The Biden Student Loan Debt Relief Plan
On August 24th, 2022, the Biden administration announced their plan to provide relief from student loan debt for eligible students. The proposal focuses on three specific challenges faced by holders of student loans.
Targeted Debt Relief
First, targeted debt relief will provide up to $20,000 in debt cancellation. Not every borrower will qualify for the max amount, but it is estimated that nearly 27 million will qualify for the $20,000 cap.
Pell Grant recipients with loans from the Department of Education can receive up to $10,000 in relief. The same is true for non-Pell Grant recipients, who will also receive up to $10,000.
To be eligible for that relief, borrowers must have an income of less than $125,000, or $250,000 for married couples. Meaning, those whose discretionary income exceeds those amounts will not qualify for this debt relief.
As an important note, any debt relief a borrower receives will not count as taxable income. Additionally, the pause on federal student loan repayment will be extended until December 31, 2022.
Fixing the System?
Next, the Biden administration’s plan intends to revamp the student loan system for current and future borrowers.
To do this, the Department of Education proposes an income-driven repayment plan that should protect more low-income earners. The plan will cap the monthly payments for undergraduate loans at 5% of the borrower’s income, which is half of the current rate.
The DoE also plans to protect any non-discretionary income by guaranteeing that any borrower making roughly the equivalent of $15 an hour will not have to make a monthly payment.
The administration also plans to forgive student loan balances after 10 years, instead of the traditional 20 year time frame. So, borrowers with original loan balances of $12,000 or less could be debt-free in less than a decade.
Additionally, the plan calls for covering any unpaid monthly interest as long as borrowers make their monthly payments. This will apply even when the monthly payment is $0 because they are considered low income.
Moreover, the DoE plans to solidify temporary changes to the Public Service Loan Forgiveness (PSLF), which extended debt forgiveness to those who have worked “at a nonprofit, in the military, or in federal, state, tribal, or local government”.
Under the PSLF program, more than 175,000 public servants have had more than $10 billion in student loan debt erased.
Extending the Pell Grant’s Reach
Finally, Biden’s debt forgiveness plan has called for a huge increase in the Pell Grant, seeking to double the maximum amount a student can receive in their lifetime.
The administration is still pushing to make community college free to everyone, but they’ve given no information about how they plan to make that happen. It is likely that the Pell Grant will be fundamental to that plan.
The American Rescue Plan also gave nearly $40 billion to colleges and universities, which should be used for emergency financial aid. Accountability is key here.
How to Apply for Student Loan Debt Relief
As of this writing, there is no application process set up for borrowers seeking debt relief. The Department of Education plans to have the application system operating before the pause on federal student loan repayments ends on the 31st of December, 2022.
However, it is possible that as many as 8 million borrowers will automatically receive this relief, as their income data is already available to the Department of Education.