Provide Targeted Debt Relief, Fulfilling the
President’s Campaign CommitmentTo address the financial harms of the pandemic for low- and middle-income
borrowers and avoid defaults as loan repayment restarts next year, the
Department of Education will provide up to $20,000 in loan relief to borrowers
with loans held by the Department of Education whose individual income is less
than $125,000 ($250,000 for married couples) and who received a Pell
Grant. Nearly every
Pell Grant recipient came from a family that made less than
$60,000 a year, and Pell Grant recipients typically experience more challenges
repaying their debt than other borrowers. Borrowers who meet those income
standards but did not receive a Pell Grant in college can receive up to $10,000
in loan relief.
The Pell Grant program is one of America’s
most effective financial aid programs—but its value has been eroded over time.
Pell Grant recipients are more than 60% of the borrower population. The
Department of Education estimates that roughly 27 million borrowers will be
eligible to receive up to $20,000 in relief, helping these borrowers meet their
economic potential and avoid economic harm from the COVID-19 pandemic.
Current students with loans are eligible for this debt relief. Borrowers who
are dependent students will be eligible for relief based on parental income,
rather than their own income.
If all borrowers claim the relief they are entitled to, these actions will:
Provide relief to up
to 43 million borrowers, including cancelling the full remaining balance
for roughly 20 million borrowers.
Target relief dollars
to low- and middle-income borrowers. The Department of Education estimates
that, among borrowers who are no longer in school, nearly 90% of relief dollars
will go to those earning less than $75,000 a year. No individual making more
than $125,000 or household making more than $250,000 – the top 5% of
incomes in the United States – will receive relief.
Help borrowers of all
ages. The Department of Education estimates that, among borrowers who are
eligible for relief, 21% are 25 years and under and 44% are ages 26-39. More
than a third are borrowers age 40 and up, including 5% of borrowers who are
senior citizens.
Advance racial
equity. By targeting relief to borrowers with the highest economic need,
the Administration’s actions are likely to help narrow the racial wealth gap.
Black students are more likely to have to borrow for school and more likely to
take out larger loans. Black borrowers are twice as
likely to have received Pell Grants compared to their white peers. Other
borrowers of color are also more likely than their peers to receive Pell
Grants. That is why an Urban Institute
study found that debt forgiveness programs targeting those who
received Pell Grants while in college will advance racial equity.

The Department of Education will work quickly
and efficiently to set up a simple application process for borrowers to claim
relief. The application will be available no later than when the pause on
federal student loan repayments terminates at the end of the year. Nearly 8
million borrowers may be eligible to receive relief automatically because their
relevant income data is already available to the Department.
Thanks to the American Rescue Plan, this debt relief will not be treated as
taxable income for the federal income tax purposes.
To help ensure a smooth transition back to repayment, the Department of
Education is extending the student loan pause a final time through December 31,
2022. No one with federally-held loans has had to pay a single dollar in loan
payments since President Biden took office.
Make the Student Loan System More Manageable for Current and Future
Borrowers
Fixing Existing Loan Repayment to Lower Monthly Payments
The Administration is reforming student loan repayment plans so both current
and future low- and middle-income borrowers will have smaller and more
manageable monthly payments.
The Department of Education has the authority to create income-driven repayment
plans, which cap what borrowers pay each month based on a percentage of their
discretionary income. Most of these plans cancel a borrower’s remaining debt
once they make 20 years of monthly payments. But the existing versions of these
plans are too complex and too limited. As a result, millions of borrowers who
might benefit from them do not sign up, and the millions who do sign up are
still often left with unmanageable monthly payments.
To address these concerns and follow through on Congress’ original vision for
income-driven repayment, the Department of Education is proposing a rule to do
the following
For undergraduate
loans, cut in half the amount that borrowers have to pay each month from
10% to 5% of discretionary income.
Raise the amount of
income that is considered non-discretionary income and therefore is protected
from repayment, guaranteeing that no borrower earning under 225% of the
federal poverty level—about the annual equivalent of a $15 minimum wage for a
single borrower—will have to make a monthly payment.
Forgive loan balances
after 10 years of payments, instead of 20 years, for borrowers with
original loan balances of $12,000 or less. The Department of Education
estimates that this reform will allow nearly all community college borrowers to
be debt-free within 10 years.
