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President Joe Biden made an announcement Wednesday that hundreds of thousands of Minnesotans had long been waiting for: a plan to forgive some federal student loans.
In a speech from the White House, Biden noted how the cost of college had risen in recent decades.
“An entire generation is now saddled with unsustainable debt,” he said. “The burden is so heavy that even if you graduate, you may not have access to the middle class life.” And the burden is heavier on Black and Latino borrowers, who often do not have access to family wealth, he noted.
Biden announced a three-part plan. First, student loan payments, which have been on pause since March 2020, will resume in 2023. Second, all borrowers who earn less than $125,000 will qualify for relief on their federal student loans—up to $20,000 if they received a Pell Grant. And finally, the process for repaying student loans will change—which means you may owe less per month or may not accumulate interest.
“It’s about opportunity,” Biden said. “It’s about giving people a fair shot. It’s about the one word America can be defined by: possibilities.”
The announcement came as a relief for many, even as others criticized it for not going far enough.
So what does this mean for you? How much will your loan be reduced? And what do you need to do to receive loan forgiveness?
Here’s a breakdown. We’ll update this story as more information becomes available.
How much debt is the Biden administration going to forgive? And for whom?
The U.S. Department of Education will cancel up to $20,000 in federal student loans for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. Pell Grants are awarded to undergraduate students with exceptional financial need, though people with some immigration statuses haven’t qualified for the grant or other forms of federal financial aid.
“We appreciate the targeted relief there to students that may need a little bit of additional relief,” said Dennis Olson, commissioner of the Minnesota Office of Higher Education. “Those tend to be more low-income students, first-generation students.” These students are still recovering from the financial effects of the pandemic, and now high inflation, he added. “This will just give them a little bit more breathing room.”
Yue Hua, who recently graduated from the University of Minnesota with a Ph.D. in economics focusing on how student loans shape people’s futures, fertility, and social mobility, also noted how targeted the debt relief was.
“This looks like they target this group of people who should truly benefit from the debt forgiveness,” she said. “These people who are eligible, they are going to feel the impact. It’s going to be good for them.”
Which student loans does this apply to?
Biden’s announcement applies only to federal loans, not to state or private loans. But federal loans make up the overwhelming majority of undergraduate student debt—about 92 percent nationally.
How will this affect Minnesotans?
According to Olson, 782,000 Minnesotans have an open federal loan. That’s about 14 percent of the state’s population. These borrowers owe a total of $26.7 billion. Nationally, more than 60 percent of borrowers with federal student loans are Pell Grant recipients, Biden said—27 million people.
Many of these Minnesotans owe less than $10,000, Olson said, so their loans will be forgiven altogether. So will Pell Grant recipients who owe less than $20,000. Biden estimated that overall, 43 million people qualify for debt relief, and 20 million of those will have their student loans forgiven altogether.
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National data shows that students of color, particularly Black students, are more likely to take out student loans. These students also tend to have higher debt loads. Olson said that while Minnesota-specific data is not available, he expects that the state mirrors national trends.
“We hope that with these targeted decisions by the U.S. Department of Education, that will begin to right the ship for those that have been impacted the most, primarily, Black, Indigenous, and people of color in Minnesota,” he said.
Am I eligible? For how much?
You can receive relief if your annual income is less than $125,000 as an individual, or $250,000 as a married couple or head of household.
So if you received a Pell Grant in college and meet the income requirement, you are eligible for up to $20,000 in debt cancellation. If you didn’t, you may be eligible for up to $10,000.
What do you mean “up to”?
That’s based on your current loan balance. For example, if you received a Pell Grant and meet the income requirement, but your balance is $15,000, that’s how much will be forgiven—not the full $20,000.
When will I have to start making payments again?
The Biden administration has extended the pause on payments through December 31. But this is the last extension. Payments will resume in January 2023.
Student loan repayment was paused several times since 2020 to alleviate the economic challenges created by the COVID-19 pandemic. Biden says this will be the final pause on payments.
I still don’t make enough money to pay my loans.
The Biden administration is making changes to that process, too. You don’t have to make payments if you earn less than 225 percent of the federal poverty level. That number changes every year, but right now it means if you’re an individual who earns less than $30,577.50 annually, you won’t have to make a monthly payment.
So how much will I have to pay when payments resume?
There will be a new process based on your income. You won’t be required to pay more than 5 percent of your discretionary income every month toward your undergraduate loans. (Previously, the requirement was 10 percent.)
Hua said that this part of Biden’s plan deserved more attention. “That is actually, I would say, a more long-term solution than canceling student debt,” she said. Still, she said, not enough people know about this option. “The takeup rate is really low. Maybe people don’t know about it, or it’s too complicated that people don’t use it as often.” That’s especially true for Black and Latino borrowers, who are less likely to take advantage of income-dependent repayment, she said.
It’s not yet clear whether this plan will apply to all borrowers, or whether you’ll have to opt into it.
Won’t my interest just keep growing? I don’t want to owe more than I already do.
Some borrowers, maybe including you, have experienced this in the past. But Biden says that the new income-driven repayment plan will cover your unpaid monthly interest—as long as you’re making your monthly payment. Your interest also won’t grow if your income is too low to qualify for a monthly payment.
At what point will my whole balance be forgiven, even if I haven’t repaid it all?
If you’ve made payments for at least 10 years, and you owe less than $12,000, your loan balance will be forgiven. (Previously, this happened after 20 years.)
Are there other options for debt relief? What about the Public Service Loan Forgiveness program?
If you work for a nonprofit organization, the military, or federal, state, Tribal, or local government, you may also be eligible to have all of your student loans forgiven through the Public Service Loan Forgiveness (PSLF) program. The program forgives the remaining balance on your federal student loans after 120 payments working in the public service sector. That means you must have worked in that sector for 10 years or more, but it doesn’t need to be consecutive. Nurses, teachers, police officers, and firefighters are among the people who may qualify.
This program already existed, but many people who qualified were not able to access the loan forgiveness. Biden announced some changes that he says will make it easier. “It’s a great idea, but the program’s a mess,” he said. “It’s so inefficient and complicated, so many people just give up.”
Biden’s plan includes temporary changes that make it easier to receive credit for past repayment periods that would not have otherwise qualified for loan forgiveness. The deadline to apply for this program and take advantage of the loan repayment changes is October 31. You can find more information on eligibility and applying here.
How do I receive loan forgiveness?
If the U.S. Department of Education has your income data, you may be eligible to receive relief automatically.
If the department doesn’t have your income data, or you’re unsure, the Biden Administration says it will launch a simple application in the coming weeks. The application will be available before the pause on repayment ends on December 31. Sign up for updates from the Department of Education here.
I can’t log in to the student loan website because there’s so much traffic. How can I stay on top of all of this?
“We’re encouraging students and borrowers to be the most well-educated consumers they possibly can be,” Olson said. “That means first consulting with the U.S. Department of Education to see what the qualification parameters are, and then to work closely with either their loan servicer or their lender directly to understand exactly what type of loan they have, because that’ll determine whether or not they qualify.”
Can Minnesota forgive my state loans, too?
That would have to happen through the state legislature’s budget process, Olson said.
“I’m certainly open to any conversations that help relieve the debt burden, current debt burden or future debt burden of Minnesota students, and help folks reduce barriers even further,” Olson said. “I’m all for it.”
Where can I find more information?
Visit the White House’s Public Service Loan Forgiveness webpage or Student Debt Relief Plan Explainer from the U.S. Department of Education’s Federal Student Aid.
Hibah Ansari and Samantha HoangLong contributed to this report.