Student Debt Cancellation: Where We Stand

Borrowers earning under $125,000 for individuals and $250,000 for families will get up to $20,000 in cancellation.
Joe Biden’s Student Loan Plan: What It Could Mean for You

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President Joe Biden announced the details of his student loan forgiveness plan on Aug. 24, after months of speculation.

Borrowers who earn less than $125,000 and filed taxes as individuals or earn less than $250,000 and filed married jointly will see up to $20,000 in federal student loan cancellation. Those who received a Pell Grant as part of their aid package will get $20,000 and those who didn't will get $10,000.

Through executive order, the forgiveness plan could wipe out student loan debt for up to 20 million borrowers. Barring legal challenges, applications for cancellation are expected to open in October. Some borrowers whose income information already rests with the Department of Education could see cancellation occur automatically.

What Biden has done for borrowers so far

Forbearance: The White House has extended the broad, zero-interest pause on loan payments begun under President Donald Trump. Federal student loan forbearance now is scheduled to end Dec. 31.

Other targeted loan forgiveness: The Department of Education also has revised existing loan forgiveness programs and estimates that $34 billion in loans has been canceled for roughly 1.7 million borrowers since the beginning of Biden's term.

A new income-driven repayment plan: The new IDR plan will change how payments are calculated and how much income is counted. For most borrowers who enroll, monthly payments should be cut by half or more.

Relief on defaulted loans: The White House on Aug. 18 announced a program to wipe the slate clean for more than 7 million borrowers who have defaulted on their student loans, which brings severe consequences including possible seizure of tax refunds and Social Security checks and long-lasting impacts on credit. The Fresh Start program addresses most of the consequences of default by removing the penalties and making the rehabilitation process cheap and easy for borrowers who choose to rehabilitate their loans and move forward with a payment plan.

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Does the forgiveness plan do enough?

Members of Congress had urged Biden to cancel $50,000 in debt per borrower. Others deride any cancellation at all as a handout and inherently unfair.

Popular arguments for student debt cancellation

  • Student debt has caused borrowers to delay their lives. From starting businesses and buying homes to getting married and having children, student debt is preventing borrowers from making significant financial decisions, proponents of debt cancellation say.

  • Not all borrowers have degrees that boost earnings. Those with debt and no degree are four times as likely to default compared to those with a degree, according to  Brookings. About 41.8% of those who entered college in 2011-12 took on student loans, National Center for Education Statistics data shows. But six years later, only 59% had completed their bachelor’s degree. Borrowers without degrees don’t benefit from the increase in lifetime earnings that tend to correlate with college completion.

  • Student debt cancellation could reduce the racial wealth gap. Proponents point to data that shows a lack of generational wealth drives many Black and Hispanic families to lean more heavily on student loans to afford college. The inequities continue after graduation: Black and Hispanic graduates typically earn less than other graduates and are thus more likely to default on their loans.

Popular arguments against student debt cancellation

  • Student debt cancellation is inherently unfair. Critics argue those who didn’t go to college or those who already paid off their student loans would not benefit from student debt cancellation. Critics say cancellation would benefit only the 13% of the population who attend college, and argue cancellation is unnecessary because those with college educations tend to earn more.

  • One-time cancellation doesn’t solve tomorrow’s student debt problem. If all student debt were eliminated, overall debt would return to the current level by 2035, according to July 2021 estimates by the Committee for a Responsible Federal Budget, a right-center public policy organization. If $10,000 in debt per borrower were eliminated, overall debt would rise to current levels by 2025.

Other plans we’re watching: financial aid, student debt

Policy proposals in the works

On July 6, the Biden administration proposed new regulations intended to improve existing forgiveness programs and prevent instances of interest capitalization on loans (when unpaid interest is added to your loan's principal). After a formal review process, final rules are expected to be published this fall and the department hopes the new regulations will take effect no later than July 1, 2023. Here’s what’s in the works:

Prevent interest from capitalizing when it isn’t required by statute. That includes when a borrower is:

  • Entering repayment, which happens typically six months after leaving school or graduating.

