By Maria Carrasco, NASFAA Staff Reporter , Hugh T. Ferguson, NASFAA Senior Staff Reporter
Editor's Note Aug. 26, 2022: This article has been updated to note that the relief includes current students and borrowers who have federally-held undergraduate, graduate, and Parent PLUS loans where the first disbursement was on or before June 30, 2022. A previous version of the article indicated loans would need to be fully disbursed.
Days before the student loan repayment pause was set to expire, President Joe Biden announced on Wednesday that he is canceling $10,000 in student loan debt for millions of borrowers and extending the pause on payments and interest accrual for federally-held student loans until Dec. 31, 2022.
Biden capped the loan cancellation at $10,000 for single borrowers making less than $125,000, or households earning less than $250,000. The relief includes current students and borrowers who have federally-held undergraduate, graduate, and Parent PLUS loans where the first disbursement was on or before June 30, 2022. NASFAA has confirmed with the Department of Education (ED) that loans disbursed by June 30, 2022 are eligible, as opposed to “loan originated,” as has been reported in the press. Additionally, borrowers who were dependent students in the 2021-22 year will be eligible for relief based on parental income, rather than their own income. Borrowers who fall under the income caps and who received Pell Grants in college will receive an extra $10,000 — totaling $20,000 in forgiveness. NASFAA is not aware of any parameters as to when or how much a student must have received in Pell Grants to qualify.
The student debt relief is a one-time, pandemic-related loan cancellation, according to the Department of Education (ED). In a press release, ED writes that as the economy improves and the COVID-19 pandemic slows down, Biden made his decision to phase out relief “responsibly so that people do not suffer unnecessary financial harm.”
Biden first announced the plan on Twitter, saying the decision kept with his campaign promise to give working and middle class families “breathing room” as borrowers prepare to start repaying loans in January 2023. This will be the final repayment pause, according to Biden’s announcement.
“Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers,” Secretary of Education Miguel Cardona said in a statement. “Today, we’re delivering targeted relief that will help ensure borrowers are not placed in a worse position financially because of the pandemic, and restore trust in a system that should be creating opportunity, not a debt trap.”
NASFAA President and CEO Justin Draeger said he was encouraged that the administration is taking steps towards loan reform, but pointed to NASFAA’s recently issued set of recommendations that would improve the student loan system and simplify repayment for borrowers in the future.
“Today's announcement should provide relief to millions of low- and middle-income student loan borrowers, with a particular emphasis on those who struggled most to afford higher education,” Draeger said in a statement. “Whether it does will largely depend on how well this can be implemented by the U.S. Department of Education. As with all federal student aid benefits, we urge the Department to carefully consider how this relief can be implemented as easily as possible, while still ensuring commonsense safeguards to ensure the right people get the right benefits.”
About 8 million borrowers may be eligible to receive relief automatically because their income data is already available to ED, according to the press release. ED will have income data for any borrowers who completed a FAFSA in 2021-22 and if the borrower was a dependent in 2021-22, ED will be using parental income information to calculate loan cancellation eligibility.
For those borrowers for whom ED doesn’t already have existing income data, an application will be available in September. ED said it will be announcing further details on how borrowers can claim this relief in the weeks ahead.
Borrowers who want to be notified when the application is open should sign up for notifications at the ED subscription page. The Office of Federal Student Aid (FSA) released a webpage explaining the announcement with answers to frequently asked questions.
In a stakeholder call Wednesday with senior administration officials, one official said Parent PLUS loans held by ED would be included in the relief. When asked about the process on how Biden came to this decision amid pushback to cancel more student debt, another official said it was to target relief so lower-income borrowers would receive more than $10,000 in forgiveness.
“If you look at who Pell Grant recipients are, about half of them come from families that make under $30,000 a year, and roughly the other half of them come from families that make between $30,000 to $60,000 a year,” the official said. “And collectively, those Pell Grant recipients make up about 60% of student loan borrowers. So that just emphasizes, to me at least, how a strong majority of borrowers are folks who come from lower-income and middle-income families.”
