Today, President Biden announced his long-awaited plan to forgive up to $20,000 in federal student loans for millions of borrowers. The President also further extended the pause on federal student loan payments, interest, and collections until the end of the year.
- Borrowers will be able to get up to $20,000 in federal student debt forgiveness, so long as they earn less than $125,000 (individuals) or $250,000 (families) a year.
- The COVID-19 emergency pause on payments, interest, and collections will be extended to December 31.
- The Biden-Harris administration has already approved $32 billion in student loan relief for over 1.6 million U.S. borrowers.
A Three-Part Plan
Targeted Debt Relief
According to Federal Student Aid, borrowers with annual incomes of less than $125,000 (individuals) or $250,000 (families) will be eligible for up to $10,000 in federal student loan forgiveness. An additional $10,000 in student debt relief will be available for recipients of Pell Grants. In both cases, the amount of relief a borrower will receive is capped based on their outstanding debt. For example, a Pell Grant recipient with a debt balance of $19,000 will not receive $1,000 of the $20,000 in relief they are eligible for.
Approximately 8 million people may automatically receive relief due to the United States Department of Education already possessing their relevant income data. For those uncertain whether or not the Education Department has their income data (as well as those who know they do not have it), an application will be launched by the Biden-Harris administration within the coming weeks.
According to the Education Department, nearly one-third of U.S. borrowers owe less than $10,000, while over half owe less than $20,000. Student debt cancellation of $10,000 per borrower was one of Biden's 2020 campaign promises, though an income cap wasn't considered until more recently.
Borrowers who are employed by nonprofits, the military, or federal, state, tribal, or local governments may be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program, thanks to time-limited changes that waive certain eligibility criteria in the PSLF program. These temporary changes expire on Oct. 31, 2022, so enrollments after this date will not be eligible.
The Final Student Loan Forbearance Extension
The Biden-Harris administration has also confirmed part of the President's plan includes an extension of the COVID-19 emergency relief for student loans to Dec. 31, 2022. This decision comes just one week before the pause on payments, interest, and collections was previously set to expire.
The freeze was established as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law by then-President Trump on March 27, 2020. This forbearance was originally set to end Sept 30, 2020, but it was extended six times over the subsequent two years. This final extension will occur automatically and without any action required from borrowers.
Rule for Creating a New Income-Driven Repayment Plan
Finally, a rule is being proposed to create a new income-driven repayment plan. The details of this rule include:
- Requiring borrowers pay no more than 5% of their discretionary income per month on undergraduate loans, instead of the 10% available under the most recent income-driven repayment plan.
- Increasing the amount of income that is considered non-discretionary income, thereby protecting it from repayment.
- Forgiving loan balances after 10 years of payments, instead of 20 years, so long as the loan balances is no more than $12,000.
- Covering a borrower's unpaid monthly interest, ensuring the loan balance won't grow so long as they make their monthly payments, even if the monthly payment is $0.
The Biden-Harris Administration's History of Student Loan Forgiveness
This announcement is part of the Biden-Harris administration’s larger student debt forgiveness efforts. Thus far, $32 billion in education loan relief has already been approved for more than 1.6 million U.S. borrowers, including $13 billion for borrowers who were taken advantage of by the institutions they attended and $9 billion in total and permanent disability discharges.
Ahead of the President's announcement, the Department of Education announced on Tuesday the approval of over $10 billion in debt relief for more than 175,000 borrowers as part of the Public Service Loan Forgiveness (PSLF) program.