On Wednesday, President Biden announced a sweeping student loan forgiveness measure that is expected to benefit 95% of federal borrowers. However, many borrowers wonder if they qualify and what this means for their long-term finances.
Here’s everything you need to know about Biden’s loan forgiveness plan, who’s eligible and how to apply.
Will my student loans be forgiven?
All student loans held by the federal government are eligible for forgiveness. If you have Subsidized Direct Loans, Unsubsidized Direct Loans, PLUS Direct Loans, Consolidation Direct Loans, or FFEL Loans held by the US Department of Education, they are all included in the discount plan.
Will Parent PLUS loans be cancelled?
Yes, parent PLUS loans are eligible for forgiveness as long as borrowers meet income requirements.
Why are private loans not included?
Private student loans do not belong to the federal government. They are held and disbursed by private lenders, credit unions or banks; therefore, any legislation enacted by President Biden does not apply to private lending.
However, private lenders may offer targeted relief programs if you have difficulty with payments. If you have private student loans, check with your lender to find out what options are available.
How much forgiveness am I entitled to?
Single borrowers who earn less than $125,000 per year and married borrowers who earn less than $250,000 per year are eligible for up to $10,000 in federal student loan forgiveness.
Borrowers who have received a Federal Pell Grant are eligible for a rebate of up to $20,000 if they meet income requirements.
How can I check if I received a Pell Grant?
To check if you have ever received a Pell Grant under your Federal Student Aid program, you must log into your account on the Federal Student Aid website. Please be aware that at this time, and likely for the next few weeks, the website is either down or operating at a slower speed due to high visitor volume following Wednesday’s announcement.
Can I get a refund on my student loans that I have already paid off?
According to the Federal Student Aid website, borrowers can request repayment of federal student loan payments they made beginning March 13, 2020 – the start of the student loan payment pause.
To request a refund, call your repairer and let them know that you want a refund on your payments made after March 13, 2020, in order to be eligible for the discount. Borrowers who repaid their federal student loans during this time are still eligible for repayment and later forgiveness of that balance.
Will student loan forgiveness be automatic?
The Biden administration has announced that forgiveness will be automatic for nearly 8 million borrowers whose income data is already on file with the US Department of Education. However, a discount policy of this size has never been enacted before, so it’s likely that many details need to be ironed out before borrowers start to see this reflected in their balances.
For all other borrowers, the administration has announced that it will issue a request for forgiveness before the (new) student loan payment break expiration date of December 31, 2022. To ensure you get the relief debt that has been promised to you, subscribe to the Ministry of Education newsletter; this will ensure you receive automated information about the release date of the application. Once the application is open, it is best to apply as soon as possible.
Will I pay taxes on my canceled student debt?
Due to the Student Loan Tax Relief Act, all student loans canceled by the federal government are not considered taxable income until 2025, so you don’t have to worry about a big invoice during tax season for your canceled loans.
Will my credit rating go up after I cancel my student loan?
The impact on your credit score after canceling a student loan depends on your credit status and financial situation. After paying off a loan, it’s not uncommon to see your score drop a few points, since you’re lowering the average age of your accounts and risking damaging your credit mix. On the other hand, canceling your student loans could improve your debt-to-income ratio and make it easier to pay your other debts on time.