PLEASE NOTE: This post has not yet been updated for the most recent changes to student loans during the Biden Administration.
The Biden Administration has made key changes to student loan payments, servicers, and forgiveness opportunities. Doctors may need to take action to receive student loan forgiveness under the new rules, revisit consolidation or refinancing, or prepare for payments to restart in October.
Your student loan payments are now scheduled to restart in October 2023. However, a lot has changed since payments were first suspended in March 2020 under the COVID-19 forbearance. The Biden Administration has changed the student loan forgiveness rules in key ways and extended the COVID-19 forbearance period. Also, major loan servicers have extended their contracts after announcing they were exiting the business. We wrote this article to help you understand the latest student loan changes before payments resume.
Student Loan Forgiveness
Last year, the Biden administration announced a plan to cancel up to $10,000 of student loan debt ($20,000 for Pell Grant recipients) for borrowers with less than $125,000 of annual income ($250,000 for married couples).
As described in the announcement, the forgiveness may be automatically applied to your account if your income information is already available to the Department of Education. If not, you may need to submit an application to receive forgiveness.
However, the forgiveness has been temporarily suspended by recent court orders, pending review by the Supreme Court.
COVID-19 Forbearance: Latest Extension
In response to the pending legal action, the Biden administration announced an extension of the student loan forbearance on payments and interest until the Supreme Court has finished reviewing the case for student loan forgiveness.
Payments Scheduled to Resume in October 2023
Recent legislation means that payments will restart in October 2023.
Before payments resume, you need to update your payment information with your servicer. If your payments don’t automatically start back up, you risk having late or missed payments.
When you recertify, consider the impact that your 2020 versus 2021 or 2022 taxes will have on your payments. Although recertification will likely not be required until at least six months after payments resume, it may make sense to recertify earlier based on your income profile over the last year.
If you were planning to refinance, you may want to wait to see if you qualify for forgiveness first. Make sure to consider all the implications of refinancing your federal student loans as this is a permanent, irreversible decision. We are happy to help make sure this is the right decision for you.
Student Loan Servicer Contracts Ending
Your student loan servicer contract may be scheduled to end.
Fortunately, most student loan servicers have recently extended their contracts. Recently, the Department of Education announced that Navient, Great Lakes, HESC/EdFinancial, MOHELA, Nelnet, and OSLA all agreed to continue servicing loans until December 2023. PSLF servicing has now transitioned to MOHELA, which has replaced FedLoans as the only servicer for borrowers pursuing PSLF.
The extensions to servicer contracts should help the transition out of the COVID-19 forbearance period. However, we are still recommending that many of our clients document their current loan status and progress towards forgiveness. Make sure your student loan files are accurate and up-to-date during the coming changes.
PSLF Changes under the Biden Administration
Under the PSLF “Limited Waiver” announced by the Department of Education, the requirements for PSLF have changed to allow more people to qualify for PSLF.
To qualify PSLF under the old rules, you are required to make 120 full, on-time monthly payments (i.e., 10 years) for your federal student loans while working full-time. In addition, you must meet 3 key requirements for PSLF eligibility:
How to Qualify for PSLF under the Old Rules
- You must be on a qualifying repayment plan. There are 7 different repayment plans for federal student loans, and you generally need to be on one of the 4 income-driven repayment plans to qualify for PSLF (IBR, ICR, PAYE, or REPAYE).
- You need to have eligible loans. This requirement can be confusing, because it’s possible for your eligible loans to become ineligible loans, and vice versa. The federal government must hold your loans to qualify for PSLF. That means that any private student loans you took out or any federal student loans you refinanced into private student loans won’t qualify. FFEL loans also don’t qualify for PSLF. However, you can consolidate any FFEL loans into a Direct Consolidation Loan which is an eligible loan for PSLF.
- You have to be a full-time public service employee. This means that you need to work for a nonprofit or government organization, such as a state or nonprofit hospital. You also need to be full-time, which the Code of Federal Regulations defines as the greater of either (i) an annual average of at least 30 hours per week or (ii) the number of hours the employer considers full-time. We always recommend submitting a new PSLF form whenever you start a new job to make sure your work qualifies. You should also submit PSLF forms annually to have your payments counted and make sure you still meet the requirements.
