(NEXSTAR) – After months of anticipation, the Biden administration will soon begin forgiving millions of dollars in student loan debt. Up to 43 million borrowers are expected to receive relief, according to estimates from the White House.
How much you’ll receive, and when you’ll see relief, depends on a few factors.
Here’s what we know.
Loan type matters
The type of student loan (or loans) you have is important.
The Biden administration is only able to forgive federal student loans, not any 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 among the most common (you can see a full list here) – you don’t qualify for this forgiveness.
Student loan debt for both undergraduate and graduate education qualify for forgiveness, as long as your loans are held by the Education Department.
While forgiveness will cover federal student loans, including Parent PLUS Loans, some will not be eligible for relief. FFEL loans, or Federal Family Education Loans, that were not eligible for the payment freeze started in 2020 will not qualify for this forgiveness, according to The New York Times.
The income cap
As expected, the Biden administration is limiting student loan forgiveness based on income.
According to the White House, borrowers “with annual income during the pandemic of under $125,000 (for individuals) or under $250,000 (for married couples or heads of households)” will be eligible for relief, according to the U.S. 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 cancellation.
If your annual income exceeds either income threshold, you won’t qualify for the relief outlined by the Biden administration.
Federal student loans received after June 30, 2022, do not qualify.
How much forgiveness will you get
If you meet previous requirements – having federal student loans and fall under the income cap – you can expect to see 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 know if you are one) meeting the same thresholds are eligible for up to $20,000 in cancellation.
But what does that “up to” mean?
It’s pretty simple – your debt forgiveness is limited to how much you still owe. For example, if you’re a Pell Grant recipient making less than $125,000, and you have a balance of $12,000 left, you will only receive $12,000. You don’t get to collect the surplus $8,000.
Interest is included in your overall balance for this relief.
How soon will you see the debt relief?
When and how student loan forgiveness will be distributed hasn’t yet been made clear.
According to the U.S. Department of Education, nearly 8 million borrowers may qualify for relief automatically based on the income data the department already has. If the Education Department doesn’t have your income data, or you’re unsure if the agency has it, there isn’t much to do right now.
Instead, you’ll need to wait for the Biden administration to launch an application process, which will be available “in the coming weeks.” The application will be available before the student loan repayment pause ends on Dec. 31.
You can register to be notified when the application is available through the Department of Education by filling out this form.
What else should I know?
One of the biggest concerns borrowers have had is that this loan forgiveness will be taxable. The White House said Wednesday that, thanks to the American Rescue Plan, that will not be the case. Congress eliminated taxes on loan forgiveness through 2025.
Student loan forgiveness will also have an impact on 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 many factors associated with a consumer’s credit report into consideration, including the number of accounts, balances, payment history, and amounts paid down, among others. Removing or pausing student loan information from credit reports will impact consumers’ credit scores uniquely, 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 erased – which is likely for some 23 million borrowers – President Biden has extended the payment pause through the end of the year. But, come Jan. 1, 2023, interest will begin accruing again, and regular payments will resume. He has indicated the pause will not be extended again.
If you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. Contact your loan servicer to request a refund.
The White House could face lawsuits over this forgiveness plan, because Congress has never given the president the explicit authority to cancel debt. The Biden administration is tying its authority to the coronavirus pandemic and to a 2003 law aimed at providing help to members of the military. We don’t know yet how any legal action might impact the timetable for student loan forgiveness.
The Associated Press contributed to this report.