Nov
23
2022
What You Need to Know About the Challenges to Biden's Student Loan Forgiveness

What You Need to Know About the Challenges to Biden’s Student Loan Forgiveness

By | Student Loans, student_loan | Comments Off on What You Need to Know About the Challenges to Biden’s Student Loan Forgiveness

Challenges to Biden’s student loan forgiveness plan have created uncertainty and confusion for the more than 40 million borrowers (including college students who were enrolled before June 30, 2022) who may be eligible for debt relief through the program.

On Thursday, Nov. 11, a U.S. District judge in Fort Worth, Texas, ruled in a lawsuit that the plan is unconstitutional. As a result, the Department of Education has stopped accepting applications for student loan forgiveness and is holding the applications it has already received. The Biden administration is appealing the judgment.

To help borrowers in the meantime, on Nov. 22, the U.S. Department of Education issued a new extension of the pause on student loan repayment, interest, and collections to let the Supreme Court rule on whether the forgiveness plan can go into effect. Federal student loan payments may now be extended as long as 60 days after June 30, 2023. The pause is meant to “alleviate uncertainty for borrowers,” according to the administration.

Legal Challenges to the Student Loan Forgiveness Plan

The President’s debt relief plan calls for up to $10,000 in forgiveness for federal student loan borrowers who earn less than $125,000 a year ($250,000 for married couples) and up to $20,000 in relief for Pell Grant recipients. As mentioned earlier, current students who were enrolled before June 30, 2022, may be eligible for this one-time forgiveness. (Borrowers of private student loans are not eligible.)

The Biden administration determined that the president has the authority to wipe out this kind of student debt under the Heroes Act of 2003. Passed in the wake of the 9/11 terrorist attacks, the Higher Education Relief Opportunities for Students Act gives the Secretary of Education the authority to change federal student aid provisions in the event of a war, military operation, or national emergency.

Because the pandemic was declared a national emergency in March 2020, the administration believes that the Education Secretary has the legal authority to provide debt relief under the act. Both former President Trump and President Biden used the Heroes Act to pause student loan payments during the pandemic. The extension that was just announced on Nov. 22 extends the pause well into 2023.

Six lawsuits have been filed against the plan resulting in two blocks against it. Opponents challenging Biden’s student loan forgiveness program make three primary legal arguments against the administration’s premise:

The No-Worse-Off Clause

Some politicians and legal experts question whether using the Heroes Act is appropriate. Among other things, they point to a clause in the act that says action on student financing can only be taken to ensure people “are not placed in a worse position financially” because of the emergency. The student loan pause, for instance, is designed to make sure that borrowers are no worse off when repayment starts than they were when the pandemic began. However, opponents argue that forgiveness puts borrowers in a better position financially because they will no longer have to pay all or part of their student loans.

Congress Controls the Money

Many lawmakers opposed to the program also say the Biden administration is overstepping its reach. The debt cancellation program could cost as much as $519 billion dollars over 10 years, according to some recent estimates. The Constitution states that Congress controls government funds, and the president and federal agencies may not spend money that has not been appropriated by Congress. Although Congress itself has enacted several specific student loan forgiveness programs — such as those for teachers or permanently disabled borrowers — it has not passed a broad student loan program forgiveness plan.

A Recent Supreme Court Decision

Activities of federal agencies like the Department of Education may come under more scrutiny in the wake of the recent U.S. Supreme Court decision regarding West Virginia v. Environmental Protection Agency. That decision clarified the “major questions doctrine,” which says that federal agencies are limited in making decisions that have “vast economic and political significance” without guidance from Congress. Proponents of the loan forgiveness plan worry this doctrine will be used against the program. Opponents believe they have legal precedent.

Recommended: Student Loan Forgiveness Programs

What Happens Next With the Legal Challenges?

On November 14, the 8th U.S. Circuit Court of Appeals granted an injunction request by six states to halt the debt relief plan. The Biden administration has asked the Supreme Court to put that decision on hold as well as the November 11th Texas District Court ruling. The U.S. Justice Department also suggested that the Supreme Court separately take up the case of student debt relief during its current term.

Whether Biden’s student loan forgiveness plan will happen is still up in the air. As the legal challenges play out, borrowers can sign up for updates at the DOE’s Student Aid site.

Recommended: Will My Federal Student Loan Payment Change in 2023?

Logistical Challenges to the Student Loan Forgiveness Plan

In addition to the lawsuits, there are other challenges to overcome in implementing the program. Dealing with millions of dollars of canceled debt at numerous different loan servicing companies may be difficult if the plan proceeds. Right after the August announcement of the student loan forgiveness plan, the Department of Education’s financial aid website crashed, as did the sites of many loan servicers. That raises questions about how prepared the government and the private loan servicers are to handle the onslaught of forgiveness activity.

