What You Need to Know About Biden’s Student Loan Relief Plan

**As of November 22, 2022, the Department of Education has put applications for this program on hold. The student loan payment pause has been extended until the U.S. Department of Education is permitted to implement the debt relief program or litigation is resolved. If the program has not been implemented and the litigation has not been resolved by June 30, 2023 – payments will resume 60 days after that. For the latest updates visit studentaid.gov.**

To address the ongoing student loan debt crisis, President Biden announced a proposal for a new student loan relief plan on Wednesday, August 24, 2022. The plan includes debt forgiveness for certain borrowers and extends the pandemic-related payment and interest pause on federal student loans. Here are answers to some frequently asked questions about how it will work.

What are the details of the proposed student loan forgiveness plan?

Under the new plan, the Department of Education will provide:

• 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

Only people who earned less than $125,000 as an individual or $250,000 as part of a married couple in 2020 or 2021 will be eligible for forgiveness.

Additionally, the pause on federal student loan repayment has been extended. For the latest updates on the status of the student loan payment pause, visit studentaid.gov.**

Which types of loans qualify?

Only federal student loan debt is eligible. If you have a federal “Direct Loan” – the most common type of student loan – issued before June 30, 2022, you will be able to apply to have your outstanding balance reduced. All direct loans are eligible, including loans to parents and graduate students. Private student loans are not eligible.

 The Department of Education is assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by The Department of Education, including FFEL Program loans and Perkins Loans. For more information, visit http://studentaid.gov.

Are graduate student loans eligible?

Yes, graduate student loans are also eligible under the current proposed plan. Parent PLUS loans, which are federal loans for parents of undergraduate students, are also eligible under the plan.

Who qualifies for loan cancellation?

Individuals who are single and earn $125,000 or less will qualify for the $10,000 in debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your income is $250,000 or below. If you received a Pell Grant and meet these income requirements, you could qualify for an extra $10,000 in cancellation, for a total of $20,000. Eligibility will be based on your adjusted gross income.

What should I do if I qualify?

First, make sure that your loan servicer knows how to contact you. Check that your contact details – postal address, email, and your mobile phone number are up to date. If/when your loan servicer issues you instructions, be sure to follow them in a timely manner.

If you’re already enrolled in an income-driven Repayment (IDR) plan and have submitted your most recent tax return to certify that income, your servicer and the Education Department know how much you earn and you should not need to do anything else.

However, you should still keep an eye out for guidance from your loan servicer. According to the Department of Education, close to eight million borrowers “may” be eligible to get this automatic relief. For those not enrolled in an IDR, the White House is planning to make an application available by the end of the year.

I’m not sure who my loan servicer is. How do I find out?

If you don’t know who your servicer is, you can find out via instructions on the Department of Education’s web page.

Many Americans have more debt than $10-$20K. What are their options going forward?

For the many Americans with more student loan debt, they may want to consider applying for Public Service Loan Forgiveness (PLSF), or consider refinancing a portion or all of their remaining loans.

Our experts at GradFin offer counseling services to help students understand their options for applying for PSLF and depending on their acceptance, understanding how refinancing may assist them in paying down loans faster with a different interest rate.

A GradFin student loan expert can recommend loan providers based on the borrower’s financial situation and loan amount. Laurel Road can offer students competitive refinancing rates along with financial education to assist them in understanding the impact of their loan on their overall budget. Given the rising rate environment, especially borrowers with private student loans may want to check their rates if they are considering refinancing in the near future.

If you have private student loans and your credit score or finances have improved, you may be able to qualify for a lower rate or shorten your loan term which could help you save long term or help you pay off debt faster. In some cases, refinancing a federal student loan during the forbearance period can be a way to generate long-term savings or lower monthly payments depending on your budget.

For healthcare professionals, such as physicians, dentists, and nurses who may have more substantial student loan debt, lenders like Laurel Road may offer special options to help you manage student loan repayment.

To understand your options regarding forgiveness and any other remaining student loans, sign up for a free loan consultation with one of the GradFin advisors or visit gradfin.com for more information.

I’m enrolled in an Income-Driven-Repayment (IDR). What does this mean for me?

Stay tuned for more information here. President Biden is proposing a rule to create a plan that will substantially reduce future monthly payments for lower- and middle-income borrowers. If you qualify, this change could potentially lower your payments as well.

Earlier this year, the Education Department said it would make changes to address past inaccuracies to assist borrowers enrolled in IDR plans, including a one-time revision that would make more payments count toward loan forgiveness. That includes:

• Any months in which borrowers made payments will count toward I.D.R., regardless of the repayment plan
• All payments made on loans that were later consolidated will count
• Months spent in deferment before 2013 (with the exception of in-school deferment) will count
• Forbearances of more than 12 consecutive months and 36 cumulative months will also count toward forgiveness, under both IDR and Public Service Loan Forgiveness (PSLF)

I’m already enrolled in Public Service Loan Forgiveness (PSLF). What does this mean for me?

Biden’s proposed debt cancellation plan should happen independently of any process that you’re already going through to get partial or complete loan forgiveness via Public Service Loan Forgiveness (PSLF). If you’re currently enrolled in PSLF, under the extended federal student loan payment pause, your paused payments will count toward the total required payments for forgiveness, i.e., you will get credit as though you made monthly payments, as long as you meet all other qualifications. For more updates on PSLF, go to https://studentaid.gov/.

While the Biden Administration also plans to propose additional reforms to the Income-Driven Repayment (IDR) program in 2023, there are currently no changes for those enrolled in the PSLF program.

Are there any tax implications?

At the federal level, no. This debt relief will not be treated as taxable income for federal income tax purposes. Because student loans are debts that are intended to be repaid with interest, they are not taxable income and do not need to be reported as such on your tax return. You can still deduct student loan interest on your income tax return.

However, a state tax implication is possible in some states. Certain states may count the canceled debt as income, adding a potential state tax liability.

What are my options if I have private student loans?

If you have student loans from a private lender, you still have options to help manage your debt burden. Refinancing private student loans may be a smart move if one of the following apply to your situation:

• A lower rate or shorter term is available – If interest rates have fallen since you took out your loans, a refi could lower your payments. Or if you have more income coming in, you may be able to pay off your loans faster.
• Current fixed interest rates are lower than your variable-rate loan ­–
  Switching to a lower fixed rate could save you money over the life of your loan.
• Your finances have improved – If your credit score or income has recently increased, you may be eligible for a better interest rate.
• If interest rates are expected to rise – Refinancing your variable rate loans could help you lock in a lower rate before that happens.

Check your rates today to see if a student loan refinance could help ease your mind and take some of the sting out of student loan debt. Learn more here.

I’m still a student. Do I qualify?

Yes. However, note that if someone claims you as a dependent when filing taxes, your eligibility will be based on that person’s income, not yours.

Are more announcements or changes to the program expected in the future?

President Biden is proposing rules to create a new plan to reduce future monthly payments for lower- and middle-income borrowers. The rules are complex, but generally the rule calls for payments to be calculated based on earnings and readjusted each year. For more information about the current student loan relief announcement, visit https://studentaid.gov/.