While the fine print has not actually been printed we felt it’s important to share some of the broad strokes about President Biden’s student debt relief plan so those who qualify, or have children who qualify, can be prepared.
The first thing to know is this is an executive order which is intended to bypass the House and the Senate. This should mean few changes to the plan prior to implementation, however it will likely be challenged based on the White House’s ability to pass such an order. That said, the courts may weigh in and decide the fate of Biden’s student debt relief plan, which may mean a delay in implementation or the possibility it will be struck down.
Here are some important features of the plan
One-time Forgiveness:
The plan is intended to offer one-time forgiveness of Federal student loans. However, there are provisions for those with income based repayment plans. The intention is to prevent reverse amortization. This situation occurs when an individual is making small payments that don’t cover the interest that accumulates each month. The goal is to provide relief for those individuals with lower incomes who regularly make their minimum monthly payments but are unable to make a dent in their loan balances because they qualify for lower payments.
Types of Loans Covered:
Direct Subsidized Loans, Direct Unsubsidized Loans, Parent Plus Loans, and Direct Consolidation Loans are all eligible, even those taken out for graduate school. There have been indications that Federal Family Education Loans may be eligible as well, however these were backed by the Federal government but issued through private companies. More guidance is needed to determine if FFEL loans will qualify.
Eligibility Criteria:
The main requirements are the loan is still owned by the Federal Government meaning if you refinanced with a private loan you no longer qualify. Borrowers also must meet certain income thresholds in order to qualify. The income limits are $125,000 for single individuals, and $250,000 for married couples. No guidance has been given as to what income these numbers are based on as of 9/7/2022, but current income based repayment plans use Adjusted Gross Income.
Amount of Forgiveness:
Borrowers who also received the Federal PELL Grant will be eligible for $20,000 in forgiveness. Those who did not qualify for the PELL Grant will receive $10,000 in forgiveness.
Cut-Off Date:
The original loan must have been funded prior to June 30th of 2022. If the loan was consolidated through a Federal Direct Consolidation Loan after that date it is still eligible.
How to apply:
Individuals with income driven repayment plans will automatically qualify. No application is available as of 9/7/2022 but you can receive updates through the department of Education: https://studentaid.gov/debt-relief-announcement/
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