The federal government will forgive up to $20,000 in student loans under a long-awaited policy the Biden administration announced Aug. 24. The move will help borrowers of all ages, including people 50 and over, who owe nearly 22 percent of all student loan debt.
Debt forgiveness will be limited to individuals with less than $125,000 in annual income and couples with less than $250,000 in income. Nearly 8 million borrowers may be eligible to receive relief automatically because the U.S. Department of Education (DOE) already has the income information it needs to determine eligibility.
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Students with Pell grants who meet the income limits will have up to $20,000 in federal student loans forgiven. Pell grants are for students with the greatest financial need. Students without Pell grants can have up to $10,000 in federal student loans forgiven.
Missouri, Arkansas, Kansas, Nebraska, South Carolina, and Iowa have filed a federal lawsuit arguing that President Biden doesn’t have the legal authority to forgive student loan debts. Partly in response to the lawsuit, the Biden administration announced Sept. 29 that privately held federal student loans must have been consolidated before September 29 to be eligible for the debt relief. The move could exclude about 770 million borrowers from student loan debt relief.
Payment date pushed back
The administration also pushed back the date when borrowers must start repaying their student loans from Aug. 31 to Dec. 31. The moratorium on federal student loan payments began in March 2020 because of the COVID-19 pandemic, and that relief has been extended several times. The DOE says that the latest extension will be the last, and that loan payments will resume in January.
Private loans have not been subject to the payment moratorium.
The median student loan payment — half are higher, half are lower — is $222 a month, according to the Federal Reserve. The average payment is $393. For retirees, still having student loan debt can be a particularly difficult problem. The average Social Security retirement benefit is $1,625 per month, and for 1 in 4 seniors, Social Security represents 90 percent of their income.
The DOE plans a new income-driven repayment plan that caps payments for undergraduate loans to 5 percent of a borrower’s discretionary income — that is, the money left over after necessities, such as taxes, everyday expenses and household bills. Loans will be forgiven for borrowers with original loan balances of $12,000 or less after 10 years of payments, instead of the current 20 years.