The recent news of the Biden Administration’s Student Debt Relief Plan has generated some excitement around the otherwise dull topic of student loans.
Over the past 40 years, we have seen college tuition prices triple in cost. That is even after accounting for inflation! As the price of attaining higher education became more expensive, more and more students turned to student loans to help fund this endeavor. Due to this burden, on average younger generations have accumulated less wealth than their parents and grandparents did by the same age. In response to the political pressure from this issue, the Biden Administration released a plan to relieve some of the burden of student loans.
The headliner of the plan is the Federal Student Loan Forgiveness provision. In it, single tax payers that earn up to $125,000 qualify for up to $10,000 of their Federal Student Loans forgiven. This income threshold doubles to $250,000 for married couples and those who qualify as Head of Household. There is an extra benefit for Pell Grant recipients, who can have up to $20,000 of their Federal Student Loans forgiven.
Besides forgiveness, the Plan also continues the freeze on Federal Student Loan payments for the remainder of the year 2022, with payments beginning again in January 2023. During this freeze, interest rates will remain at 0%. Additionally, the Biden Administration has changed how monthly payments are calculated. Going so far as to reduce the maximum monthly payment amount—at least for undergraduate loans.
At this time, we are still waiting for the Administration to clarify some details. Questions remain such as which specific loans will be forgiven for borrowers that do not have their entire debt balance forgiven. Or if graduate loans will be included for the lower repayment option. Answers are anticipated early-to-mid-October, with applications available within the same timeframe on the Department of Education’s website.
At John G. Ullman & Associates, we take the time to evaluate options for our clients and a build a plan to address their financial goals. It can be easy to compartmentalize finances—but working with a professional can bring clarity and peace of mind.