On July 1, millions of federal student loan borrowers will see their monthly bills drop — some by as much as half — as the Biden administration’s new income-based payment plan, known as SAVE, takes full effect.
But first the government and its four loan servicers have a big problem to solve.
Starting next month, borrowers enrolled only in the SAVE plan for undergraduate loans will have their monthly payments capped at 5 percent of their discretionary income, up from the current 10 percent. (Graduate loan payments remain at a maximum of 10 percent, while those with a mix of undergraduate and graduate level loans receive a weighted payment.)
Loan servicers rely on the Department of Education to send them the new loan amounts for each borrower. But the calculations have not yet been completed, according to three people familiar with the process who asked not to be identified because they were not authorized to speak publicly about the issue.
To buy time, the department directed borrowers whose payments are due in early July to be placed in an administrative forbearance for that month, meaning they will not be required to make payments.
More than eight million borrowers have enrolled in the SAVE plan. Many received notices this month that their accounts had been suspended, leaving many surprised and confused.
“I was a little freaked out,” said Iván Barragán, who received a letter from his service worker MOHELA last week. “I thought I had done something wrong. Then I quickly went on Twitter and saw that a lot of people were getting the messages too.”
The letter he received from MOHELA did not specify why his account status was changed. He only received an explanation after contacting the company, which sent back a message saying the one-month deferral was a time-out so his payment rate could be recalculated. (A MOHELA spokesperson directed questions on this issue to the Ministry of Education.)
Vanessa Harmoush, a spokeswoman for the Ministry of Education, confirmed the delay in the recalculation.
“We look forward to bringing lower monthly payments to millions of borrowers,” she said. “Some borrowers may need to meet a quick processing period to ensure they can take advantage of the full benefits of the SAVE plan and that their new payment amounts are correct.”
These deferrals count as a qualifying payment month for borrowers in SAVE and other plans that result in loan forgiveness after a set number of payments, Ms. Harmoush said. (People who use SAVE can have their remaining loan balances paid off after 10 to 20 years of monthly payments.)
That’s a relief for Mr. Barragán, who works as an administrator for the Los Angeles County Department of Public Health. He pursues the Public Service Loan Forgiveness program, a program that pays off the remaining loan balance for government and nonprofit workers after a decade of qualified payments.
For such borrowers, this month is essentially a freebie; You can’t pay anything and still get a loan. Mr. Barragán, who recently married, plans to use the $430 he will save toward a planned wedding reception.
The process of essentially restarting the federal government’s $1.6 trillion student loan payment system last fall — after a three-year hiatus sparked by the economic turmoil related to the coronavirus pandemic — was turbulent.
The Biden administration has worked to overhaul the system with new rules and a raft of fixes to long-troubled loan forgiveness programs. These efforts have resulted in the elimination of $167 billion in debt for nearly five million borrowers; The SAVE payment plan enabled more than four million low-income borrowers to qualify for $0 monthly payments.
But making so many changes so quickly was challenging, and glitches and errors – some of which affected hundreds of thousands of people – were common.
Loan servicer representatives, who spoke anonymously because their contracts with the Education Department prohibit them from speaking publicly, said they were frustrated by the last-minute delay in the SAVE calculation and the hassle involved.
But borrowers are anxious to see their payments cut next month. The discounts are automatic for those registered with SAVE.
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2024-06-12 16:13:45
www.nytimes.com
