As of the end of 2021, outstanding federal and private student loan debt in the United States totaled $1.75 trillion, with the average borrower owing nearly $30,000 for a bachelor’s degree according to Forbes. In August 2022, the Biden-Harris Administration announced a plan to aid nearly 8 million federal student loan borrowers struggling with this debt.
If you’re wondering what all this means and whether or not it will impact the way you pay for college, you’re not alone! We’re here to break down the basics of this plan and explain how it could potentially affect you as a college-bound student.
Remember: There is no credible indication that federal student loan debt will be forgiven by the government again in the future, so you should not take out student loans under the assumption that they will be forgiven later on!
What will the student debt relief plan do?
This plan includes a final extension of loan repayments, along with a provision for federal student loan debt forgiveness. Those with federal student loans who make less than $125,000 annually ($250,000 for married couples) qualify for up to $10,000 in relief. Those who meet the same income requirements and received Federal Pell Grants are eligible for up to $20,000 in relief.
Who is affected by the plan?
This relief plan solely applies to people with federal student loans–loans from private lenders are not covered. In addition, only borrowers who have federal student loans that were fully disbursed on or before June 30, 2022 are eligible for relief. That means current high school students who take out loans in the future for college will not be granted forgiveness for their loans under this plan.
How will the plan affect future college students?
Even if you haven’t started college yet and do not have any current federal student loans, there’s a key part of this plan that may still apply to you in the future. A proposed rule based on a new income-driven repayment system plans to do a few things for both current and future federal student loan borrowers.
- Monthly loan repayments will be capped at 5% of the borrower’s discretionary income.
- Borrowers earning under 225% of the federal poverty level will not have to make monthly loan repayments.
- Borrowers with federal student loan balances of $12,000 or less will have their balances forgiven after 10 years of regular repayments instead of the current 20 years.
- Unpaid monthly interest will be covered so that federal student loan balances will not increase as long as regular monthly repayments are made.