The Biden administration has announced a Student Loan Debt Relief Plan to lessen the burden of student loans on Americans. The much-anticipated plan has generated a lot of excitement as over 8 million borrowers stand to receive debt forgiveness. But those people also have a lot of questions. Here we break down who is eligible for this relief and what you need to know.
1. The final student loan repayment pause will end on December 31, 2022.
The Biden Administration emphasized that this extension of the pause would be the last one. Student loan borrowers can expect their payments to resume in January 2023. Like the previous pause extensions, you will not have to do anything to extend your student loan pause. You can, of course, continue to make payments through the pause if you prefer to do so.
2. Your future loan payments could look a lot different.
U.S. government student loan lenders will revise their income-driven repayment plans to make student loan repayment more manageable for current and future borrowers. The new rules would require borrowers to pay no more than 5% of their income toward undergraduate student loans, down from the current 10%. The new rules also include stipulations to cover a borrower's unpaid monthly interest. In other words, your loan balance will not increase due to interest as long as you make regular monthly payments.
3. You could have up to $20,000 of student loan debt forgiven.
Pell Grant recipients will receive up to $20,000 in debt cancellation, while other borrowers can receive up to $10,000 in debt cancellation. To be eligible for this debt cancellation, individual borrowers must make less than $125,000 a year - $250,000 a year for households.
4. What do I have to do to receive loan forgiveness?
The vast majority of borrowers will automatically receive relief because the data used to determine eligibility is already accessible to the U.S. Department of Education (DOE). However, to ensure all borrowers are accounted for, the DOE is creating an application that should be available in October. You can visit the DOE webpage to sign up for notifications concerning the availability of this application. Once the application is available, fill it out according to the DOE instructions. You can expect relief within 4-6 weeks from the date you apply. The DOE recommends returning the applications by mid-November to receive the relief by the end of the year and before loan repayments resume.
Student loans make up a significant portion of debt for many Americans, and they cannot be wiped away by bankruptcy. This student debt relief plan is an excellent way to alleviate some of the financial stress for those struggling with student loan debt.