On Tuesday, Aug 24, the Biden Administration announced a three-part student loan relief plan to help Americans recover from the economic strains associated with the COVID-19 pandemic and to help make paying off student loans more manageable.
The plan reports that the 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.
Are you eligible? Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). No high-income individual or high-income household – in the top 5% of incomes – will benefit from this action. Nearly every Pell Grant recipient come from a family that made less than $60,000 a year, reports the Biden Administration.
- Extend federal student loan repayment one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.
- Cut monthly payments in half for undergraduate loans. The Department of Education is proposing a new income-driven repayment plan that protects more low-income borrowers from making any payments and caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income—half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers.
- Give appropriate credit toward loan forgiveness to borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government. These improvements will build on temporary changes the Department of Education has already made to Public Service Loan Forgiveness, under which more than 175,000 public servants have already had more than $10 billion in loan forgiveness approved.
- Reduce the cost of college and holding schools accountable when they hike up prices. The President championed the largest increase to Pell Grants in over a decade and one of the largest one-time influxes to colleges and universities. To further reduce the cost of college, the President will continue to fight to double the maximum Pell Grant and make community college free. Meanwhile, colleges have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford. This Administration has already taken key steps to strengthen accountability, including in areas where the previous Administration weakened rules. The Department of Education is announcing new efforts to ensure student borrowers get value for their college costs.
“Since 1980, the total cost of both four-year public and four-year private college has nearly tripled, even after accounting for inflation. Federal support has not kept up: Pell Grants once covered nearly 80 percent of the cost of a four-year public college degree for students from working families, but now only cover a third. That has left many students from low- and middle-income families with no choice but to borrow if they want to get a degree. According to a Department of Education analysis, the typical undergraduate student with loans now graduates with nearly $25,000 in debt,” the Biden Administration reports.
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