Yesterday, President Biden in a much-anticipated announcement, shared plans to provide large scale debt forgiveness that will eliminate the federal student loan balances of nearly 20 million Americans with almost 90% of the benefit going to individuals with incomes under $75,000. This is the single largest student debt forgiveness ever undertaken and will impact 43 million Americans, reducing the burden of student debt on low- and middle-income households across the country. In addition to debt forgiveness, the Student Loan Payment Pause was also extended and a new Income Driven Repayment Plan was announced. Read below for more details.
Student Loan Forgiveness Overview
The central part of this new plan is to forgive student loan debt for millions of borrowers. This debt forgiveness includes:
- $10,000 in student debt forgiveness for all student loan borrowers with an individual income under $125,000 ($250,000 for married couples).
- $20,000 in student debt forgiveness for student loan borrowers who received a Pell Grant. The same income limits apply.
Source: FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most
What About Current Students?
All federal student loans that were taken out prior to June 30, 2022 will be eligible for forgiveness. Current students who have federal student loans prior to this date are eligible for the loan forgiveness. The impact of this cannot be understated and will ensure that millions of community and technical college students can have the opportunity to graduate with little to no student loan debt.
Estimated Impacts of Loan Forgiveness
- Up to 43 million student loan borrowers will be impacted.
- Up to 20 million people will have their loans fully forgiven.
- 87% of debt forgiveness will go to borrowers making less than $75,000. 13% will go to borrowers with incomes between $75,000 and $125,000.
- Current students will be eligible to have loans prior to June 30, 2022 forgiven, significantly reducing the burden of student debt and high tuition on millions of two-year college graduates.
- This will have major impacts on racial equity with about half of Latino student loan holders, and 1 in 4 black student loan holders, seeing their debt complete forgiven.
How Do I Access Student Loan Forgiveness?
The Department of Education is currently working on launching an application for individuals to complete to receive debt forgiveness. The application will be available before the pause on federal student loan repayments ends on December 31st.Approximately 8 million student loan borrowers will also automatically receive the debt forgiveness due to their information already being up to date with the Department of Education.
The Department of Education has encouraged individuals to go to https://www.ed.gov/subscriptions and sign up for updates on Federal Student Loan Borrower Updates in order to get further notification on when the application will become available. Borrowers should also update their contact information with their student loan servicer's.
Student Loan Payment Pause Extended
In addition to the announced loan forgiveness, the student loan payment pause has been extended one final time to December 31, 2022, providing borrowers continuing relief from payments and interest accrual. It is likely that this may be the final extension of the payment pause.
New Income Driven Repayment Plan
In order to ensure that the burden of student loan payments is reduced on borrower going forward, the Department of Education will also be implementing a new Income Driven Repayment Plan. Under this new plan, borrowers will see their monthly payments significantly reduced. Under this new plan:
- Borrowers will pay no more than 5% of their discretionary income monthly on undergraduate student
- loans, rather than the current 10%.
- The amount of income considered non-discretionary and protected from repayment will increase. No borrower earning under 225% of the federal poverty level annually – equivalent to a $15 minimum wage job - will have to make a monthly payment.
- Loan balances of less than $12,000 will be forgiven after 10 years of repayment, rather than 20 years.
- Unpaid interest will be covered so that a loan balance will not increase while borrowers are making their monthly payments.
See the graphic below for examples of how this will impact borrowers:
Source: FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most
College Accountability Plans
In order to help prevent colleges and universities from putting millions of borrowers back into a position of being crushed by student debt, the Biden Administration announced increased accountability of colleges and universities that burden students with significant debt and poor outcomes. The Department of Education will be launching an annual watch list of programs and colleges with the worst debt levels in the country. Colleges and universities will also be asked to submit improvement plans on how they will lower student debt levels. As we move forward, improving accountability of colleges and universities for runaway tuition costs and poor graduation rates will be critical to ensuring that the student debt crisis does not continue. With the major spotlight debt forgiveness shines on the issues of college affordability colleges and universities can expect increased efforts from the White House, legislators, and student advocates to hold colleges accountable.
To read more about the details of the student loan forgiveness plan, new income driven repayment plan, or extended payment pause please visit these links:
FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most
New York Times FAQ: What You Need To Know About Biden's Student Loan Forgiveness Plan