How To Guides

2022 was a notable year for student loans, with a variety of repayment policy changes and a comprehensive one-time debt forgiveness program.

However, questions remain over the announcements of student loans and there are not many answers. We do not yet know when, how or if these changes will occur.

Here are some of the most important questions about student loans as 2023 approaches. And here’s what borrowers can do in the face of uncertainty.

The rollout of President Biden’s plan to cancel $10,000 student loan debt for qualified borrowers and $20,000 for eligible Pell Grant recipients has been halted by law suits. The plan has been approved by 16 million borrowers, but they will not see their debt forgiven unless it is successful in court.

Scott Buchanan, executive Director of the Student Loan Servicing Alliance, states that borrowers should save money for now and not spend it on unnecessary expenses.

“If you get your loan forgiven, that is great. You have extra money you can use to pay for other expenses.” he said.

The legal outcome of Biden’s debt cancellation plan will determine the expiration date for forbearance, the interest-free pause on student loans payments that began March 2020.

According to the most recent guidance, we don’t know when it will be over. The eighth extension of forbearance was granted by the White House in November. The White House has now set a 60-day deadline for repayment, either after the lawsuits against the debt forgiveness plan are settled or 60 days following June 30, 2023, whichever comes first.

This means that the interest-free pause could extend into August, at the earliest. However, borrowers should be prepared to begin repaying loans sooner. In the case against Biden’s debt cancellation program, the Supreme Court will hear oral arguments. A speedy decision is expected to follow.

The White House shared an income-driven repayment option option when it announced its $10,000 per-borrower student debt forgiveness program. It stated that the new plan would limit monthly payments for undergraduate loans to “5% of a borrower’s discretionary income”, half the rate of existing IDR programs.

There is no set date when borrowers will be able to sign up. The final form of the new IDR plan, eligibility criteria and opening dates for applications are still unknown. Betsy Mayotte is the president and founder of The Institute of Student Loan Advisors.

Mayotte adds that although the final rules may change substantially between draft and final, we will have a better idea of how the new IDR plan might look once we receive the draft.

Although individuals in bankruptcy can request that student loan debt be forgiven, it is more difficult than releasing other consumer debts such as credit cards and medical bills. This is because the borrowers needed to show a judge that student debt had caused undue hardship.

This changed when the Departments of Justice and Education released a set of new guidelines in November. They attempted to standardize the definition of undue hardship. However, each case will be decided by a bankruptcy judge.

Vanita Gupta (associate attorney general at The Justice Department), stated in a press release that “Today’s guidance highlights a better, fairer and more transparent process for student loans borrowers in bankruptcy.”

Although bankruptcy cases can be filed now under the new guidelines, Stanley Tate, an attorney who is a specialist in student loans, recommends that borrowers who have been in repayment for less than 20 years wait until the new IDR waiver has been applied to their accounts in August before filing any action. The White House announced the separate one-time IDR waiver in April 2022. The waiver will track every month that you have spent in repayment since you left school towards forgiveness. This helps some borrowers get closer to the finish line.

Tate says, “It might turn out that your loan is wiped away automatically… so there’s really not any extra benefit to going through bankruptcy route.”

Biden signed into law the Joint Consolidation Loan Separation Act in October. This will allow students who have previously consolidated student loans with their spouse (under a program that ran between 1993 and 2006) to finally seperate them. After seperating their debt, borrowers who have consolidated spousal student loans will be able to apply for federal student loan forgiveness programs like Public Service Loan Forgiveness.

Consolidated loan holders with consolidated loans will be protected by this bill, which was sponsored by Sen. Mark Warner (D.Va.), in a press release.

Warner’s office estimates that the Education Department has at least 13,000 loans for joint consolidation. We don’t yet know when the law will fully be implemented, how the application process will work, or what documents will be required.