The plan will reduce federal student loan debt by at least $10,000 for borrowers currently earning less than $125,000, or families earning less than $250,000. Borrowers who accepted Pell Grants will have $20,000 of federal debt forgiven.
The move would bring some relief to the millions of Americans still paying down student debt. Americans owe more than $1.74 trillion in student loans, according to an estimate from the Federal Reserve.
Most of that debt is owed to the Department of Education. The department owns more than 92% of all student loans, according to analysis by MeasureOne, an academic data firm.
The remaining 8 percent of student loans are owed to private lenders such as Sallie Mae and Discover. Private loans are not affected by this plan.
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How does this debt reduction help young borrowers?
"Today is a day of celebration," Sabrina Calazans, director of outreach at the Student Debt Crisis Center, told LX News.
She noted that activists have been fighting for years to get all student debt canceled, or at least $50,000 per borrower. Biden's announced plan falls short of that goal.
"But this will help a lot of people across the country, especially young people who are looking to start off their futures with less debt than they originally took out. This is a big deal."
In a time of record inflation, reducing what borrowers owe could help them pay for other expenses like rent, getting a car, or investing.
"It will allow people to start small businesses and just invest in the American dream that they've been dreaming of since they went to college," Calazans added.
Student loan forgiveness: what to know
More information on the plan is available at studentaid.gov/DebtRelief. But here are a few highlights:
- If you're single, you need to have income under $125,000 a year to be eligible for the debt relief. The Department of Education will launch an app to provide your income data and verify you are eligible.
- You can sign up at the DOE subscription page to get notified when the app goes live.