the Senate floor.

How To Pay Off Your Student Loans Faster

Make lump-sum payments: Lump-sum payments help reduce the total interest paid on your loan. Payments made while still in school, during your non-repayment period, or even after you begin repayment are first applied to any outstanding interest and then directly toward the principal.

Increase the amount of your monthly payments: The amount you pay above your minimum monthly payments is applied directly to the principal.

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How Student Loan Forgiveness Works

Student debt has reached an all-time high in the U.S. According to a report by EducationData.org, student loan debt has reached $1.73 trillion, with over $1.56 trillion making up the Federal Loan Portfolio. It’s reported that as many as 43 million Americans owe an average of nearly $40,000. In some cases, borrowers may be able to get their loans forgiven or canceled. Student loan forgiveness releases a borrower from their obligation to repay part or all of their federal student loan debt.

The prospect of seeing that debt evaporate may seem like a dream come true. In reality, though, not that many people end up being eligible. Requirements vary depending on the type of loan, but most offer forgiveness only for those employed in certain public service occupations. These include teachers, government service, military service, and AmeriCorps.

As noted above, there are a number of different loan programs that qualify for student loan forgiveness, including the:

There are also repayment plans offered to student loan borrowers that include the forgiveness of some of their debt. There can be situations in which a loan is forgiven because the educational institution defrauded the student in some way. We discuss this more in detail below.

Race And Gender Differences In Student Loan Debt

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According to the New York Times “recent black graduates of four-year colleges owe, on average, $7,400 more than their white peers. Four years after graduation, they still owe an average of $53,000, almost twice as much as whites.”

According by an analysis by Demos, 12 years after entering college:

  • White men paid off 44 percent of their student-loan balance
  • White women paid off 28 percent
  • Black men saw their balances grow 11 percent
  • Black women saw their loan balances grow 13 percent

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Balance Increasers Frequently Missed And Paused Payments

Among Texas borrowers, 21 percent owed more after five years than their original loan principal. This was true of 14 percent of national borrowers.53 Texas balance increasers tended to have higher initial principal balances than other groups: 29 percent owed more than $20,000 when they began repayment, compared with 15 percent of defaulters.54

Sixty percent of defaulters had paused payments at least once, but among balance increasers, that number was 98 percent. Many had done so repeatedly, and most continued to have interest accrue while their payments were paused: 88 percent had at least one and 53 percent had three or more forbearances.

Balance increasers not only used forbearances multiple times, but also paused their payments for a median of 350 daysalmost a full yeartwice as long as the other groups that suspended payments. And those long pauseswhether borrowers request, are placed in, or retroactively use forbearancesadd up: A 2018 study by the U.S. Government Accountability Office estimated that using forbearances to suspend payments for all of the first three years of repayment would cost a typical borrower with $30,000 in student loans more than $6,000 in additional interest.55

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