Biden's student loan forgiveness plan provides more than just debt relief

There's a lot more to the White House's plan than debt cancellation for people earning under $125,000 per year, including a big change in how student loans rack up interest under some repayment programs.

President Biden's student loan forgiveness program is expected to reduce the student debt of millions of people. The plan, which comes via executive order, will cancel $10,000 in student debt for people earning less than $125,000 per year. That amount goes up to $20,000 for borrowers who qualified to receive Pell Grants, awarded to undergraduate students who have exceptional financial need.

"We're projecting it's around 400,000 to 500,000 Washington residents will have a benefit here," says Michael Meotti, executive director of the Washington Student Achievement Council, a state agency that sets policy related to colleges and universities and distributes financial aid in Washington state.

The White House has also released new guidelines for income-driven repayment plans, or IDRs, which include changes like shortening the repayment schedule for borrowers with $12,000 or less in debt to 10 years, instead of 20 or 25 years, and capping monthly payments at 5% of income.

"The racial and ethnic discrepancies in default among people on IDR are much much lower than what what they are if you're not in an income-based repayment plan," Meotti said. "So this is very important for people individually. And it's very important for solving some of the racial ethnic gap problems in student borrowing."

Meotti says that there are many layers of complexity when it comes to the student loan lending system and, for people who do have student loans, getting individual help about their particular situation is a critical part of understanding what options are available for loan forgiveness or repayment.

"For listeners, the most important thing to take away is, don't try to figure out exactly what's going to happen to you based on listening to this interview or looking at other short statements," Meotti said.

Instead, Meotti recommends talking to your loan servicer.