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


(CNN) — This Tuesday the fate of millions of student loan recipients awaiting the decision of the United States Supreme Court on a Joe Biden government program for the cancellation of up to US$ 20,000 of their debt is defined.

Biden announced the student loan forgiveness program last August, but lower courts stayed its implementation. The judges of the Supreme Court will hear the arguments on Tuesday in two cases about the program, whose cost is estimated at US$ 400,000 million.

Who can access the debt forgiveness program?

Not all student loan recipients are eligible for the administration’s proposed debt reduction, which now depends on the court’s decision. First, only those with federal student loans can apply for the benefit. Private student loans are excluded.

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

If an eligible borrower also received a federal Pell Grant while enrolled in college, the individual may be eligible for debt forgiveness of up to $20,000. Pell Grants are awarded to millions of low-income students each year, based on factors such as family size and income, and the cost charged by the university. These borrowers are also more likely to have difficulty paying their student debt and end up in default.

What type of federal student loans are eligible?

There are a variety of federal student loans, and not all are eligible. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans are eligible.

However, federal student loans that are government guaranteed but held by private lenders are not eligible unless the borrower has applied to consolidate those loans into a Direct Loan by September 29.

The Department of Education initially said that these private loans, many of which were made under the former Federal Family Education Loan program and the Federal Perkins Loan program, would be eligible for forgiveness action. However, he turned the tide in September when six Republican-led states sued the Biden administration, arguing that private loan forgiveness would financially hurt states and student loan servicers.

Delinquent Federal Family Education Loans and Perkins Loans are eligible for debt forgiveness even if they are private.

What year does the fixed income threshold correspond to?

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

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

How does the government know what your income is?

The Department of Education says it already had income information for nearly eight million borrowers, likely from previously submitted financial aid applications or income-based repayment plan applications. Those borrowers will automatically receive debt relief if they meet the income requirement, unless they opt out if the program is given the green light. The department has said it will send an email to borrowers who will be considered for debt relief but do not need to apply.

Millions more borrowers will have to apply for student loan forgiveness, if it can be done again.

The Biden administration has said that applicants who are “most likely to exceed the income limit” will have to submit additional information, such as a tax transcript. Officials expect only 5% of eligible federal student loan borrowers to be ineligible due to the income threshold.

Can forgiveness be applied for at this time?

The Government created a page for the cancellation request (https://studentaid.gov/debt-relief/application) in which it is currently reported that the relief is blocked and therefore no more applications are received.

On that page, news will be reported after the court’s decision.

The White House has said it received 26 million applications before a lower court in Texas blocked the program nationwide in November, and that 16 million of those applications have been approved for relief.

There could be room for more legal challenges to be filed even after the Supreme Court has ruled.

Would you have to pay taxes for the amount of the canceled debt?

Borrowers would not have to pay federal taxes on forgiven student loan debt if the program goes through, thanks to a provision of the Bailout America Act that Congress passed last year.

However, some borrowers may have to pay state income tax on the amount of the debt forgiven if it happens. There are a handful of states that can tax the forgiven debt without prior state legislative or administrative changes, according to the Tax Policy Center. The tax liability could be hundreds of dollars, depending on the state.

How do I know if I have ever received a Pell Grant?

Most borrowers can go to Studentaid.gov to see if they received a Pell Grant while enrolled in college. Information about Pell Grants received appears in your account dashboard and on the “My Help” page. Here you can also find out how much is owed and what kind of loans you have.

Borrowers who received a Pell Grant before 1994 will not see their Pell Grant information online, but are still eligible for $20,000 in student loan forgiveness if the program moves forward.

As long as borrowers have 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.

What happens if the program is cancelled?

If the Supreme Court strikes down Biden’s student loan forgiveness program, it’s possible the administration could make some tweaks to the policy and try again, though that process could take months.

“The ball returns to the Biden administration,” said Luke Herrine, an assistant professor of law at the University of Alabama who previously worked on a legal strategy for the cancellation of student debt.

“The administration could implement some other version of this facility under a different legal authority, but that may well generate its own litigation and end up in the same place,” Herrine added.

The Biden administration is also working on changes to existing federal student loan repayment plans that are intended to make it easier for borrowers to pay for college. These changes do not face legal challenges.

The Department of Education is currently finalizing a new income-based repayment plan to reduce monthly payments as well as the total amount borrowers pay over time. Unlike the one-time student loan repayment program, the new repayment plan could help current and future borrowers alike.

In addition, in July, changes will be made to the public service loan forgiveness program, which allows certain non-profit and government employees to apply for federal student loan forgiveness after making 10 years of qualifying payments. The changes will make it easier for some borrowers to receive debt forgiveness.

Editor’s note: This article was originally published on October 17, 2022 and updated on February 28, 2022.


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