Federal student loan debt forgiveness: Answering the most common questions

More than 40 million Americans could see student loan debt reduced or eliminated

More than 40 million Americans could see their student loan debt reduced under the forgiveness plan President Joe Biden announced this week.

In many cases, Americans could see their student loan debt completely eliminated. Biden is erasing $10,000 in federal student loan debt for people with incomes below $125,000 a year, or households that earn less than $250,000. He is canceling another $10,000 for people who received federal Pell Grants to attend college.

He also extended the pause on federal student loan payments for the “final” time. The pause will run through the end of the year and repayments are expected to resume in January.

Below we answer the most common questions about the student loan forgiveness program:

Read: Complete student loan forgiveness information

Read: Complete student loan forgiveness information

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Do I qualify?

The forgiveness plan applies to federal student loan borrowers. You are eligible if your individual income is less than $125,000 per year. For married couples, that maximum is $250,000 annually.

Read: Do you qualify for Biden’s student loan forgiveness plan?

How is income determined?

According to the New York Times, eligibility will be based on your adjusted gross income. Income figures from either 2020 or 2021 can render you eligible, but 2022 income will not.

Do new loans qualify?

No. Loans obtained after June 30 are not eligible for relief, according to the New York Times.

Do I have to apply?

The Department of Education is expected to set up an application process for eligible borrowers to claim relief.

The application will be available before the end of the year. According to the White House, nearly 8 million borrowers may be eligible to receive the relief automatically because their relevant income data is already available to the department.

Are current students eligible?

According to the White House, current students with loans are eligible for this debt relief. Borrowers who are dependent students will be eligible for relief based on parental income, rather than their own income.

Are graduate student loans eligible?

Yes. Graduate student loans are eligible for up to $10,000 in debt forgiveness or $20,000 if the borrower had a Pell grant.

Are Parent Plus loans eligible?

Yes. Federal loans taken out by parents to pay for their child’s education are eligible for cancellation according to the Washington Post. They are subject to the same income thresholds.

Did I receive a Pell grant?

You can check by following these steps:

  • Find the “my aid” button either in your profile drop down menu or on the right side of your dashboard.
  • In the “my aid” section you will automatically be set to the “loans” tab. You’ll want to click on the “grants” tab and you’ll find your answer there.

Read: What’s a Pell grant? How it affects student loan forgiveness

When will repayment continue?

Biden issued a final freeze on repayments, but they are slate to continue in January 2023.

According to the White House, a new repayment plan will allow low- and middle-income borrowers to have smaller and more manageable monthly payments. It will cap the amount borrowers pay each month based on a percentage of their discretionary income, which is the money a person has left over after paying their taxes and other necessary cost-of-living expenses.

Do I need to do anything to extend my student loan pause?

No. The pause will occur automatically.

Read: How the new income-driven repayment plan for federal student loans would work

Can I really get a refund for debt paid off during the pandemic?

Yes. Payments eligible for refunds include auto-debit payments, but the payments must have been made beginning on March 13, 2020, to qualify.

The U.S. Department of Education’s Federal Student Aid website says, “You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020). Contact your loan servicer to request that your payment be refunded.”

Read: Did you make payments on federal student loans during the COVID pandemic? Here’s how to get a refund

Will I have to pay income tax?

No. You will not have to pay federal or state income tax if you live in Michigan.

Read: Will Michiganders have to pay income tax on forgiven federal student loan debt?

How is the government paying for this?

According to the White House, the money comes from the federal deficit. According to Biden, this year they’re on track to cut the deficit by more than $1.7 trillion by the end of this fiscal year. Biden said this is the single-largest deficit reduction in a single year in the history of America.

“There is plenty of deficit reduction to pay for the programs -- cumulative deficit reduction -- to pay for the programs many times over,” Biden said.

Will it increase inflation?

It is not expected to have a “meaningful” impact on inflation.

According to a report from Forbes, Goldman economists said the student loan forgiveness plan won’t make inflation worse. Instead, it will add $400 billion to the deficit.

Goldman estimates the plan would only have a “small” overall impact on spending which could boost gross domestic product by about 0.1% in the next year and less in subsequent years.

Read: Who’s paying for federal student loan forgiveness? Will it increase inflation?

Is this legal?

The Biden administration has tied its authority to cancel student debt to the COVID pandemic and to a 2003 law aimed at providing help to members of the military.

The Associated Press reports that legal challenges are expected. The Justice Department has argued that the HEROES Act of 2003 gives the administration the authority to reduce or eliminate student debt during a national emergency.

Read more: Is it legal for President Joe Biden to issue sweeping student loan forgiveness?

About the Author:

Kayla is a Web Producer for ClickOnDetroit. Before she joined the team in 2018 she worked at WILX in Lansing as a digital producer.