Everything you need to know about Biden’s student loan forgiveness program


Federal student loan borrowers can now apply for up to $20,000 in debt forgiveness, thanks to a new plan announced by President Joe Biden in late August.

The administration officially unveiled the app on Monday, after a short “beta period” over the weekend where its team assessed whether adjustments were needed.

Not all student loan borrowers are eligible for debt relief. First, only federal student loans are accepted. Private student loans are excluded.

Second, high-income borrowers are generally excluded from receiving debt forgiveness. Individual borrowers earning less than $125,000 a year and married couples or heads of households earning less than $250,000 a year will have up to $10,000 of their federal student loan debt forgiven.

If a qualified borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 in debt forgiveness. Pell grants are awarded to millions of low-income students each year based on family size and income and the cost of college. These borrowers will have more difficulty paying off their student debt and end up in default.

Here’s what borrowers need to know about the new student loan forgiveness plan:

There are many types of federal student loans and not all are eligible for assistance. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans are eligible.

But federal student loans that are guaranteed by the government but held by private borrowers are not eligible unless those borrowers apply to consolidate those loans into a direct loan by September 29.

The Department of Education initially said these private loans, many of which were made under the former Federal Family Education Loan program and Federal Perkins Loan program, would be eligible for one-time forgiveness, but six Republicans backtracked in September. Major states sued the Biden administration, claiming that private loan forgiveness would financially hurt states and student loan servicers.

Defaulted Family Education Loans and defaulted Perkins loans are still eligible for debt relief even though they are private.

Eligibility is based on a borrower’s adjusted gross income for the 2020 or 2021 tax year. Adjusted gross income may be less than your total pay because it takes into account tax deductions and adjustments, like contributions to a 401(k) retirement plan.

A taxpayer’s adjusted gross income can be found on line 11 of IRS Form 1040.

The Education Department says income information was already available for nearly 8 million borrowers, likely from financial aid forms or prior applications for income-based repayment plans. Those borrowers will automatically receive debt relief if they meet the income requirement, unless they opt out. The department said it will refer borrowers who will be considered for debt relief but do not have to apply.

Millions more borrowers will have to apply for student loan forgiveness if the Department of Education doesn’t have their income information on file. When applying, borrowers must verify that their income is below the eligibility threshold. They must ensure that the information provided is accurate, under penalty of perjury.

The Biden administration has said applicants who are “more likely to exceed the income limit” will be required to submit additional information, such as a tax transcript. Officials expect that just 5 percent of borrowers with eligible federal student loans would qualify because of the income threshold.

Borrowers can apply online at: https://studentaid.gov/debt-relief/application.

Borrowers who successfully submit their application will receive an email confirmation.

Once processing begins, most borrowers are expected to clear their debt within weeks. The loan servicer will notify borrowers when debt cancellation has been applied to their account.

Borrowers have until December 31, 2023 to submit their application.

Borrowers won’t have to pay federal income taxes on student loan debt forgiveness, thanks to a provision in the American Rescue Plan Act passed by Congress last year.

But some borrowers may have to pay state income tax on the amount of debt forgiven. There are a handful of states that tax paid-off debt unless state legislative or administrative changes are made in advance, according to the Tax Policy Center. The tax liability can be hundreds of dollars, depending on the state.

Yes, some current students are eligible. Borrowers who have filed the Free Application for Federal Student Aid, known as the FAFSA, as independents will be assessed on the individual’s household income.

Eligibility for borrowers enrolled as dependent students, generally under the age of 24, will depend on their parents’ income in 2020 or 2021.

Yes, if your income meets the eligibility threshold.

Yes, if your income meets the eligibility threshold. A multi-child parent with federal Parent PLUS loans is still eligible for up to $20,000 in loan forgiveness.

But a parent will be eligible for up to $20,000 in debt relief if they received a Pell grant for their education. If only the child received a Pell grant, the parent can receive a $10,000 waiver.

Most borrowers can log on to Studentaid.gov to see if they received a Pell grant while enrolled in college. Information about received Pell grants is displayed on the account dashboard and on the My Help page. There, too, borrowers can find out how much they owe and what kind of loans they have.

Borrowers who received a Pell grant before 1994 will not see their Pell grant information online, but they are still eligible for up to $20,000 in student loan forgiveness.

As long as borrowers receive at least one Pell grant, they are eligible.

The Biden administration has said that borrowers who received Pell grants will automatically receive additional debt.

Yes, defaulted federal student loans are eligible for debt discharge.

Borrowers with remaining balance on their foreclosed student loans will be able to exit foreclosure when payments resume in January 2023 as part of the Department of Education’s “Fresh Start” initiative. .

The Biden administration is facing several lawsuits over its student loan forgiveness program. Many of the plaintiffs claim that the Department of Education is overstepping its authority.

The chances of a court overturning Biden’s action are hard to say right now.

Six GOP-led states have asked a federal judge to freeze student loans pending a final ruling on the case. The judge is expected to rule on that request soon, though the loser is expected to file an immediate appeal, which would send the case to the 8th Circuit Court of Appeals, where it could be before a panel of conservative judges.

The Biden administration says Congress gave the education secretary “broad authority to alleviate hardships that federal student loan recipients may face as a result of national emergencies,” like the Covid-19 pandemic, according to a statement. Department of Justice

Borrowers who have $10,000 or $20,000 of debt remaining after eliminating them may see their monthly payment amounts recalculated if they are enrolled in a standard repayment plan. Under a standard repayment plan, borrowers pay a fixed amount that ensures the loan is paid off within 10 years.

Borrowers already enrolled in an income-based repayment plan will not see their monthly payment amounts change as a result of forgiveness because their payments are based on household income and family size.

Borrowers have not been required to make payments on federal student loans since March 2020 due to the government’s pandemic-related shutdown. Biden has extended the suspension until the end of this year, with payments starting in January 2023.

Along with Biden’s announcement in August of canceling some federal student loan debt, he also said he would create a new repayment plan for borrowers.

Today, there are several repayment plans available to federal student loan borrowers that reduce monthly payments capped at a portion of your income.

Biden’s proposed new income-based repayment plan would cap it at 5% of a borrower’s income, down from the 10% offered in most current plans, as well as reduce the amount of income that is considered discretionary. It would also forgive remaining balances after 10 years of amortization, instead of 20 years.

Biden also proposes that the new plan cover the borrower’s unpaid interest each month. This could be very helpful for people whose monthly payments are so low that they don’t cover the monthly interest charge and end up seeing their balances explode, growing larger than what they originally borrowed.

But we do not know when these changes will take effect. The Department of Education has not given a sense of time, but it has said that it will propose a new rule to create a repayment plan. The department’s formal rulemaking process includes soliciting public comment and can take months, if not more than a year.

yes Borrowers are not required to make federal student loan payments beginning March 13, 2020, due to the pandemic-related pause. But if borrowers have made payments, they can contact the loan servicer to request a refund.

This story has been updated with additional information.