Ask an advisor: Does Biden's new student debt relief plan apply to me?

Ask an advisor: Biden is canceling more student debt. What about mine?

April 17, 2024 5:34 PM

President Joe Biden unveiled a new plan to relieve student debt on April 8, 2024.

Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

Student debt is a lifelong drag on many Americans' finances. Forty-three million U.S. adults owe money on their student loans, according to researchers at the Education Data Initiative. The average balance is $39,981, adding up to a staggering total of $1.73 trillion.

For President Joe Biden, canceling this debt has been an uphill battle. Starting at the beginning of the pandemic, there was a national pause on federal student loan repayments, but that pause expired in August 2023. Separately, Biden signed an executive order forgiving $10,000 in federal student debt per borrower — totaling $430 billion — but the Supreme Court overruled that order in June 2023.

Since then, the Biden administration has rolled out a hodgepodge of smaller, more targeted measures to address this issue.

Then, on April 8, it announced something more sweeping: a plan that it said would provide relief to 37 million borrowers. It includes measures to outright cancel the debts of 4 million Americans, eliminate interest payments for 23 million others and provide at least $5,000 in relief to another 10 million, according to the White House.

But the details of this plan are complex, and some borrowers aren't sure if they're covered. One of those borrowers is an occupational therapist in New York City who's still paying down her loans from graduate school. To get more clarity, she turned to the experts. Here's what she wrote:

Dear advisors,

I owe about $50,000 in student debt. Can Biden's new policy help me?

For eight and a half years, I've been repaying the loans I took out for my graduate school, where I studied occupational therapy. I initially borrowed $60,000, at about 7% interest. Today I'm an occupational therapist at a public school in New York, and I make $94,000 a year.

I know President Biden recently announced a new plan to relieve student debt, but the details are confusing. Can it apply to my case? And if not, what other options are out there?

Sincerely,

Wondering on the West Side

And here's what financial advisors wrote back:

Beware of lawsuits

Andrew Herzog, CFP and associate wealth advisor at

The Watchman Group

in Plano, Texas

If Biden's new policy clears the legal hurdles, it could potentially help with your student loan debt, but these are some of the most important points to remember:

It appears the plan is attempting to eliminate all balance growth for those who owe more than what they originally borrowed (which is not your case: originally borrowing $60,000 and owing $50,000 now), borrowers who entered repayment at least 20 years ago (not you), and those already eligible for specific forgiveness programs (possibly you).

However, all of this might be a moot point if it doesn't pass the legal smell test. For now, you can check out income-driven repayment plans (if you haven't already), like the Saving for a Valuable Education (SAVE) plan, which can help you lower your monthly student loan payment to a more affordable amount. Check out the different IDRs at StudentAid.gov to see if you're eligible. Good luck!

Look into PSLF

Noah Damsky, chartered financial analyst and principal at

Marina Wealth Advisors

in Los Angeles

Your options are still fluid and not final, and can depend on several factors.

Aside from new student loan programs that are in process with the current administration, check out Public Service Loan Forgiveness (PSLF). In less than two years from now, you may qualify for forgiveness of the full student loan balance since you work at a public school. You can check eligibility at www.studentaid.gov, but this may be better than any new program!

Biden's new plan may only forgive unpaid interest, if you're eligible, with a max of $20,000, which probably won't help you nearly as much as PSLF.

If you're eligible for PSLF, think twice about paying down more than minimum on your monthly payments.

Don't get your hopes up

Nicholas Bunio, CFP at

Retirement Wealth Advisors

in Downingtown, Pennsylvania

For borrowers to even be eligible for Biden's policy, they have to be enrolled in one of the Department of Education's income-driven repayment plans. Also, it sounds like each person needs to have under $120,000 of this debt.

I'd caution you to understand that the last plan Biden had for student debt was rejected by the Supreme Court. So his new plan might not go through either. And Biden's new plan sounds like the max that could be canceled is $20,000.

So you still should have a plan in place to pay your debt off and not rely on Biden's debt cancellation plan. In your case, you would still have $30,000 of debt to repay, even if the full $20,000 is canceled.

Explore your options

Ethan Miller, CFP and owner of

Planning for Progress

in Washington, D.C.

With the information you provided and what we currently know, I do not believe you would receive a lot of immediate relief from the recently announced student loan relief program, since much of the recent announcement is focused on borrowers who have been in repayment for 20 or more years or who currently owe more on their loans than they originally borrowed. However, nothing has been finalized, and there are still a lot of uncertainties regarding these plans.

That being said, there are a few steps you can take to maximize your opportunity for student loan forgiveness. The first is to document your work history that would qualify for Public Service Loan Forgiveness. If you are an employee of New York City public schools, this certainly qualifies as an eligible employer. Depending on how long you have been in this position or similar positions in the past, you may have many years of credit toward PSLF already.

You should also make sure you are enrolled in the SAVE income-based repayment plan. This plan will provide the lowest possible monthly payment and provides an interest subsidy so your loan balance does not increase even if your monthly payments are not enough to cover the accrued interest each month.

Moving forward, you should continue to document your qualifying employment. After 120 qualifying payments (payments made while working for a government or nonprofit employer), your loans should be completely forgiven!