The average student loan borrower will see their monthly bill drop by up to $300 a month when payments restart, says the Education Department
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- President Biden is forgiving up to $20,000 in student loans for federal borrowers making under $125,000.
- A Department of Education official said borrowers who see relief, monthly payments will shrink.
- The average
President Joe Biden's student loan relief will give some borrowers a bit more relief when payments start back up again in January, according to the Department of Education.
In a video posted Monday, CJ Powell, the chief of staff for the Office of Postsecondary Education, outlined what borrowers can expect next year. For those who still have a balance after Biden's forgiveness is applied, loans will be re-amortized.
That means, according to Powell, monthly payments will be recalculated based on a borrower's remaining balance.
"We estimate the average borrower on a standard repayment plan will see their monthly payments drop by around $200 to $300 a month," Powell said. "Your servicer will inform you of your new payment amount and terms around 45 days prior to the end of the payment pause."
As part of the president's debt cancelation, student loan payments were paused for "one final time" through the end of 2022. Payments had been paused throughout the pandemic, and Democratic lawmakers rallied the administration to extend the pause for a fifth time amidst rising costs and COVID-19 hospitalizations.
A 2022 report from the Federal Reserve found that fewer student loan borrowers were behind on their payments in 2021 compared to the fall of 2019, and more were "doing at least okay financially." The majority of borrowers also owed less than $25,000 — meaning a significant chunk of debt would be wiped out from Biden's $10,000 in relief for borrowers.
Prior to the pandemic, the average monthly required payment for borrowers who are eligible for the pause and potential relief was about $260, according to the Federal Reserve, with the median payment coming in around $170 a month. Now, remaining borrowers who had a portion of their balance forgiven could see considerable relief on their monthly bills, even though many are still contending with ballooning debt from spiraling interest. But, as Insider's Ryan Wangman reports, the overall relief will mean that borrowers will have less debt to accrue interest on.
During the pandemic, nearly 60% of those borrowers had not made any payments on loans, according to the Federal Reserve. Borrowers who made payments during the pause and qualify for relief will get automatically refunded on any payments they made. For some borrowers, that's meant thousands of dollars landing back in their bank accounts.
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