On August 24, President Biden announced a plan for federal student loan forgiveness. According to a White House press release, President Biden’s plan will, “provide more breathing room to America’s working families as they continue to recover from the strains associated with the COVID-19 pandemic.” Borrowers who meet requirements are eligible for up to $10,000 of loan forgiveness and up to $20,000 for borrowers who received Pell Grants.
Cumulative federal student loan debt in the United States is $1.6 trillion dollars and affects more than 45 million borrowers. Tuition rates have nearly tripled since 1980, even after considering inflation, according to a report by the College Board. While tuition skyrocketed, Pell Grant awards remained largely the same.
Student loan debt is a burden to the middle class especially, and higher debt makes it difficult to buy a home, start a small business or save for retirement. The three-part plan aims to support the middle class by addressing the financial strains caused by the COVID-19 pandemic and making loan systems more manageable for current and future borrowers. The plan seeks to fix the ineffective Public Service Loan Forgiveness program by proposing a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government receive credit towards loan forgiveness.
Nearly 45% of all federal student loan borrowers will have their debt completely paid off.
“That’s 20 million people who can start getting on with their lives,” President Biden said. “All of this means people can start finally to crawl out from under that mountain of debt. To get on top of their rent and their utilities. To finally think about buying a home or starting a family or starting a business.”
Due to financial strains of COVID-19, the Department of Education extended federal student loan repayment to December 31, 2022. After this date, applications for loan forgiveness will be available. More than 8 million borrowers whose income information is documented will see immediate debt forgiveness without applying.
Individuals who make under $125,000 annually or married couples who make under $250,000 annually are eligible for up to $10,000 in loan forgiveness. Those who received a Pell Grant and meet income requirements are eligible for up to $20,000 in loan forgiveness.
Student loans that qualify include Direct Subsidized loans, Direct PLUS loans, Direct Consolidation loans or FFEL loans owned by the federal government. Borrowers who meet income requirements are eligible for parent PLUS loan forgiveness. The plan does not apply to private student loans not owned by the federal government.