In lieu of Sorta Random Sunday this week, I wanted to address the new Biden administration student debt plan that was announced 8/24/22. This is obviously a major announcement that many of us have been anticipating.
So I would like to review what it includes and its impact on all of us.
What is included in the new Biden student debt plan?
- If you have Pell Grants, you can have up to $20,000 forgiven
- For those without Pell Grants (the majority), you can have up to $10,000 forgiven
- Forgiveness only applies to those with an annual income of less than $125,000 ($250,000 for partners married filing jointly)
- The 0% federal loan forbearance is extended one last time to 12/31/22
- Finally, undergraduate loan payments can be capped at 5% of monthly income
What does this mean for us?
Unfortunately for the overwhelming majority of physicians, the new Biden student debt plan will not have a major effect.
In terms of actual forgiveness, few physicians will see the $10 or $20k come off of their loans based on the income limit. And honestly this like would not have a major impact for many of us with much higher debt burdens.
The extended student loan pause will continue to help us for federal loans however. I selfishly would love for the pause to be extended even further. However, having a final deadline gives us the clarity necessary to adjust our student loan payback plans.
For many of us this will include refinancing our debt assuming we can receive rates better than the current loans.
Lastly, in terms of the potential cap for undergraduate debt, this is the least clear of the announcements.
Regardless, as high income earners, most of us would still have a high cap amount at 5% of monthly income. And the cap will many times be higher than the actual payments. So this is less likely to impact us as well.
Related Post:
33 Medical School Debt Statistics That All Physicians Need to Know
How does the Biden student debt plan affect my debt payoff plan?
This pause has allowed many of us like myself to invest money that otherwise would have been earmarked for loan payments.
When this last forbearance period ends, that money will go back to paying off my loans and assuming the guaranteed return that entails.
Other than that, my plan described here remains largely unchanged.
Watch Jordan’s Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!
Should you change anything based on the new Biden student debt plan?
In most cases, the simple answer is no.
I’ve heard some wondering if spouses should being filing taxes as married filing separately if one has a lower income. I don’t think this is worth it, along with the lost tax advantages, for this level of forgiveness. You can learn more about my tax plan here.
Related Post:
5 Important Tax Tips for Physicians
My thoughts are:
If you are pursuing Public Service Loan Forgiveness (PSLF), continue to do so. Make your qualifying payments once the forbearance ends until you reach 10 years and receive your forgiveness. In my opinion, this program is not going anywhere.
Remember, those with long residency programs and/or low income:debt ratios are best served with the PSLF program.
For those who don’t work for qualifying institutions, have shorter training periods, or high income:debt ratios, paying off your loans aggressively with a goal of becoming debt free is still the best plan in my book.
If you are not pursuing PSLF, explore refinancing your loans before the forbearance ends to look for a better rate. But remember, if you are exploring PSLF, do NOT refinance your federal loans.
One last thought…
I don’t want to wade into a firestorm but I do want to address this. There is a lot of vitriol from many people about this loan forgiveness. The majority comes from people who have already paid off their loans.
The source of anger seems to be the thought that forgiving others’ loans is unfair to those who have already paid loans back. I must admit that I do not understand this.
I don’t qualify for any forgiveness. I’ve also paid back a lot of my loans already. And I am very happy for those, including some in my family, who do qualify for forgiveness. Why would I not be happy for all these people?
To me, it would be like getting mad at someone for having bariatric surgery when you led a healthy lifestyle your whole life. You paid off your loans, which is great for your financial health. Congrats! Others however may still need help for various reasons…so be it.
That is just my take…
The final take
In the end, the most pervasive impact of the new Biden student debt plan will be the extended forbearance for most physicians.
We are unlikely to see any forgiveness and the cap on undergraduate loans won’t help much; both because of our high income.
In any event, use this announcement as an opportunity to review your student loan repayment plan to get everything in order.
Remember, each dollar that you pay off your debt is a dollar that your net worth increases immediately! Paying off my debt has been a huge part in my net worth reversal from negative to positive!
Here are some additional resources:
- Net Worth and Wealth Are Different: Does It Matter?
- How Much Is Enough Retirement Savings?
- Debunking the Myth of the Doctor Car!
- 3 Keys to Overcome the Financial Plateau of Latent Potential
What do you think? What did you think of the new Biden student debt plan? Will your repayment plan change at all? Let me know in the comments below!
Hi Jordan,
Thank you for the article and breaking it down. My wife and I are both physicians and we both buckled down and did without to pay off our very high student loan debt from medical school. And yes, we are upset that ANYONE is having their loans forgiven. We are all adults and have to live with our decisions. Your bariatric surgery analogy doesn’t make sense to me. I wouldn’t get mad that someone has bariatric surgery when I’ve led a healthy lifestyle, but I would be upset if I was forced to pay for it, which is the situation with this immoral program. Forcing citizens to pay for someone’s debt is wrong!
Thanks for reading David! I definitely understand that opinion and don’t begrudge it despite not agreeing with it. Some have estimated a $2,100 tax increase for each American to pay for the forgiveness but this would require laws altering the federal tax code and are estimated without considering the progressive nature of the tax code. Most importantly however, the method of paying for this forgiveness has not been determined yet and could be addressed by spending cuts, borrowing or taxation.
In the end my opinion is that I am ok with it for the greater good. But that doesn’t mean I’m right…I’m not sure anyone is
The Universities that gouged students in the first place are the ones who should be required to pay back the loans, as well as to reimburse the many people who endured indentured servitude for many years to pay their outrageous student debts.
I agree that until the systems that created these circumstances change, they are bound to repeat themselves
Where is the “greater good” in the US taxpayer taking on the debt of others? It teaches the others to be irresponsible and delinquent (which they’ve already been in not making payments for two years).
If you believe what you stated that’s it’s financially beneficial to get out of debt (and it certainly is), then encourage people to take charge of their money and spending and get “Debt Free”(Dave Ramsey)!!
Are the two mutually exclusive?
Agree completely. Student loan forgiveness of $10K is a political ploy to a populous that votes for you. What about all the blue collar workers who used a loan to get a pickup truck to be able to attend their job/start their business? Now all of us are on the hook to pay for a loan that select individuals signed for, and promised to pay back. The timing of this bill couldn’t be worse…Now is the time to be tightening our belts and making good financial decisions, rather than worsening the economy through increasing spending.
-were there studies conducted that increasing everyone’s tax burden to decrease a select fews debts by 10k was beneficial?
-was there any regard to the state of the economy?
-how did we come up with 10k? Is that a helpful number?
– the point is we have to ask ourselves: why this and why now? And the only answer I can think of is: to remain in power.
I can’t believe a more selfish and inappropriate way of looking at the loan forgiveness.
A loan is a contract that people engage with duty to repay it, with the hope that the investment will pay off. Is no different than any business loan with one big difference which is that many of the business fail and the owner has to start again and again while in the college they have assured (almost) a certificate that will guarantee a higher income or position with not close to the risk.
Is irresponsible to benefit college graduates as a special privilege at the expense of many people that sacrificed much more and that now have to pay the half trillion dollar that the “forgiveness” will cost.
I have difficulty reconciling that
I will refer to my previous comment and respect your differing opinion. A strong argument can be made that these loans are predatory in nature…would you loan did figures to a 17 year old with no assets?
Then fix the loan system. This is not a reason why the US taxpayers should take on this debt.
This program is purely about Biden using taxpayer money to buy votes for himself. How can’t you see that?