President Joe Biden announced his decision on student loan forgiveness and the forbearance period Wednesday afternoon.

During Biden’s presidential campaign, he promised to forgive a large chunk of the country’s loan balance. Since his inauguration, many politicians and borrowers have been pressuring the White House to follow through on this pledge. 

Here is what you need to know about Biden’s student loan announcement:

• Biden stated that $10,000 of federal student loans will be forgiven, with Pell grant recipients receiving up to $20,000 in forgiveness.
• This forgiveness will only apply to borrowers who make less than $125,000 annually or $250,000 annually for married couples who file taxes jointly.
• Undergraduate loan repayments can now be capped at 5% of an individual’s monthly income, rather than the previous 10% guideline for income-driven repayment.
• Additionally, the forbearance period on federal student loans will be extended through the end of the year.

How does Student Loan Forgiveness affect physicians, dentists and veterinarians?

Many physicians, dentists and veterinarians make more than the $125,000 annual cap. This means these doctors will be excluded from this $10,000 forgiveness. 

The good news is that these guidelines could benefit the doctor groups in medical school, dental school, or veterinary school, those in residency or fellowship, or doctors in certain low-paying specialties. 

When do we have to start paying back student loans for medical school, dental school, or veterinary school?

The forbearance period will be extended through the end of 2022, to December 31st. This extension will benefit all borrowers as interest will not grow on these federal loans until the end of the year.

Though the forbearance extension is a win for some, it could hurt those considering student loan refinancing in the long run. Rates are rising and will continue to do so for the foreseeable future, which means if you put off refinancing until the end of the year, your rate will likely be significantly more than it would be if you refinanced today. Deferring locking in a low rate could cost borrowers a lot more. 

What is the plan to control education costs for physicians, dentists, and veterinarians?

Educational costs are continuing to rise, especially for medical, dental and veterinary students. According to US News, the cost of medical school has risen 3% to 4% over the last decade with no signs of slowing down.

This forgiveness may benefit some borrowers, but it does nothing to address the root cause of the issue. The burden of student debt needs to be handled with more substantial action. We hope this will be the first step toward more effective reform.

What is going to happen next? When does forgiveness go into effect?

Notably the big next question is when does the $10,000 of forgiveness for those that qualify go into effect. That is to be determined, and it is very possible this forgiveness will be the subject of legal challenges that could delay the actual forgiveness.

More student loan resources: 

• How Has the Biden Presidency Affected My Student Loans?
• A Doctor’s Guide to Refinancing Student Loans
• Pros and Cons of Public Service Loan Forgiveness for Doctors

Keep following Panacea Financial in the future for updates on these and many other topics in the doctor-financial space.