Understanding Student Loan Forgiveness

Aug 28 / Jay Zigmont, PhD, CFP®

On August 24th, the Biden administration announced a series of changes to student loans and forgiveness of up to $20,000.  There is a lot in what they have announced, so let’s look at how it can help you. 

Forgiveness of up to $20,000 in student loans (for people who received Pell Grants) and $10,000 for others.

A couple of things to keep in mind:  There are income caps of $125,000 for single and $250,000 for married.  How is your income determined?  Who knows.  The Department of Education says that if they know your income, they will use that, but if not, they will have a form out before December 31st.  We will have to keep our eyes open for details.  One of the questions is if the income will be based upon your last tax return or current income, more to come. 

 The other question will be if you qualified for Pell Grants.  Look in your old email for any financial aid info you may have.  You are more likely to have qualified at the beginning of your school, so look for that info. 

The ‘up-to’ part means they are only paying what you have left, so if you owe $8k, that is what you will get if you qualify. 

Changes to repayment programs – no more than 5% of discretionary income. 

While forgiveness is likely to get the headlines, this change may be more important for many.  It looks like they will either change existing income-driven repayment programs or create a new one.  They are changing the math a bit and cutting the max payment in half, but more importantly, they will cover unpaid monthly interest.  What does this mean for you?  Once this program is set, you will most likely want to apply.  We will need to see the details, but the high-level overview looks like a great option for many.

Extending the student loan pause to December 31.

I’m jaded, so I’m not surprised the pause was extended past the elections.  I wouldn’t expect another extension, so make sure your budget for next year has student loans in it.  Let’s hope that the changes to repayment programs are in place by then.

Temporary Extended PSLF Deadline – October 31. 

They are calling out that if you are employed by a non-profit, the military, or federal, state, Tribal, or local government, you need to apply for the temporary extended program before October 31 at PSLF.gov.  Here’s the bottom line: They are working on giving credit for your service in past years, even if you weren’t part of the program.  If you have held a service job that qualifies, you have nothing to lose by applying for the temporary program.  Get credit for what you have already done, and then ride the changes as they go forward.  The form isn’t too bad, but you will need some signatures from previous employers, so start it now. 

The Bottom Line

Tuition costs are out of control, and the cost of college still needs work.  While many may have hoped for more forgiveness, the other components can help to make things a bit more palatable.  If you need help navigating all of this or a plan to pay for student loans, schedule a meeting with our Childfree Wealth Specialist®.

Jay Zigmont, PhD, MBA, CFP® is the Founder of Childfree Wealth, a life and financial planning firm dedicated to helping Childfree and Permanently Childless people. Dr. Jay is a CERTIFIED FINANCIAL PLANNER™, Childfree Wealth Specialist, and author of the book “Portraits of Childfree Wealth.” Dr. Jay is the co-host of Childfree Wealth Podcast. His Ph.D. is in Adult Learning from the University of Connecticut.

He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.