Update 10/18/2022: You can now apply for the Federal Student Loan Debt Relief Program at https://studentaid.gov/debt-relief/application. “Time to Complete: About 5 Minutes. No Login or Documents Required.”
Original post 8/24/2022:
The big news today was that a Biden administration executive order granted a one-time forgiveness of up to $20,000 in federal student loan balances (based on income) for tens of millions of borrowers (press release). Although technically right now nobody has to make any loan repayments due to the pandemic pause, this is important to note for those that are making student loan payments anyway or planning on a private loan refinance. If you are eligible for forgiveness, you should stop making payments immediately, as you will not receive any refund for federal student loan repayments already made. Here are the highlights:
Who qualifies for debt forgiveness?
- Annual income must have been below $125,000 (for individuals) or $250,000 (for married couples or heads of households). This is based on your 2020 or 2021 income tax returns, specifically your adjusted gross income (AGI).
- If you DID receive a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt cancellation.
- If you did NOT receive a Pell Grant in college and meet the income threshold, you will be eligible for up to $10,000 in debt cancellation.
- Current students are also eligible. If they are dependents, they will be assessed based on their parents’ income.
- Parent PLUS loans, federal loans taken out by parents to help their children pay for college, are included in the plan. In the households where the student and the parent separately took out qualifying loans, both would be eligible for relief.
- Loans must have been originated before July 1st, 2022.
What happens if I already paid down my student loans below the $10k/$20k cap?
Sorry. The amount of forgiveness is capped at the amount of your outstanding debt. For example: If you are eligible for $20,000 in debt relief, but have a balance of $15,000 remaining, you will only receive $15,000 in relief.
If I qualify, what actions should I take now?
- If you are making student loan payments and are near or below the cap, look into stopping those payments immediately. Don’t refinance into a private loan. Any payment you make towards your Federal student loan won’t be refunded.
- Check with your loan servicer to ensure your address, email, and phone number are correct.
- If the Department of Education (DoE) doesn’t have your income information already (due to an income-based repayment plan), then you will have to wait for additional guidance from your servicer.
- To be alerted when the application process is open, sign up for email updates from the Department of Education here.
The student loan repayment pause (and 0% interest) that started in March 2020 was extended through December 31, 2022, with payments resuming in January 2023. The extended pause will occur automatically. This is supposed to be the final extension. I assume that they plan to process the forgiveness before the pause ends.
Reminder: If you haven’t yet applied for the waiver for Expanded Public Service Loan Forgiveness (PSLF), the deadline is approaching fast at the end of October 2022! I have friends that have navigated the labyrinth and finally gotten their loans forgiven via this significant opportunity.
The rest of the order starts with “the Biden-Harris Administration is proposing a rule…” so I prefer not talk about that until it is actually implemented.
Many have strong opinions about this topic. I know that I would have been quite disappointed if this occurred right after I aggressively paid down my own $30,000 in student loans while still in school (and thus deferment) and paid it off completely within a year after graduation. I always wonder how both the mortgage market (and thus housing prices) and student loan market (and thus tuition prices) would look without government involvement. Would a private lender have given me that much money based on future earning potential, if that debt was treated like others and allowed to be discharged in bankruptcy?
As the NY Times notes, this debt relief plan may be subject to legal challenges. However, if this can help you, I would fully prepare to take advantage of it.
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As someone who PAID my way through life…and continues to PAY taxes…this is PURE BS!!!
This country has gone to the GUTTER with these LEFTIST Politics…
Interestingly, an election is only 2 months away!!!
This if VOTER BRIBERY!
I’m having trouble following your argument here… are you saying that, if you’re not benefiting from something, no one else should as well?
Oh please, that is a weak response to a valid argument.
That is NOT at all what was said and you know it. The fact is C F Frost and everyone is paying for this. They are punished in that way among others. Maybe he sacrificed on his education by not focusing as much due to work, going to a cheaper school, changing a major, or not even going and is being punished for that.
This is pure trash and no one, yes no one, can support this who isn’t lying to themselves or beyond clueless
I’m pretty sure I’m not lying to myself, so I guess I’m just beyond clueless. Thanks for the helpful comment.
Absolutely CF! Pathetic!
I agree. A desperate administration buying votes.
They’re also buying the senior vote with outrageous COL ss raises. Which wouldn’t bother me except they’re telling the following generations to get ready for cuts. Boomers are getting raises. They also got social security refunds in the 70’s and 80’s when it was overfunded…and the rest of us are getting cuts. Yep. It’s just all buying the votes they need.
What they don’t need is Gen X, so they’ve actually decided to whack at their ability to save for retirement on their own in new proposals rolled out last year. Imagine that we will see the worst of it after the election.
