President Biden said in late August he would cancel $10,000 in federal student loan debt for borrowers making under $125,000 a year or couples making less than $250,000 a year.
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Many borrowers will only have to provide the federal government with basic information, including their legal names, Social Security numbers and dates of birth, to apply for federal student loan relief through a new program set to launch later in October, administration officials said.
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A subset of applicants whose income puts them close to the cutoff to qualify for forgiveness will have to submit additional information to verify their incomes, the officials said. The application will be made public later in October, but officials didn’t give a date.
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People who received federal Pell Grants in college, which are awarded to those from low-income households, also will be eligible for up to $20,000 in forgiveness. Around six in 10 borrowers with any federal loans also received a Pell Grant, according to the White House.
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Who Qualifies for Biden’s Plan, and What It Means for Borrowers
The plan is expected to benefit the majority of the more than 43 million people in the U.S. who hold a total of $1.6 trillion in student loan debt. Only federal debt is eligible.
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In addition to the loan forgiveness, the president will also be extending the pandemic-era student loan pause on payments and interest through the end of the year.
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The few Americans who continued to make student loan payments during a federal pause enacted at the beginning of the pandemic will now be eligible for a refund. Borrowers can request a refund by calling their loan servicer directly.
Officials said it is the administration’s goal to process most of applications submitted by by mid-November before mandatory loan payments resume on Jan. 1 for the first time in nearly three years.
The administration will continue accepting applications until Dec. 31, 2023.
(Photo: Bonnie Cash/Press Pool)
The administration has encouraged loan servicers, which manage much of the federal student loan portfolio, to increase their call-center capacity and staffing levels ahead of the launch of the program.
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Some applicants may get notifications from their loan servicers. Beware of any friendly-sounding phone calls or suspicious-looking emails from addresses you don’t recognize.
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The administration is facing legal action that could freeze the program. Six states sued the administration late last month over the debt cancellation plan, citing harm to state higher education lending programs and reduced tax revenues.
The lawfulness of the plan could hinge on the education secretary’s powers under a 2003 federal statute that gives the head of the Education Department the capability to waive or modify federal student loan provisions during war or a national emergency.
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The plan has also proven divisive. Critics cast it as unfair, potentially inflationary and unlikely to solve the problem of soaring college-education costs.
Sen. Roy Blunt (R., Mo.) questioned the timing of the announcement
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Administration officials and Democratic lawmakers acknowledged that a messy rollout of President Biden’s new federal loan-forgiveness program would be a political liability right before the November midterm elections.
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Student Loan Relief Poised for Big Impact on Historically Black Colleges
While low-income borrowers will have more of their debt forgiven, some say the plan falls short of what Biden laid out on the campaign trail.
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More than 70% of students who attend the nation’s roughly 100 HBCUs qualify for federal Pell grants, earmarked for students from low-income backgrounds. They will each be eligible for up to $20,000 in debt cancellation, rather than the $10,000 cap for those who didn’t get Pell grants.
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Federal data show Black students nationwide not only are more likely to borrow for college than students of other races, but they also borrow bigger amounts. The gap in loan balances for Black and white borrowers balloons after graduation, and Black borrowers default on the debt at higher rates, according to the Brookings Institution.
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Student-Loan Forgiveness Raises Inflation, Budget Risks
The plan will have broad economic consequences, including on inflation, consumer behavior and government budgets, though the degree of those effects is uncertain. When coupled with the resumption of loan payments, many economists expect the policy will have a modest effect on prices and consumer spending.
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Wall Street analysts say the near-term impact is likely to be limited because debt relief isn’t like other forms of stimulus. Individuals won’t immediately have more money to spend because almost all borrowers haven’t been paying during the Covid-19 ’s pandemic moratorium.
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Retirement Plans Poised to Benefit From Student Loan Forgiveness
Financial planners are hopeful that those who receive government’s forgiveness will have more money for other goals
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With the money they had set aside to pay down student loans, tens of millions of Americans could opt to pay off credit-card debt, make a major purchase or even set up an emergency fund that would cover their expenses in the event of job loss.
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Produced by Siemond Chan
Cover photo: Keith Birmingham/The Orange County Register/AP