Cover the borrower’s
unpaid monthly interest, so that unlike other existing income-driven
repayment plans, no borrower’s loan balance will grow as long as they make
their monthly payments—even when that monthly payment is $0 because their
income is low
These reforms would simplify loan repayment
and deliver significant savings to low- and middle-income borrowers. For
example:
A typical single
construction worker (making $38,000 a year) with a construction management
credential would pay only $31 a month, compared to the $147 they pay now under
the most recent income-driven repayment plan, for annual savings of nearly
$1,400.
A typical single
public school teacher with an undergraduate degree (making $44,000 a year)
would pay only $56 a month on their loans, compared to the $197 they pay now
under the most recent income-driven repayment plan, for annual savings of
nearly $1,700.
A typical nurse
(making $77,000 a year) who is married with two kids would pay only $61 a month
on their undergraduate loans, compared to the $295 they pay now under the most
recent income-driven repayment plan, for annual savings of more than $2,800.
For each of these borrowers, their balances
would not grow as long as they are making their monthly payments, and their
remaining debt would be forgiven after they make the required number of
qualifying payments.
Further, the Department of Education will make it easier for borrowers who
enroll in this new plan to stay enrolled. Starting in the summer of 2023,
borrowers will be able to allow the Department of Education to automatically
pull their income information year after year, avoiding the hassle of needing
to recertify their income annually.
Ensuring Public Servants Receive Credit Toward Loan Forgiveness
Borrowers working in public service are entitled to earn credit toward debt
relief under the Public Service Loan Forgiveness (PSLF) program. But because of
complex eligibility restrictions, historic implementation failures, and poor
counseling given to borrowers, many borrowers have not received the credit they
deserve for their public service.
The Department of Education has announced time-limited changes to PSLF that
provide an easier path to forgiveness of all outstanding debt for eligible
federal student loan borrowers who have served at a non-profit, in the military,
or in federal, state, Tribal, or local government for at least 10 years,
including non-consecutively. Those who have served less than 10 years may now
more easily get credit for their service to date toward eventual forgiveness.
These changes allow eligible borrowers to gain additional credit toward
forgiveness, even if they had been told previously that they had the wrong loan
type.
The Department of Education also has proposed regulatory changes to ensure more
effective implementation of the PSLF program moving forward. Specifically, the
Department of Education has proposed allowing more payments to qualify for PSLF
including partial, lump sum, and late payments, and allowing certain kinds of
deferments and forbearances, such as those for Peace Corps and AmeriCorps
service, National Guard duty, and military service, to count toward PSLF. The
Department of Education also proposed to ensure the rules work better for
non-tenured instructors whose colleges need to calculate their full-time
employment.
To ensure borrowers are aware of the temporary changes, the White House has
launched four PSLF Days of Action dedicated to borrowers in specific sectors:
government employees, educators, healthcare workers and first responders, and
non-profit employees. You can find out other information about the temporary
changes on PSLF.gov. You
must apply to PSLF before the temporary changes end on October 31, 2022.
Protecting Borrowers and Taxpayers from Steep Increases in College Cost
While providing this relief to low- and middle-income borrowers, the President
is focused on keeping college costs under control. Under this Administration,
students have had more money in their pockets to pay for college. The President
signed the largest increase to the maximum Pell Grant in over a decade and
provided nearly $40 billion to colleges and universities through the American
Rescue Plan, much of which was used for emergency student financial aid, allowing
students to breathe a little easier.
Additionally, the Department of Education has already taken significant steps
to strengthen accountability, so that students are not left with mountains of
debt with little payoff. The agency has re-established the enforcement unit in
the Office of Federal Student Aid and it is holding accreditors’ feet to the
fire. In fact, the Department just withdrew authorization for the accreditor
that oversaw schools responsible for some of the worst for-profit scandals. The
agency will also propose a rule to hold career programs accountable for leaving
their graduates with mountains of debt they cannot repay, a rule the previous
Administration repealed.
Building off of these efforts, the Department of Education is announcing new
actions to hold accountable colleges that have contributed to the student debt
crisis. These include publishing an annual watch list of the programs with the
worst debt levels in the country, so that students registering for the next
academic year can steer clear of programs with poor outcomes. They also include
requesting institutional improvement plans from the worst actors that outline
how the colleges with the most concerning debt outcomes intend to bring down
debt levels.