Student Loan Relief Preview

Having just finished two college drop-offs for my own children, the cost of college attendance is acutely on my mind.  My guess is that, even if the cost of college tuition does not affect you directly as you are reading this, the chances are that you may know someone who is impacted.

Forty years ago, federal support via Pell Grants covered roughly 80 percent of the cost of four-year public and private school tuition.  Today, it covers maybe one-third.

This has resulted in many students from low and middle income families with no choice to borrow if they want a degree.  It’s also left many with outstanding debt and no degree at all because they could not afford to complete their degree.  Student debt particularly impacts the long-term finances of those from low and middle income households.

The planning impact of this reality is that there are 45 million borrowers in the U.S. with a cumulative $1.6 trillion in federal student loan debt.  The debt burden makes it difficult for borrowers to build wealth through buying homes, saving for retirement or by starting a business.

President Biden’s debt relief announcement last week satisfies a campaign promise and reinforces his personal belief that a post-high school education should be a ticket to a middle class life.

The three-part plan he announced is focused on the following:

• Provide targeted debt relief to address the financial harms of the pandemic.

• The Department of Education will provide up to $20,000 of debt cancellation to Pell Grant recipients and up to $10,000 of debt cancellation of non-Pell Grant recipients. Borrowers are eligible for this relief if their income is less than $125,000 ($250,000 of married couples).

• The pause on federal student loan repayments will be extended one final time through December, 31, 2022. Borrower should expect payments to resume January 2023.

• Make the student loan system more manageable for current and future borrowers.

• Cut monthly payments in half for undergraduate loans through an income-driven repayment system that caps monthly payments at 5% of a borrower’s income (half the rate for most existing plans).

• Fix the Public Service Loan Forgiveness (PSLF) program to assure appropriate credit toward loan forgiveness for borrowers who have worked at a nonprofit, in the military or in federal, state or local governments.

• Protect future students and taxpayers by reducing the cost of college and holding schools accountable for price hikes.

• This includes doubling the maximum Pell Grant, making community college free and somehow holding colleges accountable for ensuring that borrowers get value for their investments as opposed to debt they cannot afford.

The last provision is arguably to most difficult to enforce and has led to speculation that colleges will simply raise the cost of tuition in response to more favorable borrowing conditions.

Plenty of additional details have been shared in the media and are available online.  In addition, more information on claiming relief will be available to borrowers in the coming weeks.

We’ll be following the details and share more to the extent that it is helpful and we will continue to help our clients with plans to save for college tuition for their children and grandchildren.

Importantly, if you know any borrowers who may benefit from the announced debt relief plan, then you can share with them that they can sign up to be notified when additional information will be available and when the process officially opens by clicking here.

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