Recommended: Types of Federal Student Loans

The Takeaway

The Biden administration’s plan to forgive a large chunk of federal student debt was welcome news to borrowers. But it came with significant legal challenges, resulting in six lawsuits (so far). The Biden administration has asked the Supreme Court to rule on whether the plan can go into effect. To help borrowers, the pause of student loan repayment has been extended again. SoFi will continue to keep you updated on developments with the student loan forgiveness program.

In the meantime, you may want to consider how best to handle your student loan debt. Even if you are eligible to have a portion of it forgiven, you will still need to pay off the remainder of your loans. Or perhaps you have private loans, which don’t qualify under the forgiveness program. Refinancing your student loans might lead to lower monthly payments. And that’s especially important to think about now, as interest rates continue to rise. Explore student loan refinancing with SoFi to see what your options are.

FAQ

Will Biden student loan forgiveness stand in court?

It’s uncertain whether the student loan forgiveness plan can stand in court. Currently, six lawsuits have been filed against the plan, and the administration has asked the Supreme Court to rule on whether the plan can go into effect.

Who would challenge Biden’s student loan forgiveness?

Many Republican lawmakers, some Democratic lawmakers, and some economists and education experts are against the plan. Six lawsuits have currently been filed against it.

What are the possible delays to Biden’s student loan forgiveness?

Legal challenges have put the plan on hold. The Department of Education has stopped accepting applications for student loan forgiveness and is holding the applications it has already received.

Photo credit: iStock/Inside Creative House

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.



External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Nov
20
2022
clipboard and credit card

Which Debt to Pay Off First: Student Loan or Credit Card

By | Credit, Debt Payoff, Financial Independence, Fresh Out of School, personal_loan, Student Loans, student_loan | No Comments

It’s a common dilemma: Should you pay off credit cards or student loans first? The answer isn’t totally cut and dried. But if your credit card interest rates are higher than your student loan interest rates, paying down credit cards first will probably save you more money in interest.

But don’t stop there. Keep reading to learn how to calculate what’s best for your situation, and why. Along the way, you’ll learn more about how credit cards work, the complexities of student loans, and two very different strategies for paying down debt.

Prioritizing Your Debts

Experts are split over the best debt to pay off first. Some recommend you tackle the smallest balance first because of the psychological boost that comes from erasing a debt entirely.

However, from a purely financial standpoint, you’re better off paying off the debt that carries the highest interest rate first. That’s because the higher the interest rate, and the longer you hold the debt, the more you end up paying overall. This usually means tackling high-interest credit card debt first.

Keep in mind that prioritizing one debt over another does not mean that you stop paying the less urgent bill. It’s important to stay on top of all debts, making at least minimum monthly payment on each.

Failing to make bill payments can hurt your credit score, which can have all sorts of effects down the road. For example, a poor credit score can make it difficult to secure new loans at low rates when you want to buy a new car or home, or to take out a business loan.

You might consider setting up automatic payments on your loans. Automatic payments can make it easier to pay bills on time and juggle multiple payments.

If you’re having trouble making your monthly payments, consider strategies to make your payments more manageable, such as refinancing.

Student Loan vs Credit Card Debt

Before we get into if it’s better to pay off credit cards or student loans first, let’s look at how each debt is structured.

Student Loan Debt

A student loan is a type of installment loan used to pay for tuition and related schooling expenses for undergraduate or postgraduate study. Borrowers receive a lump sum, which they agree to pay back with interest in regular installments, usually monthly, over a predetermined period of time. In this way, student loans are similar to other installment loans such as mortgages, car loans, and personal loans.

At a high level, there are two types of student loans: federal and private. The U.S. government is the single largest source of student loans. Federal student loans have low fixed interest rates: Current rates are 4.99% for undergrad loans, and 7.44% for graduate and professional loans. These loans come with protections like income-driven repayment plans, deferment and forbearance, and loan forgiveness.

Private student loans are managed by banks, credit unions, and online lenders. They may have a fixed or variable interest rate, which is tied to the borrower’s credit score and income. Average interest rates range from 3.22% to 13.95% for a fixed rate, and from 1.29% to 12.99% for variable.

Private student loans don’t come with the same protections as federal student loans. For instance, they are not eligible for President Biden’s loan forgiveness plan.

Payback timelines vary widely. As with other loans, the longer your repayment timeline, the lower your monthly payment will be — but you’ll pay more in interest over the life of the loan. The shorter your repayment period, the larger your monthly payment, and the less interest you’ll pay.

Recommended: Types of Federal Student Loans

Credit Card Debt

Credit cards offer a type of revolving credit, where account holders can borrow money as needed up to a set maximum. You can either pay off the balance in full or make minimum monthly payments on the account. Any remaining balance accrues interest.

Credit cards usually come with higher interest rates than installment loans. The average credit card interest rate in September 2022 was 21.59%. But an individual credit card holder’s rate depends on their credit score. People with Excellent credit will pay an average of 18.04%, while those with Bad credit will pay closer to 25.14%.

