By: Raymond AlQaisi, Senior Manager of Policy and Advocacy
Reading time: 5 mins.
As you may have heard, President Biden announced today
a package of reforms aimed at addressing student loan debt. President Biden delivered remarks this afternoon to share the announcement, and expressed that, while the economy continues to improve, pandemic-related
relief should be phased out responsibly so that people do not suffer unnecessary financial harm. The package includes:
Student Debt Relief – The Administration will cancel up to $20,000 of federal student loan debt per borrower who received a Pell Grant in college, and up to $10,000 in relief for borrowers who have not received Pell. The policy is
limited to borrowers with annual income during the pandemic of under $125,000 for individuals or under $250,000 for married couples or heads of households. The U.S. Department of Education (ED) has said it will release a simple application soon
to allow borrowers to claim this relief, but roughly 8 million borrowers may be automatically eligible because their relevant income data is already available. Information is available here on ED’s press release and via this landing page on the Federal Student Aid website. This action builds on additional student debt relief announced previously.
Final Extension of Student Loan Repayment Pause – The Administration announced a final extension of the pause on federal student loan repayment, interest, and collections until December 31, 2022. ED has said that
borrowers should expect to resume repayment in January 2023. This pause will be implemented automatically.
Reforming Income-Driven Repayment – ED also proposed a new income-driven repayment (IDR) plan to substantially reduce future monthly payments for lower- and middle-income borrowers. The new plan would:
Cap payments on undergraduate loans at 5% of a borrower’s monthly income. This change is down from the 10% available under the current IDR plan.
Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage
for a single borrower—will have to make a monthly payment.
Forgive undergraduate loan balances after 10 years of payments, instead of 20 years, for borrowers with loan balances of $12,000 or less.
Cover borrowers’ unpaid monthly interest, so that unlike current IDR options, borrowers’ balances do not grow so long as they make their monthly payments— (low-income borrowers may have a “monthly payment” of $0).
Institutional Accountability – ED also said it will “hold colleges accountable” especially when institutions fail to produce good outcomes for their students. It announced it will publish an annual list of programs with the highest
debt levels and request improvement plans from institutions that have concerning debt levels.
While NCAN welcomes these changes, structural reform is needed to address the rising cost of college. Today, the Pell Grant covers less than a third of the cost of a four-year public compared with three-fourths
in the 1970s. Less than a quarter of four-year institutions are affordable for the average Pell recipient. The average borrower who completes a bachelor’s degree will graduate with approximately
$30,000 in debt, and that figure is higher for borrowers of color.
We must redouble our efforts to double the Pell Grant and increase state investment in higher education so that future generations will be able to benefit from a college education.
NCAN’s CEO Kim Cook offered the following statement
to the press on today’s action:
“NCAN appreciates the Administration’s broad-based action to provide $20,000 in student debt forgiveness for Pell Grant recipients and $10,000 for others and applauds the hard work of many advocates who have
worked tirelessly to bring about relief for millions of borrowers. Fast rising and unmanageable levels of student debt are the result of a broken system for financing higher education in which many parents and students are forced to take out loans
they cannot reasonably be expected to repay. Less than half of community colleges and less than a quarter of public four-year institutions are affordable for the average Pell Grant recipient, according to NCAN’s Growing Gap research. Black students
are particularly vulnerable to the negative consequences of student debt because the racial wealth gap drives up the debt burden of Black borrowers. In addition to student debt relief, we need to address the root cause of the college affordability
crisis so that future generations do not confront the same challenges that have brought us to today. That is why NCAN advocates for doubling the Pell Grant, which today covers less than one-third of the cost of college compared with three-quarters
in 1970, expanding income-based student loan repayment options, and increasing public investment in financial aid and institutional support to bring down the net cost to students and families.”
NCAN will keep members updated,
as more details become available.
To be eligible, your annual income must have fallen below $125,000 (for individuals) or $250,000 (for married couples or heads of households). If you received a Pell Grant in college and meet the income threshold, you will be eligible for
up to $20,000 in debt cancellation. If you did not receive a Pell Grant in college and meet the income threshold, you will be eligible for up to $10,000 in debt cancellation.
What do I need to do in order to receive loan forgiveness?
Nearly 8 million borrowers may be eligible to receive relief automatically
because their relevant income data is already available to ED. If ED doesn't have your income data - or if you don't know if the ED has your income data, there will be an application in the coming weeks. The application will be available
before the pause on federal student loan repayments ends on December 31st. If you would like to be updated by ED when the application is open, please sign up at this subscription page.
Do I need to take action to
benefit from the student loan repayment pause extension through the end of 2022?
No, the extended pause will occur automatically.
What does the “up to” in “up to $20,000” or “up to $10,000” mean?
Your relief is capped at the amount of your outstanding debt. For example: If you are eligible for $20,000 in debt relief, but have a balance of $15,000 remaining, you will only receive $15,000 in relief.
Are current students eligible
for debt relief?
ED has confirmed that current students will benefit if their federal student loans originated prior to July 1, 2022.
Will the payment pause be extended again?
ED describes this pause extension as “final” and indicates that borrowers should be prepared to resume repayment in January.
Will loan forgiveness be challenged in court?
Maybe. The White House has released a memo describing its legal authority to provide loan forgiveness. This authority referenced is
centered on powers granted in times of emergency, and that the relief is prompted by the COVID-19 pandemic. It remains to be seen what legal action could undermine or challenge this plan to help student loan borrowers.
Are Parent PLUS loans included in this path to debt cancellation?
ED has confirmed that Parent PLUS loans will qualify.
Which years of income qualify
as “during the pandemic”?
We are looking into this question and will get back to you when we have an answer.
What should I do to seek a refund for payments made during the payment pause?
You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020). Contact your loan servicer to request that your payment be refunded.
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