Everything you need to know about Biden’s student loan forgiveness program
By Katie Lobosco, CNN
President Joe Biden’s federal student loan forgiveness program, which promises to deliver up to $20,000 of debt relief for millions of borrowers, is on hold as legal challenges work their way through the courts.
The Supreme Court will hear arguments on February 28 in two cases concerning the forgiveness program, with a decision expected by late June or early July.
About 26 million people had already applied by the time a federal district court judge struck down the program on November 10, 2022 — prompting the government to stop taking applications. No debt has been canceled thus far.
The administration officially launched the application on October 17, 2022, following a brief “beta period” during which its team assessed whether tweaks were needed.
If the courts ultimately allow the program to move forward, not every student loan borrower is eligible for the debt relief. First, only federally held student loans qualify. Private student loans are excluded.
Second, high-income borrowers are generally excluded from receiving debt forgiveness. Individual borrowers who make less than $125,000 a year and married couples or heads of households who make less than $250,000 annually could see up to $10,000 of their federal student loan debt forgiven.
If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness. Pell grants are awarded to millions of low-income students each year, based on factors including their family’s size and income and the cost charged by their college. These borrowers are also more likely to struggle to repay their student debt and end up in default.
Here’s what else borrowers need to know about the proposed student loan forgiveness plan:
What are the legal challenges to Biden’s forgiveness plan?
The Biden administration faced several lawsuits over the student loan forgiveness program, two of which have made it to the Supreme Court. The plaintiffs argue that the Department of Education is overstepping its authority.
One of the lawsuits was brought by six Republican-led states, headed by Nebraska, that argue that the student loan forgiveness program violates the separation of powers and the Administrative Procedure Act, a federal law that governs the process by which federal agencies issue regulations.
A lower court judge dismissed this lawsuit on October 20, ruling that the plaintiffs did not have the legal standing to bring the challenge. In November, the 8th US Circuit Court of Appeals reversed and blocked the program.
The other challenge that the Supreme Court will hear was brought by two individual borrowers — Myra Brown and Alexander Taylor — who are not qualified for full debt relief forgiveness and who say they were denied an opportunity to comment on the secretary of education’s decision to provided targeted student loan debt relief to some.
The lawsuit was filed with the backing of a conservative group called the Job Creators Network Foundation. A federal judge in Texas ruled in favor of the plaintiffs, striking down the program on November 10.
Lawyers for the government say that Congress gave the secretary of education “expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies,” like the Covid-19 pandemic, according to a memo from the Department of Justice.
When will I receive my debt relief?
It’s unclear when, or if, borrowers will see debt relief under Biden’s program.
Administration officials expected to be able to grant relief before January, when payments were set resume after the pandemic-related pause expired. But now debt cancellation won’t occur until at least June when the Supreme Court is expected to issue a ruling.
On November 22, 2022, the Biden administration extended the pandemic-related pause on payments until 60 days after the litigation is resolved. If the program has not been implemented and the litigation has not been resolved by June 30, payments will resume 60 days after that.
The White House has said that it has already approved 16 million applications for debt relief. The Department of Education will hold on to that information so it can quickly process those borrowers’ relief if the government prevails in court.
If and when the program moves forward, an estimated 8 million borrowers may receive debt relief automatically because the Department of Education already has their income on file.
If the government restarts taking applications, borrowers can apply online here: https://studentaid.gov/debt-relief/application.
Applicants can expect to receive an email confirmation once their application is successfully submitted. Then, borrowers will be notified by their loan servicer when the debt cancellation has been applied to their account.
Borrowers were expected to have until December 31, 2023, to submit an application.
What kind of federal loans are eligible?
There are a variety of federal student loans and not all are eligible for relief if the program is allowed to proceed. 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 lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan by September 29, 2022.
The Department of Education initially said these privately held loans, many of which were made under the former Federal Family Education Loan program and Federal Perkins Loan program, would be eligible for the one-time forgiveness action — but reversed course last September when six Republican-led states sued the Biden administration, arguing that forgiving the privately held loans would financially hurt states and student loan servicers.
Defaulted Federal Family Education Loans and defaulted Perkins Loans would be eligible for the debt relief even if they are privately held.
What year is the income threshold based on?
If Biden’s program is allowed to move forward, eligibility is based on a borrower’s adjusted gross income for either tax year 2020 or 2021. Adjusted gross income can be lower than your total wages because it considers tax deductions and adjustments, like contributions made to a 401(k) retirement plan.
A taxpayer’s adjusted gross income can be found on line 11 of IRS Form 1040.
How will the government know what my income was?
