According to a tweet from Biden, borrowers who make less than $125,000 annually or families who make less than $250,000 will be qualified for the $10,000 loan forgiveness. Up to an additional $10,000 in federal student debt would be forgiven for Pell Grant recipients by the federal government. Pell Grants are given to undergraduates with the greatest financial need.
Certain Pell Grant applicants who have student loan debt up to $20,000 will have it forgiven by President Biden. Federal student debt in the US has risen steadily for years and currently exceeds $1.6 trillion. According to the most recent federal figures, more than 43 million Americans have federal student debt, with roughly a third owing less than $10,000 and more than half owing less than $20,000.
Additionally, Biden is extending a “last time” halt on federal student loan payments through the end of 2022. He was scheduled to make a speech at the White House on Wednesday in the afternoon to present his idea.
The White House reports President Biden believes that a post-high school education should be a ticket to a middle-class life, but for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity. During the campaign, he promised to provide student debt relief. Today, the Biden Administration is following through on that promise and providing families breathing room as they prepare to start re-paying loans after the economic crisis brought on by the pandemic.
America’s middle class is heavily burdened by the ballooning total federal student loan debt, which is currently $1.6 trillion and growing for more than 45 million students. High monthly payments and increasing debt are a strain for middle-class borrowers, making it more difficult for them to accumulate wealth through home purchases, retirement savings, and small business ventures.
The consequences of debt are considerably more devastating for the most defenseless borrowers. An examination of a recent cohort of undergraduates by the Department of Education revealed that nearly one-third of borrowers had debt but no degree. Many of these individuals were unable to finish their degrees due to prohibitive tuition costs. A third of older seniors with educational debt and about 16% of all borrowers are in default.
To address these concerns and follow through on Congress’ original vision for income-driven repayment, the Department of Education is proposing a rule to do the following:
For undergraduate loans, cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.
Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment.
Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department of Education estimates that this reform will allow nearly all community college borrowers to be debt-free within 10 years.
Cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.
For each of these borrowers, their balances would not grow as long as they are making their monthly payments, and their remaining debt would be forgiven after they make the required number of qualifying payments. Further, the Department of Education will make it easier for borrowers who enroll in this new plan to stay enrolled. Starting in the summer of 2023, borrowers will be able to allow the Department of Education to automatically pull their income information year after year, avoiding the hassle of needing to recertify their income annually.
Many of these individuals were unable to finish their degrees due to prohibitive tuition costs. Nearly a third of elderly individuals with school debt, who make up around 16% of borrowers, are in default, which can lead to the government garnishing a borrower’s earnings or reducing their credit score. Additionally, Black borrowers are disproportionately burdened by student loan debt. The median Black borrower who started college in the 1995–96 academic year was still responsible for 95% of their first student loan twenty years after their initial enrollment.
In the lead-up to this fall’s midterm elections, if his proposal is successful in withstanding the legal challenges that are almost certain to arise, it may provide a windfall to a large portion of the country. According to federal figures, there are more than 43 million persons with federal student debt, with an average load of $37,667. About half of borrowers have debts of under $20,000, and about a third have debts of under $10,000. According to the White House, 20 million people would have their federal student debt forgiven as a result of Biden’s remarks.
According to a Brookings Institution research, black borrowers owe on average over $25,000 more than their white counterparts. Payments were initially halted by President Trump in March 2020, and Biden has since given four extensions. The federal government has already spent more than $100 billion as a result of the suspensions. A total of $1.6 trillion in debt is owed by more than 40 million Americans.
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