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New Cancellation for Federal Student Loans and Delayed Repayment to 2023

M Sorce
Matthew P. Sorce, CFP®
Assistant Vice President, Wealth Advisor
[email protected]
(585) 419-0670 x41969

On August 24, 2022, just a few days before federal student loan repayment was set to resume, President Biden announced a plan for additional student loan debt relief.

Federal student loan repayment was originally halted in March 2020 at the start of the pandemic. The new plan extends the payment moratorium through the end of the year, offers partial debt cancellation, and includes proposed updates to the Public Service Loan Forgiveness program and a new income-based repayment plan.

What's new

Loan cancellation. The plan will cancel $10,000 of federal student loan debt for borrowers with an adjusted gross income less than $125,000 ($250,000 for married couples filing jointly). The loan cancellation increases to $20,000 for borrowers who are Pell Grant recipients.1 (A Pell Grant is a federal financial aid grant award to students from low-income households.) Eligibility is based on income from 2020 or 2021, but not 2022.

Payment pause extended

The pause on federal student loan repayment is being extended one "final" time through December 31, 2022. President Biden's announcement states that "borrowers should expect to resume payment in January 2023."2 In practice, borrowers should expect to hear from their loan servicer at least three weeks before their first payment is due.

Changes to the Public Service Loan Forgiveness program

Borrowers who are employed by a nonprofit organization, the military, or the government may be eligible to have their federal student loans forgiven through the Public Student Loan Forgiveness (PSLF) program due to time-sensitive changes. These temporary changes waive certain eligibility criteria for the program and make it easier for borrowers to receive credit for past periods of repayment that would otherwise not qualify for PSLF. These changes expire on October 31, 2022.

Important note: Borrowers who might qualify for loan forgiveness or credit under the PSLF program due to these time-sensitive changes must apply to the program before October 31, 2022. Borrowers can visit the administration's PSLF website for more information.

In addition, the Department has proposed allowing certain kinds of deferments and forbearances, such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service, to count toward PSLF.

Lastly, there will be a new income-based repayment plan.

Will my loans be cancelled automatically?

For most borrowers, no. The Department of Education has released a "simple" application for borrowers to claim relief, which is available at the Department of Education’s website, Once borrowers complete an application, their loan cancellation should be processed within four to six weeks. The Department recommends that borrowers apply before November 15 in order to receive loan cancellation before the payment pause expires on December 31, 2022. (The Department will still process applications even after the pause expires.)

Some borrowers, however, may be eligible to have their loans cancelled automatically because the Department already has their income data on record.

Additional considerations

Graduate students are eligible for loan cancellation of federal loans such as a Direct Loan or Grad PLUS Loan, provided income limits are met. Parent PLUS Loans also qualify for cancellation provided income limits are met; however, private loans are not eligible.

Understanding repayments for student loan debt can be overwhelming, especially when juggling other financial obligations. No matter what life stage you are in, our financial planning team at CNB Wealth Management can help you create a clearer path to your overall financial goals.

Student Loan Forgiveness FAQs

Will I have to fill out an application for forgiveness? If so, is this application process through my servicer? How do I apply?

My highest interest loan at this rate has 13% interest, and I'd love for this to be the loan that's forgiven even though it has the lowest balance. Will I have a choice of how to apply forgiveness?

How is income eligibility calculated? Which year's tax return will be used?

When will funds be disbursed? Will they be applied directly to my account, or will I receive a check?

I am getting married next year. How does my future spouse's income impact forgiveness and income-based repayments?

Sources: 1) U.S. Department of Education, 2022 2) White House Fact Sheet, August 24, 2022.
©2022 Broadridge Investor Communication Solutions, Inc. All rights reserved. This material provided by Matthew Sorce.

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