Understanding Changing Student Loan Laws

There’s been a lot of activity in recent months in terms of legal changes to student loan repayment in the US.  Unfortunately, these changes are complicated in their own right, are often bundled as part of larger legislation, and often attract a lot of press even if they never get passed.  We thought it’d be useful to summarize the major legislation together here so people can understand what changes might be coming down the pike.

  • The Bank on Students Emergency Loan Refinancing Act: This piece of legislation sponsored by Senator Elizabeth Warren gained a lot of press in May and June.  The primary change it would have enacted was to allow students with existing federal student loans refinance those loans at the current rate for new undergraduate students (3.86%).  Unfortunately, the bill failed its cloture vote (the vote needed to overcome a filibuster, requiring the support of 60% of the senate) as most Republicans voted against it due to the tax increases required to pay for the bill.  It’s unlikely there will be more progress on the bill barring a substantial shift in the party makeup of congress. (Source: Elizabeth Warren’s Senate Homepage)
  • The Presidential Memorandum on Federal Student Loan Repayments: In early June, President Obama signed a directive to the Secretary of Education to expand eligibility for the Pay As You Earn repayment program, which allows students with Federal Direct Loans to not pay more than 10% of their income to their student loan debt, and for any remaining balance to be forgiven after 20 years.  Eligibility is planned to be extended to older borrowers who were previously ineligible-those who started borrowing before 2007 or stopped borrowing before 2011.  But, there aren’t any changes for those with higher incomes, or who were already eligible for this program (apart from some vaguer educational measures that don’t affect how any of the loans fundamentally work).  (Source: whitehouse.gov)
  • Changes to Public Service Loan Forgiveness and other programs with the 2015 Congressional Budget:  President Obama’s 2015 budget proposal includes many potential changes for student borrowers, but it’s unfortunately unclear exactly how to interpret all the changes, and unclear what (if any) of the proposals mentioned here actually will become law.  Major relevant changes in the proposal include:
    • Capping total Public Service Loan Forgiveness at $57,500 , though it is unclear if this would apply to current borrowers, and current borrowers may still have alternate resources even if so
    • Extending Repayment to 25 Years before forgiveness occurs for borrowers with over $57,500 in debt
    • Combining income of married couples when determining income levels for Pay As You Earn programs
    • Converting loan forgiveness into a non-taxable event

    Again, it’s hard to read too much into any specific proposals here because they aren’t law and weren’t even proposed by congress, but it’s worth keeping an eye on changes to these programs when the actual 2015 budget is ultimately passed.  (Source: educatedrisk.org)

We’ll continue to report on new proposals and laws as more information on them becomes available.  Of course, if you have private loans, these changes won’t automatically apply to you.  And, of course, we encourage you to check out WeFinance to save money on your debt now, regardless of what the government eventually decides to do!

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