Story at a glance
- The White House announced an expansive plan to tackle the national student debt crisis on Wednesday.
- It includes loan forgiveness of $10,000 for federal borrowers who earn less than $125,000 annually.
- Pell Grant recipients are eligible for $20,000 in loan forgiveness, with the same $125,000 income cap.
President Biden is directing the Education Department to forgive $10,000 in federal student loan debt for nearly all U.S. borrowers, an unprecedented decision that will affect millions of borrowers with immediate financial relief.
The Biden administration formally announced its highly anticipated student debt forgiveness plan Wednesday, which will forgive $10,000 for every federal student loan borrower who earns less than $125,000 annually.
The administration is also cancelling up to $20,000 for those student borrowers who received Pell Grants, applying the same income cap.
“I’m keeping with 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 said on social media.
Here’s what the plan includes.
$10,000 in debt forgiveness for all federal borrowers
Federal borrowers who earn less than $125,000 and did not receive a Pell Grant will be eligible to have $10,000 of their student loan balances forgiven. This will likely eliminate the balances of at least 15 million borrowers.
$20,000 debt reduction for Pell Grant recipients
Millions of borrowers who received Pell Grants during college and meet the administration’s income requirements will see 20,000 removed from their balances. Data shows around 7 million students receive Pell Grants each year.
Extends pandemic-related pause on student loan payments
The administration is also extending the federal moratorium on student loan payments for a sixth and final time. Payments will resume in January 2023, concluding the pause which has spanned more than two years and two administrations.
Overhauls income-driven repayment plans
The Education Department is proposing a new rule that would reduce future monthly payments for lower- and middle-income borrowers from 10 percent to 5 percent of discretionary income.
It would also raise the amount of income that’s considered nondiscretionary, therefore protected from repayment. The proposed rule is also tackling interest, so a borrower’s loan balance will not increase as long as they are making their required monthly payments.
The new rule would forgive loan balances after 10 years of payments, instead of the current 20 years under many income-driven repayment plans for borrowers with original loan balances of $12,000 or less.
If approved, the rule would apply to borrowers with undergraduate degree loans and graduate degree loans.
Eases loan forgiveness under Public Service Loan Forgiveness (PSLF) program
The Department is proposing a rule that would allow more payments to qualify for PSLF, including partial, lump sum and late payments and allowing certain kinds of deferments and forbearances.
Tackles college accountability
The department is proposing to reinstate and improve a rule to hold career programs accountable for leaving their graduates with unaffordable debt — like when DeVry University was found to have defrauded nearly 1,800 students after making widespread, substantial misrepresentations about its job placement rates.
The Department also said it intends to act against colleges that have contributed to the student debt crisis, including publishing an annual watch list of the programs with the worse debt levels in the country. This is in addition to requesting institutional improvement plans from colleges concerning debt outcomes that outline how the college intends to bring down debt levels.
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