FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most

A three-step strategy fulfills President Biden’s commitment to eliminate $10,000 of student loan burden for borrowers with low to moderate incomes.

After the economic turmoil caused by the pandemic, the Biden Administration is granting families a respite as they get ready to commence repaying debts. Presently, the Biden Administration is fulfilling their commitment to offer relief from student loans. Throughout the campaign, he pledged to provide relief from student loans. However, for numerous individuals, the expense of borrowing for higher education is an enduring hardship that denies them of that chance. President Biden holds the belief that pursuing education after high school should serve as a pathway to a middle-class existence.

According to an analysis by the Department of Education, the average undergraduate student who takes out loans now graduates with approximately $25,000 in debt. This situation has affected many students from low- and middle-income families who have been left with no alternative but to borrow if they wish to obtain a degree. Federal support, specifically Pell Grants, used to cover nearly 80 percent of the cost of a four-year public college degree for students from working families, but currently, they only cover a third of the cost. The total cost of both four-year public and private college has almost tripled since 1980, even when accounting for inflation.

Graph showing the cost of college attendance and maximum Pell Grants in 2021 dollars, 1980-2021. The cost of attending college has skyrocketed - but federal support has not kept pace.

The significant burden on the middle class in America is the struggle that borrowers in the middle class face with high monthly payments and ballooning balances. It makes it harder for them to build wealth, like starting small businesses and saving for retirement or buying homes. The federal student loan debt, with cumulative skyrocketing of 1.6 trillion dollars for more than 45 million borrowers, is rising rapidly.

The typical Black borrower who started college in the 1995-96 school year still had 95% of their original student debt twenty years after first enrolling in school. Black borrowers also disproportionately bear the burden of student debt. The government can lower a borrower’s credit score or garnish their wages, leading to default, which affects about 16% of borrowers, including nearly a third of senior citizens with student debt. Many of these students were unable to complete their degree due to the high cost of attendance. According to an analysis conducted by the Department of Education on a recent cohort of undergraduates, almost one-third of borrowers carry debt without obtaining a degree. The impact of debt is particularly severe for the most vulnerable borrowers.

President Biden is announcing a three-part plan today to provide more breathing room for working families in America, as part of a comprehensive effort to address the growing burden of college costs and make the student loan system more manageable. This plan offers targeted debt relief as a way to address the increasing costs of college for families working for the Department of Education.

Borrowers can anticipate resuming payment in January 2023. The temporary suspension of federal student loan repayment will be prolonged one last time until December 31, 2022 to ensure a seamless transition to repayment and prevent unnecessary defaults. No affluent individual or well-off household – ranking in the top 5% of earners – will benefit from this measure. Borrowers qualify for this assistance if their individual earnings are below $125,000 ($250,000 for married couples). The Department of Education will offer up to $20,000 in debt forgiveness to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt forgiveness to non-Pell Grant recipients. Deliver focused debt relief to address the financial consequences of the pandemic, honoring the President’s campaign promise.

The Department of Education is proposing a new income-driven repayment plan that will lower the annual average student loan payment by more than $1,000 for both current and future borrowers. Under this plan, borrowers with existing loans will be required to make monthly payments capped at 5% of their discretionary income, while also protecting borrowers with low income by cutting their monthly payments for undergraduate loans in half.

These improvements will build on the temporary changes already implemented by the Department of Education, proposing a rule that fixes the broken Public Service Loan Forgiveness (PSLF) program by allowing borrowers who have worked in local or tribal government, state or federal military, or nonprofit organizations to receive appropriate credit towards loan forgiveness. Additionally, more than 175,000 public servants who have already benefited from the program will receive forgiveness loans in excess of $10 billion.

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The President will continue to fight to reduce the cost of college by holding schools accountable and to further reduce the cost of college by doubling the maximum Pell Grant. The President has championed the largest increase in Pell Grants in over a decade, which has led to the largest influxes of students in universities and colleges. The President will continue to fight to double the maximum Pell Grant and make community college free. Meanwhile, colleges have an obligation to ensure that borrowers get value for their investments and keep reasonable prices to prevent borrowers from being burdened with debt they cannot afford. The Department of Education has already taken key steps to strengthen accountability, including weakening previous Administration rules. The Department of Education is announcing new efforts to ensure that student borrowers get value for their college costs.