Depending how the account is managed, credit card debt can be either very expensive or essentially free. If you always pay off credit cards in full each month, no interest usually accrues. However, if you make only minimum payments, your debt can spiral upward.

Recommended: Taking Out a Personal Loan to Pay Off Credit Card Debt

Should I Pay Off Credit Card or Student Loan First?

When it comes to student loan vs credit card debt, there’s no universal answer that fits everyone in every situation. A number of factors can tip the scales one way or another, especially the interest rates on your loan and credit card.

We’ll explore two scenarios: one in which paying off credit cards is the best move, and another where student loans get priority.

The Case for Paying Down Credit Cards First

If you are carrying high-interest credit card debt, you’ll likely want to focus on paying off credit cards first. As you saw above, the average credit card interest rate (21.59%) is significantly higher than the maximum student loan interest rate (13.95%). Even if your credit card interest rate is lower than average, it’s unlikely to be much lower than your student loan’s rate.

Credit card debt can add up quickly, and the higher the interest rate, the faster your debt can accumulate. Making minimum payments still means you’re accruing interest on your balance. And as that interest compounds (as you pay interest on your interest), your balance can get more difficult to pay off.

A high balance can also hurt your credit score, which is partially determined by how much outstanding debt you owe.

Paying Off Credit Card Debt

Once you decide to focus on paying off credit cards first, start by finding extra funds to send to the cause. Look for places in your budget where you can cut costs, and direct any savings to paying down your cards. Also consider earmarking bonuses, tax refunds, and gifts of cash for your credit card payment.

Next, make a list of your credit card balances in order of highest interest rate to lowest. The Debt Avalanche method refers to paying off the credit card with the highest interest rate first, then taking on the credit card with the next highest rate.

It bears repeating that focusing on one debt doesn’t mean you put off the others. Don’t forget to make minimum payments on your other cards while you put extra effort into one individual card.

You may also choose to use a Debt Snowball strategy. When using this method, order your credit cards from smallest to largest balance. Pay off the card with the smallest balance first. Once you do, move on to the card with the next smallest balance, adding the payment from the card you paid off to the payment you’re already making on that card.

The idea here is that, like a snowball rolling down a hill gets bigger and faster as it rolls, the momentum of paying off debt in this way can help you stay motivated and pay it off quicker.

Managing Your Student Loans

Meanwhile, it’s important that you continue making regular student loan payments while you’re prioritizing your credit card debt. For one thing, you shouldn’t just stop paying your student loans. If you do, federal student loans go into default after 270 days (about 9 months). From there, your loans can go to a collections agency, which may charge you fees for recouping your debt. The government can also garnish your wages or your tax return.

You can, however, typically adjust your student loan repayment plan to make monthly payments more manageable. If you have federal loans, consider an income-driven repayment plan, which bases your monthly payment on your discretionary income.

While this may reduce your monthly student loan payments, it extends your loan term to 20 to 25 years. That can end up costing you more in interest. So make sure the extra interest payments don’t outweigh the benefits of paying down your credit card debt first.

Refinancing Your Student Loans

It can also be a smart idea to refinance student loans. When you refinance a loan or multiple loans, a lender pays off your current loans and provides you with a new one, ideally at a lower rate.

You can use refinancing to serve a couple of purposes. One option is to lower your monthly payment by lengthening the loan term. This can free up some room in your budget, making it easier to stay on top of your monthly payments and redirect money to credit card payments. Just remember that lengthening the loan term can result in you paying more interest over the course of your loan.

Or you can shorten your loan term instead. This can be a good way to kick your student loan repayment into overdrive. Your payments will increase, but you’ll reduce the cost of interest over the life of the loan. In other words, you’re giving equal weight to paying off your student loans and your credit card debt.

When you refinance with SoFi, there are no origination or application fees.

To see how refinancing with SoFi can help you tackle your student loan debt, take advantage of our student loan refinancing calculator.

Take control of your debt by refinancing your student loans. You can get a quote from SoFi in as little as two minutes.

FAQ

Should you pay off your student loans or your credit cards first?

The answer depends on a number of factors, especially the interest rates on your loans and credit cards. But if your credit cards carry high interest rates, you’ll likely save more money in interest by paying off your credit cards before your student loans.

What is the best debt to pay off first?

From a purely financial perspective, it’s best to pay off your highest interest-rate debt first. This is called the Debt Avalanche method. Paying off the most expensive debt (usually credit cards) first will save you the most money in interest.

Is it smart to pay off credit card debt with student loans?

