President Joe Biden on Wednesday announced plans to address student loan debt, including debt relief for certain borrowers and an extension of the pandemic-related suspension of payments.
How To Qualify For Biden’s New Student Loan Forgiveness Plan
The Biden administration has already forgiven nearly $32 billion of the $1.6 trillion of outstanding federal student debt, reviewing existing forgiveness programs for students defrauded by public servants, disabled borrowers, and for-profit universities.
The plan applies to federal student loan borrowers.
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How Much Debt Forgiveness Will They Get?
The amount of debt forgiven depends on whether the borrower received a Pell scholarship to attend college. State Pell Scholarships “demonstrate special financial need, do not have a bachelor’s, college, or professional degree,” and “must be repaid except in certain circumstances,” according to the Federal Department of Student Affairs.
According to the White House, Pell’s scholarship now covers only one-third of his four-year college tuition at public universities, resulting in increased borrowing.
According to the FSA website, individual borrowers with an annual income of less than $125,000 and couples or householders with an annual income of less than $250,000 can pay up to $10,000 in federal student loan debt if they are not eligible for Pell undergraduate scholarships.
What Steps Do Eligible Borrowers Have To Take?
Nearly 8 million borrowers will automatically receive debt forgiveness because the Ministry of Education already has income information, according to the Financial Services Agency. The Biden administration will begin applications for borrowers to provide income information in the next few weeks or if borrowers are unsure if the department already has income information.
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How Will Future Repayments For Remaining Debt Work?
Student loan payments will be suspended again until December 31, 2022, and payments will begin in January 2023. The Biden administration is also proposing rules that would create a new income-based repayment schedule that would require borrowers to pay no more than 5% of their monthly income on student loans, lowering the current 10% threshold.
The rule also increases the amount of income that is considered “non-disposable income,” so a borrower who earns less than 225% of his federal poverty line will no longer have to make monthly payments. For borrowers with a loan balance below $12,000, under the proposed new income-based repayment plan, the loan balance in 10 years, not 20 years now, will be forgiven for payment.
And to prevent a borrower’s loan balance from increasing while making monthly payments, under the proposed rule, the Biden administration would not allow the monthly payment to be $0 because of the borrower’s income level. Even if there is, it will cover the unpaid monthly interest.