By Andrew Paulson, CSLP, Lead Student Loan Consultant and Co-Founder of our partner site StudentLoanAdvice.com
The long-awaited day has finally arrived for the seventh student loan payment holiday and the announcement of $10,000 of student loan forgiveness. On August 24, President Biden announced that student loan payments have been extended again and will now begin in January 2023. This means status quo for an additional four months—no payments and no interest. Also, the administration passed $10,000 of student loan forgiveness to borrowers making less than $125,000. Sign up for forgiveness here. There are a number of legal battles currently trying to block this.
Another income-driven repayment option will be released as well which could have significant ramifications for student loan planning.
Here's everything you need to know about the last student loan holiday extension and everything that was announced by the administration.
Student Loan Payment Pause Extended
Federal student loans have been paused since March 2020, and when this most recent extension is completed, it will be close to three years of no payments or interest on your student loans. The president said this is the FINAL pause, but we’ve seen this movie before and I want to see a January 31 payment date before I start to believe it.
Hopefully, you’ve been collecting payment counts for Public Service Loan Forgiveness (PSLF) or have been saving money to throw into your loans if you’re planning to privately refinance. If you haven’t enrolled into auto-pay yet, make sure you log into your servicer’s site and opt in.
Income certification for income-driven repayment (IDR) plans was set to begin in March 2023 but is now pushed back to July 2023 at the earliest. If your income certification date currently shows a date prior to July 2023, it will be pushed back an entire year from that date. Example, if your recertification date is January 1, 2023, your next certification is January 1, 2024.
More information here:
How to Ensure Student Loan Forgiveness Through the PSLF Program
Widespread Student Loan Forgiveness
President Biden is using his executive authority under the HEROES Act to forgive student loan debt. The HEROES Act was passed after 9/11 to expand the presidential powers in times of national emergency. COVID-19, categorized as a national emergency, was the catalyst to use the HEROES Act to forgive student loans. In 2021, the Trump administration looked into the Act and concluded in a memo that it didn’t provide the ability to discharge student loan debt.
It’s clear Congress has the ability to cancel student debt but lacks general consensus to do so. This is why the Biden Administration looked into the HEROES Act and concluded in this legal memo it does have the ability to forgive student debt. The executive action will likely be challenged in court.
Borrowers with an annual income during the pandemic of below $125,000 for individuals or below $250,000 for couples who received a Pell grant in college will be eligible for up to $20,000 in forgiveness on their existing federal student loans. If you weren’t eligible for Pell grants, you’re eligible for up to $10,000 of relief. Some households will be eligible for forgiveness of up to $40,000. The amount of loans forgiven won’t be taxed federally as income. However, there may be state taxes levied on this forgiveness for those in a few states. You should consult a tax advisor for your particular state.
The income to be used when you apply for forgiveness is what you’ve submitted on your most recent IDR form. Due to the pandemic, most borrowers haven’t certified their income since 2019 or 2020. If you haven’t enrolled into an IDR plan yet, you will have to report income from 2020 or 2021 on a simple application. Whatever would be the lower of the two is what you could submit.
Federal student loans eligible for forgiveness are Direct Stafford subsidized/unsubsidized, Direct Consolidation, Direct PLUS Graduate, Parent PLUS, and Family Federal Education Loans (FFEL). Perkins Loans and private student loans will not be eligible.
The application to sign up for widespread loan forgiveness is now available. After you complete the application, expect to wait 4-6 weeks before you receive forgiveness. You should apply by November 15th to have your loans forgiven by the end of the year. However, the application will be available until December 31, 2023.
Here are a few questions I still have (feel free to drop your questions in the comments, and I’ll answer them as best I can):
- What if a borrower is married and makes below $125,000 but has a high-earning spouse that would push them above the $250,000 income threshold as a household and they file taxes Married Filing Separately? If the government follows the pattern for most IDR plans when couples file taxes MFS, it only takes the adjusted gross income of the spouse who has student loans. Therefore, this borrower would qualify because they have income under $125,000.
