Beyond 10k - What Else Is In Biden's Loan Forgiveness Plan
On August 24th, President Joe Biden announced his long awaited $500 billion student loan forgiveness plan. The plan stands to be one of the biggest expansions in federal aid for college students taking out loans to pay for their education. And while most of the headlining attention has gone towards the $10k to $20k in outright loan forgiveness, the plan also includes multiple major changes that could benefit student loan borrowers.
The first change comes in the form of the new income based repayment options. Under the new plan, undergraduate loan monthly payments would be capped at 5% of discretionary income, a significant decrease from the current 10-15% cap. CNBC notes that for one student, Justin Short, who took out $47,000 in loans, this represents a decrease in his monthly payment from $690 to $200, a change that will mean he will no longer have to move back in with his parents.
Another change comes in the form of interest payments. One major problem student loan borrowers face is that they could be paying down their loans, but those loans would still be accruing interest greater than the actual payment. This meant that despite paying down their loans, students could find themselves in a continual debt trap. The new plan seeks to fix this by eliminating any interest accrued that wasn’t paid for as long as the student made a qualifying payment. For students, this means no more worrying about the cost of their education going up after they’ve already been paying for it.
And if a student graduates and finds themselves making $30,577 or less, then they will not have to make a payment on their student loan. The previous barrier for loan repayment protection was at $20,385, so now many more students will be protected from making payments if they fall within said income thresholds.
This means that a student could effectively have their payments on pause, and since the $0 counts as a qualifying payment, in combination with the previous change, a student could be paying nothing and be gaining no interest on their loans - a major help for many low income graduates already struggling to get by.
So while the major loan forgiveness remains top of most people's minds, students have much more to look forward to when it comes to paying off their debts.