The Latest on Student Loan Forgiveness
This article helps employers stay compliant with student loan wage garnishment — and describes how employees can request that their student loans be forgiven.
The Department of Education (ED) announced major changes related to federal student loans. These changes are part of the Biden administration’s student-loan debt plan and will have a huge impact on student-borrowers and their employers.
Below is a snapshot of the new guidelines, along with resources, important dates, and FAQs to help you navigate the new regulations. We also encourage you to familiarize yourself with the new laws and read through the Department of Education’s original announcement.
The payment break
In March 2020, ED announced a pause in federal student loan repayments. Since then, employers have suspended wage withholding for student loan debt. ED extended the suspension to December 31, 2022, so repayment resumed in 2023. After the hiatus, a “restart” initiative was launched, restoring previously defaulted student loans to good shape and halting collection efforts. New orders are placed for loans that are not forgiven and are in default. As a result, employers may not receive new federal student loan garnishment orders until later in 2023 or 2024.
Student Loan Forgiveness and Repayment
The Student Debt Relief Program will forgive many student loans so that some borrowers never resume repayments.
If the borrower’s federal income in 2021 or 2020 was less than $125,000 (individual; or married and filing separately) or $250,000 (head of household; or married and filing jointly), the borrower’s loan would be forgiven. The waiver can be up to $20,000 for Pell Grant recipients or up to $10,000 for non-Pell Grant recipients.
After the suspension expired, the Fresh Start initiative was launched, allowing borrowers to bring previously defaulted student loans back up to current levels.
Student Loans: Additional Information and Resources
To find information and get updates about the Student Debt Relief Program, including who qualifies and how to apply, borrowers can log on (or create an account) to ED’s Federal Student Aid website. Borrowers should also verify that the website includes their current contact information to ensure they receive all communications regarding their student loan debt.
You can also find the application for a waiver on the website of the Federal Student Union.
The application is available in a mobile format as well as in Spanish and includes fraud prevention measures. Some borrowers may be required to provide additional information after submitting their applications.
The Reboot Initiative
The Fresh Start initiative began on January 1, 2023 and will end on December 31, 2023. Among other benefits, the program enables borrowers with defaulted student loans to bring their student loans back up to speed and initiate affordable payments.
You can find the application for the Fresh Start Initiative on the Federal Student Aid website.
Important data
October 2022
ED approved the application for student loan forgiveness. Borrowers may want to fill it out as soon as possible as it takes four to six weeks to process. The application is available for one year.
December 31, 2022
The pause in the repayment of the federal student loan has expired.
January 1, 2023
The Fresh Start initiative began on January 1, 2023 and will run until December 31, 2023. Borrowers must apply for a Fresh Start when the Department of Education releases the application.
December 31, 2023
This is the final day to apply for student loan forgiveness. It’s also the last day to apply for the Fresh Start initiative.
frequently asked Questions
Q: Will all previous student loans be reduced by $20,000 or $10,000?
On a. The amount of the reduction depends on the type of loan and the income of the borrower. Generally, the loan will be forgiven up to $20,000 if the borrower qualifies for a Pell grant, has filed taxes individually, and has less than $125,000 of reported income in 2020 or 2021. The same income levels apply to non-Pell grant recipients, but the maximum award is $10,000.
Q: Can Perkins and Federal Family Education Loans (FFEL) be forgiven?
A: Based on clarifications from ED in September, only Perkins and FFEL loans held by ED and consolidated into the direct loan program prior to September 29, 2022 are eligible.
Q: What are the changes to the refund process?
A: ED is proposing a new income-based repayment plan that protects lower-income borrowers (by lowering repayment limits from 10% to 5% of income). Visit the Federal Student Aid website for details and updates.
Q: When the pause expires and loan payments resume, will employers receive new withholding orders?
A: ED advises that it will issue new garnishment orders for student loans that default again.
Q: If a borrower owes $40,000 and is eligible for $10,000 forgiveness, does the borrower still owe $30,000?
A: Yes, but these borrowers are still eligible for the Fresh Start Initiative.
Q: If a borrower owes $8,000 and is eligible for $10,000 forgiveness, is the debt fully paid off?
A: Yes, this forgiveness will pay the debt.
Q: What is the forgiveness application process?
A: The ED automatically forgives the debt when a borrower’s information is on file. If the borrower’s information is not on file, the borrower must apply for forgiveness and provide the requested information. For security, all borrowers can apply regardless of whether their information is on file with ED or not.
Q: How long does the process take?
A: Borrowers have a full year to apply, but are encouraged to apply as soon as possible. Once an application is submitted, ED expects the process to take four to six weeks.
Q: Will the amount waived be taxed?
A: The federal government does not consider the forgiveness part of a borrower’s federal income. (The American Rescue Plan Act of 2021 specifically exempts student debt relief granted between 2021 and 2025.) State laws vary, so borrowers should check the requirements of the state where they filed their income taxes.
Q: Who does a borrower call if they have questions about the Fresh Start Initiative?
A: Borrowers can find out more on the Federal Student Aid website. You can also email ED’s Default Resolution Group or call 1-800-621-3115. (Deaf or hard of hearing borrowers should call 1-877-825-9923.)
Q: Can a borrower opt out of student debt relief?
A: Yes.
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