After four previous extensions under Biden’s administration, the student loan payment pause will be prolonged to December 31, 2022. This means that there is still no requirement to make monthly payments and no possibility of loans becoming delinquent or defaulted.
This doesn’t come as a huge surprise, given rising inflation and considering loan servicers were asked not to reach out to borrowers about upcoming payments in July. Biden also announced widespread forgiveness and changes to IDR plan repayments that have borrowers celebrating. Here are the details that uncover how much impact this really has.
Who is Eligible for Forgiveness and How Much?
Federal student loan borrowers are eligible, private loan borrowers are not.
As anticipated, $10,000 forgiveness will go to individual federal loan borrowers who earn less than $125,000 per year, or households earning less than $250,000 per year. What came as a surprise, was the additional $10,000 in forgiveness for Pell Grant recipients, totally $20,000 of forgiveness.
Graduate loans are eligible for forgiveness, as well as Parent Plus loans. Current students will qualify for loan forgiveness if their parents’ income is below the cap required to qualify. Federal Family Education Loan (FFEL) loans will qualify if managed by the Education Department. According to reports, The department has yet to determine whether borrowers with commercially held FFEL loans will be eligible for relief.
The relief total estimates is over $300 billion – a significant impact to the student debt crisis. Still, millions of borrowers are facing incredible sums of student debt, totalling $1.6 trillion and rising.
Ensure You’re Set Up to Receive Your Forgiveness
The U.S. Department of Education will soon launch an application process to collect income data from borrowers to verify eligibility and submit the forgiveness. To get alerted with a simple application process and other updates on the announcement, you can sign up for Chipper ‘Easy Apply’ here.
Additional Relief for Borrowers on Income Driven Repayment (IDR) Plans.
Significant IDR plan changes were announced as well, slashing the time it takes to get forgiveness and lowering the repayment cap.
Here’s the breakdown:
- Undergraduate loan repayments are now capped at 5% of discretionary monthly income, rather than 10%.
- Loan balances will be forgiven after 10 years of consecutive payments, down from 20 years.
- Interest will no longer accrue as long as continuous IDR repayments are made.
- Borrowers earning a minimum wage, or less than $15/hour, will have a $0 monthly payment once payments resume.
What About the PSLF Waiver?
The PSLF (Public Service Loan Forgiveness) waiver, a topic of major discussion as many borrowers find the process of applying for student loan forgiveness difficult and unattainable, is still set to be due on October 31st.
What To Do Before Payments Resume?
The additional extension allows borrowers to reevaluate their current finances and discover potential repayment options that best suit their needs. Even though monthly payments aren’t required for public loan borrowers, the smartest thing a borrower can do (if their budgets allow) is to make payments now as there is 0% interest.