This week, the White House announced a sweeping plan to forgive the student loan debt of millions of Americans. The initiative will cancel up to $10,000 in debt for some borrowers and $20,000 for others. Here’s how to see if you’re eligible for loan forgiveness, how you can get your hands on the money, and a look at how the program will effect student loans in the future.
Who is eligible for student loan relief?
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If you are an individual loan borrower who makes up to $125,000 a year or a married couple or head-of-household who makes up to $250,000 a year, you may be eligible for up to $10,000 of federal student loan forgiveness. If you were the recipient of a Pell Grant while an undergraduate, and your income is under the guidelines above, you will be eligible to receive $20,000 in loan forgiveness. (Here’s how to find out if you were a Pell Grant recipient.) If you are currently a student, and claimed as a dependent by your parents, the loan forgiveness is based on your parents’ income.
Where do I sign up for loan forgiveness?
Nearly 8 million borrowers are expected to receive automatic debt forgiveness because the Department of Education already has their income information. Everyone else is going to have to jump through a hoop or two.
As of now, the Department of Education hasn’t revealed the details of the application process, but the White House promises the DOP will “work quickly and efficiently” to set it up. They say the application will be available before the current student loan repayment pause expires at the end of the year. You can sign up at the Department of Education’s website to be among the first to know.
What about the rest of my loans?
Immediate debt repayment is the attention-grabbing part of Biden’s plan, but what’s being done for people who hold more than 10k or 20k in student loan debt and future-borrowers may prove the most impactful. Here’s what student loan payment may look like in the future.
- Lower monthly payments: Biden’s plan cuts the maximum loan payment amount from its current 10% of salary to 5%, and eliminates all loan payments for borrowers making less than 225% of the federal minimum wage—that’s about $15 an hour.
- Loan forgiveness: Borrowers carrying less than $12,000 in debt can have their loan balances canceled after making regular payments for 10 years.
- Unpaid loan interest covered: With the new plan, your loan balance will not go up if your monthly payment is less than your interest payment, eliminating the treadmill of making payments only to have the amount you owe rise.
Controlling the cost of college
Along with shifting some of the burden of paying for college away from low and medium-income individuals, the plan also calls for more accountability for educational institutions, including “publishing an annual watch list of the programs with the worst debt levels in the country” and “requesting institutional improvement plans from the worst actors that outline how the colleges with the most concerning debt outcomes intend to bring down debt levels.”
But is this actually going to happen? (And should we thank George W. Bush if it does?)
A presidential proclamation of an expansive plan without a bill passed by congress is far from a certainty. Although it’s not as flimsy as an executive order, the basis for Biden making these changes isn’t necessarily rock-solid either. The Biden administration is claiming authority under 2003’s HERO (“Higher Education Relief Opportunities”) Act, a Bush-era law that allows the Secretary of Education to “modify Federal student financial assistance program requirements to help students and their families or academic institutions affected by a war, other military operation, or national emergency.”
In the opinion of both the Biden administration and the Office of Legal Counsel, COVID-19 counts as the emergency, but this is unlikely to be an opinion shared by everyone. If a legal challenge is mounted to loan forgiveness—and I’ll bet it will be—the federal courts will determine the scope of the administration’s power, and which parts (if any) of the plan are ultimately legal.