Borrowers with outstanding student loan debt may get some financial relief by the end of the year.
On Aug. 24, President Joe Biden announced plans to move forward with his campaign promise of student loan forgiveness and reform, including canceling $10,000 to $20,000 of federally backed student loans per eligible borrower.
According to a fact sheet released by the White House, Biden’s new plan includes three parts to revise the current student loan system. It will provide debt relief for middle and low-income households, make the system more manageable for current and future borrowers and reduce the cost of college for prospective students.
The release stated that the Department of Education would forgive $10,000 of federal student loans for borrowers making under $125,000 per year as an individual or under $250,000 per year for couples. In addition, students who have received a Pell Grant may have up to $20,000 of their loans forgiven.
Current students with active loans are eligible for this debt relief. However, eligibility for dependent students will be based on parental income instead of their own.
The Department of Education estimates that 90% of the allotted funds will be given to borrowers making under $75,000 per year, completely erasing student loan debt for “roughly 20 million borrowers.”
Biden said he would extend the pause on all federal student loan repayments one final time through Dec. 31, 2022. The White House said they would create a “simple application process” for student loan forgiveness no later than the end of the year.
Aside from forgiving student loans, Biden’s plan aims to revise the current repayment system to an income-driven program that protects low-income borrowers. According to the release, the new plan places a cap on monthly payments to 5% of the borrower’s discretionary income (money left over after all necessities are paid) for undergraduate loans.
Also included in the plan is a revamping of the Public Service Loan Forgiveness program, allowing “borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government [to] receive appropriate credit toward loan forgiveness.”
Currently, the program states that those who have worked in public service for more than 10 years are eligible to have all their student loan debt forgiven. The release vaguely discussed changes to the PSLF program that would give some loan forgiveness credit to public service employees who have served less than 10 years.
According to the HEROES act enacted after 9/11, the Education Secretary has the power to grant relief for student loans during times of war or national emergency. Possibly anticipating pushback, the Biden administration released a memo before the announcement explaining the secretary’s legal authority to cancel the debt because of the national crisis caused by the pandemic.
Photo by Al Drago, courtesy of nytimes.com.