  • Exiting an administrative forbearance, which is automatic and happens when the education department or a servicer is processing paperwork.

  • Leaving a hardship forbearance.

  • Defaulting on a student loan.

  • Exiting or failing to update income-driven repayment plans including the most accessible plan Revised Pay As You Earn or REPAYE.

Simplify rules for the borrower defense program.

  • Borrower defense claims are filed by students who were defrauded or misled by their schools. New rules would establish clearer standards for the types of misconduct under which a borrower could file a claim including: aggressive and deceptive recruitment practices; substantial misrepresentations; substantial omissions of fact; breaches of contract; state or federal judgments or final Department of Education actions.

  • Colleges would be on the hook to cover discharge costs. But borrowers won’t have to wait for the recoupment process to complete before they receive a discharge.

  • Allow for group applications instead of individual applications. And create a clear process to form groups of borrowers.

  • Eliminate time period limits on when borrowers can file a claim.

  • Create a reconsideration process for borrowers whose claims are not approved for a full discharge.

Improve arbitration access and transparency.

  • Schools would no longer be able to require students to sign mandatory pre-dispute arbitration agreements or class action waivers.

  • Prohibit colleges from requiring students to enter into an internal dispute resolution process before making a complaint to the college’s accreditor or government agency.

  • Require colleges to be more transparent including disclosing the use of arbitration and provide records connected to borrower defense claims.

  • Require a centralized database of arbitral and judicial records that relate to borrower defense claims.

Expand Public Service Loan Forgiveness eligibility.

  • Automate certain functions of the program, though it’s unclear exactly which functions.

  • Allow more payments to qualify including lump-sum, partial payments and late payments.

  • Count months of “nonpayment” during certain types of pauses including administrative forbearances when the department processes paperwork; cancer treatment deferment; economic hardship deferment; and military service deferments.

  • Create a reconsideration process for denied applications.

  • Clarify the definition of a qualifying employer.

  • Better define full-time employment as a 30-hour work week.

Broaden access to Total and Permanent Disability Discharge

  • Allow for more disability statuses (as recognized by the Social Security Administration) to qualify.

  • Eliminate the three-year monitoring period that tracks a borrowers’ income after they get their loans discharged. The department says this monitoring has been the cause of half of all TPD discharges being reinstated.

  • Allow for automatic TPD discharge “wherever the Department is able to do so.” It is unclear when this would be.

Speed up automated closed school discharge. Shorten the period for automatic discharge from three years to one year of a school’s closure. This rule would only apply to borrowers still enrolled 180 days before closure and would not apply to borrowers who complete a teach out elsewhere.

Streamline false certification discharge. Borrowers are eligible for discharges when a college falsely certifies that a borrower is eligible for loans when they actually are not. This rule would allow for expanding documentation allowed, clarifying dates when a borrower would receive discharge and allow for group claims.

The 2022 federal budget raises the Pell Grant maximum by $400, bringing the annual limit to $6,895 for the 2022-23 academic year.

Biden proposed a new IDR plan that would cap repayment for undergraduate student loans at 5% of discretionary income.

Biden unveiled a plan to expand Public Service Loan Forgiveness (PSLF) program to borrowers who worked at a nonprofit, in the military, or in federal, state, tribal, or local government. The change would allow these borrowers to receive appropriate credit toward loan forgiveness.

The College Transparency Act builds on the current data available from the College Scorecard. It would establish a data system that provides information about college student enrollment, progression, completion and postgraduate outcomes, along with higher education costs and financial aid.

Recent court rulings suggest some of the strict standards for getting student loans discharged in bankruptcy could be easing. Student loan discharge through bankruptcy is challenging because borrowers must prove their debt proves an “undue hardship” (known as the “Brunner test”). Sometimes private student loan borrowers are successful, but it almost never happens for federal student loan borrowers.

