Understanding student loan forgiveness

The Biden administration’s plan and its implications

Amidst pressure from Democrats and opposition from Republicans, the Biden administration released a three-part plan on Aug. 24 to forgive $10,000 worth of student debt for eligible low-to-middle-income borrowers. This is a fulfillment of one of President Biden’s campaign promises and an affirmation of the administration’s belief that higher education shouldn’t strain the middle class.


Breaking down the cancellation plan:

The Biden administration’s first step in relieving student debt is already in action. Their measure extends a federal pause on monthly loan payments through the end of the year. Borrowers will not be subjected to repayment until after Dec. 31, 2022.

This final extension was put in place to ease into the larger components of the cancellation plan. According to a White House fact sheet, the Department of Education is canceling $10,000 worth of loans for students whose individual income is less than $125,000 or for married couples whose joint income is less than $250,000. Pell Grant recipients are identified as borrowers with “exceptional financial need” and are eligible for up to $20,000 of debt cancellation to meet their needs.


What this means for present and future college students:

Since the Biden administration’s plan is targeted toward reducing the economic strife brought on by the COVID-19 pandemic, borrowers can only receive relief if their Direct Loans predate June 30, 2022. While this only addresses the debt of past and some present students, the third step of the White House’s proposal is reforming the entire federal system so that “both current and future low- and middle-income borrowers will have smaller and more manageable monthly payments.”

Income-Driven Repayment plans can assist borrowers through the process of paying off debt. Initially, this option was implemented to aid the burden of student debt. Still, some borrowers on IDR plans must put up to 10% of their monthly income, after taxes and necessities, toward their monthly loan payments. Should the forgiveness plan be successfully implemented, that requirement will be cut to 5%, alleviating the stress of staying on top of those expenses.

In the future, as long as the borrower has been making their required monthly payments, any loans of $12,000 or less will be canceled after 10 years, no matter what balance remains. This measure is targeted toward any debt accrued from attending community college. The Department of Education has enacted this to make higher education affordable for all Americans and is intended to pave the way for opportunities after high school. Loans surpassing $12,000 are not eligible for this particular repayment plan but may qualify for any of the other options presented by the Biden Administration. 

In some cases, financial interest is placed on student loans, causing them to grow as people attempt to pay them off. The Biden Administration’s plan would end this component of repayment plans. Any borrower making $15 minimum wage or under, putting them below the federal poverty level, will not have to worry about making monthly payments. 

Some current borrowers might not qualify for student debt relief because their annual income is over the maximum amount for eligibility. Others will not benefit from this plan because it is a post-pandemic measure that does not affect loans going into the 2023 school year. What those students can look forward to, however, is protection for borrowers and taxpayers from rising college costs.

“The Department of Education has already taken significant steps to strengthen accountability so that students are not left with mountains of debt with little payoff,” the official White House statement says. “The agency will also propose a rule to hold career programs accountable for leaving their graduates with mountains of debt they cannot repay, a rule the previous Administration repealed.”

Rising college students will have access to this accountability data, allowing them to make informed decisions about the schools they want to attend and the amount of debt it will put them in. This transparency will increase financial awareness, expose hidden fees or unnecessary charges pushed by universities and urge schools to lower the amount of loans students will have to withdraw. In addition, it will be a step toward solving the percentage of borrowers who had to drop out of college due to financial reasons, leaving them in debt without a degree. 

A simplified version of the three-step loan forgiveness plan through the Department of Education can be viewed here. A subscription page offers a place to receive updates as they develop.