On August 24, 2022, President Biden announced a student debt relief plan which includes the following:
Another extension of the pause to repay student loans
Starting in March 2020, as a result of one of the COVID relief measures, federal student loan borrowers received temporary relief from student loan payments. This relief has been extended multiple times and under this student debt relief plan is set to be extended again through December 31, 2022. This is to allow time for students to enroll in the debt relief programs, if eligible.
For those who will not be claiming debt relief, student loan payments will resume in January 2023.
Debt Relief of up to $20,000 or $10,000 – Pell Grants and Non-Pell Grants
Eligible borrowers can claim debt relief up to a cap based on the type of student loan they have.
- Up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education
- Up to $10,000 in debt cancellation to non-Pell Grant recipients
Eligible borrowers for this debt relief include:
- Individuals with adjusted gross income less than $125,000 if single or $250,000 if married filing jointly.
Borrowers who are or can be claimed as a dependent by another taxpayer will be eligible for relief based on the income of the parents rather than their own income.
Note that debt relief is provided up to the lesser of the applicable cap or the total loan amount. Example: a borrower of a non-Pell Grant with a loan amount of $8,000 has a debt relief cap of $10,000 but their debt forgiveness will be $8,000, because the loan amount is lower than the applicable cap. Had their loan amount been $15,000, their debt relief would be limited to $10,000, and they would continue to owe the additional $5,000.
Debt relief for those who made payments toward their loan during the pandemic
Those who paid down their loan during the pandemic (made payments after March 13, 2020) below the debt relief cap (either $20,000 for Pell-Grants, or $10,000 for non-Pell Grants) are eligible for a refund of the payments that would have been eligible for debt relief had the payments not been made. For borrowers in this situation, the refund will be automatic.
Example 1: an eligible borrower of a qualifying non-Pell Grant had a loan balance of $9,000 and paid $1,000 after March 13, 2020, reducing their loan balance to $8,000. They will automatically be issued a refund of the $1,000, increasing their loan account back up to $9,000, and will then be eligible for loan forgiveness of the $9,000.
Example 2: an eligible borrower of a qualifying non-Pell Grant had a loan balance of $15,000 and paid $1,000 after March 13, 2020, reducing their loan balance to $14,000. They are eligible for loan forgiveness of up to the cap of $10,000. They will not be eligible for an automatic refund of the loan payments they made during the pandemic because this is in excess of the debt relief cap. However, they can request a refund by contacting their service provider.
Borrowers who paid off their loans completely during the pandemic (payments made after March 13, 2020) are also eligible for a refund. These refunds will not be issued automatically and borrowers will need to call their loan service provider to request a refund prior to applying for forgiveness.
Example 3: an eligible borrower of a qualifying non-Pell Grant had a loan balance of $15,000 and paid off the entire amount after March 13, 2020. They will need to call their loan service provider to request a refund of $10,000 and then apply for debt relief for the $10,000. If a refund is requested for the entire $15,000 the borrower would be eligible for debt relief for the $10,000 cap and the $5,000 excess would be considered an outstanding loan balance to be paid back.
Eligible debt that can be forgiven under this program
The following types of federal student loans with an outstanding balance as of June 30, 2022, are eligible for relief:
- William D. Ford Federal Direct Loan (Direct Loan) Program loans
- Subsidized loans
- Unsubsidized loans
- Parent PLUS loans
- Graduate PLUS loans
- Federal Family Education Loan (FFEL) Program loans held by ED or in default at a guarantee agency
- Federal Perkins Loan Program loans held by ED
- Defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized, parent PLUS, and graduate PLUS, and Perkins loans held by ED)
- Consolidated loans (as long as all of the underlying loans that were consolidated were first disbursed on or before June 30, 2022)
Loans that are not eligible for forgiveness under this program
- Private education loans are not eligible for debt relief and cannot be consolidated into a Federally managed student loan to be eligible.
Unknown if the following loans will be included in relief
- Privately held Federal Family Education Loans (FFEL) may be eligible for relief but this is still to be determined. If the FFEL loan is eligible to be consolidated into a Direct Loan, this step can be completed first to then be eligible for loan relief. Note FFEL loans cannot be consolidated into a Direct Loan if there was already a spousal consolidation.
