A sweeping change to the student loan debt program has fired up both sides of the political aisle. President Joe Biden announced the changes on Wednesday, forgiving up to $20,000 in student loan debt for millions of borrowers.
The Biden administration announced the steps to address the growing burden of student loan debt on millions of middle-class Americans. In addition to the debt cancellation, the plan also extends the current pause on student loan repayments until December 31. The Biden team was forced to act quickly on this part of the package because the pandemic-related extension was set to expire at the end of August.
Details of Debt ReliefRead More »
Under the new plan, individual borrowers with an annual income of less than $125,000 or heads of household who make less than $250,000 annually will receive up to $10,000 of their federal student debt forgiven if they had not been the recipient of a Pell grant. However, those borrowers who did receive a Pell grant during their undergraduate years are eligible to receive up to $20,000 of the total debt amount forgiven if they meet the same income requirements.
According to the Biden administration, nearly 8 million borrowers may be eligible for the forgiveness plan. This number is based on income information already in the hands of the Department of Education. A new application will launch shortly for Americans to submit their income information if the DOE does not have this on file. This application will be available prior to when the repayment pause comes to an end on December 31.
Future Repayment Details
Although the Biden administration granted one more pause on the repayment plans, these payments will resume again in January 2023. In order to help Americans manage their student loan payments with living expenses, the White House is proposing a new repayment structure that is driven by income levels. Under the proposed plan, borrowers would pay no more than 5% of their total monthly income on federal loans used to finance their undergraduate loans. The current maximum is 10% of monthly income.
The proposed rule would also raise the amount of income that is now considered to be non-discretionary. As such, no borrower that is sitting at 225% below the federal poverty level will be required to make a monthly payment on their loan.
Additionally, borrowers with a balance of $12,000 or less would see the debt forgiven after the 10-year mark. This differs from the current 20-year mark. Lastly, the proposed plan would also cover unpaid monthly interest in an effort to prevent the balance from growing.
Decision Triggers Criticism on Both Sides of Aisle
The major announcement triggered criticism on both sides of the aisle. Those on the left were disappointed that the White House did not approve a larger dollar amount for the loan forgiveness. For instance, Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren had recently requested that the president cancel up to $50,000 for each borrower.
Conversely, those on the right argued that the president is punishing workers that did not go into debt while attending college. Senate Minority Leader Mitch McConnell said that the plan will make inflation worse.
The president and his team have responded to the criticism by reminding Americans that Congress also voted in approval of a $2 trillion tax cut that put more money into the pockets of the wealthiest citizens and largest corporations, particularly during the earliest days of the pandemic. During his remarks announcing the plan, Biden said that the burden of student loan debt is particularly difficult for Black and Hispanic families because they are not as likely to have the family resources to pay for a college education.
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