20k Student Loan Relief: New Interest Forgiveness Plan

• President Joe Biden has proposed two $20k student loan forgiveness plans. The first was halted by the Supreme Court; the second has yet to be implemented.

• The new debt cancellation plan proposes to forgive up to $20,000 in student loan interest for eligible borrowers rather than forgiving the principal.

• Unlike the previous plan, this new proposal isn’t tied to Pell Grant status or income limits, potentially benefiting a broader range of borrowers.

• If implemented, the interest forgiveness could take effect as early as 2025, but the plan still needs to go through a public comment period and may face legal challenges.

If you’ve been following student loan news, you’ve probably heard about two different $20,000 debt forgiveness programs from the Biden administration:

• Program 1: The original plan offered up to $20,000 in loan forgiveness for Pell Grant recipients (up to $10,000 for others), with income limits for individuals and married borrowers.

• Program 2: The new plan proposes to forgive up to $20,000 in unpaid interest for borrowers whose balances have grown due to runaway interest.

The Supreme Court struck down the first program in 2023, dashing the hopes of millions of Americans with federal student loan debt.

Now, the administration has introduced a new $20,000 interest forgiveness plan.

But before you get too excited, keep in mind that this new program hasn’t been implemented yet and will likely face legal challenges similar to its predecessor.

Here’s what you need to know about where things stand and what it could mean for your student loan debt.

What it is: The White House’s latest student debt relief proposal aims to forgive up to $20,000 in accrued interest on federal student loans.

How it works: The plan targets borrowers whose current loan balances exceed their original borrowing amount due to interest accumulation. It would cancel up to $20,000 of the interest that has built up, effectively reducing loan balances for millions of borrowers.

Who qualifies: Unlike the previous plan, this proposal isn’t limited by income or Pell Grant status. Borrowers whose current balance is higher than their original loan amount due to interest growth could be eligible.

How to apply: As of now, no separate application process has been announced. The Department of Education is expected to identify eligible borrowers and apply the forgiveness automatically if the plan is implemented.

Deadline: There’s no specific deadline yet, as the plan is still in the proposal stage. The Biden administration aims to implement this relief in the coming months, but this timeline could change based on the rulemaking process, potential legal challenges, and a potential change in Washington.

The Biden administration’s journey to provide substantial student loan relief has taken two distinct paths, both aiming for a $20,000 forgiveness target. But the similarities largely end there. Let’s break down the key differences:

The original plan, announced in August 2022, offered to forgive up to $20,000 in federal student loan debt for Pell Grant recipients and up to $10,000 for other eligible borrowers. It had clear income limits: individual borrowers earning less than $125,000 or married couples earning less than $250,000 annually could qualify. This plan targeted a wide swath of borrowers but faced intense legal scrutiny.

In contrast, the new interest forgiveness plan takes a different approach.

Instead of forgiving loan principal, it aims to cancel up to $20,000 in accrued interest. This plan doesn’t have income limits, potentially making it accessible to more borrowers. However, it specifically targets those whose loan balances have grown due to interest accumulation.

The Supreme Court’s decision to block the original plan in June 2023 forced the administration to recalibrate its approach. The new plan, while still substantial, is more narrowly tailored. It focuses on addressing the issue of ballooning loan balances, a common frustration among borrowers who find their debts growing despite consistent payments.

Importantly, this new plan has gone through a rigorous negotiated rulemaking process and is firmly rooted in the Higher Education Act. This approach gives it a stronger legal foundation than its predecessor. By basing the plan on existing legislative authority and following established regulatory procedures, the administration aims to avoid the legal pitfalls that doomed the original plan.

However, borrowers should still temper their expectations.

While the new plan’s legal footing appears more solid, it may still face challenges from opponents. The implementation timeline is longer, with relief not expected until 2025 at the earliest.

But the administration’s careful approach, grounded in established law and regulatory processes, gives this plan a better chance of surviving scrutiny and providing the intended relief to borrowers.

While the $20,000 interest forgiveness plan is in development, explore these existing forgiveness programs:

SAVE Plan

The Saving on a Valuable Education Plan, introduced by the Biden-Harris administration, remains a valuable option for many borrowers despite recent legal challenges. This newest income-driven repayment plan offers significant benefits, including $0 monthly payments for many low-income borrowers and reduced payments for others based on income and family size.

