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Today, the Biden administration announced a three-part plan on the president’s promise to cancel $10,000 of student debt for low-to middle- income borrows.
The White House said that the three-part plan provides breathing room to working families as they recover from COVID struggles. The announcement said that the Department of Education would provide targeted debt relief to address the financial harms of the pandemic. The Department of Education will provide up to $20,000 in debt cancelation to Pell Grant recipients with loans held by the department and up to $10,000 in debt cancellations to non-Pell Grant recipients. The relief is available to those that individual incomes are less than $125,000, or $250,000 for married couples. This means that no high-income households in the top 5 percent will not be eligible. The pause on federal student loan repayments will be extended one final time through December 31, 2022, to ensure a smooth transition to repayment.
The plan is said to make the student loan system more manageable for current and future borrowers for multiple reasons. It will cut monthly payments in half for undergraduate loans and the Department of Education is proposing a new income-driven repayment plan that protects families. The average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers. The plan is said to fix the broke Public Service Loan Forgiveness (PSLF) program by proposing a rule 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. This would build on temporary changes in the Department of Education that has already made PSLF which more than 175,000 public servants have already had more than $10 billion in loan forgiveness approved.
According to the White House fact sheet, the plan will protect future students and taxpayers by lowering the cost of college and holding schools accountable when prices are hiked. According to the fact sheet, “the President will continue to fight to double the maximum Pell Grant and make community college free. Meanwhile, colleges have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.” If all borrowers claim the relief, the actions would:
- Provide relief for up to 43 million borrowers including canceling the full remaining balance for around 20 million borrowers.
- Target relief dollars to low and middle-income borrowers. The Department of Education estimated that among the borrowers who are no longer in school, almost 90 percent of relief dollars will go to those earning less than $75,000 a year.
- Help borrowers of all ages. The Department of Education estimates that 21 percent of those eligible are 25 years and younger and 44 percent are ages 26-39. More than a third are borrowers above the age of 40.
- Advance racial equality by targeting relief. The fact sheet states that by targeting relief to borrowers with the highest economic need, the Administration’s actions are likely to help narrow the racial wealth gap.
More information on claiming relief will be available to borrowers in the coming weeks. Borrowers can sign up to be notified when this information is available at StudentAid.gov/debtrelief.