This is probably not a good idea. First of all, paying off credit cards with student loans may violate your student loan agreement, which limits the use of funds to tuition and related expenses. If you use a credit card exclusively for educational expenses like textbooks and computers, you might be able to use loan funds to pay it off. However, you should check your loan agreement carefully to make sure this is allowed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Nov
01
2022
bride and groom

How Marriage Can Affect Your Student Loan Payments

By | Family Finances, Life & Career, Student Loans, student_loan | No Comments

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Your marriage status can affect your financial life in unexpected ways, and student loans are no exception. If you have an income-driven repayment plan, your spouse’s income might change your monthly payment calculation. But such challenges also present opportunities. For instance, you may be able to rejigger your student loan payments to save money on interest, lower your monthly payment, or shorten your repayment term so you can become debt-free faster.

Here we’ll show you how getting married affects student loans. Learn strategies for restructuring your debts, and tips for saving money that you can put toward other goals.

Marriage and Student Loan Repayments

Your marital status can affect everything from loan payments to tax breaks. Understanding how marriage impacts student loans (yours or your partner’s) can help you craft a new repayment plan and get ahead of your other financial goals. That way, you can focus on more urgent matters, like who’s making dinner tonight.

How Marriage and Student Loans Can Affect Your Taxes

If you paid student loan interest in the previous tax year, you may qualify for a student loan deduction. But your eligibility can change depending on if you are filing jointly or separately.

According to the IRS, as of the 2021 tax year, a single person (or head of household) with a modified adjusted gross income (MAGI) under $85,000 may be able to deduct up to $2,500 of qualified student loan interest paid in a given year. (Eligible MAGI for married filing jointly for this deduction is under $170,000.)

However, if you’re married but filing separately, that student loan interest deduction goes away. You can only take advantage if you file jointly. (See below for other deductions you may not qualify for if filing separately.)

Helping Each Other with Repayments

If you want to help your spouse with their student loan repayment, whether they have private or federal loans, you can. When one spouse takes out a loan before the marriage, typically that loan still belongs to the original borrower. However, you can choose to put both your names on the loan, and be equally responsible for the debt, by refinancing together.

Refinancing student loans gets you a brand-new loan in both your names. At the same time, you may be able to qualify for a lower interest rate or better terms. However, you will forfeit your federal student loan benefits if you refinance federal loans with a private lender.

Marriage Could Complicate Your Income-Driven Repayment Plan

When you’re married and filing separately (vs. jointly), student loan servicers count only your individual income. But if you file jointly and you or your spouse is enrolled in the Revised Pay As You Earn (REPAYE) plan — one of four income-driven repayment plans — you could see your monthly payments increase. When filing your taxes jointly, your combined AGI replaces your individual income in REPAYE’s calculations.

For the three other income-driven repayment plans — Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) — you can potentially avoid higher payments by filing separately. However, when you do this you lose the ability to use the student loan interest deduction.

Filing separately also means you’ll no longer be able to qualify for the Earned Income Tax Credit, the American Opportunity Credit, and Lifetime Learning Credit. There is no one blanket answer for every married couple. Given the complexity of tax law, you’ll want to consult a tax professional to determine which option is best for you both.

Tips for Tackling Student Loan Debt Together

So what’s the best strategy for paying down student loans without letting them come between you and your spouse? Here are five tips to a debt-free happily ever after.

Tip #1: Create Your Big Financial Picture

Preparing to take on a big financial goal usually requires some conversation and preparation upfront. Before making any decisions, sit down and talk about your short- and long-term financial objectives, and make sure you’re both on the same page (or as close to it as possible). This can be an overwhelming topic, so see if you can break it down into chunks.

Have you established a household budget? How do student loans — and paying them off — fit into your long-term and short-term goals? Should you start aggressively paying off debt, or might it be better for you to ramp up over time? What other factors (e.g., buying a home, changing careers, having children) might influence your decisions?

Not only can this exercise give you more clarity to create an action plan, it can also be kind of fun. After all, planning a life together is part of the reason you got married in the first place. The key is to listen to each other.

Tip #2: Take Advantage of Technology

Once you’re clear on the big picture, it’s time to get into the weeds. Many people have more than one student loan, often with multiple lenders, so a good place to start is to gather all of your loan information together. You can use an online student loan management tool (try https://studentaid.gov/loan-simulator/) to compare repayment options and analyze prepayment strategies.

After crunching the numbers, your debt payoff strategy may include putting extra money toward your loans each month, which means creating and sticking to a budget that supports that goal.

Using a debt payoff planner can help you keep track of your debt payments, maintain spending within a budget, and show how close you are to paying off your debt in full. Tracking your spending may not feel good at first, but over time, this kind of discipline can help you see where your money goes and make conscious choices about your spending. Once you have your budget in place, these apps can be set up to alert you both when spending is getting off track.

Tip #3: Define the Who, What, When

Whether your finances are separate or combined, you’ll probably want to come to an agreement on how to collectively pay all of your financial obligations. Many couples address this based on each person’s share of the total household income.

For example, if one person contributes 40% of the household income, and the other 60%, the former might pay 40% of the shared bills and the latter 60%. Others find it simpler and more cohesive to have one household checking account and pay all bills from there. Or you can combine the two tactics, and have each spouse contribute a prorated amount to the joint bank account.

