The Biden Administration has announced its much-anticipated details regarding new student loan debt relief program plans. We’re monitoring this news and its impacts on current and future borrowers very closely. Watch this space for details and updates as the program outlined yesterday is further defined. Here’s what we know now:

Student Loan Forgiveness

The administration announced $10,000 of student loan forgiveness for individuals who did not receive Pell Grants and $20,000 for users who did receive Pell Grants. This applies to borrowers who have federal loans and earn under $125,000 per year (or are a member of a household that earns under $250,000 per year).  Keep in mind these are maximum forgiveness amounts. If you have an outstanding balance in either category that is less than the forgivable amount, your balance will be forgiven but you will not receive any additional funds.

If your loans have been paid off in full, regardless of the date of payment, it does not appear that you would be eligible for this program.

Forbearance Extension

The student loan forbearance has been extended through December 31st, 2022. Payments and interest will resume in January.

Payment Based on Income

The government has created a new income driven repayment program that caps a monthly payment at 5% of an individual’s discretionary income instead of the previous benchmark of 10%. It also changes the definition of discretionary income to make it more favorable for the borrower.

This plan would only apply to borrowers with undergraduate loans. As part of this change, borrowers with an original balance of $12,000 or less would have their balance forgiven after 10 years. This repayment plan would also cover an individual’s monthly interest, ensuring that the balance does not grow as long as they continue to make their monthly payments.

An important note: as of today, it has not been clarified whether a borrower’s income is being defined as gross income or *adjusted* gross income (AGI). This will be a very important distinction to make regarding this program; stay tuned for details.

What We Don’t Know

We do not yet know how the forgiveness amounts will be applied to individuals’ accounts. As the program is described, borrowers who are eligible for forgiveness will receive their level of loan forgiveness automatically if the Department of Education has their income and loan information on file. If they do not have your information on file, or if your information is not correct, you may be required to fill out an application for this forgiveness with your servicer. We do not yet know when this application will be available or what it will entail.

What Do You Need To Do Now?

For now, there is nothing you need to do. If the Department of Education has your information on file, your forgiveness will theoretically be automatic, without any action on your part. We recommend you sign up to receive information from the U.S. Department of Education’s Student Loan Updates. We will keep you updated as we learn more!