What We Know

Today President Biden released the details [1, 2] of his new student debt relief plan. As had been rumored or in discussion for years, there will be up to $10k of student loan forgiveness available to many borrowers. Or up to $20k per borrower if you received any Pell grants (a need-based form of financial aid). It is subject to an income limitation, $125k for individuals, $250k for married couples or heads of household.

What We Don’t Know Yet

But with as much as the news outlets are blaring about what we do know, they aren’t helping everyone understand about what we still don’t know. So far that includes:

• When the process will actually open.  But you can sign up on the Department of Education’s subscription page to get notified.
• When the payoff will actually occur. If you are nearing the end of paying off your student loans, you may end up paying it off before you experience forgiveness.
• What tax year(s) will be considered. 2020? 2021? 2022? More than one of these?
• What number from your tax return will be key for this $125k / $250k threshold? Will it be your AGI, one of the many forms of MAGI, or something else?
• For married couples, what are the implications of having filed MFJ vs MFS?

What Else?

Along with the loan forgiveness, there was one more extension of the pause on student loan payments that began March 13, 2020, it will now be paused through December 31, 2022. That brings the total number of months of planned pause up to 33 months. If you are pursuing Public Service Loan Forgiveness (PSLF), that’s over 1/4 of your 120 payments.

The Twitter quick graphic for today’s announcements also included a statement about adding a 5% of monthly discretionary income cap on undergraduate loans. But per other sources [1, 2] including the studentaid.gov website, this is still a proposal, not yet reality. Also in this proposal-not-yet-reality:

• Increase the protected amount of income not subject to consideration in the monthly repayment amount
• For original loan balances of $12k or less, forgive loan balances after 10 years instead of 20 years
• Simplify loan repayment plan choices
• Keep balances from growing by not adding interest while payments are being made
• Continuing to make PSLF more generous by allowing for partial, lump sum, or late payments to count towards the 120 necessary, and allowing service-based deferments and forbearances to count as well.

We’ll learn more about this proposal, and then there will be a public comment period on the draft for 30 days, so this won’t go into effect for a while yet.

What This Didn’t Do

There’s one more important thing that today’s announcement didn’t do. It did not extend the period of time in which you can pursue the Limited Waiver Opportunity for Public Service Loan Forgiveness. That window still runs out on October 31, 2022. If you are eligible and you haven’t acted on this yet, while today’s news is exciting, the waiver opportunity should be where you focus your energy today.