However you decide to split things up, consider setting up automatic payments for all household bills, because missed student loan payments can potentially impact both spouses’ credit. And a weak credit rating can make your future financial objectives tougher to achieve.

Tip #4: Look For Opportunities to Optimize

So now you’ve established a plan and a budget, and you know who’s on point for each bill. You’re on the path to getting student loan debt off your plate. Is there anything else you can do to speed up the process?

Short of winning the lottery, the most common ways to accelerate student loan payoff are prepayment (meaning, paying more than the minimum) or lowering the interest rate, the latter of which is most commonly accomplished through refinancing.

If you qualify to refinance your student loans, you’ll have to decide on your primary goal:

•   Lower your monthly payment by choosing a longer term. This frees up money in your budget, but you’ll potentially pay more in interest over the long term.

•   Lower your interest rate. This saves you money in interest over the long term. (It can also lower your monthly payment, but don’t count on it.)

•   Shorten the repayment period. This can save you money on interest over the life of the loan, and get you debt-free faster.

Tip #5: Be on the Same Team

Living with debt is stressful for any couple. But being in a committed relationship has its advantages. There’s a reason that weight loss experts often recommend finding a “buddy” to help cheer you on and keep you honest on your diet and exercise journey. The same applies to achieving a big financial goal like paying off student loan debt.

Keep it positive and the lines of communication open, and you may find that the journey to being debt-free makes your marriage stronger.

Refinancing Student Loans Separately vs. Jointly

If you and your new spouse decide you want to do more things with your money — have a child, buy a home, or invest more in retirement savings — it may be time to refinance student loans. Once again, you’ll need to run some numbers and decide whether to refinance your student loans together or separately.

When you apply to refinance your student loans, lenders typically evaluate your credit score and financial fitness. This determines your new interest rate and loan terms. The goal is for the new loan to be a better deal than your existing loans.

With a lower interest rate, you can reduce the amount of money you spend over the life of the loan. And with only one monthly student loan payment to worry about, your finances can be easier to manage.

But are you better off going it alone or together?

Refinancing Student Loans Separately

When you’re married, refinancing your student loans separately has pros and cons.

Advantages of refinancing separately Disadvantages of refinancing separately
You’re not responsible for anyone’s debts but your own. Financial responsibility may not be equitably distributed.
You can choose the loan you want, without compromise. If you hit a financial rough spot, you alone are on the hook for payments.
Your own credit score and history determine your interest rate and loan terms. If your credit score is weak, you’ll pay a higher interest rate.

Even if you’re married, refinancing student loans separately may be right for you if any of the following statements are true:

•   Your credit score and history are much stronger than your spouse’s, and you want to qualify for the lowest interest rate possible.

•   You and your spouse have different goals for refinancing — for instance, a lower monthly payment vs. saving money in interest.

•   Your spouse hopes to qualify for Public Service Loan Forgiveness (PSLF).

•   Your spouse is enrolled in an income-based repayment plan or is taking advantage of other federal repayment protections.

•   One of you has a much higher student loan balance, while the other has almost paid off their loans.

Refinancing Student Loans Jointly

On the other hand, there are compelling arguments for being married and refinancing student loans jointly.

Advantages of refinancing jointly Disadvantages of refinancing jointly
One of you is a stay-at-home parent who can’t qualify for refinancing alone. It can be difficult to get out of spousal consolidation if your relationship sours.
You want to simplify your student loans into one single payment. If your spouse dies before the loans are paid off, you’ll have to shoulder the burden alone (federal student loans are forgiven upon death only if held separately).
It’s possible you’ll both benefit from a lower interest rate than you’ll qualify for separately. There are few lenders who allow spousal consolidation of student loans.

Refinancing student loans jointly may be right for you given one of these scenarios:

•   Your credit score and history are much weaker than your spouse’s, and you can’t afford the interest rate and loan terms you qualify for alone.

•   You’re a stay-at-home parent with no earned income, making it difficult to qualify separately.

•   It’s important to both of you to be on the same team financially.

Refinance Student Loans With SoFi

For some couples, a lower interest rate can mean more flexibility and a more manageable repayment plan. After all, the average graduate holds 8-12 student loans. That gives married couples 16-24 different loan payments to make each month. Refinancing together can transform a student loan mess into a single, affordable payment.

To see how refinancing might impact your student loans and your partner’s, take a look at SoFi’s student loan refinance calculator. With SoFi, there are no application or origination fees, and no prepayment penalties.

Thinking about refinancing your student loans? Save thousands of dollars thanks to flexible terms and low fixed or variable rates.

FAQ

Does getting married affect student loan payments for you and your spouse?

If you or your spouse is enrolled in an income-driven repayment plan, you may see your payments increase after marriage. You can potentially avoid higher payments by filing your taxes separately. However, you’ll forfeit the ability to use the student loan interest deduction.

