(888) 234-7982

As you may have heard last week, President Biden made some announcements involving sweeping changes to our student debt system. There is still a way to go before we see exactly how this plays out, but as it impacts nearly 43 million Americans, we thought it would be worth breaking down the basics in case it’s helpful to you, a family member or friend.

There are effectively three stages to what the administration is proposing.

Debt Forgiveness

Per this NPR summary of the proposal, “individuals with federal student loans who make under $125,000 per year, or couples earning less than $250,000, qualify for up to $10,000 in forgiveness.

That includes current students: Borrowers who are dependent students will be eligible for relief based on their parents’ income. Parent PLUS loans, which are federal loans for parents of undergraduate students, are also eligible under the president’s plan. (Loans taken out after June 30, 2022, will not qualify.)

Qualified borrowers who received Pell Grants are eligible for additional relief – up to $20,000.”

Loan Forbearance

Since the early days of the pandemic, the government, under both the Trump & Biden administrations, paused student loan repayment as part of multiple relief packages. This means that no one with student loan debt has been required to make a payment since early 2020 and interest has not been accruing on that debt since that time. As part of Biden’s recent announcements, this pause will be extended one final time through December 31 of this year and student loan payments will then restart effective January 1, 2023.

 Structural Changes

Another proposed change to the current system includes adjusting the current income-driven repayment (IDR) system. From the NPR article above, “Biden’s IDR plan will cut the amount borrowers have to contribute each month – from 10% of their discretionary income to 5%. It will also raise the amount of income that is considered non-discretionary, thus providing more assistance.”

There are also additional proposals for providing relief for those currently in default on their student loans, but details to this point aren’t clear.

Is this a done deal? Yes and no. The restart of loan payments in January as well as the $10,000 – $20,000 in loan forgiveness look to be in place and likely to move forward as planned. There is some concern that loan servicers won’t be able to ramp back up by the start of 2023, but time will tell.

The more structural changes to the IDR system are all but certain to face legal challenges, but it’s unclear if the changes will be allowed to stand while those legal battles are played out.

If you, a child or grandchild have any questions as to how this impacts any current student loan debt or future college planning, please feel free to contact your advisor to discuss further.