Default student loan borrowers can start over

On April 6, 2022, President Biden headed by the US Department of Education to extend the suspension of coronavirus-related payments and 0% interest rate on some federal student loans for four months.

The payment suspension was supposed to expire at the end of April, but is now being extended until 31 August 2022.

New beginning for default borrowers

The ministry also announced that it would give borrowers with bad debts a “new beginning” in repayment by eliminating the impact of default and default and allowing them to repay in good standing.

This means that loans that are currently hedged through default (including default of loans Perkins Direct, FFEL, HEAL or Ministry) must be removed from the default state and is restored to good condition by the end of the pause. We will post more when we receive more details from the Department, but for now, we expect this relief to at least mean that:

  • When the break ends, the borrowers with covered loans it should not experience of accepting a salary, confiscation of their tax refunds, confiscation of money from their Social Security benefits or collection calls.
  • Borrowers should be able to enroll in an income-driven repayment program to receive a more affordable student loan monthly account and earn credit for canceling any debt left after 20 to 25 years of repayment.
  • The default file must be removed from the credit history of the borrowers.
  • Debtors who were not eligible for further student assistance due to default their suitability must be restoredallowing borrowers to have a second chance at higher education.

Here’s what borrowers need to know about extending deferral payments:

The Website of the Ministry of Education on coronavirus relief provides details on the terms of the deferral of payments as well as tips on preparing for the resumption of payments.

In addition to deducting borrowers from default, the terms of the deferral will continue to remain the same. This means that the pause will continue to include the following terms:

Covered loans: The relief will continue to apply only to Direct Loans and for any other federal student loans currently held by the Department of Education, as well as all defaults on FFEL.

This means that borrowers with commercial Federal Family Education Loans (FFELs) that are not default and Perkins loans held at school will not receive relief for these loans as part of this action. (See information here on how to find out if your loans belong to the Ministry.)

Suspension of payment: For covered loans, the monthly payments will be automatically suspended until August 31, 2022 at least.

This means that borrowers will not be required to make payments, although borrowers who wish to make payments during the suspension may do so.

Provisional interest rate 0%: For covered loans, the provisional interest rate of 0% will continue at least until August 31, 2022.

This means that no interest is charged on covered loans during the suspension period and the borrowers’ balances should not be increased during this period.

Suspension time counts for IDR and PSLF forgiveness: For borrowers enrolled in Income-Based Repayment Scheme (IDR), months spent in arrears will count for IDR loan write-off.

The same goes for Borrowers Working on Public Service Forgiveness (PSLF): Borrowers who otherwise meet the PSLF requirements during the suspension will receive credit to the forgiveness watch during the suspension period.

Extension in time for re-certification: For IDR-registered borrowers, previous extensions of the suspension of payments included pushing the annual recertification period at least until the end of the suspension.

This extension should work the same way: according to the Department Websitethe first borrower may need to re-certify is November 2022. IDR borrowers should continue to contact the loan officer and the Department of Education Website to determine when it will be time to reaffirm their income.

Borrowers can re-certify at any time, so those who have experienced a reduction in income can re-certify in advance to ensure they have an affordable repayment amount when repayments are made.

No collection on overdue loans: During the suspension of payments, no recovery activities should be carried out for bad loans.

This means that there should be no collection calls, no payroll and borrower tax refunds or Social Security benefits to be collected for bad loans.

To access or make the most of this ongoing relief, here are some steps that borrowers with federal student loans can consider:

Borrowers with private loans FFEL and Perkins may consider consolidation in the Direct Loans program qualify for deferral and termination of interest, as well as other benefits provided to direct borrowers (e.g., lower IDR payments under the Revised Payment as you earn program).

However, there are serious potential drawbacks to consolidation and some borrowers are not eligible for consolidation, so this is not a good idea or even a possibility for all borrowers.

Borrowers can learn more about the pros, cons and limitations of eligibility for consolidation here.

Borrowers not currently participating in an Income Repayment Scheme (IDR) should consider whether it makes sense to switch to an IDR plan so that the suspension time counts for the possible write-off of the IDR loan.

Borrowers who do not want to turn to IDR may consider making voluntary payments on their student loans now, although no payments are required so that they can continue to make progress on their student loans and get rid of student debt. .

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