On August 24, President Biden announced a plan to forgive $10,000 in federal student loans for qualified borrowers and up to $20,000 for Pell Grant recipients. With more than 45 million United States borrowers carrying a total of $1.62 trillion in federal student loan debt, this student loan forgiveness initiative will mean huge financial change for many individuals.
Here’s what you need to know:
Who Qualifies for Student Loan Forgiveness?
Student loan forgiveness of $10,000 will be available to qualifying federal student loan borrowers that make less than $125,000 a year or families making less than $250,000. Pell Grant recipients may be eligible for up to $20,000 in financial relief.
In the meantime, the federal student loan pause has been extended through December 31, 2022. Federal student loan payments are scheduled to resume in January 2023.
How to Know if You Received the Pell Grant
To confirm whether you received the Pell Grant, check your Federal Student Aid account. Pell Grants are awarded to students who completed the FAFSA based on qualifying financial needs.
While Pell Grant eligibility is based on your expected family contribution (EFC), the National Postsecondary Student Aid Study (NPSAS) showed that 94% of Pell Grant recipients during the 2015-2016 school year earned less than $60,000.
What Else Does Biden’s Student Loan Forgiveness Proposal Include?
President Biden’s student loan forgiveness plan will impact current and future borrowers in several ways. They include:
- Federal Student Loan Forgiveness: Up to $20,000 in student loan forgiveness for qualifying borrowers.
- Updates to Income-Driven Repayment (IDR) Plans: Currently, most new borrowers qualified for Income-Driven Repayment (IDR) plans pay 10% of their discretionary income toward federal student loans per month. The Department of Education is proposing steps to lower that cap to 5% of discretionary income.
- Updates to Public Service Loan Forgiveness (PSLF): According to Nerdwallet, from November 2020 to October 2021, only 4% of PSLF applications were approved. President Biden’s proposal includes changes to the PSLF program that would increase the number of approved applications.
- Monitoring College Costs: According to The White House’s official fact sheet, President Biden’s plan will also include efforts to monitor the cost of college and expand Pell Grant availability.
Additional information about the plan is expected to become available shortly.
Do I Need to Apply for Student Loan Forgiveness?
Specific details about the process of claiming student loan forgiveness under the new proposal are not yet available. According to the official fact sheet, students can visit StudentAid.gov/debtrelief and sign up to be notified as more information is presented.
Will President Biden Extend the PSLF Waiver?
If you’ve applied for Public Service Loan Forgiveness or believe you may be eligible, be sure to explore the PSLF waiver, which expanded the types of loans eligible for PSLF forgiveness. Currently, the waiver is scheduled to expire on October 31, 2022, but many student loan forgiveness advocates are urging President Biden to extend the waiver.
What Will Student Loan Forgiveness Cost?
Since mass student loan forgiveness became a presidential focus, experts have projected the economic impact of financial relief.
Opponents of the student loan forgiveness plan suggest that its cost may have a negative long-term economic impact. A recent analysis from the Penn Wharton Budget Model suggests that a one-time student loan forgiveness offering of $10,000 per borrower with incomes under $125,000 would cost about $300 billion. Furthermore, the forgiven debt would have the greatest impact on households in the top 60% of income distribution.
Supporters of the plan suggest that mass student loan forgiveness is necessary to help offset the increasing cost of college. According to the National Center for Education Statistics, the cost of attending a public, 4-year institution increased 10% from the 2010-2011 academic year to the 2020-2021 academic year.
Additionally, student loan forgiveness advocates indicate that mass forgiveness would help alleviate the financial burden for borrowers in default. According to Credible, 17.4% of student loans were in default as of June 30, 2018.
Ultimately, both student loan opponents and supporters agree that mass student loan forgiveness will have a significant economic impact.
What if My Student Loans Are Not Forgiven?
If you have private student loans, which are not eligible for student loan forgiveness, student loan refinancing might be a good option to help lower your interest rate or adjust your repayment terms to make student loan repayment more manageable.
When you refinance your student loans, you choose a new lender to pay off your original debt, then take out a new loan with updated terms. If your financial situation has improved or rates have dropped, you may qualify for a lower interest rate to save money over time.
Additionally, by refinancing your student loans, you can choose an updated repayment term to meet your current needs.
Federal student loan borrowers should keep in mind that once their loans are refinanced, they will no longer be eligible for federal student loan benefits like IDR plans, PSLF, or student loan forgiveness.
Curious about whether refinancing is right for you? Use ELFI’s Find My Rate tool to see your options without impacting your credit score.
