It’s not as easy to pursue a college education as it was in the past. The total cost of attending a public or private four-year college is nearly triple the amount it was in 1980. Where Pell Grants used to cover roughly 80% of college tuition, they now barely cover a third. As a result, the modern student is leaving college with both a degree and a mountain of debt looming over them.
News about President Biden’s student debt forgiveness plan for low- to middle-income borrowers has some rejoicing while others aren’t satisfied with the scope and scale of the aid. Some are questioning whether this effort will truly be enough to thwart the monster that is the student debt crisis in the United States. The White House is offering $10,000 in student loan forgiveness to those with an income landing under $120,000 annually, while those who were also Pell Grant recipients are eligible for $20,000 in debt forgiveness.
Naturally, the air has been buzzing with a lot of questions since news broke about the relief plan in August. Let’s take a look at the details regarding who qualifies, how to take advantage of the offer, and what the impact of all this will truly be.
Do I Qualify For the Student Loan Forgiveness?
Those who borrowed on or before June 30th, 2022 will be considered for loan forgiveness. Single borrowers earning less than $125,000 annually—or households earning less than $250,000 annually—are eligible for $10,000 in loan relief. From that pool of eligible borrowers, those who have also received a Pell Grant qualify for $20,000 in loan relief.
What is a Pell Grant?
Roughly 60% of the 43 million borrowers that qualify for student aid relief have received a Pell Grant. The Pell Grant is typically awarded to those that fill out a financial aid application and come from a $60,000-income or below household. While the amount the grant covers has increased over the years, it still only finances around 25% of the total cost of college tuition.
If it’s been a while since you’ve attended university, or you just don’t remember the exact aid you received, you can look up your information on studentaid.gov. There, you can find a summary of your awarded grants and outstanding loan balances. You can also call the financial aid office of your alma mater if you want to avoid dealing with technological issues on the student aid site.
What if I've Already Made Payments?
If you've already made payments towards your loan, you may have felt cheated when you heard the news about the relief plan. Fortunately, you may be able to get a refund on the amount you paid down during the federal payment freeze.
Any amount left on your loan under the $10,000 or $20,000 amount is eligible for relief. If you paid down part of your loan at any point from March 13th, 2022 up to today, you can get a refund totaling up to the amount of aid you qualify for.
The details around how exactly this refund process will work are still nebulous. Be sure to sign up for the email updates to get more information on the relief as soon as it’s released.
How Do I Apply for Forgiveness?
For the roughly 8 million borrowers who already have their income information documented with the Department of Education, applying won’t be necessary. These individuals will automatically have the allotted amount they qualify for removed from their total loan amount. Be sure to double-check that the Department of Education actually has your information before the end of October.
Now, if you don’t already have your income information documented with the Department of Education, you will need to apply for student loan relief. Applications are set to open online at the beginning of October. You can find the application at studentaid.gov. The approval process can take anywhere from four to six weeks. Education Secretary Miguel Cardona spoke to Bloomberg and recommended that, in order to get approved for benefits before the pandemic-era payment pause ends on December 31st, borrowers should fill their applications out by November 15th at the latest.
Here is a helpful breakdown of important dates to be aware of pertaining to the student loan forgiveness process:
October 2022 - Applications are released
November 15th, 2022 - Applying by this date will allow you to avoid extra interest rates when payments commence
December 31st, 2023 - Final deadline to apply for relief
January 1st, 2023 - Student loan payments resume, and interest begins to accrue on any remaining balances
How Impactful Will the Forgiveness Actually Be?
Not all borrowers would experience the impact of debt cancellation equally. While the Biden Administration's plan will provide life-changing relief to a specific percentage of the population, marginalized communities will still largely be weighed down by high amounts of student loan debt. In fact, Black graduates on average owe $25,000 more in student loan debt than their white counterparts. This disparity roots from the average income-debt ratio that marginalized graduates typically face.
Due to historically low income compared to their white peers, Black folks and other people of color tend to use credit to address financial emergencies rather
than to occasionally splurge or build their credit scores. This inherently drives up the amount of debt these communities hold. The median debt-to-asset ratio for Black and Hispanic households is 50% higher than for white, non-Hispanic households. Black households specifically were found to have a 35.7% median installment-loan-to-income ratio in 2019. Factor in student loans as well, and some borrowers are looking at a seemingly insurmountable level of debt.
Student loans can greatly hold an individual back financially. Not only can it take a toll on their monthly budget, but it can also hurt their chances to build a healthy credit score and potentially buy a home. This is especially true if they happen to fall behind on payments.
Owning property is one of the most efficient ways to build wealth. Marginalized communities already collectively hold far less wealth than the white population, worsened by factors like wage and employment discrimination. So, with piles of debt and a list of financial disadvantages, Black borrowers in particular are struggling to get ahead. Therefore, $10,000 to $20,000 will provide some relief, but not enough to truly impact the average Black college graduate’s day-to-day life.
To reach meaningful, impactful change, we must look at all the factors that contribute to inequality, like socioeconomic status, gender, sexuality, and race. Without this intersectional lens, the student loan forgiveness program does not yet appropriately address the root cause of wealth inequality in this country.
What Struggling Black Borrowers Can Do to Gain Better Financial Footing
Just as generational wealth is passed on, so are healthy money management skills. As a result, if you come from an upbringing where your family was always barely making ends meet or contained irresponsible spenders, you more than likely picked up on their habits. This can lead to a highly unstructured approach to handling finances. The first step you can take today to get ahead is to amp up your financial literacy.
Tackling debt is daunting but, with the correct strategies, you can work on whittling that debt down while also having money to spare if you’re fortunate enough to have a higher income. If you don't have an income that affords you the room for non–survival-based expenses and you are struggling to make ends meet with your bills, housing, and debt costs, there are programs you can turn to for help as well.
The Prosp(a)rity Project offers a program called the 35*2 Free Initiative. The program is tailored to provide assistance to Black women struggling with student debt. Participants receive a retroactive scholarship of $10,000, as well as resources to develop practical money management skills to bolster their overall financial health. This is just one of many available programs out there designed to help marginalized folks tackle debt.
As we work to better our individual financial situations, it’s important to maintain an intersectional approach and an awareness of the disparities Black borrowers and other people of color face. The current systems society has in place can be complicated and seemingly impossible to navigate—that’s why it’s vital for all of us to continue pushing for true equality at an institutional and systematic level. The student loan forgiveness program is just one step in the right direction. As a collective, it’s our duty to continue to make our voices heard, and push for more action that uplifts those in our communities who were born with a financial disadvantage.
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Cory Turner and Sequoia Carillo. https://www.npr.org/2022/08/24/1118879917/student-loan-forgiveness-biden
Employee Benefit Research Institute (EBRI). https://www.ebri.org/docs/default-source/fast-facts/ff-375-debtbyrace-7jan21.pdf?sfvrsn=39bf3a2f_4
Mackenzie Hawkins and Ella Ceron. https://www.bloomberg.com/news/articles/2022-09-17/how-to-get-your-student-loans-forgiven-step-by-step-guide
Spiros Protopsaltis and Sharon Parrott. https://www.cbpp.org/research/federal-budget/pell-grants-a-key-tool-for-expanding-college-access-and-economic
U.S. Department of Education (DOE). https://www.ed.gov