As many witnessed the recent announcement regarding student loan forgiveness[i] for millions of Americans, (you can find out more by visiting Federal Student Aid Website[ii]), the Department of Education also weighed in with proposed changes to income-driven repayment plans.
In case you or someone you love is one of the millions impacted by the news, we wanted to follow up with a few details on what we know so far.
Student Loan Forgiveness Plan
- On August 24, 2022, President Biden announced $10,000 of debt relief per federal student loan borrower for those who did not attend college on Pell Grants. He announced $20,000 for those who did attend college on Pell Grants.
- The loan forgiveness is for individuals making under $125,000 a year and families making under $250,000 a year. Loans must have been taken out by June 30, 2022.
- If you’re a current borrower and a dependent student, you will be eligible for relief based on your parents’ income rather than your own.
- According to CNN, you will need to apply for loan forgiveness[iii]. The application should be available by early October. After completing the application, you can expect loan forgiveness within four to six weeks. Sign up at studentaid.gov[iv] to be notified when the application opens.
- President Biden also extended the pause on student loan repayments that was set to expire on August 31. Payments will begin again in January 2023.
Changes to Income-Driven Repayment Plans
The Department of Education has proposed changes to income-driven repayment plans:
- The proposal would cap monthly payments at no more than 5% of your discretionary income, down from 10% now. Remember, discretionary income[v] is the money left after paying taxes and essential cost-of-living expenses.
- Borrowers with undergraduate and graduate loans will pay a weighted average rate[vi].
- The plan would also forgive loan balances after ten years[vii], instead of the usual 20, for those with original balances of $12,000 or less.
- Under this proposal, loan balances will not grow as long as you make your monthly payments, even if you’re not required to make payments.
- If you have worked for a government agency or a nonprofit organization, you may also qualify for the Public Service Loan Forgiveness Program[viii].
We are always here if you have any questions. Given this news and the time of year, now is a great time to review your financial plans. Want to talk? Go ahead and book an appointment when it works for you!
[i] Lewis, C. & Morga, A. (2022, August 26). Apnews.com. Biden’s student loan plan: What we know (and what we don’t). [Online] Available at: Biden’s student loan plan: Everything to know | AP News.
[ii]Studentaid.gov. The Biden-Harris Administration’s Student Debt Relief Plan Explained. [Online] Available at: The Biden-Harris Administration’s Student Debt Relief Plan Explained (studentaid.gov).
[iii] Duster, C. (2022, August 26). Cnn.com. How to qualify for Biden’s new student loan forgiveness plan. [Online] Available at: How to qualify for Biden’s new student loan forgiveness plan – CNNPolitics.
[v] Lee, M. (2022, August 24). Usatoday.com. Biden to shrink discretionary income: What is it? Why it matters in student loan repayment. [Online] Available at: What’s discretionary income? How it applies to Biden student loan plan (usatoday.com).
[vi] McCray, V. (2022, August 24). Ajc.com. Biden announces student loan debt forgiveness for some borrowers. [Online] Available at: Biden announces student loan debt forgiveness for some borrowers (ajc.com).
[vii] Liu, J. (2022, August 24). Cnbc.com. Biden announces new plan to cut some student loan payments in half. [Online] Available at: Biden student loan forgiveness: New proposal cuts payments in half (cnbc.com).
[viii]Studentaid.gov. Public Service Loan Forgiveness (PSLF). [Online] Available at: Public Service Loan Forgiveness | Federal Student Aid.