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| What You Need to Know About Biden’s Student Loan Forgiveness Plan | What You Need to Know About Biden’s Student Loan Forgiveness Plan |
| (32 minutes later) | |
| President Biden’s executive order on Wednesday will cancel up to $20,000 worth of federal student loans for millions of people. But not everyone with debt will qualify. | President Biden’s executive order on Wednesday will cancel up to $20,000 worth of federal student loans for millions of people. But not everyone with debt will qualify. |
| The order includes rules that will maintain the balances of debtors who currently have high incomes. Those who do qualify will need to navigate the balky federal loan servicing system and keep a close eye on their accounts and credit reports for any mistakes. | The order includes rules that will maintain the balances of debtors who currently have high incomes. Those who do qualify will need to navigate the balky federal loan servicing system and keep a close eye on their accounts and credit reports for any mistakes. |
| The order also extends the pause on monthly student loan payments, which means that borrowers won’t have to resume payments until at least January. | The order also extends the pause on monthly student loan payments, which means that borrowers won’t have to resume payments until at least January. |
| What follows are questions you may have about the cancellation program with answers that have come from the White House, the Department of Education and student loan servicers. | What follows are questions you may have about the cancellation program with answers that have come from the White House, the Department of Education and student loan servicers. |
| We will update this article in the coming hours, days and weeks as more details become available. | We will update this article in the coming hours, days and weeks as more details become available. |
| Individuals who are single and earn $125,000 or less will qualify for the $10,000 in debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your income is $250,000 or below. | Individuals who are single and earn $125,000 or less will qualify for the $10,000 in debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your income is $250,000 or below. |
| If you received a Pell Grant and meet these income requirements, you could qualify for an extra $10,000 in cancellation. | If you received a Pell Grant and meet these income requirements, you could qualify for an extra $10,000 in cancellation. |
| Only federal student loan debt is eligible. Private loans are not. | Only federal student loan debt is eligible. Private loans are not. |
| Yes, but if someone else claims you as a dependent when filing taxes, your eligibility will be based on that person’s income and not your own. | Yes, but if someone else claims you as a dependent when filing taxes, your eligibility will be based on that person’s income and not your own. |
| No. | No. |
| Start by making sure that your loan servicer knows how to find you, so that you’ll be able to receive any guidance it provides and follow any instructions that it issues. Check that your postal address, your email address and your mobile phone number are listed accurately. | Start by making sure that your loan servicer knows how to find you, so that you’ll be able to receive any guidance it provides and follow any instructions that it issues. Check that your postal address, your email address and your mobile phone number are listed accurately. |
| If you don’t know who your servicer is, consult the Department of Education’s “Who is my loan servicer?” web page for instructions. | If you don’t know who your servicer is, consult the Department of Education’s “Who is my loan servicer?” web page for instructions. |
| It depends. If you’re already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, your servicer and the Education Department know how much you earn and you should not need to do anything else. Still, keep an eye out for guidance from your servicer. | It depends. If you’re already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, your servicer and the Education Department know how much you earn and you should not need to do anything else. Still, keep an eye out for guidance from your servicer. |
| The department said Wednesday that close to eight million borrowers “may” be eligible to get this automatic relief. | The department said Wednesday that close to eight million borrowers “may” be eligible to get this automatic relief. |
| For everyone else, it will make some kind of application available by the end of the year. “The Department of Education will work quickly and efficiently to set up a simple application process for borrowers to claim relief,” according to a White House statement. | For everyone else, it will make some kind of application available by the end of the year. “The Department of Education will work quickly and efficiently to set up a simple application process for borrowers to claim relief,” according to a White House statement. |
| Watch for messages from your loan servicer and be wary. Given how many millions of people are involved and that billions of dollars are at stake, there are bound to be hiccups. If you get a message that you suddenly have a zero balance or that your balance has fallen by $10,000 or $20,000, take a screen shot and print it out in case it somehow changes later. | Watch for messages from your loan servicer and be wary. Given how many millions of people are involved and that billions of dollars are at stake, there are bound to be hiccups. If you get a message that you suddenly have a zero balance or that your balance has fallen by $10,000 or $20,000, take a screen shot and print it out in case it somehow changes later. |
