By Raymond AlQaisi, Senior Manager of Policy and Advocacy
Reading time: 3-4 min.
These days, you can’t go more than a day or two without seeing student loans in the headlines. Given the ongoing federal policy focus on student loans and borrower repayment, NCAN is here to provide a roundup of all recent news related to federal student
loans.
Interest Rates Rise on New Loans
For the past couple of years, interest rates for new federal student loans have been relatively low (historically speaking). But starting in July, borrowers will see higher interest rates for new loans for the 2022-23 academic year. This
increase follows broader economic trends where interest rates have increased for borrowing (e.g., mortgages).
New undergraduate federal student loans will have an interest rate of 4.99% (up a percentage point from the current 3.73%). Graduate and professional students will see their loan interest rates rise to 6.54% (up from the current 5.28%). Parents and graduate/professional
students borrowing PLUS loans will see interest rates of 7.54% (up from 6.28%).
Interest rates are set annually – so these new rates will: 1) take effect July 1; 2) apply only to new federal student loans; and 3) be fixed for the lifetime of the loan.
Repayment Pause
Due to the national emergency declaration related to the COVID-19 pandemic, federal student loan borrowers have not had to make payments on their debt since March 2020. Also as a result of the pause, these loans have not accrued interest, nor have borrowers
been subject to default-related collections.
In April, the White House announced an additional extension of the repayment pause, effective through Aug. 31, 2022. It is not yet clear if the White House intends to maintain this date of “return to repayment,” especially considering the effects that
a repayment restart could have on voter sentiment in the midterm elections in November. The administration, and in particular, President Biden, has also been discussing the possibility of broad student loan cancellation.
Relatedly, the Consumer Financial Protection Bureau (CFPB) released a report warning that “many borrowers
may struggle” upon reentering repayment. CFPB estimates as many as 15 million borrowers, who are more likely to live in low-income or high-minority communities, could be at risk.
For the most accurate information on the repayment pause, please visit the Federal Student Aid website. The Department of Education (ED) continues to express a commitment to providing
supports to borrowers before any repayment restart.
Income-Driven Repayment Fix
The White House recently announced new actions that ED will take to fix some issues with federal student loan repayment.
Most notably, ED intends to make a “one-time” revision to the accounts of millions of borrowers who are in income-driven repayment (IDR) plans. Recall that IDR provides loan cancellation after 20-25 years – but many borrowers have
experienced issues in their path, and few have seen forgiveness. The “fix” by ED will resolve longstanding complaints by borrowers, some of whom may now see their loans automatically forgiven.
Federal Student Aid estimates the change will benefit at least 40,000 borrowers with immediate debt cancellation, and more than 3.6 million borrowers will receive three-plus years of additional credit toward forgiveness. For more information, see ED’s
press release.
Public Service Loan Forgiveness
In October 2021, ED announced significant, yet temporary, fixes to some of the issues that prevented many borrowers from qualifying for the Public Service Loan Forgiveness (PSLF) program. ED is implementing a limited-time waiver where borrowers will now
be credited for payments previously deemed ineligible toward the total count needed for PSLF. Borrowers have until Oct. 31, 2022, to benefit from the waiver.
The White House recently announced it intends to help borrowers who had defaulted loans (or were delinquent on payments) before
the pandemic reenter repayment in good standing. More information on the “fresh start” plans is expected before federal student loan borrowers begin repayment again.
NCAN will continue to monitor the latest federal student loan developments in Washington and keep our members informed of any additional changes that affect borrowers.
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