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President Joe Biden helped alleviate some of the pain felt by millions of Americans with student debt Wednesday after announcing $10,000 in debt, or $20,000 if you received a Pell Grant, will be wiped away.
But for those who aren't covered by the plan or will still have a leftover balance, Biden says you'll soon be on the hook for monthly loan payments again — nearly two-and-a-half years after the student loan repayment pause first began.
Context: Since the start of the pandemic in 2020, borrowers haven't had to pay a cent on their federal student loans. During this time, pressure grew for the president to cancel debt. It was one of the platforms Biden ran on for president in 2020.
Why this is a big deal: The total outstanding balance for federally owned (including defaulted) student loans in December 2021 was $1.38 trillion, the New York Federal Reserve said in April. Because the average borrower has about $37,000 in student debt, more than a quarter of it will be erased.
What happens now: People who have borrowed more than $10,000, or $20,000 if you received a Pell Grant, will still owe money. The plan also doesn't cover those who make more than $125,000 (or $250,000 if you're married) so those with higher incomes will be on the hook again for monthly payments. Those will start up again next year.
So when should people repay their loans that Biden didn't forgive?
Here's what to know:
Can I stop making loan payments?
When the freeze ends in January, people who owed less than $10,000, or $20,000 if you received a Pell Grant, can stop making loan payments, assuming they apply for and receive federal loan forgiveness on or after Dec. 31, 2022, when the forgiveness application goes live.
If you're approved for forgiveness and still have a balance, you will have to start payments on the leftover loans in January 2023.
►Nearly 8 million borrowers may be automatically eligible to receive relief because relevant income data is already available to the Department of Education.
►No private loans will be forgiven, like a loan made through a private university's financial aid department. Because many people were never eligible for federal student loans, including undocumented students, Biden's loan forgiveness plan won't help them.
What if I continued to pay during the pause?
The Department of Education says anyone who made payments during the two-year pause which began in March 2020, could "get a refund for any payment (including auto-debit payments)." But borrowers have to contact their loan servicer to request a refund, according to the department's announcement.
'Debt and no degree': Biden cancels as much as $20K in student loan debt
If you did make payments during the loan payment pause, remember that Biden's new loan forgiveness is capped at your outstanding debt. That means you would first have to get any payments you made during the pandemic refunded by your loan servicer, which would return your loan balance to its prior amount.
Then, you could apply for federal student loan forgiveness based on the new amount your owe.
It sounds complicated, but you could end up maximizing your loan forgiveness amount.
If you recently made any payments on your student loans, you are in luck, because, "Any amount paid after Aug. 24, 2022 — that brings a borrower below the $10,000- or $20,000-threshold will automatically be refunded without the borrower requesting it," the Department of Education told USA TODAY.
►Up to 43 million borrowers are set to receive some form of relief. Roughly 20 million will have their balances canceled entirely.
►The pause on federal student loan repayments has been extended multiple times by both the Donald Trump and Biden administrations.
When do payments start again?
In his announcement Wednesday, Biden said the COVID-19 moratorium that paused student loan payments would be extended one last time to Dec. 31. Payments will start again after that date.
“We’ve wound down pandemic relief programs like the ones, unemployment insurance and small businesses. It’s time we do the same thing for student loans,” Biden said. “It’s time for the payments to resume.”
But, the president also outlined a plan that would cut the amount some borrowers were paying monthly. The Education Department is proposing to halve the monthly payments for some borrowers from 10% to 5% of discretionary income — the amount that borrowers have to pay each month on their undergraduate loans. The proposal also would raise the amount of income considered "nondiscretionary" — which means it's protected from being used for repaying loans.
For some types of loan repayment plans, balances would be forgiven after 10 years of payment instead of 20. And, the rule would fully cover the borrower’s unpaid monthly interest, so a borrower’s loan balance wouldn't grow if they are making required payments.
The department said the proposal will be published in the near future in the Federal Register and open for comments for 30 days.
What if I don't start paying my student loans?
After two years of no student loan payments, it might sound enticing to keep it that way. But if you still owe after Biden's forgiveness plan or if you don't qualify, your debt will follow you.
If you miss a federal student loan payment, it is first considered delinquent. If you continue to not make payments, your loan can go into default. The delay will be reported to credit bureaus, which can damage your credit. If your loan goes into default, you could also lose repayment plan options and face other penalties, according to the Department of Education.
"If someone absolutely refuses to repay federal student loans, the government can garnish their wages and withhold tax refunds, the child tax credit, and social security payments," explained Dorothy Kelly, a Robert B. Hardaway, Jr. lecturer in personal finance at the University of Virginia. "In other words, a decision to not repay will follow them forever."
You may also lose eligibility for additional federal student aid and not be able to buy or sell some assets, such as real estate. Your loan holder could even take legal action against you.
If you can't afford payments again, you can contact the provider of your loan and explain your situation. Providers can alter payments, pause them or put your loan into forbearance, where they don't charge you for a certain time period.
Contributing: Marina Pitofsky, Medora Lee, Chris Quintana, Joey Garrison, Maureen Groppe, Ella Lee, Rebecca Morin, Kenneth Tran, Carli Pierson,
This article originally appeared on USA TODAY: Will student loan repayments be refunded and forgiven