How the New PSLF Limited Waiver Changes the Rules
The PSLF Limited Waiver changes the requirements for PSLF since many people have been denied for having the wrong kind of loans or payments.
What has changed under the new PSLF Limited Waiver
- You can now receive credit for payments made before October 2022 under any repayment plan (not just the income-driven repayment plans).
- Payments that were late or less than the full amount due may not be able to be counted towards PSLF.
- FFEL Loan payments can count towards PSLF (only if you consolidate the FFEL Loans during the Waiver window).
- Payments made before consolidation can count towards PSLF, if you made payments while working full-time for a qualifying employer and then consolidated your loans with the federal government.
- You can receive PSLF even if you no longer work for a qualifying employer (as long as you worked for the employer full-time for at least 10 years while making payments on your loans).
What has not changed under the PSLF Limited Waiver
- You must consolidate any FFEL Loans to qualify for PSLF.
- You still need to work full-time for a qualifying government or nonprofit employer while making payments on your loans.
- You still need to make 120 payments (10 years) to qualify for PSLF. Note that the COVID-19 forbearance period can count even you did not make any payments.
What You Need to do for the Limited PSLF Waiver
First, make sure you understand the changes and if you are impacted. If you were on track for PSLF before the waiver, you may not be affected if you have already met the old PSLF requirements. Since we help our clients stay on track for PSLF, many are not impacted.
You may not need to take any action to take advantage of the new rules under the Limited PSLF Waiver. The Department of Education will automatically adjust payments for borrowers with Direct Loans or who have already consolidated their FFEL Loans.
However, you will need to first consolidate any FFEL Loans as mentioned above to have your payments counted towards PSLF.
In addition, you will need to certify your employment for PSLF by submitting a PSLF form documenting your employment as qualifying for PSLF. This will flag your student loan record to make sure your payments are all counted.
While the original deadline to consolidate your loans for the PSLF Limited Waiver was October 31, 2022, you can still receive PSLF credit under the one-time Income-Driven Repayment Account Adjustment scheduled for July 2023, as long as you consolidate by May 1st and submit an updated PSLF form.
Lastly, keep an eye out for any communications from your servicer and the Department of Education about any changes. You can then download your MyStudentData file by following these instructions to verify that everything has been processed correctly.
Income-Driven Repayment Changes
The Department of Education also announced landmark changes to income-driven repayment plans to help people qualify for non-PSLF student loan forgiveness after 20-25 years of repayment under a qualifying IDR plan.
What has changed for Income-Driven Repayment (IDR) forgiveness
- The Department of Education will begin tracking your progress towards IDR forgiveness on studentaid.gov.
- Extended forbearances will now be counted towards forgiveness under a “one-time adjustment” to borrowers’ accounts beginning in 2023.
- Previous payments may now be counted towards IDR forgiveness regardless of repayment plan or loan type under a similar one-time revision as long as any non-qualifying loans (e.g., FFEL loans) are consolidated by May 1, 2023.
Tax-Free Student Loan Forgiveness
In general, debt forgiveness is taxable as income under Section 61 of the Internal Revenue Code.
Due to a special exception for Public Service Loan Forgiveness, PSLF has always been tax-free under Section 108 of the Internal Revenue Code.
However, forgiveness after 20-25 years of repaying your loans under an income-driven repayment plan such as PAYE, REPAYE or IBR has traditionally been subject to income taxation. For our clients pursuing IDR forgiveness, we always recommend saving for the potential “tax bomb”.
Under Biden’s American Rescue Plan Act passed in early 2021, student loan forgiveness is tax-free through 2025. If your loans won’t be forgiven until 2026 or later, your loan forgiveness may still be taxed. However, future legislation could extend tax-free loan forgiveness. We will be monitoring whether Congress takes any further action on this.
While only time will tell what future changes are coming for student loans, we hope that you’ve found this article useful as a guide to the major changes under the Biden administration as of this writing.
If you have any questions, please feel free to contact us or post in the comments.