Federal student loan forgiveness update: See where the latest policies and proposals stand
The Biden administration has been silent about widespread student loan forgiveness, despite pressure from progressive Democrats who have called on the president to issue an executive order that would wipe out millions of borrowers’ debt. However, the administration has been focusing on reforming existing programs with built-in student loan forgiveness for eligible borrowers and has extended the forbearance period through January 2022.
Here’s what to know about student loan debt forgiveness and how soon it could impact your student loan debt.
The latest news on student loan forgiveness
While the Biden administration has been quiet on the prospect of mass student loan cancellation, some borrowers have still found relief.
Department of Education announces $5.8 billion in automatic student loan forgiveness for borrowers with disabilities
In late August, the Department of Education announced that borrowers with a total and permanent disability would automatically receive federal student loan discharge due to new regulations for total and permanent disability (TPD) discharge. Borrowers who qualify will no longer have to apply for the discharge; moving forward, the program will use automatic data matching through the Social Security Administration (SSA).
The department also indefinitely extended the pause on income verification requirements, which was originally instated as a coronavirus relief measure. With this pause, borrowers who qualify for TPD discharge will no longer have to submit documentation verifying their income to prove eligibility. The department will also propose eliminating the three-year income monitoring period entirely this October.
More than 47,000 service members have federal student loan interest waived
More than 47,000 service members deployed to areas that qualify them for imminent danger or hostile fire pay will have the interest on certain federal loans retroactively waived. This waiver applies to both current and former active-duty service members.
Thanks to new automatic data matching, service members will no longer have to apply for the interest waiver, eliminating a hurdle that prevented many from receiving benefits. With automatic data matching now in place, it is expected that 880 percent more service members will receive the interest waiver since 2019.
Biden administration extends break on student loan payments
The Department of Education announced in August that the student loan payment and interest pause is extended to Jan. 31, 2022. This period of administrative forbearance began in March 2020, meaning federal borrowers will have had nearly two years of payment relief by the time payments resume in February.
The department stated that this will be the last extension of the payment break, and that this extra time will give federal borrowers and servicers the time they need to smoothly transition back into payments.
The U.S. Department of Education has forgiven billions of dollars for defrauded borrowers
The U.S. Department of Education has been rolling out thousands of approvals for borrower defense to repayment, a program that forgives student loan debt for borrowers who have been misled by their colleges. The recent wave of approvals seeks to address a backlog that built up during the previous administration, during which time many borrowers were given only partial forgiveness or else were rejected outright after months of waiting.
In March, the Department of Education announced that it would be revising the process for calculating relief, a change that affected approximately 72,000 borrowers. Since then, the department has granted borrower defense to repayment for 133,000 former ITT Tech students and 1,800 students who attended Westwood College, Marinello Schools of Beauty and Court Reporting Institute.
The Department found that these institutions were guilty of illegally misleading the students about things like future job prospects and the ability to transfer course credits.
Biden’s budget excludes mass student loan forgiveness
In April, Biden directed his Education Department to conduct a legal review on his authority to cancel student debt, but results from the review have not been released. At this point, any form of widespread student loan forgiveness would likely come through an executive order, not through Congress — since student loan forgiveness was not included in Biden’s budget proposal for 2022. Even so, Biden has largely been silent on the issue of mass student loan forgiveness since he first proposed it on the campaign trail.
With that said, Biden’s budget did reference the need to improve existing forgiveness programs like income-driven repayment and Public Service Loan Forgiveness. A review is currently underway regarding how these programs could be modified to give more borrowers relief.
Additional proposals related to student loan forgiveness
Here’s an overview of some other discussions and proposals related to student loans.
Pell Grant increases
One of the largest proposals in Biden’s budget is an increase in the maximum Pell Grant award amount by $1,875. The American Families Plan would grant an initial $1,475 increase, and an additional $400 would come from discretionary funding in the budget.
Biden has also called for more affordable education. Within the budget, Biden is proposing two years of free community college for every student, as well as more affordable college for students attending historically Black colleges and universities (HBCUs), tribal colleges and universities (TCUs) and minority-serving institutions (MSIs).
Public Service Loan Forgiveness reforms
In early May, dozens of Democratic lawmakers signed and sent a letter to the U.S. Department of Education calling for reform to Public Service Loan Forgiveness (PSLF), a program that forgives the student loan debt of borrowers who work in specific public service jobs and make 120 qualifying on-time payments.
Here are the four proposed amendments to PSLF:
- Make all federal student loans eligible.
- Make all repayment plans eligible.
- Waive restrictions at time of forgiveness.
