Make Ends Meet: Student loan debt relief
LOUISVILLE, Ky. (WAVE) - The move to help forgive student loans for millions of Americans has generated a lot of conversation, both pros and cons.
On August 24, President Biden, Vice President Harris and the U.S. Department of Education announced plans to help working and middle-class federal student loan borrowers.
Biden invoked the 2003 Heroes ACT, a law passed after the Sept. 11 attacks, to cancel up to $20,000 dollars in education loans for millions of borrowers.
Suzanne Powell, financial advisor and author of “Make More Money by Making These 5 Money Moves,” wants student loan borrowers to know they will not get a check in the mail for their student loan debt.
“It’s gonna be a process,” Powell said.
If someone qualifies for the debt relief funds, that money will drop off their loan bill. Details of the relief program will be worked out over the next few weeks or months by the Department of Education.
“You don’t want to be one of the people that just sits there and thinks that it’s going to happen,” Powell said. “Go to the Department of Education website. Make sure that you’re on the radar. You’ve checked all the boxes.”
People can go to the website now and request to be notified when the application process is open.
The U.S. Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients.
To be eligible, the annual income must be below $125,000 for individuals or $250,000 for married couples or heads of households. People will also need to have filed their taxes.
“They’re going to use 2020 and/or 2021 tax returns,” Powell said. “If you haven’t filed a tax return, if you’re not inclined to file a tax return because of COVID, unemployment, whatever... you need to get caught up. That’s important.”
Someone’s relief is capped at the amount of their outstanding debt. If a person is eligible for $20,000 in debt relief, but has a balance of $15,000 remaining, they will only receive $15,000 in relief.
“Your payment will not change,” Powell said. “Good news is more of your payment will go toward principle, because there’s less interest accruing now on a smaller balance.”
“Your student loan payment only changes if what you make has changed,” Powell added. “You know, like if you have a hardship or you change jobs, your payment stays the same.”
Powell also shared a reminder that there is no such thing as a free lunch. Millions of Americans will receive financial relief from the student debt cancellation, but many fear it would shift the cost to Uncle Sam.
“They’re gonna claw the money back from something else some other way,” Powell said. “Just kind of like the stimulus money that everyone received, it was great everyone got what they needed, and they got through and it was very important but now we’re staring at inflation which is simply the biproduct of the stimulus checks.”
This is going to be a process and all the details have not been worked out yet. If someone took out a loan after July 1 of this year, they will more than likely not qualify for President Biden’s student loan debt relief.
However, for anyone who will still owes a student loan, the President is also working on a new income driven repayment plan.
According to the Department of Education, this new income-driven repayment plan will cut monthly payments in half for undergraduate loans. Monthly payments will be capped at 5% of the borrower’s discretionary income.
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