Federal Student Loan Relief Is Here, But Are You Eligible?

The United States government has a 3-part plan promising to cancel $10,000 of student debt for lower and middle-income borrowers. 

Washington, DC | The cost of post-high school education is burdensome for many low-middle-income students and families. According to the Department of Education, college and post-high school education is a way out of poverty. But with finances being a barrier to entry, many students lose out on that opportunity. The Biden Administration promises to follow through on their 3-part plan, providing families and students a chance to start repaying loans during our current economic crisis due to the pandemic.

How Will This 3-Part Plan Help Ease Student Debt?

 According to the Department of Education, the 3-part plan will:  

  • Provide targeted debt relief to address the financial harms of the pandemic
  • The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients. 
  • Borrowers are eligible for this relief if their income is less than $125,000 ($250,000 for married couples). 
  • No high-income individual or high-income household – in the top 5% of income earners will benefit from this action. To ensure a smooth transition to repayment and prevent unnecessary defaults. 
  • The federal student loan repayment extends from now through December 31, 2022Borrowers should expect to resume payment in January 2023.
  • To make the student loan system more manageable for current and future borrowers by:
  • A reduction of payments by half for undergraduates 
  • Department of Education proposes a new income-driven repayment plan that protects more low-income borrowers from making payments and caps monthly payments for undergraduate loans at 5% of discretionary income- half the rate borrowers currently pay for existing plans. 
  • The average annual student loan payment will be lowered by more than $1,000 for current and future borrowers. 
  • Public Service Loan Forgiveness (PSLF) program- proposing a rule that borrowers who have worked at a non-profit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness. These improvements will build on temporary changes the Department of Education has already made to PSLF, under which more than 175,000 public servants have more than $10 billion in loan forgiveness approved.
  • Protect future students and taxpayers by reducing the cost of college and holding schools accountable when raising prices. The President championed the increase of Pell Grants for over a decade and the largest of one-time influxes to colleges and universities. To further reduce the cost of college, the President will continue to fight to double the maximum Pell Grant and make community college free to access. Meanwhile, colleges must keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford. This Administration has already taken steps to strengthen accountability, including in areas where the previous Administration weakened rules. The Department of Education is announcing new efforts to ensure student borrowers get value for their college costs.

According to the Department of Education, current students with loans are eligible for this debt relief. Borrowers who are dependent students will be eligible for relief based on parental income rather than their income. 

Borrowers who claimed relief from these actions will:

  • Provide relief to up to 43 million borrowers, including canceling the remaining balance for roughly 20 million loan borrowers.
  • Targeted relief to lower-middle class borrowers, the Department of Education estimates that, among borrowers no longer in school, nearly 90% of relief dollars will go to those earning less than $75,000 a year. No individual making more than $125,000 or household making more than $250,000 – the top 5% of incomes in the United States – will receive relief.
  • Help borrowers of all ages. The Department of Education estimates that, among borrowers eligible for relief, 21% are 25 years and under, and 44% are aged 26-39. More than a third are borrowers age 40 and up, including 5% of borrowers who are senior citizens.

The Department of Education is proposing a rule to do the following:

  • For undergraduate loans, reduce the amount that borrowers pay each month from 10% to 5% of discretionary income.
  • Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment.
  • Forgive loan balances after ten years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department of Education estimates that this reform will allow nearly all community college borrowers to be debt-free within ten years.
  • Cover the unpaid monthly interest. Unlike other income-driven repayment plans, no loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.

These reforms would simplify loan repayment and deliver significant savings to low- and middle-income borrowers. For example:

  • A typical single construction worker, making $38,000 a year, with a construction management credential would pay only $31 a month, compared to the $147 under the most recent income-driven repayment plan, for annual savings of nearly $1,400.
  • 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 under the most recent income-driven repayment plan, for annual savings of nearly $1,700.
  • A typical nurse making $77,000 a year, married with two kids, would pay only $61 a month on their undergraduate loans, compared to the $295 under the most recent income-driven repayment plan, for annual savings of more than $2,800.

The price of schooling has tripled since 1980, with fewer students attending post-high school education and more borrowers in debt. According to a Department of Education analysis, the typical undergraduate student with loans now graduates with nearly $25,000 in debt. Student loan debt in America totals $1.6 trillion and continues to rise for 45 million borrowers. With the crippling student debt, middle-class borrowers struggle to make ends meet and pay their loans. These ballooning balances and high monthly payments create a system where it is much harder for the average person to accumulate wealth, such as purchasing homesputting away money for retirement, or starting small businesses.

Student loan debt is at its highest, and the percentage of borrowers holding a degree is at its lowest, according to the Department of Education. Roughly one-third of all senior citizens have student debt and no degree to show for it, according to an analysis by the Department of Education of a recent cohort of undergraduates. Many students did not complete their degrees due to the cost of attending post-high school education, with 16% of these borrowers defaulting on their loans. Outstanding loans can result in the government garnishing wages and even lowering their credit score, with the worst debt attributed to 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.

For each of these borrowers, balances would not increase for as long as they make monthly payments and have the remaining debt forgiven after giving the required qualifying payments. Starting in the summer of 2023, these borrowers will allow the Department of Education to automatically pull their income information yearly, avoiding the need to recertify their income annually, according to the Department of Education.