I also see blatant vote buying in states like California and Colorado with “inflation refunds” and TABOR refunds. The TAbor refund is very interesting because Colorado has never issued one. It was passed by Rebublicans to keep a balanced budget but the democrat polis made a huge deal of issuing a refund “because he cares a lot” without anyone mentioning it wouldn’t have been possible without republicans.
Yep. It’s getting sickening.
When I graduated college, my parents’ first piece of advice to me was to consolidate my loans with a private lender to get a better interest rate. Never in a million years did they dream that the government would bail out borrowers for no(?) reason. For those that are able to take advantage, good on you, I would too. Looking back, I would’ve been better off keeping my higher federal interest rate for 17 years and then getting loan forgiveness.
Hurts a little bit since I lived like a monk from 2015-2019 to pay mine off on a 50K salary. Oh well – glad they fixed the problem lol
Us taxpayers are the one’s who will be giving them the forgiveness. Lazy, just complete and utter. Bullcrap. They took the loan. They should pay it off!! Forgiveness for Democratic votes. Thank you leftist people.
Dumb question, does this mean I can go sign up for grad school classes now, up to $10K, take a loan and then get my tuition reimbursed?
I’m wondering the same thing. Or a kid who is just starting college this fall. Are they eligible?
Student loans do not go into repayment until you graduate or leave school. It has always been like that.
So no they are not eligible right now. And neither is JC.
I don’t think you’re grasping how sick and twisted this is.
This is a one-time deal for strictly for those students with a student loan that was filed before Aug 2022.
So, we’re very concerned the debt of a select group of students at a select point of time. Everyone else is screwed.
This does not make a lick of sense.
“Everyone else is screwed.” I’m glad you recognize that student loan debt is a major problem in this country. How do you propose we help all of those people that are screwed?
Loan forgiveness = voter bribe. Wonder why trump raid and school loan forgiveness now, just before election. Pathetic tactic….oh yeah, where did BLM and their rioting ilk go?
Is there anything mentioned for people that are working the low paying government (state/county) jobs, that they would someone be given some form of credit towards their 120 payments? LE and other public servants one would hope would get some form of credit at least. Politics aside, if the government is going to take this action then help those who are in that program.
The press release Jonathan posted has section on this program. They are proposing multiple changes to make it easier for people in the jobs you are referencing to gain loan forgiveness. I’m not sure if all of the exact details have been released yet though.
What’s truly unfortunate, the fairness and future tax implication aspects of this aside, is that it will throw fuel on the broad inflationary fire the country is already battling in the short term. And long term, it will lead to an even greater increase in college tuition costs as it encourages people to accept inflated college prices and take out loans they can’t afford by setting a precedent for government debt forgiveness (if the gov did it once, they’ll likely do it again). It would be one thing if the gov put measures in place to control cost inflation at the same time as doing this, but as it stands, this is nothing more than a politically motivated giveaway.
The President cannot put measures in place to control cost inflation of higher education, that would require a Congressional act. This is the only tool he has in his toolbox on this issue. It’s a small band aid on a major issue, but it’s a start. I like that they put a cap of 5% of income and 20 years max of payments on it as well.
I paid off all of my loans 5 years ago and this doesn’t hurt me at all. I’m happy to put my tax dollars toward this rather than Afghanistan. Now lets get states to start funding higher education again and we can really fix this problem.
Well said JS. Once people start complaining on how tax payer money is spent , pandora’s box opens up. There is a lot of things I don’t like about where tax payer money going to but I did complain about the war in Afghanistan, money wasted. I’m not saying Biden’s plan is perfect or I necessarily agree with it but it’s a drop in the bucket to Afghanistan.
Of course all of us responsible people receiving my money blog are “like” thinkers. It’s clear this puts our country in even a worse state that it’s been thrown into the last couple of years. No doubt this will go all the way to the supreme court and will be overturned but not before midterm elections! It’s all political folks.
As someone who paid back every loan I’ve taken, I’m not sure what problem this is solving? If it’s to clean up predatory lending, questionable ‘colleges’, sure. Otherwise, I don’t see this as a positive thing.
This pisses me off and I will be voting for any candidates against it, even if they aren’t my favorites.
I completed an Associate which I struggled to pay for, and didn’t get a BA as it cost too much. I made a decision, and I struggled for years. I worked hard, though and have become successful; every step of the way, I’m punished. A good portion of this country is set on destroying it!
If your single, successful and make over $125,000 per year no forgiveness for you! Sounds like the soup Nazi. One other thing, is this discrimination on the basis of socioeconomic status? That is against Federal Law.
There is no federal protection for socioeconomic status. Being rich or poor is not a protected class (e.g., race, gender, religion). Many programs are related to income, wealth, or metrics related to socioeconomic status both at the local and federal level. That includes the progressive federal income tax system (+ some states), the means-tested pandemic payments (bipartisan to push through), food or housing assistance, and even many health insurance subsidies.
