(NEXSTAR) – After months of anticipation, the Biden administration will soon begin writing off millions of dollars in student loan debt. Up to 43 million borrowers are expected to receive relief, according to White House estimates.
How much you will receive and when you will see relief depends on a few factors.
Here’s what we know.
The type of loan matters
The type of student loan (or loans) you have is important.
The Biden administration can only cancel federal student loans, not loans from private lenders. Simply, if your loans aren’t “held by the Department of Education” through a federal lender – Nelnet, Great Lakes, and FedLoan are some of the most common (you can see a full list here) – you you are not eligible for this forgiveness.
Student loan debt for undergraduate and graduate studies can be forgiven, as long as your loans are held by the Department of Education.
Although the forgiveness covers federal student loans, including Parent PLUS loans, some will not be eligible for the relief. FFEL loans, or Federal Family Education Loans, that were ineligible for the payment freeze that began in 2020 will not be eligible for this discount, according to The New York Times.
The income ceiling
As expected, the Biden administration limits student loan forgiveness based on income.
According to the White House, borrowers “with an annual income during the pandemic of less than $125,000 (for individuals) or less than $250,000 (for married couples or heads of households)” will be eligible for relief, according to the US Department of Education. Borrowers under the same income caps who received a Pell Grant in college will be eligible for up to twice as much in debt forgiveness.
If your annual income exceeds either income threshold, you will not qualify for the relief outlined by the Biden administration.
Federal student loans received after June 30, 2022 are not eligible.
How much forgiveness will you get
If you meet the previous conditions – having federal student loans and falling below the income limit – you can expect debt relief.
The Biden administration says borrowers earning less than $125,000 (for individuals) or $250,000 (for married couples or heads of households), will be eligible for up to $10,000. Pell Grant recipients (here’s how to find out if you are one) meeting the same thresholds are eligible for up to $20,000 in cancellation.
But what does this “until” mean?
It’s quite simple: your debt forgiveness is limited to the amount you still owe. For example, if you are a Pell Grant recipient and earn less than $125,000 and you have $12,000 left, you will only receive $12,000. You cannot collect the excess $8,000.
Interest is included in your overall balance for this relief.
How soon will you see debt relief?
When and how the student loan forgiveness will be distributed has not yet been specified.
According to the US Department of Education, nearly 8 million borrowers are automatically eligible for relief based on income data the department already has. If the Department of Education doesn’t have your earnings data, or you’re not sure if the agency has it, there’s not much you can do at this time.
Instead, you’ll have to wait for the Biden administration to launch an application process, which will be available “in the coming weeks.” The app will be available before the end of the student loan repayment break on December 31.
You can sign up to be notified when the app is available through the Department of Education by completing this form.
What else should I know?
One of the biggest concerns for borrowers is that this loan forgiveness will be taxable. The White House said Wednesday that, thanks to the US bailout, that won’t be the case. Congress eliminated taxes on loan forgiveness through 2025.
Student loan forgiveness will also impact your credit score. In a statement to Nexstar, the Consumer Data Industry Association – the trade association representing national credit bureaus like Equifax, Experian and TransUnion – said: “Credit scores take into account many factors associated with an individual’s credit report. consumer, including the number of accounts, balances, payment history and amounts paid, among others. Removing or suspending student loan information from credit reports will have a unique impact on consumer credit scores, depending on each individual’s credit history related to each of these factors.
A spokesperson did not immediately respond to Nexstar’s request for additional details.
If your entire loan balance won’t be cleared – which is likely for some 23 million borrowers – President Biden has extended the payment break until the end of the year. But, on January 1, 2023, interest will begin to accrue again and regular payments will resume. He indicated that the break would no longer be extended.
If you have voluntarily made payments since March 2020, when payments were suspended, you can request a refund for those payments, according to the Federal Office for Student Aid. Contact your loan officer to request a refund.
The White House could face legal action over the forgiveness plan because Congress never gave the president explicit authority to cancel the debt. The Biden administration ties its authority to the coronavirus pandemic and a 2003 law aimed at providing aid to the military. We don’t yet know how legal action might impact the student loan forgiveness timeline.
The Associated Press contributed to this report.