Biden backflip scaling back part of promised student debt relief

In August, the Biden administration announced its plan to cancel up to $20,000 in student debt for eligible borrowers to give working and middle-class families more breathing room as they recover from the pandemic, but now federal officials are scaling back part of the program over concerns about legal risk from the loan industry.

In a policy reversal, officials say borrowers with federal loans held by private lenders no longer have a path to receive relief.

Six GOP-led states —Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina—brought a lawsuit to try to halt the sweeping forgiveness plan, charging that the administration overstepped its executive powers.

In response to that lawsuit, the Biden administration quickly dropped the eligibility for the limited group of borrowers who have loans backed by the federal government but owned by private banks.

Student Debt Relief is designed to help borrowers and families most in need as they prepare to resume student loan payments in January 2023. Nearly 90 percent of relief dollars will go to those earning less than $75,000 per year. And, no borrower or household in the top 5% of earners will benefit from this action.

Today, the U.S. Department of Education released its estimate of the costs of the Biden administration’s student debt relief, which estimates that one-time loan foregiveness will cost an average of $30 billion a year over the next decade.

Up to 4 million borrowers are not going to be eligible for forgiveness if they hold older Federal Family Education Loans and Perkins loans that are not held by or on behalf of the U.S. Department of Education, according to student loan expert Mark Kantrowitz, author of “How to Appeal for More Financial Aid.”

Those are fairly old loans, including debt for those who graduated from college or left school 10 years ago or more.

Applications will be available sometime in October. See The online application will be short, the Education Department said, and borrowers won’t need to upload any supporting documents or use their FSA ID to apply.

Borrowers should try to meet a Nov. 15 deadline to file an application for student debt forgiveness for adjustments to be reflected in monthly loan payments, which will resume in January after a pandemic-related moratorium of almost three years.

Tens of millions of borrowers who have federal student loans will need to apply before Dec. 31, 2023, but debtors should apply as soon as possible.

Only 8 million borrowers or so are expected to see automatic relief.

Some will see up to $10,000 in federal loans forgiven. Others would see up to $20,000 in debt relief if they had a federal Pell Grant while in college.

Borrowers with loans held by Education Department are eligible for this relief if their individual income is less than $125,000 or $250,000 for households.

The highest-cost debt will be forgiven first. Relief will apply to loans in the following order, according to the Education Department:

If you have multiple loans in the same program, forgiveness first applies to the loans with the highest rate. If rates are the same, unsubsidized loans would be forgiven before subsidized loans.

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