For months, student loan borrowers have waited to see if President Biden would extend loan forbearance or if it would expire as scheduled on Aug. 31. Activist groups lobbied for an extension, and over 100 members of Congress sent a signed letter to the President urging him to extend the pause on student loan payments.
This week, borrowers finally got their answer — President Biden announced an extension through the end of the year and widespread debt cancellation for specific borrowers.
“In keeping with my campaign promise, my Administration is announcing a plan to give working and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023,” Biden said.
Biden Announces Targeted Student Loan Debt Cancellation
On Aug. 24, President Biden announced that borrowers earning less than $125,000 per year would receive $10,000 in federal loan forgiveness. Federal Pell Grant recipients will receive up to $20,000 in loan forgiveness.
President Biden also extended the pause on student loan payments through Dec. 31, 2022, marking the eighth time the student loan moratorium has been extended since March 2020.
In addition, the Department is proposing a new rule for undergraduate borrowers signed up for income-driven repayment plans. This plan would decrease monthly payments substantially for lower and middle-class borrowers. Payments would be capped at 5% of their monthly income, and the loan balance would be forgiven after ten years of timely payments.
How to Know If You’re Eligible for the Program
If you’re wondering whether you qualify for student loan forgiveness, there are a few things to keep in mind. First, student loan forgiveness is only available to borrowers with federal loans, not private loans.
Federal student loans are given by the Department of Education, while private student loans are given by banks, credit unions, and online lenders. The student loan payment pause only applies to federal borrowers, too, so those who borrowed from private institutions will still hold the full value of their outstanding loans, minus what they’ve repaid.
Student loan forgiveness is only available to borrowers who earn less than $125,000 per year (or less than $250,000 for married couples). Federal Pell Grant recipients can earn additional loan forgiveness since the Pell Grant program is only available to borrowers who can demonstrate a financial need.
Will Student Loan Cancellation Face Legal Challenges?
Student loan cancellation is a hot topic, with differing views on both sides of the aisle. Many prominent Democrats encouraged the President to cancel more than $10,000 in debt. Meanwhile, critics argue that this move will cost taxpayers more than $300 billion and could contribute to rising inflation.
The White House will likely face lawsuits over student debt cancellation since Congress never gave the President the authority to cancel student loan debt. Because of that, it’s unclear what the exact timeline is for debt forgiveness.
However, the Justice Department did release a legal opinion stating that the Secretary of Education has the “authority to reduce or eliminate the obligation to repay the principal balance of federal student loan debt.”