President Biden has announced a three-part plan to provide more breathing room for individuals with student loans. For all the details, you should go to the StudentAid.gov site at https://studentaid.gov/announcements-events/covid-19. This plan offers targeted debt relief as part of a comprehensive effort to address the burden of growing college costs and make the student loan system more manageable for working families. It also extends the student loan repayment pause through December 31, 2022. The changes are complex, so let’s discuss how they could affect you.
Broad Loan Cancellation
A major part of Biden’s student loan changes is his cancellation of up to $10,000 for most borrowers and $20,000 for Pell recipients, who come from low- and moderate-income backgrounds. Recent graduates will likely benefit from these changes, while current students may not feel their effects much, if at all. The debt forgiveness:
- Only applies to those who earn less than $125,000 a year, or less than $250,000 if a couple files taxes jointly.
- Almost 90% of the relief money will target those who have left college and are earning less than $75,000 annually.
- The Education Department believes 8 million borrowers are automatically eligible for loan forgiveness, as the agency possesses their income data. The remaining qualifying borrowers will need to fill out a “simple application,” which the department will make available at least before the end of the year.
- Borrowers can reportedly use their reported income from either 2020 or 2021 to qualify.
- Loans must have originated before July 1 to be eligible.
Income-driven Repayment Plans
Biden also has proposed major changes to the income-based repayment system, in which borrowers’ salaries determine their monthly payment. Usually after 20 or 25 years, participating borrowers are eligible to have their balances erased. The plan benefits both graduated and current students. The proposed rule would:
- Cut in half the amount borrowers would have to pay monthly, from 10% of their discretionary income to 5%.
- The Education Department would forgive loan balances after 10 years of payments, instead of the typical 20 years, for borrowers with original loan balances of $12,000 or less.
- Borrowers’ unpaid monthly interest would be covered, so their loan balances wouldn’t swell as long as they pay back monthly, even when payments are $0 because of their current income.
Public Service Loan Forgiveness
In early July, the administration unveiled a draft of regulation governing Public Service Loan Forgiveness, which eliminates debt for borrowers in jobs like government and nonprofit work as long as they make a decade of qualifying payments. To ease the path for borrowers who are pursuing PSLF, the Education Department has temporarily given more flexibility to the types of payments that are eligible. This waiver of the program’s requirements expires at the end of October. These improvements will build on temporary changes the Department of Education has already made to PSLF, under which more than 175,000 public servants have already had more than $10 billion in loan forgiveness approved.
How Powercat Financial Can Help
These three changes substantially impact students who are currently enrolled at Kansas State University and recent graduates who are working in their professions. If you have questions regarding these changes, Powercat Financial is here to help. We offer free and confidential appointments in-person and via zoom. Appointment requests can be made online at www.ksu.edu/powercatfinancial. If you are unable to make time for a full appointment you can always come to our POP UP TO POWERCAT walk-in days on the first Friday each month from 9am to 4pm. The next walk-in day is Friday, September 2nd.
Also, make sure to participate in our current event ‘Get On the Money’, an online scavenger hunt at https://tinyurl.com/PFGetOnTheMoney to learn about free financial education resources available to you at K-State! A lucky winner will receive the grand prize of a $200 gift card! An additional 2 winners will win a $100 gift card and 2 winners will receive a $50 gift card. The deadline is September 9th at 5:00pm. Our next event ‘Eating Health on a Budget’ will be on Wednesday, October 5th from 4:00 – 5:00pm in Union Cottonwood room.
RJ Salmen
Peer Counselor II
Powercat Financial
302 K-State Student Union, Third Floor
918 N. 17th Street
Manhattan, KS 66506-2800
785.532.2889
www.k-state.edu/powercatfinancial
PowercatFinancial@k-state.edu
https://www.highereddive.com/news/ed-department-proposes-regulatory-changes-to-borrower-defense-pslf-other/626648/
