It’s been more than two years since COVID-19 effectively shut down the United States. It’s also been two years since Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided Americans $2.2 trillion in economic aid. It’s been a long two years, and the country finally seems to be emerging from the pandemic — at least health-wise. Financially, though, the effects of COVID-19 linger, and new “forgiveness” programs designed to wipe out medical debt and student loans are about to have a big impact on credit reports and scores.
Student loan forgiveness
Back in 2020, about $14 billion of CARES Act funds were allocated to student expenses in the form of the Higher Education Emergency Relief Fund (HEERF). The purpose of this fund, though, was to address emergency financial needs, including tuition, books, and supplies — not student loan debt.
A separate CARES Act aid program enacted in March 2020 through the U.S. Department of Education reduced student loan interest rates to 0%, paused eligible student loan payments and collections on eligible defaulted loan. The end date for this program has been extended three times, most recently to May 1, 2022 — and it’s possible it may be extended once again.
As a Presidential candidate, Joe Biden promised $10,000 of student loan forgiveness per borrower. However, despite rumors of various forgiveness or cancellation proposals, Biden has not yet introduced such a program. This doesn’t mean other efforts aren’t in the works, though — including the following, according to the website Saving For College:
- The Department of Education announced on August 19 that over 300,000 borrowers who have a total or permanent disability will receive $5.8 billion in forgiveness, and would begin identifying borrowers eligible for the automatic discharge by matching data from the Social Security Administration.
- An overhaul of the Public Service Loan Forgiveness program was announced to “restore the promise of PSLF,” according to the Education Department factsheet. A key aspect of the development is a one-time waiver that will allow payments from all federal student loan programs, including those not previously eligible, to be counted toward progress for Public Service Loan Forgiveness.
- Congress also took action concerning the tax treatment of student loan debt forgiveness. The American Rescue Plan Act of 2021 included tax-free status for all student loan forgiveness and debt cancellation through December 31, 2025.
Medical debt forgiveness — and more
Although student loan debt forgiveness is still in the works, there’s positive movement on the medical debt forgiveness front. In March 2022, all three major credit bureaus formally and jointly announced reporting changes that would erase nearly 70% of medical collection debt from consumer credit reports.
The following changes officially take effect on July 1, 2022:
- Paid medical collection debt will no longer appear on consumer credit reports, and
- The time period for unpaid medical debt to appear on credit reports will increase from six months to one year.
Effective March 30, 2022, medical debt of less than at least $500 will no longer be reported to collection agencies or on credit reports. The minimum threshold may change prior to the official roll-out date, although it will not be less than $500.
Data furnishers reporting medical accounts won’t necessarily have to change their methods of reporting, at least related to the classification and status codes. Instead, the changes will apply to what is reported, and when. For the most part, these reporting changes will only impact collection agencies and debt buyers.
We know you have questions …
There’s no doubt that COVID-19 and the CARES Act changed our financial landscape, and its effects will continue to ripple through the credit reporting world for years. If you have questions about reporting credit to the bureaus today, reach out to the experts at Datalinx for a free consultation.
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