If you have student loans, you’re likely aware of the recently announced loan forgiveness. But the Student Loan Debt Relief Plan contains four distinct changes with huge ramifications for current and future borrowers.
Let’s dive into these four key provisions:
Loan forgiveness of $10,000 to $20,000
The cornerstone of Biden’s student loan relief is loan forgiveness up to $10,000. For borrowers who received a Federal Pell Grant, the amount of forgiveness increases to $20,000.
Who receives loan forgiveness?
Only borrowers with income below $125,000 (single tax filers) and $250,000 (married filing jointly and head of household) are eligible to receive loan forgiveness. It was noted by the Biden Administration that your income in either 2020 or 2021 will be used for qualification.
For example, if you are a single tax filer with an adjusted gross income of $130,000 in 2020 and an adjusted gross income of $120,000 in 2021, you would qualify because you were under the income limit in at least one of these years.
Lastly, it’s likely this income threshold uses adjusted gross income (AGI) rather than taxable income to determine eligibility.
How do I apply for loan forgiveness?
If you have your 2020 or 2021 income on file with the Department of Education (e.g., if you are on an income-driven repayment plan and have provided this information already), then forgiveness will be processed automatically! If you have not provided this information, an application will need to be submitted. This application should be available by the end of the year, likely in early October.
Be aware–there is still the threat of legal challenges to this loan forgiveness.
One final extension to the pause on loan payments
After nearly three years, the student loan freeze is likely to end on December 31, 2022. One (likely) final extension to the temporary moratorium on payments (and 0% interest) was added as part of Biden’s plan.
This means that borrowers should plan to resume student loan payments starting January 2023.
Refunding of payments made during the freeze
Since the student loan freeze began, borrowers who continued to make payments can get a refund for any payments made during the freeze.
This is important for a borrower who is eligible for the $10,000 or $20,000 loan forgiveness but paid down his/her balance below these levels during the payment freeze. You can potentially get your money back, get the proper amount forgiven, and then pay off any remaining amount.
To request a refund, contact your loan servicer.
Temporary Public Service Loan Forgiveness waiver
Public Service Loan Forgiveness (PSLF) is a program designed to forgive student loans for those who have spent ten years working in a public sector or nonprofit job. However, many borrowers applied for loan forgiveness through PSLF only to be rejected due to being on the wrong repayment plan or having the wrong loan type.
In October 2021, the Department of Education made sweeping changes to PSLF to address these issues. They enacted a one-year window for borrowers to apply their past payment history towards PSLF, even if they were made under the wrong repayment plan, had an ineligible loan, or had payments that weren’t considered to be paid on time.
For example, a borrower under the old Federal Family Education Loan (FFEL) Program would otherwise have been ineligible for forgiveness under PSLF. Under this temporary waiver, he can consolidate his FFEL loans into a Direct Consolidation loan and certify his past employment.
Deadline for the temporary PSLF waiver
This temporary waiver ends on October 31, 2022. This means you need to act soon if you think you will benefit from Public Service Loan Forgiveness.
To see if you qualify, check out your next steps here.
PSLF now includes work religious organizations
Separately, in July 2021, the Department of Education expanded the program to include work in a religious organization. Previously, religious work was excluded.
New Income-Driven Repayment plan
The final change brought on by the Biden plan involves a brand new income-driven repayment (IDR) plan.
Currently, four separate IDR plans allow borrowers to base their monthly student loan payments on their income. Each plan has different eligibility, interest subsidies, and payment calculations. Additionally, all allow for any remaining loan balance to be discharged after 20 or 25 years.
The new yet-to-be-named IDR plan is the most generous in terms of interest subsidies and payment calculation. In addition, the new IDR plan avoids a rising loan balance for borrowers whose monthly payments are smaller than the amount of interest being accrued.
While the final details are yet to be revealed (who is eligible, what loan types are eligible, etc.), we should know more this fall as the program will go into effect in July 2023.
What you can do now
If you or a loved one has student loans, now is the time to do your own personal student loan assessment. Ask yourself the following questions:
- Does my 2020 or 2021 adjusted gross income qualify you for the $10,000 or $20,000 loan forgiveness? If so, do I need to apply once available?
- Should I qualify for the PSLF waiver because of ineligible loan types, repayment plans, or late/short/lump-sum payments?
- Am I prepared to resume monthly payments starting in January 2023?
- Did my loan servicer change since I last made payments?