Your 2022 Guide to Student Loan Forgiveness
Editor’s Note: Since the writing of this article, the Biden administration has extended the pause on federal student loan repayment through December 31, 2022.
Student loan forgiveness was a hot topic on the campaign trail—but is one that is largely plodding along.
While President Joe Biden has endorsed $10,000 of federal student loan cancellation, few Republicans support blanket student loan forgiveness.
In June, Senate Majority Leader Chuck Schumer again urged Biden to cancel $50,000 in federal student loan debt for every borrower. Biden has asked the Justice Department and the Department of Education to assess whether or not he has the authority to unilaterally cancel student loan debt.
If the answer is “yes,” how much might he cancel? He has maintained that $50,000 is too much, especially given the relatively high incomes of graduates of high-tuition colleges.
Here are types of debt that have been canceled under Biden student loan forgiveness acts, and debt that may be forgiven in the future:
Loan Discharge for the Defrauded and Disabled
One major move Biden and his Education Department made in his first few months in office was discharging loans from for-profit institutions that defrauded students.
In March 2021, a decision was made to discharge nearly $1 billion worth of debt for 72,000 students. This was a continuation of a Trump-era policy, which had provided partial debt relief to those students.
The borrower defense to repayment program had been expanded under President Obama and trimmed under President Trump. This particular ruling applied to students who had had claims approved but had only received partial relief.
In June, the Biden administration discharged more than $500 million in debt for 18,000 former students of ITT Technical Institute, a for-profit school that closed in 2016. The administration is still working through a backlog of claims from the Trump administration.
The Biden administration also moved to forgive more than $1.3 billion worth of debt for 41,000 loan holders with permanent disabilities.
Advocacy groups say the move did not go far enough, and that the administration should forgive the $8 billion in debt held by over 500,000 borrowers who are considered totally and permanently disabled.
So what do these Education Department actions mean for those who do not fit under any borrower defense that has been invoked? The answer is still unclear, but the recent moves indicate that student loan reform is likely to be a key pillar of the administration.
The Latest on the Loan Payment Pause
The CARES Act in 2020 suspended payments and interest accrual on most federal student loans. The administrative forbearance was extended twice under Trump and again under Biden. The payment pause is slated to expire on Jan. 31, 2022.
Advocates see the next few months as an opportunity for the Biden administration to act quickly in terms of reform. Schumer and Sen. Elizabeth Warren have led the charge to urge Biden to continue the payment pause through at least March 2022.
But as of now, payments are on track to resume in February. This may be a good time for borrowers to plan how they will resume payments, look into forbearance or deferral programs if they are not in a position to do so, or consider refinancing with a private lender if they can get a better rate.
What Might the Education Department Cover Next?
On the campaign trail, Biden promised multiple student loan reforms. Some will likely have to be approved by Congress. They include:
• Free community college. In April, Biden promised to make good on that promise with the American Families Plan, which also would increase the maximum Pell Grant by $1,400.
• Overhauling the Public Student Loan Forgiveness (PSLF) program. Candidate Biden said he would streamline the program to make it easier for borrowers to qualify. He suggested $10,000 of forgiven undergraduate or graduate debt for every year of working in a nonprofit or public sector job, for up to five years.
People who have had qualifying public service roles would qualify for the program. The Department of Education is looking into PSLF claims, and Secretary of Education Miguel Cardona has called the current rejection rate “unacceptable.”
• Streamlining Pay as You Earn (PAYE) and Revised Pay as You Earn (REPAYE) programs. On the campaign trail, Biden promised to simplify and streamline these programs, at one point suggesting repayments of 5% of discretionary income for people making over $25,000, with any remaining debt discharged after 20 years. As of this month, the Biden administration is reviewing these programs.
• Permitting student loan debt discharged in bankruptcy. Cases are circulating in the lower courts related to student loans and bankruptcy, challenging the status quo that student loans are rarely forgiven in a bankruptcy filing. But this month, the Supreme Court declined to review a case in which student loan discharge was denied.
Recommended: PAYE vs REPAYE: What’s the Difference?
Loan Forgiveness Plans Right Now
Federal student loan holders have forgiveness options if they meet certain criteria. The Education Department is likely to move forward on some reform fronts, but it may be challenging for certain acts to gain congressional approval.
In the meantime, here are some current programs:
Income-based plans. Income-driven repayment plans, which include PAYE and REPAYE, are meant to forgive any remaining student loan balance after 20 or 25 years of monthly payments that are tied to income and family size.
PSLF. Direct Loan borrowers working for a federal, state, local, or tribal government or nonprofit organization are to have any loan balance forgiven after making 120 qualifying payments. But debt discharge from PSLF has been notoriously challenging.
Disability discharge. Total and permanent disability relieves you from having to repay a Direct Loan, a Federal Family Education Loan, and/or a Federal Perkins Loan, or to complete a teacher grant service obligation.
“Undue hardship” alongside bankruptcy. While bankruptcy alone won’t keep a borrower from having to pay back federal or private student loans, a rare few may be able to prove that continuing to repay student loans imposes an “undue hardship” on them and their family.
Teacher Loan Forgiveness Program. Those who teach at a low-income school or educational service agency for five years and meet other criteria may be eligible for up to $17,500 in federal student loan forgiveness.
Closed-school discharge. If your school closes while you’re enrolled or closed shortly thereafter, you may be able to get your federal loans discharged.
Discharge due to death. If the borrower dies, or the person taking out the loan dies, loans may be discharged. This also applies to Parent PLUS Loans if the parent dies or becomes disabled.
Borrower defense to repayment. This is the umbrella under which many borrowers received forgiveness under the Biden Department of Education for loans from for-profit institutions. Direct Loan borrowers may receive forgiveness if a school did something or failed to do something related to your loan or the educational services that your loan was intended to pay for.
An attorney who specializes in student loans can be helpful in ensuring that a borrower meets the requirements of certain forgiveness scenarios and can help ensure that any paperwork is in order.
Can Private Student Loans Be Forgiven?
When it comes to private student loans, cancellation happens rarely, if ever.
Some private lenders do offer certain protections, such as unemployment protection, in case you were unable to make payments.
If a borrower cannot pay a private loan, they may speak to their lender to determine what programs and paths may be available.
Right now, it is unclear whether broad student loan forgiveness, by the presidential or congressional act, could include private loans.
Recommended: What Is the Student Loan Forgiveness Act?
The Takeaway
Biden student loan forgiveness has totaled more than $2 billion for particular borrowers, but some advocates want to see much more. Will the student loan forgiveness 2022 story be one of sweeping or incremental change? Time will tell.
And as of now, the pause on federal student loan payments ends in January. Knowing your options to repay your student loans, which may include refinancing with a private lender—resulting in one new loan, with an eye toward a lower rate—will be helpful in creating a path forward.
If you refinance your federal student loans with SoFi, you can lock in your rate now, and make no payments until February 2022.
Photo credit: iStock/simarik
SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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