Paying off student federal loans has been an ongoing issue for many Americans. However, on August 24, 2022, the Biden-Harris administration and the U.S. Department of Education announced a plan to help lower and middle class students. The plan includes 3 parts and focuses on both forgiving loans and making federal loans more manageable for future borrowers. This announcement has been long awaited ever since President Biden promised to reduce federal loans and provide aid for students who need it during his presidential campaign.
The first part of Biden’s plan addresses the negative effects of the Covid-19 pandemic on the economy by granting students/individuals time off from paying their loans. This provides an extension for students who may need extra time to get their finances together after the pandemic. There has been a pause on loans and no one has had to pay any of their federal debts ever since Biden took office. This pause will continue until the end of 2022 and payments will resume in 2023.
The second installment of Biden’s plan focuses on providing debt relief to low and middle income families. The U.S. Department of Education has decided to provide up to $20,000 in debt relief for pell grant recipients and up to $10,000 for non-pell grant recipients. Pell grants are typically awarded to recipients who may require extra financial help to attend college. Additionally, the new relief plan supports those who come from lower income backgrounds. Aid is provided to federal loan borrowers who make less than $125,000 individually or $250,000 for households. This was established to help over 43 million borrowers who make less than the required income to be considered for financial assistance.
The third pillar of the plan includes making student loans more manageable for students through legislation. According to CNBC, college tuition has increased by a staggering 169% since 1980. The Biden administration aims to combat this increase by designing a plan that focuses on the annual income of the borrower and will reduce future monthly payments for low and middle income borrowers. This will grant more opportunities to underprivileged students and allow them to receive an education without the continuous burden of federal loans. A few examples of the rules created by the Biden administration include forgiving federal loans after 10 years of payment instead of 20 with borrowers with $12,000 or less loan balances and covering the borrowers monthly interest to reduce loan growth. The plan would cap borrowers monthly payments to just 5 percent of their discretionary income, which is a decrease from the current 10 percent cap.
The Biden-Harris Loan Relief Plan will not only help current borrowers, but also future borrowers. According to FSA, nearly 8 million borrowers may be able to receive debt forgiveness automatically because of the Department of Education’s ability to access their income information. The Biden administration will launch an application in the upcoming weeks for borrowers to provide their income and financial information to see if they are eligible for loan forgiveness. An individual who fills out the application can expect to receive loan relief in 4 to 6 weeks. On August 24, 2022, Biden tweeted, “In keeping my campaign promise, my administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023”. Biden’s loan relief plan demonstrates a fulfillment of his presidential campaign promises and an executive focus on prevalent issues facing Americans today. To be notified when the application is open, borrowers can sign up at studentaid.gov.