The Current State Of Federal Student Loan Forgiveness 2022

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Joe Biden announced $10,000 in federal student loan forgiveness for each borrower when he campaigned for President. So naturally, borrowers will be curious about the status of Biden’s federal student loan forgiveness plan. 

This guide will give you a rundown of recent events and various alternatives. 

Let’s begin. 

Current Updates on Federal Student Loan Forgiveness

In a video released on Twitter on April 6, 2022, President Biden announced that the moratorium on repayments would be extended until August 31, 2022. The President concluded the video by advising borrowers to go to studentaid.gov for assistance with repayment planning. 

For federal student loan borrowers who have not been obligated to make payments since March 2020, this prolongs a period of uncertainty.

For the third time, Joe Biden extended the federal debt repayment suspension and interest waiver on December 22, 2021. As a result, until May 1, 2022, federal student loans will not accrue interest.

The announcement did not mention a loan forgiveness or cancellation scheme that the Biden administration may pursue, but President Biden encouraged borrowers to “play their part” in planning for repayment.

After the Administration stated in August that its announcement would be the last extension of the CARES Act-enacted student loan interest waiver, the extension came as a surprise.

When asked by reporters the day before about the possibility of President Biden extending the payment freeze or enacting more student debt forgiveness, the White House Press Secretary stated the President had not yet decided.

Biden To Extend Student Loan Repayments Again 

According to an administration official briefed on the situation, President Biden will permit millions of federal student loan borrowers to put their payments on hold until August 31, the latest extension of a crisis relief package that began more than two years ago.

The strike would be the seventh since the epidemic began, and it would occur under a month before student debt monthly payments were scheduled to resume, affecting millions of student borrowers, including 35 million who have failed to make payments that were due.

Those loans haven’t accumulated interest, and seven million defaulting borrowers have avoided wage garnishment and other collection actions.

The extension will be revealed according to an administration official who was not authorized to speak about the preparations before the announcement.

Because of the four-month delay, the pause will return before the November elections, and student loan activists will continue to push Mr. Biden to forgive at least some of the debt.

Americans owe $1.6 trillion in federal student loans, which is more than they owe in car loans, credit cards, or other consumer debt except for mortgages.

The nature of the payment suspension and the frequent last-minute decisions to extend it have been a source of frustration for loan servicers. The freeze began in March 2020, as part of Congress’s CARES Act, under former President Donald J. Trump and was twice extended by the Trump administration.

Another extension of the payment suspension was one of Mr. Biden’s first acts as President. In August 2021, he pushed payments back until early 2022, calling it a “last delay” by Education Secretary Miguel Cardona. Then, however, Mr. Biden enforced another three-month extension in December, just weeks before invoices were supposed to be sent out, citing the pandemic’s impact on debtors’ finances.

Servicers hired additional staff and began preparing for a spike in activity when payments resumed on May 1. However, certain executives expressed their displeasure once it became evident that their collection efforts would have to be postponed.

Restoring “The Promise Of The Public Service Loan Forgiveness” 

Federal student loan forgiveness

According to a factsheet from the Education Department, a revamp of the PSLF program was recently revealed to “restore the promise of Public Service Loan Forgiveness.” 

A one-time waiver will allow payments from all federal student loan programs, including those that were not previously eligible, to be included toward progress toward Public Service Loan Forgiveness.

On August 19, the U.S. Education Department announced that more than 300,000 borrowers with a total or permanent handicap would be forgiven $5.8 billion in student loans. In addition, by comparing data from the Social Security Administration, the Department of Education would be able to identify debtors who are eligible for automatic discharge.

Other Federal Student Loan Forgiveness Developments You Should Know 

The U.S. Education Department and the Justice Department are investigating whether the President has the legal ability to erase up to $50,000 in federal student debt by executive action. There is no set a date for the release of these reports. 

There may be delays because key policy advisors in both departments have yet to be confirmed by Congress.

Whether student loan forgiveness is accomplished through executive action or legislation, the White House’s Domestic Policy Council will assess how it should be targeted.

Scams promising debt forgiveness in exchange for a fee should be avoided by borrowers. However, it will most likely be automatic and free regarding student loan forgiveness. On the StudentAid.gov website, the U.S. Department of Education will issue an update.

