What Biden’s Student Loan Debt Cancellation Plan Means

Aaddressing the student loan debt crisis has been one of the President Joseph R. Biden’s campaign signing pledges in 2020. And for good reason: currently, Americans owe approximately $1.75 trillion in student loans. Each borrower has an average debt of $28,950. It’s a huge problem that affects the finances and well-being of millions of Americans. And with federal student loan repayments set to resume on September 1, 2022 after numerous pandemic-induced extensions, many people worried about what would happen to their finances after years of not having to repay their loans.

However, today it looks like there will finally be additional relief for some of those struggling with student debt. President Biden announced a three-pronged plan to deal with the student loan crisis— in an effort to help people currently stricken with debt and tackle some of the worst parts of the current student loan system.

What’s promised in Biden’s student debt relief plan

Under the new plan, the Ministry of Education forgive up to $20,000 of debt for eligible Pell Grant recipientsand up to $10,000 for people who don’t have Pell grants. People are eligible for this debt cancellation if their income is less than $125,000 per year (or $250,000 if they are married). According CNBCat least 9 million borrowers could see their debt completely erased by this plan.

The plan includes other measures to support borrowers, including:

  • The pause on federal student loan repayments will be extended once again, until December 31, 2022.
  • A cap on monthly undergraduate student loan repayments at 5% of the borrower’s income (half the rate most borrowers pay, according to the White House.)
  • Propose a new rule that borrowers who have worked in nonprofits, the military, or federal, state, tribal, or local governments also receive credit for loan forgiveness.

The announcement still falls short of what other proponents of student debt cancellation wanted –$50,000 waived for each federal student loan borrower. That said, it’s still a positive step forward, and likely a relief for millions of Americans struggling to pay off their student loan debt. It’s also worth nothing that the Biden administration has already taken other steps to undo about $32 billion in student loan debtincluding for those who attended former for-profit colleges and severely disabled borrowers.

“President Biden has taken a giant step in solving the student debt crisis by canceling significant amounts of student debt for millions of borrowers. The positive impacts of this decision will be felt by families across the country. , especially in minority communities, and it is the single most effective action the President can take to help working families and the economy,” said Senators Chuck Schumer (NY) and Elizabeth Warren ( MA) in a joint statement on Twitter. The two Democratic senators have tirelessly lobbied the president for student debt cancellation for the past two years.

How do I know if I qualify and how do I apply?

According to Federal Student Aid (FSA) websiteHere’s how to find out if you’re eligible for the forgiveness program:

First: Do you have any outstanding federal student loans that you still owe?

Next: Do you make less than $125,000 a year? (Or if you’re married, less than $250,000 a year?)

If you answered yes to both questions, you will qualify for this debt forgiveness program.

How a lot the debt is forgiven depends on whether or not you have already received a Pell Grant (a federal undergraduate scholarship for very low-income students). If you are in debt and were a Pell grantee in college, you can get up to $20,000 in debt relief. If you did not receive a Pell grant in college, you are eligible for debt forgiveness of up to $10,000.

The FSA says around 8 million borrowers could get relief automatically, without doing anything, because the Department for Education already has data on their income that would help determine eligibility status. But an app will be released in a few weeks for those who don’t have their income data on file (or don’t know if they do), per FSA. For updates on when this app goes live, subscribe to Ministry of Education email updates here.

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