What Arizonans in debt should know

President Joe Biden on Wednesday announced his efforts to administer debt relief for low-to-middle-income students through plans to provide up to $20,000 in debt forgiveness to Pell Grant recipients and up to to $10,000 debt forgiveness to non-Pell Grant recipients.

To be eligible for relief, borrowers must have an individual income of less than $125,000 or a family income of less than $250,000. Debt relief will not be available to high-income households and people in the top 5%.

Biden also continued the pause on federal student loan repayments through Dec. 31, letting borrowers resume payments in January 2023.

Here are more questions and answers about what Arizonans need to know about Biden’s student loan plan.

Did Biden Forgive Student Loan Debt?

Biden’s recent announcement didn’t extinguish all student loan debt, but many borrowers are eligible for loan relief.

Who is eligible for student loan forgiveness?

Individuals with incomes below $125,000 or households with incomes below $250,000 may qualify for the $10,000 debt relief. Borrowers who have received a Pell Grant and meet the income requirements can be forgiven for up to $20,000.

Nearly 90% of those who will receive relief and are not in school earn less than $75,000 a year, according to the Department of Education.

Among eligible borrowers, more than a third are over 40, of whom 5% are seniors. In addition, 21% of eligible borrowers are 25 years old or younger and almost half are between 26 and 39 years old.

What is a Pell Grant?

A Pell Grant, which is given to low-income students, is a need-based grant designed to help students cover the cost of their college expenses. Pell grant recipients make up more than 60% of the borrowing population, and Pell grants are frequently used by students of color. Although the award varies, the maximum federal Pell Grant award is capped at $6,895 for the 2022-23 academic year.

How many Americans have student loan debt?

Federal student loan debt stands at $1.6 trillion for more than 45 million borrowers.

What is the average student loan debt?

The typical undergraduate student with loans has now graduated with almost $25,000 in debt.

What if I hadn’t finished my degree?

No problem. This does not prevent you from receiving debt cancellation.

Are private loans included in Biden’s loan cancellation plan?

No, private loans will not be forgiven in Biden’s plan.

By definition, private loans are non-federal loans made by private organizations, including credit unions, banks, and state-affiliated or state-based organizations. These are loans that borrowers owe to the student loan provider.

Is Sallie Mae a federal loan?

Sallie Mae is a private loan. Sallie Mae was once a government-sponsored entity, but when the company split into two, it became a consumer bank that makes private loans.

How do people receive student loan debt forgiveness?

Borrowers must complete a form through an application process to receive loan forgiveness.

Although the application process and all benefits may be delayed indefinitely due to legal challenges, the Biden administration plans to make the application available by the end of the pause on federal student loan repayments.

Will I have to pay taxes on the canceled debt?

Taxes do not have to be paid on debt relief. The canceled debt will not be treated as taxable income for federal income tax purposes.

What loan repayment plan is offered?

The Department of Education has proposed a student loan repayment plan that caps monthly payments for undergraduate loans at 5% of the borrower’s discretionary income. Under most current repayment plans, borrowers must pay nearly double that amount.

How much will this cost the federal government and taxpayers?

According to an estimate from a model developed by the Wharton School at the University of Pennsylvania, a one-time maximum debt forgiveness of $10,000 for borrowers with incomes below $125,000 will cost nearly $300 billion.

What if I’ve already paid off my student loans?

Debt forgiveness should only apply to borrowers who currently have student loan debt.

Which document explains your rights and responsibilities as a federal student loan borrower?

The Master Promissory Note is a legally binding document that outlines the rights of a federal student loan borrower. An MPN, which can be valid for up to 10 years, also details a borrower’s repayment terms.

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