Proposed Student Loan Changes May Make It Easier to Pay

The Department of Education will publicly issue a notice of proposed rulemaking tomorrow that could make it easier for people with loans from the Federal Perkins Loan (Perkins) Program, Federal Family Education Loan (FFEL) Program, and William D. Ford Federal Direct Loan (Direct Loan) Programs.

Consumers wishing to offer any public comment on these proposed rules may do so visiting www.regulations.gov and searching for “Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program.”

The proposed changes offer some significant changes to student loan borrowers.

Presently a student loan under these programs can be fully forgiven if the borrower withdrew from a school that closed no more than 90 days before the closure. In the proposed rule it will be changed to 120 days. The proposed regulations would also add examples of the types of exceptional circumstances under which the Department may extend the 120-day window.

Under the new rules a forebearance would be limited to 120 days and could not be granted for consecutive periods. However lenders would be required to grant a forebearance to borrowers who are performing services under the Department of Defense student loan repayment program.

If a borrower pursues a loan rehabilitation agreement the payment will be based on “the borrower’s and, if applicable, the borrower’s spouse’s current disposable income, family size, and reasonable and necessary expenses.” The rehabilitation payment amount must not be a required minimum payment, a percentage of the borrower’s total loan balance, or an amount based on other criteria unrelated to the borrower’s total financial circumstances.

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If the borrower objects to the payment calculated the Income Based Repayment formula will be used and the borrower may then opt for whichever payment they want.

Student loan borrowers who take advantage of the new reduced payments would have limited collection contact. Collection contact would be limited to that required by law or communications to help support the rehabilitation agreement.

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Any student loan borrower who is having their wages garnished by an administrative wage garnishment could have the wage garnishment suspended after making five qualifying monthly payments under a loan rehabilitation agreement. This might be difficult to face both garnished wages and income based payments but it is a path out of garnishment.

And borrowers facing an administrative wage garnishment would be able to “object to the amount or rate of AWG withholding if such withholding would cause financial hardship to the borrower.”

The proposed rules help teachers and public service employees with Perkins loans who are seeking eligible teaching for loan cancellation. If a borrower is unable to complete the second half of an academic year of teaching due to a condition covered under the Family and Medical Leave Act (FMLA) to still count that year as eligible teaching service for loan cancellation purposes.

You can read the full proposed rule changes and find more information about comments, here.

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