President Joe Biden announced Friday that federal student loans will be canceled for borrowers who received less than $12,000 and have been in repayment for the past ten years.
Starting in February, federal loan borrowers “who have taken out less than $12,000 in loans and have been in repayment for 10 years will have their remaining student debt immediately forgiven,” Biden said in a statement.
The plan was originally scheduled to start in July, but will come into effect six months earlier. applies to borrowers enrolled in the new income-driven repayment plan known as Saving on a Valuable Education Plan (SAVE).
“This action will especially help community college borrowers, low-income borrowers and those struggling to repay their loans,” President Joe Biden said.
“This action will especially help community college borrowers, low-income borrowers, and those struggling to repay their loans,” Biden said in his statement.
“It’s part of our ongoing efforts to act as quickly as possible to give more borrowers breathing room so they can escape the burden of student loan debt, move on with their lives and pursue their dreams.”
Biden announced the new repayment plan last year, in addition to a separate plan to forgive up to $20,000 in loans for millions of Americans. The Supreme Court has rejected his plan for widespread forgiveness, but the repayment plan has so far escaped that level of legal scrutiny. Republicans in Congress tried unsuccessfully to block the new reimbursement plan last year through legislation and a resolution.
Many borrowers began repaying federal student loans in October, after a hiatus of more than three years.
The SAVE plan offers much more generous terms than several other income-driven repayment plans it is designed to replace. Previous plans offered cancellation after 20 or 25 years of payments, while the new plan offers this in just 10 years. The new plan also lowers monthly payments for millions of borrowers.
According to the White House, 30 million people are eligible for the SAVE plan, with 6.9 million currently enrolled.
Those who withdrew more than $12,000 are eligible for cancellation, but on a longer timeline. For every $1,000 you borrow above $12,000, an additional year of payments is added on top of the ten years.
The maximum repayment period is limited to 20 years for those with only a student loan and 25 years for those with a student loan.
The Biden administration says next month’s aid will mainly help Americans who attended community colleges, which generally cost less than a four-year university.
The plan is intended to put community college students “on a faster track to debt forgiveness than ever before,” Education Secretary Miguel Cardona said.
Counterintuitively, people with smaller student loan balances often have a harder time. It’s caused by millions of Americans taking out student loans but not completing their studies, leaving them with the downside of debt without the downside of higher income.
Republicans have railed against the new reimbursement plan, saying it helps wealthier Americans with college degrees at the expense of taxpayers who didn’t go to college. Some say it’s a backdoor attempt to make community college free, an idea Biden campaigned on but which failed to gain support in Congress.
There are 30 million people eligible for the SAVE plan, of which 6.9 million are currently enrolled
New loan forgiveness applies to those who took out less than $12,000 in loans and have had repayments for ten years
Starting next month, the Department of Education says it will automatically wipe the balances of eligible borrowers enrolled in the SAVE plan. The department will send an email to borrowers who may be eligible but have not enrolled.
Some of the plan’s provisions went into effect last summer: It prevents interest rate snowballing as long as borrowers make monthly payments, and it makes more Americans eligible to have their monthly bill reduced to $0.
Other components are expected to take effect in July, including a change to cap borrowers’ payments at 5% of their discretionary income, up from 10% in previous income-driven repayment plans.
The Biden administration is separately pursuing another plan for widespread cancellation.
After the Supreme Court rejected Biden’s first plan, he asked the Department of Education to try again under a different legal authority. The department has been working on a new proposal that would provide relief to specific groups of borrowers.
