Biden-Harris Administration's Student Loan Forgiveness Plan: Details and Implications

The Biden-Harris Administration has introduced a comprehensive plan to address student loan debt, aiming to provide relief to millions of borrowers and reform the student loan system. This article delves into the details of this plan, including eligibility criteria, forgiveness amounts, and the broader implications for borrowers and the future of higher education financing.

Targeted Debt Relief: A Breakdown

A central component of the Biden-Harris plan is targeted debt relief for eligible borrowers. This initiative aims to provide substantial financial assistance to those burdened by student loan debt.

Eligibility Criteria

To qualify for student loan debt forgiveness under the Biden-Harris plan, individual borrowers must have an adjusted gross income (AGI) of no more than $125,000 per year. For married couples filing jointly or heads of households, the income threshold is $250,000. Borrowers who were claimed as dependents on someone else's tax return will have their eligibility determined based on their parents' income. You can find your adjusted gross income on line 11 of your most recent tax return (Form 1040).

Forgiveness Amounts

The amount of debt forgiveness available to eligible borrowers depends on whether they received a Pell Grant during their education. Pell Grants are typically awarded to undergraduate students who demonstrate significant financial need, with most recipients coming from families earning less than $60,000 per year.

Pell Grant Recipients: Borrowers who received a Pell Grant are eligible for up to $20,000 in student loan debt forgiveness.
Non-Pell Grant Recipients: Borrowers who did not receive a Pell Grant are eligible for up to $10,000 in student loan debt forgiveness.

It's important to note that the debt relief is capped at the amount of the borrower's outstanding debt. For example, if a borrower is eligible for $20,000 in debt relief but only has $13,000 in remaining loan balance, they will receive $13,000 in debt relief.

Eligible Loans

Nearly every type of federal student loan qualifies for debt relief under the Biden-Harris plan. If a borrower's loans were eligible for the federal student loan payment pause that began in March 2020, they are likely eligible for relief. However, private (nonfederal) loans are not eligible for forgiveness. If a borrower consolidated federal loans into a private loan, the consolidated private loan is also ineligible.

Only federal student loans with an outstanding balance as of June 30, 2022, are eligible for forgiveness. Students who are enrolling after June 30, 2022, and who have loans with first disbursements after June 30, 2022, are not eligible for this forgiveness.

Application Process

The Department of Education already has income information for some borrowers through recent submissions of FAFSA forms or applications for income-driven repayment plans. These borrowers may automatically receive debt relief.

Other borrowers will need to complete a simple online application to attest to their income. The Department of Education launched a short online application for student debt relief in October. Borrowers are encouraged to submit their applications by November 15, 2022, to ensure that forgiveness is applied before student loan payments resume.

Tax Implications

Under the American Rescue Plan of 2021, student loan forgiveness is tax-free at the federal level through 2025. This means that borrowers who receive debt relief under the Biden-Harris plan will not owe federal income taxes on the forgiven amount.

Read also: Biden's Student Loan Plan

However, some states may consider student loan forgiveness to be taxable income. Borrowers should stay informed about the tax laws in their state and be prepared to potentially pay state income taxes on the forgiven amount.

Addressing Systemic Issues in Student Loan Repayment

Beyond one-time debt relief, the Biden-Harris administration is focused on making the student loan system more manageable for borrowers in the long term.

The SAVE Plan: A New Income-Driven Repayment Option

The Administration is implementing the Saving on a Valuable Education (SAVE) Plan. This income-driven repayment (IDR) plan is designed to lower monthly payments and prevent runaway interest.

The SAVE Plan offers several key benefits:

Lower Monthly Payments: Borrowers with undergraduate loans will only be required to pay 5% of their discretionary income each month, down from the previous 10% under other IDR plans.
Zero-Dollar Payments: Borrowers earning below 225% of the federal poverty level will have a $0 monthly payment.
Interest Subsidy: As long as a borrower makes their monthly payment, even if it's $0, the government will cover any accrued interest to prevent the loan balance from growing.
Faster Forgiveness: Borrowers with original loan balances of $12,000 or less will be eligible for forgiveness after 10 years of payments, instead of the standard 20 or 25 years under other IDR plans.

Income-Driven Repayment (IDR) Payment Count Adjustment

Along with the student loan forgiveness announcement, ED noted that it completed the income-driven repayment (IDR) payment count adjustment, correcting eligible payment counts on borrowers’ accounts. However, ED noted some borrowers may see one or two additional months credited in the coming weeks. Additionally, ED has launched the ability for borrowers to track their IDR payment progress on StudentAid.gov.

Read also: Federal Student Loan Relief

Other Avenues for Loan Forgiveness

The Biden-Harris administration has also taken steps to expand access to existing loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF) and borrower defense to repayment.

Public Service Loan Forgiveness (PSLF)

The PSLF program offers loan forgiveness to borrowers who work for qualifying non-profit organizations or government agencies. To be eligible, borrowers must make 120 qualifying monthly payments while working full-time for a qualifying employer.

The Biden-Harris administration has implemented temporary changes to the PSLF program that waive certain eligibility criteria. These changes, which expired on October 31, 2022, made it easier for borrowers to qualify for PSLF by allowing them to receive credit for past payments that previously did not qualify.

Borrower Defense to Repayment

Borrower defense to repayment allows borrowers to have their federal student loans forgiven if their college or university engaged in certain types of misconduct, such as making false promises about job placement rates or program quality.

The Department of Education has approved borrower defense claims for thousands of borrowers who attended institutions like DeVry University and schools owned by Career Education Corporation (CEC) and Education Management Corporation (EDMC).

ED has determined that several schools closed under “exceptional circumstances.” This determination warrants allowing borrowers who didn’t complete and were enrolled in the school more than 120 days prior to its closure to qualify for a closed school discharge. ED has directed Federal Student Aid (FSA) to make these borrowers aware of their eligibility and to allow automatic discharges for those affected by the outlined school closures.

These closures include:

To May 6, 2015, for all campuses owned at the time by the Career Education Corporation, which have since closed. That is the day CEC announced it would close or sell all campuses except for two brands.
To October 17, 2017 for all campuses owned at that point by the Education Management Corporation, and that later closed. That is the day EDMC sold substantially all of its assets to Dream Center Educational Holdings.
To December 16, 2016, for campuses owned by the Education Corporation of America (ECA) on that date that closed.
To April 23, 2021, for Bay State College.

Resuming Student Loan Payments

The student loan payment pause, which has been in effect since March 2020, ended. Interest began accruing on September 1, and payments were due in October.

To help borrowers transition back into repayment, the Department of Education implemented a temporary on-ramp period to protect borrowers from the most severe consequences of missed, late, or partial payments, such as negative credit reporting.

Addressing the Cost of College

In addition to providing debt relief, the Biden-Harris administration is committed to addressing the rising cost of college and making higher education more accessible and affordable.

The administration has taken several steps to achieve this goal, including:

Increasing the Maximum Pell Grant: The maximum Pell Grant award has been increased from $6,495 to $6,895.
Holding Accreditors Accountable: An enforcement unit has been reestablished to hold accreditors accountable for predatory loan practices.
Increasing College Accountability: A watch list will be published that details college programs with the worst debt levels, allowing new students to steer clear of poor performing programs.

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