President Biden Unveils New Student Loan Forgiveness and Extended Forbearance Plan

Millions of Americans stand to benefit from expanded student debt relief measures.

Today, President Biden introduced a groundbreaking plan to forgive up to $20,000 in federal student loans for eligible borrowers. Additionally, the administration has extended the suspension of federal student loan payments, interest accrual, and collections through the end of the year.

Essential Highlights

• Eligible borrowers earning under $125,000 individually or $250,000 per household can receive up to $20,000 in federal student loan forgiveness.
• The COVID-19 emergency pause on payments, interest, and collections will continue until December 31.
• Over $32 billion in student loan relief has already been granted to more than 1.6 million borrowers nationwide.

Comprehensive Three-Part Strategy

Focused Debt Cancellation

Federal Student Aid reports that borrowers with annual incomes below $125,000 (individuals) or $250,000 (families) qualify for up to $10,000 in loan forgiveness. Pell Grant recipients are eligible for an additional $10,000, with relief capped at the borrower’s outstanding loan balance. For example, a Pell Grant recipient with $19,000 in debt will receive forgiveness up to that amount, not exceeding $20,000.

Approximately 8 million borrowers may automatically receive relief since the Department of Education already holds their income information. For others, an application portal will be launched soon to submit income details.

Nearly one-third of U.S. borrowers owe less than $10,000, and over half owe under $20,000. Biden’s 2020 campaign included a promise for $10,000 debt cancellation per borrower, with income limits introduced recently.

Important Considerations

Borrowers working in nonprofit organizations, military, or government sectors might qualify for complete loan forgiveness through the Public Service Loan Forgiveness (PSLF) program, which temporarily waives some eligibility requirements until October 31, 2022.

Final Extension of Student Loan Forbearance

The Biden administration confirmed the COVID-19 emergency relief for student loans will be extended through December 31, 2022, just one week before the prior pause was set to expire.

Initiated under the CARES Act in March 2020, this forbearance was originally scheduled to end in September 2020 but has been extended six times. The latest extension will be automatic, requiring no action from borrowers.

New Income-Driven Repayment Plan Proposal

A new rule is proposed to establish an improved income-driven repayment plan featuring:

• Monthly payments capped at 5% of discretionary income for undergraduate loans, down from the previous 10%.
• Increased protection of non-discretionary income from repayment obligations.
• Loan forgiveness after 10 years of payments for balances up to $12,000, instead of the previous 20 years.
• Coverage of unpaid monthly interest to prevent loan balances from increasing, even if monthly payments are $0.

Biden-Harris Administration’s Commitment to Student Debt Relief

This announcement builds on the administration’s ongoing efforts, which have already delivered $32 billion in student loan forgiveness to more than 1.6 million borrowers. This includes $13 billion for those defrauded by educational institutions and $9 billion in permanent disability discharges.

Quick Update

Prior to the announcement, the Department of Education approved over $10 billion in debt relief for more than 175,000 borrowers through the Public Service Loan Forgiveness program.

Have a news tip for our reporters? Reach out at tips@investopedia.com.

Discover the latest news and current events in Personal Finance News as of 29-08-2022. The article titled " President Biden Unveils New Student Loan Forgiveness and Extended Forbearance Plan " provides you with the most relevant and reliable information in the Personal Finance News field. Each news piece is thoroughly analyzed to deliver valuable insights to our readers.

The information in " President Biden Unveils New Student Loan Forgiveness and Extended Forbearance Plan " helps you make better-informed decisions within the Personal Finance News category. Our news articles are continuously updated and adhere to journalistic standards.