Student Loans cancellation? That’s exactly right! The other day President Joe Biden announced a sweeping new policy to cancel Student Debt for millions of Americans. The policy also extends the payment moratorium and modifies how much borrowers must pay monthly. I think that’s some fantastic news! But how does somebody qualify for it? And are there any downsides?
In today’s article, I’m going to review the new Student Loan Forgiveness Program and what you’ll need to know to see if you can participate. Are you ready?
Also Read: Best 5 Steps To Build Wealth in 2022
Understanding Biden’s $10K Student Loan Forgiveness Program
President Joe Biden has now said what he plans to do about Student Loans. Student loans will be forgiven up to $10,000 per borrower and up to $20,000 for people who get Pell Grants. With the Presidential Executive Order, this cancellation will be done.
People who are single and make less than $125,000 a year or who are married and make less than $250,000 a year together will be able to get their debts forgiven. Your income won’t add to the forgiven amount through this student loan cancellation.
Usually, forgiven loans count as part of your taxable income, but in this case, they won’t. It is because Senator “Chuck Schumer” added a clause to the American Rescue Plan that says forgiven loans don’t count.
Student Loans Won’t Be Added To Your Income
Payments on student loans for college will be limited to 5% of a person’s monthly income. Federal student loan deferments for Graduate Loans and Parent Plus have been extended until December 31.
Federal Student Loan Moratorium
The federal student loan moratorium, which stopped payments, started in March 2020. It’s been pushed back six times, and payments on student loans were supposed to start again on September 1. The freeze on payments will last until December 31, the last time it is extended.
Student Loans Forgiven By President Biden
Since he took office, President Joe Biden has already forgiven $31 billion in student loan debt for 1.6 million Americans. It was for specific groups of people, like disabled borrowers, people who work in the public sector, students who are scammed, and students who were enrolled in schools that had to close because of this executive order.
It will be for canceling many federal student loans, as he promised when he ran for president.
Also Read: 5 Best Online Side Hustle To Start Right Now
Amount Of Student Loans Owed By The Americans
Currently, 43 million Americans owe money on their federal student loans. About 30% of people who borrowed money owe less than $10,000. About half of the people who borrow money owe less than $20,000.
“Pen Wharton” thinks the government will have to pay $300 billion to make up for this $10,000 refund. According to “Liberty Street Economics,” this will cost about $321,000,000,000. To give you an idea of what that means, it’s the same as the $1,200 stimulus check program.
Is It Bad Timing of Biden’s Student Loan Forgiveness?
Some say that loan forgiveness right now is bad timing due to the rise in inflation and other economic factors. They fear forgiving the loans will harm the economy and raise prices—however, a difference between a stimulus check distribution and a debt reduction is worth noting.
While one pushes money into the economy, leading to higher supply, which increases prices, reducing debt has less chance to increase spending. Of course, time will tell how this impacts us and the rest of the economy, but one thing is for sure – it is something a lot of people are happy to hear.
The successful implementation of this plan will be interesting to observe. I’m happy whenever we can ease the financial strain placed on people by their student loan obligations. And while $10,000 is helpful, many people will have thousands of dollars left to pay their student loans. Debt payments will still be a part of post-college life for many people.
I wrote an article about “How to pay off your student loans fast,” so don’t forget to check that out.