The new year brings a fresh start and hope for a brighter future.
With that spirit of optimism, it’s worth considering the many things that could improve for student borrowers in 2023.
An update to the IDR number will bring many closer to student loan forgiveness
The road to student loan forgiveness has not been easy for borrowers. Fine print, misunderstandings, and bad advice have cost many borrowers years of progress toward student loan forgiveness.
In early 2023, the Department of Education will update the count of federal borrowers. Time spent on the wrong refund plan, as well as certain forfeits and postponements, will now count towards the cancellation of the IDR. For many borrowers, this will bring student loan forgiveness years earlier.
In most cases, no action will be required to benefit from this one-time update. However, some borrowers may need to act before the May 1 deadline to take advantage of this program.
Important Changes Coming to Bankruptcy
Historically speaking, paying off federal student loans has been difficult or nearly impossible, depending on who you ask.
Last month, the Biden administration announced major changes to how they would handle federal student loans in the event of bankruptcy. These changes will make it much easier for many borrowers to get the financial fresh start promised by bankruptcy.
The changes went into effect in November 2022, but bankruptcy attorneys are still digesting the changes and learning about the update. Expect a record number of borrowers to get discharge from student loans in bankruptcy in 2023.
For the first time, many borrowers burdened with federal debt can avoid a life sentence for a student loan.
Suspension of payments and interest continues
Although it looked like the federal student loan payment and interest break was set to end on January 1, 2023, borrowers received another extension.
There is no set end date for student loan relief this time around. It will depend on when the Supreme Court makes a final decision on the one-time pardon plan. The most likely outcome is that federal borrowers won’t have to make payments until September 2023.
Borrowers can use this time to build their emergency fund and prepare to tackle their student debt when repayment begins again. With many savings accounts now paying significant interest rates, this is a rare opportunity for borrowers to get interest that works for them rather than against them.
Sherpa tip: If you have already made payments for your federal student loans, it’s not too late to ask for a refund. Getting a refund now can mean saving money on interest and potentially getting more debt canceled in the future.
A final decision on the single pardon
When it was announced that federal borrowers would receive up to $20,000 in forgiveness, it sparked a wave of legal challenges.
2023 could become the year forgiveness actually happens. The Supreme Court will hear the case at the end of February, with a final decision due later in the year.
If the Biden administration wins in court, most federal borrowers will see $10,000 to $20,000 disappear from their loan balances.
The unveiling of a new repayment plan
Among the many changes announced in 2022, details were released on a new revenue-driven reimbursement plan.
We still don’t have all the details, but many IDR borrowers could see their monthly payments cut in half. Student loan interest relief could also enter the equation for many.
Who the new plan helps and how much benefit is still unknown, but 2023 could become the year IDR reimbursement becomes more affordable for millions of Americans.