Navigating the Student Loan Debt Relief Plan

The Biden Administration released their Student Loan Debt Relief plan on Aug. 24, 2022. The plan consists of a three prong strategy designed to help alleviate a modest percentage of the overall $1.7 trillion of outstanding Federal student loan debt. Note that while this plan does provide real relief for some borrowers, it does not address the root of the problem, which is the exponential rising cost of obtaining a college degree (as outlined in the chart below). Those changes would require congressional action via legislation.

Overview of The Biden Administration’s Student Loan Debt Relief Plan

• Part 1: Final extension of the student loan repayment pause.


• Part 2: Providing targeted debt relief to low-and-middle income families.


• Part 2: Providing targeted debt relief to low-and-middle income families.

Part 1: Final Extension

President Trump issued an executive order in March 2020 establishing a temporary moratorium on student loan payments. The moratorium has thus been extended several times and has continued under the Biden Administration. The Student Loan Debt Relief Plan extends the final moratorium until December 31, 2022, with payments resuming in January.

Part 2: Debt Relief

Only Federal student loans, which include federal graduate school loans and Parent Plus loans, qualify for relief. For borrowers to qualify, they must have income below the following thresholds: Individuals - $125,000; Married or Head of Household - $250,000. The Administration has not explicitly stated what their definition of “income” is used as a qualifier, but it is assumed that it will mostly likely be Adjusted Gross Income (AGI). Those who qualify, will be eligible for up to $10,000 in loan forgiveness and if they were recipients of a Federal Pell Grant award, can receive up to an additional $10,000 for a total of $20,000 in debt forgiveness. Note that while the amount forgiven will not be subject to federal income tax, there are a few states that will treat it as taxable income subject to state income tax.

Only Federal student loans, which include federal graduate school loans and Parent Plus loans, qualify for relief. For borrowers to qualify, they must have income below the following thresholds: Individuals - $125,000; Married or Head of Household - $250,000. The Administration has not explicitly stated what their definition of “income” is used as a qualifier, but it is assumed that it will mostly likely be Adjusted Gross Income (AGI). Those who qualify, will be eligible for up to $10,000 in loan forgiveness and if they were recipients of a Federal Pell Grant award, can receive up to an additional $10,000 for a total of $20,000 in debt forgiveness. Note that while the amount forgiven will not be subject to federal income tax, there are a few states that will treat it as taxable income subject to state income tax.

Part 3: New Income Based Repayment Plans

This is still a proposal at this point with many of the details yet to be finalized, but the proposed new income-driven repayment plan would include:

• Borrowers to pay no more than 5% of their discretionary income monthly on undergraduate loans.


• New calculation of non-discretionary income using 225% of poverty line.


• Debt is discharged after 20 years. 10 years for those whose original balance is $12,000 or less.


• Provide Interest subsidies for those who are making their monthly payments.

Over the past 30 years, the average student loan balance has increased for families by over 270%. Many details are still forthcoming, but the outlined proposed plan will postively impact many student loan borrowers. Hopefully, these actions will eventually be matched by Congressional action to address the issue of college affordability.

Written by Jarrett E. Hindrew, CFP®, ChFC®