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Student Loan Forgiveness

On Wednesday, President Biden announced his Student Loan Forgiveness Plan that has been long awaited by many strapped with thousands in student loan debt. The finer details need to be worked out, and there is no doubt that his plan will most likely see legal challenges and hurdles along the way. Here is what we know as of today.  

  • Who is eligible for forgiveness?  So far, this seems pretty straightforward.  Note that this forgiveness only applies to federal student loans. If you have private loans, those will be unaffected by this program.  Any individual earning less than $125,000/year or household earning less than $250,000/year is eligible for $10,000 of forgiveness.  Those that qualified for a Pell Grant are going to see an additional $10,000 wiped off their loans for a total of $20,000.  Anyone over those income limits is seemingly not going to see any changes in their federal student loans.

  • How do I apply for forgiveness? The administration is setting up an application process that will be available “no later than when the pause on federal student loan repayments terminates at the end of the year.”.  However, an estimated 8 million people will automatically see relief because their income information is already on file.  There’s no information to suggest who those 8 million people are, so it is prudent to periodically suffer the buffer on the studentaid.gov website to make sure your application is in.

  • Other actions in the program

    • Further delaying payments until January 2023

    • Reducing income-based payment limits (Borrowers are now required to spend 5% of income on loans, previously it was 10%)

    • Preventing loans from compounding when income-based payments don’t cover the interest

    • Loan forgiveness in 10 years (reduced from 20) for community college borrowers

    • More accountability to colleges to regulate cost and deliver value

The studentaid.gov website is going to get a lot of traffic in the coming months.  Just like road construction during Michigan summers, expect delays.  Stay in touch with your loan servicer and check back often for updates as “construction” moves forward and the White House builds out the infrastructure for student loan forgiveness.  Here is a link to the official Whitehouse fact sheet.

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Written by: Justin Meyer & Kyle Cooper

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