Forthcoming Regulations to Reduce Borrower Payments
Additionally, the administration announced a forthcoming proposed rule that would create a new income-driven repayment (IDR) plan under which borrowers would pay no more than 5% of their discretionary income monthly on undergraduate loans. The Notice of Proposed Rulemaking (NPRM) is the result of last fall’s negotiating rulemaking tackling Affordability and Student Loans. The committee failed to reach consensus on IDR and as a result, ED has the discretion to issue proposed rules as it sees fit.
The proposed rule would also raise the amount of income that is considered non-discretionary income in order to guarantee that no borrower earning under 225% of the federal poverty level would have to make a monthly payment. (Borrowers earning less than 225% of the federal poverty level is the annual equivalent of a $15 wage for individual borrowers, according to ED.)
The forthcoming proposed rule would also forgive loans after 10 years of payments, instead of 20 years, for borrowers with balances of $12,000 or less, according to ED. Additionally, the proposed rule would cover the borrower's unpaid monthly interest so that their debt doesn’t grow as long as they make their monthly payments. That includes borrowers whose monthly payments are $0 because their income is low, according to ED.
The purpose of the proposed rule is to “substantially reduce future monthly payments for lower- and middle-income borrowers” and “protect more income from loan payments,” according to ED. The proposed regulations will be published in the coming days on the Federal Register and the public is invited to comment on the draft rule for 30 days, ED states. ED intends to issue a final rule by Nov. 1, 2022. Unless ED authorizes early implementation, the new plan would be in effect as of July 1, 2023.
Democratic leadership praised Biden’s action as a means of expanding access to higher education and offering borrowers needed relief in the wake of the pandemic.
“This is a milestone moment for borrowers. Tonight, tens of millions of borrowers across the country who’ve been saddled with student debt can sleep easier knowing their balances will finally go down—and millions will see their debt wiped entirely,” said Sen. Patty Murray (D-Wash.) chair of the Senate Health, Education, Labor and Pensions (HELP) committee.
Democrats also said that the action would serve as a lifeline to borrowers in preparing to return to repayment.
“President Biden is providing unprecedented relief for America’s student loan borrowers,” said Rep. Bobby Scott (D-Va.), chairman of the House Committee on Education and Labor. “Today’s announcement delivers on President Biden’s promise to cancel up to $20,000 of borrowers’ federal student debt. Also, extending the pause on student loan repayment will further help get borrowers back on track. Taken together, these actions will help struggling borrowers and families recover from the pandemic, prepare for the return to student loan repayment, and make ends meet.”
Progressive Democrats also offered the administration praise for taking action on debt cancellation.
“Cancelling student debt will provide financial relief to millions of Americans who borrowed to pay for college because they didn’t come from wealthy families,” said Sen. Elizabeth Warren (D-Mass.) who had been calling for up to $50,000 in forgiveness. “This powerful action will also help narrow the racial wealth gap among borrowers.”
Republicans blasted the announcement as unfair, irresponsible and confusing in the rollout of this latest guidance.
“President Biden will say and do anything to appease his radical progressive base, even if it means bankrupting our country and kneecapping taxpayers in the midst of an inflation crisis,” said Rep. Virginia Foxx (R-N.C.), ranking member of the House Education and Labor committee. This is a slap in the face to those who never went to college, as well as borrowers who upheld their responsibility to taxpayers and paid back their loans. It’s a signal to every freshman stepping foot on campus to borrow as much as they can because taxpayers are picking up the tab.”
Republican leadership also said the decision was a “reward” for “far left activists,” and would do nothing to assist those who did not pursue higher education.
“President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt,” said Sen. Mitch McConnell (R-Ky.). “This policy is astonishingly unfair.”
As a part of Wednesday’s announcement ED also unveiled a highly anticipated memo that outlines the administration’s authority to offer broad student loan forgiveness.
