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The Federal Loan Forgiveness Plan - Part I

The Federal Loan Forgiveness Plan - Part I

| October 05, 2022

The cost of college has nearly tripled since 1980 and Federal financial aid has not kept pace. Pell Grants once covered about 80% of the cost of a four-year public college degree for students from working families, but now only covers a third. This erosion of tuition purchasing power has induced students from low and middle income families to borrow heavily to cover the cost of college. According to a U.S. Education Department (ED) analysis, college students now graduate with an average of about $25,000 in student loan debt. To relieve millions of Americans of this burden, which impacts their lives for many years, the Federal government has taken sweeping action.


On Wednesday, August 24, the Biden Administration announced a Plan to wipe out significant amounts of student loan debt for tens of millions of Americans. The Plan provides debt relief as part of a comprehensive package to address the burden of rising college costs and make the student loan system more friendly to working families. 


The President announced that the ED will:   


  1. Provide relief to former students with Federal loan debt if their annual income is below a certain level. Individuals who received Pell Grants as students may be eligible for additional loan forgiveness. 


  1. Extend the pandemic-related pause on Federal student loan repayments through December 31, 2022. 


  1. Make student loan repayments more manageable for borrowers by cutting monthly payments in half. 


  1. Protect students and taxpayers by making colleges justify raises in tuition.


  1. Continue to advocate in favor of doubling the maximum Pell Grant and making community college free. 


In order to fully present the Plan to students who are planning how to pay for college or are in the process of repaying loans, we will summarize the Plan in three posts:


  1. Eligibility for Student Loan Forgiveness,


  1. The Student Loan Forgiveness Application Process, and


  • Tax Considerations.




Part I.  Eligibility for Student Loan Forgiveness


To be eligible for loan forgiveness, a student must have Federal student loan debt and earn less than $125,000 annually as an individual or $250,000 if married. Borrowers who meet these criteria can receive up to $10,000 in debt cancellation. In addition, students who received Pell Grants can qualify for another $10,000 in debt forgiveness. Relief is capped at the amount of a student’s outstanding loan debt.


Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the ED. These individuals need not take any action. For those students for whom the ED does not have access to income data, the ED will make available an online application form in October. After a borrower submits an application, they can expect relief within 4 to 6 weeks. The ED advises borrowers to apply before November 15th to receive relief before the repayment pause expires on December 31.


Most types of Federal student loans qualify for forgiveness, including Direct Subsidized and Direct Unsubsidized Loans as well as Graduate or Parent PLUS loans. The two types of Federal Loans that are not covered are Federal Family Education Loans (FFEL) and Perkins Loans if they are held by third-party lenders.


If a student’s FFEL or Perkins loans qualified for the pandemic-related Federal student loan payment pause that began in March 2020, they’re likely to become eligible for forgiveness. However, this has not yet been formalized. If a student’s loans were not paused and are held by a third-party private lender, the ED is currently working with those lenders to forgive these debts. More information on this will be forthcoming from the ED in October.


Students Who Received Pell Grants


Students who wish to verify that they received Pell Grants that are eligible for loan forgiveness may log into their account at, navigate to the “Aid Summary” page, and view the loans and grants that they received. Students who only received a partial Pell Grant or only received a grant for one year will still qualify for up to $20,000 of forgiveness regardless of the value or number of their Pell Grants.


Student Loans in Default


Students whose loans are in default can still qualify for forgiveness if collections efforts were paused during the ongoing Federal student loan repayment pause. As part of the ED’s Fresh Start program, borrowers have the opportunity to reset defaulted Federal loans to good standing. Loan types that are eligible for Fresh Start include Direct, FFEL, and Perkins loans that are held and managed by the ED.


Other Provisions of the Loan Forgiveness Plan


The Plan also includes the following provisions:


  1. Borrowers who are employed by non-profits, the U. S. military, and Federal, state, tribal, or local governmentmay be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program. This eligibility is due to temporary changes, expiring on October 31, 2022, that waive specific eligibility criteria of the program.


  1. Students who never completed a degree program or are now in college may still qualify for forgiveness as long as their loans were disbursed prior to July 1, 2022.


  1. Students who received for Federal student loans to pay for community college, trade school, or a professional degree or certification are eligible for loan forgiveness.


  1. The Plan proposes a rule to create a new income-driven repayment plan that will substantially reduce future monthly payments for lower and middle income borrowers. The rule would:


  • Require borrowers to pay no more than 5% of their discretionary monthly income on loan repayment. This is down from the 10% limit under the current income-driven repayment plan. 


  • Raise the amount of income that is treated as non-discretionary and therefore protected from repayment, guaranteeing that no borrower earning under 225% of the poverty level will need to make a monthly payment. 


  • Forgive loan balances of $12,000 or less after 10 years of payments instead of 20 years.


  • Cover the borrower's unpaid monthly interest so that, unlike previous income-driven repayment plans, no borrower's loan balance will increase as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.



Next Post: The Student Loan Forgiveness Application Process





Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Consolidated Planning, Inc. is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License #0M50974.  2022-143358 Exp. 9/24


Guardian and its subsidiaries do not issue or advise with regard to student loans.


This article was written by an independent third party. It is provided for informational and educational purposes only. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein.


Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.