Student loans have long been on the minds of many public sector employees, and recent developments coming out the federal government may change the way many public employees interact with their loans. The activity around student loans includes widespread limited debt forgiveness, changes to repayment plans for current and future loans, and changes to the Public Service Loan Forgiveness (PSLF) program. Cities should let their employees know about these opportunities and what they could mean for reducing their student loan debts.

In late August, President Biden announced a plan to offer limited student loan forgiveness and other student loan reforms. The most widely publicized part of this plan is for one-time limited debt forgiveness of up to $10,000 for most federal loan recipients, and up to $20,000 for recipients of Pell Grants (Pell Grants are additional student aid available to low-income families). To be eligible for debt forgiveness, individuals must have an income of less than $125,000, or less than $250,000 for married couples filing taxes jointly. The Administration has said that student debt forgiveness under the plan will not be subject to federal income taxes, though several states have said they will consider forgiveness to be taxable income for their own state income taxes.

The student debt plan also includes several other aspects that are likely to be of interest to public employees with student loans:

• The pause on federal student loan repayments will be extended one final time through December 31, 2022.
• A proposed new income-driven repayment plan for borrowers that:
  • Caps undergraduate loan payments at 5% of discretionary income (down from 10%). The threshold for “non-discretionary income” is raised to 225% of the federal poverty level (up from 150%)
  • Covers the borrower’s unpaid monthly interest to prevent the borrower’s loan balance from growing
  • Forgives remaining loan balances after 10 years of payments (down from 20 years) for borrowers with a loan balance of $12,000 or less.
• A proposed rule regarding PSLF that builds on the current temporary waiver that would give additional credit towards loan forgiveness for borrowers working at nonprofits, military, public employer (like local governments).
• Various actions to prevent steep college cost increases for current and future students, including greater enforcement for for-profit college accreditation, publishing a list of colleges with high student debt levels, and requesting institutional improvement plans from colleges to outline how they plan to prevent students from incurring high debt levels.

The Biden Administration estimates that the limited loan forgiveness program will provide debt relief to 43 million student loan borrowers, including wiping out the remaining debt for around 20 million borrowers. They estimate that 90% of the relief will go to borrowers making less than $75,000 per year across a wide range of ages (21% of eligible borrowers are age 25 and under, 44% age 26-39, 35% age 40+). The Administration argues their actions on student debt will help free up middle class borrowers to buy homes, start families, save for retirement, and start new businesses. 45 million student loan borrowers currently owe a cumulative $1.6 trillion in federal student loan debt.

In late September and early October, several lawsuits were filed against the Administration’s debt relief plan, including from seven states with Republican attorney’s general, arguing that the plan exceeds executive authority under the current law and lowers the states’ competitiveness for job candidates. It is not yet clear whether the legal challenges will be heard by the Courts in time to delay the program, or if they will be dismissed for lack of standing. If the debt forgiveness plan is delayed, it is possible the Administration will consider extending the student loan repayment pause until after the issue has been decided.

The Administration expects the application for one-time debt relief under the new debt relief plan to go live in October. While the application is not yet live, the Administration has shared a pdf copy of what the application will look like. City employees can sign up here for updates on when the application will be available. Borrowers are encouraged to apply for debt relief by mid-November, so that their relief can be processed prior to repayments restarting January 1.

Importantly for public employees, this news comes on the heels of the U.S. Department of Education’s temporary waiver for the PSLF program. We wrote more about that change here. The temporary waiver allows public employees get additional credit towards their 10-year loan forgiveness plan by allowing certain payments that employees previously made (that previously didn’t count towards PSLF) to retroactively count towards PSLF. The temporary waiver expires October 31 so public employees should act soon to make sure they get their additional credit for PSLF. The Department of Education encourages public employees take advantage of both the temporary PSLF waiver and the broad student debt forgiveness that outlined above.

You can learn more about how the Department is handling PSLF waivers in this webinar from NLC.

City employees can apply for their additional PSLF credit using the PSLF help tool or filling out the paper form here. You can read more about the submission process from the Dept. of Education here or from the White House here.