Although student loans can be necessary for many students to get a higher education, it can be a challenge to pay them back. Student loans are one of the biggest problems lots of Americans have to deal with. People remain in debt for years because of these loans. Luckily, there is a chance for some students to benefit from a big student loan cancellation. In case you do not know, President Biden declared that he will forgive qualifying borrowers’ student loan debt.
President Biden’s Announcement of Student Loan Forgiveness
On August 24, 2022, President Joe Biden announced that he would be waiving most federal student loan debt for eligible borrowers. This decision is related to his campaign promise to help Americans who are struggling financially all around the country. In addition to canceling student loans, he is extending the pause on federal student loan payments. This pause will last until December 31st, 2022, instead of August 31st, 2022.
On top of that, during his announcement, President Biden talked about new repayment plans that take income level into account. The monthly payments for undergraduate loans will be capped under the new plan, he said. This cap would not exceed 5% of the borrower’s discretionary income, which is great since the majority of current plans have a monthly payment rate of 10%.
How Much Student Loans Will Be Canceled?
Borrowers who qualify will be able to have up to $20,000 in debt canceled. On the other hand, borrowers who do not qualify for that amount will have $10,000 forgiven. It is important to note that this relief opportunity is not available to all student loan holders. It is only limited to those who qualify.
Who Qualifies For the Student Loan Forgiveness?
You might qualify for student loan forgiveness if you are still a student or no longer a student. One of the eligibility requirements is a certain level of income. There are guidelines that borrowers must comply with. If a borrower wants their student loans to be forgiven, their income cannot be higher than:
- $125,000 per year for single filers
- $250,000 per year when filing jointly as a couple or as head of household
Those who fulfill these income standards will be eligible for $10,000 in student debt forgiveness. These income levels will apply to either the 2020 or 2021 tax years. For students who were identified as dependents, eligibility will be based on their parents’ income rather than their own.
Additionally, it is crucial to remember that those who meet this income limit and got a Pell Grant are eligible for a $20,000 student loan cancellation. This is an excellent benefit since the majority of student loan borrowers got this grant. Unfortunately, some borrowers, like private student loan borrowers, will not be eligible. The only people who are qualified for this relief are those with federal student loans.
How to Take Advantage of This Relief Opportunity?
Those that are interested in taking advantage of this opportunity can find the application on the studentaid.gov website. As applicants go through the application, they will be required to fill out information like:
- Personal Information: Email Address and Phone Number
- Identifying Information: Name, Social Security Number, Date of Birth
Besides providing those details, applicants will need to confirm that they meet qualifications. This includes requirements that focus on level of income. These applications must be submitted by December 31st, 2023. Once submitted, they should take between four weeks and six weeks to process. Some applicants may find that they need to provide extra documentation after they submit their application in order to verify their income.
Which Loans Will Qualify for Cancellation?
Borrowers who have at least one of the following loans will be eligible for student loan cancellation:
- Graduate loans
- Undergraduate loans
- Parent Plus loans
How Many Borrowers Will Benefit From This Relief?
43 million people who have student loan debt are expected to benefit from this relief, according to the White House. Besides that, they anticipate that up to 20 million debtors will have their remaining student loan balances forgiven entirely. To put these numbers into context, about 45 million Americans are in some sort of debt due to student loans.
Is This the Same Forgiveness That Canceled Billions of Dollars Worth of Student Loans?
It’s important to understand that this loan forgiveness is entirely different from President Biden’s cancellation of $25 billion in student loans. President Biden eliminated all student loan debt for qualified borrowers including:
- Public service loan cancellation
- Borrowers with a permanent disability
- Borrower defense against school closures and student loan repayment
There is a difference between this opportunity of forgiving up to $20,000 of student loans and the previous forgiveness. This one seeks to forgive student loans for eligible borrowers of federal student loans who fall within specific income limits.
Alternative Assistance Options If You Do Not Qualify for This Relief
You may feel bad if you are having difficulty repaying your student loans but do not qualify for forgiveness. Fortunately, there are some other options that can help you better handle your student loans. You may want to consider:
- Consolidating Your Student Loans
- Applying for the Teacher Loan Forgiveness Program
Consolidating Your Student Loans
You might be dealing with several interest rates and due dates if you have more than one student loan. For this reason, consolidating your student loans may be helpful in your situation. Consolidating your loans means combining two or more of your student loans and rolling them into a single loan. This way you will only have to worry about one monthly payment and interest rate.
Applying for the Teacher Loan Forgiveness Program
Didn’t qualify for any type of relief we mentioned above? No worries! You might have a chance to get some support through the Teacher Loan Forgiveness Program. Federal direct loans (except for PLUS loans) under this program may be forgiven for up to $17,500 in total. A borrower must have taught for five full, continuous years to qualify for this forgiveness. Eligibility requirements for this program also include working as a teacher at a low-income educational service organization or institution. Borrowers must have taught within a timeframe that is at least a year after the academic years of 1997-1998.
Overall
President Biden announced a new plan to address student loans on August 24, 2022. This plan included the following:
- For qualifying borrowers, there will be a debt forgiveness relief worth up to $20,000.
- Extending the payment pause for payments of federal student loans.
- A new, income-driven repayment plan that caps monthly payments at 5% of the borrower’s discretionary income.
Many student loan borrowers would feel relieved with this support. A total of 43 million borrowers are expected to benefit from this opportunity. If you want to take advantage of this relief, you will have to submit an application to the ED. The application forms should be available to the public soon, so stay tuned!