- Will I be eligible for loan forgiveness while I’m still in school? There isn’t an employment requirement to receive this forgiveness. All it requires is income below the threshold I mentioned earlier and outstanding federal student loans.
- If I borrow loans now, will I be eligible to have those forgiven? No. The cutoff date is June 30th 2022.
- Can this forgiveness be targeted toward my higher interest rate loans? Honestly, I have no idea at this point. We will update when we get more direction.
There are lots of unknowns about how long implementation will take and for some of the nitty-gritty details. As these become available, I'll continue to update this post. However, most of you should not stress over this and change your overall student loan paydown plan. If you haven’t made a plan yet, be sure to check out WCI’s student loan 101 guide or schedule a time with one of our student loan pros.
More information here:
Student Loan Management When Both Spouses Work
New Income-Driven Repayment Plan
The new income-driven repayment plan is still in a proposal state, and it will request public comment. Implementation wouldn’t likely be until the middle to end of 2023. This would now create the sixth IDR option for borrowers which could further complicate repayment plan selection. But it does seem to be particularly beneficial for undergraduate borrowers and residents. Here’s what’s been proposed:
- Monthly payments will be calculated as 5% of discretionary income on undergraduate loans and 10% on graduate loans. Borrowers with both undergraduate and graduate loans will have a prorated payment percentage based upon the percentage of their outstanding debt of undergraduate vs. graduate.
- The poverty line deduction used to calculate discretionary income will be raised from 150% of the federal poverty level to 225%. A household size of 1 deduction (in the lower 48 states) would increase from $20,385 to $30,578.
- Forgiveness will occur after 10 years of payments if you have loan balances of $12,000 or less.
- If monthly interest isn’t covered by your monthly payment, it will be covered by the government. Loan balances will not increase while in this IDR plan when payments are less than interest. This applies to undergraduate and graduate loans. This could be a huge benefit for residents.
There is no mention of how spousal income will be treated, if there will be a payment cap, or if you have to qualify for a partial financial hardship to enroll in it. After the proposal process, some of the details could change for this program. I'll update this article as I know more.
What About the PSLF Waiver and IDR Waiver?
The Biden administration and the ED were pretty mum on the PSLF waiver and made no mention of the IDR waiver. The PSLF waiver is set to expire on October 31, 2022, so you need to get your paperwork done before then if you’d like to be considered under the relaxed rules. There have been proposals to implement pieces of the PSLF waiver into actual PSLF law. This consists of counting late payments, partial payments, deferments, and forbearances as PSLF credit.
The first four years borrowers were eligible for PSLF, October 2017-October 2021, roughly 18,000 borrowers received it. Since July 2022, more than 175,000 have received it. People are getting their loans forgiven, and it’s mostly older borrowers with FFEL loans.
Is Now the Time to Private Refinance My Student Loans?
With the final payment pause set, it is time to get serious about private refinancing your student loans. Borrowers not pursuing a federal loan forgiveness program should give strong consideration to privately refinancing their loans. Recently, interest rates for refinancing have started to level out, and they might look favorable to what you're paying when payments and interest resume in January 2023. WCI, in partnership with our vetted private student loan lenders, has negotiated a cash bonus for any borrower who refinances their loans by December 31, 2022. And, if you refinance $60,000 or more, WCI will throw in our flagship financial course, Fire Your Financial Advisor: A Step by Step Guide to Creating Your Own Financial Plan, a $799 value.
Student loan programs will continue to change, and it is our hope this process will become easier. Until that time, I will continue to inform you about what you need to know and how to create your plan to tackle your student loans. If you need personalized advice, schedule an appointment with a member of our StudentLoanAdvice.com team.
What do you think about the student loan holiday pause? Does this help you or hurt you? Is this policy fair? Comment below!
Forgiveness of debt is taxable income.
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https://www.irs.gov/taxtopics/tc431#:~:text=In%20general%2C%20if%20you%20have,the%20year%20the%20cancellation%20occurs.
