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Feds to Forgive up to $20 000 in Student Loans

New plan would forgive some debts lower payments for others

AFP / Getty Images The federal government will forgive up to $20,000 in student loans under a long-awaited policy the Biden administration announced Aug. 24. The move will help borrowers of all ages, including people 50 and over, who owe nearly .
Debt forgiveness will be limited to individuals with less than $125,000 in annual income and couples with less than $250,000 in income. Nearly 8 million borrowers may be eligible to receive relief automatically because the U.S. Department of Education (DOE) already has the income information it needs to determine eligibility. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. Students with Pell grants who meet the income limits will have up to $20,000 in federal student loans forgiven. Pell grants are for students with the greatest financial need. Students without Pell grants can have up to $10,000 in federal student loans forgiven. Missouri, Arkansas, Kansas, Nebraska, South Carolina, and Iowa have filed a federal lawsuit arguing that President Biden doesn’t have the legal authority to forgive student loan debts. Partly in response to the lawsuit, the Biden administration announced Sept. 29 that privately held federal student loans must have been consolidated before September 29 to be eligible for the debt relief. The move could exclude about 770 million borrowers from student loan debt relief.

Payment date pushed back

The administration also pushed back the date when borrowers must start repaying their student loans from Aug. 31 to Dec. 31. The began in March 2020 because of the COVID-19 pandemic, and that relief has been extended several times. The DOE says that the latest extension will be the last, and that loan payments will resume in January. Groceries 20% off a Freshly meal delivery subscription See more Groceries offers > Private loans have not been subject to the payment moratorium. The median student loan payment — half are higher, half are lower — is $222 a month, according to the Federal Reserve. The average payment is $393. For retirees, still having student loan debt can be a particularly difficult problem. The average Social Security retirement benefit is $1,625 per month, and for 1 in 4 seniors, Social Security represents 90 percent of their income. The DOE plans a new income-driven repayment plan that caps payments for undergraduate loans to 5 percent of a borrower’s discretionary income — that is, the money left over after necessities, such as taxes, everyday expenses and household bills. Loans will be forgiven for borrowers with original loan balances of $12,000 or less after 10 years of payments, instead of the current 20 years. John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today. MORE FROM AARP AARP NEWSLETTERS %{ newsLetterPromoText }% %{ description }% Subscribe AARP VALUE & MEMBER BENEFITS See more Finances offers > See more Vision Benefits offers > See more Retirement offers > See more Technology & Wireless offers > SAVE MONEY WITH THESE LIMITED-TIME OFFERS