Here are the details on the U.S. Department of Education’s potential plan for historic student loan forgiveness.
Here’s what you need to know — and what it means for your student loans.
After years of waiting for student loan forgiveness, student loan borrowers got a detailed look at the potential blockbuster plan for student loan cancellation. According to leaked documents from the Education Department, as Politico reported, millions of student loan borrowers could get more student loan relief sooner rather than later. While the proposal is subject to change, President Joe Biden must approve any student loan forgiveness. Here are three big things included in this plan for student loan cancellation.
1. $10,000 of student loan forgiveness
The plan would include $10,000 of student loan forgiveness for student loan borrowers. Since he was a presidential candidate, Biden consistently has supported $10,000 of student loan cancellation. However, Biden called on Congress to cancel student loans. Since Congress didn’t pass legislation, Biden is considering using executive authority or rulemaking at the U.S. Department of Education to implement historic student loan relief. Progressive members of Congress, including Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) have championed $50,000 of student loan cancellation. That said, the president seems focused on $10,000 of student loan relief.
2. All federal student loans would qualify for student loan forgiveness
All federal student loans would be eligible for student loan forgiveness. This is a significant change from previous student loan forgiveness. How? Previously, student loan forgiveness was limited to Direct Loans. When Congress passed historic student loan relief in March 2020, FFELP Loans and Perkins Loans, for example, weren’t eligible for student loan forgiveness. If Biden approves this plan, FFELP Loans, Perkins Loans, Parent PLUS Loans and Grad PLUS Loans would be included in student loan forgiveness. This significant expansion of student loan relief would benefit millions of student loan borrowers. That said, despite proposals in Congress, student loan borrowers shouldn’t expect a 0% interest rate for their student loans. Biden also proposed to lower interest rates on student loans.
3. Income threshold would limit student loan forgiveness
While not finalized, this plan for student loan forgiveness includes an income threshold of $150,000 for individual student loan borrowers and $250,000 for families. You would qualify for wide-scale student loan forgiveness if your income is below these thresholds. Student loan forgiveness could be automatic if the Education Department already has your income. If not, student loan borrowers could be allowed to self-report their income online to get their student loans canceled.
Student loans: next steps
What are the next steps for student loan cancellation? Biden must approve any plan for student loan forgiveness, which is subject to change. If Biden adopts this plan, student loan cancellation could start as soon as 45 days. Notably, the Education Department has said no decisions on student loan forgiveness had been made and that deliberations are ongoing. Similarly, Biden said he will announce his decision on student loan forgiveness by August 31, when the student loan payment pause expires. While Biden could extend the student loan payment pause, student loan borrowers should be prepared that federal student loan payments will restart on September 1. Here are some of the best ways to pay off student loans faster:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)