A federal appeals court has blocked the implementation of the Biden administration’s student debt relief plan, which would have lowered monthly payments for millions of borrowers.
I still don’t understand why they didn’t just zero the interest on all the loans made between a certain time period. Seems like that would have been simpler and less controversial.
How so? Doesn’t the government (not banks) own the loans that they are currently forgiving? What would be different than owning them and zeroing out the remaining interest? The feds would get a small payoff instead of losing 100% of the remainder through forgiveness.
Banks finance all the FAFSA loans. Originators lend the money out and then they sell the money to servicers who are like collection agencies. Some originators are also servicers (Sallie Mae was like this).
The government is a guarantor of the loans. That means that if the borrower defaults the government pays the servicer. I do believe that also means that if the government forgives the loan then they pay out to the servicer.
It’s a sweet deal for the servicers… the loans are basically zero risk and the servicer gets to keep a lion’s share of the interest while only paying for the costs associated with servicing (customer service, mailing statements, pausing repayment for various reasons, etc.)
That said, those loans shouldn’t be confused with private student loans, in which the government is. It involved (mostly).
I agree. In my opinion, this solution has always made the most sense. I’m sure some conservative judge will be/has been bribed enough to block it, but the zero interest rate along with eliminating accumulated interest is the best solution.
That’s basically what the SAVE plan did. If you enrolled in it and made qualifying income-based payments that didn’t cover the interest on the loan, the interest wouldn’t capitalize and it would still count as a qualifying payment for PSLF. It wasn’t loan forgiveness, but it ensured that payers wouldn’t have their loan balances skyrocket while making income-driven repayments.
Yep. Except that was limited to anyone below 225% the poverty line (roughly 30k a year). I think should be expanded to <75k. Something closer to the actual poverty line depending on where you live.
No, that was applicable to anyone enrolled in the SAVE plan. If you made more money than that, you would have a small payment which was limited to 5% of your discretionary income (a number that excludes a portion of your income as non-discretionary for living expenses, etc). So if you made 75k/year, your payment would be 5% of the amount not designated as necessary living expenses. I’m not positive on the exact numbers, but I think they exclude about 60k before they start calculating your payment amount.
I still don’t understand why they didn’t just zero the interest on all the loans made between a certain time period. Seems like that would have been simpler and less controversial.
I don’t believe any specific policy change which benefitted a broad swath of the public could have survived the current courts.
Because the banks wouldn’t like that at all
How so? Doesn’t the government (not banks) own the loans that they are currently forgiving? What would be different than owning them and zeroing out the remaining interest? The feds would get a small payoff instead of losing 100% of the remainder through forgiveness.
Nope. Loans are traded around all the time. Mine traded hands like 3 or 4 times before I paid them off, iirc.
Pretty sure in order to be forgiven, the loan has to be consolidated under a government-owned loan.
https://abc7news.com/what-are-privately-held-federal-student-loans-new-loan-forgiveness-rules-president-joe-biden-private/12282942/
Banks finance all the FAFSA loans. Originators lend the money out and then they sell the money to servicers who are like collection agencies. Some originators are also servicers (Sallie Mae was like this).
The government is a guarantor of the loans. That means that if the borrower defaults the government pays the servicer. I do believe that also means that if the government forgives the loan then they pay out to the servicer.
You got it.
It’s a sweet deal for the servicers… the loans are basically zero risk and the servicer gets to keep a lion’s share of the interest while only paying for the costs associated with servicing (customer service, mailing statements, pausing repayment for various reasons, etc.)
That said, those loans shouldn’t be confused with private student loans, in which the government is. It involved (mostly).
That requires Congressional action, and financial allocations, which haven’t been forthcoming.
While I like what Biden is doing, he’s really just finding the loopholes in previous legislation. It has to be inconsistent
I agree. In my opinion, this solution has always made the most sense. I’m sure some conservative judge will be/has been bribed enough to block it, but the zero interest rate along with eliminating accumulated interest is the best solution.
That’s basically what the SAVE plan did. If you enrolled in it and made qualifying income-based payments that didn’t cover the interest on the loan, the interest wouldn’t capitalize and it would still count as a qualifying payment for PSLF. It wasn’t loan forgiveness, but it ensured that payers wouldn’t have their loan balances skyrocket while making income-driven repayments.
Yep. Except that was limited to anyone below 225% the poverty line (roughly 30k a year). I think should be expanded to <75k. Something closer to the actual poverty line depending on where you live.
No, that was applicable to anyone enrolled in the SAVE plan. If you made more money than that, you would have a small payment which was limited to 5% of your discretionary income (a number that excludes a portion of your income as non-discretionary for living expenses, etc). So if you made 75k/year, your payment would be 5% of the amount not designated as necessary living expenses. I’m not positive on the exact numbers, but I think they exclude about 60k before they start calculating your payment amount.
Interesting. Good to know. I wasn’t aware that it was open to all. I thought it was low-income based student loan reform. Thanks for the info. =~)
As a medical student with an absurd amount of student loans, this stuff is very important to me.