By now you have probably heard the announcement made by President Biden, Vice President Harris, and the U.S.Department of Education about student loan forgiveness. But what exactly does it mean? It is designed to help working and middle-class federal student loan borrowers transition back to regular payments as the pandemic-related support expires. This plan can forgive up to $20,000. This is a three-part plan and includes a final extension of the student loan repayment pause, providing targeted debt relief to low- and middle-income families, and making the student loan system more manageable in the future (www.studentaid.gov).
The Biden-Harris Administration has paused student loan repayment a number of times and borrowers haven’t had to pay a single dollar in loan repayment. Therefore, this plan is essential to help borrowers transition to repayment and help prevent unnecessary defaults. Loan repayments will resume in January 2023 (www.studentaid.gov).
In order to help prevent borrowers from becoming delinquent in their repayments, the US 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. There is an income threshold in order to be considered for this loan forgiveness. An individual’s income has to be less than $125,000 or less than $250,00 for a household (www.studentaid.gov).
The Biden-Harris Administration is proposing a rule to recreate a new income-driven repayment plan that may reduce future monthly payments for lower- and middle-income borrowers. This proposal will require borrowers to pay no more than 5% of their discretionary monthly income on undergraduate loans. This proposal will also raise the amount of income that is considered non-discretionary, which is protected from repayment. It will also forgive loan balances after 10 years of payments (instead of 20). It will cover the borrower's unpaid monthly interest, as long as the borrower makes their monthly payment the loan balance will not grow (www.studentaid.gov).
The financial aspect of attending college can seem like a foreign language to many of us, if you need help navigating this feel free to reach out to me at info@atozeducationalconsulting.com or 612-735-1261.
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