• 25 May, 2024

2023's Top 5 Student Loan Changes & 2024 Projections

2023's Top 5 Student Loan Changes & 2024 Projections

As 2023 commenced, many federal student loan borrowers were hopeful to witness President Joe Biden’s campaign promise to forgive student debt materialize. However, on June 30, their hopes were dashed when the Supreme Court, in a 6-3 decision, blocked Biden’s plan to forgive up to $20,000 per borrower earning less than $125,000 annually.

Whether it's been a favorable or challenging year for student loan borrowers hinges on who you consult.

While numerous borrowers received transformative notifications this year stating their loans had been forgiven, plenty of others were confronted with bills in October that they were required to pay.

Nevertheless, the year has been marked by significant developments in student loan news. Here’s a brief recap of the major student debt stories, along with anticipated updates in 2024.

Supreme Court Invalidates Forgiveness

As 2023 commenced, many federal student loan borrowers were hopeful to witness President Joe Biden’s campaign promise to forgive student debt materialize. However, on June 30, their hopes were dashed when the Supreme Court, in a 6-3 decision, blocked Biden’s plan to forgive up to $20,000 per borrower earning less than $125,000 annually.

Some doubted the viability of the plan from the outset. Yet, when borrowers were informed in late 2022 that their forgiveness plan applications were approved, it seemed like a tangible possibility.

However, the highest court ruled that the Biden administration lacked the authority to cancel the debts, thereby halting the program.

Debt Forgiveness Alternative Moves Ahead

Following the Supreme Court ruling, President Biden announced his intention to pursue debt forgiveness under the Higher Education Act, necessitating a process known as negotiated rulemaking.

This extensive process involves the submission of topics for consideration by the public, followed by a committee of stakeholders proposing a rule. Subsequently, the general public has an opportunity to comment or propose changes before the new rule is implemented.

Although time-consuming, the initial phase concluded earlier this month. A group of negotiators comprising legal experts, student loan borrowers, advocates, and others met with the Department of Education over six sessions from October to December to draft proposed legislation offering debt relief to student loan borrowers.

The proposal outlines relief for four groups of borrowers, on which the committee struggled to reach consensus. While an agreement on provisions for those experiencing hardship proved elusive, avenues to address borrowers in long-term repayment and those owing more than they borrowed were included.

SAVE Plan Launches

This summer saw the official launch of the Saving on a Valuable Education (SAVE) income-driven repayment plan by the Biden administration, replacing the Revised Pay As You Earn IDR. The plan aims to make repayment more affordable for federal borrowers.

Under the plan, individual borrowers earning $15 an hour or less can qualify for a $0 monthly payment. As of November, nearly 5.5 million borrowers had enrolled in the SAVE plan since its application opened, according to the Biden administration.

Biden Increases Total Loan Forgiveness

Even without a sweeping debt relief program, the Biden administration forgave loans for 3.6 million borrowers as of December.

These borrowers received relief under existing programs such as income-driven repayment and Public Service Loan Forgiveness (PSLF). Both programs were notoriously complex before the administration implemented systemic fixes to issues such as miscounted payments. However, much of this relief was owed to borrowers who should have received it years ago.

In total, the administration has forgiven $132 billion in loans for borrowers entitled to relief from PSLF or IDR, as well as for disability discharges and victims of fraudulent or defunct schools.

Pandemic Forbearance on Federal Loans Expires

After multiple extensions, President Biden ended the forbearance on federal student loan payments and interest as part of a budget deal to avert a government shutdown in June.

The budget bill set an official expiration date of Aug. 30 for the forbearance. Interest resumed accruing on federal loans in September, with payments due in October for approximately 22 million borrowers.

However, the transition wasn't without challenges. Borrowers reported widespread issues with loan servicers when payments became due, including receiving inaccurate bills and difficulties reaching customer service. Some borrowers had their loans remain in forbearance while servicers rectified information.

By mid-November, about 60% of borrowers with due payments (excluding those with administrative forbearances) had made their payments, according to recent reports from the Department of Education.

Student Loan Updates Expected in 2024

As borrowers readjust to repayments and new borrowers begin repayment for the first time, there are positive developments to anticipate in 2024. Here’s what to watch for:

Employer Student Loan Payment Matching

In 2024, employers may offer a new benefit to help employees pay off their student debt while simultaneously saving for retirement.

As part of the 2022 Secure 2.0 Act, employers will be permitted to match employees’ student loan payments with contributions to their workplace retirement accounts, including 401(k)s, 403(b)s, 457(b)s, and SIMPLE IRAs.

SAVE Plan Payments Decrease Further

Currently, monthly payments on the SAVE IDR plan are set at 10% of discretionary income, i.e., income over 225% of the federal poverty line. In the summer of 2024, this payment calculation will drop to 5% of discretionary income for undergraduate borrowers.

Graduate borrowers will pay a weighted average between 5% and 10% of their discretionary income, depending on their initial balance, according to Federal Student Aid.

Quicker Forgiveness for Small Initial Balances

Other provisions of the SAVE Plan will also take effect in 2024, including expedited forgiveness for borrowers with small initial balances. Those who borrowed $12,000 or less will have remaining balances forgiven after 10 years of repayment, with an additional year of forgiveness for every $1,000 borrowed above $12,000.

Generally, forgiveness on the SAVE plan takes 20 years, or 25 years for graduate borrowers.