The Department of Education in February announced it would withdraw its appeal of a bankruptcy decision that would discharge $100,000 in student loans for a man whose medical condition made it difficult for him to hold down a job to repay his debt. The department has also indicated it is reviewing bankruptcy standards.

What else is on the way

There’s also a Public Service Loan Forgiveness limited waiver available through Oct. 31 that would cut through some of the red tape — at least for the next year — that led to high denial rates for loan forgiveness under the program.

Under the limited waiver, a broader set of loan types and repayment plans will be eligible for PSLF including past payments on FFEL or Perkins loans, late payments and payments made on previously non-qualifying repayment plans. Additionally, members of the military with federal student loans will also have any time spent in active duty count toward PSLF, regardless of whether payments were made during that time.

Borrowers must consolidate their loans into a direct loan and submit a PSLF form before Oct. 31 to benefit from the limited waiver.

As a result of the limited waiver, the Education Department estimates that 22,000 borrowers will automatically become eligible to have their loans discharged, and another 27,000 could as well if they certify their employment history. Overall, this could result in over $4.5 billion of loan forgiveness.

On Feb. 18, the Consumer Financial Protection Bureau said it would be stepping up its oversight of how servicers are implementing the waiver. The bureau said it had found "servicers made deceptive statements to borrowers about their ability to become eligible for PSLF." If you are having difficulty receiving the help you need from your servicer, you can make a complaint to the CFPB.

Biden proposed making the changes under the PSLF waiver permanent as part of his Aug. 24 student loan forgiveness announcement.

Beginning April 2022, borrowers whose applications were rejected for PSLF and Temporary Expanded PSLF can request a reconsideration online at studentaid.gov. Anyone who thinks their application should be reconsidered can submit a request.

You can submit one or more reconsideration requests of your application to certify employment or payment determinations. You won't need to provide more documentation with your request, but you might have to provide more information following its review. There was no deadline provided.

You still must meet payment and employment requirements under the law, which includes the current waiver that would count previously ineligible payments.

To figure out if you need a reconsideration of your employer, you can use the PSLF Help Tool. If your employer isn’t eligible, consider supplying documentation as to why the not-for-profit organization you work for should qualify.

Federal Student Aid did not indicate how long it would take to review each submission. Make sure your studentaid.gov account has the most up-to-date contact information so you can receive correspondence. More information about reconsideration of payment counts and employer qualifications are available on the student aid site.

Biden issued an executive order on Dec. 13 instructing multiple government agencies, including the Department of Education, to make updates to improve the delivery of government services. Details are still emerging, but borrowers can expect these changes:

  • A single repayment portal. Student loan borrowers with direct loans will be able to use one site to apply for, manage and repay their loans: studentaid.gov. Anyone who applies for federal student aid, including loans, has an FSA ID to log in to their account. Servicers are still managing loans, but borrowers can now make payments on the studentaid.gov site.

  • A streamlined Public Service Loan Forgiveness application. Federal student loan borrowers who are eligible for loan forgiveness can apply for the program with less paperwork or without having to fill out forms with information they already completed in the past. Details on what this streamlined application process might look like are as yet unclear.

  • Recommendations for other benefits and services. Students and student loan borrowers can receive relevant information about benefits and support services they may qualify for, such as subsidies for health care, broadband internet service support and food assistance. It's unclear how these recommendations will be delivered.

Shifts are happening among student loan servicers, the private companies that manage federal student loans. Federal student loan servicers like FedLoan, Navient, GSMR and Cornerstone have left the space. That means your loans could change hands. Multiple loan servicers will be taking on the FedLoan portfolio including MOHELA, Aidvantage (formerly Navient), Edfinancial and Nelnet. But only MOHELA will be managing the PSLF program.

If you’re not sure who your loan servicer is, log in to studentaid.gov and find out. You can also get in touch with all of the loan servicer contact centers by calling 1-800-4-FED-AID.

