Do you have questions about the student loan relief plan the Biden administration unveiled on Wednesday? Email them to reporter Alicia Adamczyk at email@example.com.
On Wednesday, after months of anticipation, President Joe Biden announced his plan for widespread student debt forgiveness. Millions of federal borrowers will receive up to $20,000 in debt relief, depending on their income and loan type.
In addition to loan forgiveness, Biden also extended the pause on student loan payments for the last time. Borrowers will not need to pay their monthly loan bills until January 2023.
There are still many unknowns about the student debt forgiveness plan and how it will work, including a timeline of when borrowers can expect to see their balances shrink.
But the U.S. Department of Education and other student loan experts were able to answer some of the questions. Fortuneabout Biden’s plan. Here’s what we know so far.
Who Qualifies for Student Loan Forgiveness?
Borrowers who took out most types of federal loans before July 2022 qualify for forgiveness if they — or their parents, if they are dependents — earned less than $125,000 in fiscal year 2020 or 2021. For couples who declare joint taxes and householders, the income limit is doubled to $250,000.
Higher income borrowers do not qualify for forgiveness.
Which loans qualify for forgiveness?
Federal undergraduate, graduate, Parent PLUS, and Pell Grants count in the forgiveness plan.
Borrowers with Pell Grants who meet income thresholds may qualify for up to $20,000 in relief, while other borrowers are eligible for up to $10,000. Relief is limited to the amount of debt that each borrower has. So, if you are eligible for $20,000 in debt relief, but you have a balance of $5,000 remaining, you will receive $5,000 in forgiveness.
Loans must have originated before July 2022 to qualify for forgiveness. This means that those who are still in school can have their balances reduced.
Private loans – those held by banks or other financial institutions, not the Department of Education – will not be forgiven.
Do current students qualify for forgiveness?
Yup. But if you are declared a dependent by your parents or guardians on your tax returns, their income will be used to determine eligibility.
Do people who haven’t graduated qualify for forgiveness?
Yup. Provided you meet all other qualification requirements.
How many people will be eligible for pardon?
The White House reports that if “all borrowers claim the relief they are entitled to,” 43 million people will receive student debt relief. Twenty million people will have their balance totally wiped out.
How do borrowers apply for student loan forgiveness?
Borrowers will have to ask for forgiveness, according to the Department of Education. A form will be available by the end of the year for borrowers to certify their income.
The department also said it has the income information of certain borrowers, and 8 million borrowers can have their loans automatically forgiven without having to fill out the form. While it’s not immediately clear who these borrowers are, it could include people who are on an income-based payment plan and already submit their income information to the Department of Education to certify, says Betsy Mayotte, president and founder of The Institute of Student Loan. Counselors and a longtime student loan attorney.
Borrowers whose income information the Department of Education already has will see their debt canceled sooner than other borrowers, says Mayotte. That said, more information will be available on this in the coming weeks.
To be notified by the Department of Education when the application is open, you can apply online to receive federal updates from student loan borrowers.
How will student loan forgiveness affect your taxes?
You will not have to pay taxes on any loans that are forgiven. At least not at the federal level. A provision in the 2021 American Rescue Plan (ARP) prevents student loan cancellations from being taxed as federal income, as is typical for many types of forgiveness under normal circumstances.
Which states will benefit most from student loan forgiveness?
The total federal student loan debt in the US is about $1.6 trillion, according to the most recent data provided by the Department of Education’s Federal Office of Student Aid. Nationwide, borrowers cost an average of $37,667, but those numbers vary when you factor in location and degree type.
Borrowers in Maryland and Georgia also owed significantly more than the national average, at $43,619 and $42,200, respectively, per borrower. North Dakota had the lowest average balance at $29,885.
View this interactive chart at Fortune.com
When will borrowers see their loan forgiven?
It will take a while, says Mayotte. And there will certainly be headaches for some borrowers along the way. The government – and certainly the Department of Education – has never undertaken this kind of forgiveness effort before.
“This is a big project. It’s not going to happen tomorrow and it’s not going to end all at once,” she says. “It could take six months or even longer, and there will be no way to push yourself in line. They’ll do it in batches and as fast as they can.”
Borrowers should also beware of scams in the coming months.
“You won’t have to pay a fee to get a pardon,” says Mayotte. “You won’t get a call from a legitimate source about how to get forgiveness faster. If they call or email you to get Biden’s forgiveness, you should do what you can to make their lives miserable.”
If you suspect fraud, report it to the Federal Trade Commission or your state attorney general. And watch studentaid.gov and your servicer’s website for update.
When will payments resume for borrowers who are still in debt?
Not until January at the earliest. Borrowers should be aware of a collection notice at least three weeks before repayments begin.
You can also check in with your servicer or log into your account online to see when payments are planned to restart (once those sites start working again, of course).
Will forgiveness really happen?
It is possible that opponents of the plan could sue to prevent cancellation. It’s not immediately clear whether Biden has the constitutional authority to pass this on his own, says Jacob Channel, an economist at Student Loan Hero.
“The reality is that we are in an unprecedented situation. There has never been such widespread forgiveness of student loans in the history of student loans in the US,” says Channel. “I predict there will be quite a vigorous discussion on the matter in the coming weeks and months. We’re all kind of in the dark together.”
Typically, an Act of Congress is required to address or change the student loan system.
That said, Channel says he wouldn’t want to be the one contesting debt cancellation.
“If you’re a politician, it might not be particularly beneficial to go up to someone and say, ‘Do you know that yesterday you got $10,000 in loan forgiveness? I don’t think you should have that,'” he says.
What else do borrowers need to know?
Borrowers who made payments on their federal student loans during the COVID break are eligible to receive this money repaid, according to Federal Student Aid. If you’ve made payments that may qualify for forgiveness, it might be smart to get a refund and keep more money in your pocket. Call your servicer for more information.
In addition, the Department of Education announced a plan to create a new income-based payment plan that limits accounts to 5% of the borrower’s discretionary income, compared to the current 10%. It would also forgive a borrower’s remaining balance after 10 years for borrowers with original loan balances of $12,000 or less, as opposed to the current 20 to 25. Interest would not accrue while the borrower makes payments.
The White House estimates that this would lower the average annual student loan payment “by more than $1,000 for current and future borrowers.”
What Happened to the Public Service Loan Forgiveness?
The Department of Education also provided a new outline of the plan for the Public Service Loan Forgiveness (PSLF) program going forward.
Under the new plan, more types of payments would count towards the PSLF (at the moment, only those made on time and in full under certain payment plans qualify).
This builds on changes the department has already made to the program. In October 2021, a limited exemption was announced that allows borrowers in the PSLF range to have all of their payments accounted for for forgiveness, even those that were made on the “wrong” payment plan, underpayments and late payments. Non-payments made during the current payment break also count towards the 120 needed for forgiveness.
There was no extension of the PSLF waiver included. Loans still need to be consolidated by the October 31, 2022 deadline to qualify under the original exemption. So far, 175,000 borrowers have received forgiveness under the exemption, getting more than $10 billion in debt written off, according to the Department of Education.
This is a developing story. Check back later for more details.
This story was originally featured on Fortune.com