Wednesday, August 24, 2022, President Joe Biden announced his long-awaited plan for student loan forgiveness. It was among his campaign promises and an issue that progressives have pressured him on since the earliest days of his presidency.
It is a three-tiered plan focused on working and middle-class borrowers making $125,000 a year or less. The household income limit is $250,000. The first part of the plan is to extend the moratorium on student loan repayment until December 31, 2022. At this time, payments will resume in January of 2023.
The second part of the plan is aimed at student loan borrowers who are at the highest risk of default. Those who received Pell Grants are eligible for up to $20,000 in loan cancellation. Non-Pell recipients are eligible for up to $10,000 in cancellation. The relief is limited to the amount of outstanding debt. If a person is eligible for $20,000 in relief but owes $15,000, the balance due is the amount that will be forgiven.
Using income data, the U.S. Department of Education has determined that nearly 80,000 people will benefit from this program. Borrowers employed by non-profit organizations, the U.S. military, and government entities are still eligible for debt forgiveness through the Public Service Loan Forgiveness (PSLF) Program.
The third part of this plan is to make the student loan system easier to manage. This applies to past, present, and future borrowers. The Biden administration will propose a rule that creates an updated income-based loan repayment plan. The purpose is to reduce future payments for low and middle-income households. The rule would require borrowers to pay no more than 5% of their discretionary income in undergraduate loan repayment. The current rate is 10%.
The proposal will raise the amount of non-discretionary income, which is excluded when calculating repayment installments. This change means that borrowers earning less than 225% of the federal poverty level will never have to make a student loan payment. For those with outstanding debts of $12,000 or less, any remaining balance after completing ten years of payments will be forgiven rather than 20 years.
Lastly, unpaid interest on loan balances will not increase if monthly payments are being made. This applies even if that payment is $0 based on a low income. After economic disruption caused by the pandemic and unprecedented inflation, these changes will be a welcome reprieve for thousands of concerned Americans.