More Student Loan Changes Are on the Way. Here’s What to Expect
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In 2023, President Joe Biden's signature student loan debt cancellation plan died, a new repayment plan was born, millions of longtime borrowers got forgiveness and others saw their monthly student loan bills come due again.
This year, even more change is coming.
From a redesigned financial aid form to halved monthly payments, Biden's debt cancellation Plan B and more, here’s what to expect with college student financial aid in 2024.
Monthly payments will be cut in half for millions
The newest income-driven repayment plan, SAVE, launched in fall 2023. Nearly 6.9 million have borrowers enrolled, 3.9 million of whom have qualified for $0 monthly payments, the Education Department announced in January. And the perks will sweeten this year. Starting in July, monthly payments on the SAVE plan for some borrowers will be capped at 5% of a borrower’s discretionary income, rather than 10%. That means borrowers who sign up for SAVE — but earn too much to qualify for $0 payments — will still see their payments cut in half.
For example, an individual earning $50,000 per year had a monthly payment of roughly $270 on the REPAYE plan, which was SAVE’s predecessor. Currently, their monthly payment under SAVE is about $143, and in July, that will drop to $72.
Another big SAVE change is coming even sooner. Starting in February, borrowers who originally took out $12,000 or less for undergraduate or graduate study can get their loans forgiven after 10 years on SAVE, rather than 20 or 25 years. These borrowers could start receiving student loan forgiveness as early as next month — or move significantly closer to the 10-year forgiveness finish line — if they sign up for the SAVE plan.
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Payment on-ramp will expire
Federal student loan bills resumed in October, after a three-year pandemic pause. But borrowers had a cushion: a 12-month “on-ramp,” during which missed payments would not hurt their credit score, nor cause borrowers to default on their student loans. By mid-November, 40% of borrowers had missed their scheduled October payment, according to the Education Department.
The yearlong buffer is set to expire on Sept. 30, 2024. After that, late, partial or missed payments can lead to severe consequences, like loan default, debt collection and garnished paychecks.
“If we take away the pause, it's fair to presume that a lot more stress will come, people will change their financial behaviors, and they probably won't be able to save as much or even spend as much on things,” says Dan Collier, assistant professor of higher and adult education at the University of Memphis. “For older borrowers, that means retirement. For younger borrowers, that means emergency savings or investments for future income.”
Potential delays for financial aid packages
Students who plan to be in college next fall may contend with delayed financial aid packages and uncertainty around how much money they’ll get for school. That’s because the 2024-25 Free Application for Federal Financial Aid (FAFSA) launched at the end of 2023, after a three-month delay and an updated formula to calculate aid eligibility.
The Education Department won’t start sending students’ FAFSA information to colleges until late January. And that’s just the starting line — then, schools must build financial aid packages and get those out the door with enough time for families to make an informed decision, says Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators.
“That May 1 [college decision] deadline day is on everybody's mind,” McCarthy says. “Once we have an exact commitment from the department on when schools will actually get those processed FAFSAs, I feel like those conversations can then become a lot more real.”
More Pell Grant money for more people
Outside of loans, changes are on the way for Federal Pell Grants — another key type of financial aid — which will expand this year. The program gives students from low-income backgrounds up to $7,395 per year for college that doesn't need to be repaid. Due to the redesigned 2024-25 FAFSA, an additional 610,000 students are slated to qualify for Pell Grants next fall, and 1.5 million more students are expected to get the maximum award — for a total of over 5.2 million students eligible for the maximum Pell.
Congress will also weigh a bill that would allow students to use Pell Grants to pay for short-term career-training programs, like coding boot camps or welding courses. (Currently, a program must last at least 15 weeks for it to be eligible for a Pell Grant.)
Political uncertainty and Biden’s Plan B
The Biden administration is pursuing a Plan B to pass student debt cancellation, after the Supreme Court struck down its plan to erase up to $20,000 in debt per borrower earning less than $125,000.
The new plan would be more limited in scope and apply to fewer borrowers. For example, if the interest on a loan grew to be larger than the borrower's principal balance, the government would erase any amount above what was originally borrowed.
Policymakers wrapped up negotiations on the new plan in December, and there could be a draft version as early as April — but legal challenges and a presidential election this year could derail the plan, says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.
“The way negotiations left, there are still a lot of unanswered questions about what this might look like,” Mayotte says.
New workplace retirement savings perks
Since Jan. 1, some student loan borrowers have had an easier time saving for retirement while also chipping away at their student loans. Thanks to a SECURE Act 2.0 provision that just went into effect, employers can “match” an employee’s student loan payment by contributing the same amount to a workplace retirement account.
So, if a borrower sends in a $200 on-time student loan payment, their employer can contribute up to $200 to their 401(k). But only if their employer opts to. Borrowers should ask their employer’s human resources department about this benefit.
“Especially with the economy the way it is, some employers that may not be able to give higher raises look for alternative ways to bulk up their total packages, and this could be a way to do that,” Mayotte says.
