Changes to Federal Student Loan Debt

The largest provider of financial aid for college in the United States is Federal Student Aid available through the U.S. Department of Education. According to EducationData.org, the number of people with student loans as of May 2022 amounted to 43.4 million. Of this amount, 38.3 million people had undergraduate education student loan debt and 17.9 million had postgraduate education student loan debt. In an effort to fix student loan program deficiencies and provide pandemic support, the Department of Education and the Biden Administration have announced a plan that would provide debt cancellation, cut monthly student loan payments in half, and protect future students and taxpayers from increasing college costs. As a student loan holder, there are important dates coming up soon that could affect your personal Federal student loans.

Student Loan Payments Set to Resume

Student loan relief has been extended for the seventh time, twice under former President Trump and now five times under President Biden. Effective December 31, 2022, the current temporary student loan relief will end. During the Student Loan Payment Pause, borrowers received a suspension of Federal student loan payments, an interest rate of 0%, and collections on defaulted loans were stopped. In preparation for the upcoming January 1, 2023 start-up date, it is important that contact information in your loan profile is updated, review of auto-debit enrollment is completed, or first-time sign-up takes place. To make repayment more affordable, income-driven repayment plans are available that are expected to protect low-income student loan holders, and the monthly payment will be capped at 5% of discretionary income (half of the rate of most current plans).

Public Service Loan Forgiveness (PSLF)

Federal loan holders, who have been employed for at least 10 years (including non-consecutively) for a U.S. federal, state, local or tribal government, or working for a not-for-profit organization, may qualify for loan forgiveness. As of October 6, 2021, temporary changes were made to allow student loan holders to receive credit for past payments regardless of payment plan or loan program. To receive these benefits, loan holders must submit a PSLF form by October 31, 2022. Final debt relief rules for public servants are expected no later than July 1, 2023.

Loan Forgiveness Plan

To date, the Administration has forgiven a number of student loans for public servants, loan holders with permanent disabilities, and loan holders who were defrauded by a college or university. As part of the Administration’s three-part plan, debt relief of up to $20,000 for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients is expected. Student loan holders eligible for this relief must have income less than $125,000 annually ($250,000 for married couples). High-income individuals or households will not be eligible.

As part of the American Rescue Plan, student loan debt relief will not be treated as taxable income on Federal tax returns. The application for student loan forgiveness will be made available no later than the end of 2022. Some borrowers may be eligible for automatic student loan debt relief provided their income data is already accessible by the Department of Education. Additional information on claiming debt relief is available at Studentaid.gov.