By Karen Stokes
On Wednesday, President Biden announced a plan to wipe out significant amounts of student loan debt for tens of millions of Americans.
During the campaign President Biden promised to provide targeted student debt relief to working and middle class families.
After much deliberation, according to the White House, borrowers that make below $125,000 annually and households making less than $250,000 annually will qualify for $10,000 in federal debt relief. Pell grant recipients under those same income thresholds will qualify for $20,000 in federal student debt relief.
“In the coming weeks the administration will release more information on how to sign up to learn more on the debt relief,” said Katherine Valle, White House Higher Education Policy Adviser. “What borrowers can do right now, they can go to the Department of Education website, studentaid.gov.
Biden also extended the moratorium on loan repayments through the end of 2022. The moratorium was first introduced in March 2020.
The administration is also making plans to make the student loan system more manageable for current and future borrowers by cutting monthly payments in half for undergraduate loans and holding schools accountable when they hike up prices.
“The President announced a few changes, the first change is focusing on Income Driven Repayment. This is a way to ensure that student loan payments are more manageable both for current and future borrowers,” said Valle.
“Currently there are several repayment plans where borrowers can make monthly payments based on their income level and if they pay for 20 years their remaining debt can be canceled. The administration is proposing changes that half of the amount that borrowers would pay monthly for undergraduate loans at 5% of a borrower’s income. As a result, a nurse with an undergraduate loan making $77,000 annually, married with two kids would pay only $61 per month compared to $295,” she added.
There will be temporary changes to the Public Service Loan Forgiveness program so more public service workers can get their debt cancelled after 10 years of service. Individuals can apply right now – until October 31st – to take advantage of these temporary changes to the PSLF program. Visit PSLF.gov for more information.
According to the Whitehouse, even before applying the additional $10,000 for recipients of Pell grants, the typical Black borrower will see their balance cut nearly in half, and more than one in four Black borrowers will see their balance forgiven altogether.
Currently about one in four Black Americans have negative net worth—meaning their total debt exceeds their total assets. The first $10,000 of debt relief would move over half a million Black Americans from negative to positive net worth.
Among Hispanic borrowers, the first $10,000 of relief would reduce their balances by 52 percent and 1 in 3 Hispanic borrowers will see their balances entirely forgiven.
This plan may be a relief to some borrowers but there are still others who are opposed to school loan forgiveness and believe this program is unfair and will negatively impact the economy.
“Over the long term, evidence tells us cancelling debt gives breathing room to borrowers allowing them to avoid bankruptcy or default on the mortgage payments or medical bills,” Valle said. “There’s also data that shows borrowers with less debt are more likely to start a small business, building our economy from the bottom up to middle out.”
The Department of Education says borrowers can apply for loan relief in a few weeks.