What is going on with student loan forgiveness this year?
The Student Debt Relief Plan was announced on August 24th, 2022 with the intent of reducing the amount of federal student loan debt held by the majority of student loan borrowers. Broadly speaking, qualifying borrowers will be forgiven up to either $10,000 or $20,000 of debt and the strict Public Service Loan Forgiveness (PSLF) program rules are being TEMPORARILY loosened. Additionally, the pandemic related student loan repayment pause has been extended through December 31st, 2022.
Student Loan Debt Relief – Who qualifies and for how much forgiveness?
Students and parents who have taken PLUS loans for their child are allowed to independently qualify for loan relief. In order to qualify for relief, the borrower must have had an annual federal income below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly or head of household) in 2020 or 2021.
- If the income requirement is met, then the student borrower should check to see if they received a Pell Grant while in college by logging onto (or creating an account for) StudentAid.gov. If they received a Pell Grant, then they are eligible for up to $20,000 in debt relief. This only applies to students, parents with PLUS loans and no student debt of their own cannot qualify as they were not the ones to receive the Pell Grant.
- If the income requirement is met but the borrower did not receive a Pell Grant, then they are eligible for up to $10,000 in debt relief. This is the category parents with PLUS loans and no student debt of their own fall into.
The debt relief described above is able to be applied to most federal student loans, parent PLUS loans, and graduate PLUS loans. Private (non-federal) loans are not eligible for debt relief. An easy rule of thumb is if the Department of Education holds the loan, it is eligible to be forgiven. The amount of debt relief will not exceed the borrower’s full loan balance. A comprehensive list of eligible loans may be found half way down the page here.
If the borrower has income above the qualifying limits in 2020 or 2021 or only has private loans, they will not qualify for student loan debt relief under this program.
Student Loan Debt Relief – How to apply?
The federal government has recently released a short online application found here. Some borrowers, “around 8 million”, will not need to apply for debt relief as the Department of Education already has the required data on hand (presumably via FAFSA submissions). Those borrowers will receive an email informing them of the relief they qualify for and how it will be applied to their loans.
Student Loan Debt Relief – Will it be taxed?
The debt relief through this program will not be taxed at the federal level. Some states may tax debt relief. Due to recent changes, Minnesota will not tax the debt relief received under the Student Debt Relief Plan.
Public Service Loan Forgiveness – Limited Waiver Ends 10/31/2022
Originally, the Public Service Loan Forgiveness (PSLF) program was designed as its name implies, to forgive the student debt of borrowers who are employed by the government or another qualifying not-for-profit entity. This forgiveness came with several key requirements – 120 on time loan payments within a qualified repayment plan while employed full time with a qualifying employer. Additionally, only Direct Loans or debt consolidated into Direct Consolidation Loans could be forgiven this way.
The Student Debt Relief Plan introduced a limited time waiver that changes some of the PSLF rules in order for the PSLF program to give credit for past loan payments which previously did not qualify. Borrowers will receive credit for:
- Payments made during any repayment plan
- Payments that were made late
- Payments for less than the amount due
- Payments made on Federal Family Education Loans (FFEL) or Perkins Loans if those loans are consolidated into a Direct Loan by 10/32/2022
The waiver will also allow the borrower to receive loan forgiveness if they have qualifying payments and employment history, but are not currently employed by a qualified employer. Finally, the waiver will allow the period of service that qualified a borrower to receive debt forgiveness under the Teacher Loan Forgiveness program to also count towards PSLF.
Borrowers must complete all of their steps on the PSLF form using the PSLF Help Tool by 10/31/2022 in order to have the waiver apply to them. The employer component does not need to be completed by that date however. As noted above, any consolidation of FFEL or Perkins Loans into qualifying Direct Loans must be completed by 10/31/2022. That date is coming fast so any readers who wish to put this information to use are advised to start immediately. More information regarding student loan consolidation can be found here.
If all of the above sounded familiar, then you too may have gone directly to the source to learn about the details of 2022’s Student Debt Relief Plan. Below are the Department of Education links I used when writing this article.
- One-Time Student Loan Debt Relief - https://studentaid.gov/debt-relief-announcement/one-time-cancellation
- Public Service Loan Forgiveness (PSLF) - https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
- Limited PSLF Waiver - https://studentaid.gov/announcements-events/pslf-limited-waiver
- PSLF Help Tool - https://studentaid.gov/pslf/
- Student Loan Consolidation - https://studentaid.gov/manage-loans/consolidation
- Federal Student Loan Debt Relief Application - https://studentaid.gov/debt-relief/application