President Joe Biden unveiled his student loan forgiveness plan. So, what’s in it for you?
Student loan forgiveness amounts
President Biden approved student loan forgiveness at $10,000 and $20,000 levels.
Student loan forgiveness eligibility requirements
Eligibility is dependent on your income and the type of loans and grants you used during college.
Who is eligible for $10,000 in student loan forgiveness?
Borrowers who make less than $125,000 per year are eligible for $10,000 in student loan forgiveness.
Who is eligible for $20,000 in student loan forgiveness?
Borrowers who make less than $125,000 per year who used Pell Grants to attend college are eligible for $20,000 in student loan forgiveness.
Who is eligible for full loan balance forgiveness?
Borrowers who have made 10 years of payments are eligible for forgiveness if their loan balance is under $12,000. Previously, this was only an option after 20 years of repayment.
Additional perks for student loan borrowers
The new plan includes more than just loan balance forgiveness. Undergraduate federal student loan borrowers will be able to cap their student loan payments at 5% of their income.
For some borrowers, the 5% cap means that maximum payments won’t cover the loan’s monthly interest charges. To keep balances from growing, the forgiveness plan will also cover the borrower’s unpaid monthly interest – even if the maximum monthly payment is $0 based on the borrower’s income.
Did President Biden renew student loan payment deferments?
Student loan payment freezes will continue until the end of 2022. However, President Biden noted that this will be the final payment freeze.
There is one “loophole” of sorts. Those earning less than 225% of the federal poverty limit (around $15/hour for a full time worker) will NOT have to make monthly payments.
How will student loan forgiveness impact your credit?
A variety of factors come into play when it comes to student loans and your credit history. For many, a reduction in the amount owed will decrease their credit utilization ratio.
This will likely have a positive impact on credit scores, as it will show lenders a lower level of debt and a higher likelihood that the borrower will be able to repay the amounts owed.
Learn more: How do Student Loans Affect Your Credit Score?
Building credit with student loan debt
Improving your credit score is easy, even when you have significant student loan debt. You just need the right tools.
StellarFi helps you build credit just by paying your bills. There’s no credit check, no interest fees, and you’re approved no matter how much student loan debt you have.