What Does Biden's Cancellation of Student Loan Debt Mean for You?
President Biden’s recent announcement relieves federal student loan debt for millions of Americans. Here’s what you need to know.
September 27, 2022
President Biden announced several significant changes to federal student loan policy. Among these changes was an extension of the existing student loan pause and an extensive debt relief program that will benefit millions of Americans.
If you’re wondering how the Bident student debt plan works, this guide will cover everything you need to know.
What’s the latest policy around student loan debt relief?
On August 24th, 2022, the Biden administration announced changes benefiting Americans with student loan debt and future borrowers.
Three key components of this policy include:
Up to $20,000 in debt forgiveness
Individual borrowers of federal student loans will receive up to $20,000 in student loan debt relief. Most qualifying borrowers may receive up to $10,000 in debt forgiveness, while recipients of the Pell Grant can receive up to $20,000 in debt forgiveness.
Extension of pause on student loan repayments
The existing pause on student loan repayments is now extended through December 31, 2022.
New income-driven repayment plan
For undergraduate loans, a new payment plan caps student loan repayments at 5% of a borrower’s discretionary income, half of the previous requirement of 10%.
There are other details, like clarification of rules on the existing Public Service Loan Forgiveness (PSLF) program. The administration is also taking steps to reduce future college expenses, although it’s currently unclear how and when these changes will take effect.
For most borrowers, the student debt forgiveness plan is most impactful. This article will focus on the plan to forgive federal student loan debt.
Who does debt cancellation apply to?
The recent debt cancellation policy applies to federal student loan borrowers earning up to $125,000 or up to $250,000 for married couples.
Borrowers can receive up to $10,000 in debt relief under the program. Recipients of the Pell Grant (reserved for low-income students) can receive up to $20,000 in debt relief.
You can’t receive more relief than your current student loan balance. If you have a $6,000 balance, you can have the total $6,000 forgiven — but the remaining $4,000 won’t be refunded.
Debt will simply be “canceled,” meaning it is wiped from your account.
Overall, it’s estimated that the relief program will benefit over 43 million Americans — and over 20 million Americans will have their entire debt forgiven.
What do I do if I qualify?
Borrowers will likely need to submit an application and provide income verification. The application deadline will be December 31, 2023, but borrowers are advised to apply before November 15, 2022, to have their applications processed before the end of the year (when the payment pause expires).
It’s also a good idea to log into your student loan servicer’s website and ensure your information is up to date. This includes a mailing address and income information.
FAQs about Biden’s student loan cancellation
Because the federal student loan debt forgiveness program is new, there are many questions about how it works. Here are answers to some of the most common questions.
What happens if this forgives all my debt?
If you qualify and the loan forgiveness program wipes out all your debt, you will not be required to make any payments.
For example, if you have $9,000 in federal student loans and meet the income requirements (under $125,000, or $250,000 for married couples), your entire balance will be forgiven and no payments will be due.
However, remember that the payment pause expires on December 31, 2022. After this date, you must continue making payments until the debt relief kicks in. It’s best to apply as early as possible and monitor your account to see when the relief arrives.
What if I’ve already paid off my loans?
This program applies to current holders of federal student loan debt. You will not benefit from this program if you have already paid off your loans.
There is one exception to this. If you have made payments since the payment pause implemented on March 13, 2020, you may qualify to have those repayments refunded.
Payments made on or after March 13, 2020, may qualify for debt relief. Borrowers can contact their loan servicer to request a refund.
Payments made before March 13, 2020, will not be refunded and do not qualify for debt relief.
What if I still can’t afford to make payments?
If you can’t afford to make payments, it’s wise to look into an income-driven repayment plan. This will allow you to make smaller loan payments, which will be based on your discretionary income and family size, both of which must be recertified annually.
Also, keep in mind that this announcement alters income-driven repayment plans. For undergraduate loans, payments can now be capped at 5% of discretionary income, and this cuts monthly payments in half, as the previous cap was 10% of discretionary income.
How will forgiveness impact my income-driven repayment plan?
The federal student loan debt relief program applies to borrowers on income-driven repayment plans (and all other repayment plans). You will qualify for relief as long as you meet the income requirements.
Changes are underway with income-driven repayment plans. Many changes are still in the works.
Will there be additional student loan debt relief in the future?
It’s unclear whether there will be additional debt relief in the future. The announcement does make it clear that the Biden administration is working towards making college more affordable, but it does not indicate any details about future debt relief programs.
The recent student loan debt relief program is a welcome change for millions of Americans. It’s estimated to benefit around 43 million borrowers, and over 20 million will have their entire debt wiped clean.
If you qualify, stay tuned for announcements on when applications open. It will likely be in October 2022 — and applications will continue to be accepted through the end of 2023.
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