The Student Debt Relief Plan: A Breakdown of the Coming Changes for Americans with Federal Student Loans
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On August 24, 2022, the Biden Administration and the U.S. Department of Education announced the Student Debt Relief Plan. This is a multi-part plan to help Americans with federal student loans. The new plan includes some student loan forgiveness options and adjustments to current repayment measures.
Here is a breakdown of the measures outlined in the new Student Debt Relief Plan.
The Student Debt Relief Plan
Final Extension of the Student Loan Repayment Pause
Student loan repayments were temporarily paused to give Americans relief during the pandemic. The pause will be extended one last time to December 31, 2022. Payment collection will resume automatically starting January 2023.
Debt Relief for Low and Middle-Income Families
Borrowers that meet the income threshold qualifications will be eligible for student loan forgiveness. See our Student Loan Forgiveness article for specific qualifications and claim procedure details.
Pell Grant Recipients
Pell Grant recipients that meet the income threshold requirements can be provided up to $20,000 in debt cancellation with loans held by the Department of Education.
Non-Pell Grant Recipients
Non-Pell Grant recipients that meet the income threshold requirements can receive up to $10,000 in debt cancellation.
Debt Relief for Employees of Nonprofits, the Military, and Federal, State, Tribal Governments
The plan also outlines a debt relief program titled the Public Service Loan Forgiveness Program (PSLF). Under this plan, employees of nonprofits, the military, and federal, state, tribal or local governments may be eligible to have all of their student loan debt forgiven.
This temporary change would begin immediately and end on October 31, 2022.
For details regarding eligibility requirements and claim procedures, click here.
Proposed Changes to Payment Plans
Payment and income-based payment plans options are not new for those with federal student loan debt. The new Student Debt Relief plan includes changes to substantially reduce future monthly payments for lower- and middle-income borrowers.
Changes in Income-Based Payment Requirements
Income-based payment plans split the borrower’s income into two buckets—non-discretionary and discretionary spending. (Non-discretionary income is the amount needed for mandatory expenses such as housing and food. Whereas discretionary income is the income left over for things an individual may want, like entertainment expenses.) The monthly payment is based on a percentage of an individual’s discretionary income rather than a set dollar amount.
Under the new plan, the non-discretionary income amount would be increased to reflect higher living costs and therefore be protected from the monthly payment amount. In addition, the minimum percentage requirement will also change. The minimum percentage of discretionary income used to calculate the monthly payment will be decreased to 5% instead of 10%.
Changes in the Application of Monthly Interest
The Student Debt Relief Plan prevents the borrower’s loan balance from growing if their monthly payment is made. This also applies to loans with a monthly payment rate of $0 due to a low-income classification.
What’s Next
Under the Student Debt Relief Plan, the pandemic-related pause for student loan repayments has been extended through December 31, 2022. Starting January 2023, payments will automatically resume.
Applications for Pell Grant recipients & low-and middle-income families' loan forgiveness will be available in early October 2022. No specific release date has been set, but borrowers can subscribe to notifications regarding application openings here.
Borrowers have been advised to apply before November 15, 2022, to receive relief before the pause ends on December 31, 2022, but The Department of Education will continue to process applications as they are received.
Questions?
Have questions about eligibility or how to claim these relief measures? Our financial experts are here to help. Contact us.