What does Joe Biden's forgiveness of student loans mean for debt relief?

President Joe Biden has made progress on a campaign promise to provide relief for those burdened with student debt.

This plan offers targeted debt relief as part of a comprehensive effort to address the burden of growing college costs and make the student loan system more manageable for working families. The President is announcing that the Department of Education will:

Provide targeted debt relief to address the financial harms of the pandemic, fulfilling the President’s campaign commitment. The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). No high-income individual or high-income household – in the top 5% of incomes – will benefit from this action. To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023. -- White House Fact Sheet, Aug. 25

The announcement made big waves politically and news coverage is still heavy with reactions to the plan and just who it will benefit.

“For some students, they will be completely debt-free afterward," said Wendy Habegger, a lecturer of finance in the James M. Hull College of Business at Augusta University. "The majority are still not going to be debt-free but instead of you having to pay an extra year, it might cut your pay time down. What this is going to do is give you money to start doing some of the other things that you have put off. You can now focus on building up an emergency fund, building up a savings account. You can put it toward your retirement.”

The announcement also includes extending the student loan pause a final time through Dec. 31, 2022.

“One of the good things about this debt reduction and debt forgiveness is that the Biden administration is making some very firm attempts to go in and fix some of the payment programs that are broke. So when individuals have to start paying in January, they will be able to pay a reduced amount,” said Habegger.

“What’s not going to stop is the accrual of future debt. So we really need to look at the underlying problem and the costs of higher education and see if we can bring that down.”

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Wendy Habegger is a respected finance expert available to offer advice on making the right money moves during volatile times. To arrange an interview, simply click on her icon now.