On August 24 President Biden announced his student-loan plan to reduce or wipe out the debt of millions of borrowers. Here’s what you need to know.
The plan eliminates up to $10,000 in federal-loan debt for individual borrowers with annual incomes of under $125,000 or couples who earn less than $250,000. Many borrowers will be eligible for total forgiveness up to $20,000 if they received Pell Grants, a form of federal financial aid awarded to students from low-income households.
The president will also be extending the pandemic-era student-loan pause on payments and interest through the end of the year.
Who is eligible for forgiveness?
Borrowers with federal student-loan debt are eligible for up to $10,000 in relief if they earn less than $125,000 a year, or under $250,000 a year for couples. People who received federal Pell Grants in college will also be eligible for up to $20,000 in forgiveness.
When will forgiveness take effect?
More information is forthcoming but it seems likely at some point in 2022.
Is there anything you need to do to receive debt relief?
Not yet. Wait until you receive a notification from your loan servicer. Be on guard for scams (phone calls or email addresses that seem off). If you have moved or changed any of your contact information double check what is on file with your loan servicer and studentaid.gov website.
What if I have private student loans?
Only federal debt is eligible.
What if the amount I owe is under $10,000?
If you owe less than $10,000 on your loan (or $20,000 for those who received Pell grants), then your remaining balance will be forgiven.
Are Parent Plus loans eligible?
Yes. This forgiveness applies to federal loans for both undergraduate and graduate programs, as well as to Parent Plus loans.
Will I owe taxes on the debt that is forgiven?
Good news here, you will not owe federal taxes on canceled student debt.
What if I have already paid off my loans?
This measure won’t apply to balances that have already been paid off.
Reminder: The special extension to retroactively sign up for public service loan forgiveness (PSLF) ends on October 31.
If you are employed by a non-profit, military, or federal, state, or local government, this could save you a ton of money. You must apply for the temporary extended program before October 31 at PSLF.gov. This temporary program will count your prior eligible years of work towards the ten years needed for loan forgiveness even if you didn't sign up for PSLF from day 1. This could save you thousands of dollars. After you fill out your part of the application your employer will have to verify your work record so don't wait until the last minute.
Need further guidance?
Costs in the higher education system are incredible and it isn't getting any better. If you would like help understanding any of the above or discussing your particular situation I offer no cost initial consultations that you can schedule here.