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until Biden forgives the tax, too. He’s John Beresford Tipton.
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White get $10,000 debt forgiveness. People who got Pell Grants (which do not have to be paid back) get $20,000 forgiveness from Biden. Who are they?
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“The percentage of students who received Pell Grants was highest for Black students (72 percent) and lowest for Asian (36 percent) and White (34 percent) students. In 2015–16, the percentage of full-time, full-year undergraduate students who received loans from any source also varied by racial/ethnic group.” inces.ed.gov
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Tune in next year as the Dems play “What have you done for me lately” with black voters.
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FBN,
Student loan forgiveness is generally included in taxable income unless you do PSLF.
Under the American Rescue Plan, this debt relief will not be treated as taxable income for the federal income tax purposes.
https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/
Andrew SLA
Oh good point Andrew. It is normally taxable, but right now it isn’t.
While forgiveness of loans is generally taxable, it sounds as thought his $10-20K of forgiveness will not be. How that works out legally, I don’t know, but I’m sure they ran it past the government lawyers before announcing it.
The data on the racial breakdown of the poor in this country is well known. Just like cutting taxes always benefits the rich most (because they pay the most in tax), forgiving student loans of Pell grant recipients is going to most benefit the poor. Does that mean that cutting taxes or forgiving loans is racist? I don’t think so.
Seems ridiculous to do this through executive action, to be fair maybe I need to read the HEROES act more carefully but seems like over reach beyond what that was designed for, from my limited read of it. Great policy during times of inflation.
I kind of agree that this is something that should go through Congress, but I haven’t heard a legitimate proposal to stop it so I’d make my plans as though it is law for now.
” The HEROES Act was passed after 9/11 to expand the presidential powers in times of national emergency. COVID-19, categorized as a national emergency, was the catalyst to use the HEROES Act to forgive student loans. ”
Covid was a national emergency in March 2020, it’s not a national emergency in August 2022.
This is why legislation that gives broad based power to one branch is so dangerous. Future generations abuse it, and it seems to happen when an election is approaching.
Agreed!
The other issue with ruling by executive action is that it all tends to get reversed 4 years later. Seems much more difficult to go through Congress, for better or for worse.
I have read that my dependent college student will not be eligible for loan forgiveness due to our (parents) income. Can they delay application for forgiveness until they graduate and are no longer a dependent? Would this not open a strategy to try to carry 10k of federal loans even if otherwise not needed/planned?
Mike,
1.) There is little information on how dependent vs independent students will be treated in regards to the forgiveness. Are they graduating soon? If not, I doubt this will be something they qualify for.
2.) It would carry some strategy if you borrowed 10k now that could get forgiveness in future years. Why wouldn’t somebody take out a loan today if they knew it was going to be forgiven? There will be a specific time you need to borrow by to qualify. Which I think will be before the loan forgiveness (8/24) was announced.
Andrew SLA
Though few of us will qualify for student loan forgiveness, for the self-employed doctors, don’t forget the CARES act provision that allows $5250 to be paid by your employer towards your student loans without it being treated as income. My S-corp pays $5250 directly to my lender, which counts as a business expense and decreases my loan burden. Win-win. This policy was extended until 2025.
Careful with this. We looked at doing this but the problem is we were told that to be legal if we offered this benefit to myself, we’d have to offer it to every employee legally.
I am my only employee, so I’m good.
Doesn’t matter.
It might feel win-win, but it’s illegal. Sorry. I’ve had this question many times over the years and every time I look it up it’s the same, no go.
From the Internal Revenue Code:
https://irc.bloombergtax.com/public/uscode/doc/irc/section_127
That seems awfully clear to me. If you’re preparing your own taxes, I’d amend them. If you’re paying someone else, I’d fire them.
If my husband is not in an IDR plan but we would qualify for forgiveness based on our 2020 tax return (but not 2021 – you’re guessing we can use the lower of the 2?) should I enroll him in an IDR plan right now or just wait and provide our income with the forthcoming forgiveness application?
