(KRON) — The Biden administration has announced plans to forgive up to $20,000 in student loan debt. The new policy will affect millions of Americans.
Still, people are wondering whether they’re eligible for debt relief and if so, how much they will receive. We’ve got you covered on everything here.
Do I qualify for Student Loan relief?
The White House estimates that up to 43 million people are expected to receive some form of relief. To be eligible, your annual income must be less than $125,000 for individuals or $250,000 for married couples or heads of households.
Federal student loans received after June 30, 2022, do not qualify.
Loan type matters as well. The Biden administration is only able to forgive federal student loans, not ones from private lenders. See a full list of federal lenders HERE.
In addition, certain borrowers may be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program. To be eligible, you must be employed by a nonprofit, the military, or federal, state, local or Tribal government. For more on the PSLF program, click HERE.
How much student loan forgiveness will I get?
How much debt relief you receive will depend on several factors. People who meet the income cap requirements will be eligible for up to $10,000 in relief.
However, those who received a Pell Grant and reach the same income threshold are eligible for up to $20,000 in relief. To check if you have a Pell Grant, here’s what to do.
- Log into your Federal Student Aid account. This may be a different place than where you typically make payments to your student loans.
- Your official FSA Dashboard should show a visual breakdown of your aid account by “My Aid.” (See below).
- The chart should differentiate between amounts of “Loans” and “Grants.” You can click “View Details” for further information and to learn if your grants are Pell Grants.
For more on Pell Grants, click HERE.
Your debt forgiveness is capped at what you owe. For example, if you only owe $6,000 but are eligible for $10,000 in relief, you will only receive that $6,000, not the extra $4,000.
What do I need to do to get student loan relief?
Close to 8 million borrowers will receive their relief automatically because, “relevant income data is already available to the U.S. Department of Education,” according to the U.S. Government. Others will have to fill out an application to receive their relief.
The application is expected to be available in early October. To be notified when the application becomes available, click HERE.
Once the application is completed, you can expect your relief in the next 4-6 weeks. The government advises people to apply by November 15.
Will I need to pay taxes?
One of the biggest concerns with the forgiveness plan is whether the loan forgiveness will be taxable. The Biden administration said that the debt relief will not be federally taxed. Congress eliminated taxes on loan forgiveness through 2025.
However, some borrowers could be taxed at the state level. Some states’ tax plans follow the federal code, but other ones could seek a piece of the forgiven debt. California has said residents will not be taxed on their debt relief.
What about the rest of my student loans?
For many borrowers, their entire student loan balance will not be erased. President Biden paused student loan repayment at the outset of the pandemic, and it has been extended several times through December 31, 2022.
However come 2023, interest will begin accruing again and regular payments will resume. Biden has indicated that the pause will not extend further.
Any prospects of future relief?
The Department of Education will propose a new, income-driven repayment plan. The plan aims to protect lower and middle-income borrowers by reducing future monthly payments.
Under the rule, buyers would be required to spend just 5% of their discretionary income on undergraduate loans. The previous income-driven repayment plan had a 10% limit.
The plan would also forgive loan balances after 10 years of payments for people with loan balances of $12,000 or less. The previous plan forgave balances after 20 years.
A borrower’s loan balance would not grow as long as they make their monthly payments under the new plan, as it would cover the borrower’s unpaid monthly interest. It would also guarantee that nobody earning under 225% of the federal poverty level would have to make monthly payments.