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The Biden Administration Student Loan Forgiveness Plan

On August 24, 2022, the Biden Administration announced a student loan forgiveness plan for those below certain income thresholds. The three-part plan was ostensibly created with the goal of giving working and middle-class federal loan borrowers some breathing room from their debt obligations and create a smooth transition for repaying those debts going forward. Keep in mind, none of the provisions of this plan apply to individuals with private student loan debt.

The three main components of the Biden plan include:

  1. An extension of the pause on student loan payments.
    • Effective January 1, 2023, all borrowers will begin repaying their student loans.
  2. Student loan forgiveness for individuals making less than $125,000 annually and married couples making less than $250,000.
    • Pell Grant recipients can expect to receive up to $20,000 in student debt cancellation.
    • Non-Pell Grant recipients can expect to receive up to $10,000 in student debt cancellation.
    • The forgiveness will only apply to the outstanding balance. For example, borrowers who are eligible for $10,000 of forgiveness with only $6,000 debt outstanding will receive $6,000 debt forgiveness.
    • Parent Plus loans are eligible for debt cancellation.
    • Debt cancellation will not count as income for federal tax returns. It is unknown how each state will handle debt forgiveness for state income tax purposes.
    • Borrowers employed by non-profits, the military or federal, state, Tribal or local governments may be eligible to have all their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program.
  3. Changes to income-based repayment plans for current and future borrowers to make payments more manageable.
    • Borrowers will not be required to pay more than 5% of their monthly discretionary income towards loan payments. This is down from the current 10% requirement.
    • Loan balances will be forgiven after 10 years of payments for loans with an outstanding balance of $12,000 or less at that time.
    • If the borrower pays the required monthly loan payment, the outstanding balance will not grow - even in the event the required payment is $0 due to low-income.

It is anticipated that most borrowers eligible for debt forgiveness will see that reflected in their accounts by year-end. For borrowers with income-based repayment plans, their debts will be forgiven automatically. For borrowers not utilizing an income-based repayment plan, a short application should be available by October. Once a borrower’s application is submitted to the lender, borrowers can expect to see their eligible debt forgiveness applied to their outstanding balance in four to six weeks. If you will be eligible for student loan forgiveness and would like to plan for how this will affect your budget and retirement savings, please reach out to your advisor at SGK Wealth Advisors to address your specific situation.


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