President Biden’s announcement of a massive effort to forgive federal student loan debt — up to $20,000 for Pell Grant recipients and up to $10,000 for others who qualify — leaves millions of borrowers with unanswered questions, and some details won’t be clear for weeks or months.
Here are three big questions borrowers can ask themselves:
1. Who will benefit from loan forgiveness?
Americans currently owe about $1.62 trillion in federal student loans. Biden’s plan will relieve most of them – 43 million borrowers – and completely wipe out student debt of about 20 million.
But who is eligible?
Individuals with federal student loans who earn less than $125,000 a year, or couples earning less than $250,000, can qualify for a rebate of up to $10,000.
This includes current students: Borrowers who are student dependents will be eligible for relief based on their parents’ income. Parent PLUS loans, which are federal loans for parents of undergraduate students, are also eligible under the President’s plan. (Loans taken out after June 30, 2022 will not qualify.)
Qualified borrowers who have received Pell Grants are eligible for additional relief – up to $20,000.
According to the White House, about 60% of federal student borrowers have received Pell Grants. These grants are designed to help low-income students pay for higher education, and about one-third of undergraduate students with federal student loans receive Pell Grants each year.
2. Should I apply?
Many borrowers, although excited about the news, want to know what’s next. The White House said that to qualify, most borrowers will need to submit an application to verify their income. The Department of Education said nearly 8 million borrowers already have income information on file and should be eligible for automatic debt cancellation.
For those 8 million borrowers, that relief could come very soon. And the schedule for the remaining borrowers – some 35 million of them?
“That’s the million dollar question,” Education Secretary Miguel Cardona told NPR’s Mary Louise Kelly.
“We are improving a system that was broken and outdated,” he said, adding that it will take time for the process to run smoothly. Cardona urged borrowers to go to https://studentaid.gov/debt-relief-announcement/ for more information and to sign up for automated emails that will provide updates.
3. Will my monthly payments go down?
An unexpected part of Biden’s announcement is a revised plan for what’s known as Income-Based Reimbursement (IDR), which is designed to help people who can’t afford large monthly payments. .
Biden’s IDR plan will reduce the amount borrowers must contribute each month – from 10% of their Discretionary Income to 5%. It will also increase the amount of income that is considered non-discretionary, providing more help.
While Biden’s loan forgiveness announcement brings immediate relief to many borrowers, Dominique Baker, associate professor of educational policy at Southern Methodist University, says these IDR changes could provide benefits for years to come. . “When we talk about the need for large-scale reform of the student loan system, it would be one of those things,” she said. “It’s a good first step.”