New Biden student debt plan could forgive up to $20,000 in interest for millions
Breaking news
On Friday, April 12, the Biden-Harris administration announced an additional $7.4 billion in student loan forgiveness for more than 200,000 SAVE Plan users. This round of forgiveness primarily targets those who borrowed $12,000 or less for college and have made at least 10 years of payments. They can now receive total forgiveness on their enrolled federal loans. Each additional $1,000 borrowed adds 12 months of payments until forgiveness, up to 20 or 25 years. The announcement also includes fixes to income-driven repayment plan counts and Public Service Loan Forgiveness impacting 65,800 and 4,600 borrowers, respectively. Eligible borrowers will receive emails in the coming days and relief will be processed in the coming weeks, the U.S. Department of Education announcement states.
On Monday, April 8, the Biden-Harris administration announced that certain federal student loan borrowers across the nation could see federal student debt forgiven as soon as Fall 2024.
The new plans would result in federal student loan relief to over 30 million Americans when combined with previous measures the administration has taken to cancel student debt. But first, the plan must be approved and implemented.
New policy aims to cancel “runaway interest”
The plans announced today aren’t final. They must first go through an extensive legislative process. It could take weeks or even months for such a large proposal to be approved and take effect through the Negotiated Rulemaking process.
Biden’s proposed policies take a new approach. Rather than focusing on the debt itself, the administration aims to forgive accrued interest balances.
If finalized and put in place, the policy would cancel up to $20,000 of the amount a borrower’s balance has grown due to accrued interest after entering repayment. That means if your federal student loan balance has ballooned since you left school, you might be eligible for forgiveness.
According to a recent White House release, the plan would:
Forgive interest balances for 25 million borrowers.
Forgive entire federal balances for 4 million borrowers.
Provide at least $5,000 in relief to 10 million borrowers.
“Millions of borrowers who could be helped by these plans have continued to see their balances grow because of accrued interest, despite making their monthly payments,” the White House press release states. “Many have also had this unpaid interest capitalized, meaning it is added to their principal balance and borrowers are now paying interest on that higher amount.”
SAVE Plan sets the foundation for future forgiveness measures
Eliminating excessive interest accrual on student loans has been a major Biden administration focus. The SAVE Plan was launched in August 2022 and is the first example of a plan aimed at eliminating “all interest capitalization not required by the law.”
Unlike other repayment plans, SAVE doesn’t charge interest and eliminates existing interest for those who make qualifying on-time monthly payments. Additionally, your monthly payment is based on your income and family size. Of the nearly 8 million borrowers enrolled, 4.5 million have a monthly payment of $0.
Learn more: Biden administration forgives $1.2 billion in student loans through SAVE Plan
Wide range of borrowers could qualify
The above interest cancellation would be automatically applied to the accounts of all eligible borrowers, regardless of income.
However, single-income borrowers who earn $120,000 or less and married borrowers who earn $240,000 or less may qualify for extra benefits. According to the White House fact sheet, those who meet these income limits and are also enrolled in SAVE — or any other income-driven repayment (IDR) plan — would have the entire accrued interest amount forgiven.
In addition to interest forgiveness, Biden’s plan could automatically cancel student debt for specific individuals, including borrowers who:
Have been in repayment for 20 years or more on their Federal Direct Loans or Direct Consolidation Loans (25 years for graduate federal loans).
Have experienced “hardship in their daily lives” that has made paying back their loans difficult.
Were enrolled in institutions or programs that were denied recertification due to misleading or illegal practices.
Attended institutions that closed or failed to provide “sufficient value”.
Are eligible for debt cancellation under existing programs but have yet to apply.
The administration hasn’t outlined what constitutes “hardship.” The announcement mentions “borrowers who are at high risk of defaulting on their student loans, who could be eligible for automatic relief or families who are burdened with other expenses like medical debt or child care who can apply for relief in the future.”
Plan to go through rulemaking procedures, public comment period
Borrowers do not need to take any action if they believe they may be eligible for interest or debt relief. The proposals made today need to go through the public comment period of the Negotiated Rulemaking process. After the comment period is over and the Department of Education reviews the comments, the final version of the rule will be published.
If approved, the final rule — today’s proposals — can take effect on July 1, 2025. However, there are a few exceptions; for example, the White House claims that interest reduction could begin as early as this fall. This is due to the SAVE Plan efforts implemented last year.
Borrowers can be on the lookout for communication from their federal student loan servicer. However, it’s unwise to rely on proposed policies for student debt management or cancellation. The proposals made are by no means legislation and stopping your monthly payments could put your future cancellation potential in jeopardy.