For borrowers who were not awarded a Pell Grant during their time in college, they have the opportunity to obtain a maximum of $10,000 in loan relief if they meet the specified income criteria. Conversely, borrowers who did receive a Pell Grant face fewer difficulties when it comes to repaying their debt. Pell Grant recipients typically come from families with an annual income below $60,000, and nearly all recipients are granted a Pell Grant. As loan repayment resumes next year, the Department of Education will offer loan relief of up to $20,000 to borrowers with loans held by the Department, who have an individual income below $125,000 (or $250,000 for married couples), and who were also granted a Pell Grant. This measure aims to prevent defaults on loan repayments.

Pie graph showing the distribution of Pell Grant recipients by income, 2019-2020. Nearly all Pell Grant recipients come from families with incomes of $60,000 or less.

The Department of Education estimates that roughly 27 million borrowers, who are eligible to receive relief in order to avoid harm from the COVID-19 pandemic and potential economic challenges, will be recipients of Pell Grants. Over time, the value of Pell Grants has been eroded, but it remains one of America’s most effective financial aid programs, with more than 60% of the borrower population being recipients.

This loan forgiveness is available for present students with debts. Forgiveness based on parental earnings, instead of their personal earnings, will be applicable for borrowers who are reliant on their parents.

If all borrowers assert the assistance they are eligible for, these measures will:

Offer assistance to around 43 million borrowers, which includes forgiving the entire outstanding amount for approximately 20 million borrowers.

The funds for assistance will be allocated to individuals earning below $75,000 per annum, specifically to borrowers who have completed their education. According to the Department of Education, it is estimated that approximately 90% of the allocated funds for assistance will be received by this group. However, individuals with an income exceeding $125,000 or households with an income exceeding $250,000, which represents the top 5% of earners in the United States, will not be eligible for this relief.

Senior citizens who are borrowers of 5% or less make up a significant portion, while borrowers aged 40 and above constitute a smaller percentage. Borrowers between the ages of 26 and 39, as well as those under 25, are eligible for assistance. The Department of Education estimates that 21% of borrowers fall into the category of being under 25 years old. This relief program aims to support borrowers of all ages.

The actions of the Administration are likely to help narrow the racial wealth gap by targeting relief to borrowers with the highest economic need. Black students are more likely to take out larger loans and borrow for school compared to their white peers. Black borrowers are also twice as likely as their peers to have received Pell Grants. Other borrowers of color are also more likely to receive Pell Grants compared to their peers. This is why programs targeting debt forgiveness in college, particularly for those who have received Pell Grants, are found to advance racial equity, according to a study by the Urban Institute.

Bar graph showing share of cancellation dollars recieved by borrowers out of school, by individual income. Nearly 90% of debt cancellation benefits will go to borrowers earning less than $75,000.

The Department already has access to their pertinent income information, as nearly 8 million eligible borrowers may receive relief. The application for pausing federal student loan repayments will need to be submitted before the end of the year, as there will be no opportunity to do so later. The Department of Education will efficiently and promptly establish a streamlined application process for borrowers to claim relief.

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Thanks to the American Rescue Plan, this debt relief will not be treated as taxable income for the federal income tax purposes.

Ever since President Biden assumed the presidency, individuals with loans held by the federal government have been exempted from making any loan payments. To facilitate a seamless return to repayment, the Department of Education is granting a final extension to the student loan hiatus until December 31, 2022.

Adjusting the current loan repayment to decrease monthly payments.

The Administration is revamping student loan repayment plans in order to provide smaller and more manageable monthly payments for both current and future low- and middle-income borrowers.

The Department of Education has the authority to create income-driven repayment plans, which cap borrowers’ monthly payments based on a percentage of their discretionary income. However, the existing versions of these plans are limited and too complex.

In line with Congress’ initial concept for income-based repayment, the Department of Education is presenting a regulation to accomplish the following objectives and tackle these issues.

For undergraduate loans, cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.

The income that is deemed non-discretionary and thus exempt from repayment should be increased, ensuring that borrowers earning less than 225% of the federal poverty level – approximately equivalent to a $15 minimum wage for a single borrower on an annual basis – are not required to make monthly payments. The increase in the threshold for non-discretionary income protection will guarantee that no borrower earning below 225% of the federal poverty level will be obligated to make monthly payments.

In less than a decade, this reform will enable almost all individuals who have taken loans from community colleges to eliminate their debts. As per the Department of Education’s calculations, individuals with initial loan amounts of $12,000 or less will have their loan amounts pardoned after making payments for 10 years instead of the previous 20-year period.