The U.S. Department of Education has lately taken a few measures toward giving clear legal authorization for student loan relief. We’ll go through some of them in the next section. 

Some Measures Taken By The Education Department Twwards Student Loan Relief 

Interest Waiver And Payment Pause Have Been Expanded 

Until January 31, 2022, borrowers with a federally owned federal student loan are eligible for administrative forbearance and an interest waiver. 

Borrowers with defaulted FFELP loans were not eligible since guarantee agencies held them on behalf of the U.S. Department of Education. Over a million FFELP student loan borrowers will now be qualified for the interest waiver and federal debt payment halt, thanks to a decision by the U.S. Department of Education.

 During the epidemic, borrowers who defaulted on their FFELP loans will have their loans reinstated and the defaults removed from their credit reports.

Restore The Total and Permanent Disability Discharges

Because they neglected to file the annual earnings paperwork during the pandemic, several disabled borrowers who qualified for a Total and Permanent Disability Discharge had their payback obligations revived.

For 230,000 borrowers with Total and Permanent Disability Discharges, the U.S. Education Department will reverse the reinstatements and provide other student loan debt relief.

Defense to Repayment Discharge Claims Full Loan Forgiveness for Approved Borrowers

The Trump administration enacted a plan in which fraudulent homeowners were only awarded partial loan forgiveness. The mechanism for partial alleviation was incorrect. 

The Department of Education has announced that all borrowers who have had their borrower defense claims recognized will have their loans discharged completely. Seventy-two thousand borrowers who were victims of predatory student lending will be affected.

Federal Student Loan Forgiveness Without Paying Taxes

Congress has also addressed the tax treatment of federal student loan forgiveness. All debt cancellation and loan forgiveness will be tax-free until December 31, 2025, thanks to the American Rescue Plan Act of 2021.

Because most other student loan cancellations already have tax-free status, this predominantly affects forgiveness after 20 or 25 years in an income-driven repayment plan. However, whether executed through executive action or new legislation, it creates the basis for future student loan forgiveness.

In the Consolidated Appropriations Act of 2021, Congress granted tax-free status to employer-paid LRAPs, until December 31, 2025.

The Biden administration and Congress have yet to take action on student loan discharge in bankruptcy.

Ways To Get Federal Student Loan Forgiveness Under Current System 

Federal student loan forgiveness

Public Service Loan Forgiveness 

The Public Service Loan Forgiveness program was established in 2007 to encourage more college graduates to enter the public sector. The program guaranteed to erase the remainder of their federal student loans if they made 10 years of payments.

The program, on the other hand, was everything but forgiving.

According to the Education Department, only 16,000 debtors had their debt forgiven or dismissed before the October reforms. Approximately 1.3 million people attempt to have their debts forgiven due to the initiative.

Issues With The PSLF Program 

One of the most troublesome aspects of the PSLF program is that many borrowers had the wrong sort of loan and were unaware they weren’t eligible for forgiveness.

When the federal student loan forgiveness program was first implemented, many of the federal government’s loans were Family Federal Education Loans (FFELs), private-sector loans that the federal government-insured.

Who Can Get Federal Student Loan Forgiveness?

According to the Administration, only certain federal student loans and repayment plans were eligible for the Public Service Loan Forgiveness program.

Borrowers who have made ten years of payments while working in a qualifying job such as in the federal, state, or local government, a nonprofit organization, or the United States military – will now qualify for loan relief, regardless of the type of federal loan or repayment plan they have.

Previous loan payments that were previously ineligible will now be considered, bringing some borrowers closer to federal student loan forgiveness. This is likely to benefit borrowers with FFEL in particular.

Among other modifications, the government will let military members include time spent on active service toward the ten-year requirement, even if payments are suspended.

How To Check The Federal Student Loans You Have 

If you’re confused about the sort of loan you have, you should ask your student loan servicer or visit the federal government’s financial assistance website.

If you’re not sure what types of federal loans you have, log into your StudentAid.gov account, click on the My Aid page, and scroll down to the Loan Breakdown section.

What To Do If You Qualify For Federal Student Loan Forgiveness 

The federal student loan forgiveness program will be changed in two stages.

