You’ve probably heard about the $10,000 student loan forgiveness plan — sounds like a dream, right? Well, it might be time to hit the snooze button. While the idea of wiping out a chunk of your debt in one fell swoop is appealing, the reality is a bit more complicated. Let’s break down what this plan was supposed to be, why it didn’t happen, and what your options are now that the dust has settled.
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What is the $10,000 student loan forgiveness plan?
Back in 2022, the Biden administration introduced a plan to forgive up to $10,000 in federal student loan debt for eligible borrowers. The goal? To provide financial relief to millions of Americans who were struggling under the weight of student loans, especially after the economic upheaval caused by the COVID-19 pandemic. The plan targeted those with federal student loans, offering even more relief — up to $20,000 — for Pell Grant recipients. The idea was to give people a bit of breathing room, helping them manage their finances better and ease the burden of student debt.
Who qualifies for the student loan forgiveness plan?
The plan was designed with specific income brackets in mind. To qualify, individual borrowers needed to earn less than $125,000 per year, while married couples or heads of households could earn up to $250,000. Pell Grant recipients who met these income thresholds were eligible for double the forgiveness — up to $20,000. It’s important to note that this plan didn’t extend to private loan holders, and, in the end, it never came to fruition.
What is the Supreme Court’s final decision on the student loan forgiveness plan?
The $10,000 student loan forgiveness plan faced fierce opposition and legal challenges, eventually leading to its blockage by the Supreme Court. The Court ruled that the Biden administration didn’t have the authority to implement such widespread student loan forgiveness through executive action alone, stating that such measures would require approval from Congress.
This decision put the brakes on the plan, dashing the hopes of millions of borrowers who had been counting on it to reduce their debt. But the story doesn’t end there — President Biden quickly pivoted, rolling out a new, multi-faceted approach to tackle student debt relief, signaling that the fight is far from over.
What happens if you already applied and got approved for student loan forgiveness?
If you applied and were approved for student loan forgiveness under the now-blocked plan, you’re likely feeling frustrated — and understandably so. Because the Supreme Court ruled against the plan, the government isn’t allowed to discharge any loans under this specific executive action. This means that even if you were approved, your loans won’t be forgiven as originally promised. Student loan interest resumed on Sep. 1, 2023, and payments started again in October, which means now is the time to look at other ways to manage your student debt.
What are your other options for now?
While the $10,000 student loan forgiveness plan may be off the table, there are still plenty of ways to manage and reduce your student loan debt. Here are some options to consider.
1. Income-driven repayment plan
An income-driven repayment plan can make your loan payments more manageable by basing them on your income and family size. Under these plans, your monthly payment could be significantly reduced, and any remaining loan balance may be forgiven after 20 to 25 years of payments. Following the rejection of the $10,000 forgiveness plan, the Biden-Harris Administration introduced the Saving on a Valuable Education (SAVE) plan, which is being touted as the most affordable repayment option ever. The SAVE plan could cut your monthly payments in half, and some borrowers might even qualify for $0 payments.
Securing scholarships during your education can reduce the amount you need to borrow in the first place, making repayment more manageable.
2. Public service loan forgiveness (PSLF)
If you work full-time for a government organization or a non-profit, the Public Service Loan Forgiveness (PSLF) program could be your ticket to debt relief. By making 120 qualifying monthly payments under a qualifying repayment plan, you can have the remaining balance of your loan forgiven. This is a fantastic option for those committed to public service careers, offering significant financial relief after 10 years of payments.
3. Refinancing loans
Refinancing your student loans could be a savvy move, especially if you have private loans. By refinancing, you can obtain a new loan with better interest rates and repayment terms, potentially lowering your monthly payments and saving you money over the life of the loan. If you have federal loans, think carefully before refinancing. Doing so could mean losing access to federal benefits like income-driven repayment plans and loan forgiveness programs, which might outweigh the benefits of a lower interest rate.
4. Consolidating loans
Loan consolidation involves combining multiple federal student loans into a single loan, which can simplify your repayment process by giving you just one monthly payment to worry about. While consolidation won’t lower your overall debt, it can make managing your loans easier and might grant you access to different repayment plans that you didn’t qualify for previously.
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5. Employer repayment assistance
Some employers are stepping up to help employees pay off their student loans faster by offering repayment assistance as part of their benefits package. This perk can be a game-changer, especially if you’re working for a company that values investing in its employees’ financial well-being. Check with your HR department to see if your employer offers any kind of student loan repayment assistance.
6. Side gigs
Picking up a side gig is a practical way to earn extra cash to put toward your student loans. Whether you’re freelancing, driving for a ride-share service, or selling your skills online, a side hustle can help alleviate the financial burden of your debt. Plus, with the gig economy booming, there are more opportunities than ever to make money on your own terms. For ideas, check out side gigs for women, for college students, and weekend hustles.
If you’re using credit cards to cover expenses, be mindful of interest rates and try to pay off balances in full each month to avoid accumulating high-interest debt.
7. Debt snowball method
The debt snowball method is a repayment strategy that focuses on paying off your smallest loan balance first. Once the lowest one is knocked out, you take the money you were putting toward it and apply it to the next smallest loan, and so on. This method can help you gain momentum and motivation as you see smaller balances disappear, ultimately speeding up your journey to becoming debt-free.
The New Reality of Student Loan Forgiveness
While the $10,000 student loan forgiveness plan may have hit a dead end, that doesn’t mean all hope is lost. You can use numerous strategies to tackle your student debt, from income-driven repayment plans and loan consolidation to refinancing and side gigs. The key is to stay informed, explore all your options, and take proactive steps to manage your loans. By crafting a thoughtful plan, you can navigate this new reality and work toward a future free from the burden of student debt.
FAQ
What does student loan forgiveness mean?
Student loan forgiveness means that all or part of your student loan debt is canceled, eliminating your obligation to repay that amount.
Will student loan forgiveness happen?
While the $10,000 student loan forgiveness plan was blocked, other forms of loan forgiveness, such as income-driven repayment forgiveness and Public Service Loan Forgiveness, are still available.
Is student loan forgiveness taxable?
In most cases, student loan forgiveness is not considered taxable income, but it’s important to check specific program details and state tax laws.
Who pays for student loan forgiveness?
Student loan forgiveness is typically funded by the federal government, which absorbs the cost of the forgiven debt.
