Earlier this week President Biden announced the Student Debt Relief Plan that applies to loans held by the Department of Education. While not everyone with a federal student loan will see relief, many will. Direct Stafford Loans, Parent Plus and Grad Loans are eligible.
Some things to know:
Unlike with the PPP program, in which about $4 million in loans were forgiven for Tewksbury businesses alone, you may not need to apply. Individuals holding eligible student loans will see the amount deducted from their accounts automatically if their income data is already available to the U.S. Department of Education.
If the DoE doesn’t know your income, or you’re not sure, you can submit a simple application that is expected to launch in a few weeks. If you would like to be notified when the application is open, you can sign up at the Department of Education subscription page.
The program also automatically extends the pause on Federal student loan payments until the end of 2022. In January, payments will resume. And, it requires borrowers to pay no more than 5% of their discretionary income monthly on undergraduate loans while raising the amount of income that is considered non-discretionary.
The White House said that its goal is that no borrower earning under 225% of the federal poverty level, about the annual equivalent of a $15 minimum wage, will have to make a monthly payment. And, interest will not increase the loan balance as long as a borrower makes monthly payments.
Borrowers who paid off their loans or made payments during the repayment pause may request a refund of payments made since March 13, 2020.
Low-income borrowers who were able to access Pell grants will see up to $20,000 in debt cancellation. The program says “up to” because relief is capped at the amount of a borrower’s outstanding debt. For example, if a person is eligible for $10,000 in relief but owes only $5,000, he or she will see $5,000 written off.
But, there are current income guidelines. To have loan amounts forgiven, borrowers must have individual income of less than $125,000, or $250,000 for households.
What if I take part in the Public Service Loan Forgiveness Program? If you have federal loans and work full-time for federal, state, Tribal, or local government; are in the military; or work for a qualifying non-profit, take action now! The changes that made it easier for these borrowers to receive forgiveness end on Oct. 31, 2022. If you think you might be eligible, visit the PSLF.gov site soon.
What if you have a private loan? Some banks and private lenders provided relief for borrowers during Covid, but this was completely voluntary. This site provides a good rundown of ideas and resources for those with private loans, which the Federal government has no power to cancel.
The best place to learn more is the Federal Student Aid website.