Legal Update: On November 10, 2022, a federal judge in Texas struck down President Biden's student loan forgiveness program described below. The Department of Justice immediately appealed the case to the 5th US Circuit Court of Appeals, which refused to overturn the ruling. This case will have to be resolved before the U.S. Supreme Court before the Biden administration can cancel any federal student loan debt. So, the Department of Education has stopped accepting applications for debt relief in the meantime.
In a separate lawsuit, a federal appeals court issued an injunction on behalf of six Republican-led states (Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina). These states claim that financial institutions would be harmed if borrowers don't have to pay their outstanding loan balances. The Supreme Court has agreed to hear arguments in this case, along with the other case, in February 2023. So, President Biden's debt cancellation plan will remain blocked until then.
So, the Biden Administration announced that the U.S. Department of Education will extend the suspension of most federal student loan payments while its student loan debt cancellation program is tied up in the courts. Payments will resume 60 days after the debt cancellation program is implemented, 60 days after the lawsuits are resolved, or 60 days after June 30, 2023, if the program has not been implemented and the litigation has not been resolved by then.
On August 24, 2022, the Biden Administration announced that the U.S. Department of Education will extend the suspension of most federal student loan payments through December 31, 2022. Payments were set to resume on September 1 after being on hold since the beginning of the COVID-19 pandemic. This is the seventh time the payment pause has been extended in the last two years.
The administration also said that $10,000 in federal student loan debt, or $20,000 if you went to college on Pell Grants, will be canceled for those earning less than $125,000 per year (or households earning less than $250,000) in 2020 or 2021.
And if you have undergraduate loans, you can cap your payments at 5% of your monthly income. The current income-driven repayment plans generally limit payments to 10% of a borrower's discretionary income.
The suspension applies to Federal Direct Loans and Federal Family Education Loans (FFELs), but only FFELs that the U.S. Department of Education owns, not nondefaulted FFELs held by other entities. Borrowers with Perkins Loans held by entities other than the Department of Education and nondefaulted HEAL loans also aren't covered.
Private student loan borrowers don't get relief either. If you have private student loans, call your lender to see if any alternatives are available to help you out.
Eligible borrowers will have their payments automatically suspended without penalty or accrual of interest. Collection actions, wage garnishments, and Treasury offsets for defaulted federal student loans are also paused until 2023.
If you have federal student loans held by the Department of Education issued on or before June 30, 2022, your outstanding balance can be reduced or fully canceled, depending on how much you owe. Again, $10,000 (or $20,000 if you went to college on Pell Grants) will be canceled if you earned less than $125,000 per year (or your household earned less than $250,000) in 2020 or 2021.
Borrowers with FFEL or Perkins loans not held by the Education Department can qualify for forgiveness only if they applied for consolidation before September 29, 2022.
The Department of Education has said 8 million borrowers might qualify automatically because relevant income data is already available to the Department. But others will have to apply.
Borrowers must complete the application before November 15 to get relief before the payment pause ends on December 31.
Though, the Education Department will continue to process applications as they are received, even after the pause expires on December 31, 2022. You'll have until December 31, 2023 to apply for relief.
Most people who qualified for the suspension of student loan payments, which started in 2020, didn't make payments during the pause. But if you made payments during the suspension, you can get a refund on the payments you made since March 2020.
You'll automatically get a refund of payments you made during the payment pause if:
Here's an example of how the automatic refund process will work, according to the Department of Education. Say you qualify for $10,000 in debt cancellation. Your balance was $10,500 before March 13, 2020, and you paid $1,000 since then on your loans. Because your balance is $9,500 at the time of cancellation, you'll get a $500 refund.
If you're not eligible for an automatic refund, contact your loan servicer by December 31, 2023, to ask for your money back. If you get a refund, that amount will be added to your balance (or your account will be reopened if you've paid off the debt). Because it could take months for the cancellation to happen, you could have to make regular payments after the suspension ends on December 31, 2002, until the forgiveness comes through.
And if you consolidated your loan after March 13, 2020, you can't get a refund for any voluntary payments made before the consolidation.
The American Rescue Plan Act exempts student debt cancellation from federal taxation until January 1, 2026. So, you won't owe federal taxes on forgiven amounts. But some states could tax you.
So far, the Biden administration has canceled billions of dollars in federal student loan debt. In addition to the payment relief discussed in this article, the administration has said that:
To get more information about the payment suspension and other available support for student loan borrowers, go to StudentAid.gov.
Effective date: August 24, 2022