This story is part of our November 2023 print issue. To subscribe, click here.
After more than a three-year federal student loan payment pause,
payments resumed on Oct. 1, 2023. I have spoken to hundreds of
borrowers and understand their confusion and concerns about
returning to repayment and the options available for them. For
almost two years, the California Department of Financial
Protection and Innovation has been developing a program that
helps California borrowers navigate student loan changes and
provides clear and reliable information to help them make the
best financial decisions for their futures.
My position was created in 2020 under State Assembly Bill 376,
the “Student Borrower Bill of Rights.” In California there are 4
million student loan borrowers of all ages, income brackets and
demographics. The bill was passed to protect them against
predatory, unfair and deceptive practices by student loan
servicing companies — in particular, women and people of color
who are disproportionately impacted by student loan debt. I was
new to the student loan sphere, and I knew this would be a
challenging but wonderful endeavor.
When I started the role, two monumental events were taking place:
the COVID-19 loan payment pause and the Public Service Loan
Forgiveness Waiver. In March 2020, in response to the COVID-19
pandemic, the U.S. Department of Education announced relief for
federal student loan borrowers by suspending student loan
payments, halting collections on defaulted loans and implementing
a zero percent interest rate for all federal student loans. This
pause was a never-before-seen reprieve for student loan borrowers
and would be extended a total of eight times through Aug. 31,
2023.
The PSLF waiver was created to help borrowers working in public
service access forgiveness by giving them credit for previously
disqualifying months and to allow them to reapply if they were
previously denied. Under PSLF, a borrower with federal student
loans who works for a qualifying employer and is paying under a
qualifying repayment plan may receive forgiveness of their loan
balance after 120 months.
Then, on Aug. 24, 2022, the U.S. Department of Education
announced up to $20,000 in blanket loan cancellation to borrowers
with federal loans who met certain loan and income requirements.
This was another unprecedented action and the Education
Department ultimately processed 26 million applications for the
relief. In response to the announcement, legal challenges were
immediately brought against the Biden Administration and on June
30, 2023, the U.S. Supreme Court struck down the debt relief
plan. This meant that 26 million borrowers who were eagerly
awaiting relief would no longer be receiving it.
Shortly after the halt of the relief plan, the Biden
administration announced it would take an alternative route to
provide debt relief for borrowers through the negotiated
rulemaking process, also known as “neg-reg,” to change higher
education rules. The process began in July 2023 but will take at
least a year to be completed and implemented. It is therefore
imperative that borrowers prepare for repayment and understand
forgiveness programs that may provide alternate relief.
First, it is important for borrowers to understand the repayment
options for federal student loans. There are three traditional
repayment plans: the standard repayment plan, the graduated
repayment plan and the extended repayment plan. These plans give
borrowers a set amount of time to pay their student loan with a
fixed or graduated monthly payment. There are also several
income-driven repayment plans, which set a borrower’s monthly
payments at an amount based on their income and family size. Most
federal student loans are eligible for at least one IDR
plan.
Every borrower’s situation and goal is unique, and advising them
on their options is not always straightforward. A borrower must
first determine how much they can afford to pay monthly and if
their priority is a low monthly payment (due to income or PSLF)
or if it is paying down the debt as fast as possible. In either
case, there is a repayment plan that is right for everyone.
Borrowers should use Federal Student Aid’s loan simulator to
estimate their monthly payments, interest and the length of their
loan under each plan.
Once a borrower sets up a repayment plan, they should determine
if they are eligible for any of the current federal forgiveness
programs. Aside from PSLF, there are other programs which
forgive, cancel or discharge federal student loans.
Income-driven repayment forgiveness is for
borrowers who have been enrolled in an IDR plan. IDR plans (there
are four of them) base a borrower’s monthly payment amount on
their income and family size. After a borrower has been in
repayment for 20 or 25 years, the remaining balance is forgiven.
In April 2022, the Education Department announced it would be
conducting a one-time adjustment of IDR-qualifying payments to
borrowers’ accounts. Similar to the PSLF waiver, the Department
would give borrowers credit for previously disqualified months to
bring borrowers closer to IDR forgiveness.
Teacher loan forgiveness is for teachers who
work five complete and consecutive academic years in a low-income
school or educational service agency.
The Borrower Defense to Repayment Discharge is
for those who were misled by predatory institutions making false
or misleading promises about graduation rates, career
opportunities or transferability. Most notably, Sweet v. Cardona
(formerly Sweet v. DeVos) was a class action lawsuit brought
against the Education Department and filed by borrowers who
claimed their borrower defense applications were unlawfully
denied or their applications were unlawfully refused. The case
was settled in June 2022, and millions of dollars in discharges
are ongoing.
The one consistent message I give to borrowers is to know your
loan, including loan type, balance and servicer. Know your rights
and know your options. Borrowers should be aware that there are
currently hundreds of people at the state and federal levels
working to make impactful and long-lasting changes to the federal
student loan system. You are still a priority. I’ve had the
privilege of seeing it all come together, and even with the
challenges, we have seen great progress.
Celina Damian is the first student loan servicing ombudsperson
for the California Department of Financial Protection and
Innovation. Celina has worked for the State of California for
over 15 years and has served different populations including
children, families and low wage workers with a focus on
empowering individuals through education and outreach. (Photo
courtesy of Celina Damian)
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