Federal student loan forgiveness offers relief for 43 million
The White House issued a press release Aug. 24 detailing the Biden administration’s 3-part-plan to cancel a portion of federal student loan debt for low-income borrowers.
The Federal Student Aid (FSA) website lists different ways that loans can be forgiven, canceled or discharged including public service loan forgiveness and teacher loan forgiveness programs, but the Biden administration’s plan for federal student loan forgiveness is a new option for borrowers.
Additionally, the Department of Education (DOE) extended the student loan repayment pause until Dec. 31, 2022. This is the final extension to be issued. Federal student loan repayment will resume January 2023.
The plan is still in its beginning stages and there is uncertainty about how things will move forward. The UHCL Financial Aid department has been receiving a higher volume of calls since the announcement and are encouraging students to reference the FSA website instead.
“We definitely have been getting people asking us questions. We have people calling to ask us if we can look up their Pell Grants from 1988,” said Erin Poolson, customer service representative for the Financial Aid department. “We are telling them to go to the student aid website and to speak with them about it because we haven’t been told or given direction about it so there’s nothing we can really tell them.”
With UHCL resident undergraduate tuition, books, and board for the 2021-2022 academic year costing an estimated $4,077 per semester, this loan forgiveness plan will have an impact on current students and alumni.
Current UHCL students are eligible for the loan relief for previous semesters only. Per the FSA website, only loans dispersed before June 30, 2022 are eligible for forgiveness so loans for the fall 2022 semester will not be considered.
Applying for loan relief
The announcement of student debt relief has brought about many questions. An estimated 43 million borrowers are eligible for some forgiveness through this plan and some may qualify for forgiveness without any action.
“Nearly 8 million borrowers may be eligible to receive relief automatically because their relevant income data is already available to the DOE,” Whitehouse.gov states
The other estimated 35 million will have to apply with a White House promised “short and simple form.” Although an application is not available yet, it is set to be completed by October 2022 in hopes of a smooth transition once the repayment pause ends and payments resume in January. Once applications become available, borrowers will have a little over a year to submit them as applications will be accepted until Dec. 31, 2023.
Until the application becomes available in October, borrowers should take a few steps to prepare. First, borrowers should ensure that they have the correct login information for their student aid account as well as their account with their loan service provider. Borrowers should also bring all contact information up to date on both websites to ensure that all communications about loans will be received.
To be eligible for this aid, borrowers must be below the income threshold. Those who made less than $125,000 as a single tax filer or $250,000 as head of household or as married filing jointly are now eligible for some student debt forgiveness.
Borrowers must be under the income threshold amounts in 2020 or 2021. The amount must be reflected on either 2020 or 2021 tax years, not both. This distinction will help borrowers who had fluctuations of income as a result of being laid off or fired related to the COVID-19 pandemic. While the loan forgiveness income threshold is $125,000, an analysis done by the Department of Education (DOE) shows that 85% of those who qualify for loan forgiveness make under $75,000.
Some borrowers are eligible for forgiveness up to $10,000 while those who were Pell Grant recipients will be eligible for forgiveness up to $20,000. All borrowers will only be eligible to receive the amount remaining on their loans. They will not be entitled to any amount exceeding their remaining loan amount.
Borrowers in Texas will not be responsible for paying taxes on their loan forgiveness. Typically, a borrower would have to report any debt forgiveness to the IRS and be required to pay taxes on loans that are forgiven or cancelled, but the 2021 American Rescue Plan Act made all loan forgiveness tax exempt federally until 2025.
Other aspects of this plan include changing the percentage of income that borrowers with an income-driven payment plan are required to pay, from 10% to 5%, covering the interest on income-driven repayment plans and, revamping the current Public Service Loan Forgiveness (PSLF) program.
Borrowers who currently work or have worked full time for federal, state, tribal or local government, military, or a qualifying nonprofit are encouraged to apply before Oct. 31, 2022 on the FSA website, even if they have been denied before.
“Temporary changes, ending on Oct. 31, 2022, provide flexibility that makes it easier than ever to receive forgiveness by allowing borrowers to receive credit for past periods of repayment that would otherwise not qualify for PSLF,” The FSA website said.
With data from the DOE, the White House has estimated the cost of the loan relief plan.
“We [the White House] estimate that over the decade from 2023-32, the average cash flow impact will be approximately $24 billion annually,” the White House said in their press release.
Under scrutiny for such a large bill, Biden stands firm that there has been sufficient budget reduction to pay for the program.
Federal student loan borrowers can be alerted about the availability of an application or other changes by subscribing to updates on U.S. Department of Education’s website.
More information about the student loan forgiveness plan can be found on the White House website as well as the Federal Student Aid website.