On August 24, President Biden announced a three-part plan for student loan debt, including $20,000 in loan relief to borrowers with loans held by the Department of Education whose individual income is less than $125,000 ($250,000 for married couples) and who received a Pell Grant. Borrowers who meet those income standards but did not receive a Pell Grant in college can receive up to $10,000 in loan relief. Current students with loans are eligible for this debt relief.
Dependents of Another - Borrowers who are dependent students will be eligible for relief based on parental income rather than income.
Who Will Benefit? – Since the forgiveness targets lower-income families, per a White House Fact Sheet, nearly every Pell Grant recipient comes from a family that made less than $60,000 a year. Based on that, at least 93% of Pell Grant recipients have income less than $60,000 and would qualify for the $20,000 forgiveness.
The Department of Education estimates that, among borrowers no longer in college, nearly 90% of relief dollars will go to those earning less than $75,000 a year.
Repayment Pause – Repayments were previously paused as part of the COVID relief. That pause has been extended one last time until December 31, 2022. Borrowers should plan to resume payments in January 2023.
Monthly Payments Cuts - The program would cut monthly payments for undergraduate loans in half. The Department of Education proposes a new income-driven repayment plan that protects more low-income borrowers from making payments. The program also caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income—half of the rate borrowers must pay now under most existing plans. This means that current and future borrowers will lower the average annual student loan payment by more than $1,000.
It is estimated that nearly 8 million borrowers will be eligible to receive automatic relief because income data is already available to the U.S. Department of Education. If not, a borrower will be able to provide that information when the department makes a simple application available in the coming weeks. Watch for additional details.
Typically, per the tax code, the amount relived is treated as taxable income when debt is forgiven. That issue is not addressed in the Fact Sheet from the White House.
If you have questions, please give one of our offices a call.