President Biden, Vice President Harris, and the U.S. Department of Education have announced a three-part plan to help working and middle-class federal student loan borrowers transition back to regular payment as pandemic-related support expires.
President Biden announced the plan today using executive authority to cancel some student debt.
“In my campaign for president, I made a commitment that would provide student debt relief, and I am honoring that commitment today,” Biden said.
The student loan plan includes an extension on the student loan repayment pause by Dec. 31 and $10,000-$20,000 in relief to student loan borrowers.
“I’ll never apologize for working for loan forgiveness for the working class,” Biden said. “The outrage for helping the working class is simply wrong … dead wrong.”
A simple form will be available in coming weeks for borrowers to apply to forgiveness, Biden said.
Final extension of the student loan repayment pause
The Biden-Harris administration will extend the pause a final time through Dec. 31, 2022, with payments resuming in January 2023. Borrowers do not need to do anything to extend the student loan pause. It will occur automatically.
Targeted debt relief to low- and middle-income families
To smooth the transition back to repayment, the U.S. Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients. Relief is capped at the amount of your outstanding debt.
Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households. Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the U.S. Department of Education.
If the U.S. Department of Education doesn’t have your income data – or if you don’t know if the U.S. Department of Education has your income data, the Administration will launch a simple application in the coming weeks. The application will be available before the pause on federal student loan repayments ends on Dec. 31.
Public service loan forgiveness
In addition, borrowers who are employed by non-profits, the military, or federal, state, Tribal, or local government may be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness program. This is because of time-limited changes that waive certain eligibility criteria in the PSLF program.
These temporary changes expire on Oct. 31, 2022.
For more information on eligibility and requirements, go to PSLF.gov.
Make the student loan system more manageable for current and future borrowers
Income-based repayment plans have long existed within the U.S. Department of Education. However, the Biden-Harris Administration is proposing a rule to create a new income-driven repayment plan that will substantially reduce future monthly payments for lower- and middle-income borrowers.
The rule would:
- Require borrowers to pay no more than 5 percent of their discretionary income monthly on undergraduate loans. This is down from the 10 percent available under the most recent income-driven repayment plan.
- Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225 percent of the federal poverty level – about the annual equivalent of a $15 minimum wage for a single borrower – will have to make a monthly payment.
- Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with loan balances of $12,000 or less.
- Cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments – even when that monthly payment is $0 because their income is low.
Biden campaigned for president on the promise to provide student debt relief but didn’t go as far as some other Democratic frontrunners.
U.S. Sen. Elizabeth Warren (D-Mass) has been pushing the administration for $50,000 in relief to borrowers leading a #CancelStudentDebt movement. However, the Biden administration has pushed back since taking office – and has consistently floated the idea of $10,000 in relief as an alternative.
“We’ve been working towards this day for a long time, and it’s here: President Joe Biden is taking historic action to cancel up to $20,000 of debt for millions and millions of Americans,” wrote Warren on her social media page. “Make no mistake: This is one of the biggest acts of consumer debt relief in American history, and it will directly help hard-working people who borrowed money to go to school because they didn’t come from a family that could write a big check.
“By canceling student debt, President Biden is helping working people who are struggling with rising costs. He’s freeing people up to buy homes or start new businesses or start families. And he’s helping narrow the racial wealth gap for borrowers. It’s a big step forward.”
Many lawmakers don’t think the plan did enough for borrowers.
U.S. Sen. Bernie Sanders (D-Vermont) who unsuccessfully ran for the Democratic nomination for president said on his verified Twitter account: “If we can bail out Wall Street after their greed, recklessness, and illegal behavior drove us into the worst recession in modern history – then YES – we absolutely can cancel every single cent of student debt in this country.”
Biden admitted in his news conference that he knew that some people would think the forgiveness was too much and others not enough.
“I believe my plan is responsible and fair,” Biden said. “It’s about opportunity. It’s about giving people a fair shot. It’s all about providing possibilities.”
The Mohela website, an official servicer of federal student aid, crashed Wednesday afternoon, as student borrowers likely tried to log in to see if the relief had already been applied to their account (spoiler alert: it has not been applied as of 2:47 p.m. ET).
According to the Biden administration, there will be more details announced in the coming weeks.
If you would like to be notified by the U.S. Department of Education when the application is open, you may sign up on the Department of Education subscription page.
Read the White House fact sheet online.
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Crystal Graham
