After months of deliberation around student loan debt forgiveness, President Biden has announced today that he will cancel up to $10,000 in student loan debts for individual borrowers earning up to $125,000, and for joint borrowers earning up to $250,000.
The president also said that he’ll be extending the pandemic-era payment pause until Dec. 31. The pause has been in place since March 2020, and until today’s announcement, was set to expire on Aug. 31.
Additionally, borrowers who received a Pell Grant for college could be eligible for up to $20,000 in student loan debt forgiveness. And those with outstanding undergraduate student loans will be able to cap their repayment plans at 5% of their monthly income, a change from 10%.
“In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023,” the president said on Twitter.
Women make up the majority of student-debt holders
The plan’s tent poles are aimed at providing debt relief to the 45 million of Americans with outstanding student loans, 67% of whom are under age 40. But the majority of student debt (about two-thirds) is held by women.
For many families, even before the pandemic, the burden of monthly student loan payments on top of ever-increasing childcare costs has been too much to bear. "We can either continue to live comfortably, or we can live on a shoestring budget because of the student loans,” Tasha Kaminsky, a mother in St. Louis, told MSNBC. For moms, the loan forgiveness may offer some much-needed relief, especially with the new income-driven repayment plan's monthly caps, which will hopefully lower monthly payments for many.
The $10,000 in student debt cancellation is expected to provide some form of relief to 90% of borrowers earning $75,000 or less, the administration says. A study by economists at the New York Federal Reserve found that $10,000 in forgiveness could completely eliminate the loan balance for 11.8 million borrowers.
Critics of Biden’s plan state that the forgiveness will continue to increase inflation, but White House advisers assure that the effects on inflation are likely to be negligible, given that the forgiveness comes with an income cap and loan payments are now set to resume in the new year.
Instead, the plan intends to help ease the transition back to repayment and prevent any unnecessary defaults.
Here’s what you need to know about Biden’s new debt relief plan
The Biden administration has outlined the following details:
- The payment pause extension will occur automatically. You won’t need to take any action to get this benefit.
- To know if you’re eligible for debt relief, you must meet the following criteria:
- To be eligible, your annual income must have fallen below $125,000 (for individuals) or $250,000 (for married couples or heads of households)
- If you received a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt cancellation.
- If you did not receive a Pell Grant in college and meet the income threshold, you will be eligible for up to $10,000 in debt cancellation.
- Debt relief may also occur automatically. For many borrowers, your income data is already on file with the U.S. Department of Education. If you’re not sure if your income information is currently on file, an application will launch in the coming weeks that you can use to send in your income information. You can sign up for an alert for when the application opens up here.
- Debt relief is capped at your outstanding debt. For example, if you’re eligible for $20,000 in debt relief, but have a balance of $15,000 remaining, you will only receive $15,000 in relief.
- There’s still time to apply to the Public Service Loan Forgiveness Program. Recent changes from the Biden administration provide more flexibility for eligible borrowers, but these changes expire on Oct. 31.
- New income-driven repayment plan changes can lower your monthly payment. Until recently, the payment plans were capped at no more than 10% of your discretionary monthly income, but now, the cap has been lowered to 5%. Now, for borrowers who have made 10 years of payments under the income-driven repayment plan (as opposed to the former 20 years) and have loan balances of $12,000 or less, their loans may be forgiven. Additionally, the new rule will cover the borrower’s unpaid monthly interest, assuring that the loan balance will not continue to grow as long as monthly payments are made, even when that monthly payment is $0 because their income is low.