The President does not have the authority to make a law.
Cancelling student loan debt would require a law be passed by Congress.
The notes on a student loan are property.
Cancelling the debt for some students while excluding other students violates the 5th Amendment, the due process clause of the Constitution.
No one shall be deprived of property without due process.
Current students are eligible?
I haven’t filed 2021 yet and had our son put $5000 tuition last year on federal student loans.
Should we file not claiming him as exemption for 2021?
Not sure how current students are eligible but…
This could all be challenged in court so probably just a pre-Midterm ploy by democrats to buy votes. Guessing it will be years until this is settled.
I filed my son and daughter individual 2021 tax returns. Then filed ours last week not claiming either since our taxable income is over $500K and we get ZERO deduction credit anyway. When my son entered college in 2020 we had him put $10000 on a federal loan. Since there’s no interest until graduation plus help him learn about the process, etc. He just filed for forgiveness since the income cap is EITHER 2020 (he was on ours and wouldn’t qualify) OR 2021 (his income was less than $25K on his return).
I don’t care if he gets the money since we will pay it upon graduation anyway. Curious though.
So frustrated. I worked full time while going to college. Took an extra job at the local Publix for a few months to pay back the loan before graduation. Literally worked a full time job, a side job, and went to school on 2 full time scholarships for 31 hours/semester (scholarship did not cover fees, room, or board). It was the roughest time of my life, and now I’m being told, “Thanks for your hard work; now you must help pay for your peers’ loans, too.” I’m in utter shock and my motivation to keep my work at a high level is at an all time low. This is the type of thing that will destroy our economy – frustrate and demotivate the biggest contributors to it.
I went to school with people who got student loans and bought a sail boat. Used the money for spring break vacations to cancun. Frugal and responsible me kept washing dishes in the dorm during spring break. .
I read an article in the NY Times about a woman who took on student loans to flip houses with her husband. And lets not forget Nadia Suleman aka octomom. She took out student loans to inseminate herself with a ton of children all who would require state support.
Yeah. It burns. And it’s going to work to buy them the votes they need.
Sincere question for those who feel it’s irresponsible to use tax-payer money for student loan debt forgiveness.
Taxpayers have been getting an extraordinary return on student loan debt (ex. A student takes out a loan for 10 years at 5% interest, a $45,000 loan will have grown to $73,300 repayment // a pretty average scenario).
This proposed $10k forgiveness barely erases a third of the interest paid by most borrowers.
Am I missing something that I feel that this forgiveness is therefore a nearly imperceivable change, when it comes to what our taxes are used for?
Anyone have a more researched answer/response to this?
I’m biased. I aggressively paid off my student loans working 2 jobs. But here are implications with this policy.
First, economists (even the economist under the Obama administration) say this will in fact add more fuel to the inflation fire we’re all experiencing. They “erased”about 500 billion dollars in total backed by taxpayers. This hurts low income earners who didn’t attend college and the middle class.
Second, the department of education guarantees student loans to basically everyone. This has allowed colleges to ballon their charges and the government steps in to back it which further escalated an issue for student loans balances. Colleges are profit maximizing organizations afterall even though the are classified under non-profit tax status. This is how we’ve started seeing universities charge 40-50k a year to attend because why not. The students will get the loan, so no big deal, right? Also, how colleges have been able to build up large endowments on the taxpayer dime.
Lastly, this gives the green light to colleges to increase charges on students because the Biden admin set a precedent that they will just start “erasing” debt. Students are way more likely to take on debt after this because they assume it will get “erased”.
*Erase is the taxpayer funds eliminating the debt*
Wealth of information here from NY Fed on Student Loans:
https://libertystreeteconomics.newyorkfed.org/2022/04/who-are-the-federal-student-loan-borrowers-and-who-benefits-from-forgiveness/
From what I’ve read, wouldn’t the inflationary pressures already be “baked in” since there was a pause on student loan payments during the pandemic, and resuming payments will weigh on inflation, creating a wash in overall inflationary pressures?
To your point, what can be done about tuition inflation?
Such asset bubbles are inherent in capitalism, regardless?
I’m going off of what the majority of economists are saying, but I agree we shouldn’t totally write off the minority. Although, I think it is telling that even the Obama admin’s own economist is saying it is going to cause inflation.
I checked the article, but I didn’t see anything mentioned about inflation. Can you post the quote you read?
My personal thought is that the department of education & states need to work on cost structure directly with the colleges. The cost of a degree should never exceed the median year income of a recent grad. If the college isn’t willing to come to the table then they will just have to be a private, for profit entity and they should not qualify federal loans. If people want to attend they will need to go through a Credit Union or Bank.
