Biden-Harris Student Loan Cancellation Strategies
Biden-Harris Student Loan Announcement
The Biden-Harris Administration waited until nearly the last hour as student loan repayments would resume on September 1, 2022. The announcement only applies to Federal loans. If you privately refinanced your student loans, you are not eligible for cancellation or further repayment.
The student loan collection will carry all of the headlines. However, perhaps the bigger story is about the PSLF waiver deadline, and they’re announcing a new income-driven repayment plan. While the student loan cancellation announcement is making the headlines, there is much more to unpack.
Cancellation of Student Loan Debt
The Biden-Harris administration announced the cancellation of $10,000 in federal loans and up to $20,000 for Pell Grant recipients. Debt cancellations have income eligibility requirements of $125,000 for individuals and $250,000 for married couples or heads of household.
It’s unclear if 2021 tax returns will determine the income requirements and if they determine income by Adjusted Gross Income (AGI) or Taxable Income. My best guess is that your 2021 tax return’s AGI will determine who is eligible for cancellation.
If you’re unsure what type of loans you have, you can sign into your account at studentaid.gov and review your aid details.
Cancellation Will Face Challenges In Court
The Biden-Harris Administration cited the HEROS Act of 2003 as his authority to cancel student loan debt. The HEROS Act is the same law President Trump used to pause student loan payments in 2020. Some legal experts suggest that the President’s authority may be limited and require further legislation to cancel student loan debt.
There will be lawsuits that claim the Heros Act of 2003 isn’t broad enough to cover the Biden-Harris student loan cancellation announcement. Since the supreme court is conservative-leaning, it may not be time to rely on the cancellation.
Student Loan Payments Paused for “Final Time”
The Biden-Harris Administration extended the student loan repayment pause through December 31, 2022. The repayment pause gives relief to borrowers and more free credit for those pursuing Public Service Loan Forgiveness or Taxable Loan Forgiveness through an income-driven repayment plan.
You don’t need to take action, as this will automatically be applied to your federal loans again. While it’s not impossible, I wouldn’t expect another repayment pause extension while making financial decisions moving forward.
Temporary Extended Public Service Loan Forgiveness Waiver – October 31, 2022
The PSLF waiver allows borrowers the opportunity to qualify past payments for PSLF. The requirements for PSLF are stringent. You had to have the correct type of employer, the type of loan, and be on the right repayment plan. The PSLF waiver allows you to certify payments if you previously didn’t have the right loan type or repayment plan.
I am disappointed that this deadline stayed the same. There’s enormous potential for meaningful student loan forgiveness with the PSLF waiver.
Read more here: www.archfinancialplanning.com/pslf-waiver
New Income-Driven Repayment (IDR) Plan
The new IDR plan is said to cap payments at 5% of discretionary income vs. 10% on PAYE and REPAYE. The federal government will cover your unpaid monthly interest. Lastly, the timeline for forgiveness under the new proposed IDR plan is only ten years as opposed to 20 or 25 under current plans for balances with $12,000 or less.
This plan’s fine details will determine whether it’s viable for student loan borrowers. At first glance, it seems like a possible solution for dentists and physicians in residency.
There’s still no straightforward path for student loan borrowers. I’m glad the Biden-Harris administration announced the decision to extend the repayment pause (finally). Lastly, the new IDR plan may be the most significant part of this announcement.
I look forward to sharing more with you in the future.
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