Student Loans

Over the past several weeks we’ve had a few clients call in with questions about student loans. Here is what we know about the most recent student loan forgiveness plan.

Forgiveness: On Aug. 24, 2022, President Joe Biden announced that each American who earns $125,000 or less per year ($250,000 for married couples) will be eligible for $10,000 in federal student loan cancellation ($20,000 per couple, but both spouses must have $10,000 in loans to get the complete forgiveness amount). The President also announced that Pell Grant recipients (these would have been low-income borrowers at the time of attending college) can receive up to $20,000 in debt cancellation per person (an additional $10,000).

Note: if you know someone who made payments on a federal student loan during the pandemic pauses, they are able to request a refund of those payments to get those loan balances back up to the eligible $10,000 of forgiveness.

Repayment: In addition, Biden said those with undergraduate loans on income-driven repayment plans would be able to cap their payments at 5% of their monthly income — a change that could reduce bills for millions of borrowers. The government’s current income-driven plans generally cap payments at 10% of a borrower’s discretionary income. Loan balances would be forgiven after 10 years of payments, instead of the current 20 years under many income-driven repayment plans for borrowers with original loan balances of $12,000 or less.

Additionally, the pause on federal student loan payments for all borrowers has been extended yet again. Repayment is now set to resume in January 2023.