What You Need to Know About President Biden’s Student Loan Forgiveness Plan

Since the 2020 campaign, President Biden has advocated to reduce and eventually forgive student loan debt.

In August 2022, Biden announced a plan to cancel up to $20,000 in federal student loan debt for eligible borrowers.

“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.”

A federal judge in Texas later struck down the plan and ruled it unlawful. The case moved to the Supreme Court of the United States. The Court is expected to announce a decision in June.The administration argues the plan is legal 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 U.S. Department of Education plans to cancel up to $20,000 for borrowers who received a Pell Grant. Borrowers without Pell Grants could receive up to $10,000 in cancellation. To qualify, borrowers must earn less than $125,000 per year. Married couples must earn under $250,000.

New Repayment Plan

The Department of Education has proposed a new income-driven repayment plan. This plan would protect more low-income borrowers from making payments. Some borrowers could qualify for a $0 monthly payment. The proposal would also cap undergraduate loan payments at 5% of discretionary income. Current plans often require up to 10%.

Future Grants and College Costs

The administration wants to make community college tuition-free for many students. It also supports doubling the amount awarded through 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.

Non-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.