Written By Adam S. Minsky, JD
The New Year is off to a big start for student loan borrowers. Here are some of the most significant student loan forgiveness updates for borrowers as 2023 kicks off.
Student loan forgiveness battle ramps up at Supreme Court
The legal wrangling over President Biden’s sweeping one-time student loan forgiveness initiative is going before the Supreme Court, and the battle is heating up.
Under Biden’s plan, millions of borrowers would have been eligible for up to $20,000 in student loan forgiveness. But in response to several legal challenges, federal courts blocked the initiative before anyone could receive relief. The Biden administration appealed to the Supreme Court, which agreed to settle the dispute
Last week, Justice Department attorneys submitted a detailed legal brief to the Supreme Court defending the Biden loan forgiveness plan as fully authorized by federal statute, the HEROES Act of 2003. The Act provides fairly broad powers to the executive branch to modify federal student loan programs during national emergencies.
The administration also argues that the challengers do not have sufficient legal standing to sue over the program in the first place, as they cannot demonstrate concrete harm sufficiently linked to the initiative.
The challengers are expected to submit their own written legal arguments in the coming weeks, and the court has scheduled oral arguments for February 28, 2023. A decision should be issued by this summer.
Related: Three Possible Supreme Court Outcomes for Biden’s Student Loan Forgiveness Plan
Student loan pause extended into 2023
The student loan payment pause, which has suspended all payments and interest on government-held federal student loans since March 2020 (and has also paused collections efforts against defaulted federal student loan borrowers), was set to end in December 2022. But in response to the legal battle over Biden’s one-time student loan forgiveness plan, the administration extended the pause yet again to either June 30, 2023, or the date when the Supreme Court resolves the legal challenges – whichever occurs first.
The months of suspended payments can continue to count towards student loan forgiveness under Income Driven Repayment (IDR) plans and Public Service Loan Forgiveness (PSLF) as long as all other criteria are met. According to the Education Department, payments will resume 60 days after the pause ends.
Related: 4 Tips to Make the Most of the Extended Student Loan Payment Pause
Get Started With Our New IDR Calculator
Education Department rolling out IDR account adjustment
While Biden’s one-time student loan cancellation program remains tied up in court, another big student loan forgiveness initiative is just getting started.
The IDR Account Adjustment is a one-time adjustment that will allow many past periods of repayment, as well as some past periods of deferment and forbearance, to count towards loan forgiveness under Income-Driven Repayment (IDR) plans, even for borrowers who haven’t been in those plans.
IDR plans can result in loan forgiveness after 20 or 25 years in repayment, depending on the plan. The IDR credit from the account adjustment can also count towards PSLF for eligible borrowers.
“Based on the newly eligible months from the one-time account adjustment, borrowers who have reached [20 or 25 years] worth of payments for IDR forgiveness or 120 months of PSLF will begin to see their loans forgiven in spring 2023,” according to updated Education Department guidance. All other borrowers will see IDR payment counts reflecting the adjustment “in summer 2023.”
Automatic adjustment for PSLF-eligible and Parent PLUS loans
The Education Department has also clarified for the first time that the adjustment “will be applied automatically to all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans.”
Unconsolidated Parent PLUS loans were excluded from the Limited PSLF Waiver – a separate but related initiative that ended last October 2022 – so the update is welcome news for parent borrowers.
While many borrowers will automatically receive the IDR Account Adjustment benefits, some borrowers will need to consolidate their loans via the federal Direct consolidation program to qualify or maximize the available benefits. Borrowers should carefully review official Education Department guidance on the program.
Huge backlog for limited PSLF Waiver continues
The Education Department and MOHELA, its contracted PSLF loan servicer, are still contending with a huge backlog of applications related to the Limited PSLF Waiver – a temporary initiative similar to the IDR Account Adjustment for borrowers working in certain nonprofit and government jobs.
Although the Limited PSLF Waiver ended in October, officials are still processing over 2 million applications submitted during the final few months of the initiative, according to the Washington Post.
Borrowers waiting for PSLF payment count updates may continue to see adjustments over the next several months. The Education Department has updated its guidance on the waiver program since it ended in October.
Group student loan forgiveness for borrower defense and closed schools
This month, January 2023, the Education Department will continue implementing multiple group discharge initiatives through Borrower Defense to Repayment and the Closed School Discharge program – both designed to remedy past school misconduct.
These initiatives include mass federal student loan forgiveness for borrowers who attended Corinthian Colleges and ITT Technical Institutes, two notorious institutions that collapsed years ago following accusations of widespread misconduct.
In addition, the Education Department will start implementing the Sweet v. Cardona settlement later in January. This settlement will cancel the federal student loan debt for hundreds of thousands of borrowers who attended dozens of institutions and submitted Borrower Defense applications that were improperly stalled or denied.
New IDR Plan details to be released
The Biden administration has been developing a new Income-Driven Repayment (IDR) plan. According to broad highlights released last year, the plan may include a more affordable payment formula, a shorter repayment term for undergraduate borrowers with small balances, and limits on interest accrual.
However, the Education Department has not yet released final regulations governing the program, and key details remain unknown. This includes how graduate school borrowers, Parent PLUS borrowers, and married borrowers will be treated under the plan. Officials are expected to release the final regulations within the next few months.
New federal student loan relief regulations effective by July 2023
A series of sweeping new regulations governing multiple federal student loan forgiveness and relief programs will go into effect by July 2023.
This includes significant changes and improvements to Public Service Loan Forgiveness (PSLF), the Total and Permanent Disability (TPD) Discharge program, Closed School Discharges, and Borrower Defense to Repayment. Additional reforms will benefit borrowers on IDR plans and will curtail interest capitalization events.
Borrowers can review the Education Department’s Fact Sheet on the changes for more details.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
