President Joe Biden said Wednesday that many Americans could have up to $10,000 in federal student loan debt forgiven. This amount increases to $20,000 if they qualify for a Pell grant. Here’s what we know so far and what it means for people with outstanding student loans:
Who is Eligible for Student Loan Forgiveness?
If your loan is with the Department of Education and you earn less than $125,000 as an individual or less than $250,000 for a family, you are eligible for a waiver of up to $10,000. If you received Pell Grants reserved for students with the greatest financial need, you may have an exemption of up to $20,000. If you are an existing borrower and a dependent student, you are eligible for relief based on your parents’ income and not your own income.
Will the student loan freeze be extended?
The payment freeze will be extended until December 31 for the last time. The payment freeze was introduced in 2020 to help those struggling financially during the COVID-19 pandemic and has been extended several times. His term ended on August 31.
Interest rates remain at 0% until repayment begins. Under an earlier extension announced in April, those who defaulted on payments before the pandemic would automatically be placed in good standing.
How do I apply for student loan waiver?
Details have not been announced, but keep an eye on the Federal Student Aid website for more information in the coming days.
What is a Pell Grant and how do I know if I have one?
The roughly 27 million borrowers who qualify for a Pell grant are eligible for forgiveness of up to $20,000 under the Biden plan.
Pell Grants are special government grants for low-income Americans who can currently receive up to $6,895 annually for approximately six years.
Pell grants are typically non-repayable, but recipients typically take out additional student loans.
“This added relief for Pell borrowers is also a significant amount of racial equity in cancellations,” said Kat Welbeck, civil rights attorney at the Student Borrower Protection Center. “As student loans widen existing inequalities, the racial wealth gap means that students of color, particularly black and Latino, are more likely to come from low-income households, have student loans, and have large amounts of money. Borrow.”
To find out if you have a Pell grant, check any email you receive that describes your FAFSA grant.
How many people will this help?
According to federal statistics, about 43 million Americans have government student loans with an average balance of $37,667. A third of them owe less than $10,000. Half owe less than $20,000. The total amount of government student loans exceeds $1.6 trillion.
What if I’ve already paid off my student loan – do I get relief?
The loan forgiveness is expected to apply only to those currently holding student loans. However, if you have voluntarily made payments since March 2020, when payments were withheld, you can apply for a refund of those payments, according to the Federal Office for Student Support. Contact your credit servicer to request a refund.
Will Student Loan Forgiveness Definitely Happen?
The White House is expected to face lawsuits over the plan, as Congress has never specifically given the president the power to cancel the loan. We don’t yet know how this might affect the student loan forgiveness schedule.
What repayment plan does the Ministry of Education propose?
The Department of Education has proposed a repayment plan that would reduce monthly payments to no more than 5% of the borrower’s discretionary income, now less than 10%. Borrowers must apply for a repayment plan if approved, which can take a year or more.
For example, according to a government press release, a single borrower earning $38,000 a year would pay $31 a month.
The amount, considered non-discretionary, will also be increased, the ministry has not disclosed how much.
Discretionary income generally refers to what you have left over after covering necessities like food and rent. However, for student loan repayments, it is calculated using a formula that correlates family size to the borrower’s annual income. Takes into account the difference between income and the federal poverty line. geographical location.
What if I can’t make the payment despite the loan forgiveness?
Once payments resume, borrowers who are unable to pay risk further defaults. This can damage your credit score and means you are not eligible for additional assistance.
If you’re having trouble making payments, see if you qualify for an income-based repayment plan. Learn more here.
The plan, announced by Biden on Wednesday, also includes a proposal that would allow those with graduation loans to repay 5% of their monthly income. Such proposals could take a year or more to implement, and it’s unclear what the fine print will look like.
If you have worked for a government agency or non-profit organization, you may also be eligible for the Government Loan Forgiveness Program, which you can read more about here.