President Joe Biden could give 7.5 million student loan borrowers a student loan “reboot.”
Here’s what you need to know – and what it means for your student loans.
As Biden mulls whether to enact sweeping student-loan forgiveness and extend the student-loan payment pause, he is considering a historic new plan to help student-loan borrowers who are in default. In April, Biden announced a plan to put student loan borrowers who have defaulted on their payments back into good standing. Now, the Biden administration may soon implement its plan to rehabilitate these student loan borrowers.
Student Loans: New plan to support student loan borrowers
According to U.S. Department of Education documents obtained by The Washington Post, the Biden administration is considering the following for a “restart” student loan program:
- Once the student loan freeze ends, defaulting borrowers would have a year to regain “good standing” with the Department of Education;
- To participate in this temporary program, student borrowers would need to contact the US Department of Education’s Default Resolution Group to enroll.
- For example, during the one-year period, defaulting student borrowers would not have their wages, tax refunds, or Social Security checks forfeited;
- Student loan recipients can still apply for student loans;
- Student loan borrowers who are more than seven years in arrears on student loan payments may have this credit report information deleted.
Student loan default occurs when a borrower fails to make student loan payments for at least 270 days. In contrast, a student loan delinquency occurs when a student loan borrower is at least 90 days past due on their student loan payments. The Department of Education recently shared more details of the student loan program with financial aid experts.
Student loan: Who is eligible for a fresh start?
Who qualifies for this new program to give your student loans a fresh start:
- Any student borrower in student loan default with federal student loans; and
- These include direct loans held by the US Department of Education, FFELP loans, and Perkins loans.
Student loan borrowers are at particular financial risk, especially during the Covid-19 pandemic. Progressive Democrats like Senator Elizabeth Warren (DMA) have warned the President that not extending the student loan payment pause could cause more borrowers to default. The “Restart” program is intended to give borrowers a second chance with their student loan. With this new plan, student loan borrowers who have defaulted can also be eligible for Pell Grants and work studies. Student loan payments for federal student loans have been paused since March 2020. However, the payment pause for the student loan ends within days. Therefore, student loan borrowers would have until August 31, 2023 to make delinquent student loan payments and enter into good standing with the US Department of Education. Republicans in Congress have questioned the Department of Education’s willingness to implement a sweeping student loan decree and other student loan changes. Biden’s plan to help student loan borrowers comes at a critical juncture as Republicans also unveiled a blockbuster plan for student loan forgiveness.
Student Loan Forgiveness: Next Steps
Biden has been relatively silent on a possible sweeping student loan forgiveness and an extension of the student loan payment pause. However, Biden canceled $3.9 billion in student loans this week. Its “Restart” initiative is another strategy to provide student loan relief to borrowers who are financially struggling. Biden also recently delayed announcing a new student loan plan. Biden’s targeted student loan enactment and efforts to improve student loan repayments could be part of a broader strategy to repair student loans rather than enacting large-scale student loan foreclosures. Alternatively, Biden could view these efforts as an adjunct to a broad slashing of student loans. Regardless of what Biden decides, your best strategy is to take control of your student loans. Start with these popular options to save money and pay off student loans faster: