On August 24th, 2022, President Biden released his comprehensive, wide-scale plan for student loan forgiveness. This student loan relief package has nearly $4 billion dollars in aid and is the largest student loan forgiveness package to date.
The three-part package was designed to lift the financial burden of student loan debt for millions of Americans, primarily middle-class federal student loan borrowers.
From new changes within the Public Service Loan Forgiveness program, to loan payment refunds, to debt cancellation, there’s quite a lot of information you don’t want to miss.
Keep reading for a complete guide to Biden’s student loan relief.
What’s Inside?
What Does the Plan Include? → Debt Cancellation, Revamping PSLF and Cutting Monthly Payments in Half, Reducing the Cost of College • Who is Eligible? • How to Apply for Relief • How to Get a Refund on Payments • When Will Debt be Forgiven? • Is Forgiveness Taxable? • Key Takeaways
What Does Biden’s Student Loan Plan Include?
Biden’s student loan relief plan includes three parts:
- Up to $20,000 in Debt Cancellation for Qualifying Individuals
- Revamping the Public Service Loan Forgiveness Program and Halving Monthly Undergraduate Loan Payments
- Reducing the Cost of College and Keeping Institutions Accountable
Up to $20,000 in Debt Cancellation for Qualifying Individuals
Depending on your income and Pell Grant eligibility, federal loan borrowers can receive debt cancellation of up to $20,000.
Income Requirements: Federal loan borrowers must make an individual income of less than $125,000 or $250,000 for joint incomes.
Pell Grant Eligibility:
- If you are/were a Pell Grant recipient: You are eligible for $20,000 in debt cancellation.
- If you are/were not a Pell Grant recipient: You are eligible for $10,000 in debt cancellation.
To have a smooth transition back to loan repayment, the pause on federal student loan repayments has been extended to December 31st, 2022.
Key Takeaways:
- Only federal borrowers who have an income less than $125,000 (or a joint income of less than $250,000) are eligible for student loan forgiveness.
- Pell Grant recipients are eligible for $20,000 in loan forgiveness.
- Non-Pell Grant recipients are eligible for $10,000 in loan forgiveness.
- The pause on federal student loan repayment was extended to December 31st, 2022.
Revamping the Public Service Loan Forgiveness Program and Halving Monthly Undergraduate Loan Payments
Under Biden’s three-part student loan relief package, the administration is cutting some monthly undergraduate loan payments in half and also improving the Public Service Loan Forgiveness (PSLF) program.
Temporary Changes to Public Service Loan Forgiveness (PSLF)
If you are a federal borrower who has worked at a nonprofit, in the military, or at a federal, state, tribal, or local government, you may be eligible to receive loan forgiveness.
While Biden’s new plans for the Public Service Loan Forgiveness program are unclear as of now, there are previous, temporary changes that should be accounted for.
Time-limited changes have been made to the Public Service Loan Forgiveness (PSLF) program that will only apply until October 31st, 2022. These changes have temporarily made it easier for borrowers who have worked as public servants to receive loan forgiveness through PSLF.
| Previous Rules | New Rules |
| Only federal Direct Loans qualify for PSLF. | Direct, FFEL, and Perkins Loans qualify for loan forgiveness. Federal loans that are not Direct loans must be consolidated to be eligible. |
| You must be under a 10-year Standard Plan or an income-driven repayment plan to qualify for PSLF. | Repayment under any repayment plan counts for loan forgiveness. |
| You must have made on-time payments to qualify for PSLF. | Late and partial payments can qualify for PSLF. Payments before consolidation also qualify. |
| You must have made 10-years worth of monthly payments to receive loan forgiveness. | You can still apply to PSLF even if you have not made 10-years worth of payments (or 120 monthly payments). You must have worked for a qualifying employer during your repayment period to earn credit for payments made. You will not receive loan forgiveness until you make 120 payments. |
| You must have worked for a qualifying employer at the time of your PSLF application. | You can still receive forgiveness if you were not employed by a qualifying employer at the time of your PSLF application. |
| If you received Teacher Loan Forgiveness, the period of service does not count for PSLF. | The period of service that you received Teacher Loan Forgiveness for also counts for PSLF. |
Despite the temporary changes to the PSLF program, the following still remain the same:
- You must have made 10-years worth of monthly payments to qualify for loan forgiveness. While you can still apply to PSLF without having made 10-years worth of monthly payments, you will not receive credit until you meet the quota.
