On August 24, President Biden announced a Student Debt Relief Plan to help relieve student debt borrowers including forgiving $10,000 for all borrowers making less than $125,000 or married couples making less than $250,000; and $20,000 for borrowers with the same income restrictions that received a Pell Grant. Borrowers with undergraduate loans can also cap their student loan payments at 5% of monthly income. Loan repayment begins January 1, 2023. For more details about eligibility, how to apply, and many more specifics, read below.
Am I eligible for the Student Debt Relief Plan?
You are eligible for student loan forgiveness if your loans are held by the Department of Education including federal: Direct Stafford loans, Direct subsidized loans, Direct unsubsidized loans, Direct Parent PLUS loans, Direct Grad PLUS loans, and Direct consolidated loans. You should be able to verify your loan type through FAFSA or your student loan servicer. You can read more about loan specific information on the FSA website.
If you have loans from the DOE, your individual AGI must also be $125,000 or less, or $250,000 between you and your spouse. More on AGI calculation and specific income information under “What if I eventually make over $125,000?”
How do I apply?
Many borrowers may be eligible to receive relief automatically based on the DOE already having relevant income data. I would err on the side of assuming the DOE not having the information, and applying anyway when the application is available. The application is not open or accessible yet, but subscribing to the DOE updates is the best way to know when it is.
You should expect relief within 4-6 weeks. Borrowers are encouraged to apply before Nov 15, 2022 to receive forgiveness before repayment begins. If you still have remaining loans, the amount with reflect the lesser amount with the forgiven $10k or $20k. They will continue to process payments through Dec 31, 2022 as they come in, but there is no guarantee the repayment amount will reflect the forgiven debt. Applications will ultimately be open through Dec 31, 2023.
How do I know if I received a Pell Grant?
To check if you’ve received a Pell Grant, login to the Federal Student Aid site.
- You can enter your username, phone number or email address in the correct field, followed by your password. If you don’t remember your login credentials, click the “Forgot my username” or “Forgot my password” link and follow the prompts.
- Once you’ve accessed your account, visit the “Aid Summary” page for all the details of your financial aid. This information is also on the homepage dashboard. Both your student loans and any Pell Grants you received will appear here. You can view more details about your aid, including how much you received and the payoff status of your loans, on this page.
What about loan interest?
Interest will only be affected for borrowers on an income-based repayment plan. All other borrowers will still be paying the fixed-rate interest on all future payments. For more information on tax interest deduction and other tax details, read “Will this affect my taxes and how?”
What is the cap for income-based repayment plans?
While looking this up, we thought an update of all the relevant information for income-based repayment plans would be helpful. Under this Plan, income-based repayment plans will:
- Require borrowers to pay no more than 5% of their discretionary income monthly on undergraduate loans. This is down from the 10% available under the most recent income-driven repayment plan. Discretionary income is the difference between your annual income and 150% of the poverty guideline for your family size and location. The new plan increases protections and guarantees no borrower earning less than 225% of the federal poverty level will have to make a payment.
- Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment.
- Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with loan balances of $12,000 or less.
- Cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.
Will this affect my taxes and how?
Forgiven loans are not taxable, as they were made exempt from taxation until 2025 under the 2021 American Rescue Plan Act. Since Washington does not have income tax, you will not have to pay income taxes on canceled student loan debt. This Forbes article has a great breakdown of states that will be affected and more specific tax and financial information.
Additionally, this type of tax forgiveness does not have to be reported to the IRS and if you are eligible for the Student Debt Relief Plan, your loan provider will not file any forms. There is currently no interest rate on student loans so you cannot make any student loan interest deductions this year. When interest comes back with repayment on January 1, 2023, you will be able to make these deductions again.
When is repayment starting and will it be extended again?
Repayment starts on January 1, 2023 and there is no indication the payments will be paused or the pause extended again.
What if I eventually make over $125,000?
The income cap on $125,000 for an individual or $250,000 for a married couple only matters when applying for relief (either before Nov 15, 2022 or Dec 31, 2023). If applying before Dec 31, 2022, you can use your 2020 or 2021 AGI (found on your Form 1040). If you are applying between Jan 1, 2023-Dec 31, 2023, you can use your 2021 or 2022 AGI. For more information on calculating your AGI; or taxes, deductibles, and special circumstances that can affect your AGI you can read this article.
What are the changes to Public Service Loan Forgiveness (PSLF)? Why am I hearing about an October deadline?
From what we can tell, the new Plan does not affect new changes to PSLF that were put in place earlier this year. These changes essentially make it easier for eligible borrowers (have worked or currently work for a qualifying employer) to receive credit for past periods of repayment on loans that would otherwise not qualify for PSLF. There is also information on the White House announcement page that the Plan will be “proposing a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.” There are not enough details to know what is actually changing under this.
Under the limited waiver, eligible borrowers have until October 31, 2022 to apply. Regular PSLF guidelines will still be in place after this deadline and you will still able able to apply for PSLF, but your past payments will not go towards the payments needed to cancel your debt.
If I graduated during the pause and have never made loan payments, how do I ensure I am set up for loan forgiveness?
You will need to identify your student loan servicer and set up an account, determine what repayment plan is best for you, and how to make your payment. We recommend figuring out this information sooner rather than later so you are ready to make payments on January 1. We also recommend setting this up before applying for loan forgiveness so you know what payment plan and monthly amount you would have. After these steps, follow earlier steps of subscribing to updates, applying by Nov 15, etc.
What if I cannot make payments when they restart January 1, 2023?
We recommend an income-based repayment plan, if you are eligible, for the lowest possible payments. If you are unable to make these payments, contact your loan servicer. There are options for deferment or forbearance, as well as loan consolidation.
How do I stay updated on new information about the Plan?
You can sign up for updates on the Department of Education subscription page (check the “Federal Student Loan Borrowers Update” box). These updates include when applications open, when the initial deadline is before repayment begins, and the final deadline on December 31, 2023. If there are any changes, pauses, or circumstances that affect the Student Debt Relief Plan, you will receive updates.
If you have any questions that are not answered in this email, or would like more details, resources, links, or support, please don’t hesitate to reach out at firstname.lastname@example.org.