Some student-loan borrowers are set to get cheaper bills next month — but the Education Department is still working on those new calculations.
Last summer, President Joe Biden’s Education Department launched the SAVE plan — a new student-loan repayment plan intended to make payments more affordable for borrowers with a shorter timeline to loan forgiveness than prior income-driven repayment plans.
The department already started rolling out some of SAVE’s provisions ahead of schedule, including loan forgiveness for borrowers with original balances of $12,000 or less who made as few as 10 years of qualifying payments. Beginning in July, a host of new provisions are expected to be implemented.
One of those provisions will allow borrowers with undergraduate student loans to have their payments capped at 5% of their discretionary income, which is down from the current 10% cap.
However, as The New York Times first reported, the Education Department is still working through those new calculations and is placing impacted borrowers on administrative forbearance — during which they are not required to make payments and interest will not accrue — as it works toward implementing this new part of SAVE.
Education Department spokesperson Vanessa Harmoush confirmed the forbearances, telling Business Insider that as the department finalizes the new SAVE payments, “some borrowers may be placed in a brief processing forbearance to ensure they can access the full benefits of the SAVE Plan and that their new payment amounts are accurate.”
“While borrowers are in this specific forbearance, no payment is required, their interest rate will be set to 0%, and they will receive credit toward IDR forgiveness and Public Service Loan Forgiveness (PSLF),” she said.
A department spokesperson added that the department “has already sent servicers the information they need for hundreds of thousands of borrowers, some of which should see updated billing statements for July,” and that 4.6 million borrowers who have $0 payments under SAVE will not need to enter forbearance.
Given that borrowers typically receive bills for their student-loan payments a few weeks before the due date, this forbearance period will ensure that borrowers do not make a larger payment than necessary before the Education Department has time to calculate the new amounts.
Aside from SAVE’s implementation, the student-loan servicing industry is undergoing a series of changes that are impacting borrowers’ user experience. For example, the Education Department is transitioning the Public Service Loan Forgiveness program away from servicer MOHELA and is instead splitting up PSLF accounts among other servicers to be overseen by Federal Student Aid.
The Education Department is also working toward implementing its new student-loan forgiveness plan after the Supreme Court struck the first one down last summer, and it is continuing to carry out its one-time account adjustments for borrowers on PSLF and income-driven repayment plans, expected to be completed in September.
Read the full article here
