How Biden’s Student Loan Forgiveness Plan Could Affect You
by Guy Oron
(This article originally appeared on Real Change and has been reprinted as part of an agreement.)
On August 24, President Joe Biden announced a sweeping plan to crack down on student loans, waiving up to $10,000 for borrowers earning less than $125,000 a year. Pell Grant recipients will be eligible for debt forgiveness of up to $20,000.
Student loans in the United States account for nearly $1.75 trillion in debt, 92% of which is held by the federal government. In Washington state, more than 782,000 borrowers owe about $28.2 billion in student loans, according to Federal Student Aid (FSA). The new Ministry of Education policy only applies to loans held by the public.
The White House said 87% of people who will get debt forgiveness earn less than $75,000 a year.
Mandatory student loan repayments have been suspended since March 2020 due to the COVID-19 pandemic. Biden’s plan extends that moratorium until the end of 2022, though he said that will be the last extension.
About 249,000 borrowers in Washington have less than $10,000 in federal student loans. This means that if they earned less than $125,000 in adjusted gross income (or $250,000 for married couples) in 2020 or 2021, they will have no public student loan debt after cancellation. People who repaid some or all of their loans during the COVID-19 pandemic may be eligible for a refund of up to $10,000.
According to the Education Data Initiative, more than 104,000 Washington residents have received Pell Grants, making them eligible for the additional $10,000 student loan forgiveness. Biden’s student loan forgiveness policy will particularly benefit Black, Latino and Indigenous borrowers (58%, 47% and 51% of whom received Pell grants, respectively). About 32% of white borrowers received Pell grants. Pell grants are for students with “exceptional financial need”.
However, the forgiveness portion of Biden’s new plan may not have as much of an impact for the 59,500 Washingtonians who owe more than $100,000 in student loans, totaling about $11 billion.
A host of other changes made by the Ministry of Education could be more beneficial to current and future borrowers. This includes a reduction in minimum monthly payments from 10% to 5% of a person’s discretionary income. The changes also include a new way to calculate minimum payments, ensuring that anyone whose annual income is below 225% of the federal poverty level doesn’t need to make monthly payments on their student loans.
Basically, the new plan will waive unpaid interest not covered by the minimum payment, as long as that payment is made. This could be a game-changer, as it would help prevent debt from spiraling out of control due to accrued interest.
Additionally, Biden and Education Secretary Miguel Cardona have pledged to reform the Civil Service Loan Forgiveness Program, which erases student loan debt for people who work in certain jobs in the government and nonprofit sectors. non-profit. Historically, the program’s onerous requirements have made it difficult for people to qualify for debt cancellation.
Biden has claimed he has the power to push through those changes through executive action under the HEROES Act of 2003, which grants the education secretary the power to enact emergency student loan relief. However, Republicans have disputed this and plan to file lawsuits to prevent the student loan forgiveness policies from being implemented. Some also claimed the policy was an attempt to “buy votes” for the 2022 midterm elections.
The White House has announced that it will release an online form for those eligible to have their student loan forgiven in early October. Borrowers can keep up to date with notifications via the FSA website and must apply for a rebate by the end of 2023 to be eligible. The FSA already has income information for around 8 million borrowers who may be eligible for automatic debt cancellation.
Guy Oron is Real Change’s staff reporter. A Seattleite, he studied at the University of Washington. Guy’s writings have been featured in The Stranger and the South Seattle Emerald. Outside of work, Guy enjoys spending his time organizing justice, rock climbing and playing chess. Find them on Twitter @GuyOron.
📸 Featured image by zimmytws/Shutterstock.com.
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