Student loans are one of the largest financial obligations for a number of demographics, many of whom are now in their twenties to early forties and active in the workforce. For these and other borrowers, the Biden administration’s announcement of student loan forgiveness may come as a welcome relief. However, to understand whether you qualify to take advantage of the student loan forgiveness program-and how-you will first need to evaluate everything that is contained within Biden’s strategy. Here’s what you need to know.
What Is Biden’s Student Loan Forgiveness Plan?
Biden’s forgiveness plan intends to erase up to $20,000 in debt for eligible families, potentially starting as early as the end of 2022. This comes slightly before the repayment pause’s planned expiration date, and a beta version of the forgiveness application has already been made available on the federal student aid website. It is unclear at this time when student loan forgiveness may be processed for individual borrowers, and as of late October 2022, an appeals court is blocking Biden’s relief program prior to the resolution of pushback from lower courts.
Who Qualifies for Biden’s Student Loan Forgiveness?
Those who received any of a number of qualifying graduate or undergraduate student loans on or before June 30, 2022 and earn less than $125,000 annually (or less than $250,000 annually for married couples or heads of household) qualify to receive up to $20,000 in student loan forgiveness.
A total of $10,000 debt cancellation will be available for any borrowers who meet these basic requirements, and borrowers who received a Pell Grant at any point during their education will be eligible for $20,000 in debt cancellation. For the purposes of calculating potential forgiveness, income is based on either your 2020 or 2021 tax return. You can find the relevant income data on line 11 of the tax return form 1040. However, if the borrower’s parents still claim their children as their dependents for tax purposes, then the Department of Education will use the parents’ income to make decisions.
It is important to note that most student loans qualify for Biden’s student loan forgiveness strategy, such as government-owned FFEL loans and Direct loans. Depending on the date of consolidation, even consolidated federal loans may qualify. However, all private student loans do not qualify. Those who have already paid their student loans off before the COVID-19 pandemic will not receive refunds, though there is a temporary waiver in place to recover payments made during the payment pause.
How Do You Apply for Biden’s Student Loan Forgiveness?
The application is currently available on the federal student aid website in both English and Spanish. Borrowers can apply before December 31, 2023, though it is not clear when forgiveness might start to be processed. They need to provide their basic information (name, date of birth, social security number, email address and phone number), but they do not need to provide detailed information relating to their student loans, such as their FSA ID, tax records and other supporting documents at this time.
The Department of Education has stated previously that it needs four to six weeks to process the applications, though the veracity of this information is currently unclear. During this process, borrowers might be asked to provide additional documentation to verify their incomes. Recent news has indicated that borrowers enrolled on an income-based repayment plan, for which their income information is already shared with the government, may see loan forgiveness automatically.
Backlash for Biden’s Student Loan Forgiveness Plan
Some states (Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina) have mounted legal challenges to Biden’s student loan forgiveness plan. They allege that in launching this plan, the president has sidestepped congressional authority, and the debt cancellation will negatively impact the states’ tax revenues, as well as incomes of the state entities that make investments in service loans.
The plan so far has survived two legal challenges. A federal judge rejected the legal challenge by the states, and U.S. Supreme Court Justice Amy Barret rejected an appeal to block the plan. However, more legal challenges are to be expected, and a U.S. appeal court has temporarily blocked Biden’s loan forgiveness plan until other disagreements are resolved.
Work With a Professional to Strategize About Your Financial Future
The question for many borrowers now is whether the legal issues can be resolved before Jan. 1, 2023, as borrowers will have to restart their payments after the pause caused by the pandemic. If you need guidance on setting your finances up for success in light of changes to the student loan program, the professionals at Inflection Advisors can help. Reach out to learn more or to schedule an appointment to get started.