| And if your debt does go to zero, keep an eye on your credit report in the months afterward to make sure that your loan servicer is reporting that fact correctly. For instance, there should not be any notices of late payments that post after your balance shows as zero. | And if your debt does go to zero, keep an eye on your credit report in the months afterward to make sure that your loan servicer is reporting that fact correctly. For instance, there should not be any notices of late payments that post after your balance shows as zero. |
| No. | No. |
| Not until at least January. | Not until at least January. |
| You should receive a billing notice at least three weeks before your first payment is due, but you can contact your loan servicer before then (online is more efficient) for specifics on what you owe and when payment is due. | You should receive a billing notice at least three weeks before your first payment is due, but you can contact your loan servicer before then (online is more efficient) for specifics on what you owe and when payment is due. |
| The Education Department hasn’t provided any details on how this will work just yet, but we can make an educated guess based on what’s possible now. | The Education Department hasn’t provided any details on how this will work just yet, but we can make an educated guess based on what’s possible now. |
| When borrowers pay a solid chunk of debt and their balance declines, they can ask their servicer to recalculate their payments over the remaining loan term, resulting in a lower monthly payment, according to Scott Buchanan, executive director of Student Loan Servicing Alliance, an industry trade group. But if the $10,000 in forgiveness doesn’t put a dent into a borrower’s balance,servicers may not even be instructed to recalculate payments, which may remain the same. | |
| Mr. Buchanan said the servicers hadn’t yet received any guidance on when or how payments should be recalculated. | Mr. Buchanan said the servicers hadn’t yet received any guidance on when or how payments should be recalculated. |
| Borrowers enrolled in income-driven plans make payments based on their discretionary income and household size. Mr. Biden has proposed a rule to create a new plan that would cap those payments at 5 percent of income, down from 10 percent to 15 percent in most existing plans. | Borrowers enrolled in income-driven plans make payments based on their discretionary income and household size. Mr. Biden has proposed a rule to create a new plan that would cap those payments at 5 percent of income, down from 10 percent to 15 percent in most existing plans. |
| Send in the extra money with your on-time payment each month. | Send in the extra money with your on-time payment each month. |
| Let’s say your payment drops to $200 a month after forgiveness, but you had been paying $300. If you want to continue paying $300, the first $200 will be applied to the payment that’s due and the extra $100 should immediately be applied to principal (and not the next payment). “Every extra dollar you send above your payment amount goes to principal,” said Mr. Buchanan of the trade group. | Let’s say your payment drops to $200 a month after forgiveness, but you had been paying $300. If you want to continue paying $300, the first $200 will be applied to the payment that’s due and the extra $100 should immediately be applied to principal (and not the next payment). “Every extra dollar you send above your payment amount goes to principal,” said Mr. Buchanan of the trade group. |
| But if there’s any accrued interest — say, because the previous payment was late — the extra money will apply to that first. | But if there’s any accrued interest — say, because the previous payment was late — the extra money will apply to that first. |
| Given the loan servicers’ propensity to muck things up, be sure to log into your account to be sure the extra money is being applied to principal and not the next month’s statement. | Given the loan servicers’ propensity to muck things up, be sure to log into your account to be sure the extra money is being applied to principal and not the next month’s statement. |
| There are several repayment options to consider, each with different eligibility rules, conditions and tedious details. In many cases, struggling borrowers will probably want to opt for an income-driven repayment plan, where the payment amount is tied to your income and can be as low as $0. After you make payments for a set period of years, whatever balance remains is forgiven by the federal government. | |
| Other repayment plans may better suit your circumstances, and they can sometimes yield lower payment amounts. Those include the standard (with fixed payments), graduated (your payments rise) and extended (you pay over a longer time) repayment plans. | Other repayment plans may better suit your circumstances, and they can sometimes yield lower payment amounts. Those include the standard (with fixed payments), graduated (your payments rise) and extended (you pay over a longer time) repayment plans. |
| Options that pause payments altogether should generally be used only as a last resort: Requesting a deferment or forbearance will temporarily put payments on hold, but there can be significant added costs in the long run. | Options that pause payments altogether should generally be used only as a last resort: Requesting a deferment or forbearance will temporarily put payments on hold, but there can be significant added costs in the long run. |
