August 25, 2022
Yesterday, President Biden announced that he will cancel student loan debt for millions of Americans. If you took out your loans prior to June 30th of this year and earn less than $125,000 per year (or $250,000 as a couple), you will have $10,000 of federal student loan debt forgiven. If you received federal Pell Grants and fall under those same income thresholds, you will be eligible for up to $20,000 of forgiveness.
If you’re not sure if you’ve received a Pell Grant in the past or have no idea what one is; a Federal Pell Grant is money awarded to students who need additional financial aid. About 66% of Pell Grants between 2019 and 2020 were awarded to families who made $30,000 or less per year. These grants are not based on extra-curriculars or GPA, and they do not need to be repaid. The maximum Pell Grant for the 2022-2023 school year is $6,895.
According to White House officials, this forgiveness also applies to Parent Plus loans, as long as the same income thresholds are met. The total amount forgiven will be tax exempt, and not be considered additional income for this calendar year.
In addition to the loan forgiveness, the pause of student loan repayment will be extended through December 31st.
Biden presented this news as a three-part plan. Step one is cancelling loans for those who are eligible. Step two is creating a new income-driven repayment plan that will cap your payments to 5% of your monthly income—half of the previous cap of 10%. The third and final step will improve upon the Public Service Loan Forgiveness program (PSLF) that aids people who work for non-profits, in the military, or in federal, state, tribal or local government. There are specific criteria that need to be met to receive full forgiveness through this program, but the Biden Administration intends on making it easier to attain.
This past year, a temporary PSLF program was rolled out that allows borrowers who did not have direct loans to still receive forgiveness and it was set to expire this coming October. This program is set to build on top of these changes. One important note to make is that the Department of Education will now count partial, lump sum, and late payments toward your 120 qualifying payments. They will also count forbearances and deferments for the Peace Corps, AmeriCorps Service, National Guard duty and military service toward PSLF.
A few smaller changes that you may not have seen in the news are as follows:
- The amount of income that is considered non-discretionary is being raised, meaning that borrowers who earn under 225% of the federal poverty level will not have to make a monthly payment. This would affect those who earn $15 an hour or less.
- Borrowers with an original balance of less than $12,000 will have their loans forgiven after 10 years, regardless of if their new income driven repayment amount is $0 based on income.
- As long as you make your payments, your loans will not accrue interest. Even if your minimum payment is $0.
If you have questions about how to qualify for PSLF and have the rest of your loans forgiven, please contact me today!