NEW YORK (AP) — President Joe Biden's student loan forgiveness program announced on Wednesday aims to provide $10,000 in student debt cancellation for millions of Americans.
But for federal Pell grant recipients, that amount is even higher: $20,000
So what exactly is a Pell grant? And why is there a special benefit for people who got one?
Created by the Higher Education Act in 1965 as a way to promote access to education, federal Pell grants are special scholarships reserved for undergraduates and certain other students with the most significant financial need. The grants generally don't need to be paid back, but they often don't cover the full cost of college — so recipients take out additional loans.
Keep scrolling for a closer look at how the loan forgiveness plan will work
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The Biden administration is targeting Pell grant recipients for additional forgiveness "to smooth the transition back to repayment and help borrowers at highest risk of delinquencies or default once payments resume," according to the Department of Education.
Roughly 27 million recipients of Pell grants will now be eligible for loan forgiveness. But for some, the $20,000 will hardly made a dent.
Lynn Hunt, a data analyst in Portland, Oregon, is a Pell grant recipient who borrowed somewhere around $45,000 to $50,000 to attend the University of Wisconsin and has paid back about $15,000 but still owes $70,000 because of interest.
"I know (Biden) mentioned, you know, $20,000 for Pell grants, but the people that had Pell grants had to take out the most loans," Hunt said. "So $20,000 isn't helping most of those people in any substantial manner. And the thing that happens every time when we get one of these half measures is, the can gets kicked for another decade."
For Yaneth Peña, however, the money will make a difference. Peña graduated from North Carolina State University in 2014. She obtained about $4,000 in grants and approximately $25,000 in federal loans. Under Biden's forgiveness plan, her debt would be whittled down to $5,000.
Relieved of the financial burden, Peña said she could now seriously pursue a graduate degree — something she said she hesitated to consider in the past because of her loans.
"This could like really change everything," Peña said.
Pell grant recipients typically experience more challenges repaying their debt, the Department of Education notes. In the academic year of 2020-21, around 30% of all students that enrolled in undergraduate programs in the United States were awarded Pell grants and nearly every recipient came from a family that made less than $60,000 a year.
Almost all Pell grant recipients are independent students or dependent students from the bottom half of the income distribution, according to a report from the Urban Institute on college affordability.
Through the program, lower-income Americans can currently receive up to $6,895 annually for roughly six years.
If you're not sure if you received a federal Pell grant, review any financial aid award letters administered through Office of Federal Student Aid.
Biden's student loan plan: What we know (and what we don't)
Will Biden forgive student loans?
President Joe Biden said Wednesday that his administration plans to forgive up to $10,000 in federal student loan debt for anyone who makes less than $125,000 a year. People who went to college on Pell grants, which are reserved for undergraduates with the most significant financial need, can have up to $20,000 forgiven.
Will the student loan payment freeze be extended?
Biden's tweet said the payment freeze will be extended one last time, until Dec. 31. The freeze started in 2020 as a way to help people struggling financially during the COVID-19 pandemic and it's been extended several times since. It was set to expire on Aug. 31.
Interest rates will remain at 0% until repayments start. Under an earlier extension announced in April, people who were behind on payments before the pandemic will automatically be put in good standing.
Who will qualify for student loan forgiveness?
Only people making less than $125,000 a year are expected to qualify. People who borrowed through most federal student loan programs are likely to be eligible, while those who have private loans issued by banks or schools probably won't be.
How do I apply for student loan forgiveness?
Details of that have not yet been announced, but keep an eye on the federal student aid website for more details in coming days.
How many people will this help?
About 43 million Americans have federal student debt, and a third of those owe less than $10,000. Half owe less than $20,000. The total amount of federal student debt is more than $1.6 trillion. Nearly one third of all American students take out loans to pay for college, with an average balance of $37,667, according to federal data.
What if I've already paid off my student loans — will I see relief?
The debt forgiveness is expected to apply only to those currently holding student debt. But if you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. Contact your loan servicer to request a refund.
Will student loan forgiveness definitely happen?
Critics believe the White House will face lawsuits over the plan, because Congress has never given the president the explicit authority to cancel debt. We don't know yet how that might impact the timetable for student loan forgiveness.
What if I can't afford to pay even with loan forgiveness?
Once payments resume, borrowers who can’t pay risk delinquency and eventually default.
Once a loan hasn’t been paid for 90 days or more, it’s labeled delinquent and will be reported to national credit reporting agencies, which could hurt your credit rating.
After 270 days, the loan will be considered in default. Consequences vary depending on the type of loan, but can include losing eligibility for additional federal student aid.
If you’re struggling to pay, check if you qualify for an income-driven repayment plan. You can find out more here.
The plan Biden announced Wednesday also includes a provision that allows people with undergraduate loans to cap repayment at 5% of their monthly income.
If you have worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which you can read more about here.
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Associated Press reporters Gillian Flaccus in Portland, Oregon, Claire Savage in Chicago and Arleigh Rodgers in Indianapolis contributed to this report. Savage and Rodgers are corps members for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues.
The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
