[ad_1]
President Biden’s student-loan plan would reduce or wipe out the debt of millions of borrowers.
“The opponents suing to stop my plan are the only thing standing between millions of Americans’ crushing student debt and relief,” Mr. Biden said in January.
The deadline to apply for the program is Dec. 31, 2023, but the application is temporarily unavailable pending the outcome of legal challenges.
“We’re in unprecedented territory,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance. “This has never been done before.”
If enacted, the plan is expected to benefit the majority of the more than 43 million people in the U.S. who hold a total of $1.6 trillion in student-loan debt.
On Nov. 22, the Biden administration said it would extend the pandemic-era pause on student-loan payments, pending the outcome of legal challenges to the debt-relief plan.
Mr. Biden’s program proposal and the related legal wrangling bring a host of questions for borrowers and servicers alike. Here are answers to some of the key questions about the program leading up to the Supreme Court oral arguments.
Can the Supreme Court cancel Mr. Biden’s student-loan forgiveness program?
Yes. The court will first have to determine whether the borrowers and state officials that brought the lawsuits would be harmed by the plan before it considers the constitutional merits of their argument.
But if that hurdle is overcome, the court could rule that Mr. Biden lacked the legal authority to cancel large amounts of debt under the Heroes Act, a 2003 law that allows an indeterminate amount of student debt to be canceled if borrowers are made worse off economically by a national emergency.
If Mr. Biden’s program goes ahead, who is eligible for student-loan forgiveness?
Borrowers with federal student-loan debt are eligible for up to $10,000 in relief if they earn less than $125,000 a year, or under $250,000 a year for couples. The income limit applies to gross adjusted income from 2021 or 2020.
People who received federal Pell Grants in college would also be eligible for up to $20,000 in forgiveness. Around 6 in 10 borrowers with any federal loans also received a Pell Grant, according to the White House, and Pell Grant-recipient graduates hold about $4,500 more in debt than other graduates, according to a 2020 analysis of federal data by the Institute for College Access and Success, an advocacy group.
Most student-loan borrowers owe less than $25,000 on their loans as of May 2022, according to the Federal Reserve.
Do I qualify for student-loan forgiveness?
Do you have a federal loan
issued by the Education
Department?
Did you obtain the loan before
June 30, 2022?
Are you the head of a household
or do you file taxes jointly with
your partner?
Did you earn less than
$125,000 in 2020 or 2021?
Did you earn less than
$250,000 in 2020 or 2021?
One last question,
have you received a
Pell Grant?
You are eligible for $10,000
student-loan forgiveness!
You are eligible for $20,000
student-loan forgiveness!
Do you have a federal loan
issued by the Education
Department?
Did you obtain the loan before
June 30, 2022?
Are you the head of a household
or do you file taxes jointly with
your partner?
Did you earn less than
$125,000 in 2020 or 2021?
Did you earn less than
$250,000 in 2020 or 2021?
One last question,
have you received a
Pell Grant?
You are eligible for $10,000
student-loan forgiveness!
You are eligible for $20,000
student-loan forgiveness!
Do you have a federal loan
issued by the Education
Department?
Did you obtain the loan
before June 30, 2022?
Are you the head of a
household or do you file taxes
jointly with your partner?
Did you earn less than
$125,00 in 2020 or 2021?
Did you earn less than
$250,000 in 2020 or 2021?
One last question,
have you received a
Pell Grant?
You are eligible for $10,000
student-loan forgiveness!
You are eligible for $20,000
student-loan forgiveness!
Do you have a
federal loan
issued by the
Education
Department?
Did you obtain the
loan before
June 30, 2022?
Are you the head
of a household or
do you file taxes
jointly with
your partner?
Did you earn less
than $125,000
in 2020 or 2021?
Did you earn less
than $250,000
in 2020 or 2021?
One last question,
have you received a
Pell Grant?
You are eligible for
$10,000
student-loan
forgiveness!
You are eligible for
$20,000
student-loan
forgiveness!
Do you have a
federal loan
issued by the
Education
Department?
Did you obtain
the loan before
June 30, 2022?
Are you the head
of a household or
do you file taxes
jointly with
your partner?
Did you earn less
than $125,000
in 2020 or 2021?
Did you earn less
than $250,000
in 2020 or 2021?
One last question,
have you received
a Pell Grant?
You are eligible
for $10,000
student-loan
forgiveness!
You are eligible
for $20,000
student-loan
forgiveness!
What if I applied for forgiveness already?
Millions of borrowers have already submitted applications at the studentaid.gov website. The official application isn’t currently available given the continuing legal challenges, but around 26 million people, including those who automatically qualified, have submitted the necessary information to qualify for cancellation.
If the Biden forgiveness plan goes ahead, the Education Department is to determine your eligibility and contact you for more information. If requested, proof of income must be submitted by March 31, 2024. Your loan servicer is to notify you when your relief has been processed.
What if I have private student loans?
Only federal debt is eligible. In a move that could limit the ability of some states and financial institutions to sue over the debt cancellation plan, the Education Department revised its program guidance in September to note that millions of loans issued by banks but backed by the federal government wouldn’t be eligible for relief.
While the change applies to roughly four million borrowers who hold Federal Family Education Loans, which haven’t been issued since 2010, an administration official said that it would only disqualify 770,000 borrowers due to other eligibility criteria.
Is the pause on student-loan payments extended?
Student loan payments were due to resume Jan. 1. On Nov. 22, the Biden administration said the pause would be extended, pending the outcome of legal challenges to the debt-relief plan. Payments will now resume 60 days after litigation over the program is resolved. If the litigation hasn’t been resolved by June 30, payments will resume 60 days after that, according to the Education Department.
Are Parent Plus loans eligible?
Yes. An individual student is limited in how much money he or she can take out in federal loans, but through the Parent Plus and Grad Plus Programs, families can borrow the total cost of attendance, including room and board and other expenses. This forgiveness applies to federal loans for both undergraduate and graduate programs, as well as to Parent Plus loans, White House officials said.
Is my debt forgiveness tax-exempt?
Debt forgiveness is often treated as income on taxes. But fortunately for borrowers, this canceled student debt is federally tax-exempt, as seen in other federal student-debt forgiveness programs. Under existing state laws, in as many as 13 states, student-loan forgiveness could count as taxable income on state income-tax returns, according to
Jared Walczak,
a state tax expert at the Tax Foundation, a tax-policy think tank based in Washington, D.C.
That could mean a $500 tax bill in Massachusetts, which levies a 5% flat-rate income tax, or a $1,100 tax bill in Hawaii, which has an 11% tax on its highest earners, wrote Mr. Walczak in a blog post.
What if I have already paid off my loans?
This measure won’t apply to balances that have already been paid off.
This explanatory article may be periodically updated.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com and Julia Carpenter at julia.carpenter@wsj.com
Corrections & Amplifications
The deadline for applications for the debt-relief program is Dec. 31, 2023. An update to this article didn’t include the year.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
[ad_2]
