What canceled student loan debt and extended payment pause mean for NC borrowers

More than one million North Carolinians could now have less student debt to pay off. And they can keep putting off those loan payments for at least a few more months thanks to a new plan from President Joe Biden.

The Biden Administration announced it will cancel up to $10,000 of federal student loans for individuals making $125,000 a year or less. The cap is $250,000 for families. Pell Grant recipients, who come from low-income families, will be eligible for up to $20,000 in debt cancellation.

That student loan forgiveness does not apply to private loans.

Biden also extended the pandemic-related student loan payment pause through the end of the year, an announcement that came just days before the deadline.

For some students, this plan could clear their debt. For other borrowers, it’s just a drop in the bucket.

“We did what society tells us you’re supposed to do: go to school to pursue higher education. And we’re staring down a scenario that we would be lucky to be able to afford a house by the time we’re 40,” said Charles DeLoach, who will graduate from UNC law school next spring with more than $100,000 in student debt despite earning scholarships and working.

The $10,000 isn’t going to make or break his situation, but it at least opens a path, the 29-year-old said. And while he knew what he was signing up for, that’s not the case for everyone, including the millions of teenagers making these life-altering financial decisions.

“We’re at a place with the student debt crisis where people have been set up to fail, and we’re trying to blame them for it,” DeLoach said.

“This has lifelong impacts for people, many of whom have been paying their loans for decades and because of the interest rate, they owe more than they did when they first took it out.”

Student loan debt in NC

In North Carolina, there is $48 billion of unpaid federal student loan balances across 1.3 million borrowers as of July 2021, according to the latest data from the Office of Federal Student Aid. Those borrowers have open Direct Loans, Federal Family Education Loans and Perkins Loans.

Just under half of North Carolinians with federal student loan debt have $20,000 or less in outstanding balances, U.S. Dept. of Education data shows. And about 30% have no more than $10,000 in debt.

North Carolinians 34 and younger make up the majority of borrowers with federal loan debt. They have nearly $16 billion in outstanding debt, which is about a third of the total debt.

Across the nation, about 43 million people have federal student loan debt, and the average borrower has about $38,000, according to data from the Education Data Initiative. It totals about $1.7 trillion nationally.

The U.S. Department of Education plans to announce more details on how borrowers can get this relief in the coming weeks.

Here’s what you need to know about Biden’s plan and whether it will help reduce your student debt.

Who does the student loan forgiveness apply to?

• Individuals earning under $125,000 annually.

• Married couples or heads of households earning under $250,000.

The White House expects about 90% of relief will go to people earning less than $75,000, The Washington Post reported.

How much student debt will be cleared?

• Up to $10,000 for most individuals.

• Up to $20,000 for Pell Grant recipients.

Pell Grants are need-based grants for low-income students that are awarded by the federal government and do not have to be paid back. Most of the financial aid goes to students from families earning less than $60,000 a year.

Seven in 10 college graduates who take out federal loans also received a Pell Grant, and Pell Grant recipients have about $4,500 more debt than their peers, according to the Institute for College Access & Success.

When will borrowers get the debt relief?

About 8 million people may be eligible to receive the relief automatically because the education department has their relevant income data.

The application for the student loan forgiveness will be available sometime before the pause on federal student loan repayments terminates at the end of the year.

When do borrowers have to start making loan payments again?

People should plan to make payments starting in January 2023. This will be the final extension, according to Biden.

Under this new plan, borrowers who took out undergraduate loans can cap their repayments at 5% of their monthly income.

The extension shows that Biden wants “pandemic-related relief to be phased out responsibly so that people do not suffer unnecessary financial harm,” according to the Education Department.

Why were payments paused in the first place?

During the COVID-19 pandemic, the federal government suspended loan payments, lowered the interest rate to 0% and stopped collections on defaulted loans.

The payment pause has been extended several times under the Trump and Biden Administrations.

Does this apply to graduate and undergraduate students?

Yes, as long as the loans are federal.

What other student loan forgiveness options are there?

North Carolina borrowers might be eligible for the Public Service Loan Forgiveness Program if they are employed by a U.S. federal, state, local, or tribal government or not-for-profit organization.

The program forgives the remaining balance on Direct Loans once borrowers have made 120 qualifying monthly payments through a qualifying repayment plan while working full-time for a qualifying employer. And those 120 months don’t have to be consecutive.

How do you know what qualifies?

Use the Public Service Loan Forgiveness (PSLF) Help Tool or the Public Service Loan Forgiveness (PSLF) Employer Search.

You can use those resources to check that your employer qualifies, certify your employment each year (which is recommended to save time when you apply for forgiveness), apply for forgiveness once you’ve met the requirements and get the right form to sign and submit.

The Education Department proposed long-term changes to the program that make it easier for people working in public service jobs to get this loan forgiveness.

The proposal includes the following changes:

▪ More payments will qualify, including partial, lump sum and late payments

▪ Other kinds of deferments and forbearances, including for Peace Corps and AmeriCorps service, National Guard duty and military service will count.

Are there any other student loan debt plans on the horizon?

The Education Department proposed a rule to create a new income-driven repayment plan to reduce the monthly payments that lower- and middle-income borrowers will have in the future. More of their income would be protected from loan payments.

Impacts of the plan, according to the department:

▪ Reduces the amount borrowers have to pay each month on their undergraduate loans from 10% to 5% of their discretionary income. Borrowers with both undergraduate and graduate loans would pay a weighted average rate.

▪ Raises the amount of income that is considered nondiscretionary, which means more money is protected.

▪ Forgives loan balances after 10 years of payments (down from 20 years) for borrowers with original loan balances of $12,000 or less.

▪ Fully covers the borrower’s unpaid monthly interest, so the loan balance doesn’t grow as long as they are making the right monthly payments.

▪ Simplifies borrowers’ choices among loan repayment plans.

Biden said these changes will save more than $1,000 a year on average for borrowers.

The proposed regulations will be published on the Federal Register and open for public comment for 30 days.

Need tips for paying for college?

North Carolina Attorney General Josh Stein offers resources and advice about how to pay for college, manage student loan debt and avoid repayment scams on his website.

This story will be updated.