We are proud members of the Independent Educational Consultants Association. Our goal at ACC is to spread facts not germs! Here are the facts on the loan forgiveness policy.
IECA Member Alert on Biden Administration Student Loan Policy
By Johnna Purcell, Pillsbury Winthrop Shaw Pittman LLP
IECA’s Government Relations Firm
On August 24, 2022, President Biden announced his administration’s long-anticipated plan for student loan forgiveness. The plan includes student loan forgiveness and reforms to programs within the U.S. Department of Education (ED) that aim to make college more affordable and loan repayment more accessible.
Student Loan Forgiveness
The plan’s topline provision will provide up to $20,000 in debt cancellation for Pell Grant recipients and up to $10,000 in debt cancellation for non-Pell Grant borrowers. To be eligible for debt forgiveness, borrowers must have an annual income of less than $125,000 per year. Income determinations will be based on adjusted gross income for tax years 2020 and 2021; 2022 income will not be considered for eligibility purposes. Loan forgiveness will apply to all loans held by the federal government.
This announcement comes after a two year pause on federal student loan repayment due to the COVID-19 pandemic. To effectively restart the payment process and prepare borrowers to resume making payments, there will be a final extension of the pause on federal student loan repayment until December 31, 2022. Borrowers will be required to begin making payments on their federal student loans in the new year.
Loan forgiveness applies to student loans currently held by the federal government and disbursed before June 30, 2022. Federally held aid including Pell Grants, Direct Loans, Parent PLUS, and Grad PLUS loans are eligible. Additionally, loans made before 2010 through the now defunct Federal Family Education Loans (FFEL) program that are non-Direct Loans and Perkins Loans that are now held by the federal government will be eligible. However, loans made through the FFEL program that are privately held are ineligible for forgiveness. If FFEL borrowers with privately held loans want to try to benefit from loan forgiveness now they can attempt to consolidate their loan into the Direct Loan Program by contacting their loan servicer. The administration is exploring options to work with commercial holders of nearly 5 million FFEL loans to help those borrowers benefit from debt forgiveness.
Many borrowers will not need to act to receive loan forgiveness. If ED has a borrower’s income data on file, then forgiveness will be “automatic.” If ED does not have a borrower’s income data on file, the borrower will need to supply that information via a simple application. ED expects that the application will be available by “early October” and recommends that borrowers complete the application by November 15, 2022, so that they receive relief before the payment pause ends on December 31, 2022.
ED will release additional information about the loan forgiveness program in the following weeks. Interested borrowers, advisors, students, and parents can sign up to receive email updates here.
In addition to student debt cancellation, there are several other policies included in President Biden’s student loan plan aimed at making the student loan process easier for current and future borrowers to navigate and reducing the cost of college. These include:
- Changes to Income-Driven Repayment Plans. In the coming days, ED plans to announce a proposed rule that would create a new income-driven repayment plan. The plan would reduce the amount of discretionary income that undergraduate borrowers must pay on their loans each month from 10% to 5% and raise the amount of income that is considered nondiscretionary and, thereby, protected from repayment. The new rule would also fully cover a borrower’s unpaid monthly interest payments such that a borrower’s balance will not grow as long as they are making their required payments. Finally, the rule would change the income-driven repayment plan to forgive student debt still owed after 10 years as opposed to the current 20 years.
- Reforms to the Public Service Loan Forgiveness Program. ED also plans to propose a rule that will reform the Public Service Loan Forgiveness Program (PSLF). The PSLF provides credit toward loan forgiveness for federal student loan borrowers who worked in a nonprofit, the military, or federal, state, tribal, or local government. Earlier in 2022, ED made temporary changes to the PSLF, expanding eligibility requirements to allow more individuals to benefit from it. ED will now propose additional rules that ensure the program is more effective moving forward. The proposal would allow certain types of deferments of loan payments such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service to count toward credit for loan forgiveness for PSLF purposes. The rule would also allow more types of loan payments to qualify for PSLF including partial lump sum and late payments.
- Reducing the Cost of College. ED will be developing new proposals aimed at holding colleges that contributed to the current student debt crisis accountable. One portion of the proposal will include publishing an annual watch list of the programs with the worst debt levels in the country and requesting “institutional improvement plans” from colleges with the worst student debt levels that outline how they plan to decrease student debt levels.
ED is expected to release its final proposed rules for these policies over the coming months.