- Automatically qualify borrowers.
Warren Senate hearing highlights projected outcome of $50,000 in student debt forgiveness
According to the Department of Education data, just about 15 million borrowers would see their federal student loan debt completely forgiven if Biden were to forgive $10,000 per borrower, while about 36 million would see their debt erased under the $50,000 proposal that Warren has long advocated for. Congressional Democrats are hopeful that data highlighting the benefits of a larger forgiveness amount will nudge Biden in that direction.
“He is facing pressure from the more progressive members of his party to move more aggressively,” says Mark Hamrick, Bankrate senior economic analyst. “At the same time, there’s a challenge of and a problem with providing a benefit to some individuals who do not need assistance, including those who have financial means or are in a solid position with respect to current or future earnings which can be used to pay off this debt.”
Adds Hamrick: “I’m not convinced that Biden is sold on the idea generally. I think it is absolutely safe to say forgiveness is not terribly high on his priority list.”
Student loan forgiveness measures that have been passed
In Biden’s first months as president, a number of his administration’s proposals — some of which have become legislation — have already erased millions of dollars in student loan debt.
New stimulus package makes federal student loan forgiveness tax-free
The provision was introduced in March 2021 as the Student Loan Tax Relief Act and was led by Democratic Sens. Elizabeth Warren and Bob Menendez. Through the Relief Act, borrowers will not be responsible for paying federal taxes on their forgiven student loan debt from 2021 to 2025. This has primarily benefited borrowers who are enrolled in income-driven repayment programs, as they are no longer required to report their forgiven amounts as taxable income.
Mass student loan forgiveness would also be considered nontaxable under the provision.
Department of Education forgives federal debt for totally and permanently disabled borrowers
In late March, the Department of Education announced revisions to the total and permanent disability (TPD) discharge program. The TPD discharge program allows borrowers who qualify as totally and permanently disabled to have their student loan debt discharged. This move is expected to provide over $1.3 million in forgiveness and impact 230,000 borrowers.
What might happen in the near future?
When it comes to mass student loan forgiveness in the near future, it’s primarily resting on the results of the legal review, says Mark Kantrowitz, leading national student loan expert. “The fact that it’s taking some time suggests that it’s not going to be as clear-cut as people assume,” he says. “If the result of the review is that you do have the authority, then they could do it pretty quickly.”
If Biden doesn’t have the executive authority to enact forgiveness without Congress, things may get complicated. “The limiting factor is going to be coming up with an increase in revenue and decreases in costs to offset the costs of forgiveness,” Kantrowitz says.
While there is no anticipated timeline, there’s probably a feeling that there’s a time limit with midterm elections in two years, Kantrowitz says. As far as student loan cancellation in the near future is concerned, everything will ultimately come down to the results of the legal review. Because the 2022 budget does not account for student loan forgiveness, it is more likely that Biden would use an executive order to cancel student loan debt than try to go through Congress.
What student loan forgiveness options are available now?
Qualifying federal student loan borrowers always have forgiveness options available. Here are some of the top federal forgiveness programs and how you can take advantage of them.
- Public Service Loan Forgiveness: Must work for a qualifying government or nonprofit employer for 10 years. You can have the remaining balance forgiven after 120 qualifying payments.
- Teacher Loan Forgiveness: Must work in a qualifying position at an eligible school for at least five years. You can have up to $17,500 forgiven, depending on the subject you teach.
- Nurse Corps Loan Repayment Program: Must meet eligibility requirements. You can receive forgiveness of up to 60 percent of your “total outstanding, qualifying, nursing education loans over the course of two years.” You can then request a third year for another 25 percent of your loans forgiven.
- Income-driven repayment plans: Must have eligible federal student loans. There are four standard income-driven repayment plans, and each requires you to pay a portion of your “discretionary income” for 20 to 25 years before having your loans forgiven.
- Forgiveness for military members: Must be a qualifying member of the military or an eligible veteran. There are multiple ways to receive forgiveness, and qualifying borrowers can have up to 100 percent of their balances forgiven.
- Forgiveness for doctors: Must be a specific doctor for a qualifying amount of time. There are multiple programs that offer forgiveness for doctors in eligible circumstances.
- Forgiveness for lawyers: There are a number of state-based relief programs that can help qualifying lawyers receive forgiveness. You can also receive up to $60,000 worth of forgiveness through the Attorney Student Loan Repayment Program.
- Forgiveness through AmeriCorps: People serving in AmeriCorps are eligible for 100 percent forgiveness if also granted the Segal AmeriCorps Education Award.