A plan to address student loan debt was announced by President Joe Biden on Wednesday, the 24th of August. It includes debt forgiveness for some borrowers and extends the payment pause which started during the pandemic.
About $32 billion of the $1.6 trillion in outstanding federal student debt has already been canceled by the Biden administration. The existing debt forgiveness programs were extended for public-sector workers, students who were defrauded by for-profit colleges, and disabled borrowers. Keep on reading to find out the details of this new plan.
Who Can Qualify and How Much Forgiveness You May Get?
Federal student loan borrowers are eligible for this forgiveness plan. The details and further information were introduced after several months of speculation. Those who earn less than $250,000 and filed married jointly may qualify for up to $20,000 in federal student loan forgiveness. Borrowers who make up to $125,000 and file taxes as individuals may also qualify for the program.
The sum you may get depends on whether you obtained a Pell Grant to attend college. Who is offered this grant? Undergraduate students who “have not earned a bachelor’s, graduate, or professional degree and display exceptional financial need” are eligible for a Federal Pell Grant. It shouldn’t be paid off, except under certain circumstances, as it is mentioned by the Department of Education’s Federal Student Aid office.
Nowadays, this grant covers just a third of the cost of a college degree for four years. Borrowers who didn’t get a Pell Grant as part of their aid package may receive $10,000 and those who obtained a Pell Grant can qualify for $20,000. This student loan cancellation plan can eliminate student loan debt for a maximum of 20 million borrowers.
Arguments for Student Debt Cancellation
Many people experience urgent cash needs and search for ways how to get emergency money here and now. Does this loan forgiveness plan do enough for borrowers? Biden was urged to cancel $50,000 in debt per applicant by members of Congress. However, he has mentioned that in case he utilized his authority for loan cancellation, it would be for up to $10,000 per borrower.
Here are the main arguments for student loan forgiveness:
- Not every borrower has a degree to improve earnings. Consumers without a degree and those who have debt are four times as likely to default rather than those with a degree. National Center for Education Statistics data demonstrates that around 41.8% of people who entered college in 2011 took out student loans. Just 59% of them completed their bachelor’s degree six years later. Borrowers with a degree usually benefit from the boost in lifetime earnings while those without degrees don’t.
- Borrowers were forced to delay their lives due to student debt. Student debt is what prevents consumers from making important monetary decisions from purchasing homes to starting a business to having kids.
- Student debt forgiveness may lower the racial wealth gap. There is a lack of generational wealth that makes many Hispanic and Black households count more on student loans. This racial wealth gap keeps on after graduation. Hispanic and Black graduates usually earn less than other graduates and can default on their loans more frequently.
Arguments Against Student Loan Cancellation
- Student loan forgiveness is regressive. Some research data proves that forgiveness would benefit only wealthy borrowers. In other words, borrowers with the highest sums of debt who generally attended graduate school will earn more.
- Debt forgiveness is unfair. Some people argue that those who have already repaid their student loans and those who have no degree wouldn’t benefit from this loan forgiveness. Some critics suggest that this plan would be beneficial just for 13% of the population who attend college.
- This temporary forgiveness doesn’t solve tomorrow’s student debt issue. July 2021 estimates by the Committee for a Responsible Federal Budget claim that overall debt would return to the present level by 2035 if all student debt were eliminated. Overall debt would rise to present levels by 2025 provided that $10,000 in debt per borrower was canceled.
What Steps You Should Take to Qualify
According to Education Department data, 27 million borrowers have a debt of between $10,000 and $100,000. Only 3.3 million borrowers owe a larger sum, including around 900,000 who have debt over $200,000.
Who would benefit from Biden’s plan? Those who have an annual income of up to $250,000 for households and less than $125,000 for individuals may qualify for Biden’s plan help. The White House states that 43 million consumers are eligible for this plan. The application will be launched in the coming weeks.
The Department of Education already has the information about borrowers’ income. Almost 8 million borrowers will be able to get debt cancellation automatically. The application will remain available for consumers by early October. Once you fill in and submit it, you will need to wait for debt relief within four to six weeks.
Visitors may go to studentaid.gov to sign up and get a notification about the application opening. This application for Biden’s debt relief will be active before the federal student loan repayment pause finishes on December 31. If you want to maximize your chances of getting approved until the repayment pause expires, you should apply before November 15. However, the process of application will be continued by the Department of Education even after this pause comes to end.
The Bottom Line
In conclusion, federal student loan borrowers may qualify for Biden’s loan cancellation plan. The sum of debt forgiven depends on some factors including whether the applicant got a Pell Grant to enter college. This cancellation may help to keep struggling borrowers from defaulting on their loan payments, which might damage their credit reports. The applications can be submitted until December 31 when the federal student loan repayment pause will end.