What Does Biden’s Student Loan Forgiveness Plan Mean For Me

According to the student debt relief plan released by the White House, the Biden-Harris administration is offering forgiveness of federal student loans from the Direct loan program, including undergraduate, graduate, and parent loans. To qualify, you must make less than $125,000 as a single tax filer or less than $250,000 if you’re married and file jointly. 

The standard forgiveness amount is $10,000, but borrowers who received a Pell Grant in college can receive an additional $10,000 in loan cancellation for a total of $20,000. Pell Grants are a type of financial aid for college students with exceptional financial need. 

Sign into your Federal Student Aid account to check if you got a Pell Grant in college. You should see whether you received this need-based grant along with details of your loan balances and servicers. 

Even if you didn’t get a Pell Grant, you can still get $10,000 of your student loans canceled as long as you meet the income requirements. You won’t have to pay federal taxes on your forgiven loan balance, though some states may charge state income taxes on the amount.

There are a couple of pieces of criteria you must meet to qualify for student loan forgiveness. 

1. You owe Direct loans that you borrowed before June 30, 2022 

The first requirement is that you owe federal loans from the Direct loan program that you borrowed before June 30, 2022. 

Direct loans include subsidized loans, unsubsidized loans, graduate PLUS loans, parent PLUS loans, and consolidation loans. FFEL and Perkins loans may also qualify, but you might need to consolidate them first. 

If you have any loans that were put on pause these past couple of years through the emergency forbearance, they’re probably eligible for forgiveness. It doesn’t matter if your loans were in default, either — they can still qualify. Unfortunately, private student loans from banks, credit unions, or other lenders won’t qualify. 

2. You make less than $125,000 per year (or less than $250,000 if you’re married) 

The second requirement you need to meet has to do with income. As mentioned, you’ll only qualify for relief if you made less than $125,000 on your own or less than $250,000 as a married individual. The Department of Education will look at your income from 2020 or 2021 to make this determination. 

As mentioned, borrowers who got a Pell Grant in college can get an additional $10,000 in student loan forgiveness. Even if you only have graduate school loans, you could still get this extra forgiveness if you got a Pell Grant as an undergrad. 

To sum up, you could qualify for student loan forgiveness if: 

• You owe student loans from the Direct loan program 
• You borrowed those loans before June 30, 2022
• You’re single and make less than $125,000 or married and have a household income less than $250,000

If you’ve been wondering, “Will Biden extend student loan forbearance?” you finally have your answer. On August 24, the Biden-Harris administration announced an extension of the emergency student loan forbearance until December 31, 2022. 

This forbearance was implemented in March 2020 for the COVID-19 pandemic and has been extended several times. Most recently, it was set to expire on August 31, 2022. Thanks to this latest announcement, borrowers have an additional four months of paused payments at 0% interest. 

According to the administration, this latest extension will be the final one. Payments may resume on January 1, 2023, though borrowers who get $10,000 or $20,000 in loan forgiveness should see their monthly payments go down. If you made payments during this emergency forbearance, you might be able to request a refund so you can get them forgiven instead. 

Borrowers may see that they have a new student loan servicer when payments restart. Your student loan servicer handles payments and administers your repayment plan. You can check who your loan servicer is by signing into your Federal Student Aid account. 

While almost any federal student loan borrower who meets the income requirements can qualify for student loan forgiveness, the process might not happen automatically. According to the Education Department, you might have to apply for it. 

The application isn’t ready yet, but it should be available by the end of the year. You can subscribe to the Department of Education’s email list to get notified when it’s ready. To receive loan forgiveness, you must apply by December 31, 2023. 

After you apply, you should see your student loan balance drop by $10,000 (or $20,000 for Pell Grant borrowers) within six weeks. Some borrowers may see automatic loan forgiveness if the Education Department already has their income information. 

However, there’s no harm in applying. Once you see your balance go down, take a screenshot in case there are any hiccups or problems with your loan servicer down the line.

The Biden-Harris administration also intends to simplify income-driven repayment plans. Currently, income-driven plans adjust your student loan payment to 10% to 20% of your discretionary income while extending your loan terms to 20 or 25 years. 

With the latest changes, you could see your payment go down to 5% of your discretionary income for undergraduate loans. Plus, the government could cover your unpaid monthly interest, and your repayment term will only span 10 years. After 10 years, you could see your remaining balance canceled. 

While these changes are not yet in effect, you can still apply for various federal repayment plans. These include: 

• Standard plan, with fixed payments over 10 years. 
• Graduated plan, which spans 10 years and involves payments that start smaller and increase over time.
• Extended plan, with fixed or graduated payments over 25 years. 
• Income-driven repayment plans, which include Income-Based Repayment, Pay As You Earn, Revised Pay As You Earn, and Income-Contingent Repayment. 