Thank you!!
Chandra,
He doesn’t need to enroll into an IDR plan to qualify for this loan forgiveness. The point I was trying to make was if the dept of education already has your income information, which they would if he was on an IDR plan, they would use that it to determine if you’re eligible. Since he hasn’t, he will need to send income documentation when the application is released.
Andrew SLA
One section you titled “What About the PSLF Waiver and IDR Waiver”. I see what you put about PSLF here but I don’t see anything about IDR waiver. Maybe I’m missing it. That’s the only part of all this that’s interesting to me since I don’t work for a PSLF qualifying employer and make too much for the forgiveness just announced. I’ve been in a fixed repayment plan essentially since I graduated in 2005 and my loans are from 2003. That’s getting awfully close to 20 years. My lender sent out a blast saying people should consider switching to IDR and somehow we’d get credit for the whole time even though all previous payments weren’t Income driven? That doesn’t make sense to me but a lot of this doesn’t make sense. Without evaluating my specific situation, can you speak to the IDR waiver and what it means in general? Is anyone getting their loan forgiven after 20 years of fixed repayment plan?
EyeDoc,
Yes, they didn’t say anything about the IDR waiver in Biden’s address.
So, I wrote about the IDR waiver in the May WCI newsletter if you want to look it up. The parameters are if you were in forbearance for 12 consecutive months or longer OR more than 36 months total, you qualify to have those months added toward your forgiveness track. Here’s what should end up counting as credit to PSLF or IDR forgiveness
-forbearances (ex residency, financial hardship, etc.)
-all deferments prior to 2013 (excluding in-school deferment)
-ANY payments made on your loans even if you made them prior to consolidation or weren’t in an IDR plan
They are supposed to automatically update everyone’s student loans by this fall if they qualify for the additional credits under this waiver. Another benefit they are rolling out for IDR forgiveness is a payment tracker similar to what they are already doing for PSLF.
Andrew SLA
You forgot to include that any payments made on student loans during the pandemic are eligible to be refunded through your student loan provider.
In my opinion, this was much needed relief for many working folks with lower wages.
Well, you can’t include everything in every post, but thank you for that little gem.
I’m not sure how much I’d want my student loan payments refunded though, unless they were about to forgiven.
Jacob,
Great point. If you made payments on direct loans since March 2020 you can have them refunded to you by calling your servicer and requesting a refund. And, if you are on a loan forgiveness program you’ll still have credit for all the non-payments you’ve made since March 2020.
Andrew SLA
Does the below mean that if I haven’t certified my income since 2019 then Dept of Ed would use the income information they have on file since then to determine if I qualify? In other words I wouldn’t need to provide them my 2020 or 2021 tax return to obtain forgiveness?
“ The income to be used when you apply for forgiveness is what you’ve submitted on your most recent IDR form. Due to the pandemic, most borrowers haven’t certified their income since 2019 or 2020. If you haven’t enrolled into an IDR plan yet, you will have to report income on a simple application. Reading the tea leaves, I’d assume it’s your tax return from 2020 or 2021, because the government has alluded to income during the pandemic. Whatever would be the lower of the two is what you could submit.”
Crazy right? But yes, that’s our best guess right now.
I’ve got four questions
1) if we currently have loans and do a direct consolidation now to fed loans, can we be eligible for this forgiveness, or we should have done the consolidation prior to July (the loans that qualify are prior to july of this year)
2) in a married filing jointly situation that makes less than 250K, but the spouse who has the loans is not the spouse who received the pell grant, will the couple still qualify for the 20K in relief as opposed to just the 10K (does it matter which spouse received the pell grant?)
3) what if we did a direct consolidation during october of 2021 (once the PSLF waiver changes were made) would our old loan company refund the payments made during march 2020 through october 2021? they were FFEL loans that we consolidated once the PSLF waiver was put in place..
4) is the income requirements adjusted gross or total income before deductions? (on tax form 1040 line 11) or which one.. ?
thank you for any info, I could not find this anywhere.