- Periods of loan default and in-school deferment do not qualify for PSLF.
- You must have been employed by a qualifying employer to be eligible for PSLF.
Note: Because these changes are only temporary, you must submit an application before October 31st to have your student loan canceled under these interim qualifications. While President Biden has proposed additional reform of this program, it is unclear what exactly will be done.
Who Qualifies for PSLF?
| Example 1 | Example 2 | |
| Scenario | Robert is a full-time employee at an NGO that specializes in providing educational supplies to under-served elementary schools. He’s been working at this NGO for about five years. Robert had to take out federal Direct Loans during his undergraduate study and has been making payments throughout his career. Not all of his payments were on time or in full. | Wanda is an orthopedic surgeon who has been working at the North Carolina Orthopedic Clinic for seven years. She took out federal Perkins loans to pay for her undergraduate education and federal Direct loans to pay for medical school. Wanda has been making payments straight out of medical school and the entirety of her career, which has been roughly ten years of payments. |
| Should They Apply for PSLF? | Yes, Robert can and should apply for the Public Service Loan Forgiveness program. Under the time-limited changes to the program, Robert qualifies to receive forgiveness for any past payments, even if they were not on time or in full. Because Robert has been making payments for five years, he will need to make five years worth of monthly payments before he can receive loan cancellation. | Yes, Wanda can and should apply for the Public Service Loan Forgiveness program. First, she will have to consolidate her Perkins loans and Direct loans through the Direct consolidation loan program. Then, Wanda can count her ten years of payments for PSLF and receive loan forgiveness. |
Halved Monthly Undergraduate Loan Payments
If you are a low-income federal borrower, you may qualify to have your monthly undergraduate loan payments cut in half.
The U.S. Department of Education is proposing a new income-driven repayment plan that caps monthly undergraduate loan payments at 5% of the borrower’s discretionary income. Your discretionary income is your income after any tax deductions or other mandatory charges. So, if you’re a low-income borrower whose discretionary income is $2,500, your monthly loan payment cannot exceed $125 (125 is 5% of $2,500).
Under this new income-driven repayment plan, undergraduate student loan payments will be lowered by more than $1,000 for current low-income borrowers and future borrowers.
Key Takeaways:
- The U.S. Department of Education is creating a new, income-driven repayment plan that caps monthly undergraduate loan payments at 5% of the borrower’s discretionary income.
- There are new, temporary changes to the Public Service Loan Forgiveness (PSLF) program that make it easier for public servants to receive loan forgiveness through PSLF.
Reducing the Cost of College and Keeping Institutions Accountable
President Biden has signed the American Rescue Plan, a legislation that increases the maximum Pell Grant and provides almost $40 billion to colleges and universities for emergency financial aid.
Furthermore, to keep college costs low and hold institutions accountable for hiking up tuition, the Department of Education has reinstated the enforcement unit in the Federal Student Aid office to do the following:
- Publish an annual watch list of educational institutions with the worst debt levels
- Propose a new rule that holds programs accountable for leaving their graduates with unpayable debt
- Request institutional improvement plans from institutions with concerning student debt outcomes
Key Takeaways:
- Biden has signed for the largest increase of Pell Grants in over a decade and for nearly $40 billion in financial aid for colleges and universities.
- The U.S. Department of Education has reinstated their enforcement unit to hold colleges accountable for hiking up college costs.
Who is Eligible for Biden’s Student Loan Relief?
Federal borrowers whose individual income is less than $125,000 (for married couples, joint income should be less than $250,000) are eligible for Biden’s student loan cancellation.
→ For Pell Grant recipients: up to $20,000 in debt cancellation.
→ For non-Pell Grant recipients: up to $10,000 in debt cancellation.
