The Biden administration has been touting $25 billion in student loan forgiveness approved for borrowers during the last year and a half. At least 1.3 million borrowers have been determined to be eligible.
But given the multiple student loan relief programs involved, the ongoing student loan payment pause, and significant changes to the student loan servicing system that continue to play out, many borrowers may not even know about these initiatives.
Here’s what you need to know.
Biden’s Student Loan Forgiveness Is Through Targeted Initiatives
The Biden administration’s student loan cancellation initiatives have, so far, been through so-called “targeted” relief. This involves the administration focusing on existing student loan forgiveness programs and using executive action to ease restrictions, expand access, or streamline the application or approval process. Here are the programs the administration has largely focused on so far:
- $7.9 billion in student loan cancellation for borrowers defrauded or harmed by their schools. This includes Borrower Defense to Repayment — where a school misrepresented the truth of key aspects of an education program — and the Closed School Discharge program, where a school’s closure prevented borrowers from completing their degree. The Education Department estimates that around 690,000 student loan borrowers have been approved for discharge under these initiatives.
- $7.3 billion through the Limited Public Service Loan Forgiveness (PSLF) Waiver program, which temporarily relaxes the PSLF rules to dramatically expand access for borrowers who have devoted their careers to public service work. At least 127,000 borrowers have been approved so far, according to the Education Department. The Limited PSLF Waiver program is set to end on October 31, 2022.
- At least $8.5 billion in total and permanent disability (TPD) discharges for borrowers who are disabled. The Department streamlined access to this program by automating the application process for borrowers receiving Social Security Disability benefits. More than 400,000 borrowers have benefited so far, says the administration.
Some Student Loan Forgiveness Relief Is Automatic
In an effort to provide streamlined relief, the Biden administration has endeavored to provide automatic student loan forgiveness wherever possible. For example, the administration recently approved nearly $6 billion in student loan forgiveness for 560,000 borrowers under Borrower Defense to Repayment for those who previously attended Corinthian Colleges, a for-profit college chain that collapsed in 2015; eligible borrowers do not even have to submit an application. In addition, much of the TPD discharge relief is also automatic through a data-sharing initiative between the Department of Education and the Social Security Administration.
For other programs, it’s a bit more complicated. For Direct loan borrowers who have already certified their public service employment, many have already received automatic student loan forgiveness under the Limited PSLF Waiver, as the Department is providing some relief automatically when it can. But other borrowers may have to take action to qualify.
Some Borrowers May Need to Apply For Student Loan Forgiveness Or Take Other Steps to Qualify
It can be confusing for borrowers to know whether or not action is required to obtain some of the new student loan forgiveness and associated relief:
- For the Limited PSLF Waiver (and for the newer IDR adjustment initiative), borrowers with FFEL-program loans would need to consolidate those loans via the federal Direct consolidation program for those loans to qualify. And any borrower (whether they have Direct or FFEL loans) would need to certify their public service employment on formal Department of Education PSLF forms to get credit during the Limited PSLF Waiver period. The deadline is October 31, 2022.
- For disabled borrowers, even if you do not qualify for automatic relief on the basis of Social Security disability benefits, you can still submit a formal application for discharge, although you may need to include a physician’s certification form — a part of the application completed and signed by your doctor — confirming that you meet the eligibility criteria.
- For borrowers who did not attend Corinthian Colleges but were nevertheless defrauded by their school through false promises or misrepresentations, you can still submit a formal Borrower Defense application to the Department of Education.
Federal Student Loan Forgiveness is Not Taxable — For Now
Under the American Rescue Plan Act passed by Congress and signed by President Biden last year, federal student loan forgiveness under any program is not considered taxable income under federal law (normally, when a debt is cancelled, forgiven, or discharged, it could be considered as taxable “income” for the borrower, unless there is a specific carve-out in federal law). However, this relief is temporary and is set to end at the end of 2025, unless Congress extends it or makes it permanent.
Notably, there is an existing carve-out for Public Service Loan Forgiveness (PSLF), which should remain tax-free under federal law even after 2025.
More Student Loan Forgiveness May Be Coming
The Biden administration has indicated that the $25 billion in student loan forgiveness approved so far may just be the beginning. This figure does not include any student loan forgiveness under recently-announced changes to Income-Driven Repayment (IDR) programs, which may result in billions of additional student loan forgiveness. Those changes are not expected to be implemented until later this fall at the earliest.
Meanwhile, the Biden administration is also considering executive action to enact wide-scale student loan cancellation. No final decisions have been made, but recent reports suggest the President may make a final decision by August.