Is my spouse responsible for my student loans?

Loans taken out before the marriage still belong to the original borrower. Your spouse is not responsible for them unless they cosigned the loans with you. You can choose to put both your names on your loans, and be equally responsible for the debt, by refinancing together.

Does marriage affect financial aid?

Marriage typically has a positive effect on qualifying for financial aid. If you are under 24 and married, your parents’ income will no longer be considered in financial aid calculations, but your spouse’s will — this usually means your household income drops. However, if your spouse has significant income or assets, that can negatively affect your eligibility for financial aid.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Oct
20
2022
How to Apply for Biden's Student Loan Forgiveness

How to Apply for Biden’s Student Loan Forgiveness

By | Fresh Out of School, Student Loans, student_loan | Comments Off on How to Apply for Biden’s Student Loan Forgiveness

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.


You can now apply for a one-time cancellation of up to $20,000 on your federal student loan debt through an online form posted on the Federal Student Aid website.

The program provides eligible borrowers with full or partial discharge of federal loans up to $20,000 to Federal Pell Grant recipients and up to $10,000 to non-Pell Grant recipients.

Who qualifies? Individuals who made less than $125,000 in 2021 or 2020, and families that made less than $250,000 in 2021 or 2020.

Read on to learn more about applying for student loan forgiveness — and the deadlines you need to know.

Steps to Take to Apply for Student Loan Debt Cancellation

President Joe Biden announced a student loan forgiveness plan in August that would provide one-time debt relief to low- and middle-income families through $10,000 or $20,000 payments.

The form went live on October 17.

Nearly 8 million borrowers may be eligible to receive relief without applying for it because the DOE already has their income information. But if you are uncertain whether you fall into that group, it’s recommended that you fill out the application.

Qualified borrowers are advised to apply by mid-November in order to receive relief before the pause on all federal loan payments expires on December 31, 2022.

Following these steps will help the application process go smoothly:

Figure Out if You’re Eligible

People with federal student loans may qualify for up to $10,000 in debt relief, and Pell Grant recipients may get up to $20,000. Borrowers are eligible for this relief if their 2020 or 2021 individual income is less than $125,000 or $250,000 for households.

Federal Pell Grants are typically awarded to undergraduate students with low or moderate income. Most borrowers can log in to StudentAid.gov to see if they received a Pell Grant.

Submit Your Application

The application “is simple, easy, and you don’t need to log in or provide supporting documents to apply,” the White House tweeted on October 17.

“We’ll determine your eligibility and will contact you if we need more information,” says the FSA site. “Your loan servicer will notify you when your relief has been processed.”

A beta version of the application was released less than a week before the official application went live. Those who applied during that stage do not need to apply again, according to the White House. The form they submitted will be processed.

You’ll have until Dec. 31, 2023, to submit your application.

Refresh Your Contact Information

You do not need to log in with your student loan servicer to apply for debt relief, but it’s recommended that you make sure your contact information is up to date for notifications. If you don’t know who your federal student loan servicer is, find out now. These companies work with the DOE on the administration of your loans.

If you don’t have a StudentAid.gov account (an FSA ID), you should create an account to help you manage your loans.

A New Deadline for Loan Debt Payments

Everyone who is paying down their federal student loans got a pause in payments starting in March 2020. The deadline to resume payments has been extended more than five times.

“To ensure a smooth transition to repayment and prevent unnecessary defaults,” President Biden said he will extend the pause one more time, through Dec. 31, 2022, with payments resuming in January 2023.

Biden said this past August that there will be no more extensions after his final one.

Recommended: How to Prepare for the End of Federal Student Loan Relief

Changes in Eligibility for Public Service Forgiveness

Along with extending the deadline for loan repayments and creating a one-time federal loan relief payment, President Biden made changes to the Public Service Loan Forgiveness program.

Borrowers who are employed by nonprofits, the military, or federal, state, tribal, or local government may be eligible to have all of their student loans forgiven through the existing Public Service Loan Forgiveness (PSLF) program. This is because of time-limited changes that waive certain eligibility criteria in the PSLF program.

Anyone interested in this opportunity needs to take action immediately. These temporary changes expire on October 31, 2022. For more information on eligibility and requirements, and to apply, go to PSLF.gov .

What About Opposition to the Biden Loan Forgiveness Program?

Biden’s federal student loan forgiveness plan has not met with universal approval. Some say that Biden does not have the authority to institute the plan; others criticize the cost to the economy. The White House said in August that canceling the federal debt will cost the government $240 billion over the next decade. Other estimates have put the price higher.

In late September, six states — Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina — filed a lawsuit to stop the plan, saying the Biden administration overstepped its regulatory authority.

Various court challenges and politicians’ petitions are moving forward. However, as of October 18, the opposition did not appear to have the legal authority to stop the debt cancellation plan from going forward.