As long as borrowers continue to make their monthly payments, even if the payment amount is $0 due to their low income, their loan balance will not increase, which is unlike other income-driven repayment plans. Additionally, the plan also covers any unpaid monthly interest for the borrower.

These modifications would simplify the procedure of reimbursing debts and offer significant cost reductions for individuals with limited to moderate earnings. For example:

A single construction worker earning $38,000 per year, who possesses a construction management credential, would see their annual savings amounting to $1,400. This figure can be compared to the $147 they currently pay under the latest income-driven repayment plan, resulting in a monthly payment of just $31.

Under the most recent income-driven repayment plan, teachers in public schools with a typical undergraduate degree (earning $44,000 per year) would only have to pay $56 per month on their loans, compared to the $197 they would have to pay without the plan, resulting in an annual savings of almost $1,700.

The typical nurse, who is married with two kids and makes $77,000 a year, would only have to pay $61 per month on their undergraduate loans, compared to the $295 they now pay under the most recent income-driven repayment plan, resulting in an annual savings of $2,800.

Graphic table: these reforms would simplify repayment and deliver significant savings to low- and middle-income borrowers.

Once they complete the necessary amount of qualifying payments, their outstanding debt will be pardoned, and their debts will not accumulate as long as they continue to make their monthly payments for each of these borrowers.

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Once enrolled, borrowers will have the option to authorize the Department of Education to automatically retrieve their income details on an annual basis, eliminating the inconvenience of having to recertify their income every year, commencing in the summer of 2023. Furthermore, the Department of Education will simplify the process of maintaining enrollment for borrowers who sign up for this new program.

Ensuring that public employees are credited towards loan forgiveness.

Due to inadequate counseling provided to borrowers, historical failures in implementation, and the presence of complex eligibility restrictions, numerous borrowers have been deprived of the credit they rightfully deserve for their public service. The Public Service Loan Forgiveness (PSLF) program allows borrowers working in public service to accumulate credit for debt relief.

The Department of Education has introduced temporary modifications to PSLF that offer a simpler route to absolving all remaining debt for eligible federal student loan borrowers who have worked at a non-profit, in the military, or in federal, state, Tribal, or local government for a minimum of 10 years, even if not continuously. These changes enable eligible borrowers to accumulate additional credit towards forgiveness, regardless of previous information indicating an incorrect loan type.

The Department of Education has also proposed better work regulations to ensure non-tenured instructors at colleges, who need to calculate full-time employment, have improved working conditions. Additionally, the Department of Education has proposed allowing certain kinds of forbearances and deferments, as well as late payments and lump sum payments, including partial payments, to count towards Public Service Loan Forgiveness (PSLF) for those who have served in the military, National Guard duty, AmeriCorps, Peace Corps, and other similar services. The Department of Education has proposed these changes to ensure the more effective implementation of the PSLF program.

You must apply for PSLF before October 31, 2022, as the temporary changes to PSLF will end. You can find more information about the temporary changes on PSLF.Gov. The White House has launched four dedicated Action Days for borrowers in specific sectors, such as non-profit employees, first responders, healthcare workers, educators, and government employees, to make them aware of the temporary changes ahead.

The American Rescue Plan, which provided nearly $40 billion to universities and colleges over a decade, included the largest increase in the maximum Pell Grant. This allowed students to receive more financial aid for emergency situations and made it easier for them to breathe a little. While also providing relief to low-income borrowers, it ensured that students had more money in their pockets to pay for college costs.

The Department of Education has already taken significant steps to strengthen accountability, including repealing the previous rule that graduates cannot repay their debt, proposing a rule to hold career programs accountable, and withdrawing authorization for the accreditor responsible for overseeing some of the worst for-profit school scandals. In fact, the agency has re-established the enforcement unit in the Office of Federal Student Aid to hold accreditors’ feet to the fire. Additionally, it is important to note that students are not left with mountains of debt and little payoff, so the agency is working to further strengthen accountability.

In order to reduce levels of debt, the colleges that have the most worrying outcomes related to debt plan to establish institutional improvement strategies, which also involve seeking assistance from the most problematic participants. Students who are enrolling for the upcoming academic year can avoid programs with unfavorable outcomes by releasing a yearly list of programs with the highest debt levels nationwide. The Department of Education is introducing new measures to hold colleges accountable for their role in the student debt crisis, building upon these previous initiatives.

Additional details regarding the process of obtaining assistance will be accessible to borrowers in the forthcoming weeks.

Borrowers have the option to register for notifications when this data becomes accessible at StudentAid.Gov/debtrelief.

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