You can also combine your federal loans into a Direct consolidation loan. After consolidating, you can choose any repayment plan or a term of up to 30 years, depending on your loan amount. 

Read on for other options for student loan relief worth exploring when the moratorium ends. 

Student loan forgiveness programs

There are government-sponsored programs that offer student loan forgiveness for those with specific qualifications. One of the most popular student loan forgiveness options is the Public Service Loan Forgiveness (PSLF) Program, which promises forgiveness of federal student loans to government and qualifying nonprofit employees. Eligible borrowers can have their remaining loan balance forgiven after making 120 qualifying loan payments.

Some other loan forgiveness programs to look into include:

• Teacher Loan Forgiveness Program –Teachers employed full time in low-income public elementary or secondary schools may be eligible for Teacher Loan Forgiveness after working for five consecutive years. If you qualify for this relief, you can receive up to $17,500 in loan forgiveness, depending on the subjects you teach. 
• Nurse Corps Loan Repayment Program – If you’re a licensed registered nurse, an advanced practice registered nurse, or a nurse faculty member with qualifying nursing debt, you may be eligible for the Nurse Corps Loan Repayment Program. This program pays up to 85% of qualified nurses’ unpaid college debt. 
• Military student loan forgiveness – Military personnel in the Army, Navy, Air Force, National Guard, and Coast Guard may qualify for their own loan forgiveness programs. 
• State-sponsored repayment assistance programs – Licensed teachers, nurses, doctors, lawyers, and other professionals in certain states may be able to take advantage of programs to assist with student loan debt relief. 

These are just some of the loan forgiveness programs available for student loans. Apply for any programs for which you qualify (just make sure to steer clear of any potential student loan forgiveness scams).

Student loan forbearance or deferment 

If you need more time to repay your loans after the federal pause ends, you’ll have to ask your lender to put your loans into either forbearance or deferment. Loan forbearance  allows you to postpone monthly payments for specific periods but, depending on the forbearance program, interest on your loan may still accrue. 

In contrast, loan deferment is a federal repayment program that allows you to pause or reduce your student loan payments for up to three years. Depending on the type of loan you have, you may or may not be responsible for interest charges that accrue on your loan. For both forbearance and deferment, you will need to apply with your loan servicer and meet eligibility requirements.

Student loan assistance from your employer

Some employers are beginning to offer employees help for student loan debt repayment. One way employers do this is by offering tax-free contributions to an employee’s student loans. One provision of the CARES Act allows employers to make payments of up to $5,250 tax-free toward employees’ student loans until 2025. An employer could offer an employee a fixed monthly payment or contribution toward eligible education expenses outside the employee’s gross taxable wages. 

Another way companies are helping with student loan debt: implementing a matching program to employees’ retirement plans for every payment they make to their student loan debt. Ask your employer what programs and contributions they have in place to help relieve the burden of student loans.

Student loan refinancing

Refinancing your student loans could qualify you for a lower interest rate, saving you money in the long run. You can also refinance multiple loans, combining them into one single loan to simplify repayment. Before going down this path, it’s important you understand that refinancing federal loans converts them to private loans. As a result, you’ll lose access to federal loan protections such as forgiveness programs and repayment plans.

Student loan repayment may look different for everyone depending on your goals and budget. As we approach the end of the moratorium, it’s a good idea to sign into your student loan accounts and review your balances. 

Explore your various options for repayment plans to determine which one works best with your budget. Change your loans to an income-driven repayment plan if you’re pursuing PSLF, as those are the only plans eligible for this program. 

If you can afford it, consider making extra payments to get out of debt faster and save on interest. One strategy that might help is the debt avalanche method, where you first target loans with the highest interest rate. Another is the debt snowball method, where you prioritize loans with the smallest balances. 

Once you’re ready to tackle your student loan debt, check out our tips to pay off student loan debt fast.

Whether you owe student loans from college or graduate school – or are a parent who borrowed on behalf of your child – you could see a big chunk of your balance forgiven in the next few months. 

Keep an eye out for the loan forgiveness application on the Federal Student Aid website, as the Department of Education needs your income information before it can cancel your student loans. Try to submit it as soon as possible so your student loan payments will be lower when the emergency forbearance ends and repayment resumes in 2023.

In the meantime, review your options for repaying your student loans. One option worth considering is student loan consolidation, which can combine multiple federal loans into one, so you only have to deal with a single payment. 

Learn how to consolidate your debt to simplify repayment and continue making progress on your student loan repayment.