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5 changes ahead for borrowers seeking government service loan forgiveness

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WASHINGTON, DC – JULY 27: Student loan holders take part in a demonstration outside the entrance to the White House demanding that President Biden cancel student loan debt.

Countess Jemal | Getty Images Entertainment | Getty Images

A number of big changes are in store for borrowers looking to have their government service loans forgiven.

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

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

However, the program suffers from problems with people actually getting help a rarity.

Borrowers often believe that they are paying for the cancellation of the loan, but at some point in the process they find out that they do not meet the requirementsusually for technical and confusing reasons. Service providers were accused of misleading borrowers and corruption of their terms.

Some of the upcoming changes are aimed at improving these issues. Here’s what borrowers should expect.

1. Payments will resume

Most federal student loan borrowers were able to suspend their monthly payments starting in March 2020 thanks to the pandemic relief policy.

Those payments are currently expected to resume in September, although some experts expect the Biden administration to push back the restart date for several more months.

Still, as the country emerges from the pandemic, experts say borrowers should be prepared to live with a student loan bill again. Meanwhile, any months during the pause count towards your qualifying payments.

2. You will get a new servicer: MOHELA

Until recently, the accounts of borrowers wishing to have their loans forgiven for government services were processed Pennsylvania Higher Education Promotion Agency, also known as FedLoan. But FedLoan, which processed the loans of 8.5 million student borrowers, announced last year that it would not renew its contract with the federal government.

As a result, your new servicer will be MOHELA, or the Missouri Higher Education Loan Authority.

“Although the name of your service is changing, almost every part of your experience will remain the same after the transition,” said Scott Buchananexecutive director of the Student Loan Service Alliance, a trade group for federal student loan servicers.

The transition is already underway, Buchanan said: “Some borrowers have already moved to their new service, and others will be in the process in the coming months. We are making this transition in waves to minimize any disruption to consumers.”

Buchanan said borrowers should be sure to read all letters and emails from their servicer.

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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 enrolled in automatic payments and when your accounts reset.

Since so many borrowers seeking government service loan forgiveness complain that their payments have been underpaid, you should make sure MOHELA has the correct payment count, said a higher education expert Mark Kantrowitz.

If there is a discrepancy, please notify the service as soon as possible.

3. New rules for calculating qualification payments

The Biden administration announced in July that it was taking steps to make it easier for public employees to get debt forgiveness. After a public comment period, the final rules will take effect no later than July 1, 2023.

Until then, government employees will likely be able to receive credit for payments during any deferrals or relaxations. Currently, these periods are not counted.

Delinquent payments will also no longer be excluded from borrowers’ total qualifying payments.

For now, experts recommend staying up-to-date on the changes and requesting an accounting of any previously disqualified payments when the opportunity becomes available.

4. Deadline for second chance for help

Borrowers seeking civil servant debt cancellation were given the option to reschedule their terms if they were disqualified due to the type of loan or repayment plan. But this limited waiver may end at the end of October.

As a result, borrowers should act now if they haven’t already, Kantrowitz said.

If you have a Federal Family Education Loan (FFEL) or Federal Perkins Loan, which don’t normally count toward Public Service Loan Forgiveness but now count temporarily, you’ll need to consolidate them into Direct Loans with your servicer.

Some periods spent in deferment or forbearance may now count.

Experts recommend applying for relief even if you’re not sure your past payments qualify under the new rules.

5. A broader apology that may have little impact

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