President Joseph Biden and his administration recently implemented a loan forgiveness plan to eliminate student loan debt for low-income families.
This three-part plan is designed to help working-class and middle-class federal student loan borrowers return to regular payment when pandemic support expires.
Biden and his administration have acknowledged that the Pell Grants are worth far less than they were 50 years ago, further explaining how he hopes to change the way they benefit this country’s economy and education systems.
“Today the Pell Grants cover about 32%. It’s a third of the cost, unlike before. This is important,” Biden said during his August 25. press conference.
95% of borrowers – 43 million people – can benefit from it. Of these 43 million, more than 60% are Pell Grant recipients. That’s 27 million people who will get $20,000 in debt relief.
The first step in the plan is to extend the payment break. The Biden-Harris administration previously extended the student loan repayment pause several times. However, no one with a loan held by the federal government has had to pay a dollar in loan repayments since Biden took office due to the COVID-19 pandemic.
The second step is to provide targeted relief to borrowers. The U.S. Department of Education (DOE) will provide up to $20,000 in debt forgiveness to Pell Grant recipients with DOE-held loans, and “up to” $10,000 in debt forgiveness to recipients not Pel Grant. “Up to” means that a person in debt of $7,000 and meeting the income threshold of $10,000 is eligible to receive assistance of $7,000.
Borrowers are eligible for this relief if their individual income is below $125,000 or $250,000 for households. Nearly 8 million borrowers may be eligible to automatically receive relief because relevant income data is already available to the US Department of Education.
A online application will open in early October. Once a borrower completes the application, they can expect debt cancellation within 4-6 weeks.
As for filing through the university, students are advised to complete an application by November 15. Students have until the end of the year to file, due to the suspension of student loan payments extended until December 31, 2022.
The third and final step is to rebuild the student loan system, making it more manageable for current and future borrowers.
Income-based reimbursement plans have a long history within the US DOE. However, the Biden-Harris administration is proposing a rule to create a new income-focused repayment plan that will dramatically reduce future monthly payments for low- and middle-income borrowers.
A major change concerns the rate at which loans must be repaid. Under the proposed plan, no one will pay more than 5% of their monthly discretionary income to repay undergraduate loans. Biden says this plan will save more than $1,000 a year on average for a borrower, calling it an overall “game changer.”
The Biden-Harris administration is working to quickly implement further changes to student loans. Check back to this page for progress updates. If you want to be the first informed, subscribe email updates of the US Department of Education.