AppleK
1. Nope consolidating your loans now shouldn’t impact your ability to receive the widespread loan forgiveness. If you didn’t have any loans until today and you were now trying to receive the loan forgiveness you probably wouldn’t be eligible. However, we are still waiting on the cutoff date for when you needed to borrow your federal loans by to be eligible.
2. My best guess is the borrower needed to take the pell grants to be eligible for 20k. If not, they will receive the 10k.
3. On studentaid.gov it says any payment made since March 2020 can be refunded. However, my experience with clients is if they made payments on a commercially-held FFEL this is not the case. These loans were also not eligible for the $0 payments and interest direct loans were eligible for. I’d definitely call your servicer and request they refund those payments as well. But, I don’t think they will.
https://studentaid.gov/announcements-events/covid-19/payment-pause-zero-interest
4. No word on this yet. I’d think it is AGI though.
Andrew SLA
Thank you for all of your help! Great post. Quick question – I am employed by my hospital and they pay $10,000 towards my student loans. The money technically gets added onto my paycheck and then taxed regularly. But from the comment above and per the CARES act, it looks like $5250 of that money shouldn’t have been taxed. Am I misunderstanding something?
Depends on if the employer meets the requirements of the law that allows that as a tax deduction to the business without it being taxable to you. Doesn’t hurt to ask HR though.
It seems like this new IDR plan could possibly change some folks’ calculus when it comes to whether PSLF is worth it (not so much whether to work at a nonprofit vs not, but whether to go through the hassle of the paperwork). If, like for me, attending salary is the big variable in whether there will still be much left to forgive once you’ve made 120 payments, the salary range where it will still be worth it to do PSLF will shift a bit higher if you’re on the Biden IDR plan.
Benj,
Potentially. If there isn’t a payment cap and the ability to exclude spousal income through MFS for it though, I’d still favor PAYE for attending physicians. The change in discretionary income from 150% pov line to 225% is nice and the fact it will cover any unpaid interest is beneficial for residents. But, it still isn’t enough to change student loan planning for attendings yet.
Andrew SLA
Assuming it actually becomes law, not a given yet.
If I have eligible loans (total over 30k remaining) but have 4500 of Pell grants, does this mean I will get 20 k total forgiven because I have had no parental help with my college or just the max value of the existing Pell grants?
Jessica,
If you took out Pell Grants of any kind and are not claimed as a dependent you should be eligible for up to 20k of forgiveness.
Andrew SLA
Hello,
I currently have consolidated loans and going towards PSLF. My combined income is about 640,000 and I’m worried at how much my payment will be under REPAYE. I think about 5,000? Should I switch to the New IBR plan and would that lower my payment? It says it is only for undergrad loans but mine are consolidated.
Thanks for your help!
Katie K,
There isn’t a new IBR plan available yet. The talk is it will be released middle of next year IF they are able to pass it. You only have two options, assuming you make more than you owe, REPAYE or ICR. Go with the plan that provides you with the lower payment.
Andrew SLA
Thanks Andrew.
Wow– yes it says over $5,000 and ICR is over $6,000. I feel lucky to have gotten some free months with the COVID pause. I last paid when I was in fellowship, so this feels so high! I sure hope they pass the new IBR. 5 years left for PSLF. Maybe I should just start working less! Thanks, Katie K
Hey Andrew,
Thanks for all the you do! Not sure I saw this detailed in your post or in the ?s/responses. How does this 10k forgiveness affect borrowers going for PSLF? I at almost year 6 of the program, and I worry that taking this 10k forgiveness off my 6 figure loan might affect my eligibility. I haven’t been able to find anyone who has specifically commented on this.
Is it safer to forgoe this forgiveness to ensure the bulk of my loan is forgiven since my monthly payments will be capped as an attending?
Thanks again!
The $10K applies now, the rest you get in 4 more years. Nothing to worry about for you though. Go ahead and take this now just in case your plans change down the road.