Issue #158: On moonshine and student loan forgiveness

August 31, 2022 • Issue #158

Hi y’all —

Some day, I will tell you about the wildest night I had in college, which involved a house party with an entire student newspaper staff, a Mason jar of moonshine cherries from Arkansas and a press conference about the mysteriously missing flight MH370. 

Until then, though, let’s discuss another college-related topic: student loans.

President Joe Biden caused celebration, consternation and a whole lot of confusion last week when he announced a plan to give millions of Americans up to $20,000 in student loan forgiveness. And then it became apparent that, similar to me on that fateful night in 2014, he didn’t fully think things through.

While messaging from the White House and Education Department clearly spelled out restrictions like income limits and eligible loan types, it also left a lot up in the air. Nobody seems to know much about the timeline for the relief, legality of Biden’s executive order and the specifics of how someone, like, actually claims student loan forgiveness. (Kind of important.)

In service as your Dollar Scholar, I decided to round up answers to frequently asked questions. Here’s what the Biden administration has confirmed so far.

Who's eligible for student loan forgiveness?
Americans with existing federal student loans can qualify for forgiveness if they meet certain income requirements. To be eligible, your pandemic income must be under $125,000 annually ($250,000 if you're a head of household or part of a married couple filing taxes jointly).

If your loans are private or your income exceeds those limits, you don't qualify for student loan forgiveness under this plan.

How much student debt is being forgiven?
It depends. If you meet the income requirements and got a Pell Grant in college, you're eligible to have as much as $20,000 in debt wiped out. If you meet the income requirements but didn't have a Pell Grant, you can get up to $10,000 forgiven.

FYI: Those are the maximum amounts you can get discharged. For example, if you're an eligible Pell Grant recipient who owes $13,000, you can have $13,000 forgiven (the government won't pay you those extra $7,000 or anything, which is a bummer).

What’s up with the Pell Grant thing?
Pell Grants generally go to low-income students with financial need. Raising the forgiveness limit for these students (and former students) is a way for Biden to target additional relief to folks who, as he put it, “typically experience more challenges repaying their debt than other borrowers.”

Can Biden even legally do this?
Good question. The president has long been resistant to the idea of forgiving student loans via executive action, instead saying he preferred to have Congress pass legislation on debt cancellation. (That didn't happen.)

The Education Department published a letter laying out its case for why Secretary Miguel Cardona has the power to discharge student loans. But politicians like Rep. Barry Loudermilk, R-Ga., and Rep. Bob Gibbs, R-Ohio, surfaced "legal concerns" on Twitter. Other critics pointed to remarks by Biden ally Nancy Pelosi, the speaker of the House, who said last week she was excited because she previously "didn't know what authority the president had to do this."

Legal challenges are all but certain. Some pundits predict it could even go to the Supreme Court, putting the timeline in jeopardy.

Wait. Are student loan payments still paused?
Yes. Federally held student loans have been in forbearance since the pandemic began in spring 2020. At the same time he announced forgiveness, Biden confirmed one last extension to the payment pause, making it so student loan payment requirements are set to start again on Jan. 1, 2023.

How long will student loan forgiveness take?
Nobody knows for sure. But on Friday, administration officials said that people with qualifying student loan debt should be able to start applying for forgiveness in early October. Once submitted, the process will take between four and six weeks, according to the Education Department.

The administration is recommending borrowers apply by Nov. 15 so that, in theory, their loans can be forgiven before payments resume next year.

Can I get student loan forgiveness if I'm still in college?
Yes. Borrowers are eligible if they meet the income requirements and their loans were taken out before July 1, according to White House officials.

Will it make inflation worse?
Inflation is at record-high levels right now due in part to the government’s COVID-19 stimulus checks. And people like Sen. Mitt Romney, R-Utah, say they’re worried canceling debt could drive it even higher.

Wiping out millions of folks' loans, however, will likely only have a "small or moderate" impact on inflation, as Adam Looney, an economist and finance professor at the University of Utah, previously told Money. That's because, unlike with the stimulus checks, the relief will be gradual — and easier for the economy to absorb.

How do I get my student loans forgiven?
Right now, there's not much you can do. We don't have any clear directions on the loan forgiveness application process, and as previously mentioned, this whole proposal is probably going to get tied up in the legal system.

To stay updated, sign up to get notifications at StudentAid.gov/debtrelief (and read Money, of course).

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

If you make less than $125,000 a year, you can get up to $20,000 of your federal student loans forgiven in the near future. But the details of how to actually do that are still being worked out.

VIA GIPHY

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RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

Oops? Actor Ryan Reynolds spent $2.75 million on a soccer team without telling his wife, Blake Lively. Reynolds explained on Jimmy Kimmel Live recently that he neglected to loop Lively in when he and Rob McElhenney bought Wrexham A.F.C. “I have bad news and I have really bad news,” Reynolds joked. “The bad news is I slipped into someone’s [direct messages] again. The really bad news is I might have bought half of a fifth-tier national football league in Wales.” Do you want a divorce? Because that’s how you get a divorce.

INTERNET GOLD

five things I'm loving online right now

1	Not to alarm anybody, but sharks can walk now. I repeat, SHARKS CAN WALK NOW.
2	To get our minds off the sharks-can-walk-now thing, let’s read this heartwarming Columbus Dispatch story about a $45 wedding dress that has been working its way through a family, being worn by four different (related) brides between 1958 and 2022. “My mom was sure they would have to let it out for me,” one told the paper. “But it zipped right up, and I have not yet let her forget that.”
3	Honey consumption is at an all-time high, and I feel like it’s this drunk bear’s fault.
4	After devouring the “drivers license” drama — and putting SOUR on repeat, and watching multiple seasons of High School Musical: The Musical: The Series, I’m here to confess I can’t stop listening to Sabrina Carpenter’s new album. Revel in emails i can’t send here.
5	Speaking of drama, the IRS has been in a state of absolute chaos for months now. In the latest, non-firearms-related twist, it’s now sending surprise refunds to 1.6 million taxpayers who got hit with late fees in connection with their 2019 and 2020 taxes.

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

VIA Scholar Buono

Meet Vito, a 116-pound pup seen here eating a marshmallow for the first time. (He isn’t sure how it’s going.) Anyway, Vito doesn’t have any student loans because he skipped pawllege.

Gonna go listen to Asher Roth's "I Love College" on repeat.

See you next week.
 

 
P.S. Do you have student loans — or questions about getting them forgiven by the government? Would you wear your mom's wedding dress? What was the worst hangover you ever had in college? Let me know at julia@money.com or @SuperJulia on Twitter.

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