On June 30th, the Supreme Court struck down the Biden Administration’s student debt relief plan to provide up to $20,000 in one-time relief to more than 40 million student loan borrowers. According to the Department of Education, this means the 16 million+ consumers who were already approved for debt relief under the program will not receive it due to the Court’s ruling. Interest will begin accruing again on September 1, and payments will be due in October.
In response, the Administration is implementing a new repayment program called the Saving on a Valuable Education (SAVE) Plan. The Education Department expects it will cut monthly payments to $0 for millions of consumers earning $32,800 or less individually (or $67,500 for a consumer in a family of four) and save all other consumers at least $1,000 annually. It will also stop runaway interest rates that often leave consumers owing more than their initial loan.1 According to a statement on the White House’s website, all student borrowers in repayment are eligible to enroll in the SAVE plan later this summer before any payments are due. Borrowers who are already signed up for the current Revised Pay as You Earn (REPAYE) plan will automatically be signed up for SAVE once the new plan is implemented.
In addition, on July 14, the Department of Education said it will forgive $39 billion in federal student loans for more than 804,000 borrowers. The discharges are a result of fixes implemented by the Biden administration to ensure consumers have an accurate count of monthly payments that qualify toward forgiveness under income-driven repayment (IDR) plans. An IDR plan calculates monthly student loan payments based on income and family. While these plans were designed to help lower earners borrow for college, few could use them effectively because of technical problems and challenging amounts of income-verification paperwork.
CFPB: Fresh Start & Credit Scores
The CFPB also recently posted its initial findings after the April 2022 release of the U.S. Department of Education’s Fresh Start, a one-time program designed to help approximately 7.5 million borrowers with defaulted federal student loans avoid the negative effects of default and gain access to benefits, such as additional federal student aid, eligibility for new government loans, and a temporary end to involuntary collection activity. Looking at the effects of the credit reporting changes on consumers who have at least one student loan default on their credit record that has been made current in the last six months, the CFPB concluded:
- Most of the defaulted federal loans do not appear on consumers’ credit records because the defaults probably occurred over seven years ago.
- Consumers affected by Fresh Start are more likely than other people with defaulted student loans to live in high-poverty areas, have other accounts in collection, and have low credit scores.
- The immediate credit reporting changes from Fresh Start coincided with a median increase of over 50 points to their credit scores, though many of these consumers still have low scores.2
Your Opportunity to Help
Overall, revolving debt is incrementally on the rise and this fall – when federal student loan payments will be due again – additional installment debt will begin accumulating. This might be a great opportunity for you to help these consumers tap into their home equity to take on student loan debt with a Cashout Refi or HELOC.
Did you know that Xactus can help identify debt in your portfolio – in the form of student loan trades and student loan payments? Schedule a consultation with your Xactus strategic account manager to learn how you can incorporate our debt identification tools into your data strategy. Email [email protected] for more information.