One of the plan’s key features – reducing undergraduate loan payments from 10% to 5% of discretionary income – is still in effect. However, the early forgiveness provision for low-balance borrowers is currently on hold due to court rulings.

U.S. Secretary of Education Miguel Cardona emphasizes the plan’s ongoing importance:

“While we continue to review these rulings, the SAVE plan still means lower monthly payments for millions of borrowers – including more than 4 million borrowers who owe no payments at all, and protections for borrowers facing runaway interest when they are making their monthly payments.”

Despite legal uncertainties, the SAVE Plan continues to provide relief for many borrowers. If you haven’t already, consider enrolling through StudentAid.gov or your loan servicer to see if it can benefit your situation.

Public Service Loan Forgiveness

While waiting for the $20k interest forgiveness, PSLF could offer significant relief. It complements the proposed interest forgiveness by potentially eliminating your remaining balance after 10 years of public service. If you work in government or non-profit sectors, PSLF could be your path to full loan forgiveness, regardless of the $20k plan’s outcome.

Key points:

• Forgives all remaining federal student loan debt after 120 qualifying payments

• Recent reforms have made it easier to qualify

• Use the PSLF Help Tool on StudentAid.gov to check your eligibility

Income-Driven Repayment Forgiveness

Each IDR Plan offers a safety net while the $20k interest forgiveness is pending. These plans can lower your monthly payments now and potentially lead to forgiveness in the future, working alongside any interest relief you might receive from the $20k plan.

Key points:

• Forgiveness after 20 or 25 years of payments, depending on the plan

• Monthly payments based on your income and family size

• Could result in immediate payment reductions while you wait for the $20k interest forgiveness

IDR Account Adjustment

This one-time adjustment could bring you closer to forgiveness now, potentially reducing the impact of the interest that the $20k plan aims to address. It’s a current opportunity that complements the proposed interest forgiveness.

Key points:

• Gives credit for past periods spent in any student loan repayment status, including time in deferment and forbearance

• Could result in immediate forgiveness for some borrowers

• Processing through September 1, 2024 – check your Federal Student Aid account for updates

Borrower Defense to Repayment

BDR offers full loan cancellation if your school misled you. This program complements the proposed interest relief by addressing the root cause of some borrowers’ debt.

Key points:

• Cancels federal loans for victims of school misconduct

• Could provide more extensive relief than the $20k interest forgiveness

• Recent policy changes aim to streamline the process

If you suspect your school engaged in misconduct, consider applying through the Federal Student Aid website while the $20k plan develops.

Total and Permanent Disability Discharge

For borrowers with disabilities, TPD discharge offers a path to full loan forgiveness, potentially exceeding the proposed $20k interest relief. It’s an immediate option for eligible student loan borrowers while broader forgiveness plans are in development.

Key points:

• Eliminates all federal student loan debt for qualifying borrowers

• Eligibility recently expanded to include more borrowers

• Could provide more comprehensive relief than the $20k interest forgiveness

If you have a total and permanent disability, apply through disabilitydischarge.com to potentially clear your entire debt, regardless of the $20k plan’s outcome.

Stay Informed and Take Action

• Update your income on current repayment plans

• Recertify employment for PSLF if applicable

• Check studentaid.gov quarterly for updates on new relief plans

Scam Alert: Never pay for help with federal student loans. Legitimate communications come from .gov email addresses only.

If you’re hoping for $20,000 in student loan forgiveness, you’re not alone. The new interest forgiveness plan offers hope, but it’s still uncertain.

Don’t just wait. Take control of your student loans now:

• Explore the SAVE Plan

• Check your PSLF eligibility

• Understand how the IDR Account Adjustment might help you

Your best strategy might combine several options, tailored to your situation.

Feeling overwhelmed? You don’t have to figure this out alone. Book a 1:1 consultation with our student loan experts. They’ll help you create a personalized strategy that works for you.

Don’t leave money on the table. Get expert advice to make informed decisions about your student loans today.