Do I qualify for student loan forgiveness?  What to know about Biden’s debt plan.

Do I qualify for student loan forgiveness? What to know about Biden’s debt plan.

President Joe Biden on Wednesday tweeted what many have been waiting for months – a plan to forgive or reduce student loan debt for millions of indebted borrowers.

If you earn less than $125,000 a year, he said that you are eligible to receive a cancellation of up to $10,000 in student loans. If you received a Pell Grant, you can get up to $20,000 forgiven. If you are not eligible for student debt forgiveness, your break in payments will continue until the end of the year. The Department of Education is also working on a proposal to introduce a new payment plan to ease the burden on borrowers.

Since the start of the pandemic in 2020, borrowers have not had to pay a penny on their student loans. During this period, pressure grew for the president to simply cancel the debt. It was one of the platforms on which Biden ran for president in 2020.

While the plan is well-received by many, it will likely still receive criticism. Many sought higher pardon amounts — $50,000 or even all amounts, no matter how large. The total outstanding balance for federally-owned student loans (including non-performing ones) as of December 2021 was $1.38 trillion, the New York Federal Reserve said in April.

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What is Biden’s student loan forgiveness plan?

Each person with an annual income of less than $125,000 (or less than $250,000 for married couples or heads of household) is entitled to up to $10,000 in canceled federal student loans. No private loans will be forgiven.

Those who received a Pell Grant in college will also be eligible for up to $20,000 in debt cancellation.

For those who still have student debt, the payment break since March 2020 will be extended until the end of the year. Borrowers will resume payments in January 2023.

What is a Pell Grant?

Federal funding that is generally only awarded to undergraduate students who have exceptional financial needs and have not obtained a bachelor’s, graduate or professional degree. Sometimes a student enrolled in a post-baccalaureate teacher certification program may receive a Pell Grant.

Unlike a loan, a Pell Grant does not need to be repaid, except under certain circumstances when some or all of them may need to be repaid. Some circumstances include a change in enrollment status or if you have received outside scholarships or grants that have reduced your need for federal student aid.

How do people claim student debt forgiveness?

The Department of Education will announce the details at 2:15 pm EDT. and in the coming weeks. The app will be available until December 31, when the pause in federal student loan payments ends.

Nearly 8 million borrowers may be eligible for relief automatically because the relevant income data is already available to the Department of Education.

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What is the cost of student loan forgiveness?

A one-time maximum debt forgiveness of $10,000 per borrower will cost about $300 billion for borrowers with incomes of less than $125,000, according to analysis published Tuesday by Junlei Chen and Kent Smetters in the Penn Wharton Budget Model. based at the University of Pennsylvania. This cost increases to $330 billion if the program continues through the standard 10-year budget window.

Prior to the announcement, the Government Accountability Office estimated that the pause in payment alone since the start of the COVID-19 pandemic has cost the government $102 billion. This amount includes the suspension of all payments due, interest and involuntary charges on delinquent loans from March 13, 2020 to August 31.

Too Much Talent Band performs during a rally to ask President Joe Biden to cancel student debt near the White House in Washington, D.C., Wednesday, July 27, 2022.

Too Much Talent Band performs during a rally to ask President Joe Biden to cancel student debt near the White House in Washington, D.C., Wednesday, July 27, 2022.

Who benefits most from the student debt forgiveness plan?

Mainly higher income families. Between 69% and 73% of forgiven debt reverts to families in the top 60% of the income distribution, Chen and Smetters said.

A New York Federal Reserve study in April, however, said the income cap for forgiveness “substantially reduces the cost of student loan forgiveness and increases the share of the benefit for borrowers who are most likely to struggle to repay.” your debts”.

For example, a $75,000 income threshold for a $10,000 cancellation increases the dollar share of loans forgiven for borrowers in low-income neighborhoods to 35% from 25% and the share that goes to borrowers with high scores. lower credit rating to 42% from 37%. said. The income caps also increase the share of forgiven loans that were in default before the pandemic to 60% from 34%.

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This article originally appeared in USA TODAY: What is a Pell Grant? What to know about Biden’s student loan debt plan.

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