How millions of Americans will apply for student loan forgiveness
If the plan to wipe out $20,000 in federal student loan debt is implemented, millions of Americans will have to submit an application that could be available as soon as this week.
The application will open sometime in October and will be short and online.
It is not known when the form will go live. White House press secretary Karine Jean-Pierre said this week that no date has been set, but she confirmed that it's still scheduled for release this month.
If a qualifying borrower earns less than $125,000 in 2020 or 2021, or married couples with less than $250,000 annually, they're eligible for up to $20,000 in debt forgiveness.
The plan has attracted an avalanche of lawsuits since it was announced at the end of August, prompting the Biden administration to make some last minute changes to the program. Borrowers are still waiting for the final, last-minute specifics, and it's possible that a judge could place an injunction on the program.
The Department of Education updates the Federal Student Aid website, where it will share details of the loan forgiveness program.
Here is everything that borrowers need to know:
How do I apply for the program?
It's still unclear how to apply for the program because the application is not live. The Department of Education has said that borrowers won't have to upload any supporting documents or use their Federal Student Aid ID to submit the application.
After you submit your application, we will determine eligibility for debt relief and work with your loan servicers to process your relief, the department said in a recent email to borrowers. If you need additional information from us, we will contact you. Borrowers will have more than a year to apply, with the program closing in December 2023.
The loan forgiveness will not count toward federal taxable income, but there are at least six states that will consider it taxable, according to the Tax Foundation, a nonprofit group that advocates for lower taxes.
Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin all seem to be on track to tax the student loan forgiveness.
Can I opt out of the program?
An estimated 8 million federal student loan borrowers are expected to get forgiveness automatically under the one-time cancellation plan.
If you prefer, borrowers can opt out.
The White House argued on the matter after a borrower sued, arguing that he would pay more in state taxes on the amount canceled than he would if he paid the rest of his loan.
In a report released last week, the nonpartisan Congressional Budget Office said Biden's student loan plan could cost $400 billion, though it said that figure was highly uncertain. Other reports think the number closer to $500 billion Committee for a Responsible Federal Budget or about $300 billion Penn Wharton Erasing debt will add to the nation's already ballooning debt, which surged to a record high $31 trillion this week.
According to the Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania's Wharton School, the top earners will most likely get the benefits from the executive order, according to recent findings from the Penn Wharton Budget Model.
The analysis shows that between 69% and 73% of the debt forgiven would accrue to households that are in the top 60% of income distribution in the U.S.