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Congress has passed several rounds of financial assistance and relief in response to the COVID-19 pandemic.  Additionally, the Biden Administration expanded on these efforts and recently released the Student Loan Relief Plan, which includes the following assistance for college students and student loan borrowers.

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On August 24, 2022, President Biden announced the “Student Loan Debt Relief Plan,” which extends the payment suspension on all federal student loans through December 31, 2022.  It also provides up to $10,000 in debt cancellation for all federal student loan borrowers and up to $20,000 for Pell Grant recipients.  There is an income cap of $125,000 for individuals or $250,000 for households.  The application will be available online by early October 2022.  You will have until December 31, 2023, to submit your application.  For more information, including how to sign up for alerts, visit the Department of Education’s website.

The Department is offering a temporary waiver to give borrowers credit for prior payments they made that would not otherwise count toward the Public Service Loan Forgiveness (PSLF) program.  Any prior payments made while working for a qualifying employer will count as a qualifying payment, regardless of loan type or repayment plan.  This Limited PSLF Waiver will apply to borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those with other types of federal student loans who submit a consolidation application into the Direct Loan Program while the waiver is in effect.  The waiver applies to loans taken out by students.  The waiver will run through October 31, 2022

In addition, the Department of Education is in the process of establishing a new income-driven repayment plan that caps monthly payments at 5 percent of the borrower’s discretionary income.  The Department will also improve the Public Service Loan Forgiveness (PSLF) program, and protect future students by working to reduce the cost of college and strengthen accountability.

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In addition to the Student Loan Debt Relief Plan, you may be eligible for ongoing relief provided by the American Rescue Plan, the Families First Coronavirus Response Act (“Families First”), the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (COVID relief law), and executive action taken by President Biden.

Overview

The CARES Act, the COVID relief law, and the American Rescue Plan provided assistance to K-12 schools, teachers, higher education institutions, college students, and student loan borrowers.  The American Rescue Plan ensures that all COVID-19 student loan relief is tax-free through 2025.  In addition, the Hawaii Department of Taxation announced that it would exclude student debt relief from state income taxes.  The Student Loan Debt Relief Plan provides debt forgiveness for certain student loan borrowers.

The CARES Act established a Higher Education Emergency Relief Fund (HEERF), which could be used by institutions of higher education to defray expenses, such as lost revenue, technology costs associated with a transition to distance education, and to provide grants to students for food, housing, course materials, technology, health care, and child care.  The COVID relief law replenished the HEERF and the American Rescue Plan added an additional $39 billion to the fund.

The Student Loan Debt Relief Plan will help working and middle-class federal student loan borrowers smoothly transition back to regular payment.  It provides debt cancellation for most federal student loans:

  • William D. Ford Federal Direct Loan (Direct Loan) Program loan—
    • Subsidized loans;
    • Unsubsidized loans;
    • Parent PLUS loans;
    • Graduate PLUS loans;
    • Consolidation loans, as long as all of the underlying loans that were consolidated were first disbursed on or before June 30, 2022;
  • Federal Family Education Loan (FFEL) Program loans held by the Department of Education or in default at a guaranty agency;
  • Federal Perkins Loan Program loans held by the Department of Education; and
  • Defaulted loans (includes Department of Education -held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, and graduate PLUS; and Perkins loans held by the Department of Education).

At the same time, the Department of Education has authorized a temporary PSLF waiver to expand eligible credit toward forgiveness, and the Department will establish a new income-driven repayment program to assist low-income borrowers.

Federal Student Loan Payments

On August 24, 2022, President Biden announced the Student Loan Relief Plan, which provides up to $10,000 in debt cancellation for all federal student loan borrowers with an individual income of $125,000 or a joint income of $250,000.  Pell Grant recipients are eligible for up to $20,000 in debt cancellation.  If you have a federal student loan—Direct or FFEL loans held by the U.S. Department of Education—all of your payments are suspended through December 31, 2022, and you will not accumulate interest during that time.  Borrowers should have received notification that their loan payments are put on hold.

