On August 24, the Biden-Harris Administration and the Department of Education announced a three-part student relief plan to help the working and middle-class as they prepare to resume Federal student loan payments.
The first part of this plan provides targeted debt relief to low-and middle-income families. Loans managed by the Department of Education including undergraduate, graduate and parent PLUS loans are eligible. This plan only applies to Federal student loans, not private student loans. Current students who filed for Free Application for Federal Student Aid (FAFSA) are also eligible for forgiveness.
To qualify for loan forgiveness an individual's income must be less than $125,000 or less than $250,000 for households. Income tax returns for 2020 or 2021 must confirm that earnings were within the established range to qualify.
There will be up to $20,000 in student debt cancellation for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients.
About eight million borrowers are eligible to automatically receive relief because their relevant income data is already available to the Department of Education. Everyone else will need to submit an application.
The Department of Education will launch the application process in early October. Borrowers are advised to apply by November 15, in order to receive relief before the payment pause expires on December 31. However, borrowers will have up until December 31, 2023, to apply. They will receive the loan forgiveness within four to six weeks of submitting their application.
The second part of this plan includes extending the student loan forbearance. In March 2020, there was a temporary freeze on most Federal student debt with a zero-interest rate, which was set to resume in September; however, it will be extended through December 31.
Student loan payments will resume in January. Borrowers who paid during the pandemic-related pause will be allowed to contact their loan servicer to request a refund.
The third part of this plan includes fixing the student loan program system. The Biden Administration proposed an income-driven repayment plan that states no one with an undergraduate loan will have to pay more than five percent of their discretionary income to repay their loans. Also, the Federal Government would cover borrowers’ unpaid monthly interest so that their balance will not continue to grow while making payments.
The Federal student loan forgiveness will not be included as part of taxable income on your Federal income tax return, but some states will treat it as taxable income.
Since this plan has been announced it has created controversy and mixed reactions. Especially from Republicans who are working on a legal strategy to overturn President Biden’s plan. The future of this plan is uncertain, so we will have to wait and see how it plays out.
Photo by Bruce Mars on Unsplash
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