In the wake of COVID-19, Federal financial assistance programs have taken many forms: stimulus checks, paycheck protection programs, emergency rental assistance, Economic Injury Disaster Loans (EIDL), and more. Both businesses and American households have been granted trillions of dollars in assistance to weather economic uncertainty. Recently, the Biden administration has developed another major financial assistance program in the form of Federal student loan forgiveness. While politics have created some uncertainty on the outcome of this program, it’s a good idea to be educated on where things stand. For those that may be directly impacted by this initiative, knowing how to prepare for loan forgiveness might wind up saving you thousands of dollars.

What has been proposed for student debt relief?

Since the pandemic began, there have been multiple pauses on Federal student loans. Each time the date has approached to resume payments, it has been pushed back by another few months. The first component of the proposed student debt relief plan is to allow for one final pause on student loan payments until January 2023. For borrowers, the pause on loan payments has been automatically applied and no applications have been necessary to receive payment pauses throughout 2020 and 2021; it will be the same for this final payment pause.

Here’s where things start to get a little more specific. The second component of the proposed student debt relief program is the amount that borrowers qualify for. If you are currently employed by a non-profit, the military, the Federal Government, a State Government,  a Tribal Government, or a Local Government, you may be entitled to loan forgiveness up to 100% of your outstanding amount. These special provisions are explained in more detail on whitehouse.gov, as “Public Service Loan Forgiveness“. If this applies to you, please note that your eligibility may change by October 31st, so act fast. For everyone else that PSLF does not apply to, there are still significant amounts of loan forgiveness to take advantage of. If you are a recipient of a Pell Grant scholarship, you may qualify for up to $20,000 of forgiveness. For non-Pell Grant recipients, you may qualify for up to $10,000 of forgiveness. There are a few other points of criteria that include factors such as current income & marital status that affect the ceiling of your loan forgiveness. FAQ’s on the generic loan forgiveness outside of PSLF can be found at studentaid.gov, “Debt Relief Announcement“.

Finally, the third component of the proposed student debt relief program impacts the amount required on each loan payment made. The main objective of this is to charge borrowers more dynamically based on income to minimize loan defaults. To start, loan payments for qualified individuals would be “capped” at 5% of an individual’s discretionary income. Since Federal student loans are paid monthly, this rule would similarly calculate payments based on your monthly income. Additionally, the classification of “non-discretionary” income would be raised, primarily to protect those earning roughly minimum wage from having to make loan payments. Next, the rules would seek to forgive all outstanding loans after 10 years of payments made, under the condition that outstanding loans equal $12,000 or less. Finally, the planned relief would cover unpaid monthly interest.

What is the status of this plan in Washington now?

As of the current time of this article (October 27th, 2022), the Eighth Circuit Court of Appeals has placed a temporary block on the rollout of this program. Despite the ongoing legal battle at the Federal level, millions of Americans with outstanding student loans have already applied for loan forgiveness. While the White House cannot begin the actual loan forgiveness process during this time, there is no halt on applications. Regardless of whether loan forgiveness becomes a reality, it is important to keep an eye on the status of the Appeals Court, as these legal proceedings can very likely extend into 2023, past the proposed deadline of January 1st for paused loan payment requirements. In this case, loan payments could resume earlier than what the White House hoped for.

Where can borrowers go to apply for debt relief?

Despite the fact that this loan forgiveness program is currently blocked from going into full effect, the Federal Government is still accepting applications. In the event that the program becomes open, it is best to apply now before the “floodgate” opens. Since the announcement of the program and the initial publication of the White House’s FAQ website, the site has encountered periodic traffic issues. So, applying now can avoid the possibility of Government sites “crashing” in the future. Use the link in the button below to access the application page. To apply, all you need is your name, DOB, Social Security number, phone number, and email address.

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Sources & Further Reading

• Court Temporarily Blocks Biden’s Student Loan Forgiveness – apnews.com
• Fact Sheet: White House Press Release – whitehouse.gov
• The Federal Response to COVID-19 – usaspending.gov