President Biden Announces Student Debt Relief Plan

President Joe Biden introduced the Student Debt Relief plan on Wednesday, August 24, 2022. 

The White House states that the plan will provide financial relief to approximately 43 million borrowers—an estimated 20 million of whom will have their entire remaining balance cancelled. 

Below are some questions and answers based upon information contained in the Federal Student Aid Debt Relief Plan announcement and White House news release.

Who Qualifies for Student Loan Forgiveness?

Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households. 

What If My Income Exceeds the Cutoff?

Unlike the recent stimulus payments there is no sliding scale. So, it seems that those who exceed income limits will not qualify for any sort of pro-rated student loan forgiveness.  

How Much Student Loan Debt Will be Forgiven?

The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education. Non-Pell Grant recipients can receive up to $10,000 in debt cancellation.

Do Current Students Qualify for Loan Forgiveness?

Those that are currently enrolled in college and already borrowed from the federal government are covered under the plan for any loans that were disbursed by June 30, 2022.

Will Student Loan Forgiveness Impact My Federal Taxes?

While some loan forgiveness programs are considered taxable in the year the debt is written off, President Biden’s student loan forgiveness program is not taxable due to 2021 American Rescue Plan, which made any form of federal student loan forgiveness tax-free through 2025.  

How Do I Receive Student Loan Forgiveness?

Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the U.S. Department of Education.

If the U.S. Department of Education doesn't have your income data, or if you don't know if the U.S. Department of Education has your income data, you can use a simple application that the Administration will launch in the coming weeks.

How Are Public Servants Under the Public Service Loan Forgiveness Program Impacted?

The Department of Education has announced time-limited changes to PSLF that provide an easier path to forgiveness of all outstanding debt for eligible federal student loan borrowers who have served at a non-profit, in the military, or in federal, state, Tribal or local government for at least 10 years, whether consecutively or not. 

You can find out other information about the temporary changes on You must apply to PSLF before the temporary changes end on October 31, 2022.

The application will be available before the pause on federal student loan repayments ends on December 31st. You can sign up to be notified by the U.S. Department of Education when the application opens.

Will the Student Loan Repayment Freeze Continue?

The current student loan repayment pause will be extended automatically through December 31, 2022, with payments resuming in January 2023. 

Who Does Not Qualify for Student Loan Forgiveness Under This Plan?

Borrowers who have private student loans are not eligible for loan forgiveness.

How Does the Plan Impact Current and Future Borrowers?

Borrowers will 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.

The amount of income that is considered non-discretionary income is raised to be 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.

Loan balances will be forgiven after 10 (down from 20) years of payments for borrowers with loan balances of $12,000 or less.

Borrowers’ unpaid monthly interest will be covered, 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.

As with many plans, there are additional details and guidance that still need to be provided. It appears that there are still missing details regarding the definition of income and the year used in the determination.

Additionally, state law treatment of income and deductions sometimes vary from the federal treatment. While many states are likely to follow the federal treatment, you should not assume that this will be the case in your state. Be sure to consult your state’s treatment regarding the taxability of cancelled student indebtedness.

Schneider Downs will continue to monitor the latest updates on the Student Debt Relief plan and related topics. To keep up to date with our latest insights on this topic and more, subscribe to our weekly Our Thoughts On newsletter. 

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