The White House plan to cancel student loan debt has many moving parts — and a lot of unanswered questions.
Fred Amrein, founder of PayforED consulting firm in Newtown Square, Pennsylvania, makes a living tackling the complex landscape that is student debt. And he recommends borrowers start taking some steps now to prepare.
First, 43 million Americans qualify for debt cancellation of $10,000, or $20,000 if they received a Pell grant, under the proposed plan. Even those in default can apply.
Income caps limit who qualifies: Individuals' income must be less than $125,000, while married couples filing taxes jointly less than $250,000. About 95% of borrowers will benefit from cancellation, President Joe Biden said last month.
Borrowers who took out undergraduate, graduate, Parent PLUS, and federal FFEL loans are all eligible for debt cancellation, as long as they borrowed the money prior to June 30, 2022.
The Philadelphia Inquirer spoke with Amrein, who works with parents, financial planners, and employers who need help with student loan debt repayment. The interview has been edited for length and clarity.
How to get started
Q: How does the average person start this process?
A: There's no form to apply for the loan cancellation — yet — but one should be available by October.
The Federal Student Aid website does have new information almost every day. For updates, check the government's website studentaid.gov/debt-relief-announcement.
Right now, you can get set up ahead of time with an account, using a new username and password. You should do that even if you have a separate account set up with your debt servicer [such as FedLoan, Mohela, Navient, or NelNet].
Also, get in touch with your current loan servicer immediately. We're hearing from our customers that they're waiting on the phones for hours, and you don't want to scramble at the deadline.
Q: You describe debt relief as a four-part plan. Some measures, like a payment pause and a Public Service Loan Forgiveness waiver, were announced earlier in the pandemic.
A: Yes, there's a lot of uncertainty. But we do know some hard deadlines coming up.
First, the entire national forbearance program [that allowed federal student loan borrowers to withhold payments during the pandemic] ends on Dec. 31, 2022.
Second, the limited waiver program under Public Service Loan Forgiveness ends Oct. 31, 2022. It's the most popular loan forgiveness offered, because it corrects the errors and denials of the old program.
Third, this student debt cancellation is a one-time thing. Students enrolling this fall aren't eligible. Only those with debt originated prior to June 30, 2022.
Fourth, there's a new income-driven repayment plan that should allow many more people to qualify, and to afford their payments. Older income-linked repayment plans often didn't address ballooning interest. The new payments should be capped at 5% of adjusted gross income, down from 10%.
Q: How is the Department of Education going to verify borrowers' incomes? And which year will they use — 2020 or 2021?
A: We don't know yet. Both the $10,000 and $20,000 cancellation will be means-tested (that is, tied to income eligibility), but it's unclear how that will happen. The Department of Education doesn't have every borrower's income information, although it estimates nearly eight million people will be eligible for relief automatically.
We believe the Department of Ed will be using income data from the Internal Revenue Service, but they may use either 2021 or 2020 income.
Public Service Loan Forgiveness
Q: Let's talk about Public Service Loan Forgiveness (PSLF). This program had many problems, but the current waiver program is better. It ends soon, on Oct. 31, 2022.
A: This one-time waiver program is expected to help over 550,000 people qualify for public service loan forgiveness. Among our clients, we're seeing average savings of $120,000.
The waiver program corrects three major issues.
It helps borrowers who worked in specific careers, such as nonprofits, health-care workers, emergency workers, teachers, and government employees. If you have student debt, and made 120 on-time payments, chances are you qualify. Already, about 200,000 people have been approved or are in process.
Many were disqualified in error, or were wrongly told they didn't qualify. The limited waiver fixes that.
Those with FFEL loans [a subset of federal student loans made before 2010, under what's known as the Federal Family Education Loans program] now qualify for loan forgiveness, if you consolidate.
A lot of people got bad advice. Today, you should call your servicer and consolidate into the Direct Loan Program to benefit from cancellation.
(There's a help tool online through PSLF.gov.)
Check your paystub to see what the tax identifier is. Sometimes a teacher at a school or a hospital worker is paid by the township, state, or nonprofit health-care system, which is the "approved employer." That's the right tax ID number. People sometimes put the wrong number.
Get started now
Q: Back to the debt cancellation program. If I'm married, do my spouse and I each apply separately?
A: Yes, up to $20,000 in loans will be canceled on a per-borrower basis. If you and your spouse each have loans, you each get cancellation.
Start now: Make sure your contact information is updated. Sometimes it might be from your parents or under an old address. Everything must match up.
Q: What's going on with income-driven repayment (IDR)?
A: In the fine print, Biden's proposal on IDR would address ballooning loan balance growth. A recent Pew survey showed four in 10 debtors owed much more than they borrowed, even after years of making payments on time, because of interest that accrues.
Under the new income-driven repayment, loans freeze the amount of interest that can accrue, and cap monthly payments at 5% of discretionary income.
Borrowers enrolled in some of the prior income-driven repayments end up paying much more than the original loan—and over a longer time period.
Q: So those in default, parents, even retirees qualify?
A: You can get up to $20,000 in student debt cancellation if you're under the income limits. Period.
People over 50 are the fastest growing student debt borrowers. More and more people have Parent PLUS loans going into retirement. That's a new growth area we are seeing. Parent PLUS loans have higher fees and interest rates. It's a major complaint of the program.
There have been conversations on Capitol Hill about capping Parent PLUS loans. Right now it's unlimited.
