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Every year, millions of Americans are faced with federal student loan debt that requires costly monthly repayments. Here’s what you need to know.
Every year, millions of Americans are faced with federal student loan debt that requires costly monthly repayments. Debt amounts can range from a couple thousand to tens of thousands on average, adding up to a national total of over a trillion dollars across all borrowers. Whether you are a student in need of loans or already making repayments, understanding student debt and loan forgiveness can provide you with financial relief.
Debt relief, or debt forgiveness, is when a lender forgives some or all of a borrower’s outstanding loan. As you can guess, this would be particularly helpful for borrowers still with years’ worth of outstanding payments. Lenders often provide debt relief during unique circumstances.
Regarding student debt relief, President Biden has been attempting to enact a policy for student loan forgiveness since early 2022. For low-to-middle-income borrowers, the Biden-Harris administration announced a three-part plan to help provide cushioning for student loan debt that could allow for forgiveness of up to $20,000 for particular groups.
This forgiveness program was recently blocked in court, but the Biden-Harris administration is bringing the matter to the Supreme Court. In the meantime, a payment pause on student loan debt for eligible borrowers has been paused until June 30, 2023.
Assuming the Supreme Court overturns the student debt relief program block before the pause on payments ends, it’s essential to know eligibility requirements. Applications for this program are currently paused until further notice, but knowing this requirement is beneficial for if or when they reopen in the future.
According to studentaid.gov, the official federal student aid site for the U.S. Department of Education, the following is required for eligibility:
Be aware that not all potential borrowers need to apply to the program. If your income is readily available to the U.S. Department of Education, your eligibility will already be known, and the Department will contact you regarding whether or not you wish to opt-out. However, if your income is not available to the Department, federal student aid relief will need to be applied for. Relief can be expected in six weeks if the program is approved in a court of law.
If approved, the upcoming student debt relief program from the White House will have three stages:
The first part of the Biden-Harris student debt relief has already occurred and was an extension on the pause for student debt repayments. It is now extended through June 30, 2023, but if the program is not approved by that date, payments will resume 60 days after. All borrowers who applied or were approved for loan forgiveness will be notified in advance.
For Pell Grant Recipients outlined earlier, the second stage of the debt relief program will be providing funding and forgiveness. As outlined, non-grant recipients may still be eligible for some forgiveness on their student loan payments, but only up to $10,000.
The final plan in the debt relief program is to create better income-driven repayment plans that would substantially reduce future monthly payments for lower- and middle-income borrowers. Critical parts of this plan include:
While it is still unclear whether or not the Supreme Court will approve this program, the White House has emphasized that its priority is still getting it passed. In the meantime, ensuring your other financial goals are intact can help with your overall financial planning.
At Royal Oak Financial Group, we can assist in estate planning, tax planning, investment management, and income or social security planning. Whether you have questions about how the student debt relief plan will impact you or you’re beginning to save for your children’s education, we are here to help! Don’t hesitate to contact us today if you need financial advice from our professional financial advisors, accountants, or retirement specialists.