On August 24, 2022, the U.S. Department of Education announced targeted student debt cancellation programs to address the continuing impact of COVID-19 on borrowers’ income. The program cancels debt held by the Department of Education (click here and sign in to see if your loans are affected since bank and other loans are not included) for borrowers who earned annual income during the pandemic up to $125,000 ($250,000 for married couples and heads of household) in the amount of up to $20,000 for those who received Pell Grants and up to $10,000 who did not. The application process to request this aid will be announced in the weeks ahead. This application will be made available by the end of the year, which is also the time the loan payment moratorium was extended to, but some may have the forgiveness applied automatically, provided income is already verified.
For those with Income-Driven Repayment plans (IDRs), the discretionary income required to be paid under the programs will be reduced from the current 10% down to 5% of discretionary income for those with undergraduate loans. Borrowers with undergraduate and graduate loans will see a weighted average rate. Income considered nondiscretionary under the programs is also anticipated to increase to reduce payments further. If your original loan balance was $12,000 or less, the period of repayment will be reduced to 10 years from the current 20 or more years. Provided the required payments are made, interest will be capped to avoid increasing the balance due. However, there is no mention of making any remaining balance non-taxable, so if you cannot pay the entire balance in the applicable time period, you may incur a tax liability for the remaining balance.
The Department of Education also pledged to make long-term changes to the Public Service Loan Forgiveness (PSLF) program. The changes aim to make it easier to satisfy the obligations through partial, lump sum, and late payments counting toward payments. The proposal will also allow deferments and forbearances to count toward PSFL obligations.
The Department intends to make the cost of college more affordable by holding schools accountable when they consistently disappoint students’ expectations. It anticipates more enforcement actions similar to ITT Tech and Corinthian College. It also will expand on its reporting on colleges’ performance by publishing an annual list of the college programs with the worst debt levels and requesting improvements from those with the most concerning debt outcomes.
Many elements of the program anticipate legal challenges to stop them from coming into effect, so many of these reforms remain as proposals. If you have a question or you need help with your particular situation, contact us. We give second chances on Second Street.