If you turned off the news, ignored the notifications on your phone or simply couldn’t keep up the past few weeks, it’s time to catch up on some major events in higher education financing. Here’s a rundown of the news that affects anyone applying for, and many of those paying back, student loans, and what to do if you’re one of them.
The news: Federal Family Education Loan (FFEL) borrowers who go into default may now be subject to collection fees even if they immediately start on a repayment plan. You’re affected only if you have federal student loans through the FFEL program, which was discontinued in 2010.
The background: Federal student loans repaid monthly go into default when you’ve missed payments for 270 days, or nine months. In July 2015, the U.S. Department of Education issued guidance that gave FFEL borrowers in default a break. The guidance prevented guaranty agencies, which administer FFEL loans, from charging collection fees if borrowers followed through on plans to repay their loans within 60 days of contact from the agency.
On Thursday, the U.S. Department of Education withdrew that rule, stating the earlier guidance “would have benefited from public input.” This opens up the possibility that guaranty agencies will charge FFEL borrowers fees even if they start repaying their defaulted loans within 60 days. Collection costs can reach 25% of the loan’s total principal and interest, depending on how you bring your loans back into good standing.
What it means for you: If you took out FFEL loans, meaning you borrowed before July 1, 2010, you aren’t protected from collection fees if you proactively make a plan to repay your loans after default. It’s unclear when agencies could start collecting those fees, though, says Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.
Avoid default by signing up for income-driven repayment, which will lower your federal loan bills to a more manageable amount per month. You can sign up for free on your own at studentloans.gov or contact your student loan servicer for help.2. IRS Data Retrieval Tool goes offline
The news: The IRS Data Retrieval Tool allows for the automatic transfer of income data into both the online Free Application for Federal Student Aid, known as the FAFSA, and the Income-Driven Repayment Plan Request form. In early March, the tool became unavailable. The Education department and the IRS said in a joint statement on March 9 that use of the tool was suspended “following concerns that information from the tool could potentially be misused by identity thieves.” It will be offline for several weeks, according to the department.
The background: The FAFSA is known for its complexity. But since the IRS Data Retrieval Tool became available in 2010, students and families have made fewer errors on the form and have filled it out in less time, according to a statement by the National Association of Student Financial Aid Administrators. Applicants for income-driven repayment plans, and those already enrolled who must recertify their income annually, also rely on the tool to complete their forms quickly and accurately.
What it means for you: If you haven’t yet completed the FAFSA, don’t wait for the tool to come back online to do so. Failing to submit it means losing access to federal financial aid — including loans, grants and work-study — and, potentially, aid from states and schools. Some funds are also first come, first served, so the sooner you submit the FAFSA the more aid you may receive.
Without the IRS Data Retrieval Tool, students and families must manually enter their 2015 tax information using their tax returns. Ask your tax preparer for a copy, or download it from the tax return software you used. The National College Access Network also advises FAFSA filers to request a copy of their official tax return transcript. You may need it if you’re selected for a process called verification, which confirms the accuracy of the information on your FAFSA. In 2014-15, the Department of Education asked 26% of FAFSA applicants to complete the verification process, according to a November 2016 report from the Institute for College Access & Success.3. Proposal could inspire more companies to help repay student loans
The news:Rep. Rodney Davis, R-Ill., introduced a bill last month that could encourage more employers to add student loan repayment assistance as a workplace benefit. The bill, HR 795, would allow companies to give up to $5,250 a year to employees or directly to their lenders to help pay off student loans tax-free. That means employees wouldn’t pay income tax on that amount, which could be an incentive for those with student loans to work at companies offering the benefit.
The background: More and more companies — including Staples, PwC and Fidelity — have begun offering student loan repayment as a perk for employees. Fidelity, for instance, offers $2,000 a year paid to the borrower’s student loan servicer, up to a lifetime maximum of $10,000. A NerdWallet analysis found an employee with $29,400 in total student loan debt would pay it off three years faster if they received an annual $2,000 benefit for five years.
What it means for you: The bill hasn’t passed the House of Representatives, but if it becomes law, employees at companies that adopt it would see student loan relief. Critics of the proposal say employees who earn more would see a greater tax benefit from the program, and that the borrowers most in need of help are those who don’t have full-time jobs with lots of perks. Or, says Sandy Baum, senior fellow at the Urban Institute, “They should pay higher wages rather than paying back students’ loans.”
You can also access programs available now to lower your loan payments. Income-driven repayment is best for those with federal loans who can’t afford their loan bills; signing up will cut the payments to 10% to 20% of your income each month. Those with high-interest private loans, or who don’t plan to use federal programs like income-driven repayment or loan forgiveness for public-sector workers, can try student loan refinancing. When you refinance student loans, a private lender will replace your current loans with a new one at a lower interest rate, as long as you have good credit and solid income or access to a co-signer.