5 Budget Bill Takeaways For Student Loan Borrowers

Included in the bill are several provisions that may impact student loan borrowers and their families. Here are the details.

5 Budget Bill Takeaways For Student Loan Borrowers

Included in the budget bill are several provisions that may impact student loan borrowers and their ... [+] families.getty

Top lawmakers in Congress unveiled a sweeping, bipartisan budget bill that will touch nearly every aspect of federal spending including defense, public health, foreign aid, and more. Included in the bill are several provisions that may impact student loan borrowers and their families. Here are the details. One of the key benefits of the bill for student loan borrowers is a provision that will allow payments made on student loans to be treated as retirement plan contributions for the purpose of company retirement matches associated with employer-sponsored retirement plans, like a 401(k). The benefits are still limited by normal retirement plan contribution limits, and employees are required to certify their student loan payments to their employer in order to receive the benefit.

The bill increases the size of a Pell Grant by $500 to $6,335. Pell Grants are a form of federal financial aid provided to low-income families that does not have to be repaid. Advocates for higher education reform have called on Pell Grants to be increased as a way to address the student debt crisis. While the increase is modest, advocates praised lawmakers nonetheless.

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'Thanks to lawmakers for including key #highered investments in their year-end spending package, including a $500 increase to the maximum #PellGrant award,' said The Institute for College Access & Success (TICAS) in a tweet on Tuesday. The Education Department has been working for years to overhaul the federal student servicing system to be more streamlined and efficient for borrowers. The Department has traditionally relied on an ever-changing group of outside contractors, each with their own unique systems, to manage millions of federal student loan accounts. While the Department intends to continue relying on these third-party loan servicers, engineers have been developing a single servicing portal system through StudentAid.gov that is intended to provide borrowers with a uniform experience, regardless of their specific loan servicer. Officials had hoped to have the new system up and running by December 2023. But that now appears to be in doubt, as the administration may be anticipating delays.

New Student Loan Servicing Standards

The budget bill includes some modest new standards for student loan servicers, which have been the subject of widespread criticism for years for mismanaging a host of federal student loan programs such as income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF).

The bill allows for the Education Department to 're-allocate accounts from servicers for recurring non-compliance with [Federal Student Aid] guidelines' to ensure that servicers 'are held accountable for and have a history of compliance.'

Funding for Federal Student Aid is Not Increased

The Biden administration had requested significant additional funding for the Education Department's Office of Federal Student Aid (FSA), which oversees and administers the government's sprawling federal student loan system. FSA has been tasked with managing multiple student loan forgiveness, repayment, and relief programs — many of which have been subject to recent changes — including income-driven repayment (IDR) plans, Public Service Loan Forgiveness (PSLF), Borrower Defense to Repayment, and the Total and Permanent Disability (TPD) discharge program. FSA had also been running Biden's new one-time student loan forgiveness program, which was halted by federal courts in the fall.

But Republicans balked at increasing funding to the Education Department, particularly while legal battles over President Biden's one-time student loan forgiveness program continue. Republican votes in the Senate are necessary for the bill to pass during the lame-duck session, and the compromise bill provided no additional funding to FSA.

This means that delays and long processing times for applications submitted for student loan forgiveness and relief programs may continue to persist.

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