There has been lots of talk about student loan forgiveness recently.
But, what is included in Biden’s three-part forgiveness plan and who qualifies for relief?
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Explanation of Biden’s student debt relief plan
President Biden, Vice President Harris, and the U.S. Department of Education have announced a three-part plan for student loan forgiveness. The plan intends to help middle-class borrowers with federal loans transition back into payment after pandemic assistance expires.
This plan includes loan forgiveness up to $20,000. We are still waiting on some clarifying details, but they should be announced in the coming weeks. If you want to be notified when the relief application process officially opens, you can sign up at the Department of Education subscription page. Applications will be open until December 31, 2023.
Biden’s plan for student debt relief is a three-part program:
Part 1: Final extension of the repayment pause
The Trump administration initially implemented the payment pause in March 2020 amid the pandemic. Since then, the Biden administration has extended the pause a few times. Because of this, no one with federal loans has had to make payments since Biden has been in office.
The student loan pause will be extended for a final time through December 31, 2022 and repayment will begin January 2023. This extension will ensure a smooth transition to repayment and prevent unnecessary defaults. Borrowers do not need to take action for this part– the pause will extend automatically.
Part 2: Targeted debt relief for low and middle income families
The U.S. Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients that have loans held by the Department of Education. $10,000 in debt cancellation will be available for non-Pell Grant recipients. Borrowers with an individual income less than $125,000 or households under $250,000 will qualify for a one-time student loan debt relief.
Loan forgiveness is also available for borrowers who are employed by non-profits, the military, or federal, state, Tribal, or local government. Qualified borrowers may be able to have all of their loans forgiven through the Public Service Loan Forgiveness (PSLF) program. This is because of time-limited changes that waive certain eligibility criteria in the PSLF program. These changes will expire on October 31, 2022. Find additional information on eligibility and requirements here.
Part 3: Make the student loan system more manageable
Income-based repayment plans have existed in the US for quite some time. However, a rule is being proposed by the Biden administration that a new income-driven repayment (IDR) plan that will substantially reduce future monthly payments for lower- and middle-income borrowers. This rule would:
- Require borrowers to pay no more than 5% of their discretionary income monthly on undergraduate loans. This a decrease from the 10% available under the most recent income-driven repayment plan.
- Raise the amount of income that is considered non-discretionary income. This will guarantee that no borrower earning under 225% of the federal poverty level will not have to make a monthly payment.
- Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with loan balances of $12,000 or less.
- Cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments. This remains true for people who have a monthly payment of $0 because their income is low.
The administration is working to implement improvements to student loans.
Important dates for forgiveness and repayment
With so much information and repayment/ forgiveness options in the media right now, keeping track of all of the important deadlines can be hard. Here is a list of key dates that borrows should keep in mind:
- October 1, 2022- loan forgiveness application (anticipated release)
- The Education Department is currently developing a formal application that most borrowers will have to submit to request loan forgiveness. Administration officials have said that it will be released in early October. Borrowers will then have one year to apply for student loan forgiveness.
- October 31, 2022- expiration of limited PSLF waiver
- The original rules to qualify for PSLF were strict, but many more people became eligible under he Limited PSLF Waiver. However, the initiative is set to end October 31. Borrowers must take action to get their loans forgiven.
- November 3, 2022- hearing on final approval of borrower defense repayment settlement
- The Biden administration and a class of student loan borrowers are in the process of finalizing a settlement. This is to resolve a lawsuit, Sweet v. Cardona. The lawsuit is in regard to stalled Borrower Defense to Repayment applications. Borrower Defense to Repayment provides for federal student loan forgiveness for borrowers who were misled or defrauded by their schools.
- Under the proposed settlement, Post-Class Applicants will receive decisions on their applications within 36 months of the final approval date.
- November 15, 2022- suggested submission of student loan forgiveness application
- Borrowers will have up to a year to apply for Biden’s student loan forgiveness initiative of up to $20,000. Education Department officials are encouraging borrowers to submit their application before November 15, 2022. Officials are anticipating a processing time of four to six weeks.
- December 31, 2022- end of student loan pause
- The White House and Education Department have characterized this as the “final” extension of the payment pause. Borrowers should anticipate returning to repayment in January.
Important dates in 2023
- January 1, 2023- loan repayments begin and anticipated completion of IDR account adjustment
- The IDR Account Adjustment will provide a one-time, retroactive “fix” through Income-Driven Repayment programs, which allow for loan forgiveness after 20 or 25 years of repayment under an IDR plan.
- Borrowers that have government-held federal student loans do not have to take action. However, borrowers with commercially-held FFEL-program student loans may need direct loan consolidation may to benefit from this one-time relief.
- July 1, 2023- new IDR plan and new PSLF regulations
- In addition to the one-time initiatives, Biden is s also drafting new regulations governing key federal student loan programs to provide more lasting changes.
Who is benefiting most from this relief plan?
President Biden holds the belief that an education after high school should be a ticket to middle-class life. However, for too many, the cost of borrowing for college has become a lifelong burden. During his campaign, Biden promised to provide “families breathing room as they prepare to start re-paying loans after the economic crisis brought on by the pandemic.“
Since 1980, both four-year public and four-year private college has nearly tripled, even after accounting for inflation. However, teh level of Federal support has not kept up. According to an analysis from the Department of Education, the typical undergraduate student with loans now graduates with nearly $25,000 in debt.
This is only exacerbating the federal student loan debt—$1.6 trillion and rising for more than 45 million borrowers. College debt is a significant burden on America’s middle class. Nearly one-third of borrowers have debt but no degree because the cost of attendance is so high. So with Biden’s forgiveness plan, who will really be benefiting? If all borrowers claim the relief they are entitled to:
- Provide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers.
- Target relief funds to low- and middle-income borrowers. Department of Education estimates that, among borrowers who are no longer in school, nearly 90% of relief dollars will go to those earning less than $75,000 a year.
- Help borrowers of all ages
- Advance racial equity
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