Student Loan Forgiveness: Your guide to maximizing and understanding the new plan.
Over the last 30 years, our nation has seen a steady rise in the cost of attending a 4-year university. Whether you choose a state college or private university, the chance that you come out with between $10k – $40k worth of debt is at least 50%. Student loan borrowing has hit an all-time high, and has increasingly become more difficult to pay down as college expenses rise disproportionately over time.
For many millions of Americans who find themselves with student loan debt, the Biden administration’s new student loan forgiveness plan may bring some much-needed relief. As part of the new plan, there are four important sections that are highlighted below.
Student Loan Forgiveness Plan
Federal Loan Deductions for Low to Moderate Incomes
The new plan targets student loan borrowers who are considered low to moderate income, as defined below. The key takeaway points here are as follows:
- The U.S Department of Education will provide up to $20,000 worth of relief for Pell Grant recipients and up to $10,000 worth of relief for non-Pell Grant recipients.
- Student loan forgiveness requirements include an income level below $125,000 for a single income or $250,000 for a combined household.
- “Up-to” means that if the borrower has $15,000 in debt they will receive relief in that amount – as a Pell Grant recipient. Or a non-Pell Grant recipient with only $8,000 in debt will receive relief in that amount.
- The majority of borrowers will automatically see the deduction applied to their accounts because the Department of Education already has the information on file. If the Department does not have a borrower’s information, they plan to release a simple application by early October.
- Once a borrower completes the application, they can expect relief within 4-6 weeks. The Department encourages everyone to apply as soon as possible because student loan payments resume after December 31st, 2022. More on that below.
Final Student Loan Moratorium
The second part of the plan extends the payment pause a final time, set to resume at the beginning of 2023. The repayment period has seen multiple extensions due to the economic strains of the last two years.
The Department of Education encourages all borrowers to apply, if necessary, before November 15th, 2022, to ensure their loans are forgiven before the payments resume. However, they will process all applications indefinitely.
Note: Borrowers do not have to do anything additional to apply this extension to federal student loans.
Public Loan Service Forgiveness (PLSF) Program
In addition to loan forgiveness, borrowers who work in nonprofits, the military, or tribal, local, federal, or state governments may be eligible to have all their student loans forgiven. This is because of a time-limited waiver based on criteria from the PLSF program. This offer ends October 31st, 2022. Please see their website, PSLF.gov, for more information.
The PLSF program forgives student loan amounts for those who:
- Have already paid 120 payments.
- Work full-time in a non-profit organization, the military, or tribal, local, state, or federal government position.
The temporary changes, ending October 31st, 2022, allow recipients to qualify for past periods of repayment they were not previously eligible to receive.
This is a benefit for those who have selflessly given their time to help their communities (as outlined above). Apply as soon as possible so you don’t miss this opportunity.
Changes to Student Loan Repayment Criteria
The final part of the student loan forgiveness plan is the restructuring of future loan repayment options for low to moderate-income households.
Although there have always been loan repayment plans, the new administration is proposing to create an income-driven system that will:
- Require borrowers to pay no more than 5% of their discretionary income on a monthly loan payment. In the past, this number was 10% under other income-driven plans.
- Raise the amount of income that is considered non-discretionary income, which then protects that income from repayment. This will ensure that those who are earning under 225% of the poverty threshold will not have to make monthly payments.
- Complete loan forgiveness after 10 years of payments, compared to other programs that require 20 years of repayment.
- Cover the borrower’s monthly interest, so that as long as the borrower is making monthly payments they will accrue no interest. Even if the payment is $0 a month.
The restructuring is an opportunity for low-income families to find relief and make headway on their debt. Many families can benefit from this if they are proactive and wise with their spending habits.
Get the Most Out of the Student Loan Forgiveness Plan
If you are one of the many millions of people that will benefit from the program, use it to your financial advantage. While it may be tempting to use excess funds for wants instead of prudent needs, we highly recommend you budget it for major financial goals, such as saving for a home.
At Lafayette Federal Credit Union, we can help you as you navigate your financial roadmap. As our mission states, we exist to serve and support you so that you can be empowered to achieve your financial goals and we offer solutions to help you with your financial success.
We will work with you to determine how to restructure your budget to account for any extra funding that is a result of the student loan forgiveness plan. For instance, if your student loan of $15,000 is eligible to be forgiven, that money can now be potential funds that to be used towards a down payment of a home. We offer many innovative mortgage programs, and when the time is right, will work with you to determine which type of loan would work best for you.
Alternatively, any excess funds can be allocated towards investing. We offer access to our member-exclusive financial advisor, who is available to help you develop a solid financial plan for your future, putting your financial interests above all else.
Finally, we offer sound savings solutions that offer a safe, secure way to grow your hard-earned money. Lafayette Federal deposit accounts are the perfect way to GROW your savings with minimal effort and little risk, with top-tier rates that are leading the nation.
