What Biden’s student loan forgiveness plan could mean for you

On April 8, 2024, the Biden administration unveiled plans to cancel student debt for over 30 million Americans. With public comments closed as of May 17, these proposals are currently under review and could be implemented as early as fall 2024. Here’s what you need to know about the new proposal and current student loan forgiveness options currently available. 

Biden’s latest forgiveness plan

Cancellation of accrued interest

Many borrowers find that their student loan balances increase over time, even if they make regular payments. This often happens when payments aren't enough to cover the accruing interest. When borrowers exit deferment, any unpaid interest is capitalized — added to the principal balance — leading them to owe interest on the increased total.

To address this issue, President Biden proposes to automatically cancel up to $20,000 of unpaid interest that has accrued since the start of repayment. This cancellation would apply to all borrowers, regardless of income, and would not require an application.

Additionally, for single borrowers earning up to $120,000, or married couples earning up to $240,000, any increase in their loan balance since starting repayment would be forgiven automatically. 

Automatic debt cancellation

Borrowers eligible for forgiveness under Public Service Loan Forgiveness (PSLF), the Saving on a Valuable Education (SAVE) Plan, closed school discharge, or other forgiveness programs would have their debt canceled automatically even if they're not enrolled in the plan applicable to their situation. 

The U.S. Department of Education would use available data to identify borrowers eligible for relief who aren't taking advantage of their options and would automatically cancel their debt with no application required. An estimated 2 million borrowers stand to benefit.

Forgiveness after 20 or 25 years of repayment

Borrowers with only undergraduate debt would qualify to have any remaining loan balance forgiven if their loans had been in repayment for 20 or more years. Borrowers with graduate school loans would qualify if they first entered repayment 25 or more years ago. This debt cancellation would be available even for those who were not on income-driven plans. Estimates suggest more than 2.5 million borrowers would benefit.

Forgiveness for attending a low-value school or program

Debt would be forgiven for those who attended a school that lost eligibility to participate in the Federal Student Aid program due to fraudulent practices or exploitation of students. This includes borrowers who attended institutions that burdened their students with high student loans and low potential earnings.

Forgiveness for borrowers facing hardship

Borrowers with substantial expenses, those in danger of defaulting on their loans, or others facing hardship in loan repayment would have new loan forgiveness options.

Will I qualify for forgiveness?

If President Biden's proposed plan becomes an official rule, you might be among the many borrowers who would benefit if: 

• Your loan balance has increased above the original amount you owed due to accrued interest.
• You were eligible for, but not enrolled in, PSLF, the SAVE Plan, or other relief programs.
• You have undergraduate loans and started repaying them more than 20 years ago. 
• You have graduate loans and started repayment more than 25 years ago. 
• You took out federal student loans to attend a low-value school or program. 
• You’re facing financial hardship and you’re at risk of defaulting on your loans.

Improvements to current forgiveness programs

There’s no guarantee that Biden’s new relief plan will be implemented. However, the administration has already made several improvements to current loan forgiveness programs to help make student debt more manageable. 

Public Service Loan Forgiveness 

An estimated 3.96 million Americans have benefited from changes to Public Service Loan Forgiveness (PSLF) rules. These changes included a temporary PSLF waiver. Under this waiver, eligible borrowers could receive credit for past payments that wouldn’t normally count toward the 120 qualifying payments required to earn forgiveness. This includes:

• Payments made on eligible federal student loans prior to consolidating into a Direct Consolidation Loan
• Payments that were made, but not on a qualifying repayment plan
• Payments that were not made in full and on time
• Periods of forbearance of at least 12 consecutive months, or 36 cumulative months 
• Periods of deferment prior to 2013

Income-driven repayment forgiveness

President Biden also made some important changes to income-driven repayment (IDR) plans, including:

• The IDR payment count adjustment: Under the revised rule, any months spent in repayment could now qualify for forgiveness. This includes months repaid before consolidation; forbearance periods of at least 12 consecutive months, or a total of 36 or more months; and any time spent in economic hardship or military deferment.
• The SAVE Plan: The SAVE Plan offers forgiveness after just 10 years of repayment for borrowers with original balances of $12,000 or less (repayment terms increase by 1 year for each additional $1,000 borrowed). It also guarantees your balance won't grow if you're making payments, and uses a formula to calculate monthly payments that sets them lower for most borrowers.

The Department of Education is still working on payment count adjustments, and eligible borrowers can choose to switch to SAVE at any time. That means these forms of relief are available now to those who are eligible. 

Do private student loans qualify for forgiveness? 

Private student loans are issued by private lenders, which means they aren’t eligible for federal loan forgiveness programs. However, you may be able to refinance private student loans to lower your interest rate or extend your loan term to make payments more manageable. 

Before refinancing, it’s a good idea to compare lenders to find the lowest rate you qualify for. You'll also want to avoid refinancing federal student loans with a private lender. Refinancing federal loans means losing access to federal forgiveness programs and income-driven repayment plans. 

Check Out: 7 options for private student loan forgiveness

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Jennifer Calonia has contributed to the reporting of this article.