Biden’s Student Loan Forgiveness Plan: What Does It Mean for You?

Updated on January 17th, 2023

During his campaign for president, Joe Biden promised that student loan borrowers would receive $10,000 in student loan forgiveness. While there wasn’t immediate progress due to concerns about the legality of such broad actions, President Biden formally announced a one-time federal student loan debt relief on August 24, 2022.

Since that announcement, the landscape has shifted several times. Here’s a look at Biden’s student loan forgiveness plan, who potentially qualifies for relief, when it may happen, what it means for borrowers, and more.

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What Is the Biden Student Loan Forgiveness Program?

Biden’s student loan forgiveness plan – which was part of an executive order – includes debt relief for millions of borrowers. First, individuals making up to $125,000 per year or households earning up to $250,000 per year could qualify for up to $10,000 of debt forgiveness on their qualifying federal student loans. Second, borrowers who meet the income requirements and also received a Pell Grant while pursuing their education could receive up to $10,000 in additional debt relief for a maximum amount of $20,000 in debt forgiveness for those borrowers.

Estimates suggest that up to 43 million borrowers would potentially qualify for the program, and approximately 20 million would see their entire remaining balance cleared. Eligibility is determined through a simple online form, where borrowers attest to their income and other qualifying attributes.

As mentioned above, only federal student loans that are owned by the Department of Education are covered under Biden’s student loan forgiveness program. That includes both Department of Education-owned subsidized and unsubsidized loans of the following types:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans (including Parent Plus and Grad Plus)
• Direct Consolidation Loans
• FFEL Loans

Federal Perkins Loans or FFEL Loans held by private lenders do not qualify.

What Does Biden’s Student Loan Forgiveness Plan Mean for Borrowers?

The one-time federal student loan debt relief program announced by President Biden means different things to different borrowers. For those who qualify for relief – suggesting the program goes through – it means a debt reduction of up to $10,000 or $20,000, depending on whether the borrower previously had a Pell Grant. That relief could also trigger a change in the monthly payment amount, causing it to lower based on the term length of the loan.

Due to that alone, many borrowers who struggle to repay their student loans viewed the program favorably. Along with reducing their total obligation (or potentially eliminating the entire remaining balance), it could lead to smaller monthly payments for those who would have a remaining balance after receiving relief. That could reduce the odds of default and make repayment easier to manage.

While some debt forgiveness does qualify as income for tax purposes, the Biden administration stated that the federal government would not tax the amount forgiven as income. However, select states may consider the debt relief income, triggering a state tax obligation based on the amount of relief. As a result, views on income tax-related consequences are mixed for those living in states that would tax the loan forgiveness.

However, other borrowers don’t view the program favorably. For example, those who were diligent about repaying their debt quickly, often sacrificing to make it happen, may view the program as unfair. But that isn’t universally the case, as many who paid off their loans in full or by making quicker progress believe that the relief is positive for those who are struggling.

Who Qualifies for the Joe Biden Student Loan Forgiveness Plan?

As mentioned above, individuals with incomes less than $125,000 and households with incomes below $250,000 are potentially eligible for student loan forgiveness under President Biden if they have qualifying loans. That includes borrowers who originally took out their loans long ago and current students.

Both subsidized and unsubsidized loans are potentially eligible for relief. Additionally, the loan forgiveness isn’t limited to undergraduate student loans. Both Parent Plus and Grad Plus loans are potentially eligible.

However, only federal student loan disbursements that occurred on or before June 30, 2022, are eligible. Any student loan disbursements after June 30, 2022, are not covered under the program.

Eligible borrowers need to complete an application to qualify for student loan relief in some cases. However, borrowers using the income-based repayment program are automatically considered based on the data provided to become eligible for that repayment option. As a result, those using income-based repayment are not required to complete the application, though they can choose to do so.

When Will Biden’s Student Loan Forgiveness Happen?

While President Biden announced the one-time student loan debt relief program in August 2022, and applications were accepted for a short period, the program has since encountered some hurdles. When the application launched in mid-October 2022, the goal was to process loan forgiveness for those who applied within the coming weeks before the previous student loan pause expired on December 31, 2022.

However, court action stopped progress on the forgiveness program. As a result, no borrower – even those who are known by the Department of Education to be eligible for the debt relief – has received any loan forgiveness.

Two court cases resulted in the formal stopping of Biden’s program. Those cases have since been appealed to the Supreme Court, which will hear arguments on February 28, 2023. After hearing the arguments, the Supreme Court will issue a ruling, which could happen as late as June 2023.

What’s Delaying Biden’s Plan for Student Loan Forgiveness?

As mentioned above, the delay is related to two lawsuits that led lower courts to block the student debt relief program. The Biden administration is working to overturn those orders by appealing to the Supreme Court.

Both lawsuits question the legality of the one-time federal student loan relief program, though they approach it in different ways. One lawsuit is an effort by six states that claim the plan harms state tax revenues and state-based loan agencies. The other lawsuit claims the program violates the Administrative Procedures Act and questions whether the use of the HEROES Act to offer this relief is lawful.

Other lawsuits were also filed, aiming to stop Biden’s student loan forgiveness plan. Several were dismissed for various reasons, including for lack of standing. A few are still moving through the court system. However, the ruling by the Supreme Court for the two lawsuits described above may render them moot.

Due to the court-related delays, President Biden extended the payment pause again in November 2022. Currently, the pause will continue until either 60 days after the litigation resolves or the administration is able to implement the relief or, if the litigation is not resolved by June 30, 2023, 60 days after that date.

How to Apply for Biden’s Student Loan Forgiveness

The application for one-time federal student loan debt relief is on the Federal Student Aid website. However, new applications aren’t currently accepted due to the court blocking the program.

Anyone who previously submitted an application will still be evaluated if the Supreme Court rules that relief can go forward. After the ruling, the application should open up to other eligible borrowers, allowing them to submit their information and get relief if they qualify.

If the Supreme Court rules against the program, essentially declaring it illegal, the application will not reopen. Additionally, anyone who did apply should not expect relief if the Supreme Court doesn’t rule in Biden’s favor.

Do you want to help college students avoid student loan debt? If so, scholarships could be the answer. If your student wants to learn about scholarship opportunities, sign up for our free college scholarship webinar! Take a quick trip over to http://thescholarshipsystem.com/freewebinar to reserve a spot today.