What you need to know about the new student loan debt forgiveness plan
The average student loan debt per borrower is around $30,000, though many people owe much more than that. Having high amounts of any kind of debt can be stressful, especially if you’re trying to focus on your — or your family’s — future. But for some people, having student loans is also a lifelong burden that haunts them long after launching into their adult lives.
Fortunately, things are looking up. On August 24th, the Biden Administration proposed a three-part plan to help tackle student loan. This includes:
- Part 1: Targeted relief to low- or middle-income borrowers. Individuals must earn less than $125,000 a year to qualify. Married couples need to make under $250,000.
- Part 2: Up to 50% monthly payment reduction for those with undergraduate loans. This falls under the new income-driven repayment plan. It will cap any monthly payments to 5% of the individual’s income rather than 10%. This will make monthly payments much more affordable for a lot of borrowers.
- Part 2b: Improvements to the Public Service Loan Forgiveness program. Many borrowers who work at nonprofits, government agencies, or the military aren’t receiving credit for student loan forgiveness. With this change, they should.
- Part 3: Decreased postsecondary education costs. Although not yet certain, Biden’s working on doubling the Pell Grant award and making community college less expensive or free.
In addition, the Biden administration announced one final extension of the pause on student loan repayments, interest, and collections through December 31, 2022. The Department of Education said borrowers should plan to resume payments in January 2023. If your loans were eligible, If your loans are eligible, payments were automatically paused starting March 13, 2020, due to the financial impact of the COVID-19 pandemic.
Impact of the new student loan forgiveness plan
Biden’s plan is meant to help the most financially vulnerable borrowers. That is those with college debt but no degree, senior citizens, racial minorities, etc.
The hope with the new changes is twofold:
- It will help combat the growing costs of college education, making it more affordable and accessible.
- Student loan borrowers won’t be as burdened financially after leaving school. The debt will also be more manageable for working individuals and families.
It’s still a far cry from when the Pell Grant was enough to cover nearly 80% of college education costs. It is, however, a step in the right direction. This form of debt relief also won’t be considered as taxable income, thanks to the American Rescue Plan. In other words, those who benefit from it won’t have to pay more when it comes time to file.
So, what’s the bottom line?
With the new plan, low- and middle-income student loan borrowers are looking to get $10,000 of their debt forgiven. If they received a Pell grant during their time in college, they could also be looking at shaving off another $10,000. Seeing as around 60% of student loan borrowers are also Pell Grant recipients, this alone could help approximately 20 million people.
How to apply
Specifics on how to apply for student loan forgiveness will be announced in the coming weeks, but the Department of Education said an application should be ready by October at studentaid.gov, where you can sign up to be notified when the application is ready. According to the Department of Education, you’ll have until Dec. 31, 2023 to apply.
How people feel about student loans
It is no secret that the cost of attending college, private or not, has gone up over the years. In 2021-22, the average estimated cost of all college fees (tuition, room and board, books, etc.) for full-time undergraduates was between $18,830 and $44,150.
The cost depends largely on the school type and student’s residency status. Combine this with the rising cost of living due to inflation and it’s no wonder that many borrowers are feeling the stress.
According to a recent DebtHammer survey on student loans, over 60% of people said they regret ever taking out student loans. 21% of people stated they don’t think they’ll ever be able to pay off their entire balance. Additionally, 29% indicated that high monthly payments make it nearly impossible to save for a potential emergency.
And despite social media outcry over the loan-forgiveness plan, Americans say they’re mostly satisfied with the decision: 69% agree or strongly agree with the $10,000 cancellation total, while 13% disagree and 17.5% remain uncertain. About 43% say the total was just right, while 34% say it was not enough and 23% say it was too much.
Other key figures from the survey include:
- 18% of student loan borrowers have been paying off their loans for around 10-15 years.
- 69% of people believe the $10,000 discharge would help them financially.
- 34% of those surveyed don’t think $10,000 or even $20,000 is enough.
- 63% of people consider the student loan system to be a scam. Of that percentage, 25.47% view these loans as worse than payday loans.
Supporting the results of the survey is data from the Education Data Initiative. In one study, the Initiative found that the average borrower who pays about $460 a month in student loans will need 20 years to pay them off fully. Some professional graduates are expected to take closer to 45 years without some kind of forgiveness or debt relief program.
If you’re looking to stay informed on the debt relief announcement and any upcoming changes to student loan debt, check out this article. Or check out the full results of the DebtHammer survey.
Have Bad Credit But Need to Consolidate Your Student Loans?
Consolidating debt means combining multiple loans or credit cards into one, ideally for a lower interest rate and lower monthly payments. Unfortunately, most lenders require you to have good credit to do it.
That said, there are some decent debt consolidation loans for people with bad credit. The interest rates may be higher depending on your credit. Still, these loans could make it easier to get a handle on your debt.
One thing to keep in mind is that you can’t consolidate federal student loans with private ones. If you have federal loans, you can consolidate them with minimal hassle. If you have private loans, you may need to speak to a lender about refinancing them.
Check Out These Gas App Rewards
Gas prices have been going up in 2022. At one point, they were above $5.00 a gallon in some places. Although they’ve finally started dropping again — the average cost is $3.764 in the country — the high prices are still a concern. A lot of Americans have even had to cut down on how often, and how far, they drive to reduce costs.
The good news is there are gas reward apps that can help ease the financial burden of paying for gas. Apps like Gas Guru can help you find the cheapest gas stations in your city. Others, like GasBuddy, work similarly to store loyalty cards and apply an automatic discount when you use them to get gas.
Some apps can save you $0.03 to $0.05 to the gallon. Others can reduce costs by $0.25 a gallon. While these amounts might not seem like a lot, even a few dollars can add up over time… especially if you’re struggling with bills.