President Biden, Vice President Harris, and the U.S. Department of Education recently announced a three-part student loan debt relief plan to help federal student loan borrowers. The three part plan includes an extension of the pause on student loan payments, debt cancellation, and proposal to create an income-driven repayment plan to help lower future monthly payments.
Student loan payment pause
The student loan payment pause that was set to expire 8/31/2022 has been extended to Dec 31, 2022 for federal student loans.
Note the pause includes suspension of loan payments, 0% interest, and stopped collections on defaulted loans. Clients may also see a lower student loan interest deduction when they file they taxes if they have been taking advantage of the student loan payment pause this year.
· Up to $10,000 in debt cancellation for federal student loans, and
· Up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education if individual income is less than $125,000 and less than $250,000 for households.
Borrowers employed by nonprofits; the military; or federal, state, tribal or local government may be eligible to have all of their student loan debt forgiven through the Public Service Loan Forgiveness Program.
Proposal to create new Income-Driven Repayment Plan
The Biden-Harris Administration is also proposing a rule to create a new income-driven repayment plan that will substantially reduce future monthly payments for lower- and middle-income borrowers.
The new proposed plan would:
· Require the borrower to pay no more than 5% of discretionary income on undergraduate loans instead of 10% under most current income-driven repayment plans.
· Raise the income requirement for repayment, guaranteeing that borrowers making under 225% of the Federal Poverty Level (about the annual equivalent of $15 minimum wage) will not have to make a monthly payment.
· Forgive balances of $12,000 or less after 10 years of payments instead of 20 years.
· Cover borrowers unpaid monthly interest, so that unlike existing income-driven repayment plans, borrowers loan balances will not grow as long as they are making monthly payments.
How will my clients know if they are eligible for Student Loan Debt Cancellation, and how do they get it?
If they meet the income thresholds, they may receive relief automatically because of relevant income data already available to the U.S. Department of Education. If they do or do not think the U.S. Department of Education has their income data, the Biden Administration will launch an application in the coming weeks that will be available before the pause on federal student loan repayments ends on December 31.
If clients would like to be notified by the U.S. Department of Education when the application is open, have them sign up at the Department of Education.