Second, high-income borrowers are generally excluded from the benefit of debt cancellation.
Individual borrowers earning less than $125,000 per year and married couples or heads of households earning less than $250,000 per year will see up to $10,000 of their canceled federal student loan debt.
Here’s what else borrowers should know about the new student loan forgiveness plan:
What year is the income threshold based on?
How will the government know what my income was?
The Department of Education says it already had income information for nearly 8 million borrowers, likely due to financial aid forms or already submitted. income-based repayment plan applications. These borrowers will automatically qualify for debt relief if they meet the income requirement.
Other borrowers will need to apply for student loan forgiveness if the Department of Education does not have their income information on file.
When can I ask for forgiveness?
Will I have to pay taxes on the amount of the canceled debt?
Borrowers won’t have to pay federal income tax on canceled student loan debt, thanks to a provision of the American Rescue Plan Act that Congress passed last year.
I am currently a student. Am I eligible for forgiveness?
Yes, some current students are eligible. Eligibility for borrowers who have filed the Free Application for Federal Student Aid, known as FAFSA, as a self-employed, will be based on the individual’s household income.
I have graduate school student debt. Am I eligible for forgiveness?
Yes, if your income meets the eligibility threshold.
I am a parent and I took out a Parent PLUS loan. Am I eligible?
Could Biden’s pardon plan be overturned by a court?
It’s hard to say at this time what the odds are of a court overturning Biden’s action.
How will my payments change in the future?
Borrowers who have debt remaining after the wipeout of $10,000 or $20,000 could have 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 guarantees loans are repaid within 10 years.
Borrowers who are already enrolled in an income-based repayment plan likely won’t see their monthly payment amount change due to the forgiveness, as their payments are based on household and family income. Cut.
Borrowers have not been required to make payments on their federal student loans since March 2020 due to the pandemic-related government pause. Biden has extended the pause until the end of this year and payments will resume in January 2023.
What about Biden’s new income-based reimbursement plan?
Along with Biden’s 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 to federal student loan borrowers that reduce monthly payments by capping them at a portion of their income.
The new income-contingent reimbursement the plan Biden is expected to propose would cap payments at 5% of the borrower’s discretionary income, up 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 repayment, instead of 20 years.
Biden also proposes that the new plan cover the borrower’s unpaid monthly interest. This could be very useful for people whose monthly payments are so low that they do not cover their monthly interest charges and end up seeing their balances explode, bigger and bigger than what was originally borrowed. .
But we don’t know when these changes will take effect. The Department of Education didn’t provide any idea of the timeline, but said it would come up with a new rule to create the repayment plan. The ministry’s formal rule-making process typically includes soliciting public comment and can take months or even more than a year.