If you have student loans or are the parent of a student who does, it’s crucial to know what the student loan forgiveness plan means to you and your family. On August 24, 2022, President Biden will announce a strategy to try to resolve the student debt crisis, which he hopes will be a relief to borrowers. It consists of three parts: measures to lower the overall cost of higher education, measures to alleviate burdensome student loan debt, and measures to make debt payments more manageable.
When people decide to invest in their education, it is usually because of the potential benefits it will provide in terms of career advancement. Training that results in a high-paying career in the future costs money now. Unfortunately, in the modern world, this is rarely the case.
Pell Grants, which are meant to help low-income students pay for college, have not kept pace with the rising expense of higher education over the past 40 years. Pell Grants have been roughly the same, while college fees have tripled. Therefore, for many households, taking out a student loan is the only option for financing a college education.
It is assumed that if you take out loans to pay for school, you will be able to return those loans once you are making a respectable living wage. However, student loans are a permanent obstacle for many people, preventing them from saving for the future or improving their credit scores.
How Does President Biden’s Plan to Help Students Pay Off Their Loans Work?
President Biden’s plan prioritizes lowering tuition rates, making student loan repayment more reasonable, and forgiving existing debt.
Cancellation of Debt
If your annual income is less than $125,000 ($250,000 for married couples), you may be eligible for loan forgiveness. The loan you take out needs to be guaranteed by Uncle Sam. Forgiveness amounts range from $10,000 for students who do not get the Pell Grant to $20,000 for those who do. We are also extending the moratorium on loan payments enacted during the COVID-19 pandemic to the end of the year 2022.
Smaller Monthly Payments
The maximum amount a low-income family will have to pay each month is restricted to five percent of their income. Loan payments will be reduced by half, saving an annualized $1,000. Those who work in the public sector will have an easier time gaining access to expanded relief.
As long as you maintain making your monthly payments, the interest on your loan won’t accumulate to an unmanageable sum, thanks to the programs in place.
Controlling College Expenses
The president is also taking measures to keep college costs down. To that end, he proposes expanding existing Pell Grants and reinstituting tuition-free community colleges. Vice President Biden has pledged that he will monitor private universities to ensure they maintain affordable tuition rates.
The Soaring Price of College Tuition
The price of a degree from a public institution doubled from $8,000 in 1980 to $13,000 in 2002. That sum increased to $22,000 in 2022. The price of private education is expected to reach $175,000 by 2022, up from $72,000 in 2002. The cost for out-of-state students to attend a public institution rose from $40,000 to $45,000.
Higher education costs have increased dramatically, yet Pell Grants for students from low- to middle-income families have remained relatively unchanged. These funds are meant to support people who could not otherwise afford college.
However, because they are now only responsible for a small fraction of the total, young adults are forced to borrow substantial amounts. College becomes a permanent financial obligation rather than a springboard to a better life because of their inability to repay loans.
In what ways does President Biden’s proposal benefit current students?
Even if they haven’t started paying back their debts yet, current undergraduate students can profit from Biden’s plan. If their expected income isn’t high enough in the future, then they’ll have to pay back their loans at the rate of 5% of income and may be eligible for the forgiveness program.
Interest will not begin to accrue on outstanding balances for current students until January 2023.
Can Future Students Benefit from the Student Loan Program?
Teens who are just now applying to colleges won’t be eligible for loan forgiveness because they don’t yet have any student loans in their names.
However, once payments begin, individuals may be able to keep their monthly payback at 5% of their discretionary income. This concept is still in the works, but it might make things easier for new borrowers if it becomes the de facto IDR option in the future.
Similarly, future college students who complete their loan payments on time will not accrue any additional interest. In addition to the limit on how much can be paid each month, outstanding loans will be forgiven after 10 years. The income-based cap is the most significant development. Long-term, this makes going to college a lot more feasible option for financial reasons for those who are still considering it.
Absolving Parents’ Student Loans
Teens whose parents are still making payments on their own college loans are not alone. If you want to be in a better financial position to pay for your own children’s college tuition, President Biden’s new plan can assist. You can refinance or get your loan forgiven to put additional money toward your children’s education fund.
The parents of these children should take this opportunity to begin saving more for their retirement or to make progress toward paying off other debts, such as a mortgage. Many parents nowadays have much less saved for retirement than they should because they are paying off their own student loans while still helping to pay for their children’s schooling.