What to know about Biden’s student loan forgiveness plan

President Joe Biden made an announcement Wednesday that hundreds of thousands of Minnesotans have been waiting for a long time: a plan to cancel some federal student loans.

In a speech from the White House, Biden noted how the cost of college has increased over the past few decades.

“An entire generation is now saddled with unsustainable debt,” he said. “The burden is so heavy that even if you graduate, you may not have access to middle-class life.” And the burden is greater for black and Hispanic borrowers, who often don’t have access to family wealth, he noted.

Biden announced a three-part plan. First, student loan repayments, suspended since March 2020, will resume in 2023. Second, all borrowers who earn less than $125,000 will be eligible for federal student loan relief, up to $20,000 if they have received a Pell Fellowship. And finally, the student loan repayment process will change, meaning you may owe less per month or you may not accrue interest.

“It’s a matter of opportunity,” Biden said. “It’s about giving people a fair chance. It’s the one word by which America can be defined: possibilities. »

The announcement came as a relief to many, though others criticized it for not going far enough.

So what does this mean for you? How much will your loan be reduced by? And what do you need to do to qualify for loan forgiveness?

Here is a breakdown. We’ll update this story as more information becomes available.

How much debt will the Biden administration cancel? And for whom?

The US Department of Education will forgive up to $20,000 in federal student loans for Pell grant recipients and up to $10,000 for non-Pell grant recipients. Pell grants are awarded to undergraduate students with exceptional financial need, although certain categories of immigrants are not eligible.

What student loans does this apply to?

Biden’s announcement only applies to federal loans, not state or private loans. But federal loans make up the overwhelming majority of student debt, about 92% nationally.

How will this affect Minnesotans?

According to Dennis Olson, commissioner of the Minnesota Office of Higher Education, 782,000 Minnesotans have an open federal loan. This represents approximately 14% of the state’s population. These borrowers owe a total of $26.7 billion. Many of these people owe less than $10,000, so their loans will be completely forgiven. The same will apply to Pell Grant recipients who owe less than $20,000.

Nationally, students of color, especially black students, are more likely to take out student loans. These students also tend to be more in debt. Olson said that while Minnesota-specific data isn’t available, he expects the state to reflect national trends.

Am I eligible? For how much?

You may qualify for relief if your annual income is less than $125,000 as an individual or $250,000 as a married couple or head of household.

So if you received a Pell grant in college and meet the income requirements, you are eligible for debt forgiveness of up to $20,000. If you haven’t, you may be eligible for up to $10,000.

What do you mean by “until”?

This is based on your current loan balance. For example, if you received a Pell Grant and meet the income requirements, but your balance is $15,000, that is the amount that will be forgiven, not the full $20,000.

When should I start making payments again?

The Biden administration extended the payments pause until Dec. 31. But this is the last extension. Payments will resume in January 2023.

Student loan repayments have been suspended several times since 2020 to ease the economic challenges created by the COVID-19 pandemic. Biden says this will be the final break in payments.

I still don’t earn enough money to pay my loans.

The Biden administration is also making changes to this process. You don’t have to make payments if you earn less than 225% of the federal poverty line. This number changes every year, but at the moment it means that if you are someone who earns less than $30,577.50 per year, you will not have to make a monthly payment.

So how much will I have to pay when payments resume?

There will be a new process based on your earnings. You will not be required to pay more than 5% of your Discretionary Income each month. (Previously, the requirement was 10 percent.)

Won’t my interest continue to grow? I don’t want to owe more than I already owe.

Some borrowers, including you, have experienced this in the past. But Biden says the new plan will cover your unpaid monthly interest, as long as you make your monthly payment. Your interest will also not increase if your income is too low to qualify for a monthly payment.

When will my entire balance be cancelled, even if I haven’t paid it all back?

If you’ve made payments for at least 10 years and you owe less than $12,000, your loan balance will be forgiven. (Previously, this happened after 20 years.)

Are there other options for debt relief? What about the Civil Service Loan Cancellation Program?

If you work for a non-profit organization, the military, or federal, state, tribal, or local government, you may also be eligible to have all of your student loans forgiven through the Student Loan Forgiveness Program. the public service (PSLF). The program forgives the remaining balance on your federal student loans after 120 payments of public service work. This means you must have worked in this industry for 10 years or more, but it doesn’t have to be consecutive. Nurses, teachers, police officers and firefighters are among those who may qualify.

This program already existed, but many qualified people were unable to access loan forgiveness. Biden announced a few changes that he says will make things easier. “It’s a great idea, but the program is a mess,” he said. “It’s so inefficient and complicated that a lot of people give up.”

Biden’s plan includes temporary changes that make it easier to get credit for past repayment periods that wouldn’t otherwise have qualified for loan forgiveness. The deadline to apply for this program and take advantage of loan repayment changes is October 31. You can find more information at eligibility and application here.

How do I qualify for loan forgiveness?

If the US Department of Education has your earnings data, you may be eligible to automatically receive relief.

If the department doesn’t have your earnings data, or you’re unsure, the Biden administration says it will launch a simple application in the coming weeks. The app will be available before the end of the refund break on December 31. Sign up for updates from the Ministry of Education here.

Where can I find more information?

Visit the White House Webpage on Civil Service Loan Forgiveness Where Student Debt Relief Plan Explained federal student aid from the US Department of Education.

Hibah Ansari and Samantha HoangLong contributed to this report.

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