The ongoing forbearance period ends after Dec. 31. Borrowers with federal student loans should begin making plans soon to ensure they’re prepared for when payments restart in 2023.

If you’re unsure whether you’ll be able to afford your student loan payments come in 2023, start setting aside your monthly student loan payment now to see if you can work it into your budget.

All collections activities through the Treasury offset program on federal student loans in default are suspended until after the payment pause ends, which includes the withholding of 2021 tax refunds, the child tax credit or Social Security benefits.

If you’re having trouble setting your payment aside or know you’ll have trouble paying your loans when payments restart, contact your servicer ahead of Jan. 1 to discuss income-driven repayment plans.

An IDR plan will limit payments to a portion of your income and will extend your payment term. By contacting your servicer prior to Jan. 1, once your payments do resume, you’ll be ready with a payment plan that works for your income.

Through Feb. 28, 2023, you can temporarily self-report income when applying for or recertifying an income-driven repayment plan, according to the Education Department. That means you don't have to submit tax documentation when you submit an IDR application online. The Student Loan Servicing Alliance confirmed in December that borrowers may also self-certify by phone.

Borrowers with questions about their loans or those in special circumstances should contact their servicer prior to January to ensure a smooth restart to payments.

When student loan payments restart, all federal loan borrowers with loans in delinquency or default can get a “fresh start,” the education department announced Aug. 18. That means these borrowers will once again have access to income-driven repayment plans, Public Service Loan Forgiveness and will no longer face collections fees and other consequences of default. You will not have to consolidate, rehabilitate or come up with a lump sum of cash in order to get out of default under the initiative. You just need to make a call and pay the agreed-upon monthly amount under one of the income-driven options available.

To enroll, visit myeddebt.ed.gov, contact your individual loan holder, or call the Default Resolution Group at 1-800-621-3115.

Millions of borrowers are expected to benefit from one-time fixes that count past payments toward the 240 or 300 needed to qualify for income driven repayment forgiveness, the Department of Education announced on April 19. The fixes are also expected to cancel debt for at least 40,000 borrowers through Public Service Loan Forgiveness.

In 2023, federal student aid will also start displaying income-driven repayment payment counts on StudentAid.gov when borrowers log into their accounts. And the federal student aid office plans to allow more loan statuses, such as deferments and forbearances, to count toward income-driven repayment forgiveness moving forward. It’s unclear when those changes will go into effect or which loan statuses will be included.

Additionally, a new income-driven plan that calculates payments at a lower rate against a smaller amount of income is in the works. The new IDR plan is expected to cut payments by half or more for borrowers on a path toward forgiveness.

Keep track of these dates

July: Loans serviced by FedLoan Servicing began transferring to MOHELA.

July 1: New interest rates are in effect on federal student loans for the 2022-23 school year.

Sept. 1: Delinquent and defaulted student loan borrowers will be brought back to good standing.

October: Expect applications for cancellation to open at the Department of Education.

Oct. 1: Opening date for 2023-24 FAFSA.

Oct. 31: Expiration date for the Public Service Loan Forgiveness waiver.

Dec. 31: Expiration date for the federal student loan payment pause. Most borrowers will need to confirm their auto-debit status in order to stay on auto-debit after Jan. 1, 2023.

Feb. 28, 2023: Last day to self-certify income for income-driven repayment. To self-report, complete the IDR application, but in Step 2 (income information) select, “I’ll report my own income information.”

March 1, 2023: 

  • Unpaid interest will not capitalize during the payment pause and through March 1, 2023. If your grace period ends between March 13, 2020 and March 1, 2023, your interest will not be added to your balance immediately.

  • Earliest month borrowers would need to recertify for income-driven repayment. If your account still shows your recertification date set before March 2023, it will be pushed out by one year.

June 30, 2023: Deadline for the 2022-23 FAFSA.

October 2023: Window for debt cancellation applications closes one year after it begins.

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