Recommended: What Biden’s Student Loan Forgiveness Means for Your Taxes

The Takeaway

While federal student loan cancellation of up to $20,000 will be sent to about 8 million people automatically, there is now an online application for anyone who wants to apply and meets the income eligibility requirements.

You may want to take steps to get on top of all your student loan debt. Only federal student loans are eligible for cancellation, and only for those who meet certain income requirements. Refinancing your student loans — or what’s left of your student loans after forgiveness — might lead to lower payments, especially as interest rates are rising from historic lows. Explore student loan refinancing with SoFi to find out your options. Just be aware that after you refinance, that amount is no longer eligible for forgiveness.

Find out your rate for student loan refinancing

FAQ

Do you need to apply for the student loan forgiveness?

Nearly 8 million borrowers may be eligible to receive relief without applying — unless they choose to opt-out — because the necessary income data is already available to the DOE.

You may receive the one-time debt cancellation on your federal student loan if you filed the necessary income data through a Free Application for Federal Student Aid (FAFSA) in the last two years or an income-driven repayment application that uses income data from tax years 2021 or 2020.

But if you are at all unsure whether this applies to you, it’s recommended that you fill out an application
online .

How will I know if I qualify for student loan forgiveness?

You will either automatically receive forgiveness on your federal student loan or you’ll receive it after you fill out an application online. You will be notified through an email or text if you qualify and, later, you will be informed by your loan servicer once the money is deducted from what you owe.

What types of student loans will be forgiven?

Only federal loans are eligible for these forgiveness programs, not private student loans. Subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans held by the DOE are eligible.

Consolidation loans are also eligible for relief, as long as all of the underlying loans that were consolidated were DOE-held loans and were disbursed on or before June 30, 2022. Additionally, consolidation loans comprised of any FFEL or Perkins loans not held by DOE are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022.

Do parents get student loan forgiveness?

All DOE-held loans, including PLUS loans for parents and graduate students, are eligible for relief, according to the Biden Forgiveness Plan.

Photo credit: iStock/SDI Productions


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

In our efforts to bring you the latest updates on things that might impact your financial life, we may occasionally enter the political fray, covering candidates, bills, laws and more. Please note: SoFi does not endorse or take official positions on any candidates and the bills they may be sponsoring or proposing. We may occasionally support legislation that we believe would be beneficial to our members, and will make sure to call it out when we do. Our reporting otherwise is for informational purposes only, and shouldn’t be construed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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2022
Yes! Current Students Can Apply for Biden's Loan Forgiveness

Yes! Current Students Can Apply for Biden’s Loan Forgiveness

By | Debt Payoff, Going to College, Student Loans, student_loan | Comments Off on Yes! Current Students Can Apply for Biden’s Loan Forgiveness
Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Students currently enrolled in college and graduate school are eligible to apply for forgiveness of up to $20,000 of the federal student loans they’ve received if they meet certain family income requirements, according to information posted by Federal Student Aid (FSA), an office of the U.S. Department of Education (DOE).

When President Joe Biden’s plan for one-time loan cancellation was announced in August, it was clear that college graduates with federal loans were eligible, as were those who had dropped out of college but still needed to pay back their federal loans.

Now it has become apparent that students enrolled in college before June 30, 2022, will also be able to apply for federal loan forgiveness.

“Borrowers are eligible for debt relief regardless of whether they’re in repayment, in school, or in grace, as long as they meet the income requirements and have eligible loans,” according to the FSA Fact Sheet “One Time Student Loan Debt Relief .”

Recommended: Student Loan Forgiveness: Programs for Relief and Mass Forgiveness

What Are the Requirements for Students to Apply for Forgiveness?

Current students can apply for forgiveness for federal loans if they received them before June 30, 2022. (Unfortunately, this means that freshmen who started this fall aren’t eligible.) If the students are dependents of their parents, FSA will be looking at the annual income of the parents to certify eligibility, not the student.

“If you were enrolled in school as a dependent student for financial aid purposes between July 1, 2021, and June 30, 2022, your eligibility is based on parent income. After you fill out your own application form, we’ll contact you so your parent can complete a Parent Income Form,” explains the FSA Fact Sheet.

Current undergraduates and graduate students can apply for forgiveness, as can those who did not complete their degree. “Current students and borrowers who have federally held undergraduate, graduate, and Parent PLUS loans that were distributed on or before June 30, 2022 are eligible for the relief, said Megan Walter, a policy analyst for the National Association of Student Financial Aid Administrators,” in U.S. News & World Report.

For dependent students, the important question is “What is the income of your parents?” The income cutoff for this one-time debt cancellation is $125,000 for a single parent or $250,000 for the household. If the student’s parents meet this eligibility requirement, then the student could receive up to $10,000 in debt relief.

As for the $20,000 in debt relief that has been announced, the only students eligible to apply for it are those who have already received a Pell Grant and whose parents’ household incomes do not exceed $250,000.

