President Biden recently made a huge, revealing that it forgives up to $20,000 in student loan debt for millions of Americans. In fact, nearly 20 million people will be eligible for full debt cancellation under the new plan, Biden said.
“An entire generation is now saddled with unsustainable debt in exchange for at least trying to get a college degree. The burden is so heavy that even if you graduate, you may not have access to the middle-class life that a college degree once offered,” Biden said as he outlined the plan that affects the roughly 43 million federal borrowers.
Mr. Biden also announced a further extension of the federal student loan payment pause until December 31, 2022 (payments resume in January).
However, the loan forgiveness element does not apply to private student borrowers who represent approximately 8% of total student debt outstanding in the United States, according to a 2021 report by MeasureOne. If you fall into this category, you might want to consider exploring other ways to save money, such as refinancing a student loan. Find out what private lenders have to offer.
For those who are federal student loan borrowers, here’s how you can apply for debt relief.
Who qualifies for Biden’s student loan forgiveness plan?
Before you even have to worry about applying for student loan forgiveness under the Biden administration’s new plan, you’ll need to. Here are the criteria you must meet.
- You currently hold a federal student loan
- You earn less than $125,000 per year or your household earns less than $250,000 per year
- You are a Pell Grant recipient with loans held by the Department of Education (this is required for additional remission)
If none of the above applies to you or if you have a private student loan, be sure to check out what private lenders have to offer. A student loan refinance, which is basically replacing your existing loan with another loan with a potentially more favorable interest rate, is a good option if you’re looking to save money in the long run. Here’s how you can get started.
How to Apply for Biden’s Student Loan Forgiveness Plan
If you check the boxes above, you likely qualify for student loan forgiveness under this new plan. Just note that your relief will be capped at the outstanding amount (so you won’t be able to pocket any extra money if you have less than $10,000 in federal student debt).
Now that you know you meet the requirements, you’ll want to set a reminder to ask for forgiveness. You can sign up to receive notification from the Department of Education when the app opens. The app will likely open around early October, White House officials said.
Eligible borrowers are advised to apply by November 15, 2022 “in order to receive relief before the payment break expires on December 31, 2022”. But, you will have time. The deadline to apply is December 31, 2023.
You will submit an application through the Ministry of Education, which will outline the exact steps you need to follow. You will likely need to demonstrate that you meet the above income threshold and have federal student loan debt, so be sure to gather the appropriate documents to prepare when the application becomes available.
“The app will be available no later than when the pause on federal student loan repayments ends at the end of the year,” the White House said in a statement, adding that 8 million borrowers may be able to automatically get relief because their financial records and income data are already available to the Ministry of Education.
“Thanks to the US bailout, this debt relief will not be treated as taxable income for federal income tax purposes,” the White House added.
Student Loan Forgiveness FAQs
After the announcement of Mr. Biden’s student loan cancellation, Google searches increased – and federal student aid received an overwhelming volume of traffic that caused delays on the site. So here are some frequently asked questions related to the news.
What is a Pell Grant?
When researching the Biden administration’s student loan forgiveness plan, you’ll come across the term “Pell Grant” a lot. A Pell Grant is a form of financial aid that you can be awarded based on your financial need, which is determined by the Department of Education during the Free Application for Federal Student Aid (FAFSA)..
Your expected income, student status, school and other expenses are taken into account. In addition, your school must be registered in the program. Be sure to contact your school’s financial aid office if you want more details.
This type of financial aid, which generally does not need to be repaid, is reserved for undergraduate students “who display exceptional financial need and have not obtained a bachelor’s, graduate or professional degree” , according to Federal Student Aid.
The maximum Pell Grant award for the 2022-23 school year was just under $7,000, Federal Student Aid says on its website.
“Since 1980, the total cost of public and private four-year colleges has almost tripled, even after adjusting for inflation. Federal support has not kept pace: Pell grants once covered almost 80% of the cost of “a four-year college. a one-year public college degree for students from working families, but now only covers a third. This has left many students from low- and middle-income families with no choice but to borrow if they want to get a degree,” the White House said as they announced their decision on student loan forgiveness, noting that Department of Education data shows that students in undergraduates leave school with an average debt of nearly $25,000.
Will the student loan payment break be extended again?
As mentioned, the “permanent” freeze on student loan repayments has been extended until December 31, 2022.
“As the economy continues to improve, COVID cases remain at a high level, and the President has made it clear that pandemic-related relief should be phased out in a responsible manner so that people do not suffer harm. unnecessary financial harm,” the Department of Education said in a press release.
Are there other student loan forgiveness programs?
For those interested in student loan forgiveness, you may want to check out the other programs available.
- Loan forgiveness to teachers: Check the American Federation of Teachers website for a list of loan forgiveness and other financial aid opportunities. Generally, you must be a full-time teacher who has worked five full, consecutive years at certain low-income schools. You can also receive additional credits with this limited-time waiver available through the end of October.
- Waiver of public service loan (PSLF): You may qualify for a PSLF loan if you are a full-time employee of a federal, state, local, or tribal government or nonprofit organization that has direct loans, repay using a certain repayment plan based on income and you have made 120 qualifying payments.
- Income Contingent Reimbursement (IDR) Plans: Department of Education creates new rules involving income-tested repayment plans, which allow borrowers to set loan repayments based on what they can afford (based on non-discretionary income ). After a certain time or number of payments, loans can be canceled (learn more about the new rules).
- Military service: Pardon opportunities exist for active military and veterans. Military.com lists the various financial aid and assistance opportunities available.
- Volunteer: Voluntary organizations such as AmeriCorps and the Peace Corps may provide pardon offers.
Federal Student Aid lists more specific criteria and details you need to know to apply for each.