This week the Biden administration announced the Student Debt Relief Plan. This controversial piece of legislation is a historic student loan forgiveness program for college students, providing relief of up to $20,000. Importantly, many will be able to erase all student loans!!
Regardless of opinions on the matter, here’s what you need to know, and most importantly, what you need to do.
Even if you don’t have student loans, help spread the word on this time-sensitive opportunity.
Student Loan Forgiveness Controversy
There is a lot of controversy surrounding this piece of legislation. While I could write a good many words on both sides of this debate, I won’t. I’m going to go out on a limb and assume you have enough political commentary in your lives, so let’s just get down to brass tacks.
The Final Student Loan Payment Pause
The economic challenges of the pandemic resulted in a federal moratorium on student loan repayments. This moratorium will be extended one last time, through December of 2022. Starting January of 2023, it’s time to make a place again in the budget for repaying those student loans.
Student Loan Debt Relief and Forgiveness
The US Department of Education will forgive up to $20,000 for Pell Grant recipients, and up to $10,000 for non-Pell Grant recipients. To be eligible for this relief, a borrower must earn less than $125,000 as an individual or $250,000 for households. That’s a lot of folks! To be exact, this legislation should affect 43 million borrowers, and completely erase the debt of about 20 million, according to NPR.
Perhaps most importantly, any borrowers who are employed by the military, federal, state, Tribal, local government, or even non-profits may be eligible to have ALL OF THEIR STUDENT LOANS forgiven through the Public Service Loan Forgiveness (PSLF) program.
PSLF forgiveness requires borrowers to have worked full-time for one of the above-mentioned institutions for 120 payment periods, or 10 years. The changes for non-profit and government workers are temporary and expire on October 31, 2022. If you qualify, make this your best Halloween ever and get in on the gig. To sign up and qualify for the PSLF program, learn more and apply at PSLF.gov.
Summary and Next Steps
· To be eligible for any debt cancellation, your annual income must be below $125,000 (individual) or $250,000 (family)
· If you received a Pell Grant, you are eligible for up to $20,000 in debt cancellation.
· For non-Pell Grant recipients, you are eligible for up to $10,000 in debt cancellation.
· The term “up to” refers to the fact that debt cancellation is capped at the amount of your outstanding debt. If you owe $5,000 but are eligible for $10,000 of debt cancellation, only the remaining balance of $5,000 will be canceled. Seems fair.
· The Department of Education needs your income data. An application will be launched by early October. but to be notified when the application is available sign up here. Debt will allegedly be canceled 4-6 weeks after income information is received. According to the Department of Education, income information is already available for 8 million people. For those individuals, relief will come automatically.
· The government is advising borrowers to apply by November 15, 2022.
· For full PSLF forgiveness, applications must be submitted by October 31, 2022.
Wait…There’s More: Paying Less Each Month on Student Loans
Income-driven repayment (IDR) is a process that helps low-income earners. Previously, borrowers were required to pay 10% of discretionary income toward student loans each month. Discretionary income is the difference between your income and 150% of the poverty level for your state and family size.
The revised part of this plan will now require borrowers to instead pay 5% of discretionary income. This plan will also raise the amount of income considered “non-discretionary,” sheltering more of the income from required loan repayment.
To learn more, check out this resource from studentaid.gov.
A Final Note on Lowering Student Loan Debt
The IDR method for determining student loan repayment is based on your AGI, or Adjusted Gross Income. To lower your AGI, and thereby potentially your monthly loan repayments, contribute as much as you can to tax-advantaged investment vehicles, such as the 401(k) (or similar) or health savings account.
Any contributions to these accounts:
- Lower you tax obligation this year
- Contribute savings to your future
- Potentially lower monthly loan obligations through income-driven repayment plans.
Finally, for those of you on ACA health insurance plans, contributions to tax-advantaged accounts will lower your monthly health insurance premiums.
Okay, that’s enough nuts-and-bolts for me this week. How about some interviews and travel narratives coming up? What are your thoughts on student loan forgiveness? Let me know in the comments below!
PSLF requires borrowers to have worked full time for a qualifying employer and make 120 qualifying payments towards the loan, that’s 10 years, not “120 days”. Important clerical mishap.
Good catch, Breck. I’ve corrected the text. That said, there are a lot of exceptions and ways to consolidate loans, even for those who have not worked consecutive 10 years for a single organization. More here: https://www.whitehouse.gov/publicserviceloanforgiveness/?utm_source=pslf.gov