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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#144 - The Student Loan Mic Drop


The Student Loan Mic Drop

On Wednesday, President Biden announced several important updates and changes to student loans.


First, the payment pause has been extended through December. The White House is saying this is the final extension of the pause. An extension in the payment pause is particularly beneficial to high-income individuals pursuing Public Service Loan Forgiveness.


Second, the Department of Education will cancel some of the student loans that are held by the Department of Education - up to $20K for Pell Grant recipients and up to $10K for non-Pell Grant recipients. To qualify for this forgiveness, your income must be within certain limits - $125K for single and $250K for married or head of household. Be aware that there is the possibility this will be challenged in court.


Third, President Biden proposed a new income-based repayment plan. Payments would be capped at 5% of income and forgiveness would occur after 10 years. It appears this would only apply to undergraduate loans and forgiveness after 10 years would only apply for those with original loan balances of $12,000 or less. The final details of this plan still need to be ironed out.


Student loans have been and will likely continue to be one of the more volatile personal finance items. It appears most if not all of the recent legislation and proposals have been centered on reducing and/or eliminating what borrowers would have to pay.

 

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