Do you have any questions about the student loan relief plan the Biden administration unveiled on Wednesday? Please email them to reporter Alicia Adamczyk at [email protected].
On Wednesday, after months of anticipation, President Joe Biden announced his plan for widespread student debt cancellation. Millions of federal borrowers will receive up to $20,000 in debt relief, depending on their income and type of loan.
In addition to the loan forgiveness, Biden also last extended the pause on student loan repayments. Borrowers will not need to pay their monthly loan bills until January 2023.
There are still many unknowns about the student debt forgiveness plan and how it works, including a timeline for when borrowers can expect their balances to decrease.
But the U.S. Department of Education and other student loan experts were able to answer some of Fortune‘s questions about Biden’s plan. Here’s what we know so far.
Who is eligible for student loan forgiveness?
Borrowers who took out most types of federal loans before July 2022 are eligible for forgiveness if they — or their parents, if dependent — earned less than $125,000 in the year of 2020 or 2021 taxation. For married couples who file taxes jointly and are heads of households, the income threshold is doubled to $250,000.
Highest income borrowers are not eligible for the forgiveness.
Which loans are eligible for forgiveness?
Federal Undergraduate, Graduate, Parent PLUS, and Pell grants all count toward the forgiveness plan.
Pell grant borrowers who meet income limits can receive relief of up to $20,000, while other borrowers are eligible for up to $10,000. Relief is capped at the amount of each borrower’s debt. So if you qualify for debt relief of $20,000, but you have a remaining balance of $5,000, you will receive a rebate of $5,000.
Loans must have been taken out before July 2022 to be eligible for the forgiveness. This means that those who are still in school may see their balances reduced.
Private loans – those held by banks or other financial institutions, not the Department of Education – will not be forgiven.
Are current students eligible for forgiveness?
Yes. But if you are declared as a dependent by your parents or guardians on their tax returns, their income will be used to determine eligibility.
Do people who have not obtained their diploma have the right to forgiveness?
Yes. As long as you meet all other eligibility requirements.
How many people will be eligible for forgiveness?
The White House reports that if “all borrowers claim the relief to which they are entitled,” 43 million people will receive student debt forgiveness. Twenty million people will have their balance completely wiped out.
How do borrowers apply for student loan forgiveness?
Borrowers will need to apply for forgiveness, according to the Ministry of Education. A form will be available by the end of the year so that borrowers can certify their income.
The ministry also said it had income information for some borrowers and that 8 million borrowers could have their loan automatically canceled without having to fill out the form. While it’s not immediately clear who these borrowers are, it could include people on an income-based repayment plan who are already submitting their income information to the Department of Education to certify, Betsy Mayotte says. , President and Founder of The Institute of Student Loan Counselors and a longtime student loan advocate.
According to Mayotte, it is likely that borrowers whose education ministry already has income information will have their debt forgiven sooner than other borrowers. That said, more information will become available on this in the coming weeks.
To be notified by the Ministry of Education when the application is open, you can register online for federal student loan borrower updates.
How will student loan forgiveness affect your taxes?
You will not have to pay taxes on loans that are forgiven. At least not at the federal level. A provision in the 2021 U.S. Rescue Plan (ARP) prevents student loan forgiveness from being taxed as federal income, as is the case with many types of forgiveness under normal circumstances.
Which states will benefit the most from student loan forgiveness?
The total federal student loan debt in the United States is about $1.6 trillion, according to the most recent data provided by the Federal Office of Student Aid, Department of Education. Nationally, borrowers average $37,667, but that figure varies by location and degree type.
Borrowers in Maryland and Georgia also owed significantly more than the national average, at $43,619 and $42,200, respectively, per borrower. North Dakota had the lowest average balance, at $29,885.
When will borrowers see their loan forgiven?
It will take time, says Mayotte. And there are bound to be headaches for some borrowers along the way. The government – and certainly the Ministry of Education – has never undertaken this kind of forgiveness effort before.
“It’s a big project. It won’t happen tomorrow and it won’t end all at once,” she said. “It could take six months or even more, and there’s no way to get you up the queue. They’re going to do it in batches and do it as fast as they reasonably can.”
Borrowers should also beware of scams in the coming months.
“You will not have to pay any fees to obtain the pardon”, specifies Mayotte. “You won’t get a phone call from a legitimate source to get the pardon faster. If they call or email you to get Biden’s pardon, you should do whatever you can to make it right. their miserable lives.”
If you suspect a scam, report it to the Federal Trade Commission or your state attorney general. And look studentaid.gov and your repairer’s website for update.
When will payments resume for borrowers still in debt?
Not before January, at the earliest. Borrowers should look for a billing notice at least three weeks before payments restart.
You can also check in with your service agent or log in to your online account to see when payments should restart (once those websites start working again, of course).
Will forgiveness really take place?
Opponents of the plan may file a lawsuit to prevent cancellation. It’s not immediately clear that Biden has the constitutional authority to enact this on his own, says Jacob Channel, economist at Student Loan Hero.
“The reality is, we’re in a pretty unprecedented situation. There’s never really been such broad student loan forgiveness in the history of student loans in the United States,” Channel says. “I anticipate there will be quite a bit of vigorous discussion on the subject in the weeks and months to come. We’re all kind of in the dark together.”
Typically, an act of Congress is required to address or modify the student loan system.
That said, Channel says he wouldn’t want to be the one challenging the debt cancellation.
“If you’re a politician, maybe it’s not particularly beneficial to walk up to someone and say, ‘Do you know that yesterday you got $10,000 loan forgiveness? I don’t think not that you should have that,'” he said.
What else do borrowers need to know?
Borrowers who made payments on their federal student loans during the COVID break are eligible to get that money back, according to Federal Student Aid. If you’ve made payments that qualify for a discount, it might be a good idea to get a refund and keep more money in your pocket. Call your repairer for more information.
Additionally, the Department of Education announced a plan to create a new income-based repayment plan that caps bills at 5% of the borrower’s discretionary income, up from 10% currently. It would also cancel a borrower’s remaining balance after 10 years for borrowers with an original loan balance of $12,000 or less, as opposed to the current 20-25. Interest would not accrue. while a borrower is making payments.
The White House estimates this would reduce the average annual student loan payment “by more than $1,000 for current and future borrowers.”
What happened with the cancellation of civil service loans?
The Ministry of Education has also provided a new summary of the plan for the Public Service Loan Forgiveness Program (PSLF).
Under the new plan, more types of payments would be considered for the PSLF (currently only those made on time and in full on certain payment plans are eligible).
This builds on the changes the department has already made to the program. In October 2021, a limited waiver was announced that allows borrowers on the PSLF path to have all of their payments considered for cancellation, even those made on the “wrong” payment plan, incomplete payments, and late payments. Non-payments made during the current payment pause also count towards the 120 needed for the discount.
There was no extension of the PSLF waiver included. Loans must still be consolidated by the October 31, 2022 deadline to qualify for the initial waiver. So far, 175,000 borrowers have received forgiveness as part of the waiver, getting more than $10 billion in debt forgiven, according to the Department of Education.
This is a developing story. Check back later for more details.