Explaining the Biden Administration's Student Debt Relief

While those with student debt have known and felt its presence for a long time, it now seems like the topic of student debt is everywhere. On Wednesday, August 24, 2022, President Biden announced major student debt relief initiatives. With opinions, criticism, information, and misinformation abounding, After the Bar breaks down what we know about the White House’s announcement and how it affects you.

What debt relief did the White House announce?

The relief announced was targeted relief. You qualify if you make less than $125,000 (for individuals) or $250,000 (for married couples or heads of households). If you received the Pell Grant in college, you get up to $20,000 canceled, and if not, only up to $10,000.

Can you get a refund if you owe less than $10,000, or $20,000 as a Pell recipient?

No, there are no refunds for any money already paid. Only the amount you owe gets canceled, up to the applicable maximum.

How do you sign up for debt relief?

It will be automatic if the US Department of Education (DoE) already has your information. You’ll need to apply if the DoE doesn’t already have your information. To be notified when the application comes out, subscribe to “Federal Student Loan Borrower Updates” on the DoE website.

I heard the Administration also proposed a new repayment plan. Can you tell me more?

Yes, a new plan would require borrowers to pay no more than 5 percent of their monthly discretionary income on their undergraduate loans—down from 10 percent for the most recent income-driven repayment plan. DoE has proposed raising the amount of income that is considered nondiscretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225 percent of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment. Additionally, loans with balances of $12,000 or less will be forgiven after 10 years instead of 20 years.

Are there limits on the income levels for eligibility?

Yes, borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).

Does this affect Public Service Loan Forgiveness (PSLF)?

Under the announced plans, PSLF will stop allowing borrowers to receive credit for past periods of repayment that would otherwise not qualify for PSLF starting October 31, 2022. If you want this benefit before it ends, apply for PSLF today.

Will the pause on federally held student debt payments continue?

Yes, federally held student loan payments will remain paused until January 2023. Borrowers should expect to resume payment in January 2023. This marks the seventh time the government has continued the freeze on loan payments. It began in March 2020.

My loans are held by a private bank. Can I get debt relief?

The only relief allowed and authorized by President Biden is that of federally held student loans. Luckily, 92 percent of loans are owned by DoE. If a private servicer or lender owns your loans, you may not be completely out of luck in improving your debt outlook. You could either try to refinance or consolidate for a single, better monthly payment; see if your state or locality has student loan assistance programs, as some regions do; or request forbearance from your lender. Read more about these options here.

This is all great, but where does the plan come up short?

UCI Law’s Student Loan Law Initiative estimates that 92 percent of borrowers with federal student loan debt will receive up to $10,000 in cancellation.

However, they estimate that the remaining 8 percent will be excluded based on income limits. An unknown number of additional borrowers will not receive cancelation if they do not submit an income attestation form to the DoE. The White House has stated that it will waive this administrative burden for 8 million current students with debt by using income data from their FAFSA and IDR forms, but the execution of this promise will need to be seen. Another 21 million borrowers will still owe some portion of their existing debt that has not been canceled. And finally, loan holders with private debt will still not be covered.

How does this fix the student debt crisis in the future?

Well, it honestly doesn’t do much. Other than some accountability measures, it doesn’t change the system that has led to the current student debt crisis.

Will many lawyers benefit from this relief?

If you’re reading this on After the Bar, you likely know better than this, but many people assume that lawyers are highly paid, so they may not need relief. The reality is that even Big Law salaries haven’t kept up with the drastic increase in student debt over the last few decades, let alone the average salaries of young lawyers across the profession.

According to US News, the median salary of a lawyer in 2020 was $126,930, so roughly half of lawyers will be eligible for relief based on their income. This assistance will be impactful, although we also know that the average debt for law school graduates has increased to more than $150,000. Even lawyers who make more than the income threshold in the proposed relief initiative feel the heavy weight of their debt. This proposal leaves all those lawyers out of the picture, regardless of the size of their debt loads.

Also, while the eligibility for PSLF will hopefully be expanded and improved, the $10,000–$20,000 of debt forgiveness doesn’t translate to helping those in PSLF. Some had proposed essentially knocking off a year or two of payments to equate loan forgiveness to payments for those in PSLF, and that did not happen here.

I have other questions about how this will work . . .

So do we! Some details still need to be worked out. However, if you send an email to Chris at [email protected], we will gather questions and put out a follow-up with answers we’re able to provide!