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2023 Is Here and The Big Questions on Student Debt Loom

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2023 is Here — and the Big Questions about Student Debt loom

As 2023 progresses, major concerns remain about new repayment plans as well as bankruptcy regulations and much more.

By Eliza Haverstock Lead Writer | Student loan repayment and college alternatives Eliza Haverstock is a lead writer on NerdWallet’s student loans team, which concentrates on loan repayment and alternative options to traditional four-year degrees. Previously, she reported on billionaires investing, personal finance, and fintech fraud at Forbes and Forbes.com in New York, and she also covered private markets for PitchBook in Seattle. Eliza began her career with their college paper at University of Virginia and interned for Bloomberg, where she spent an entire year writing a about plastic straws. She lives within Washington, D.C.

January 4 2023

Written by Karen Gaudette Brewer Assigning Editor Public policy Student loans Karen Gaudette Brewer joined NerdWallet with 20 years of experience working in newsrooms and managing editorial teams. She most recently served as executive editor for HealthCentral. Her journalism career began at The Associated Press and later was employed by The (Riverside) Press-Enterprise, The Seattle Times, PCC Community Markets and Allrecipes.com. She has had her writing recognized by both the Society for Features Journalism and the Society of Professional Journalists. She’s written two books about her experiences in the Pacific Northwest.

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From repayment policy changes to a sweeping one-time debt forgiveness plan, 2022 proved to be a high-profile one for student loans.

However, questions have surrounded some of the loan news, while responses are not plentiful and scarce. We don’t yet know what, when, or if some of these changes will develop into.

As 2023 approaches in 2023, here are the top questions surrounding the issue of student loans in the coming year — as well as how students can do to be prepared amid the uncertainty.

Is student debt cancellation still happening?

Legal challenges have delayed the rollout of the President Biden’s plan for qualified applicants and for $20,000 for Pell Grant applicants. Though 16 million borrowers have been approved for the program but they will not see debts forgiven until it is proven that the White House succeeds in court.

For now, borrowers should set aside money to cover the cost of repaying the full amount of their student loan and stay clear of excessive expenses, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance.

“If the loan forgiveness happens in the near future, then congratulations, you’ll be able to enjoy a boost in some respects and extra cash that can be used to pay for other expenses,” He says.

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When will forbearance cease?

The expiration date of the forbearance program — the interest-free pause on student loan payments that began in March 2020 hinges on the legal outcomes of Biden’s debt cancellation strategy.

We don’t know exactly when it will end under the latest guidelines. In November, the White House . Repayment is now scheduled to be resumed 60 days after lawsuits challenging the broad debt forgiveness plan are resolved or 60 days following June 30, 2023 -or when it is the first.

The interest-free period may last until August, if not earlier however, borrowers must be prepared to start paying back loans earlier. It is expected that the Supreme Court will hear oral arguments in February, and an immediate decision to be issued in the cases blocking implementation of Biden’s debt cancellation plan.

What is the deadline to sign-up in the brand new, income-driven repayment program?

In the event that the White House announced the $10,000-per-borrower student debt forgiveness program in August, the White House also shared a program that garnered fewer headlines but could help countless borrowers in the long time: a new income-driven repayment plan option. At the time, it stated that the new plan would set the monthly payment on undergraduate loans at “5 percent of a individual’s disposable income” just half that of current IDR plans.

But there’s no precise timeline for when borrowers can apply. We don’t yet know exactly how the proposed IDR plan will look in the final version, who will be eligible, and when applications will be open. The draft rules for the plan could come out tomorrow or in six months time According to Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

“The draft rules may be significantly different between draft and final however, we’ll be able to get a better picture of what this new IDR plan might be like when we receive the draft,” says Mayotte.

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Can I get rid of student loans in bankruptcy?

In bankruptcy, people have long been able to ask for to have their school loan debt to be eliminated but this has typically been more challenging than releasing other debts of the consumer, such as credit card and medical bills. The reason is that borrowers must demonstrate to a judge the student loan was a source of hardship, a tough test for relief.

The situation changed in November when the Departments of Justice and Education jointly unveiled a new set of guidelines to help standardize the definition of “undue burden.” A bankruptcy judge will still take a final ruling in each case.

“Today’s guidance outlines a better and more equitable, as well as more transparent process for student loan customers who have filed for bankruptcy” said Vanita Gupta an associate attorney general with the Justice Department, in a press announcement.

Borrowers can file bankruptcy cases under the new guidelines now but Stanley Tate, an attorney who specialises in student loans and borrowers, suggests that those who have been in repayment more than 20 years, consider keeping the loan until it is applied into their bank accounts by July before taking any action. (The White House unveiled the one-time IDR waiver in a separate announcement from the proposed IDR plan, on April 20, 2022. The waiver will be counted every month that you’ve been in repayment or on pause after leaving school towards forgiveness, bringing some people closer to the finish line.)

“It could happen that your loan will be wiped clean automatically … which means there’s no advantage to going through the bankruptcy option,” says Tate.

What’s happening with the Joint Consolidation Loan Separation Act?

In October, Biden announced the Joint Consolidation Loan Separation Act into law. The law allows those who had previously consolidated loans for their college loans with a spouse -in a program that ran from 1993 until the year 2006 — to finally separate them. It will also allow couples with consolidated loans to take advantage of the Public Service Loan Forgiveness following the separation of their debt.

For those who have consolidating loans the new law will support “freedom from financial and domestic abuse, the freedom to manage their financial destiny and the freedom to enjoy the same benefits like other borrowers across the nation,” said Sen. Mark Warner (D-Va.), the bill’s sponsor, in an announcement to the press.

It is estimated that the Education Department holds at least 13,000 joint consolidation loans According to Warner’s office. However, we still do not know what date the legislation will be implemented, what the application process will look like or which documents will be required.

Sign up for information from your Education Department about how and when to apply.

About the author: Eliza Haverstock is a lead writer on NerdWallet’s student loan team that covers loan repayment and alternatives to traditional four-year degree programs.

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