What to Know Regarding Biden's Student Loan Forgiveness Plan
President Joe Biden announced a sweeping plan to forgive up to $20,000 in student debt per borrower who took on Federal loans for their undergraduate and graduate educations. This comprises by far the most comprehensive action on the student debt crisis that any public official has taken, though it has drawn criticism from both those on the left for not going far enough and those on the right for being a ploy to “buy” voters. But there are some logistics about the plan that need to be flushed out.
AM I ELIGIBLE FOR STUDENT LOAN DEBT FORGIVENESS?
Biden’s plan says that any single borrower making under $125,000 per year and couples making under $250,000 are eligible for $10,000 of debt forgiveness, or $20,000 if that borrower received a Pell Grant. This applies to federal loans only, not private loans. Officials say that individuals should consult their income from either 2020 or 2021 to determine whether they are eligible for relief.
WILL i NEED TO SUBMIT AN APPLICATION?
The Department of Education (DOE) is releasing an application in early to mid-October that will be available for one year. The DOE recommends submitting applications on or before November 15th so that they can have an accurate estimate on how much debt they will be canceling before student debt repayments continue after December 31, 2022.
WILL THIS BE MONEY I RECEIVE UPFRONT?
No. The Department of Education will determine, via application process, how much debt to cancel per borrower, and that amount will be automatically deducted from your balance. For example, a borrower who is eligible for up to $10,000 of cancellation but only has a $7,000 balance will not receive a $3,000 check for the difference-that money will stay with the DOE.
HOW DOES THIS IMPACT THE STUDENT LOAN DEBT CRISIS?
Over 45 million Americans hold student debt. This plan will cancel some debt for up to 43 million of those people, and cancel remaining balances entirely for 20 million others. 90 percent of eligible beneficiaries make under $75,000 a year, a full $50,000 below the threshold for relief. “All of this means people can start to finally crawl out from under that mountain of debt to get on top of their rent and their utilities, to finally think about buying a home or starting a family or starting a business,” said the President when he delivered remarks on the impact of his plan.
WHAT IF I’VE PAID OFF A SIGNIFICANT AMOUNT OF DEBT THAT CAN NOW BE FORGIVEN?
The DOE has stated that any U.S. borrower who made payments when the COVID-19 pause began on March 13, 2020, can request a refund with their servicer. This only applies to federal loans and not private loans.
WHAT ELSE IS CHANGING?
The DOE is proposing a new income-driven repayment plan, which involves several protections for borrowers, such as capping interest rates and allowing for balance forgiveness after 10 years rather than the current 20-25. The DOE is also consolidating resources to directly pull income information from the borrower’s filed taxes so that borrowers can avoid needing to recertify their income annually. It will also create a watch-list of schools and programs with the worst debt in the nation and pressure schools with high debt to make plans to reduce their outgoing students’ debt.
In short, the landscape of student debt in the United States is about to change. It’s really important to keep an eye on how, because the level of impact this could have on education and the options that people pursue when choosing their college programs could significantly reshape the landscape of the nation.
