Since his time on the campaign trail in 2020, President Joe Biden has advocated cutting — and ultimately forgiving — debt individuals have accumulated due to taking out student loans.
In August of 2022, Biden announced his administration’s official plan to cancel up to $20,000 from the debt students owed towards their student loans.
“An entire generation is now saddled with unsustainable debt in exchange for an attempt at least at a college degree,” Biden said. “The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”
The plan has since been shot down by a Texas federal judge — who has declared the plan unlawful — and the case has since been taken in front of the Supreme Court. A decision by the Court is expected to be announced in June. The Administration believes that its plan is lawful under the Higher Education Relief Opportunities for Students Act of 2003.
Here is what you need to know about President Biden’s student loan forgiveness plan.
Canceling Student Loan Debt
Who is Eligible
The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their income is less than $125,000 ($250,000 for married couples).
New Repayment Plan
A new income-driven repayment plan is being proposed by the Department of Education that will protect more low-income borrowers from making any payments. It will also cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, which is half of the rate that borrowers must pay now under most existing plans.
Future Grants and College Costs
The Administration is pushing for community colleges to be free for people to attend and double the amount given in Pell Grants. He is also keeping colleges and universities accountable if they raise their tuition prices. DOE understands that certain institutions have to charge students to attend there, but it has put forth regulations to keep those institutions accountable for keeping institution prices reasonable.
Reforming the Current Student Loan System
Cut in Half
The Department of Education is proposing that undergraduate loans be cut in half for the amount that borrowers have to pay each month. This would be from 10% to 5% of discretionary income.
It is being proposed that the amount of income that is considered non-discretionary income be raised, which would therefore protect people in that group from repayments. This would further ensure that no borrower earning under 225% of the federal poverty level, which is about the annual equivalent of a $15 minimum wage for a single borrower, will have to make a monthly payment.
10 Years of Repayment Forgiven
The Department of Education would cut the number of years in half for how long you would have to repay your loans until they are canceled from 20 years to 10 years. This will only be for original loans that were initially $12,000 or less.
Unpaid Monthly Interest
Biden’s administration wants to reform the system to make sure that no borrower’s loan balance will grow as long as they make their monthly payments. This would even be for when that monthly payment is $0 because the borrower’s income is low. Payments are planned to resume on whichever date comes first: 60 days after a legal decision has been made or September 1, 2023, if no legal decision has been announced by June 30, 2023.