Changes that are Likely to Occur to Federal Student Loan Legislation in 2019
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Changes that are Likely to Occur to Federal Student Loan Legislation in 2019

EPF April 18, 2019

Both the current administration and Congress are weighing options on outcome of changes on the student loans. Private companies will have more control over the new changes. The changes will also affect how the repayment of loans and pardons will work for the lenders.

What are the current regulations for student loans?

Federal laws govern both private and federal student loans. The policies comprise of the 2008 Higher Education Opportunity Act that is responsible for setting the standards about which schools can qualify for the federal aid and the 2010 Fiscal responsibility and student aid that came up with the right loan program and added options for income repayments.  There are some other laws which have affected how the students’ loans operate. For instance, the 2017 jobs act and tax cuts did exempt the borrowers that qualified for loan pardons due to either death or permanent disability from paying of income tax — on this ground, pardoned for their federal loans for students.

Federal Student Aid Ombudsman Group

The Federal Student Aid Ombudsman Group refers to an education department group which is neutral and tasked with managing and resolving issues with the loans of federal students. In case you are facing difficulties with your loan service provider or interested in learning more concerning your available options for the discharge of student loan, deferment or forbearance, you are always free to file a complaint with the Federal Student Aid Ombudsman Group. After the Federal Student Aid Ombudsman Group has received your claim, it will work with you together with your service provider to get a satisfactory solution for everybody.

The Four Likely Changes in Legislation of Federal Student Loans in 2019

Several other potential legal changes that can easily affect how you will be taking out and repaying your private and student loans. They all are worth keeping an eye on.

Ease of Discharging Student Debt during Bankruptcy

There are plans that the education department is thinking of reworking how it will define the undue hardship to make it much easier for the lenders who have federal student loans included whenever they file for bankruptcy. Proposal of the private student loan bankruptcy act will make it possible for the lenders to have a private student loan discharged during bankruptcy.  At present, it is possible to have the federal student loan given out if you manage to file for Chapter 7 or Chapter 13 and the judge comes up with the following:

  • Paying for your student loan prevent you from maintaining the least living standards.
  • You have tried to make an earnest effort to repay loans before you file for bankruptcy.
  • You have struggled to settle off your loans for the majority of the rest of their terms.

Impacts on the lenders

The Congress, which ishas a mandate to oversee the bankruptcy law, has not passed any appropriate legislation. However, it can mean that your student loans are not that touchable as they used to be in case you decide to file for bankruptcy. The last resort option is bankruptcy. However, you need first to consider all your options for debt relief before you make any file.

B.Termination of Public Service Loan Forgiveness

Both the Congress and Trump administration have made proposals on bills that will completely do away with or defund the public service loan forgiveness that was started by former US president George W. Bush back in 2007.  The Public service loan forgiveness will enable all borrowers that have worked with a public service or government job to have all their federal students debts canceled after they have made ten years of income repayments.  At first, this was intended to make all the college graduates get into the public service. However, miscommunication between the FedLoan which is the service that has a mandate of handling applications and the federal government meant that up to 99% of all the first round applications were all denied.

Impacts of this move to the borrowers

Even repealing the act that created the public service loan forgiveness or defunding the program will not have affected the 1% borrowers that were approved. However, this can mean that all the new borrowers that decided to work in the public service with the dream of getting their loans all forgiven are automatically out of luck. In case you were denied the loans due to technical reasons, you might have incorrectly completed filling a form that failed to submit enough paperwork. All you have to do is ensure you act fact and make reapplication as soon as possible.

 

There might be changes in the federal student loan repayment.

Trump administration has made proposals that will consolidate four income-driven repayments (IDR) plans which are now present to the borrowers of the federal student loans. The low-income borrowers are now capable of paying off their student loans that have between 10%-20% of their income for over 20-25 years after which they are relieved. Back in 2016, Donald Trump, the then-presidential candidate did propose to combine the available income-driven repayment loans and the revised pay as you earn into one plan to help make it less confusing to the lenders.

 

What does it mean to the Borrowers

We do have three main ways the proposal of the income drive repayment plan will affect borrowers:

 

A considerable loss to your paycheck

Majority of the current IDR plans do need one to pay 10% of the post-tax income. The idea of Trump is to try to increase this to 12.5 %.

 

Less Payment for the undergraduate loans

The undergraduate student lenders are most likely set to have their loans forgiven after they have made 15 years of income-driven repayments. At present, it is at a minimum of 20 years.

 

Increased Payment for graduate loans

The graduate students would not be in a position to have their loans forgiven until when they would have made 30 years of income-driven repayments under the new proposed plan.

 

The private Borrowers might begin applying for Federal Student Loans.

Donald Trump’s administration has been making considerations if they can allow banks together with other types of private lenders to help fund the federal student loans instead of having all the funds to come from the government’s budget. This consideration can mean that the lenders can end up with interest rates that are influenced by the borrowing market instead of being fixed by Congress.

 

What this implies to the lenders

Working with private borrowers can easily affect the process of application and getting Federal student loans. However, the applications can vary between the students and the borrowers who could see changing interest rates. The customer service can also be a private company’s responsibility as opposed to being that of the government.

The Fixed Rate Student Loan vs. the Variable Rate Student Loan

The rates of students’ loans are increasing. For instance, in the just concluded year, the Federal Reserve did raise the interest rates four times. There are speculations that the interest rate will be rising further this year. Every time the interest rates increase, students will be paying more for the loans if they have the variable interest rate student loan.

Whenever you refinance or borrow your student loans, you will always have a choice between the variable interested rate and the fixed interest rate. By increasing the interest rate environment, the higher interest rates will adversely affect the consumer borrowers since the interest rates of student loans will increase as well.

It is advisable for one to consider a fixed interest student loan if they will be borrowing a new student loan.

 

What This Means for you:

In case you currently do have a variable student loan interest rate, you are in a position to refinance the loans of students and convert the student loans variable interest rate to a  fixed interest rate for the student loans.

Do loans of students get regulated at the state level?

Yes, several states do have additional regulations for student loans in addition to the laws of federal student loans. Several other States that have passed the bill of rights for student loans to help in protecting consumers even more than what the federal government is capable of doing.

 

Conclusion

There’s every possibility that the options of student loans repayment might greatly change this year.  Regardless, the majority of the proposals are just like that, mere proposals which makes it hard to visualize the actual change that will occur. The lenders who depend on income-driven repayment plans will have to develop a high interest in these changes as they are likely to affect most of them.

Elite Personal Finance

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