Student loan borrowers finally got the news many of them have been waiting for: President Joe Biden announced a plan to cancel up to $20,000 per borrower for individuals who meet a certain income threshold, and he extended the student loan payment pause through the end of the year.
Biden shared the news in a tweet and says more details will come this afternoon.
The announcement comes days before the payment pause was set to expire Aug. 30.
According to CNBC, there are currently 44 million people in the U.S. who hold federal student loan debt, totaling around $1.7 trillion.
If you have student loans, here is what you need to know about loan forgiveness and the extended payment pause.
Who qualifies for forgiveness?
Under Biden’s new plan, borrowers who make less than $125,000 annually will see $10,000 of their debt canceled. Pell Grant recipients will see $20,000 in forgiveness.
For households, the income requirement to qualify for forgiveness is less than $250,000 annually. Any borrower whose income was below the cap in either 2020 or 2021 will qualify, senior administration officials told CBS’ Kathryn Watson.
Current students are eligible for relief, too. Dependent students will qualify based on parental income, the White House says.
If all eligible borrowers take advantage of their relief, around 43 million borrowers will be provided with some debt relief and roughly 20 million borrowers will have the entirety of their remaining balance canceled.
Four in 10 people who attended college, representing 30% of all adults in the country, have some debt from their education, according to the Federal Reserve. Of this group, 20% of college attendees still owed money for their education, and of that percentage, 96% of those attendees say they have student loans to pay back.
As of 2021, the median amount of student loan debt that borrowers in America owed was between $20,000 and $24,999, but a quarter of borrowers had less than $10,000 in outstanding payments, the Fed’s data shows.
The White House says that relief will be targeted to low- and middle-income borrowers. Nearly 90% of relief money will go towards borrowers with an annual income less than $75,000, according to estimates from the Department of Education.
So far, the Biden-Harris administration has overseen $32 billion in student debt relief for more than 1.6 million borrowers, according to the Department of Education. This relief includes $13 billion for one million borrowers whose educational institutions “took advantage of them,” more than $10 billion for more than 175,000 public service workers and $9 billion in disability discharges for over 425,000 borrowers.
How to get your loan relief
Borrowers can expect a simple process to claim their relief, the White House says.
The Department of Education is working to set up an application that will be available no later than Dec. 31, when the payment moratorium terminates.
Up to 8 million borrowers will receive their relief automatically because the department already has their relevant income data, according to the White House.
Debt relief will not be treated as taxable income.
The White House says more information about claiming relief will be available in coming weeks. Borrowers can sign up to be notified when this information is available at StudentAid.gov/debtrelief.
Extended pause on payments
The pause on federal student loan payments will now last until Dec. 31, 2022.
Borrowers should expect to hear from the Department of Education with an update on the status of their loans, according to Forbes. Any questions can be directed to your student loan servicer, but payments will automatically stay paused.
Student loan payments have been paused since the start of the COVID-19 pandemic in 2020. Since then, Biden has extended the pause four times, most recently in April. This latest extension comes just days before the pause was set to expire on Aug. 31.
While the payment moratorium has been extended until the end of the year, the White House says this is the last extension.
When payments resume, the White House also announced changes to existing income-driven repayment plans.
Those with undergraduate loans can now cap their repayments at 5% of their monthly income. Repayments were previously 10% of a borrower’s monthly income.
Additionally, borrowers with original loan balances of $12,000 or less will receive forgiveness after 10 years of payments instead of the previous 20 year requirement. This change will allow most borrowers who attend community college to be debt-free within 10 years, the Department of Education says.
The White House also raised the amount of income that is considered non-discretionary, protecting it from repayment. This change will protect most borrowers making an annual minimum wage salary from debt payments.
The changes also simplify the process for repayments with the Department of Education, giving people the opportunity to allow the department to collect their income data every year. This change goes into effect in the summer of 2023.
Experts suggest that borrowers start preparing to make payments again.
“All this does is delay when you repay the loan,” Scott Buchanan, executive director of the Student Loan Servicing Alliance, previously told McClatchy News.
Borrowers should start looking ahead, making plans for when payments resume, Buchanan said.
“Talk to your servicer. Figure out what your monthly payment is going to be, and in your budget start setting that aside and either put that into a savings account or just reserve it in your checking account. Just pretend like you’re making that payment every month.”
The pause does not prevent borrowers who want to make payments from doing so. According to the Department of Education’s Federal Student Aid office, borrowers can make a one-time payment or resume monthly payments at any time by contacting their servicer. Making payments toward debt during the pause may save borrowers money in interest once payments resume, the office says.
This is a developing story and will be updated.