President Joe Biden is set to unveil a new plan to forgive student debt, less than a year after his initial attempt was blocked by the Supreme Court. This time around, Biden is aiming to create a plan that will withstand any legal challenges. The new program is more targeted, focusing on specific groups of borrowers who are facing financial hardship. Despite being narrower in scope, the new plan could still benefit up to 25 million Americans by addressing the issue of “runaway interest.”
The goal of President Biden’s new plan is to ensure that student debt does not leave individuals worse off than they were before pursuing higher education. The administration is particularly concerned about the high interest rates on federal student loans, which can exceed 8%. These rates make it challenging for borrowers to keep up with payments or reduce their outstanding balances. With over 25 million federal student borrowers owing more than their original loan amounts, the need for debt forgiveness is evident.
Under the new plan, borrowers could see up to $20,000 of unpaid interest on their federal student loans forgiven, regardless of their income level. Low- and middle-income borrowers stand to benefit even more. Individuals earning $120,000 or less, as well as married couples with a combined income of $240,000 or under, could have all accrued interest since entering repayment erased. To qualify for this relief, borrowers must be enrolled in an income-driven repayment plan, but they should not have to submit additional applications.
Erasing student debt interest can have a significant impact on families’ financial well-being and their ability to achieve the American Dream. Jaylon Herbin, director of federal campaigns at the Center for Responsible Lending, highlights that eliminating this debt burden will allow millions of borrowers to pay off their loans more efficiently. By freeing individuals from the cycle of debt accumulation, they can move closer to financial stability and independence.
In addition to canceling interest, President Biden’s plan extends debt forgiveness to specific groups of borrowers. This includes individuals who are eligible for debt relief under existing government programs but have yet to apply, as well as those who have been repaying their undergraduate loans for 20 years or longer, or graduate loans for over 25 years. The plan also covers borrowers who have attended schools of questionable value and those experiencing financial hardship, which may encompass individuals burdened by medical expenses or high childcare costs.
While President Biden initially sought to cancel student debt through executive action, he has shifted his approach to the rulemaking process. By implementing a more targeted and comprehensive plan, Biden aims to begin addressing the student debt crisis before the upcoming November election. The combination of interest forgiveness and debt relief measures under the new plan signals a significant step towards alleviating the financial burdens faced by millions of Americans struggling with student loans.
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