Through a limited waiver, the agency will initially modify some of the regulations that had previously barred eligible borrowers from repaying their debts. As a result, payments on any of a person’s loans, for example, will be counted against the total number required for forgiveness by the government.

Borrowers with direct loans, Federal Family Education Loans, and Perkins Loans will be eligible for the Public Service Loan Forgiveness waiver.

The limited waiver does not apply to parent PLUS loans. However, according to the government, borrowers who already have direct student loans and have shown they work in an appropriate field will be immediately credited. 

Others who haven’t participated in the program or who have federal loans that aren’t eligible for cancellation will have to petition for forgiveness, which may require them to consolidate their debt. Borrowers will have until October 2022 to submit their applications.

How To Get Credit For Past Payments Under Current Rules 

Borrowers may receive credit for past payments made on debts that would otherwise be ineligible for the Public Service Loan Forgiveness program for a short time.

Full-time jobs and loan consolidation are two prerequisites for receiving additional qualifying payments. According to Federal Student Aid, you must have worked full-time for an eligible company when earlier payments were made.

Under specific situations, some part-time workers may be eligible. For example, assume you worked many qualified part-time jobs simultaneously. Then, if you worked a combined average of at least 30 hours each week, you were considered full-time.

How Far Does The Credit For Payments Go? 

Is there a limit to how far back I may earn credit for payments?

Since the Public Service Loan Forgiveness program began on October 1, 2007, you can only get credit for payments made after that date.

You must complete an application for any period you may be eligible for extra qualifying payments. Public Service Loan Forgiveness, as well as a Temporary Expanded PSLF Certification and Application

Federal Student Loan Forgiveness Options To Consider 

You should avoid making any hasty decisions to get your student loans forgiven. At this time, it doesn’t appear that widespread student debt forgiveness is likely. Even if Biden or Congress passes a scheme, federal student loan forgiveness eligibility and amounts are likely to be limited.

Consolidate Your Student Loans 

Borrowers with FFELP loans should consider merging them into a Federal Direct Consolidation Loan if the loan forgiveness is only available for federal student loans. Consolidating FFELP loans may qualify them for the payment pause and interest waiver, which is available until May 1, 2022.

Consolidation’s most significant danger is that it resets the monthly payment clock in an income-based repayment plan, making it impossible to qualify for 25-year forgiveness.

In addition, if a student borrower receives FFELP lender discounts, they will forfeit those savings if they combine. Borrowers who sign up for AutoPay receive a 0.25 percent interest rate decrease on Direct Loans, but no further reductions are available. Consolidation has no notable drawbacks elsewhere.

Consider Refinancing 

Federal student loan forgiveness

Borrowers considering refinancing federal loans into private loans to lock in current low-interest rates should hold off. Through August 31, 2022, loans that are qualified for the payment delay and interest waiver effectively have a 0% interest rate.

In the short term, refinancing will raise the borrower’s costs. However, borrowers with high-interest rates may want to start looking into refinancing options for their student loans significantly when the Federal Reserve raises its target Federal Funds rate.

On the other hand, borrowers with private student loans don’t risk losing their forgiveness if they refinance into a new private loan.

Save Money On Your Monthly Payments 

Instead of making extra payments on their student loans, you should save the money or pay down other debt if you still have a job and can make payments.

It’s the best time to start or add to your emergency fund. In general, if a borrower expects to receive loan forgiveness, they shouldn’t make additional payments if they are not compelled to do so, as this will diminish the amount of forgiveness they will receive in the end.

Borrowers can utilize the money saved to pay down debt after the terms of student loan forgiveness are published.

Final Thoughts 

Borrowers who expect federal student loan forgiveness under the current president can defer payments on federal student loans during the payment pause and interest waiver period, which has been extended until August 31, 2022. Due to the uncertainty surrounding the cancellation of student debt, borrowers may prefer to keep making payments. However, specific borrowers may be qualified for a loan forgiveness scheme that already exists. For example, borrowers who work full-time in qualifying public service employment can apply for Public Service Loan Forgiveness (PSLF). After making 120 qualified payments, a borrower can apply for loan forgiveness.