Federal Student Loan Relief Slated To Help Millions of Borrowers

Ramona Morel is the director of the Consumer Bankruptcy Project.

Student loan debt stands at $1.5 trillion, and is one of the biggest factors contributing to household debt. This is particularly true for those facing socioeconomic and other systemic barriers, including in particular Black borrowers, and women in general. Statistical reports show that Black students are more likely to have to borrow for school and more likely to take out larger loans, and [w]omen overall were 28% more likely than men to have student debt, widening the racial and gender wealth gap. While efforts were made to provide temporary relief to individuals throughout the economic fallout of the Covid-19 pandemic, such as pausing repayments on student loan debt, borrowers continue to struggle financially. On August 24, 2022, President Biden announced plans that will provide immediate student loan debt relief to millions of borrowers. These plans hopefully also will advance racial equity and encourage financial stability, making the student loan system both more fair and more manageable for current and future borrowers.

Key takeaways:

• The pause on federal student loan repayment will be extended through December 31, 2022. Borrowers should expect to resume payment in January 2023.
• Immediate student loan debt relief will include up to $20,000 in debt cancellation for qualifying recipients of Pell Grants, and up to $10,000 in debt cancellation to qualifying non-Pell Grant recipients.
  • Borrowers, including current students with individual income of less than $125,000 ($250,000 for married couples), will be eligible for this relief.
  • The forgivable amount will not be treated as taxable income for federal income tax purposes.
• Currently, borrowers in income-driven repayment plans have monthly payments at 10% of their discretionary income. The U.S. Department of Education plans to create a new income-driven repayment plan that will cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income.
• The agency purports to improve the Public Service Loan Forgiveness (PSLF) program by ensuring that borrowers who have worked in public service, such as a nonprofit, in the military, or in federal, state, tribal, or local government, receive applicable credit toward loan forgiveness.

What to do in the meantime:

• Do not ignore correspondence from the U.S. Department of Education. Important information about your eligibility for student loan forgiveness will be provided. Make sure the agency has your contact information.
• Ensure your income information is up to date.
• The agency plans to automatically provide this relief to eligible borrowers for whom they already have information. If the agency does not have your income data, you will be allowed to file an application to obtain this relief. Sign up to get notifications when the application is released, and choose “Federal Student Loan Borrower Updates.”
• If you have not done so, file your federal income taxes. Borrowers may be eligible to receive relief automatically because relevant income data is already available to the U.S. Department of Education.
• Be aware of recent changes to the PSLF program allowing eligible borrowers working in public service to gain additional credit toward forgiveness, even if they made partial or no payments during the repayment period, or were told previously that they had the wrong loan type.
  • These temporary changes expire on October 31, 2022.
  • To receive this relief, borrowers must apply to PSLF before the temporary changes end. For more information go to: https://www.whitehouse.gov/publicserviceloanforgiveness/

Building wealth, buying a home, and saving for retirement while paying back large amounts of student loans can be difficult to achieve. With student debt relief plans in place, borrowers will have increased opportunity at financial stability.

This communication is for the general education and knowledge of our readers. Because all legal problems involve their own specific set of facts, this informational resource is not and should not be used as a substitute for independent legal advice. This informational resource also is not intended to create, and its receipt does not constitute, an attorney-client relationship. Please contact competent, independent legal counsel for an assessment of your particular legal concerns, or contact our Legal Hotline (212.626.7383 or https://www.citybarjusticecenter.org/legal-hotline/) to determine whether you qualify for assistance from the City Bar Justice Center.