Student loans

5 upcoming changes for borrowers looking to cancel their utility loan

WASHINGTON, DC – JULY 27: Student loan holders take part in a protest outside the White House staff entrance to demand that President Biden forgive student loan debt.

Countess Jemal | Getty Images Entertainment | Getty Images

A number of big changes are coming for borrowers applying for utility loan forgiveness.

This program, signed into law by then-President George W. Bush in 2007, allows nonprofit and government employees to have their federal student loans forgiven after 10 years, or 120 payments.

The Consumer Financial Protection Bureau estimates that 25% of American workers could be eligible.

However, the program has been plagued with problems, resulting in few who actually benefit from the aid.

Borrowers often believe they are paying their way to loan forgiveness only to find out at some point in the process that they don’t qualify, usually for confusing technical reasons. Service agents were blamed for misleading borrowers and pushing their deadlines.

Some of the upcoming changes aim to improve these issues. Here’s what borrowers should expect.

1. Payments will eventually resume

Most federal student loan borrowers have been able to suspend their monthly bills since March 2020, thanks to a pandemic-era relief policy.

Currently, those payments are set to return in September, though some experts expect the Biden administration to delay the restart date by several months.

Yet as the country retreats from the pandemic, experts say borrowers should once again be prepared for life on a student loan bill. In the meantime, all months during the break count towards your qualifying payments.

2. You will have a new repairman: MOHELA

Until recently, borrowers seeking forgiveness of utility debt had their accounts handled by the Pennsylvania Higher Education Assistance Agency, also known as FedLoan. But FedLoan, which managed loans for 8.5 million student borrowers, announced last year that it would not renew its contract with the federal government.

Accordingly, your new servicer will be MOHELA, or the Missouri Higher Education Loan Authority.

“Although the name of your repairman will change, almost every part of your post-transition experience will remain the same,” said Scott Buchananexecutive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.

The transition is already underway, Buchanan said: “Some borrowers have already transitioned to their new manager and others are underway in the coming months. We are conducting this transition in waves to minimize consumer issues.”

Borrowers should be sure to read all letters and emails from their servicing agent, Buchanan said.

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Expect to have to set a new password to log in to your new account and update your bank details, and possibly debit card information, if you’re signed up for automatic payments and when bills resume .

Since so many borrowers seeking utility loan forgiveness complain that their number of eligible payments has been understated, you’ll want to make sure MOHELA has the right number of payments, said a higher education expert. Marc Kantrowitz.

If there is a discrepancy, communicate it to your repairer as soon as possible.

3. New regulations on eligible payment statements

The Biden administration announced in July that it was preparing to facilitate debt cancellation for public servants. After a public comment period, the final rules will come into effect no later than July 1, 2023.

Until then, officials will likely be able to make their payments count during any postponements or abstentions. Currently, these periods are not eligible.

Late payments would also no longer be excluded from a borrower’s total eligible payments.

For now, experts recommend staying on top of the status of the changes and requesting that any previously disqualified payments be accounted for when the opportunity arises.

4. Deadline for a second chance for respite

Borrowers pursuing government debt forgiveness were given the option to have their deadlines recounted if they were disqualified due to their type of loan or repayment plan. But this limited derogation could expire at the end of October.

Accordingly, borrowers should act now if they haven’t already, Kantrowitz said.

If you have a Federal Family Education Loan (FFEL) or a Federal Perkins Loan, which normally do not count towards civil service loan forgiveness but now do so temporarily, you will need to consolidate these into Direct Loans with your service agent.

Certain periods spent adjourning or abstaining may now count.

Experts recommend applying for the relief even if you don’t know if your previous payments will qualify according to the new rules.

5. Broader forgiveness, which may have little impact