Not to be lost in today's frenzy on #studentloanforgiveness, here's the newly released memo from ED General Counsel that justifies rescinding the now deemed "incorrect" memo that said ED didn't have the authority to cancel loans. https://t.co/JVmJFZ8iI7— Justin Draeger (@justindraeger) August 24, 2022
The memo ties the administration’s authority to the Higher Education Relief Opportunities For Students (HEROES) Act of 2003, which according to ED “provides the Secretary broad authority to grant relief from student loan requirements during specific periods (a war, other military operation, or national emergency, such as the present COVID-19 pandemic).” The memo also rescinds a non-binding memo from the Trump administration that outlined that the education secretary “does not have statutory authority to provide blanket or mass cancellation.”
Whether the administration has the authority to cancel loan debt will ultimately be decided if the action is challenged in the courts, by someone who has legal standing. With Republicans currently in the minority, it’s unclear who would bring such a legal challenge, although plenty of fiscally conservative groups oppose debt forgiveness.
Many schools started receiving phone calls from students and alumni on Tuesday, when reports about debt forgiveness first became public. While there don’t appear to be any new requirements for schools at present time, NASFAA encourages schools to be as helpful as possible as more information becomes available, while informing students that more details on how to apply will become available in the weeks ahead. As a reminder, students can check their student aid history, including loan balances and Pell Grant recipient status by logging in to their federal student aid account on studentaid.gov. Schools can encourage borrowers who want to be notified when the application is open to sign up for notifications at the ED subscription page.
Additional questions about debt forgiveness can be submitted via NASFAA’s AskRegs.
Publication Date: 8/24/2022
Shavon S | 9/8/2022 4:59:51 PM
In the article it states, ". Additionally, borrowers who were dependent students in the 2021-22 year will be eligible for relief based on parental income, rather than their own income" has this been confirmed, I have not see this notated in any of the additional updates.
Thanks for the help!
Jeff A | 8/29/2022 1:39:39 PM
I would not think this impacts aggregate limits, and expect loans will not be 'cancelled' but rather some kind of satisfied status such that it still applies to aggregate limits. It would be pretty wrong to violate aggregate borrowing limits by effectively raising them by the amount forgiven.
Nedi G | 8/29/2022 1:35:38 PM
Is there a way to get some data on current and/or separated students that may be eligible for loan forgiveness? The goal is to research the holistic institutional impact and develop an internal database for future outreach to students who may be eligible in the event they have to take some sort of action to claim this benefit.
Kim J | 8/29/2022 11:2:26 AM
Why the emphasis on 2021-22: Additionally, borrowers who were dependent students in the 2021-22 year will be eligible for relief based on parental income, rather than their own income. What about preceding years? I am poised to wait on this, but the emphasis on 2021-22 is something I am missing ... thank you ...
Lee Ann T | 8/29/2022 9:48:40 AM
To bad they don't have actual financial aid professionals help guide the DOE through this. The DOE doesn't seem to have a clue except for which political party they adhere to. Sad sad world we live in.
Mary G | 8/29/2022 9:23:18 AM
What about the students that signed up for PSLF based on a push from the feds to meet the temporary waiver and in the process were having a combo of FFEL and DL consolidated and in progress, but the disbursement did not take place until after June 30,2022?
Jan B | 8/29/2022 8:56:41 AM
Where is NASFAA getting the information that changes how the loan forgiveness is described (from "Fully disbursed by July 1st, 2022' TO "loans where the first disbursement was on or before June 30, 2022. " NASFAA is a trustworthy source, but we need a footnote about where the information for the above came in the first place and for the correction. Thanks for all you do!
Joel T | 8/25/2022 3:18:18 PM
Could you imagine the mood people would have if they had to start repaying their student loans two months before an election? Or the mood if the 2020 voters that singularly focused on student loan forgiveness got to the polls in 2022 and saw zero movement beforehand?
This whole announcement seems like nothing more than an attempt to help with a mid-term election as the policy and announcement have way too many holes and unanswered questions. It will surely draw court challenges about process, whether the administration has the legal authority to forgive the debt, and whether the president can effectively spend between $440 billion and $600 billion over the next 10 years without Congressional approval.
To be honest, I would be shocked if this ever comes to fruition.
