Student loan debt is a major financial burden for millions of Americans. President Joe Biden had put forth a plan to forgive up to $20,000 in student loan debt for as many as 40 million borrowers. But on Friday June 30, the U.S. Supreme Court ruled, 6-3, that the administration did not have that authority.
With the Supreme Court's decision, student loan forgiveness is currently off the table. But for disappointed borrowers who were hoping to see some of their loan balance disappear, there are still some possible options to get debt wiped away.
Here are two of them.
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1. Participate in the Public Service Loan Forgiveness program
There is a program to eliminate student loan debt, but it is available only to qualifying employees who work full time at a nonprofit agency or for the government. It's called the Public Service Loan Forgiveness (PSLF) program.
To take part in PSLF, you'll need to repay your student loans on an income-driven plan and work for an eligible employer. You must make 120 on-time payments, and at the end of that period of time, you will have any remaining loan balance forgiven. This forgiven debt will not be taxable.
The PSLF program was not affected by the Supreme Court's decision on Friday, so you can still take advantage of it to have some debt discharged.
2. Have your debt forgiven under an income-driven plan
You could also have some of your student loan debt forgiven under an income-driven payoff plan. There are four plans to pick from, including Revised Pay as You Earn, Pay as You Earn, Income-Based Repayment, and Income-Contingent Repayment.
If you have federal student loans, you can sign up for any of these income-driven plans that you are eligible for based on income and loan type. You sign up with your student loan servicer, and your payments will be capped at between 10% and 20% of discretionary income depending on the plan you enroll in. After making payments for a period of 20 or 25 years (depending on the plan), any balance left on your loan will be forgiven.
Paying back loans on an income-driven plan can result in some of your loans being wiped away if you don't make a very high income throughout much of your career. Your payments could be as low as $0 in some cases when you are participating in an income-driven plan. When payments don't cover interest charges, or don't make much headway at reducing the principal balance, you could end up paying for the full 20 or 25 years and having debt left over to forgive.
The forgiven debt could be taxable on the state and federal level, however, depending on state rules and whether there is a renewal of current tax-relief legislation that allows borrowers to exclude canceled student loan debt from their income through 2025.
Both the PSLF program and forgiveness under the four income-driven plans are going to help a narrower range of borrowers than the broad forgiveness plan outlined by President Joe Biden. But it is important to be aware that these debt-relief options still exist and to take advantage of them if you are eligible.
