Washington
CNN
—
Big headaches for student borrowers could be on the horizon.
Their monthly payments could restart this summer after a three-year break. And the federal office that oversees the student loan system is operating on the same budget as last year — which could complicate any efforts to ensure the repayment process runs smoothly, as well as the office’s plans to overhaul the system.
When Congress passed the government’s annual budget in December, the federal student aid office got about $800 million less than what the Biden administration had asked for. After granting steady raises in previous years, lawmakers left funding for office operations at about $2 billion.
Republican lawmakers have touted that Congress has provided no new funding to help implement President Joe Biden’s controversial student loan forgiveness plan – which is currently stalled in court. If the Supreme Court allows the pardon program to go ahead, that would also be a huge boost for the federal student aid office.
“I think it’s particularly unfortunate for borrowers that the political fight over loan forgiveness has resulted in stable funding this year,” said Jonathan Fansmith, associate vice president of government relations at the American Council on Education, an advocacy group for colleges and universities.
“Wherever the cracks start to show, borrowers are going to be hit,” Fansmith added.
The federal student aid office, which has about 1,400 employees and provides about $112 billion in scholarships, work-study programs and loans a year, has a lot to do.
The office oversees the $1.6 trillion federal student loan portfolio, but has also undertaken additional work to revamp the application form for federal student aid, known as the FAFSA, and to revise some federal programs. student loans. Last week, it announced plans to begin making significant changes to its income-focused reimbursement program this year.
“I think a number of their priorities are definitely not going to be done in the time frame they had originally hoped for, or not going to be done at all,” said Michele Shepard, senior director of college affordability at the ‘Institute for College Access and Success, an advocacy group.
But the Ministry of Education says it can still meet the deadlines it has set.
“The hundreds of millions of dollars shortfall will of course impact these important bipartisan priorities, but we will continue to do everything we can with available resources to better serve students and protect taxpayer dollars.” , the department said in a statement. sent to CNN.
Yet that means the federal student aid office would do more work with less money. Here are some of the tasks he is expected to tackle this year:
Federal student loan borrowers have not had to make any payments since March 2020, thanks to a pandemic-related pause that has been repeatedly extended by the Trump and Biden administrations.
More recently, Biden extended the hiatus after his student loan forgiveness program was halted by federal courts. The administration had told borrowers that debt relief would be provided before payments restarted.
The payment pause will now last for up to 60 days after the dispute over Biden’s student loan forgiveness program is resolved. If the program has not been implemented and the dispute has not been resolved by June 30, payments will resume 60 days after that.
Bringing around 44 million borrowers back to repayment at one go is an unprecedented task. Many people may not know how much they owe, when to pay and how. Missing payments may result in monetary charges.
The government contracts with several outside organizations, such as MOHELA and Nelnet, to administer the federal student loan service. But it’s up to the federal student aid office to communicate with services about when and how payments will restart.
“To be nice, the quality of student loan service hasn’t been exceptional,” Fansmith said.
“If you multiply all these problems, however small, by 44 million borrowers, it’s a huge national problem,” he added.
In late February, the Supreme Court will hear arguments in two cases involving Biden’s student loan forgiveness program, which could provide up to $20,000 in debt relief to millions of low- and middle-income borrowers. .
A decision on whether the program is legal and can go ahead is expected by June. Until then, it is on hold and no debts will be discharged under the program.
Biden’s student loan forgiveness program has faced several legal challenges since the president announced it in August. The Department of Education had received about 26 million applications for debt relief by the time a federal district court judge canceled the program Nov. 10.
The legal back and forth has confused borrowers about the status of the program. Adding to the uncertainty, around 9 million people received an email from the Department of Education in the fall that incorrectly stated that their application for student loan forgiveness had been approved.
The Biden administration intends to overhaul some of its student loan repayment programs, and the federal student aid office is tasked with rolling them out.
In July, the Department of Education plans to implement permanent changes to the Civil Service Loan Forgiveness Program to make it easier for government and nonprofit employees to qualify for relief. debt after making 10 years of payments. The program has long been plagued by loan servicing issues.
Big changes to the ministry’s income-focused repayment plans are also underway, aimed at reducing the monthly debt burden as well as the total amount borrowers pay over the term of their loans.
New regulations expected to cap payments at 5% of borrower’s discretionary income, up from 10% that is offered under most current income-tested plans. Therefore, single borrowers earning less than $30,600 a year would not have to make payments under the proposal, up from the current threshold of $24,000.
The changes would also forgive remaining balances after 10 years of repayment, instead of 20 or 25 years, as well as cover the borrower’s unpaid monthly interest.
The Department for Education said last week that it plans to start implementing some of these provisions later this year.
Each year, as part of its normal work, the Federal Office of Student Aid processes millions of FAFSA applications from students. Generally, the form is released in October for the following academic year.
Every student must complete the FAFSA in order to be eligible for federal student loans, scholarships, and educational assistance. But it has long been criticized as too long and complicated.
Congress passed legislation in 2021 that simplifies the FAFSA form, and the federal student aid office has been working to implement the changes — which financial aid experts hope will be made before October of this year.
The office was supposed to have already made the changes, but the effective date was pushed back a year.
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