2023 Update: Student Loan Forgiveness

2023 Update: Student Loan Forgiveness

Student Loan Forgiveness Program Deemed Not Valid by US Supreme Court

Biden Administration to Re-engage on Issue

On Friday June 30, 2023, the Supreme Court ruled that the student loan forgiveness’ plan championed by President Biden and enacted in the HEROES Act is not legal. In Biden v. Nebraska No. 22-506 (S. Ct., 2023), the Court ruled that the Secretary of Education did not have the authority under the HEROES Act to provide a student loan forgiveness program that would have cancelled up to $20,000 in student debt for Pell Grant recipients and up to $10,000 in student debt for other federal borrowers making under $125,000 a year (an estimated $430 billion in total student loan forgiveness). As a result, for now it appears taxpayers must continue to set aside funds and continue to pay off their student loans. Student loan interest accrual will resume on September 1, 2023, and payments will be due October 2023.  The Federal Student Aid website has indicated that invoices will be issued to each student at least 21 days in advance of the payment due date and will provide the payment amount. We have included a link to the Federal Student Aid website as it provides resources and information for taxpayers as they plan for payments to restart.

The Biden Administration has announced new actions to provide debt relief which include a more affordable repayment plan and an alternative path to debt relief. Using the authority under the Higher Education Act, the Secretary of Education is aiming to open alternative paths to debt relief for working- and middle-class borrowers, starting the rulemaking process with July 2023 virtual public hearings. In addition, the Department of Education is finalizing a more affordable repayment plan that may result in some taxpayers being able to forego monthly payments and could result in savings of $1,000 or more per student loan per year. Finally, the Department of Education is finalizing an on-ramp program between October 2023 and September 2024 that will curb the impact of non-payment, slow payment or late payment of student loan amounts during this initial period via removal of delinquent or loan default classifications on the account, removal of reporting to credit agencies and/or debt collection agencies.

On July 14, 2023, the Biden Administration announced that it would be making adjustments to payment accounts for borrowers on income-driven repayment plans to recognize inconsistencies and failures in proper tracking of payments, estimating total relief to be $39 billion in forgiveness.

Keiter will continue to monitor the status of the program and provide updates.

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About the Authors

Brittany Raecke is a Tax Supervisor. She provides high quality tax planning and preparation services to family businesses, executives, and entrepreneurs.

Ann has over 20 years of experience providing tax planning opportunities and insights to operating entities, investment partnerships, trusts and high wealth individuals and families. Ann is a member of Keiter’s Family, Executive, and Entrepreneur Advisory Services team and works closely with individuals and family offices to address their various tax compliance, consulting and estate planning needs.

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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