President Joe Biden announced two weeks ago that his administration would forgive up to $20,000 in student loan debt for certain borrowers and extend the moratorium on student loan repayment one last time until December.
In Ohio there are more than 1.7 million people with student loan debt who collectively owe more than $63 billion, according to data from the US Department of Education. The Biden administration has announced that it will release a process for applying for student loan debt forgiveness before the end of the year, but exactly how borrowers will be able to apply is not final.
Who is eligible for student loan debt forgiveness?
If borrowers are eligible for student loan debt forgiveness under the administration plan depends on how much they earn annually and what type of loan they have.
Undergraduate and graduate students who have taken out federal student loans from the Department of Education through a federal lender receive a discount – meaning loans from private lenders do not apply.
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Borrowers are eligible if they earn less than $125,000 per year, or $250,000 for households. Borrowers who are dependent students will be deemed eligible based on parental income, not their own.
How will student loan debt forgiveness be applied?
Under the scheme, borrowers who are beneficiaries of a PellGrant — federal financial aid for low-income undergraduate students — will see up to $20,000 taken from their student loan debt. According to a White House press release.
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If the amount of relief granted is greater than a borrower’s total debt, all of the debt will be forgiven. However, no additional money would be returned to the borrower.
What types of loans are eligible for student loan debt forgiveness?
The Debt Cancellation Plan covers all direct federal loans, including Parent PLUS and Graduate PLUS loans, subsidized and unsubsidized loans, and consolidated loans that were first taken out before June 30, 2022.
Federal direct loans and Perkins loans that have defaulted are still eligible for debt relief.
Any loan that qualifies for the student loan repayment break is eligible for debt forgiveness. Borrowers who have Federal Perkins Loans or Federal Home Education Loans are only eligible if their loans are held by the Department of Education (or for FFEL loans, by a Guarantee Agency.)
According A press release.
Private loan holders can contact their private loan department or independently consolidate their loan into a direct federal consolidation loan at StudentAid.gov for their loan to be eligible for forgiveness.
When will student loan debt forgiveness begin?
The Biden administration has announced it will extend the student loan repayment moratorium for the final time. Borrowers won’t have to make another payment on student loan debt until Dec. 31. Regular payments – and accrued interest on loans – will resume on January 1, 2023.
The White House estimates up to 43 million borrowers will benefit from debt relief. About 8 million people could immediately benefit from relief since their income data is already available to the Ministry of Education, according to the the White House.
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The roughly 35 million other eligible borrowers will have to wait for an application process, which the Biden administration said would be made available early next month. Borrowers will need to apply by November 15 to receive relief before the payment moratorium expires at the end of the year.
The Ministry of Education will continue to accept applications even after the payment pause ends until December 2023, and borrowers can expect relief within four to six weeks of completing the application, according to the White House.
What if I continued to repay my student loans during the repayment break?
Anyone who has continued to make student loan repayments since the payment pause began in March 2020 may want to request a repayment to make the most of any debt relief they are eligible for.
A borrower who still owes $5,000 in student loans but is eligible for debt forgiveness of $10,000, for example, could request reimbursement of payments made during the moratorium from their lendercollect money, then seek debt cancellation under Biden’s plan using the new total.
Borrowers who choose to go this route should ensure they qualify for a certain level of forgiveness under the plan before requesting a refund from their lender, as any refund will also be added to their total student debt balance. .
More information will be available in the “coming weeks,” according to the White House. You can be notified when the app is available by subscribing to Ministry of Education Bulletin Online.
Will I be taxed for canceling student loan debt?
If you live in Ohio, no. Those who qualify for the Student Loan Forgiveness Plan will not have to pay federal tax on their student debt. Due to a provision of the US Bailout Act Passed last year, all federal student loan forgiveness is not federally taxable until 2025.
So far, more than a dozen states could end up taxing canceled student loan debt under Biden’s plan, according to the Tax foundation. Ohio is in compliance with the 2021 federal tax laws, i.e. under ARPA, the state also cannot tax canceled student debt until 2025.
If not, how does student loan debt change?
In addition to student debt cancellation and an extension of the repayment moratorium, the Department of Education has proposed a new income-based repayment plan that would prevent low-income borrowers from making payments. and would cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income. Most existing plans take 10% of discretionary income; this plan would cut most monthly payments in half.
The plan would also increase the amount of income considered non-discretionary income — the portion of his income spent on mandatory expenses like groceries, housing and taxes — protecting him from reimbursement.
According to Press release.
Finally, the debt relief plan would cover borrowers’ unpaid monthly interest as long as payments are made continuously and cancel loan balances of $12,000 or less after 10 years of payments.
What will change for public sector workers?
Biden also announced changes to the Civil Service Loan Forgiveness Program, which allows full-time employees of federal, state, tribal and local governments, military and nonprofits to have their student debt eliminated after completing 120 monthly student debt repayments.
Last October, the Ministry of Education announced that it would temporarily relax historically tight eligibility restrictions for the PSLF program via a temporary waiver. Public sector employees who apply for the waiver will be able to get credit for past payments that did not apply because they were not made on time, made in full, or made according to the correct repayment plan.
Public sector employees have until October 31 to apply for the temporary waiver. Requests can be made to whitehouse.gov/publicserviceloanforgiveness/. Entries made after the deadline will not be eligible for the temporary relaxation of eligibility restrictions.
What’s the reaction around Ohio regarding student loan forgiveness?
Biden’s student debt forgiveness plan has drawn mixed reactions from candidates in major races across the state.
Many Democrats see Biden’s plan as a lifeline for those in debt and a necessary first step to curb years of runaway tuition increases for post-secondary education.
Piet van Lier, senior fellow at Policy Matters Ohio, said the plan will allow millions of people to continue their education not just in four-year institutions, but across the full spectrum of post-secondary education.
“If more people set out to be more valuable in the workplace…that’s ultimately going to help me,” van Lier said. “(This plan) is not going to solve the problem, but Biden is using the tools he has to improve the system.”
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But Republicans and some Democrats have criticized the plan as a bailout for those who attended college paid for on the backs of working-class Americans.
Democratic gubernatorial candidate Nan Whaley criticized the plan in August, calling it unfair to Ohioans who haven’t attended college or have already paid off their student loans. Democratic U.S. Senate candidate Tim Ryan struck a similar tone last month when he said the plan sent the wrong message to workers in Ohio without degrees.
“It’s no surprise to me that criticism of the plan is bipartisan,” said Rae Hederman, vice president of policy at the Buckeye Institute. “There’s a reason Biden did this through executive action — he didn’t get enough votes from his own party to get him through Congress.”