Student loan relief explainer for Pennsylvanians: who qualifies and when to apply

The Biden administration soon will roll out the most far-reaching federal student loan relief plan in American history — and borrowers must heed dates to benefit.

In August, the administration announced it would cancel up to $10,000 of student debt for non-Pell Grant recipients and up to $20,000 for Pell Grant recipients. Individual borrowers and married borrowers who make under $125,000 and $250,000, respectively, are eligible for relief.

The White House estimates more than 1.7 million Pennsylvania borrowers are eligible. About 58% of those borrowers — over 980,000 Pennsylvanians — are Pell Grant recipients.

Compared with other states, the Keystone State has the fifth highest number of eligible borrowers.

Here’s what you need to know about the loan relief plan.

When will the application period open?

The application, which will be available online, is anticipated to open in mid-October. Borrowers should receive an email when it becomes available for submission.

Potential applicants also can check the Federal Student Aid website for information.

It isn’t clear if and when the application will close, but the White House says it will take four to six weeks for loan relief to hit borrowers’ accounts.

Because loan payments resume Jan. 1, borrowers are advised to apply for relief by Nov. 15.

Administration backpedals

Not everyone who thought they would receive relief will.

At the end of September, the administration quietly changed its guidelines for older borrowers. Now, borrowers who took out Perkins Loans or Federal Family Education Loans cannot receive one-time relief for these loans.

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The Perkins Loan program ended in 2018, and the Federal Family Education Loan program ended in 2010. More than 2 million borrowers currently hold Perkins Loans, and 4 million still have Federal Family Education Loans.

The administration estimates about 800,000 borrowers are now excluded from some or all relief, according to NPR.

Legal challenges to the plan

Loan relief isn’t in the clear, yet.

Six Republican-led states, a conservative legal group and Arizona Attorney General Mark Brnovich have filed legal challenges to the relief plan. Many conservatives argue that far-reaching federal loan relief could have devastating effects on the economy.

In an August interview with the Tribune-Review, University of Pittsburgh professor Najeeb Shafiq predicted the fate of the loan relief could end up in the hands of the Supreme Court.

“I think there’s a very strong likelihood that this will go up to the Supreme Court,” Shafiq said, “and they will strike this down.”

Cost could be great to taxpayers

As of Oct. 4, the University of Pennsylvania has estimated that loan relief will cost the government $605 billion.

However, depending on evolving details and potential behavioral changes, the plan costs “could exceed $1 trillion,” the university predicts.

Duquesne University professor Antony Davies told the Tribune-Review in August that the federal government has a few ways to handle this cost.

It could spend less money than it would otherwise to make up for the cost. It could raise taxes to cover the payments it would have received from borrowers. Or, it could print more money, which would heighten inflationary problems.

“Any way you slice it, we haven’t forgiven student loans,” Davies said. “We’ve simply shifted them off of students and onto the general public.”

Payments resume in January

Federal student loan payments will resume in January after the government began a cycle of pausing payments because of the pandemic.

Borrowers will be required to pay no more than 5% of their discretionary income monthly on undergraduate loans.

Gov. Tom Wolf has said his administration will not consider student debt relief as taxable income.

This story was edited to reflect that student debt relief will not be taxed in Pennsylvania.