What Ohioans need to know about student debt relief plan

President Joe Biden announced two weeks ago that his administration will forgive up to $20,000 in student loan debt for select borrowers and extend the moratorium on student loan repayments one final time through December.

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In Ohio, there are more than 1.7 million people with student loan debt who collectively owe over $63 billion, according to data from the U.S. Department of Education. The Biden administration announced it will release an application process for student loan debt cancellation before the end of the year, but exactly how borrowers will be able to apply is not final.

Who is eligible for student loan debt forgiveness?

Whether borrowers qualify for student loan debt forgiveness under the administration’s plan depends on how much they make annually and what type of loan they have.

Both undergraduates and graduate students who have taken out federal student loans with the Department of Education through a federal lender qualify for forgiveness — meaning loans from private lenders do not apply.

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Borrowers are eligible if they make less than $125,000 annually, or $250,000 for households. Borrowers who are dependent students will be found eligible based on parental income, not their own.

How will student loan debt forgiveness be applied?

Under the plan, borrowers who are recipients of a Pell Grant — federal financial aid awarded to low-income undergraduates — will have up to $20,000 struck from their student loan debt. Borrowers who did not receive a Pell Grant are eligible for up to $10,000 to be wiped from their debt, according to a White House press release.

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If the amount of relief awarded is greater than the total of a borrower’s debt, the entirety of the debt will be forgiven. However, no additional money would be given to the borrower.

What types of loans are eligible for student loan debt forgiveness?

The debt forgiveness plan covers all Federal Direct Loans, including Parent PLUS and Graduate PLUS loans, both subsidized and unsubsidized loans and consolidated loans that were first taken out before June 30, 2022.

Federal Direct Loans and Perkins Loans that have gone into default are still eligible for debt relief.

Any loan that is eligible for the student loan repayment pause is eligible for debt forgiveness. Borrowers who have Federal Perkins Loans or Federal Family Education Loans are only eligible if their loans are held by the Department of Education (or for FFEL loans, by a guaranty agency.)

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The Department of Education is still deciding whether to expand eligibility for the debt relief plan to borrowers with privately-owned federal student loans, according to a press release.

Private loan holders can contact their private lending service or independently consolidate their loan into a Direct Federal Consolidation Loan at StudentAid.gov in order for their loan to be eligible for forgiveness.

When will student loan debt forgiveness begin?

The Biden administration announced it would be extending the moratorium on student loan repayments for a final time. Borrowers will not have to make another payment on student loan debt until Dec. 31. Regular payments — and accruing interest on loans — will resume on Jan. 1, 2023.

The White House estimates up to 43 million borrowers will qualify for debt relief. About 8 million people might immediately qualify for relief since their income data is already available to the Department of Education, according to the the White House.

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The other 35 million or so borrowers who qualify will have to wait for an application process, which the Biden administration said would be made available early next month. Borrowers will have to apply before Nov. 15 to receive relief before the payment moratorium expires at the end of the year.

The Department of Education will continue to accept applications even after the end of the payment pause until December 2023, and borrowers can expect relief within four to six weeks after completing the application, according to the White House.

What if I continued paying my student loans during the repayment pause?

Anyone who has continued to make student loan payments since the beginning of the payment pause in March 2020 might want to request a refund to make the most of any debt relief they're eligible for.

A borrower who still owes $5,000 in student loan debt but qualifies for $10,000 in debt forgiveness, for example, could request a refund for payments made during the moratorium from their lender, get money back, then apply for debt cancellation under Biden's plan using the new total.

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Borrowers who choose to take this route should ensure they qualify for some level of forgiveness under the plan before requesting a refund from their lender, as any refund will also be added to the total balance of their student debt.

More information will be made available in “coming weeks,” according to the White House. You can be notified when the application is made available by signing up for the Department of Education newsletter online.

Will I be taxed for student loan debt forgiveness?

If you live in Ohio, no. Those who are eligible for the student loan forgiveness plan will not have to pay federal taxes on their student debt. Due to a provision in the American Rescue Plan Act passed last year, all federal student loan forgiveness is not federally taxable until 2025.

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So far, over a dozen states could end up taxing forgiven student loan debt under Biden’s plan, according to the Tax Foundation. Ohio is in conformity with 2021 federal tax laws, meaning under the ARPA, the state also cannot tax forgiven student debt until 2025.

How else is student loan debt changing?

In addition to student loan debt cancellation and an extension of the repayment moratorium, the Department of Education has proposed a new income-driven repayment plan that would protect low-income borrowers from making any payments and caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income. Most existing plans take 10% of discretionary income; this plan would cut most monthly payments in half.

The plan would also raise the amount of income that is considered non-discretionary income — the portion of one’s income spent on mandatory costs like groceries, housing and taxes — protecting it from repayment.

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It would guarantee that no one making under 225% of the federal poverty level, which is about equivalent to annual income for a single borrower making $15 an hour, would have to make monthly student loan debt payments, according to the press release.

Finally, the debt relief plan would cover borrowers’ unpaid monthly interest as long as payments are continually made and would forgive loan balances of $12,000 or less after 10 years of payments.

What will change for public sector workers?

Biden also announced changes to the Public Service Loan Forgiveness program, which allows full-time federal, state, Tribal and local government, military and select nonprofit employees to have their student debt eliminated after making 120 monthly student loan debt payments.

Last October, the Department of Education announced it would temporarily ease the historically strict eligibility restrictions for the PSLF program via a temporary waiver. Public sector employees who apply for the waiver will be able to get credit for past payments that didn’t apply because they weren’t made on time, made in full or made under the correct repayment plan.

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Public sector employees have until Oct. 31 to apply for the temporary waiver. Applications can be made at whitehouse.gov/publicserviceloanforgiveness/. Enrollments made after the deadline will not qualify for the temporary easing of eligibility restrictions.

What's the reaction around Ohio regarding student loan forgiveness?

Biden’s student debt forgiveness plan has been met with mixed reactions from candidates in major races across the state.

Many Democrats view Biden’s plan as a lifeline to people with student debt and a necessary first step toward reining in years of unchecked tuition increases for post-secondary education.

Piet van Lier, senior researcher at Policy Matters Ohio, said the plan will allow millions of people to further their education not just at four-year institutions, but across the spectrum of post-secondary education.

“If more people are getting themselves ready to be more valuable in the workplace … that’s ultimately going to help me,” van Lier said. “(This plan) isn’t going to solve the problem, but Biden is using the tools he has to make the system better.”

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But Republicans, and some Democrats, have criticized the plan as a bailout for those who attended college paid for on the backs of working-class Americans.

Democratic gubernatorial candidate Nan Whaley criticized the plan in August, calling it unfair to Ohioans who didn’t attend college or have already paid off their student loans. Democratic U.S. Senate candidate Tim Ryan struck a similar tone last month when he said the plan sends the wrong message to working Ohioans without degrees.

“It’s not surprising to me that criticism of the plan is bipartisan,” said Rae Hederman, vice president of policy at The Buckeye Institute. “There is a reason Biden did this through executive action — he didn’t have enough votes from his own party to get it through Congress.”

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This article originally appeared on The Columbus Dispatch: Biden student loan debt forgiveness plan: What to know