Biden’s Student Debt Relief Plan: Eligibility, Income Limits, Payment Freeze Extension, And More For Advisors!

Biden’s Student Debt Relief Plan: Eligibility, Income Limits, Payment Freeze Extension, And More For Advisors!

The Biden administration’s long-anticipated Student Loan Debt Relief plan was finally announced on August 24, 2022, and with it came a flurry of attention on the proposal’s centerpiece of providing $10,000 of student loan forgiveness for Federal student loan borrowers (and $20,000 for borrowers who received a Pell Grant for college) with income levels under $125,000 for single borrowers and $250,000 for married couples.

But student loan forgiveness is just one part of the administration’s plan for student debt relief. In addition to the $10k – $20K of potential forgiveness, the plan also provides another (final) extension to the pause on Federal student loan payments until December 31, 2022; a push for borrowers who may be eligible for the Public Service Loan Forgiveness (PSLF) Waiver to apply for the waiver before its expiration on October 31, 2022 (along with some significant changes to the eligibility requirements for PSLF going forward); and the creation of a new Income-Driven Repayment (IDR) plan that would lower monthly payments and potentially reduce the time period required for loan forgiveness for eligible borrowers.

While parts of the administration’s plan will happen automatically (for instance, about 8 million borrowers with IDR plans already have income information on file with the U.S. Education Department and, unlike other borrowers who will need to file their income manually, will be automatically eligible for their loan forgiveness), other aspects may require more action. For example, borrowers who have made payments on their loans since the pause on student loan payments started in March of 2020 may want to request a refund of those payments – because although a refund will end out increasing the borrower’s loan balance, it could also result in a greater amount of debt forgiven, while allowing the borrower to simply ‘keep’ their refunded payments!

Consequently, for financial advisors, an in-depth understanding of the details of the Biden administration’s student loan relief proposal will make it possible to give valuable advice to their clients on how these changes will work in real life, how they will interact with the client’s broader financial circumstances, and how to maximize the potential benefits available.

For clients with student loans, advisors can help them understand how much debt they might qualify to have forgiven, maximize any forgiveness routes that may be available to them, and plan for how student loan forgiveness will impact their longer-term financial picture. Additionally, for clients eligible for PSLF, advisors can help ensure they are receiving proper credit for their service under the new Waiver’s provisions, and potentially apply for credit under the Waiver before its expiration date on October 31, 2022. And for clients on IDR plans, advisors can help their clients determine their eligibility for the new IDR plan and how it would compare with their existing IDR plan. Finally, for all Federal loan borrowers, advisors can help their clients prepare for the impact on their cash flow of student loan payments resuming in January 2023 after a nearly 3-year moratorium on payments and interest.

The key point is that because the Biden administration’s proposal will have such broad-reaching effects on borrowers with Federal student loans, the plan represents a great opportunity for advisors to connect with clients who have such loans (or who have family members with student loans). Ultimately, nearly every Federal student loan borrower may be affected – hopefully positively – by at least one of the plan’s provisions and, given the impact of student loans on the situations of so many individuals (both in terms of financial status and psychological well-being), advisors can provide immeasurable value in guiding clients through these changes!

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