Federal Student Loan Relief 2023

In August 2022, the Biden administration announced a program to forgive up to $10,000 in student loan debt per borrower (and up to $20,000 per borrower for Pell Grant recipients). But the program has faced legal challenges, with two lawsuits reaching the U.S. Supreme Court. Here’s what that means for student loan borrowers.

When Do I Have to Start Repaying My Student Loans?

All student loan payments are paused until the lawsuits are settled. However, if the lawsuits have not been settled by June 30, 2023, payments will resume 60 days after. So, unless the court passes a verdict in favor of the Biden administration before then, plan to start paying on your loans around August 30, 2023. (And check your email for announcements from the Department of Education and your student loan servicer.) 

Do I Have to Sign Up to Get My Loans Paused?

No, all student loans are automatically paused at this time. You don’t need to enroll in a special program or sign up for this period of forbearance. 

I Signed Up for Loan Forgiveness. Now What?

If you signed up for one-time loan forgiveness of up to $20,000, your application is being held by the Department of Education until lawsuits against the program are resolved. You are not required to pay on your loans right now. In the meantime, you can sign up for updates on the program. 

Can I Still Sign Up for Student Loan Forgiveness?

The Department of Education is not currently accepting applications for loan forgiveness. It’s unclear at this point whether the application will reopen, and that likely depends on whether the Supreme Court rules in favor of the Biden administration’s plan. Your best option is to sign up for updates so you’ll know if the application re-opens. 

Will I Be Taxed on My Student Loan Forgiveness?

Federal student loan forgiveness is temporarily exempted from taxes as part of the American Rescue Plan Act of 2021. This act exempted student loan forgiveness, cancellation, and discharge through 2025. 

The exemption applies to President Biden’s one-time forgiveness program, but also to programs like PSLF, IDR plans, Total and Permanent Disability (TBD) Discharge, and forgiveness extended to borrowers who were defrauded by the schools they attended.

Will This Pause in Payments Affect Other Student Loan Forgiveness Programs?

Programs like Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans have long offered a path to student loan forgiveness for qualifying borrowers. However, a small percentage of people in those programs have actually received full loan forgiveness through these initiatives. One reason for that is periods of deferment or forbearance can derail borrowers from making the number of required payments to earn forgiveness.

COVID-related forbearance could have put millions of borrowers years behind on making those required payments, but the Biden administration used multiple initiatives to ensure paused payments will count toward loan forgiveness as long as a borrower meets all other requirements. This would mean some borrowers could receive as much as three years of credit toward their PSLF and IDR loan forgiveness.

Will President Biden Make More Changes to Student Loans?

The Biden administration is approaching student loan reform as an ongoing project. During his election campaign, President Biden outlined a number of changes he wants to see, some of which he is still negotiating with Congress.

A Single Federal Student Loan Portal

On December 13, 2021, President Biden signed an executive order directing many federal agencies (including the Department of Education) to streamline their customer service functions. One result is a new payment portal on the official federal student loan website (StudentAid.gov) where borrowers will be able to manage all their loans in one place.

Currently, borrowers can view their loan information and apply for income-driven repayment or loan consolidation using the StudentAid.gov website. However, they may have to visit two or more other websites to make payments or apply for different repayment programs. This is especially true for borrowers with multiple loans managed by different loan servicers.

But using the new portal, they will be able to manage everything from one central location. This includes:

• Applying for new loans
• Managing current loans
  
• Making payments
  
• Applying for income-driven repayment
  
• Applying for loan consolidation
  

The Department of Education has been working on this portal for years but has not confirmed a launch date.

Smaller Payments for Income-Driven Repayment

Income-based repayment plans set a borrower’s monthly payment at between 10-20% of their monthly discretionary income. However, during his presidential campaign, Biden proposed changing income-based repayment plans so borrowers would only pay 5% of their discretionary income.

Not only would this allow borrowers to keep more of their money each month, but it would enable more borrowers to qualify for income-based repayment. Currently, any borrowers can apply for IDR plans. However, if your monthly IDR payment is equal to or higher than your monthly payment on the standard repayment plan, you do not qualify for IDR.

The Takeaway

Legal experts say the Supreme Court’s ruling could go either way on Biden’s student loan forgiveness program. A verdict is expected in early June. For now, we’ll just have to wait and see whether borrowers receive the promised $10,000 forgiveness they’ve been waiting for. 

Regardless of the outcome of these lawsuits, student loan borrowers will see changes coming in how they pay loans and the kind of relief efforts available to them.