Student Loan Relief 2022: What we know
President Biden’s student loan relief program is a hot topic with our employee groups these days. Where borrowers stand with repayment of their loans and potential forgiveness has been a constantly moving target for the last year or so. And when we finally got specifics on how it might work and who it would help, there’s now a risk of the entire program being delayed or scrapped if new legal challenges to it are successful.
We are not student loan experts but are happy to share our research on how the program works. Here's a quick primer of what we’ve learned assuming things progress as the Biden-Harris administration has laid out.
The three main things to know are:
The program cancels up to $20,000 in federal student loan debt (IF you and your loans qualify).
The program extended the payment pause that started as pandemic relief to December 31, 2022.
It potentially will provide for more affordable income-driven repayment plans (IF an additional Biden proposal currently in the comment period survives).
How do you know if you qualify?
Your adjusted gross income for 2020 or 2021 must have been under $125k if single and $250k if you are married filing jointly.
Note that 2022 income cannot be used and if you were a dependent in the 2021-2022 school year, they’ll use your parents’ income.
If you graduated in 2022, you might be able to apply for a status change to qualify.
How do you know if your loans qualify?
The loans must be federal loans (private loans will not qualify) and must have been dispursed by June 30, 2022.
Parent PLUS loans are eligible.
Grad student PLUS loans are eligible.
If you do not know if your loans are federal loans, contact your servicer and ask. Warning: We have heard some servicers are not being that helpful and it may be easier to obtain the info from FAFSA or the institution you attended.
The good news for people who are living under the burden of having defaulted loans, these loans will qualify and you will be able to get back on track with a new payment plan.
FFEL loans (prior to 7/1/2010) may qualify if they qualified for the pause or you may be able to refinance them into a Federal loan to qualify. Check with your servicer.
Will you be taxed on the forgiveness?
The program states that the IRS will not tax the amounts forgiven as income, however, some states may and you should consult with your tax advisor to find out if there is a tax impact to you.
Will your payment go down if your loan is reduced?
Possibly. If you balance is significantly reduced, you can request your servicer re-amortize the loan. No specific guidance was included in the program, however.
If you are on an income-driven plan currently, this may not be helpful since your payment is based on your income.
There may be lower payment options available under Biden’s proposed income-repayment plan. Stay tuned.
What should you do now?
Login to your Student Loan Servicer. Make sure they have your correct contact information including your email address.
If you don’t know who your servicer is, go to https://studentaid.gov/manage-loans/repayment/servicers.
Set up payment information for commencement of January loan payments.
If you made student loan payments during the pause and would like to request they be refunded so they will be included in the forgiveness, speak with your Servicer.
Sign up for Department of Education alerts to keep informed of next steps: https://www.ed.gov/subscriptions.
Applications are expected to go out to borrowers in October. If you are already on an income-driven repayment plan, you may not have to complete one, but check with your servicer just in case.
Complete your application as soon as possible, however, they will be accepted until December 31, 2023.
UPDATE: The application is now available at https://studentaid.gov/debt-relief/application
Be prepared to restart payments in January.
Watch your account to make sure it happens.
What should you do later?
If you do receive forgiveness, check your credit report to ensure your loan balances are updated.
Once all is complete, if you still can’t afford to make your student loan payments, visit https://studentaid.gov/loan-simulator/ for options.
If you are interested in this type of educational content for your employees, schedule a quick call with us HERE.
Resources:
White House Fact Sheet: https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/
Department of Education FAQ: https://studentaid.gov/debt-relief-announcement/one-time-cancellation