Student Loan Update 2021

There have been several new developments regarding Student Loan payments recently. First, the Mandatory Forbearance for eligible Federal Student Loans was extended until January 31, 2022. This means that payments are set to resume on February 1, 2022 (unless the deadline is extended again). 

Borrowers should receive several notifications from their loan servicers as those dates approach. Borrowers should also be ready to re-certify their income if they have not done so recently. For borrowers who are working towards PSLF, they should continue to re-certify employment on an annual basis. Please make sure to meet the requirements for working for an eligible employer and for full-time employment. 

On October 6, 2021, the Department of Education announced a new plan to expand PSLF. The name of the program is “Time-Limited PSLF Waiver” (PSLF Waiver).  Typically, PSLF affords borrowers loan forgiveness after they make 120 qualifying payments. According to the PSLF Waiver, the definition of “qualifying” payment will be temporarily expanded to make all federal loans and repayment plans qualify for PSLF. 

Press Release: Today, the Department of Education is announcing a set of actions that, over the coming months, will restore the promise of PSLF. We will offer a time-limited waiver so that student borrowers can count payments from all federal loan programs or repayment plans toward forgiveness. This includes loan types and payment plans that were not previously eligible. We will pursue opportunities to automate PSLF eligibility, give borrowers a way to get errors corrected, and make it easier for members of the military to get credit toward forgiveness while they serve.

The deadline for this program is October 31, 2022. The program will allow borrowers to retroactively count prior ineligible payments. 

In order to qualify for this program, you must have: 

1. Any kind of Federal Student Loan, andYou are (or were) working full-time in for a PSLF Eligible Employer such as a 501(c)(3), government agency (federal, state, local), or other non-profit) between now and 10/1/2007, and

2. You made payments on your federal loans at any point since 2007 while working for an eligible employer. 

Here Are The Important Facts About The PSLF Waiver: 

• Borrowers with previously ineligible FFELP and/or Perkins loans may now qualify for PSLF if they made payments of any kind while employed in public service. All payments made before a loan was consolidated should now count as well.

• All repayment plans should retroactively count towards PSLF if certified before this PSLF waiver expires.

• Deferment and forbearance due to active-duty deployment should now count towards PSLF for current and former active-duty military.

• Parent PLUS loans, or a consolidation including Parent PLUS loans do not qualify for this. Double Consolidation Loans do qualify.

• Prior late payments and payments slightly more or less than the amount due should now qualify.

If you end up with more than 120 months of qualifying credit due to this PSLF order, you should receive a refund for any payment(s) made above the 120 payment threshold. 

How to Get Loan Forgiveness or PSLF Credit from this PSLF Waiver

Borrowers will need to take different steps depending on what kind of loans you have and how much of your employment history you’ve already certified with the Department of Education.

Borrowers with FFELP and/or Perkins loans will need to take two steps and borrowers with Direct Loans will only need to take one step.

PSLF Action Steps for Borrowers with FFELP and/or Perkins Loans

Borrowers with federal student loans from 2010 or before could have two kinds of loans: Direct and FFEL.

If you have loans from the FFELP program, these previously did not qualify for PSLF at all. This temporary waiver has changed that. 

Step 1: For those who still have FFELP or Perkins loans, you must first consolidate them into a Direct Consolidation loan 

Cautionary notes: You only need to consolidate the FFELP and Perkins loans. You do not need to consolidate your whole loan balance. Also, do this for loans taken out ONLY for your education, as Parent PLUS loans were not included in this order. 

Step 2: Second, submit the PSLF Employment Certification Form, also called the ECF form using Student Aid’s PSLF Help tool. Submit one for all public service employment periods post-10/1/2007 or post-graduation.

Note: Many borrowers with FFEL loans could qualify for immediate forgiveness by consolidating and certifying at least 10 years of employment. The vast majority of FFEL loans have been in repayment for at least 10 years. That means if you have 10 years’ worth of public sector employment between 2007 and 2021, you could qualify for a tax-free discharge of your loans NOW.

PSLF Action Steps for Borrowers with only Direct Loans

There’s no need to consolidate to take advantage of the PSLF waiver. You only need to submit the PSLF ECF form. Any previously ineligible years of payments should now count as long as you made payments of any kind on your student loans.

If you’ve already certified your PSLF credit, you can benefit automatically in the coming months as the government reviews loan accounts and updates payments accordingly. That said, I would still resubmit your ECF form even if you already have. Include ALL employment at a 501c3 or government employer between 2007-2021. Many borrowers (even those who are PSLF certified) may have neglected to include qualifying employment for years in which they did not make income driven payments on their student loans.

This new PSLF order should allow ANY payment to qualify, so if you neglect to include all qualifying public service employment on your ECF form, you could miss out on this temporary opportunity. 

How Long Until You See the PSLF Waiver Applied? 

The Department of Education is in the middle of transferring Fed Loan accounts to the new servicer: MOHELA. 

This process will likely take several months. You will need to be patient and make sure you have taken all the necessary steps.

Some of the other updates we are following include: 

1. All student loan forgiveness will be tax-free for the next 5 years. This will not affect a great number of borrowers. Rather, this gives us hope for some type of forgiveness in the near future and/or for all student loan forgiveness to be tax-free at some point in the future. 

2. President Biden mentioned the possibility of a new Income-Driven Repayment Plan. Some of the language suggested this would be more favorable for borrowers than any of the existing plans. The new plan could potentially only assess payments based on 5% of Discretionary Income. Stay tuned for more information. 

3. There is still a possibility for some form of Student Loan Forgiveness. The amounts mentioned vary but the most likely scenario is something on the order of $10,000 - $20,000 of student loan forgiveness. This could be tied to AGI in a manner similar to how Stimulus Checks were distributed. 

While these concepts are still just possibilities at this point, one should consider how likely each scenario is when deciding whether or not refinancing makes sense. 

If you have questions about your student loans, feel free to schedule a free consultation by visiting our website at www.prudentfinancialplan.com or calling (239) 230-0395. Click here to watch our free Student Loan Planning Webinar. In this webinar, we take you through a Case Study complete with a sample calculation for monthly student loan payments.