- Privately held Perkins Loans may be eligible for relief but this is still to be determined. If a borrower has this type of loan, they can consolidate it into a Direct Loan to be eligible for relief.
Loans that can be consolidated
Most federal student loans are eligible for consolidation including the following:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- PLUS Loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students (SLS)
- Federal Perkins Loans
- Federal Nursing Loans
- Health Education Assistance Loans (HEALs)
- Some existing consolidation loans
Note that Private education loans and Spousal Consolidation Loans are not eligible for consolidation.
When and How to Apply
Borrowers for whom the Federal Student Aid program already has income data for, no application will be necessary and relief will be applied automatically. If it is determined that a borrower is eligible for automatic relief, they will be notified by email and text.
For all other borrowers, which is expected to be most borrowers, an online form is required to be submitted by December 31, 2023 to be eligible for debt relief. This form is expected to be available by early October 2022. To be notified when the application is open sign up here.
It is recommended for all borrowers with loans from the U.S. Department of Education to do the following to ensure they are receiving updates:
- Log into their StudentAid.gov account and make sure any contact info is up-to-date. If no StudentAid.gov account has been setup, create an account or call 1-800-433-3243 for assistance.
- Sign up to receive text alerts.
- Ensure the loan service provider has the most current contact information. If the service provider is unknown, this information can be obtained by logging into your account and going to your dashboard.
We recommend everyone who is eligible to apply to file their application prior to November 15th, to ensure relief is applied before the payment pause expires on December 31, 2022.
Forgiveness Process After Application
When an application is submitted, the borrower will see a page online confirming the form was submitted and receive a confirmation email. After an eligible borrower completes an application, they can expect relief within 4-6 weeks.
If a borrower has multiple loans, the Federal Student Aid program will determine how relief gets applied to which loans, using a predetermined ordering system. When the determination has been made, the loan service provider will notify borrowers when relief has been applied to their account with details on how the relief was applied.
If there is a remaining loan balance after the debt relief has been applied, the remaining balance will be re-amortized and the monthly payment amount recalculated. The loan service provider will communicate the new monthly payment amount to the borrower.
Is Debt Relief Taxable?
This one-time student loan debt relief will not be subject to federal income taxes. State and local taxes may apply based on each state’s determination.
Debt Relief of All Student Debt – Public Service
Borrowers who have worked in public service may be eligible to have full debt cancellation up to the entire amount of their student debt under the Public Service Loan Forgiveness (PSLF) program.
Eligible borrowers for this debt relief include:
- those who have worked for 10 years or more (even if not consecutively) for non-profits, the military, or federal, state, Tribal, or local government. E.g. full-time employment in a public school system would meet eligibility requirements, regardless of position (teacher, administrator, support staff, etc.)
- Full time volunteers in the AmeriCorps or Peace Corps are eligible under the PSLF program but note no other full-time volunteer service is eligible.
Eligible debt that can be forgiven under the PSLF program
- Direct Loans and Direct PLUS Loans that are not in default are eligible for PSLF. If Direct PLUS Loans were made to parents, they may need to be consolidated before they can qualify for forgiveness under the PSLF program.
Loans that are not eligible for forgiveness under the PSLF program
- Direct Loans that are in default must have the default amount resolved before the loan can be eligible for the PSLF program.
- Private education loans are not eligible for the PSLF program and cannot be consolidated into a Direct Consolidation Loan to qualify.
When and How to Apply
To qualify for full debt relief under the PSLF program, eligible borrowers must apply before October 31, 2022. Click Apply Now to get to the application process for the PSLF program.
Proposed New Student Loan System
The plan also proposes the following:
- A new rule to tie future loan repayment amounts to be capped at 5% of the borrower’s discretionary income. This is a decrease from the current 10% currently used for most income-driven repayment plans.
- Raising the amount of income that is considered non-discretionary income and therefore protected from repayment plans.
- Forgiving loan balances after 10 years of payments, for borrowers with loan balances of $12,000 or less. This is a decrease from the current 20-year rule.
- Covering unpaid monthly interest. This is to ensure no borrower making the required monthly payments will have their loan balance increase due to interest accrued. This includes when the monthly required payment is $0 due to income being below the requirement to make a payment.