| With forbearance, payments stop but interest still accrues. If the interest is not paid, it’s added to the loan’s principal balance. Deferment is similar, but subsidized loans — which generally have slightly better terms — won’t accrue interest while they’re paused. | With forbearance, payments stop but interest still accrues. If the interest is not paid, it’s added to the loan’s principal balance. Deferment is similar, but subsidized loans — which generally have slightly better terms — won’t accrue interest while they’re paused. |
| There’s a confusing assortment of plans available, and now there’s a new one coming. President Biden is proposing a rule to create a new plan that will substantially reduce future monthly payments for lower- and middle-income borrowers. | |
| For now, the alphabet soup includes PAYE, REPAYE, I.C.R., and I.B.R. (which comes in two versions; the latest has slightly better terms for newer borrowers). | For now, the alphabet soup includes PAYE, REPAYE, I.C.R., and I.B.R. (which comes in two versions; the latest has slightly better terms for newer borrowers). |
| The rules are complicated, but the gist is simple: Payments are calculated based on your earnings and readjusted each year. | The rules are complicated, but the gist is simple: Payments are calculated based on your earnings and readjusted each year. |
| After monthly payments are made for a set number of years — usually 20 — any remaining balance is forgiven. (The balance is taxable as income, though a temporary tax rule exempts balances forgiven through 2025 from federal income taxes.) | |
| Monthly payments are often calculated as 10 or 15 percent of discretionary income, but one plan is 20 percent. Discretionary income is usually defined as the amount earned above 150 percent of the poverty level, which is adjusted for household size. PAYE usually has the lowest payment, followed by either I.B.R. or REPAYE, depending on the specific circumstances of the borrower, said Mark Kantrowitz, a student aid expert. The new plan will change that calculus (more on that below). | |
| There’s a dizzying variety of rules, and the existing plans aren’t a cure-all. Even though some borrowers may be eligible for a $0 payment, the plans aren’t always affordable for everyone. The formulas aren’t adjusted for local cost of living, private student loans or medical bills, among other things. | There’s a dizzying variety of rules, and the existing plans aren’t a cure-all. Even though some borrowers may be eligible for a $0 payment, the plans aren’t always affordable for everyone. The formulas aren’t adjusted for local cost of living, private student loans or medical bills, among other things. |
| The proposed I.D.R. plan would reduce payments to 5 percent of discretionary income, down from 10 percent to 15 percent in many existing plans. Borrowers with original loan balances of less than $12,000 would make monthly payments for 10 years, while everyone else would pay for 20 years (similar to existing plans). | |
| It would also allow more low-income workers to qualify for zero-dollar payments. The administration plans to tweak the payment formula by raising the amount of income deemed necessary for basic expenses, and thus shielded from the calculation: No borrower earning under 225 percent of the poverty level — or what a $15 minimum wage worker earns annually — will have to make a payment, the administration said. | |
| There’s more: Unlike other existing income-driven plans, borrowers’ loan balances will not grow as long as they make their monthly payments, even when they are not required to make any payments because their income is too low. | |
| That will provide a much-needed dose of mental relief to borrowers who diligently make payments yet still see their balances balloon over the decades because they’re not paying enough to cover the interest. | |
| Those details weren’t immediately available. The administration has the authority to create new plans on its own, but it will still need to clear some procedural hurdles. Then, the loan servicers will have to get their systems ready. | |
| Analyzing the plans can be excruciating, but there are tools and services that can help. The loan simulator tool at StudentAid.gov will guide you through the options and help you decide which plan best fits your goals — finding the lowest-payment plan, for example, versus paying loans off as soon as possible. | Analyzing the plans can be excruciating, but there are tools and services that can help. The loan simulator tool at StudentAid.gov will guide you through the options and help you decide which plan best fits your goals — finding the lowest-payment plan, for example, versus paying loans off as soon as possible. |
| It’s easy to use. When you sign in, it should automatically use your loans in its calculations. (You can manually add other federal loans if any are missing.) You can also compare plans side by side — how much they’ll cost over time, both monthly and in total, and if any debt would be forgiven. | It’s easy to use. When you sign in, it should automatically use your loans in its calculations. (You can manually add other federal loans if any are missing.) You can also compare plans side by side — how much they’ll cost over time, both monthly and in total, and if any debt would be forgiven. |
| Besides your servicer, groups like the Institute of Student Loan Advisors, known as TISLA, can provide free guidance on what options may work best for you. For New York State residents, EDCAP, a nonprofit focused on student loans, also offers help. And some employers and other organizations have hired companies like Summer, which helps borrowers sort through the options. | Besides your servicer, groups like the Institute of Student Loan Advisors, known as TISLA, can provide free guidance on what options may work best for you. For New York State residents, EDCAP, a nonprofit focused on student loans, also offers help. And some employers and other organizations have hired companies like Summer, which helps borrowers sort through the options. |
