Biden and Student Loans: Cancellation and The Final Payment Extension(?)

Big long-hinted-at news in the world of student loans this week. Please peruse the Biden Student Loan Fact Sheet. The Official FAQ is short and very readable.

Here are some highlights:

Student Loan Pause

  • Payment pause extended “one final time” through Dec 31, 2022. This is again a massive benefit to current borrowers and especially those going for PSLF. For example, each month of $0 payments that qualify is often a four-figure subsidy to an attending physician.

Debt Cancellation

  • Up to $20,000 in debt cancellation to Pell Grant recipients and up to $10,000 in debt cancellation to non-Pell Grant recipients. Pell Grants are for undergraduate loans only, so most young physicians will be in the second camp.
  • To be eligible for cancellation, your annual income must be below $125,000 (for individuals) or $250,000 (for married couples or heads of households). It is unclear how exactly they will define and what they will be using to verify income at this time (probably AGI from last tax return?), or for example, if people utilizing the married filing separately loophole to reduce IDR payments may finagle some free money (e.g. the resident married to an attending loophole; I suspect not).
  • Current students are eligible for this relief. If you are a dependent for tax purposes, then it’s your parents income that will be used.
  • The process should be automatic for many folks, but some may need to apply. If you’d like to be notified about news, sign up for the DOE’s “Federal Student Loan Borrower Updates” here.

This is obviously a one-sided easy-to-deploy benefit to borrowers that does nothing to address the underlying program of skyrocketing tuition. There has been an incredible amount of hand-wringing and teeth-gnashing about this on the internet. The irony of most of that discussion, particularly those against forgiveness, is that the government subsidizes and gives money to a variety of citizens for a variety of things (owning a home, having children, investing in long-held assets). There is no neutrality to any status quo either. People pick and choose where to aim their indignation on a daily basis but often do so in an isolated out-of-context fashion. Mostly, people respond to every event in the predictable ways of their camp.

So, this is the functional equivalent of a big tax cut for mostly young, mostly college-educated (or often college-attempted) Americans. Now, politically that camp pretty firmly supports democrats, so trying to appeal to that already strong base may not be a very savvy move in the current political climate, and it may not be very well-timed given the current inflation issues, but it’s not as though we haven’t injected money into the economy through similar (or even probably less effective) means before. It just so happens that this is targeted to have a clear disproportionate impact on a smaller subset of Americans than, say, the tax cuts of the Bush and Trump eras (which had a substantial disproportionate benefit for wealthy Americans but was perhaps less obvious to a casual observer).

Everything is political, and this is no exception.


  • The application for the temporary PSLF expansion expires on October 31, 2022. See the White House page here.
  • Again, this was designed to temporarily remove some of the fine-detail barriers to achieving PSLF by allowing past payments using the wrong payment plan (e.g. extended, graduated) or ineligible loan type (e.g. Perkins, FFEL) to count.
  • You don’t need to have fully earned forgiveness to benefit from this program, this is to codify credit for past payments.
  • This is mostly a boon for older borrowers (i.e. mostly people who started school before 2009).

The New Payment Plan

  • A light-on-details proposed (not final) plan to further reduce payments on undergraduate loans to 5% and fully cover unpaid monthly interest for everyone.
  • For borrowers with original loan balances of $12,000 or less, IDR-based forgiveness after 10 years. Currently, for undergraduate borrowers in PAYE, that’s 10% and 20 years.
  • Raise the discretionary income floor so that more people will have $0 payments.

If you’ll notice, the generous forgiveness terms in this setting are on very small loan amounts. The goal here is in large part to make local education, and specifically community college, affordable for all Americans such that low-income families will have small or no monthly payments and then forgiveness after 10 years. This will, again, not really do much to deal with students borrowing for more expensive schools (except potentially make long-term loan forgiveness more attractive thanks to low monthly payments and a smaller tax-bomb thanks to a better interest subsidy).

As in, this would have a relatively small impact for most doctors except for preventing negative amortization during residency (effectively lowering your interest rate and making private refinance during training less competitive). One clever possible benefit would be to waive the in-school deferment and enter repayment for undergraduate loans while in medical school to enjoy $0 payments and 0% interest via IDR, effectively granting you subsidized loans in a world where many loans have been unsubsidized.


CuriousMedStudent 09.01.22 Reply

Wait, wait. You’re telling me that I could have gotten my undergraduate loans out if in-school deferment for the last two years and gotten those $0 payments to count towards my 120 qualifying payments for PSLF?

And I can still do this until Dec 2022?

I think I’m not understanding something correctly

Ben 09.01.22 Reply

Unless you are full time employed in a qualifying job while also a medical student, then no those payments would not count for PSLF.

Stuart Ramsell 09.10.22 Reply

So just to be clear, the interest being forgiven on loans that are being paid the minimum IBR monthly is only for undergrad loans? Not for med school loans being paid on during residency?

Ben 09.10.22 Reply

Currently no that is not how any of the current plans are structured. The current interest pause applies to all federal loans. The unpaid interest subsidy offered as part of the REPAYE plan is also for all federal loans.

The more generous forgiveness proposed as part of a yet unnamed plan would be for undergraduate loans but the unpaid interest subsidy is phrased generally so would presumably apply to everyone. None of that is finalized at this time, and so it’s probably not worth putting much stock in yet.

Even if they were to get rid of every other plan going forward in the future, you also wouldn’t be forced to use the new plan if it included provisions less favorable to doctors. If you are currently a student or graduate, you will have access to at least all of the currently available plans.

Other Ben 09.12.22

It’s so early that maybe it’s not worth even debating about, but it seems that the new IDR would include all borrowers, not just undergrads. I believe this is the correct interpretation because in other parts they specify differences between undergrad and grad loans, where in the new IDR plan they say “no borrower” will have unpaid interest added.

As someone who is probably going to pay back my (300ish) loans regardless, this is pretty huge.

Ben 09.12.22

I agree it’s all early and vague enough to be hard to really plan for. It’s not uncommon for the good stuff to get curtailed or counterbalanced in some way in the final plan (like closing the tax filing status loopholes for REPAYE). We’ll see.

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