A Pell Grant is awarded to undergraduate students with low or moderate income. If you’re unsure, you can log in to StudentAid.gov to see if you received a Pell Grant.

Recommended: How to Apply for Biden’s Student Loan Forgiveness

When Will the Loan Forgiveness Application Be Available?

The application for one-time federal student loan forgiveness went live online on Oct. 17, 2022. After you apply, the DOE will determine your eligibility and will contact you if they need more information. Your loan servicer will notify you when your relief has been processed.

Nearly 8 million borrowers may be eligible to receive relief without applying for it because the DOE already has their income information. But if you are uncertain whether you fall into that group, it’s recommended that you fill out the application.

Qualified borrowers whose repayments are set to resume or start in 2023 are advised to apply without delay in order to receive relief before the pause on all federal loan payments expires after Dec. 31, 2022.

Which Federal Student Loans Are Eligible for Forgiveness?

Subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans held by the Department of Education (ED) are eligible for forgiveness programs. The following specific types of federal student loans with an outstanding balance as of June 30, 2022, also qualify for relief:

•   William D. Ford Federal Direct Loan (Direct Loan) Program loans

•   Federal Family Education Loan (FFEL) Program loans held by ED or in default at a guaranty agency

•   Federal Perkins Loan Program loans held by ED

•   Defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, and graduate PLUS; and Perkins loans held by ED)

Consolidation loans are also eligible for relief, as long as all of the underlying loans that were consolidated were ED-held loans and were disbursed on or before June 30, 2022.

Additionally, consolidation loans comprised of any FFEL or Perkins loans not held by ED are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022, says the FSA website.

What About Private Student Loans?

Private (non-federal) loans are not eligible for Biden’s debt relief. Also, if you consolidated federal loans into a private loan, the consolidated private loan is not eligible for debt relief. Once you refinance, you cannot apply for any of Biden’s forgiveness programs for that loan.

Will the Canceled Student Loan Debt be Taxable?

One-time student loan debt relief won’t be taxed at the federal level. Some states may be taxing this debt relief, however, so check with your state of residence for the latest information.

The FSA site said, “If you would like to opt out of debt relief for any reason — including because you are concerned about a state tax liability — contact your loan servicer by phone or email and tell them that you don’t want to receive one-time student loan debt relief.”

Recommended: What Biden’s Student Loan Debt Relief Means for Your Taxes

Is Federal Student Loan Relief a Certainty?

Biden’s debt relief plan may face obstacles. The burden placed on students by their large loans has been a burning controversy for years. Some 43 million Americans are paying down their student loans. The average student debt per person is over $37,000, with half of all student borrowers still owing $20,000 more than 20 years after they entered school.

When President Biden announced his student loan relief plan in August, he said, “In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023.”

Biden has emphasized that the debt relief targets low- and middle-income families.

Nonetheless, the relief plan has met with opposition. Some say it will worsen inflation, others believe that Biden does not have the authority for a debt cancellation. And there are those who say that debt relief is unfair to people who made personal sacrifices to pay off their loans without government forgiveness.

Several lawsuits have been filed to try to halt the one-time debt cancellation. As of October 12, none had succeeded in stopping Biden’s relief plan.

Recommended: What You Need to Know About the Challenges to Biden’s Student Loan Forgiveness

The Takeaway

Current students are eligible for President Biden’s one-time student loan debt forgiveness of up to $20,000 if their federal loans were disbursed before June 30, 2022, and if income criteria is met. If the student is a dependent, the annual income the FSA will be looking at is that of the parents, not the student. That income can’t exceed $125,000 for a single parent or $250,000 for the household.

3 Student Loan Tips

  1. Can’t cover your school bills? If you’ve exhausted all federal aid options, private student loans can fill gaps in need, up to the school’s cost of attendance, which includes tuition, books, housing, meals, transportation, and personal expenses.

  2. Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

  3. Even if you don’t think you qualify for financial aid, you should fill out the FAFSA form. Many schools require it for merit-based scholarships, too. You can submit it as early as Oct. 1.

Recommended: FAFSA Guide

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How old do student loans have to be to qualify for Biden’s forgiveness plan?

Federal student loans received by a student before June 30, 2022 will be eligible for one-time relief as long as the income requirement for eligibility is met.

How long do I have to apply for debt relief?

Once the application is live, you’ll have until December 31, 2023, to submit your application for student loan debt relief.

Photo credit: iStock/Drazen Zigic


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

In our efforts to bring you the latest updates on things that might impact your financial life, we may occasionally enter the political fray, covering candidates, bills, laws and more. Please note: SoFi does not endorse or take official positions on any candidates and the bills they may be sponsoring or proposing. We may occasionally support legislation that we believe would be beneficial to our members, and will make sure to call it out when we do. Our reporting otherwise is for informational purposes only, and shouldn’t be construed as an endorsement.

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Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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