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Overview of the Federal Student Debt Relief Plan

Overview of the Federal Student Debt Relief Plan

September 29, 2022
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On August 24, 2022, the Biden-Harris Administration announced a Student Debt Relief Plan to assist Americans in providing up to $20,000 in student debt relief depending on income level. The announcement came days before repayment of federal student loans were to resume. With this plan came a final payment extension of repayment which is set to resume December 31, 2022. New details are being released daily; we will do our best to breakdown what you need to know to take part of the relief plan.   

Loan Qualification 

Currently the relief plan only applies to outstanding federal student loans with a balance as of June 30, 2022.  

  • William D. Ford Federal Direct Loan (Direct Loan) Program loans
  • Subsidized loans
  • Unsubsidized loans
  • Parent PLUS loans
  • Graduate PLUS loans
  • Federal Family Education Loan (FFEL) Program loans held by U.S. Department of Education (ED) or in default at a guaranty agency
  • Federal Perkins Loan Program loans held by ED
  • Defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, and graduate PLUS; and Perkins loans held by ED) 

Consolidation loans are eligible for relief, as long as all of the underlying loans that were consolidated were first disbursed on or before June 30, 2022. 

Income Eligibility 

You're eligible for student loan debt relief if your annual federal income was below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly or head of household) in 2021 or 2020. 

  • $20,000 in debt relief: If you received a Pell Grant in college and meet the income threshold, you'll be eligible for up to $20,000 in debt relief. 
  • $10,000 in debt relief: If you did not receive a Pell Grant in college and meet the income threshold, you'll be eligible for up to $10,000 in debt relief. 

Action Items 

Make sure your loan servicer (Navient, Great Lake, Mohela, etc.) has your updated contact information. Create a StudentAid.gov account if you don’t already have one. Logging in or creating a StudentAid.gov account could assist you in identifying if you received a Pell Grant during your studies to verify amount of relief.  

The U.S. Department of Education is currently anticipating opening an application to apply for relief in early October 2022. Once submitted and qualified relief can be expected within four to six weeks. The application will be open until December 31, 2023 for you to apply for relief. Keep in mind that loan repayment will resume January 2023, thus you will want to apply as soon as possible.

Refund if payments made during payment pause 

If your loan was below your forgiveness amount and you continued to make payments during the payment pause, or you paid off your loans during the payment pause, you may be eligible for a refund. The refund is not automatic, currently the U.S. Department of Education is indicating to reach out to your loan servicer for next steps.  

You will still want to go through the application process to ensure you are granted relief before requesting a refund as automatic relief has not been indicated.
 
 

Public Service Loan Forgiveness (PSLF)  

In October 2021 the White House made time-limited changes to certain eligibility criteria in the PSLF program. These changes expire October 31, 2022. Please visit PSLF.gov to see if you qualify for total forgiveness with these current updated eligibility guidelines. If you are currently applying for PSLF or anticipate applying for PSLF, you can also qualify for the student debt relief. You will want to take the same steps if you qualify under the above income guidelines. If your PSLF application is granted, the forgiveness will be applied to the outstanding balance after the student debt relief you received.  

Is the debt relief considered taxable income? 

Federally the cancelled student loan debt will not be taxed. On a state level Minnesota’s current law includes discharged student debt as taxable income. We recommend reviewing your state withholding allowances to cover any balances due to Minnesota income tax. 

Additional states that currently consider the student debt taxable: Arkansas, Massachusetts, Mississippi, North Carolina, and Wisconsin. 
 

Financial Planning Outlook

If you do qualify for student loan relief, now is a great time to connect with our team to discuss planning opportunities. We can help determine how you can use the freed-up cash-flow for future endeavors like buying a home, saving for children’s education, funding your retirement goals, and much more.  

One final note: if the relief assisted in lowering your outstanding student loan balance, know that part of the proposed plan is to make repayment plans more income driven moving forward. Given this, you will want to work with you loan servicer to establish a new monthly payment and to learn more about how these changes impact you. 

Call or email our team for assistance understanding and parsing through the above.

  

Resource Sites

Federal Student Aid: Student Debt Relief Plan Explained

Federal Student Aid: One-Time Student Loan Debt Relief

FAQ: Student Loan Forgiveness