What is the plan?
- Loan forgiveness: Borrowers who earn less than $125,000 per year (or $250,000 for married couples) are eligible for up to $10,000 in federal student loan debt forgiveness.
- Income-driven repayment: Changes to income-driven repayment (IDR) plans are designed to make monthly payments more manageable for borrowers and limit the total amount they must repay.
- Pausing payments: The pause on federal student loan payments that began during the COVID-19 pandemic will be extended through December 31, 2022.
What we know:
- Eligibility: Borrowers must have had federal student loans that were disbursed on or before June 30, 2022.
- Income caps: The income caps for eligibility are based on the borrower's adjusted gross income (AGI) for 2020 or 2021, whichever is most recent.
- Application process: Borrowers will be able to apply for loan forgiveness through a simple online application that will be available no later than early October.
- Repayment pause extension: The pause on federal student loan payments will be extended until December 31, 2022, regardless of the borrower's income or loan status.
- IDR plan changes: Changes to IDR plans will limit monthly payments to 5% of the borrower's discretionary income (currently, borrowers can repay up to 15%). They will also forgive any remaining loan balance after 20 years of payments (currently, loans are forgiven after 25 years).
What we don't know:
- Loan forgiveness amount: The exact amount of loan forgiveness that borrowers will receive is not yet clear, as it depends on the borrower's income and loan balance.
- IDR plan details: The specifics of the new IDR plans, such as how the payment cap and loan forgiveness provisions will be calculated and implemented, have yet to be announced.
- Impact on federal budget: The total cost of the student loan forgiveness plan has not been disclosed.
- Reaction from lenders and borrowers: It is not yet known how lenders and borrowers will react to the plan. Some lenders may raise interest rates or fees, and some borrowers may be disappointed by the limitations on loan forgiveness.
