Biden cancels student loan debt, extends repayment pause, announces reforms for future repayments

Biden’s executive order will forgive $10,000 of debt for anyone who went to college and earns less than $125,000; $20,000 for borrowers who also received Pell Grants and meet the income threshold; and dramatically reduces monthly payments for low- and middle-income borrowers in the future.

Tens of millions of Americans received life-changing news on Wednesday as President Joe Biden finally announced plans to cancel federal student loan debt, once again extend the moratorium on loan repayments students and to make systemic changes to ensure that future reimbursement terms are much fairer. for low to middle income borrowers.

The announcement, which came after months of deliberation, will bring immediate relief to countless Virginians who have struggled with the financial albatross of student debt. and helping millions of prospective students avoid crippling monthly payments.

Here’s the breakdown of Biden’s plan, which he will implement by executive order and could face legal challenges from Republicans and conservative groups who don’t want to do anything to solve the student debt crisis.

  • $10,000 in forgiven debt if you went to college and earned less than $125,000 (or $250,000 for a married couple) in 2020 or 2021
  • $20,000 of forgiven debt if you went to college, received Pell Grants (a form of federal financial aid for undergraduates), and met the income threshold
  • The pause on student loan repayments is extended until December 31, 2022, so borrowers won’t have to resume payments in September.

The amount of cancellation is capped at the amount of your outstanding debt, so if you are eligible for cancellation but you have less than $10,000 of debt remaining (or less than $20,000 as a beneficiary of the Pell Grant), the cancellation will amount to all that you owe.

The order will apply to borrowers with federal undergraduate and graduate program loans — meaning nurses and teachers will be eligible — as well as Parent Plus loans, according to the the wall street journal. The canceled debt would also be exempt from tax as income, but any loan must have been taken out before July 1, 2022 to be eligible for cancellation.

Current and future low- and middle-income borrowers with income-tested repayment plans will also receive additional relief under Biden’s New Rule. The command :

  • Limit what these borrowers with undergraduate loans have to pay each month to no more than 5% of their monthly discretionary income (the amount left over after paying necessary expenses like rent, utilities, and food). The rate is currently at 10%, which means Biden’s rule will cut payments for those borrowers in half.
  • Ensure that no borrower earning less than 225% of the federal poverty level, or about $30,500 in 2022, will have to make monthly payments by increasing the amount of income considered non-discretionary income.
  • Cancel loan balances after 10 years of payments for borrowers with a loan balance of $12,000 or less. Currently, these borrowers are not eligible for forgiveness for 20 years.
  • Cover borrowers’ unpaid monthly interest, so borrowers don’t accrue interest on their balances as long as they make their monthly payments, even if they’re as low as $0 because their income is low.

The White House provided examples of how these new rules would help different types of Americans:

Biden’s decision comes after years of activism by borrowers, lawmakers and activists who have pointed out how the rising cost of college, which has roughly triple since 1980 – even after accounting for inflation – and stagnant levels of federal aid have forced students to take out onerous loans that have now left many middle and financially weak income families underwater and unable start businesses, buy houses or retire.

According to the US Department of Education (DOE), the average undergraduate student now graduates with around $25,000 in student debt. Even for those who graduate with less debt, the burden can be overwhelming. In fact, roughly 16% of borrowers are in default— including about 750,000 seniors in debt — which can lead the government to garnish a borrower’s wages or reduce their credit rating.

Biden’s order is expected to provide direct financial relief to a vast majority of 43 million Americans with $1.6 trillion in federal student debt— almost a third of whom never finished their studies or obtained a diploma because of the high cost.

Under the rule, around 20 million people should be eligible for full cancellation of their remaining debt, with the benefits overwhelmingly going to Americans earning less than $75,000 a year.

This decision will likely be popular among ordinary Americans. Recent vote from Courier Newsroom and Data for Progress found that 58% of likely voters favor forgiveness of at least $10,000 in federal student loans, with 63% supporting the same amount of forgiveness for low- and middle-income borrowers .

According to the DOE, nearly 8 million borrowers could be eligible for automatic relief because relevant income data is already available to the agency. If the DOE doesn’t have your earnings data, or you don’t know if they do, the Biden administration will roll out an application in the coming weeks, before the pause on student loan repayments ends. federal on December 31.

You can Register for Ministry of Education email notifications once applications are open.

Borrowers who work for non-profit organizations, the military, or federal, state, local, or tribal governments may be eligible to have everything of their federal student loans canceled through the Public Service Loan Forgiveness Program (PSLF) due to temporary changes to the program’s eligibility criteria. These changes expire on October 31, 2022. For more information on eligibility and requirements, visit PSLF.gov.

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