Student Debt Relief Plan
The Biden administration announced the Student Debt Relief Plan a month or two ago, and with it came plenty of attention.
There's been a lot of talk as to whether it's fair, as it directs public funds to help some, but not others.
I'm not here to add to that debate.
But I do want to provide a quick synopsis of what the Plan contains, especially now that the forgiveness application has been released.
See below for a (relatively quick) rundown of the following topics:
$10K/$20K forgiveness
Extension of loan payment freeze
Refund of payments made since March 2020
Public Service Loan Forgiveness changes
New IDR plan
Legal challenges
Gimme more
(Note: All of the below apply ONLY to Federal student loans. Private student loans don't qualify.)
$10K/$20K forgiveness
You may be eligible for $10,000 of your student loan debt to be forgiven if you meet the following criteria:
The loans are Federal loans.
The loans were funded by 6/30/2022 (it’s ok if a loan was consolidated after this date).
Your AGI (adjusted gross income) on your 2020 or 2021 tax return was less than:
$250,000 if you filed Married Filing Jointly, Head of Household, or Qualifying Widow(er);
$125,000 if you filed Single or Married Filing Separately.
If you received a Pell Grant while at school, and the rest of the criteria above is met, you may be eligible for an additional $10,000 of forgiveness, for a total of $20,000.
If you’re curious as to whether you received a Pell Grant:
Log into your account on studentaid.gov.
On the main page, there's a section titled "My Aid" which should list all your loans and grants (including Pell Grants).
NOTE: Forgiveness is not taxable at the Federal level right now (yay!). But your state might assess tax on the forgiven amount. For example, if your state will assess this tax, and your state tax rate is 9%, and you have $10,000 forgiven, you may owe $900 extra in state income tax when you file your taxes. So its best to plan ahead for that.
Apply ASAP!
Here’s the link to the application for this forgiveness: https://studentaid.gov/debt-relief/application
Information that needs to be provided on the application: Name, Social Security Number, date of birth, phone number, and email address.
Easy peasy.
You may need to provide verification of your income later, but you’ll be contacted if that’s the case.
I recommend that you apply as soon as possible. That’s because there are active lawsuits trying to stop the forgiveness from going through. If you get the forgiveness before (if) it’s stopped, you may be able to keep the proceeds.
Once the application is submitted, the forgiveness is supposed to be applied within 4-6 weeks (unless the courts block it).
Extension of loan payment freeze
The payment freeze on Federal student loans was extended until the end of the year. Interest will start accruing again on 1/1/2023 and your first payment will be due sometime in January, likely with the same required minimum amount as before the freeze was put in place.
Refund of payments made since March 2020
If you've made any payments after 3/13/2020, you can apply for a refund by contacting your loan servicer.
You might consider doing this if you've made payments AND you're likely to get the full remaining amount forgiven. In that case, it would basically be free money, as you'd receive a refund for those payments and then have the entire thing forgiven.
However, the Department of Education may limit forgiveness to the outstanding balance as of the date of the announcement, so this loophole may be closed.
Public Service Loan Forgiveness changes
If you have worked, or are on track to work, for an eligible employer (generally, governments and nonprofits) for 10 years or more, you may be eligible for Public Service Loan Forgiveness (“PSLF”).
The details are too detailed :-) to get into here, but there have been some changes made to allow more people to qualify.
And if you have loans with different payment histories (for example if you took out undergrad loans and then went back to school later and got grad loans), you may be able to consolidate those loans together and have the newer loans receive the payment history of the older loans, getting you that much closer to the 10-year mark for PSLF.
This is a BIG deal and will literally mean tens (or even hundreds) of thousands of dollars of benefit for certain people.
This one has a deadline though, so if it may affect you, make sure you research it and apply by 10/31/2022.
Here’s a good article from Student Loan Planner that goes into the details: PSLF Waiver – Latest Updates + How to Qualify
New IDR plan
One way to pay down student loans is to enter into an Income-Driven Repayment (IDR) plan.
There are already FIVE versions of IDR plans, with each one having its pros and cons. It's already plenty confusing.
I know, let's add a SIXTH version!
Yes, it may be even more confusing, but this proposed plan really does look to be better than the others.
Again, too many details to get into (and much of it hasn’t been finalized), but it should allow most borrowers to lower their monthly payments, potentially by up to a few hundred dollars per month.
The new plan is scheduled to be launched in July 2023. We’ll learn more about this as that date approaches.
Legal challenges
If you have Federal student loans, there's likely some good news for you above.
But ... will it survive?
There are several lawsuits currently making their way through the courts, trying to stop much of this from happening. If the courts rule against it, the whole thing could be thrown out, or just pieces of it, or none of it. We just don't know.
We'll see.
Gimme more
Can’t get enough of this stuff?
If you'd like to dig into the details that are too detailed for the amount of detail that I've detailed, check out these articles:
Happy reading!