The Department of Education says it already has income information for nearly 8 million borrowers, likely because of financial aid forms or previously submitted income-driven repayment plan applications. If the program is allowed to move forward, those borrowers will automatically receive the debt relief if they meet the income requirement, unless they choose to opt out. The department has said it will email borrowers who will be considered for debt relief but don’t need to apply.
Millions of other borrowers will need to apply for student loan forgiveness if the Department of Education doesn’t have their income information on file. When they submit the application, borrowers are required to self-attest that their income is under the eligibility threshold. They are required to certify that the information provided is accurate upon penalty of perjury.
The Biden administration has said that applicants who are “more likely to exceed the income cutoff” will be required to submit additional information, like a tax transcript. Officials expect that just 5% of borrowers with eligible federal student loans would not qualify due to the income threshold.
Will I have to pay taxes on the amount of debt canceled?
Borrowers will not have to pay federal income tax on the student loan debt forgiven, thanks to a provision in the American Rescue Plan Act that Congress passed in 2021.
But it’s possible that some borrowers may have to pay state income tax on the amount of debt forgiven. There are a handful of states that may tax discharged debt if state legislative or administrative changes are not made beforehand, according to the Tax Policy Center. The tax liability could be hundreds of dollars, depending on the state.
I’m a current student. Am I eligible for forgiveness?
Yes, some current students would be eligible under Biden’s plan if it’s allowed to take effect. Eligibility for borrowers who filed the Free Application for Federal Student Aid, known as the FAFSA, as an independent will be based on the individual’s own household income.
Eligibility for borrowers who are enrolled as dependent students, generally those under the age of 24, will be based on parental income for either 2020 or 2021.
I have student debt from graduate school. Am I eligible for forgiveness?
Yes, if your income meets the eligibility threshold and the program is allowed to be implemented.
I’m a parent and took out a Parent PLUS loan. Am I eligible?
Yes, you could be eligible if your income meets the threshold. A parent borrower with federal Parent PLUS loans for multiple children is still only eligible for up to $20,000 of loan forgiveness.
But a parent is only eligible for up to $20,000 in debt relief if he or she received a Pell grant for his or her own education. If only the child received a Pell grant, the parent is eligible for up to $10,000 in forgiveness.
How do I know if I ever received a Pell grant?
Most borrowers can log in to Studentaid.gov to see if they received a Pell grant while enrolled in college. Information about Pell grants received is displayed on the account dashboard and on the My Aid page. This is also where borrowers can find out how much they owe and what kind of loans they have.
Borrowers who received a Pell grant before 1994 won’t see their Pell grant information online, but they are still eligible for the $20,000 in student loan forgiveness.
As long as borrowers received at least one Pell grant, they are eligible.
The Biden administration has said that eligible borrowers who have received Pell grants will automatically receive the additional debt relief.
Am I eligible for forgiveness if my loans are in default?
Yes, defaulted federal student loans would be eligible for debt relief under Biden’s program.
For borrowers who have a remaining balance on their defaulted student loans after the cancellation is applied, there will be an opportunity to get out of default once payments resume later this year as part of what the Department of Education is calling its “Fresh Start” initiative.
How will my payments change going forward?
Borrowers who have debt remaining after either $10,000 or $20,000 is wiped away could 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 loans are paid off within 10 years.
Borrowers who are already enrolled in an income-driven repayment plan are not likely to see their monthly payment amounts change due to the forgiveness, because their payments are based on household income and family size.
Borrowers have not been required to make payments on their federal student loans since March 2020 because of the government’s pandemic-related pause.
What about Biden’s new income-driven repayment plan?
Along with Biden’s August announcement about canceling some federal student loan debt, he also said he would create a new plan that would make repayment more manageable for borrowers.
There are currently several repayment plans available for federal student loan borrowers that lower monthly payments by capping them at a portion of their income.
The new income-driven repayment plan proposal will cap payments at 5% of a borrower’s discretionary income, down from 10% that is 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 repayment, instead of 20 years.
Biden is also proposing that the new plan cover the borrower’s unpaid monthly interest. This could be very helpful for people whose monthly payments are so low that they don’t cover their monthly interest charge and end up seeing their balances explode, growing larger than what was originally borrowed.
The new plan is currently going through a formal rulemaking process, and the Department of Education has said it expects provisions of the new plan to take effect later this year.
Can I get a refund for what I paid during the pandemic pause?
Yes. Borrowers have not been required to make payments on their federal student loans since March 13, 2020, because of the pandemic-related pause. But if borrowers did make payments, they are allowed to contact their loan servicer to request a refund.
This story has been updated with additional information.
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