About 26 million people applied for President Joe Biden’s federal student loan forgiveness program when a federal district court judge canceled the plan in early November. No debt has been canceled for now.
The Supreme Court will listen to arguments on Tuesday in two cases involving the program, with a decision expected in late June or early July.
Here’s what to know about Biden’s challenging plan:
Who is eligible? If the courts eventually allow the program to continue, not every student loaner will Eligible for debt forgiveness. First, only federally held student loans are eligible. Private student loans are excluded.
Second, high-income borrowers are often not forgiven. Individual borrowers earning less than $125,000 a year and couples or heads of households earning less than $250,000 annually can have their federal student loan debt forgiven up to $10,000.
If one qualified borrower also received a federal Pell grant while applying for college, the individual is eligible for debt forgiveness of up to $20,000.
What about current students? Some current students would be eligible under Biden’s plan if it were allowed to go into effect. Eligibility for borrowers who have submitted a Free Application for Federal Student Aid, known as the FAFSA, as an independent will be based on the individual’s own household income.
What types of loans qualify? There are many federal student loans and not all are eligible for relief if the program is allowed to continue. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans, are eligible.
But federal student loans that are guaranteed by the government but held by private lenders will not be eligible unless the borrower applies to consolidate those loans into a Direct Loan by May 29. 9 year 2022.
Will borrowers have to pay taxes on forgiven loans? Borrowers will not have to pay federal income tax on student loan debt forgiven, thanks to a provision in the American Rescue Plan Act that Congress passed in 2021.
But it’s possible that some borrowers may have to pay state income taxes on the forgiven debt. There are some states that may tax disbursed debts if changes to the state’s laws or regulations are not made first. Tax Policy Center. Tax liabilities can be hundreds of dollars, depending on the state.
Find answers to other questions about the program This.
