President Joe Biden unveiled his student loan forgiveness plan. So, what’s in it for you?
President Biden approved student loan forgiveness at $10,000 and $20,000 levels.
Eligibility is dependent on your income and the type of loans and grants you used during college.
Borrowers who make less than $125,000 per year are eligible for $10,000 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.
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.
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.
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.
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?
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The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.