Following Wednesday’s news that the Biden administration intends to move forward with comprehensive student loan forgiveness, there are likely to be many questions for the millions of Americans who were undoubtedly relieved to hear the news.
The U.S. Department of Education, its loan servicers, and millions of borrowers have requested cancellations of their loans, and the administration has already made a startling number of responses available. However, only time will tell how well this process will work.
Here is what we know right now.
Do I qualify for this relief?
In general, borrowers who earn less than $125,000 annually, married couples, or heads of households who make less than $250,000 annually are eligible for Biden’s student loan forgiveness.
What loans are eligible?
The Education Department should be able to service all federal student loans. No private student loans are accepted.
What percentage of my debt might be forgiven?
If a borrower receives a Pell Grant, they may be eligible for up to $20,000 in forgiveness. Those who didn’t might be qualified for relief of up to $10,000.
What if my debt is lower than what is being forgiven?
According to the Education Department, the relief is limited to the sum of a borrower’s outstanding qualified debt.
Do I need to take any action to receive the cancellation?
The Education Department said that it will release a website where borrowers can enter their income information and apply for loan forgiveness.
Borrowers can register on the department’s website to receive updates about the procedure before the application becomes available, which is expected to happen before the end of the year.
Additionally, according to the department, it already possesses the income information for around 8 million debtors. These individuals might experience automatic cancellation.
Will taxes be due upon debt forgiveness?
Federal taxes won’t be due after student debt forgiveness.
That’s because, in accordance with a fact sheet from the White House, the American Rescue Plan of 2021 makes student loan forgiveness tax-free through 2025. The law also applies to Biden’s forgiveness.
However, state levies can still be your responsibility, according to higher education expert Mark Kantrowitz.
While some states automatically follow federal regulations, others can consider the forgiven sum to be income, so it’s still possible that you’ll owe the state money. According to Kantrowitz, the sum “may be the equivalent of a few student loan payments.”
Before submitting your state tax return, ask a local tax expert for an estimate if you’re unsure.
What is the status of the payment pause?
Along with his announcement regarding student loan forgiveness, Biden also promised to continue the payment moratorium on federal student loans through December 31. In January 2023, payments will start up again.
It is the seventh and most likely final extension of the Trump administration’s pandemic-era aid program.