Federal borrowers who work/worked as public servants and qualify for the Public Service Loan Forgiveness (PSLF) program are eligible for student loan relief.
How to Apply for Biden’s Student Loan Relief
For federal borrowers who are currently on an income-driven repayment plan, loan forgiveness may happen automatically. This is because the Department of Education already has your income on file.
Others will need to complete an application to certify their income. The U.S. Department of Education has not yet released an application for President Biden’s loan forgiveness program. However, Bharat Ramamurti, the deputy director of the White House National Economic Council, stated that the application will be released in early October. Once the application is made available to the public, it should be submitted by November 15th so that your debt is forgiven before the payment pause ends.
How to Request a Refund of Payments Made During the COVID-19 Pandemic Forbearance
Since March 2020, borrowers have not been required to make federal student loan payments, nor have their loans accrued any interest, due to the federal forbearance. During this time, many borrowers took advantage of these benefits, making substantial payments on their loans, some paying off their balances entirely. However, if borrowers knew their debt would be forgiven, many would have refrained from making such payments.
So, the U.S. Department of Education is allowing borrowers to request a refund for any payments made “during the payment pause (beginning March 13, 2020) [by contacting] your loan servicer to request that your payment be refunded.”
For example, let’s say you had $12,000 in federal student debt when the COVID-19 pandemic forbearance began in March 2020. You paid back $6,000 from that period of time up to now, leaving you with $6,000 in debt. If you contact your loan servicer for a refund, you will receive your $6,000 back. In turn, your student debt balance goes back up to $12,000.
→ If you are a Pell Grant recipient who makes less than $125,000 in a year, you are eligible to receive up to $20,000 in loan forgiveness. You apply for loan forgiveness and your $12,000 in student loan debt is wiped out, leaving you with no debt.
→ If you make less than $125,000 in a year but were/are not a Pell Grant recipient, you are eligible to receive up to $10,000 in loan forgiveness. You apply for loan forgiveness and your $12,000 is cleared by $10,000, leaving you with $2,000 in debt.
To receive a refund for any payments made during the forbearance, contact your loan servicer and request a refund.
When Will My Student Debt Be Forgiven?
Borrowers can expect to see their student loan debt forgiven within four to six weeks of submitting their application. For federal borrowers who are already on an income-driven repayment plan, loan forgiveness may happen automatically depending on the timeline of federal loan relief.
Is Biden’s Student Loan Forgiveness Taxable?
While the Biden administration stated that its loan forgiveness program won’t be considered federal taxable income, this provision does not apply at the state level. It is within the jurisdiction of individual states to decide whether loan forgiveness is taxable income.
In fact, the Tax Foundation identified 6 states that are predicted to count loan forgiveness as taxable income. While the list is updating frequently as states enact temporary tax exemptions, the following are currently said to be taxing it:
- Arkansas
- Indiana
- Minnesota
- Mississippi
- North Carolina
- Wisconsin
Closing Thoughts From the Nest
Biden’s student loan relief package is full of new updates for federal borrowers, primarily public service workers and low-income individuals.
| Key Takeaways |
| Federal borrowers who earn less than $125,000 per year are eligible for student loan forgiveness. Individuals who have received Pell Grants can receive up to $20,000, while individuals who did not receive Pell Grants can receive up to $10,000. |
| The Department of Education is proposing a new income-driven repayment plan for low-income federal borrowers. The new income-driven repayment plan will cap monthly undergraduate loan payments at 5% of the borrower’s discretionary income. |
| President Biden has signed the American Rescue Plan, a legislation that increases the maximum Pell Grant and provides almost $40 billion to colleges and universities for emergency financial aid. |
| There are new changes to the Public Service Loan Forgiveness program that make receiving loan forgiveness easier for public servants. |
| You can receive a refund for any loan payments made from the beginning of forbearance (March 2020) until now by contacting your loan servicer. |
| Loan forgiveness may be taxable, depending on the state that you live in. |
| Applications for loan forgiveness will come out in early October for federal borrowers whose income is not on file. It is recommended that applications are submitted before November 15th, 2022. |