James C | 8/25/2022 2:22:34 PM
To answer a few questions below. Yes it would reduce aggregate loan amounts once the $10k-$20k is cancelled. In terms of the grad student and pell, did they have pell as an undergrad? It does not matter what their EFC is as a graduate student. What hasn't been defined yet is the definition of a pell recipient. For example, a R2t4 calc could have been done on a student for the one year the student was pell eligible and the student received 2% of a pell grant. I hope that student would not be eligible for $20k in forgiveness. A lot of students who became independent in their final year of undergrad will be big winners under this proposal if they allow 100% of 600% pell to be eligible for 20k of forgiveness.
Beverly B | 8/25/2022 2:6:49 PM
The inclination of some students will be.........wait for it........ "now that the government has paid off $10,000 of my student loans, I would like to apply for more student loans"
I hope DOE will make it very clear that this does not impact loan eligibility !
Joshua M | 8/25/2022 11:21:06 AM
what if they received pell 4 years ago but not recently?
Jan B | 8/25/2022 11:19:52 AM
I am having difficulty figuring out if a grad student would ever get 20,000 cancelled? They don't get Pell but the EFC could definitely be in the "Pell range".
Kimberly L | 8/25/2022 10:47:35 AM
So what will be done to curtail overborrowing? I have worked at both a graduate/professional school and a community college. Students from every walk of life have borrowed far more than they need to. I think It is great that there are attempts to "empty the bucket". Going forward, how will the "leak" be repaired?
James C | 8/25/2022 9:53:31 AM
I can't imagine the nightmare of processing 35 million applications for this forgiveness. Adding PLUS loans to the mix was a bad idea and will definitely slow down the process for student borrowers
Solomon M | 8/25/2022 9:46:43 AM
To borrowers, like me, who paid back his student loans, this is needed and long overdue for so many. For me, paying back my student loans was a mark of personal pride and an act of gratitude to our people for having faith in me and for investing in me. I have been financially stable and fortunate through a global financial crisis (sub-prime mortgage) and a global pandemic. So many of our people, our neighbors, have not. Our call to action is how will we (the majority of the Higher Ed industry) rise to the challenge of returning to our core mission of accessible, affordable, quality education moving forward? Every day we come to work we are helping build a better World - this is our vocation. Our responsibility is to empower the many, not the few.
Hollie F | 8/25/2022 9:36:30 AM
Any idea how this will effect Aggregate Loan Limits?
Gary B | 8/25/2022 9:30:13 AM
Thomas, the pandemic is not over. I personally had covid a month ago and I know at least 10 people who have had it in the last three months. It keeps mutating. Also, you kind of sound like the people who complain about kids taking a bus to school when you had to walk 10 miles through the snow uphill both ways. I get you sucked it up and maybe suffered, but don't be bitter about those who get to ride the bus now.
Thomas K | 8/25/2022 9:10:42 AM
To borrowers, like me, who paid back his student loan, this is a slap in the face. Only in an election year. How long will this administration use a pandemic that has ended as an excuse to hand out goodies?
David J | 8/24/2022 5:48:32 PM
NASFAA has clarified with USED that only loans disbursed by 6/30/ 22 qualify for forgiveness and the income cut-offs for dependent borrowers in the 2021/2022 year will be the parent's income.
Jennifer B | 8/24/2022 4:41:11 PM
"The relief includes current students and borrowers who have federally-held undergraduate, graduate, and Parent PLUS loans that have been fully disbursed by June 30, 2022." So this means a Freshmen that borrowed last year qualifies for forgiveness?
Jamey C | 8/24/2022 3:30:57 PM
What about Pell eligible students who will have loans disbursed after June 30, 2022? This needs clarification.
Raymond G | 8/24/2022 3:23:37 PM
The Fresh Start Initiative (FSI) then was premature. It would have made more sense for this forgiveness to precede the FSI rather than come after. It causes more confusion with the overlap. If someone has debt fore given then they wouldn't need to be sent any notices on Fresh Start Initiative if the entire debt is paid off. This was not thoroughly thought through in more ways than one.
Matt W | 8/24/2022 3:12:28 PM
Or students who apply for a new loan tomorrow?
Vincent F | 8/24/2022 3:8:34 PM
So. . . does this loan forgiveness apply to *current* students? I am unclear on that.
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