President Joe Biden made an announcement Wednesday that hundreds of thousands of Minnesotans have been waiting for a long time: a plan to cancel some federal student loans.
In a speech from the White House, Biden noted how the cost of college has increased over the past few decades.
“An entire generation is now saddled with unsustainable debt,” he said. “The burden is so heavy that even if you graduate, you may not have access to middle-class life.” And the burden is greater for black and Latino borrowers, who often don’t have access to family wealth, he noted.
Biden announced a three-part plan. First, student loan repayments, suspended since March 2020, will resume in 2023. Second, all borrowers who earn less than $125,000 will be eligible for federal student loan relief, up to $20,000 if they have received a Pell grant. And finally, the student loan repayment process will change, meaning you may owe less per month or you may not accrue interest.
“It’s a matter of opportunity,” Biden said. “It’s about giving people a fair chance. It’s the one word by which America can be defined: possibilities. »
The announcement came as a relief to many, though others criticized it for not going far enough.
So what does this mean for you? How much will your loan be reduced by? And what do you need to do to qualify for loan forgiveness?
Here is a breakdown. We’ll update this story as more information becomes available.
How much debt will the Biden administration cancel? And for whom?
The US Department of Education will forgive up to $20,000 in federal student loans for Pell grant recipients and up to $10,000 for non-Pell grant recipients. Pell grants are awarded to undergraduate students with exceptional financial need, although individuals with certain immigration statuses have not qualified for the grant or other forms of federal financial aid.
“We appreciate the targeted relief there for students who might need a little extra relief,” said Minnesota Office of Higher Education Commissioner Dennis Olson. “These tend to be more low-income students, first-generation students.” These students are still recovering from the financial effects of the pandemic, and now high inflation, he added. “It will just give them a bit more leeway.”
Yue Hua, recently graduated from the University of Minnesota with a Ph.D. in economics focusing on how student loans shape people’s future, fertility and social mobility, also noted how targeted debt relief was.
“It looks like they are targeting this group of people who should really benefit from debt cancellation,” she said. “These people who are eligible, they are going to feel the impact. It will do them good. »
What student loans does this apply to?
Biden’s announcement only applies to federal loans, not state or private loans. But federal loans make up the overwhelming majority of undergraduate student debt, about 92% nationally.
How will this affect Minnesotans?
According to Olson, 782,000 Minnesotans have an open federal loan. This represents approximately 14% of the state’s population. These borrowers owe a total of $26.7 billion. Nationally, more than 60% of borrowers with federal student loans are Pell Grant recipients, Biden said, or 27 million people.
Many of these Minnesotans owe less than $10,000, Olson said, so their loans will be completely forgiven. The same will apply to Pell Grant recipients who owe less than $20,000. Biden estimated that overall, 43 million people are eligible for debt relief, and 20 million of them will have their student loans forgiven entirely.
National data shows that students of color, especially black students, are more likely to take out student loans. These students also tend to be more in debt. Olson said that while Minnesota-specific data isn’t available, he expects the state to reflect national trends.
“We hope that with these targeted decisions from the U.S. Department of Education, it will begin to raise the bar for those who have been most affected, primarily Black, Indigenous, and people of color in Minnesota,” he said. -he declares.
Am I eligible? For how much?
You may qualify for relief if your annual income is less than $125,000 as an individual or $250,000 as a married couple or head of household.
So if you received a Pell grant in college and meet the income requirements, you are eligible for debt forgiveness of up to $20,000. If you haven’t, you may be eligible for up to $10,000.
What do you mean by “until”?
This is based on your current loan balance. For example, if you received a Pell Grant and meet the income requirements, but your balance is $15,000, that is the amount that will be forgiven, not the full $20,000.
When should I start making payments again?
The Biden administration extended the payments pause until Dec. 31. But this is the last extension. Payments will resume in January 2023.
Student loan repayments have been suspended several times since 2020 to ease the economic challenges created by the COVID-19 pandemic. Biden says this will be the final break in payments.
I still don’t earn enough money to pay my loans.
The Biden administration is also making changes to this process. You don’t have to make payments if you earn less than 225% of the federal poverty level. This number changes every year, but at the moment it means that if you are someone who earns less than $30,577.50 per year, you will not have to make a monthly payment.
So how much will I have to pay when payments resume?
There will be a new process based on your earnings. You will not be required to pay more than 5% of your Discretionary Income each month for your undergraduate loans. (Previously, the requirement was 10 percent.)
Hua said that part of Biden’s plan deserves more attention. “It’s actually, I would say, a longer-term solution than canceling student debt,” she said. Yet, she says, not enough people know about this option. “The turnout is really low. Maybe people don’t know it, or it’s too complicated for people not to use it as often. This is especially true for black and Latino borrowers, who are less likely to take advantage of income-contingent repayment, she said.
It is not yet clear if this plan will apply to all borrowers or if you will have to join.
Won’t my interest continue to grow? I don’t want to owe more than I already owe.
Some borrowers, including you, have experienced this in the past. But Biden says the new income-based repayment plan will cover your unpaid monthly interest, as long as you make your monthly payment. Your interest will also not increase if your income is too low to qualify for a monthly payment.
When will my entire balance be cancelled, even if I haven’t paid it all back?
If you’ve made payments for at least 10 years and you owe less than $12,000, your loan balance will be forgiven. (Previously, this happened after 20 years.)
Are there other options for debt relief? What about the Civil Service Loan Cancellation Program?
If you work for a non-profit organization, the military, or federal, state, tribal, or local government, you may also be eligible to have all of your student loans forgiven through the Loan Forgiveness Program. public service loans (PSLF). The program forgives the remaining balance on your federal student loans after 120 payments of public service work. This means you must have worked in this industry for 10 years or more, but it doesn’t have to be consecutive. Nurses, teachers, police officers and firefighters are among those who may qualify.
This program already existed, but many qualified people were unable to access loan forgiveness. Biden announced a few changes that he says will make things easier. “It’s a great idea, but the program is a mess,” he said. “It’s so inefficient and complicated that a lot of people give up.”
Biden’s plan includes temporary changes that make it easier to get credit for past repayment periods that wouldn’t otherwise have qualified for loan forgiveness. The deadline to apply for this program and take advantage of loan repayment changes is October 31. You can find more information about eligibility and application here.
How do I qualify for loan forgiveness?
If the US Department of Education has your earnings data, you may be eligible to automatically receive relief.
If the department doesn’t have your earnings data, or you’re unsure, the Biden administration says it will launch a simple application in the coming weeks. The app will be available before the end of the refund break on December 31. Sign up for Ministry of Education updates here.
I can’t log into the student loans website because there is a lot of traffic. How can I stay on top of it all?
“We encourage students and borrowers to be the most educated consumers possible,” Olson said. “That means first consulting the U.S. Department of Education to see what the qualifying metrics are, then working closely with their loan officer or lender directly to understand exactly what type of loan they have because that will determine if or they are not eligible.
Can Minnesota also forgive my state loans?
That should be done through the state legislature’s budget process, Olson said.
“I’m certainly open to any conversations that help ease the debt burden, current debt burden, or future debt burden for Minnesota students, and help people lower the barriers even further,” said said Olson. “I’m all for it.”
Where can I find more information?
Visit the White House Civil Service Loan Forgiveness webpage or the U.S. Department of Education’s Federal Student Aid Student Debt Relief Plan Explainer.
Hibah Ansari and Samantha HoangLong contributed to this report.