So now that we’re all completely finished arguing about the merits of President Joe Biden’s plan to cancel student debt, we figure it would be a good time to get into some of the nuts and bolts of how the thing will work, even if we are not very mechanically inclined. You don’t want me working on your car, unless you want to aggressively reduce your personal carbon footprint.
By this point, I can type out the broad outlines of the student debt forgiveness plan without checking the White House fact sheet:
- Borrowers who earn up to $125,000 a year (or $250K filing jointly or as head of household) will qualify to have up to $10,000 of student debt cancelled.
- People who received Pell Grants will be eligible for up to $20,000 in debt relief in total.
- And in a nifty change, the cap on payments for income-based payment plans will go from the current 10 percent of monthly discretionary income to five percent, basically cutting payments in half for millions of Americans.
- Also too, while it’s not part of the loan cancellation program, the moratorium on federal student loan payments has been extended to December 31, 2022.
Those are the main bits; now let’s look at how all this is going to work, at least assuming the whole thing isn’t held up by lawsuits from red state attorney generals who object to rich elites being lazy takers. We’ll be using that White House fact sheet, this very informative summary from the Education Department’s Student Aid website, and also this FAQ from the New York Times.
Where’s My Student Loan Forgiveness? I Want My Debt Gone NOW!
Well tough. It’s not going to be instant, but since the debt repayment pause has been extended to December 31, you aren’t going to be losing any money, you. The loan forgiveness process isn’t yet up and running; the Student Aid website is being updated as things develop. To get updates, you can sign up here; check the box next to “Federal Student Loan Borrower Updates.”
The administration says in the fact sheet that about eight million borrowers will get the cancellation automatically, since the Department of Education already has their financial data. The fact sheet doesn’t give a date on when that’s going to happen.
For everyone else, the Education Department will roll out an application process before the end of the year, when the just-renewed pandemic pause on student debt payments ends. That’s the kind of announcement you’ll get if you sign up with the Ed Department. And of course Yr Wonkette will keep an eye out for that too.
What Should I Do To Grab All The Less-Debt I Can?
In addition to signing up for those updates, make sure your loan servicer has your current information so it can come and shake you down and threaten to break your kneecaps. Haha, just joking, only serious. If you’re not sure who your loan servicer is, go knock on the unmarked van with all the antennas outside your home, or even better, check the Education Department’s “Who is my loan servicer?” webpage.
What’s That $125K income Limit Based On?
The Times explains the limit is your adjusted gross income for either 2020 or 2021, but not 2022.
What Kinds Of Loans Are Eligible?
The Times has this one, too, so we’ll just use that:
Only federal student loan debt is eligible. This includes PLUS loans, whether parents or graduate students took them out.
Private loans are not eligible. Neither are many so-called F.F.E.L. loans, which stand for Federal Family Education Loan. If your F.F.E.L. loan was not eligible for the payment pause that began in 2020, it will not be eligible for the new cancellation.
You can get debt relief even if you didn’t finish a degree. And yes, the forgiveness plan applies to both undergraduate and graduate debt. The only distinction is that the new lower cap on income-based repayment will only be for undergraduate debt; more on that in a moment.
Also too, current students who have loans are eligible, but no relief for loans that began after June 30 of this year.
Tell Me More About The New Income-Based Repayment Plan!
No.
Oh C’mon, Please?
Don’t feel like it.
I’ll Snitch On You To Rebecca!
Hey, one of the longer-term changes to student loans is the new lower cap on income-based repayment plans. For undergraduate student debt, borrowers will be able to pay no more than five percent of their discretionary income each month. Income-based repayment for graduate debt remains at the old cap of 10 percent, and if you have a mix, the percentage will be adjusted based on MAGIC.
Discretionary income is based on your adjusted gross income, your family size, and your location; here’s a helpful explainer and calculator from NerdWallet.
Also, here is a VERY cool change: The Education Department is raising the amount of income that counts as “non-discretionary,” and that won’t be subject to repayment. That means 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.
The new rules will also
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.
That’s freaking HUGE.
Will I Pay Student Loans Forever?
It only feels that way. Actually, here is another good thing! For loan balances of $12,000 or less, the balance of the loan will be forgiven after 10 years of payments, instead of the usual 20.
And that is all you need to know, or at least all we can tell you so far from what’s available. We’ll keep you updated as this thing rolls out, especially if the Republican National Committee comes up with an online calculator to help you decide whether your student debt makes you a wealthy coastal elite, a lazy taker, or a Real American.
[White House / Federal Student Aid / NYT]
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