On Aug. 24, President Biden and the Department of Education released a statement detailing a three-part plan to cancel a portion of student loan debt for low- and middle-income borrowers. The plan aims to make good on Biden’s campaign promises regarding student debt.
The targeted relief provides up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, as well as up to $10,000 in cancellation to non-Pell recipients. Only borrowers with an income under $125,000, or $250,000 for married couples, are eligible for the relief.
The administration also announced the continuation of the pause on federal student loan repayment through Dec. 31. The statement made clear that this is the final extension of the pause, and “borrowers should expect to resume payment in January 2023.”
The second prong of the president’s plan intends to make student loan repayment more manageable by improving the Public Service Loan Forgiveness program and reducing monthly payments for undergraduate loans. The Department of Education will propose a rule stating that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government receive “appropriate credit” toward loan forgiveness.
The release also made clear that “thanks to the American Rescue Plan, this debt relief will not be treated as taxable income for the federal income tax purposes.”
The department’s proposed income-driven repayment plan would protect many low-income borrowers from making any payments and would cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income. The plan also differs from existing income-driven repayment plans in that it will cover the borrower’s unpaid monthly interest.
In one example given by the statement, “a typical single public school teacher with an undergraduate degree (making $44,000 a year) would pay only $56 a month on their loans, compared to the $197 they pay now under the most recent income-driven repayment plan, for annual savings of nearly $1,700.”
Looking towards future students and borrowers, the president will “continue to fight to double the maximum Pell Grant and make community college free.” The administration has also taken steps to hold schools accountable for hiking up prices in order to ensure that students get “value for their investments, not debt they cannot afford.”
The president’s statement asserts that if all borrowers claim the relief to which they are entitled, the proposed plan will provide relief for up to 43 million borrowers, including wiping the remaining balance for approximately 20 million people. According to the release, the relief plan is also “likely to help narrow the racial wealth gap.”
More information will be available coming weeks, according to the release.