In 2022 the Biden Administration and the U.S. The Department of Education announced a three-part plan to help federal student loan borrowers transition back into Installment loan / student loan repayment after the pandemic. Along with lowering monthly payments, this plan includes loan forgiveness of up to $20,000 for eligible borrowers. However, ever since this plan to “cancel student debt” was announced, things have happened that have put a pause on this plan being executed. Many people, especially student borrowers, may be curious about what is going on currently with federal student loans and President Biden’s student loan forgiveness plan.
Continue reading to learn more about the student loan forgiveness update in 2023.
The Current Pause Due to Legal Challenges and Blocks
After this plan was set into action and people began applying, many legal challenges were filed. Currently, the U.S. Department of Education and the Biden Administration are seeking to overturn these challenges to get debt relief for the over 16 million Americans that applied for this student loan debt relief program. Unfortunately, until this legal issue is resolved within the Supreme Court—for which they will hear oral arguments—borrowers will have to wait for debt relief if that happens.
The good news is that required loan payments for student debt will be paused until these legal issues with the student loan forgiveness plan are resolved. And so student debt borrowers who faced financial hardship during the pandemic and are still working to get back on their feet don’t have to worry about any monthly payments. However, anyone can continue repaying their student loans if they want to.
Whatever the resolution, once that happens, repayment will begin 60 days afterward. If no decision has been made by June 30th, 2023, payments will resume 60 days later.
Eligibility Details for Student Loan Forgiveness
After President Joe Biden, vice president Camilla Harris, and the U.S. Department of Education announced the debt cancellation plan, there were many questions from student loan borrowers.
One of the major questions that many borrowers had was whether they qualify for the student loan forgiveness plan.
Here are the eligibility requirements for student loan forgiveness:
- To be eligible for this debt relief plan, borrowers must have an adjusted gross income below $125,000, or if they are part of a household, the household adjusted gross income must be below $250,000 to have their student loans forgiven.
- If you meet the income threshold and have received a Pell Grant while in college, you will be eligible for up to $20,000 in debt relief.
- If you meet the income threshold and did not receive a Pell Grant in college, you will be eligible for up to $10,000 in debt relief.
- This program forgives/cancels both graduate and undergraduate loans.
One thing to keep in mind is that your loan servicers may be different companies for federal student loans, but don’t let that confuse you. Your student loans are federal loans as long as you borrowed from the federal education department. A few other things to keep in mind is to remember that this plan will only go into effect if the supreme court justices allow for it. And once that $10,000 or $20,000 is forgiven, you may still have to repay the remaining balance of your student loans.
An Overview of The Three Part Plan That Was Proposed
If you are a student borrower or a student’s parent, it will be helpful to understand exactly what steps the Biden administration wanted to execute. However, with all the information out there, things can get confusing quickly. The good news is that we have an overview of all the key information you’ll need with each step:
The First Part of Student Debt Plan: Adding a Final Extension of the Student Loan Repayment Pause From COVID
When Covid happened, it came with financial hardships for many Americans. And so, The Department of Education and the Biden-Harris administration paused required loan payments. However, even as pandemic restrictions were lifted, these federal institutions realized that borrowers would need time to transition back into student loan payments. And so they eventually had three extensions on the payment pause, including this current one.
Part Two Involved Providing Targeted Relief
To help provide targeted debt relief for low-income or middle-income borrowers and their families. The Department of Education announced that it will offer debt relief of up to $20,000 to recipients of Pell Grants and up to $10,000 in debt relief to borrowers who did not receive Pell Grants.
Furthermore, borrowers who work for non-profit organizations, the military, or federal, state, Tribal, or local government may qualify for complete forgiveness of their student loans through the Public Service Loan Forgiveness (PSLF) program.
Part Three Changing The Current Student Loan Debt System
Along with the changes from above, the final step of the plan to alter federal student loans was to create a new income-driven repayment plan for student loan debt. This new income-driven repayment plan was meant to again target and help low and middle-income student borrowers. With this new student loan repayment plan, there were a few changes:
- Income Changes — Borrowers’ monthly payments would not have to pay more than 5% of their discretionary income. This is a 5% reduction from the previous repayment plan.
- Protecting Income From Being Considered Discretionary Income — This will mean those living under 225% of the federal poverty level won’t have to make any payments.
- Less Time To Wait for Cancellation — For balances under $12,000, loans will be forgiven after 10 years of payments vs. the previous 20 years of required repayment.
- Interest Adjustments — Borrowers who don’t need to make monthly payments won’t have interest accrue, while this was not the case in the past.
- For Borrower Defense to Repayment — This new program can relieve federal student loan borrowers deceived, misled, or defrauded by their educational institution by discharging their loan debt.
- New Regulations for the Total and Permanent Disability (TPD) Discharge Program — The newly implemented regulations aim to simplify the loan discharge process for medically disabled federal student loan borrowers. These regulations will broaden the range of medical professionals who can confirm a borrower’s eligibility and make it more accessible for recipients of Social Security disability benefits to qualify.
- Extending for Public Service Loan Forgiveness (PSLF) — By expanding the scope of “qualifying payments,” the newly introduced regulations will encompass further periods of deferment and forbearance. Furthermore, borrowers will be able to accrue credit towards their student loan forgiveness even if they made payments in arrears, through partial payments, or as a lump sum.
Important Dates to Keep in Mind for 2023
Here are some important dates with the application process and in general that you should keep in mind for 2023:
- June 30th, 2023 — President Biden’s latest extension of the student loan pause is scheduled to conclude either 60 days following June 30th or upon the Supreme Court’s decision (after they hear arguments) regarding the administration’s student loan forgiveness initiative—whichever happens first.
- July 1st, 2023 — This is the date that some of the new guidelines and changes will be implemented.
- December 31st, 2023 — The deadline for student loan consolidation to get the new student loan forgiveness program/repayment plan’s benefits.
References:
The Biden-Harris Administration’s Student Debt Relief Plan Explained | Federal Student Aid
If You Have Student Loans, Mark These Dates on Your Calendar| Bloomberg
