President Biden on Wednesday unveiled a comprehensive plan to support the nation’s 43 million federal student loan borrowers. Here’s a look at the who, what, and why of these groundbreaking new initiatives:
The federal student loan payment suspension will remain in effect through December 31, 2022.
To support borrowers struggling to regain their financial footing in a still-unsteady economy, President Biden will extend the moratorium on federal student loan repayment through December 31, 2022.
While this extension is the seventh of its kind since the payment freeze first went into effect under the CARES Act in March 2020 — with the most recent previous deadline fast approaching on August 31, 2022 — the Biden administration is adamant that it will be the last. By the time repayment resumes at the start of the new year, monthly student loan bills will have been suspended for almost three years.
Millions of borrowers are eligible for up to $20,000 in loan forgiveness.
All federal student loan borrowers whose annual income is less than $125,000 (for individual borrowers) or $250,000 (for married borrowers or heads of households) are eligible to receive up to $10,000 in debt forgiveness.
For borrowers who received at least one Pell Grant — a funding program for low-income undergraduate students — the amount forgiven increases to up to $20,000, which applies to debt from all types of federal student loan.
In both scenarios, the amount forgiven is limited to the borrower’s outstanding federal student debt.
But most will need to complete an application first.
If the Dept. of Education doesn’t already have a borrower’s income data, the borrower will need to provide it via a simple application before they can receive forgiveness. This application is anticipated to become available in the coming weeks — borrowers can sign up to receive a notification when it does — and must be completed before December 31, 2022.
Because certain programs like income-based repayment plans require borrowers to share income documentation, the Dept. of Education estimates that it has the data needed to automatically grant forgiveness on file for as many as 8 million borrowers. However, if a borrower is unsure if they’ve already shared their current income information with the Dept. of Education, they should plan to complete an application — just to be safe.
A new, game-changing repayment plan is on the way.
Income-driven repayment (IDR) plans allow borrowers to pay a lower monthly payment — usually totaling 10% of their discretionary income — and have any remaining debt canceled after 20 years of repayment.
President Biden’s announcement includes plans for a new, potentially game-changing (IDR) plan. Under the plan, monthly payments will be equal to just 5% of a borrower’s discretionary income — whereas existing IDR plans typically require borrowers to send 10% of their discretionary income to their debt. The Dept. of Education is changing how it defines discretionary income, too: under their new parameters, borrowers earning less than 225% of the federal poverty level (approximately the total annual income for a single borrower earning a $15 hourly wage) will be exempt from monthly student loan payments.
In addition, this new IDR plan will also slice the number of years a borrower must be enrolled before remaining debt is canceled in half. Once a borrower has been enrolled in the plan for just ten years, up to $12,000 in outstanding debt will be wiped away.
Finally, borrowers won’t pay any interest on their balance while enrolled in this new plan — so long as they remain in good standing with their monthly payments. This is a complete departure from the terms of current IDR plans, under which unpaid debt accrues interest every month.
More improvements are in the works.
While the announcement confirmed that the temporary Public Service Loan Forgiveness waiver (PSLF) will expire as scheduled after October 31, 2022, President Biden pledged to continue improving this historically underutilized and inaccessible relief program. Per his official memo, this includes a proposal to grant credit in perpetuity to borrowers who meet PSLF employment requirements but do not meet other program eligibility criteria.
Of course, the cycle of unmanageable student debt will continue as long as the cost of education continues to rise. To address this, President Biden also announced that he intends to advance plans to double the maximum Pell Grant Award available to low-income students and implement policies that will hold colleges and universities accountable to maintaining reasonable tuition and fees.