Borrowers with federally-held student loans are entitled to $10,000 of forgiveness ($20,000 for recipients of Pell grants for lower-income students) under President Joe Biden’s student loan forgiveness plan, announced last month. Some borrowers will benefit more than others. Exactly how much monthly relief you’ll get from that depends on how much you owe, your interest rate, and the repayment time of your loan. The savings will kick in when payments resume in January (they’ve been on pause with no interest since the pandemic hit). Forty-three million borrowers with federally held student loans collectively owe $1.6 trillion, for an average loan amount of $37,667. A borrower with that exact amount of debt would pay $238.91 a month, assuming a standard 20-year repayment plan at the interest rate of 4.53% (the average of all rates that have been in place since July 2006). Knocking $10,000 off the balance would cut payments to $175.48, all else being equal. If the borrower went to college on a Pell grant, they’ll get $20,000 forgiven, chopping their payments more than in half to $112.06. (The amount saved is the same regardless of your loan balance, as long as it’s more than $10,000 or $20,000 for Pell grant recipients.) If you have exactly $10,000 in debt and a 12-year loan, your payment would drop to $0 from $90.15. But if you’re one of the few borrowers with triple digit loans and a longer repayment time, say $100,000 and a 30-year repayment plan, you would see your payments go from $508.47 to $457.62 with $10,000 forgiveness—a savings of $50.85. The calculus is different for income-driven repayment plans, in which monthly payments are based on a set percentage of your discretionary income rather than on your loan balance. Under some plans—for example, the PAYE and Income Based Repayment programs—your payment is never more than what it would be under a standard 10-year repayment plan—so under certain circumstances, your monthly payment could go down, too. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
