Everything We Know About Student Loan Forgiveness Right Now

It happened, it finally happened. President Biden announced there will be student loan forgiveness. There are so many looming questions but there is a lot of information we can provide to you right now. Before we dive in it’s important to note that this space is ever-evolving. I’m going to break down the facts into two spaces: 

  1. 1.What we know for sure 

2.Proposed changes to student loans and repayment plans 

What we know for sure 

  • The administrative forbearance has been extended through December 31, 2022
    • This means borrowers have four additional months of forbearance before entering repayment. The White House explicitly stated this will be the last time the forbearance will be extended. 
  • There are income limits on forgiveness
    • Single borrowers must make less than $125k in order to qualify for student loan forgiveness. This amount doubles to $250k for borrowers who file their taxes married filing jointly. 
  • The amount of forgiveness depends on whether you were a Pell Grant recipient 
    • A Pell grant recipient is entitled to up to $20k in forgiveness 
    • All other borrowers are entitled to up to $10k in forgiveness

Proposed Changes

  • Increase the amount of income considered “non-discretionary” 
    • Currently, discretionary income is any amount more than 150% of the federal poverty line for your household size. The administration is proposing increasing this amount to 225% of the federal poverty level which is in line with a $15/hour wage. 
  • Forgive the debt of borrowers who owe less than $12,000 (at origination) after 10 years
    • The majority of borrowers can have their student loans forgiven after 20 years of repayment. 
  • Eliminate the growth of balances while in repayment
    • Depending on the required monthly payment and interest rate, some borrowers can actually see their balances increase. The DoE has proposed covering the unpaid interest which ensures a borrower’s balance never increases efficiently making all student loans partially subsidized. 
  • Borrowers on Income-Driven Repayment will see a lower payment when payments resume 
    • Undergraduate loans will require 5% of your discretionary income instead of the current 10%
    • At this time, the department of education defines discretionary income as the amount of income you make above 150% of the federal poverty line for your household size. 
      • Example: A single parent with one child earns $35,000/year. Their required monthly payment currently would be ~$63. This proposal would reduce this monthly payment to ~$31. 

FAQs 

  • When will I see the forgiveness reflected on my servicer’s website? 
    • If the Department of Education has your information on file, speculation is that this forgiveness could be awarded in 4-6 weeks. As we learn about additional dates we will update this page accordingly. 
  • What if the Department of Education doesn’t have my income on file? 
    • If your income information isn’t on file, there will be a form you need to complete. You can sign up to be notified when this form is available here. This form is said to be available in the coming weeks. It will take an estimated 4-6 weeks to process the form. If you want your balance updated before repayment resumes the Department of Education advises you should complete this form before Nov 15, 2022. 
  • How do I know if I was a Pell Grant recipient? 
  • What if I owe less than the maximum amount of forgiveness? 
    • If you owe less than your maximum award you’ll simply have the remaining balance forgiven. You will not receive a refund if you owe less than $10k (or $20k for Pell Grant recipients). 
  • What about taxes? 
    • Normally student loan forgiveness outside of an established program (like Public Service Loan Forgiveness, PSLF) is taxable. However, the American Rescue Plan Act (ARPA) relieves borrowers of tax liability on forgiven amounts through 2025. Depending on your state, this amount could be taxable at the state level. 
  • What if I have FFELP loans? 
    • The FFEL program ceased lending in July of 2010. Most of the loans disbursed were privately held. If your loans are still privately held your loans do not fall under the announcement made August 24th. Reports are surfacing that suggest the department will include these borrowers, but we do not know if or how this will happen yet. 
  • Does this impact my PSLF eligibility? 
    • Nope! If you’re a PSLF hopeful you’ll simply have a smaller balance until you’re awarded PSLF. 
  • Do parent Plus loans qualify for forgiveness?
    • Yes! Income eligibility is determined on the parents income not the students. 
  • Did I need to have a pell grant all 4 years of college?
    • It is currently understood that you only had to receive a pell grant at some point during college. We will update as we know more information.
  • What years will they use to calculate my income eligibility? 
    • Your income from either 2020 or 2021 will be used to determine your income eligibility.