Then they need to make student loans dischargeable in bankruptcy again. Banks have run amuck with loans because there is very low risk tied to them. They won’t risk 50K on a business loan, but they’ll allow students to accrue $150K in debt without even stepping foot outside the college yet.
Low income households should still be given grants, scholarships, ect. They should be the priority because they need it most.
Completely agree with your proposed structural changes to education…! This is even more important than these short term fixes.
Here are some of the articles I read:
https://thehill.com/policy/3614573-how-will-bidens-student-loan-plan-impact-inflation/
https://www.cbsnews.com/news/student-loan-forgiveness-biden-inflation/
As well as some of a more lengthy investigation, although a bit dated:
https://www.levyinstitute.org/pubs/rpr_2_6.pdf
The inflation argument is spurious and I expect better from Jason Furman. His tweet exaggerated the size of the program at “roughly half [a] trillion dollars”. The real cost is estimated by the independent Penn-Wharton model at $300 billion. And the way this is structured, it isn’t like sending everyone a $10k check that they can immediately spend.
Instead it is allowing folks to continue not making payments on up to $10k (or $20k for Pell Grant recipients) of loans in the future. Based on a 10-year term and a 6% interest rate, those waived payments add $3 billion of purchasing power to those borrowers each month. That may sound like a lot, but we are a large country with a large economy; annualized that would add .2% to the U.S. GDP each year.
I understand those who paid back their loans (as I did myself), who are very much represented by this blog’s readership, are frustrated by this, but it actually represents a very mild economic stimulus and unlikely to increase inflation noticeably.
I’m really surprised Penn-Wharton is trying to minimize the extent of the forgiveness. Kidding. My problem with this policy is it again fails the students. Today, a bunch of young adults are going to be in a deeper load of debt because this policy fails to address the root cause. Not to mention the possible blowback on the lower income/marginalized communities that are impacted because they didn’t attend college due to cost/debt/commitments outside of attending college. This administration should be putting pressure on colleges to make attendance affordable for all. College don’t pay taxes, but their endowments are being lined with tax payer funds. The government needs to re-work the distribution of funding because this student loan debacle is only going to get worse.
Yeah, this is garbage. Not only did I pay for my own education, as did my wife, but we scrimped and saved on a one income family to fund 529 college funds for both my daughters, After the sacrifices we made, I’m feeling very foolish. What a fool I was trying to act responsible. They need to add a chapter to that squirrel story where the squirrel gets sodomized at the end.
Was a life-long democrat. Never voted republican in my life for any race. Not anymore. This cured me right up. These people are sick.
How much did college cost when you went compared to how much it costs now? What was your interest rate compared to what it is now? As someone who paid off all of his loans, I can’t imagine getting this worked up over others getting a $10k break when I know many of them had to pay much more for college than I did.
If you’re seriously arguing that interest rates were lower “back in the day”, you really don’t have a grasp on this argument or a fundamental understanding of the economy.
I suppose forgiving all those PPP loans didn’t add to inflation?
I don’t quite get the argument. They did. Many were fraudulent. California handed out billions in fraudulent money.
And no one is happy about it.
What’s your point?
The point is that government wastes lots of money all the time, be it republican or democrat. I did work my way through college, and paid off my student loans, earlier than the term (just last year), and it of course makes me mad that I can’t benefit from the loan forgiveness. But I am glad that this money would help lots of people who actually need that break. Unlike the money wasted in Iraq and Afghanistan, on building bridges to nowhere, on Wall street and banks bailouts, on tax breaks for the richest, and of course PPP loans forgiveness, when some of that money actually went to colleges who charged these outrages tuitions.
20k apiece would help everyone.
I still don’t get your point.
Dude, I’m currently paying for oldest daughter’s college, right now. Today. In addition I will be paying for my youngest daughter’s college coming up shortly. You can’t get any more current than that. And yea I do have an issue that now we’re arbitrarily handing out money for no reason other than votes. They always accuse democrats of being socialist. Uh-uh. This is far worse.
There is a big difference between liberals and progressives. This is a progressive maneuver. Most of their actions are based in their perception the world has done them wrong and now you have to pay.
Tell me about it. I lean liberal, but I’m not clear on what this does to resolve any of the major issues with college education. I think what it does a good job of is insinuate that they’re going to pay the loans for students? Maybe colleges get to charge extra next year knowing that the government opened another lucrative door for them?
Wealthy people get breaks in many ways – farm subsidies, low tax rates for dividends and capital gains, the carried interest tax break, bail out of wall street, bail out of the auto industry, corporate subsidies, tax sheltering, etc, etc. etc. I think it’s terrific that students are getting some help from the government!
Can you explain what this does to resolve students taking out large amounts of student loans? Because I can’t see it.