Student Debt Relief Plan – What does is it mean for me?
There’s been a lot of media attention about President Biden’s new Student Loan Relief Plan, but how do you know if you qualify? And what else does his plan propose?
The White House has released a fact sheet, showing the burden of living with student loan debt for years and years after school, and the ever-increasing cost of attending college. As the Fact Sheet states, the student loan burden keeps families from building wealth, buying homes, saving for retirement, and from starting businesses.
“About 16% of borrowers are in default – including nearly a third of senior citizens with student debt – which can result in the government garnishing a borrower’s wages or lowering a borrower’s credit score. The student debt burden also falls disproportionately on Black borrowers. Twenty years after first enrolling in school, the typical Black borrower who started college in the 1995-96 school year still owed 95% of their original student debt.”
So, what does this Plan include? First of all, it’s important to remember this all only applies to Federal Student Loan debt. Private student loans are not affected by these changes.
The StudentAid.gov website lays out the details. For anyone with student loans, this website should be bookmarked as it contains informative fact sheets and the details for your loan if you login to your personal account. On the Announcement Page the US Department of Education lays out the preliminary details of the Relief Plan. Here are the highlights:
- The Repayment Pause has been extended through the end of 2022, with payments to restart in January 2023.
- An individual making less than $125,000 (and married couples making less than $250,000) will have up to $10,000 in federal student loan debt cancelled.
- Anyone who is eligible under the above-income threshold and received a Pell Grant in college will have up to $20,000 in federal student loan debt cancelled.
- The US Dept. of Education will be launching a simple application to report your income eligibility in the coming weeks. If they already have your income information, you may not need to do anything.
- To receive updates and find out when the Application is available, sign up for updates with the US. Dept. of Education through their subscription page.
- Once repayment resumes, the President’s Plan also changes the income driven repayment:
(a) Borrowers will now pay no more than 5% of their discretionary monthly income on undergraduate loans, down from 10%.
(b) Anyone with income less than 225% of the Federal Poverty Level will have a $0.00 monthly payment under the IDR plan.
(c) Anyone using an IDR plan with a balance of $12,000 or less, will have the balance forgiven after 10 years of IDR payments, down from 20 years.
(d) One of the Most Important Changes is that individuals on an income driven repayment plan, which again can be as low as $0.00 per month based on income, will have no interest added while on an IDR plan. So the loan balance will not grow as long as the person is on an IDR plan.
All of these changes have just been announced, and it will take the U.S. Department of Education time to implement all of these changes. To stay informed monitor the studentaid.gov website, your servicer’s notices, and sign up for email updates from the Department.
If you have questions about your specific situation, you can also reach out to us at MDRF. Visit our contact page for how to get in touch.