One of the goals of the Biden administration’s student loan forgiveness program is to increase the number of people actively paying back loans. The current freeze on student loan payments expires at midnight on New Year’s Eve and then, the administration hopes, it will be smooth sailing.
The details of the student aid package are medium-complicated, but no law degree is required. The two main prongs that everyone is talking about are debt forgiveness of 1) $20,000 for students who received Pell grants, and 2) $10,000 for students who did not receive Pell grants.
This program is limited to individuals that make $125,000 a year or less and families with incomes of $250,000 or less. The relief is capped at the amount of the borrower’s debt, meaning if you only have $7,000 in loans, you will not receive the full $10,000 — only the $7,000.
The relief package also aims to make repayment less of a burden on borrowers. Borrowers enrolled in income-sensitive repayment plans have, until now, had their payments capped at 10% of their discretionary income. Under the new rules, that limit has been reduced to 5% of their discretionary income.
There may be additional relief available for borrowers who have found work in the public sector:
The Public Service Loan Forgiveness (PSLF) program forgives the remaining balance on your federal student loans after 120 payments are made while working full-time for federal, state, Tribal, or local government; [the] military; or a qualifying non-profit.
— Federal Student Aid website
The Department of Education already has the income information of eight million of the borrowers who are eligible for debt forgiveness. For everyone else, the department expects to release an app later in the year. If you would like to be notified when the process has officially opened, sign up at the Department of Education subscription page. You’ll have until Dec. 31, 2023 to apply.
As someone who believes student loan forgiveness will give a boost to the economy, I like this plan. I hope the loan forgiveness will make debts seem more manageable, and entice people in default to go back to school.