For more information, visit the Department’s website.

In addition, during the extension, the U.S. Department of Education will continue to assess the financial impacts of the pandemic on student loan borrowers and  prepare to transition borrowers smoothly back into repayment.  This includes allowing all borrowers with paused loans to receive a “fresh start” on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.  The Department will also continue to provide loan relief, including to borrowers who have been defrauded by their institutions and those eligible for relief through the Public Service Loan Forgiveness program. Federal Student Aid (FSA) established new partnerships to ensure that borrowers working in public service are automatically credited with progress toward forgiveness, eliminating paperwork that prevents many borrowers from getting help.  FSA will also continue to transfer loans to servicers committed to working under new, stronger accountability rules.

For more information, visit the Department’s website.

Student Loan Collections

You are also protected against forced collections on federal student loans (such as garnishment of wages, tax refunds, and Social Security benefits) and negative credit reporting during this time period.  More information on federal student loan payments and collections can be found here.

Student Loan Payments by Employers

If your employer provides a student loan repayment benefit, you can temporarily exclude up to $5,250 in these payments from your income.  The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, or books) provided by the employer under current law.  The provision applies to any student loan payments made by an employer on behalf of an employee after March 27, 2020 and has been authorized through December 31, 2025 under the CRRSAA.

Student Loan Relief Tax Exclusion

The American Rescue Plan ensures that all COVID-19 student loan relief is tax-free for relief received between January 1, 2021 and December 31, 2025.  For example, if your income-driven repayment plan becomes eligible for loan forgiveness in that time period, the amount of the loan that is discharged will not be included in the calculation of your gross income.

Additionally, the debt forgiveness provided by the Student Loan Relief Plan will not be subject to federal tax liability or Hawai‘i state income taxes.

Financial Assistance for Students

Colleges and universities are required to use no less than 50 percent of their HEERF amount to provide financial aid grants to students (including students exclusively enrolled in distance education), which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care.  In making financial aid grants to students, colleges and universities must prioritize grants to students with exceptional need, such as students who receive Pell Grants.  The U.S. Department of Education provided guidance to colleges and universities about this additional assistance, along with eligibility and administrative guidelines.  More information is available from your school’s financial aid office and from the U.S. Department of Education here.

Public Service Loan Forgiveness

The U.S. Department of Education is in the process of improving the Public Service Loan Forgiveness (PSLF) program.  The Department is currently offering a temporary opportunity to give borrowers credit for prior payments they made that would not otherwise count toward PSLF.  Any prior payments made while working for a qualifying employer will count as a qualifying payment, regardless of loan type or repayment plan.

This Limited PSLF Waiver will apply to borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those with other types of federal student loans who submit a consolidation application into the Direct Loan Program while the waiver is in effect.  The waiver applies to loans taken out by students.

The waiver will run through October 31, 2022.  That means borrowers who need to consolidate will have to submit a consolidation application by that date. Similarly, borrowers will need to submit a PSLF form—the single application used for a review of employment certification, payment counts, and processing of forgiveness—on or before October 31, 2022 to have previously ineligible payments counted.  The Department recommends borrowers take this action through the online PSLF Help Tool, which is available at StudentAid.gov/PSLF.

Moving forward, the Department has proposed regulatory changes to ensure more effective implementation of the PSLF program.  These changes would allow more payments to qualify for PSLF including partial, lump sum, and late payments, and allowing certain kinds of deferments and forbearances, such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service, to count toward PSLF.  Additionally, it would assist non-tenured instructors whose colleges need to calculate their full-time employment.

Additional Resources for Federal Financial Aid Questions

Federal Student Aid

The U.S. Department of Education's office of Federal Student Aid can help answer questions about the type of loans a student holds and what kinds of relief are available.      

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau can review complaints and help to navigate financial products like student loans.