| Yes. In April, the Education Department said it would make fixes to address past inaccuracies that would help borrowers enrolled in I.D.R. plans, including a one-time revision that would make more payments count toward loan forgiveness. That includes: | Yes. In April, the Education Department said it would make fixes to address past inaccuracies that would help borrowers enrolled in I.D.R. plans, including a one-time revision that would make more payments count toward loan forgiveness. That includes: |
| Any months in which borrowers made payments will count toward I.D.R., regardless of the repayment plan. | Any months in which borrowers made payments will count toward I.D.R., regardless of the repayment plan. |
| All payments made on loans that were later consolidated will count. | All payments made on loans that were later consolidated will count. |
| Months spent in deferment before 2013 (with the exception of in-school deferment) will count. | Months spent in deferment before 2013 (with the exception of in-school deferment) will count. |
| Forbearances of more than 12 consecutive months and 36 cumulative months will also count toward forgiveness, under both I.D.R. and P.S.L.F. | Forbearances of more than 12 consecutive months and 36 cumulative months will also count toward forgiveness, under both I.D.R. and P.S.L.F. |
| In 2023, the government will begin displaying payment counts on StudentAid.gov so borrowers can view their progress in their own accounts. | In 2023, the government will begin displaying payment counts on StudentAid.gov so borrowers can view their progress in their own accounts. |
| The cancellation should happen independently of any process that you’re already going through to get partial or complete cancellation via P.S.L.F. | The cancellation should happen independently of any process that you’re already going through to get partial or complete cancellation via P.S.L.F. |
| There is currently a limited-time waiver for public servants that will allow a number of people to get credit toward loan cancellation for past payments that would not have otherwise qualified. You can learn more about it by consulting the “P.S.L.F. Waiver” page on the Department of Education’s website. | There is currently a limited-time waiver for public servants that will allow a number of people to get credit toward loan cancellation for past payments that would not have otherwise qualified. You can learn more about it by consulting the “P.S.L.F. Waiver” page on the Department of Education’s website. |
| The deadline for applying for the waiver is Oct. 31, though legislators are pushing for an extension. | The deadline for applying for the waiver is Oct. 31, though legislators are pushing for an extension. |
| According to an estimate using a model that the Wharton School at the University of Pennsylvania developed, the cost of the $10,000 cancellation initiative alone could range from $300 billion to $980 billion. | According to an estimate using a model that the Wharton School at the University of Pennsylvania developed, the cost of the $10,000 cancellation initiative alone could range from $300 billion to $980 billion. |
| A small one, but it’s difficult to say how small. It is not clear who would have the standing to bring a lawsuit, though there may be attempts anyhow. | A small one, but it’s difficult to say how small. It is not clear who would have the standing to bring a lawsuit, though there may be attempts anyhow. |
| Any elected official who sued would run the risk of infuriating constituents by adding five figures back onto their loan balances — but might also thrill others who find debt cancellation offensive. | Any elected official who sued would run the risk of infuriating constituents by adding five figures back onto their loan balances — but might also thrill others who find debt cancellation offensive. |
| Don’t count on it. | Don’t count on it. |
| Critics of any type of blanket loan forgiveness argue that it will create a moral hazard, with future borrowers taking on more loans with the expectation that debts will be wiped away again and again. But repeated instances of cancellation are unlikely and would eventually destroy the program. | Critics of any type of blanket loan forgiveness argue that it will create a moral hazard, with future borrowers taking on more loans with the expectation that debts will be wiped away again and again. But repeated instances of cancellation are unlikely and would eventually destroy the program. |
| The federal government has done little to make college more affordable (or even less subject to fraud). There are a variety of Band-Aids that can be applied after students have accumulated more debt than they can handle — including the alphabet soup of income-driven repayment plans helping roughly nine million borrowers — but little preventive medicine. This latest move is no exception and, without serious reform, will do little to prevent future borrowers from leaving campus with loads of debt to cover the ever-escalating costs. | The federal government has done little to make college more affordable (or even less subject to fraud). There are a variety of Band-Aids that can be applied after students have accumulated more debt than they can handle — including the alphabet soup of income-driven repayment plans helping roughly nine million borrowers — but little preventive medicine. This latest move is no exception and, without serious reform, will do little to prevent future borrowers from leaving campus with loads of debt to cover the ever-escalating costs. |
| Stacy Cowley contributed reporting. | Stacy Cowley contributed reporting. |