On April 8th, President Biden announced several new proposals for student debt relief, following on from a previous forgiveness plan that was struck down by the Supreme Court last year. In this blog post, we’ll break down the announcement and what it means for both borrowers and employers over the coming months.
First, it’s important to point out that the announcement is a proposal for new plans that are not final - the details will be announced in the coming months and then will undergo a public comment period. It’s very likely that this new proposal will also face a court challenge - whether the challenge is successful remains to be seen. As always, Summer is committed to closely monitoring and sharing the impact of these developing changes.
The announcement includes two new proposals for providing student debt relief. The first one allows borrowers that meet specific requirements could potentially see relief of $5,000 or more in canceled interest. It seems that this will only apply to accrued interest, not to principal balance. Federal Student Aid specifies that “all borrowers are eligible if they make $120,000 or less per year individually or as married filing separately, $180,000 or less per year as a head of household, or $240,000 or less per year as married borrowers who file joint taxes.” The details on the timing of this relief and application process are not available yet.
The second new proposal is directed toward borrowers who are experiencing financial hardship, such as burdensome costs of childcare or healthcare. Those who are in danger of defaulting on their loans would be granted automatic relief, and others with cost burdens could apply for additional help. The amount of relief and the application process haven’t been announced yet, so we’ll update this post as we learn more.
The announcement also included several programs that the administration has already launched and implemented over the past several years, including granting forgiveness for borrowers who have already met the requirements for completing Public Service Loan Forgiveness (PSLF), income-driven repayment (IDR), and the SAVE plan. It also includes cancellation for borrowers who attended “low value” or fraudulent programs for school under the Borrower Defense to Repayment Program.
Next Steps For Borrowers
There’s nothing borrowers need to do right now to check eligibility or submit applications for these programs. We’ll contact Summer borrowers when we have additional details. For now, continue to make payments on your student loans as you typically would.
If you’re not making payments yet after the payment pause, it’s a great time to log into your loan servicer and set up your payments - you’ll get an interest rate discount if you use auto-pay. The temporary “on ramp” to reduce the consequences of missing payments will expire in September 2024. If you need help lowering your payments to make them affordable, Summer can help you enroll in an income-driven repayment (IDR) plan. And if you’re currently in default, the Fresh Start program can help - read our guide here.
If you have older types of federal student loans, like FFEL or Perkins loans, or if you have Parent PLUS loans for a child or dependent, there’s an June 30, 2024 deadline to consolidate those loans to be eligible for the one-time benefits under the IDR Adjustment. Reach out to your Summer team with questions and we’re happy to walk you through it!
What Does This Mean For Employers?
Many HR leaders who follow financial concerns for their employees are probably wondering how this affects their employee population. The impact numbers can be a bit confusing, so let’s break down the announcement. There are 45 million student loan borrowers in America, and the administration estimates that as many as 30 million can benefit from some of these programs. That doesn’t mean that all of those 30 million will get their debt wiped away though - the White House fact sheet estimates that 4 million borrowers would be eligible for full forgiveness, which is about 9% of the total borrower population. Other borrowers could get partial amounts forgiven for accrued interest or achieve lower monthly payments through other federal programs.
What this means is that student loans are not going away, even though these programs will certainly offer relief for many borrowers who need it. With the costs of college attendance rising every year and with issues with the FAFSA process, borrowers need help navigating their debt now more than ever. Summer offers best in class solutions for borrowers navigating and applying for federal, state, and local loan programs, as well as HR solutions for tracking and measuring the impact on your population. In the immediate term, it’s helpful to provide a trusted source of information for employee questions and concerns. It’s likely to be a long and confusing process before the relief programs are final, and a trusted partner like Summer can guide both you and your team through the process.
If you’ve been considering offering a student loan benefit but haven’t yet made the commitment, it’s a great time to get involved. Low cost solutions can save your employees thousands of dollars a year on their federal student loans, and teams with bigger budgets have access to new tax advantaged benefits to contribute to student loans and tuition assistance, or to match student loan payments into retirement plans. Reach out to partner@meetsummer.com to learn more about what solutions could be a benefit to your populations.
As always, Summer stands on the side of borrowers, and we’re committed to helping them achieve as much savings and forgiveness as we can. We look forward to leveraging the new programs to fulfill that mission.
