What To Expect With Your Student Loans In 2023

The student loan landscape turned out to be a confusing mess throughout 2022. Many people with federal student loans hardly know what is happening anymore, and it’s easy to see why.

President Biden promised student loan forgiveness of $10,000 to $20,000 in federal debt per eligible borrower in August of 2022, but now that situation is being held up in court. Payments on federal student loans that have been paused since March of 2020, almost resumed a shocking number of times, only to be paused again at the last minute.

There are new updates to PSLF to know about, a new repayment plan that’s (possibly) in the works, and other changes that may come into play in 2023. If you’re curious what you can actually expect to happen with your federal student loans in 2023, here are some of the major updates you should be aware of.

Forgiveness May Or May Not Happen

First, you should know that Biden’s student loan forgiveness plan may or may not come to fruition in 2023 regardless of what student loan “experts” are saying on TikTok right now. It all depends on what the Supreme Court has to say about it after hearing formal arguments toward the end of February this year.

This ultimately means the $10,000 in federal student loan debt forgiveness (or $20,000 in debt for Pell Grant recipients) for eligible borrowers may not happen at all. Borrowers can still hope for the best at this point, but it seems at least somewhat likely the entire plan will be squashed altogether.

As to when we can expect to hear an answer? Likely not for a few month after the oral arguments are heard – so don’t expect an answer for this until closer to summer.

Student Loan Repayment Will Likely Restart In 2023

While the student loan repayment can has been “kicked down the road” several times already, it’s almost certain that borrowers with federal student loans will have to begin making payments again in 2023. At the moment, the date when federal loan payments pick back up again hinges on the Supreme Court’s decision on President Biden’s student loan forgiveness plan. In fact, the U.S. Department of Education says the following on its website:

“The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that. We will notify borrowers before payments restart.”

Given that the Biden Administration has also announced that the end of the State of Emergency will likely happen in May, this means that future extensions of the payment pause are unlikely. The only “if” is whether the administration will try to squeeze one last extension in before the Covid-19 Emergency ends.

Borrower Defense To Repayment Changes

According to Studentaid.gov, borrower defense to repayment is a term used to describe the discharge of some or all of your federal student loan debt that can come into play “if your school misled you or engaged in other misconduct in violation of certain state laws.”

Several changes will come into effect regarding this program starting on July 1, 2023, per the U.S. Department of Education:

• Borrower defense to repayment may be automatically applied to groups of students
• Loans can be discharged through borrower defense to repayment under an expanded list of claims
• Schools will no longer be allowed to require students to “engage in pre-dispute arbitration or sign class action waivers”
• Borrower defense to repayment claims will be decided upon within a specific amount of time, or else the loans become unenforceable

If you believe you were defrauded by your college – whether for-profit or non-profit – you should apply for Borrower Defense To Repayment as soon as possible.

Borrowers See Relief With Interest Capitalization

Interest capitalization takes place when borrowers are charged interest that is added to the principal of their loan balance, thus leading to a situation where interest is charged on interest and loan balances have the potential to balloon.

A new rule from the U.S. Department of Education eliminates instances where interest is capitalized as long as it is not required by statute.

“This means interest will no longer be added to a borrower’s principal balance the first time a borrower enters repayment, upon exiting a forbearance, and leaving any income-driven repayment plan besides Income-Based Repayment,” notes studentaid.gov.

They also point out specifically that this rule applies to Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans.

New Income-Driven Repayment Plan

When President Biden announced his new student loan forgiveness plan, the fact sheet on the program mentioned a new income-driven repayment plan that aimed to help eligible borrowers make smaller payments (or even no payments) on their federal student loans. Specifically, it said the following:

“The Department of Education is proposing a new income-driven repayment plan that protects more low-income borrowers from making any payments and caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income—half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers. “

The proposed changes are for a revamp of the REPAYE plan that lets borrowers qualify for loan forgiveness in as little as 10 years, and no more than 20 years for undergraduate loans. This could be a big win for borrowers, but the actual date when it goes into effect is still unknown.

The administration appears to be working to get this program live in late-2023, but realistically it might not happen until 2024.

Changes to PSLF in 2023

Quite a few changes will also come into play with the Public Service Loan Forgiveness (PSLF) program in 2023, including the establishment of one standard for “full-time employment” at 30 hours per week.

Borrowers will also receive considerable help in their progress toward PSLF forgiveness, including some periods spent in deferment or forbearance beginning to count toward the 120-month payment threshold. You can read about all the changes coming to this program on this PSLF Fact Sheet.

The Bottom Line

Several other changes are being promised with federal student loans in 2023, including enhanced protections for students who become totally and permanently disabled and more forgiven loans for students who attend schools that are ultimately closed. This means that, if you have federal student loans, there are more instances where you can have all or part of your loans forgiven this year.

You also have the potential to qualify for a lower student loan payment once payments ultimately resume.

If you have student loans, now is the time to prepare for payments to resume, and to understand your options if you qualify for any of these new initiatives.