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  • Writer's pictureTPSA

Status of the Biden Administration's Studen Loan Forgiveness

President Biden's student loan debt forgiveness plan was initially authorized by executive order and announced on August 24, 2022. It subsequently hit a snag when two court cases put a hold on the agenda, which was one of Biden's campaign promises.

The issue has since found its way to the Supreme Court, which will hear arguments about the case in February. Thus, the plan is on hold until the Supreme Court rules, which will be in February at the earliest.

If the case is decided in the Administration's favor, to qualify for forgiveness, the loans must have been taken out before June 30, 2022, and the individual's AGI must have been less than $125,000 in either 2020 or 2021. For married couples, their AGI must have been less than $250,000 in 2020 or 2021. For Pell grant recipients, the amount of the forgiveness is capped at the amount of the loan but not exceeding $20,000. For others who qualify, the maximum amount is $10,000.

Under normal circumstances, forgiven debt becomes taxable income. However, coincidentally the American Rescue Plan Act (ARPA) of 2021 included a provision making student loan forgiveness free from income tax for 2021 through 2025. In addition, most states have conformed to the exclusion under ARPA.

Of course, the fairness issue remains for those who have already paid off their loans or never borrowed money to pay for college expenses.

While the plan is waiting on the Supreme Court ruling, the Biden Administration announced the payment moratorium, which was begun in 2020 by the Trump Administration, would be extended again, this time through June 30, 2023, or longer, pending resolution of the legal issues.

When and if the Supreme Court comes down with a favorable ruling, most federal student loans will qualify for forgiveness. Those are generally the ones that have qualified for payment pause. The Department of Education (DOE) is looking to add other non-federal student loans to the forgiveness program. These are not part of the president's forgiveness plan.

Approximately 26 million borrowers have applied for forgiveness. The DOE had already approved about 16 million before the DOE stopped taking applications after the court challenged Biden's authority to authorize the program.

So, we will have to wait for the Supreme Court ruling to see if the forgiveness plan will happen.


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