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The federal student loan system will look dramatically different by the end of 2022 than it is now, as payments are still tolerated, loan service providers terminate their government contracts, and the Biden administration initiates plans to revise the system.
Given the expected rate hikes and the expiration of the Covid-19 student loan, which expires in May, borrowers must be ready to start making payments again. Here are our student loan predictions for 2022 and where the federal student loan system may be overhauled.
Prepare for the federal student loan deferral to end
As of March 2020, the Covid-19 student loan deferral has suspended payments for millions of federal student loan borrowers and has set interest rates at 0%. It also meant defaulting borrowers could not garnish their wages and those participating in the Public Service Loan Program (PSLF) could continue to count the grace period against their eligible payments.
After several extensions during the pandemic, President Joe Biden had planned to extend the Covid-19 student loan facility one more time until February 1, 2022. However, the announcement met with widespread criticism as Covid cases flared up again in many parts of the country and consumers struggle with record-breaking inflation.
By mid-December, President Biden announced another extension of the federal student loan deferral, and payments are now set to resume after May 1, 2022.
Adjustments to federal student loan programs in progress
In the past year, several significant steps were taken to reform several federal student loan programs. This trend is expected to continue until 2022.
The Biden government has canceled more than $ 9 billion in federal student loans through various government programs, including loans to borrowers with disabilities and those who have been defrauded by their school. In October, the US Department of Education announced major updates to the PSLF program to make it easier for borrowers to receive forgiveness.
Further improvements to the state student loan system were announced in December; Most importantly, the Department of Education is bringing the student loan repayment and administration process together in one portal at StudentAid.gov. It will also simplify the steps required to apply for PSLF and make recommendations for borrowers who may also be eligible for health grants, food aid, or other federal programs.
Big shift in credit service providers
It is also likely that the number of federal student loan brokers will continue to grow. Several service providers announced their exit from the federal credit system in the second half of 2021, including Navient, Granite State and FedLoan. These changes are estimated to affect more than 15 million borrowers.
While the process of moving these loans to new service providers continues through 2022, the Department of Education also announced stricter standards for state loan service providers in October. When the new terms go into effect, it is possible that additional service providers may choose to leave the state student loan system in order to find fewer restrictions.
Changes to the FAFSA
In order to be eligible for study grant, students must complete the free application for federal study grant (FAFSA) annually. In an effort to streamline the process, Congress has adopted major reforms to the process.
While the 2021-22 award year contained minor updates, most of the changes will be implemented gradually up to the 2024-25 award year. Although an exact timetable for the updates has not been released, the following reforms are expected to begin at some point in the future:
- Simplify the FAFSA form. The number of questions on the form will be reduced from over 100 to around three dozen. Also, fewer students need to include their own assets on the form, and families can more easily import their tax information.
- Expand access to federal aid. More students are eligible for Pell Grants, which are free money that don’t have to be paid back. The time limit on access to subsidized loans will also be removed so that students can access these funds regardless of their schooling.
- Replace the expected family contribution (EFC). A student’s EFC is their family’s contribution to their education, and that number correlates to how much government support a student receives. The EFC is being replaced by the Student Aid Index (SAI); the calculations are similar, but the student SAI could potentially be negative, making it easier for universities to identify the students in greatest financial need.
Widespread student loan forgiveness seems unlikely
While there has been some progress in targeted loan issuance over the past year, no widespread student loan cancellation has been adopted – and this debate is likely to continue throughout 2022.
President Biden has consistently advocated a $ 10,000 waiver of federal student debt, but other Democratic leaders are pushing for a waiver of up to $ 50,000. Regardless of the amount proposed, there has also been a lot of discussion about who is actually empowered to adopt the measure. Many have asked Biden to enact student loan issuance through an executive order, while others – including House Speaker Nancy Pelosi – claim that only Congress has the power to order such a move.
The Covid-19 pandemic has heightened calls for widespread forgiveness, and with student loan payments slated to resume in May 2022, the debate has reached a climax. While the discussion will certainly continue, it seems unlikely that an agreement will be reached. No formal proposals were made, and Biden’s draft budget for 2022 made no mention of widespread forgiveness.
When student loan payments kick in
If you’re nervous about payments resuming, don’t wait to get organized. Make sure your contact information with your credit service provider is up to date and see if automatic payment resumes automatically once payments are resumed. Check your payment amount and make sure you can easily afford it. If not, consider options like income-oriented repayment plans (IDR) to cut your monthly costs.