Due-Day for Student Loans: 8/31/22

Note: The Biden Administration recently extended the administrative forbearance until August 31, 2022.

Out of the many relief measures that passed in the 2020 COVID-19 emergency legislation, perhaps of most help to younger adults was the forbearance on student loans which is ending soon.

The forbearance included:         

• A suspension of all federal student loan payments

• 0% interest for the duration of the forbearance, and

• A pause on collection activities for defaulted loans.

This is all changing in the New Year. On August 6, 2021 the US Department of Education announced a final extension that ends January 31, 2022.

What Borrowers Need to Know

What if the borrower was on an auto-debit payment plan prior to the COVID-19 payment pause? 

Some student loan servicers offered a reduced interest rate for placing payments on auto-debit. Student loan servicers are actively reaching out to borrowers asking for confirmation of banking information. If the borrow does not verify their payment information prior to the February 2022 payment due date, they may be at risk for losing a special interest rate. If banking information has changed, it is important to confirm the servicer has current account information.

What if the borrower is on an income driven repayment plan?

Income-driven repayment (IDR) plans require annual recertification. Recertification due dates that were scheduled to occur between March 13, 2020, and July 31, 2022, are all now due no sooner than July 31, 2022.  For example, if the IDR recertification was due on October 1, 2021, the new recertification date is October 1, 2022.

The servicer should send the borrower notification of their new recertification due date, however, this is worth some proactive follow up by the borrower so that an income-driven plan can continue if needed.

What if the borrower is working towards loan forgiveness?

The good news is that the months in the payment pause may count toward forgiveness, unlike other types of forbearance. Paused payments may count toward IDR and Public Service Loan Forgiveness (PSLF) IF the borrower meets all other qualifications. Please check with your loan servicer and note that forgiveness generally only applies to federal (and not private) student loans. Eligibility could also be impacted by reduced work hours. The Department of Education published 6 Things to Know About Public Service Loan Forgiveness During COVID-19 to help.

What if the borrower was in default before the COVID-19 payment pause?

The federal government instructed loan servicers and collection agencies to stop all collection activities during the payment pause. If a borrower was in default, there is still time to initiate a rehabilitation agreement with the Department of Education before collection activities (including reducing tax refunds and garnishing wages) resume. If the borrow had already established a rehabilitation agreement, payments resume after January 31, and the suspended payments count toward the payments required for rehabilitation but do not reduce the loan balance. What is federal student loan rehabilitation?

What if the borrower was a new grad in 2020 whose loans had not become payable when the payment pause started?

If the borrower has not yet begun making payments on federal student loans, it is critical to visit their servicer’s website to select an appropriate repayment plan and set up payments to begin in February.  The federal government has a handy calculator that can help borrowers choose the right repayment program for them. https://studentaid.gov/loan-simulator/

The borrower will need to set up an account with their student loan servicer if they have not already. If a borrower does not know who their student loan servicer is, they can log into their account with the Federal Student Aid office to find out. https://studentaid.gov/fsa-id/sign-in/landing

How can employers help?

If you are an employer who wants to help support your employees in navigating student loan repayment as part of your financial wellness benefits, there are a few ways you can help.

1.     Providing education: Student loans are a hot topic in employee benefits. Your benefits providers likely have access to educational resources you can share. Perhaps you can include an article in your employee newsletter or find someone who will host a webinar for your employees.

2.     Consider student loan repayment benefits: Student loan repayment programs were just starting to take off in early 2020 and lost some steam during the pandemic as employers have been focused on other issues. There are a myriad of programs available that can facilitate an employer contribution to student loans or provide refinancing options. Tread carefully, however, with programs that offer refinancing as it can sometimes limit a borrowers’ access to federal forbearance and forgiveness programs.

3.     Consider Financial Wellness as an employee benefit: Managing student loans is just one piece of developing healthy financial habits. According to a recent 2021 PwC Employee Financial Wellness Survey, 85% of employees want help with their personal finances. There are many options for financial wellness education and support that may include your 401(k) and/or healthcare benefits providers, and stand-alone programs that include a technology component, personal financial coaching, or both.

What’s next?

• We’re here to help. Reach out if we can assist you navigating these complex issues for your own family.

• If you are an employer and would like to explore Financial Wellness as an employee benefit, schedule a complementary consult with our team.

 Sources:

Federal Student Aid, Office of the US Department of Education, https://studentaid.gov/announcements-events/covid-19