Am I eligible for student loan forgiveness?  What you need to know about Biden's debt plan.

President Joe Biden tweeted on Wednesday what many have been waiting for months – a plan to forgive or reduce student loan debt for millions of debt-ridden borrowers.

If you make less than $125,000 a year, he said, you’re eligible for up to $10,000 in student loan cancellations. If you received a Pell Grant, you can get up to $20,000 simplified. If you don’t qualify for student debt forgiveness, your repayment pause remains on pause until the end of the year. The Department of Education is also working on a proposal to introduce a new repayment plan to ease the burden on borrowers.

Since the start of the pandemic in 2020, borrowers have not had to pay a single cent on their student loans. During that time, pressure mounted for the president to simply cancel the debt. It was one of the platforms on which Biden ran for president in 2020.

While the plan will be welcomed by many, it is still likely to draw criticism. Many have asked for higher forgiveness amounts – $50,000 or even all of the amounts, no matter how large. The total outstanding balance for federally owned (including delinquent) student loans in December 2021 was $1.38 trillion, the New York Federal Reserve reported in April.

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What is Biden’s plan for student loan forgiveness?

Anyone with an annual income below $125,000 (or below $250,000 for married couples or heads of households) is eligible for federal student loan cancellation of up to $10,000. No private loans will be forgiven.

Those who received a Pell Grant in college will also be eligible for up to $20,000 in debt cancellation.

For those who still have student debt, the repayment pause from March 2020 will be extended until the end of the year. Borrowers will resume payments in January 2023.

What is a Pell Grant?

Federal funding generally available only to students who demonstrate exceptional financial need and have not earned a bachelor’s, master’s, or professional degree. Sometimes a student enrolled in a post-baccalaureate teacher certification program may receive a Pell Grant.

Unlike a loan, a Pell Grant does not have to be repaid except in certain circumstances, when some or all of it may have to be repaid. Some circumstances include a change in enrollment status or if you have received outside scholarships or grants that reduce your need for federal student aid.

How do people request student debt forgiveness?

The Department of Education will announce details at 2:15 PM EDT. and in the coming weeks. The application will be available no later than Dec. 31, when the federal student loan repayment pause ends.

Nearly 8 million borrowers may be eligible for automatic relief because relevant income data is now available to the Department of Education.

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What is the cost of student loan forgiveness?

A one-time maximum debt forgiveness of $10,000 per borrower would cost about $300 billion for borrowers with incomes below $125,000, according to an analysis released Tuesday by Junlei Chen and Kent Smeters of Penn Wharton Budget Model, based at the University of Pennsylvania. That cost increases to $330 billion if the program continues through the standard 10-year budget window.

Before the announcement, the Government Accountability Office estimated that the pause in payments alone since the start of the COVID-19 pandemic had cost the government $102 billion. This amount includes the suspension of all outstanding payments, interest accruals and enforcement collections for delinquent loans from March 13, 2020 to August 31, 2020.

The band Too Much Talent performs during a rally to call on President Joe Biden to cancel student debt near the White House in Washington, D.C., Wednesday, July 27, 2022.

The band Too Much Talent performs during a rally to call on President Joe Biden to cancel student debt near the White House in Washington, D.C., Wednesday, July 27, 2022.

Who benefits the most from the student debt forgiveness plan?

Mostly higher income households. Between 69 percent and 73 percent of the foregone debt accrues to households in the top 60 percent of the income distribution, Chen and Smeters said.

However, a New York Federal Reserve study in April said that the income cap for forgiveness “significantly lowers the cost of student loan forgiveness and increases the share of the benefit for borrowers who are more likely to struggle to repay their debts.” .

For example, a $75,000 income cap for a $10,000 cancellation raises the share of subsidized loans going to borrowers in low-income neighborhoods to 35% from 25%, and the share going to borrowers with lower credit scores to 42% of 37%, that’s what I said. The income restrictions also increased the share of simplified loans that were in arrears before the pandemic to 60% from 34%.

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This article originally appeared on USA TODAY: What is a grant? What you need to know about Biden’s student loan debt plan.

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