Collectively, the people of Wisconsin owe $24.7 billion in student loans. Now, instead of going to the government, borrowers can invest between $10,000 and $20,000 in their local economy for home ownership, new vehicles, childcare, and more.
The rapid increase in student loan debt in the United States crippled a generation of taxpayers whose payment of principal and (especially) interest was holding them back from the economic opportunities enjoyed by their parents and grandparents. That burden eased a bit on Wednesday with an executive order from President Joe Biden that canceled some or all federal student loan obligations for tens of millions of Americans.
This life-changing news will extend the current moratorium on loan repayments and bring systemic changes to ensure that future repayment terms are fairer for low- and middle-income borrowers.
Here’s the breakdown of Biden’s plan, which he will implement by executive order but could face legal challenges from Republicans and conservative groups who want nothing to do with the student debt crisis.
- $10,000 in forgiven debt if you went to college and earned less than $125,000 (or $250,000 for a married couple) in 2020 or 2021
- $20,000 of forgiven debt if you went to college, received Pell Grants (a form of federal financial aid for undergraduates), and met the income threshold
- The pause on student loan repayments is extended until December 31, 2022, so borrowers won’t have to resume payments in September.
The amount of cancellation is capped at the amount of your outstanding debt, so if you are eligible for cancellation but you have less than $10,000 of debt remaining (or less than $20,000 as a beneficiary of the Pell Grant), the cancellation will amount to all that you owe.
The order will apply to borrowers with federal undergraduate and graduate program loans — meaning nurses and teachers will be eligible — as well as Parent Plus loans, according to the the wall street journal. The canceled debt would also be exempt from tax as income, but any loan must have been taken out before July 1, 2022 to be eligible for cancellation.
The figures from the U.S. Department of Education—and reported by WPR— show that there are currently about 721,400 Wisconsin residents who have unpaid federal education debt. Together, they owe $23.5 billion, money that often leaves Wisconsin as repayments to the federal government and lending institutions.
The progressive advocacy group One Wisconsin Now first made student debt a priority in 2009, when it reported that more than 30 million Americans had nearly $1 trillion in student debt. Today, the number is 43 million Americans who owe about $1.6 trillion, the group’s former chief executive, Scot Ross, said in a statement.
“As corporations across our nation have canceled employer-provided pensions, student borrowers are unable to save for retirement, let alone save money to offset the ever-increasing cost. higher education or technical college for their own children,” Ross said. “But as we emerge from the global pandemic, the grim reality of the student loan crisis has been given some hope with today’s announcement from President Joe Biden.”
Current and future low- and middle-income borrowers with income-tested repayment plans will also receive additional relief under Biden’s New Rule. The command :
- Limit what these borrowers with undergraduate loans have to pay each month to no more than 5% of their monthly discretionary income (the amount left over after paying necessary expenses like rent, utilities, and food). The rate is currently at 10%, which means Biden’s rule will cut payments for those borrowers in half.
- Ensure that no borrower earning less than 225% of the federal poverty level, or about $30,500 in 2022, will have to make monthly payments by increasing the amount of income considered non-discretionary income.
- Cancel loan balances after 10 years of payments for borrowers with a loan balance of $12,000 or less. Currently, these borrowers are not eligible for forgiveness for 20 years.
- Cover borrowers’ unpaid monthly interest, so borrowers don’t accrue interest on their balances as long as they make their monthly payments, even if they’re as low as $0 because their income is low.
The White House provided examples of how these new rules would help different types of Americans:
Biden’s decision comes after years of activism by borrowers, lawmakers and activists who have pointed out how the rising cost of college, which has roughly triple since 1980 – even after accounting for inflation – and stagnant levels of federal aid have forced students to take out onerous loans that have now left many middle and financially weak income families underwater and unable start businesses, buy houses or retire.
According to the US Department of Education (DOE), the average undergraduate student now graduates with around $25,000 in student debt. Even for those who graduate with less debt, the burden can be overwhelming. In fact, roughly 16% of borrowers are in default— including about 750,000 seniors in debt — which can lead the government to garnish a borrower’s wages or reduce their credit rating.
Biden’s order is expected to provide direct financial relief to a large majority of the nation’s population 43 million borrowers, almost a third of whom never finished their studies or obtained a diploma due to the high cost.
Under the rule, around 20 million people should be eligible for full cancellation of their remaining debt, with the benefits overwhelmingly going to Americans earning less than $75,000 a year.
This decision will likely be popular among ordinary Americans. Recent vote from Courier Newsroom and Data for Progress found that 58% of likely voters favor forgiveness of at least $10,000 in federal student loans, with 63% supporting the same amount of forgiveness for low- and middle-income borrowers .
According to the DOE, nearly 8 million borrowers could be eligible for automatic relief because relevant income data is already available to the agency. If the DOE doesn’t have your earnings data, or you don’t know if they do, the Biden administration will roll out an application in the coming weeks, before the pause on student loan repayments ends. federal on December 31.
You can Register for Ministry of Education email notifications once applications are open.
Borrowers who work for non-profit organizations, the military, or federal, state, local, or tribal governments may be eligible to have everything of their federal student loans canceled through the Public Service Loan Forgiveness Program (PSLF) due to temporary changes to the program’s eligibility criteria. These changes expire on October 31, 2022. For more information on eligibility and requirements, visit PSLF.gov.
Additional material from Wisconsin was reported by Pat Kreitlow.