International News - Supreme Court Decision Pending on Biden's Student Loan Forgiveness Program
The future of U.S. President Joe Biden's federal student loan forgiveness program, which could potentially alleviate up to $20,000 of debt for millions of borrowers, hangs in the balance at the Supreme Court. On February 28, the justices heard arguments in two cases related to the program, with a decision anticipated by late June or early July. By November 10, 2022, approximately 26 million applicants had been registered prior to a federal district court judge's ruling that halted the program, causing a cessation of new applications. As of yet, no debt has been canceled under this initiative.
Launched officially on October 17, 2022, following a preliminary "beta period," the application process saw assessments made regarding necessary adjustments. Not all student loan borrowers will qualify for debt relief under the program if it is ultimately upheld by the Supreme Court. Federal student loans are the only qualifying loans, with private student loans excluded from eligibility. High-income borrowers are generally ineligible for debt forgiveness as well. Individual borrowers earning less than $125,000 annually and married couples or heads of households with an annual income below $250,000 could see up to $10,000 of their federal student loan debt forgiven. Eligibility for up to $20,000 of debt forgiveness extends to qualifying borrowers who also received a federal Pell grant while enrolled in college.
The Biden administration has faced various lawsuits challenging the student loan forgiveness plan. Key issues center around the constitutionality of the president's authority to implement such a program without congressional approval and the potential impact on taxpayers. Critics argue that the plan would be unfair to those who have already repaid their loans or made significant efforts to reduce their debts. Proponents, however, maintain that the program could provide much-needed financial relief for struggling borrowers and stimulate economic growth.
The United States Supreme Court is currently deliberating on two lawsuits challenging President Biden's student loan forgiveness program. The legal challenges, one initiated by six Republican-led states and another by individual borrowers Myra Brown and Alexander Taylor, assert that the Department of Education is exceeding its authority.
The lawsuit led by Nebraska argues that the student loan forgiveness program infringes on the separation of powers and violates the Administrative Procedure Act, a federal law governing agency regulations issuance process. A lower court judge dismissed this suit on October 20, stating the plaintiffs lacked legal standing. However, the 8th US Circuit Court of Appeals overturned that decision in November, halting the program.
The second lawsuit, backed by the conservative Job Creators Network Foundation, contends that the borrowers were denied an opportunity to comment on the secretary of education's decision to provide targeted student loan debt relief to some eligible individuals. A federal judge in Texas sided with the plaintiffs, striking down the program on November 10.
Department of Justice lawyers assert that Congress granted the secretary of education broad authority to alleviate hardship for federal student loan recipients during national emergencies, such as the Covid-19 pandemic, according to a memo from the Department of Justice. The Supreme Court's decision regarding these lawsuits will determine the fate of President Biden's student loan forgiveness program.
As of now, it remains uncertain when, or if, borrowers will receive debt relief under the Biden administration's program. Originally, administration officials anticipated granting relief before January, when payments were scheduled to resume following the pandemic-related pause expiration. However, with these legal challenges pending and the Supreme Court's expected ruling in June, it appears that debt cancellation may not occur until then.
On November 22, 2022, the Biden administration extended the moratorium on student loan payments and interest accumulation for a final time. Regardless of the Supreme Court's ruling, the resumption of student loan interest is set for September 1, with payments due from October. This extension, however, is prohibited by a law passed in early June addressing the debt ceiling.
The White House has announced that it has processed 16 million applications for debt relief, which will be retained by the Department of Education for swift processing should the government prevail in court. An estimated 8 million borrowers may qualify for automatic debt relief as their income data is already on file with the department.
For those yet to apply, online applications are available at https://studentaid.gov/debt-relief/application. Upon successful submission, applicants will receive an email confirmation. Notification from their loan servicer regarding the applied debt cancellation will follow. The initial deadline for application submissions was set until December 31, 2023.
It's important to note that not all federal student loans are eligible for relief. Eligible loans include Federal Direct Loans (subsidized, unsubsidized, parent PLUS, and graduate PLUS), but those guaranteed by the government and held by private lenders are ineligible unless consolidated into a Direct Loan by September 29, 2022. The Department of Education initially indicated that privately held loans under the former Federal Family Education Loan program and Federal Perkins Loan program would be eligible for relief, but this is yet to be confirmed if the program proceeds.
In a reversal of initial plans announced in August 2021, President Joe Biden's administration is set to provide student loan debt relief for defaulted Federal Family Education Loans and Perkins Loans, even if they are privately held. This move comes after six Republican-led states filed a lawsuit against the administration, claiming that the loan forgiveness would financially harm states and student loan servicers.
The eligibility for this program is based on a borrower's adjusted gross income (AGI) for either tax year 2020 or 2021. AGI is calculated after various deductions and adjustments, such as contributions made to a 401(k) retirement plan, and can be found on line 11 of IRS Form 1040.
The Department of Education already holds income information for nearly 8 million borrowers due to financial aid forms or previously submitted income-driven repayment plan applications. If the program is approved, these borrowers will automatically receive debt relief if they meet the income requirement, unless they choose to opt out. The department plans to email borrowers who are being considered for debt relief but does not require additional applications from them.
However, millions of other borrowers will need to apply for student loan forgiveness if their income information is not on file with the Department of Education. Upon application, these borrowers are required to self-attest that their income falls under the eligibility threshold and certify the accuracy of the provided information upon penalty of perjury. Applicants who appear likely to exceed the income cutoff may be required to submit additional information, such as a tax transcript. Officials anticipate that only a small number of applicants will require further verification.
Title: Federal Student Loan Forgiveness: A Breakdown of Eligibility and Tax Implications
In a nutshell: Approximately 5% of eligible federal student loan borrowers may not meet the income threshold for loan forgiveness. The American Rescue Plan Act, enacted in 2021, exempts borrowers from paying federal income tax on forgiven debt, but state tax implications vary. Current students, parent PLUS loan borrowers, and graduate school debtors may all potentially qualify under certain conditions. To determine eligibility, one must check their history for receipt of a Pell grant, if applicable.
More details: Borrowers are exempt from paying federal income tax on forgiven student loan debt due to a provision within the American Rescue Plan Act. However, some may face state income tax implications, as most states do not view loan forgiveness as taxable income.
For current students, eligibility is determined by individual or parental household income, based on filing the Free Application for Federal Student Aid (FAFSA), as either an independent student or a dependent under 24 years old.
Graduate school debtors and parent PLUS loan borrowers may also be eligible if their income falls below the set threshold. Parent borrowers can receive up to $20,000 in debt relief if they have received a Pell grant for their own education or if only their child has received a Pell grant, with a maximum of $10,000 for the latter case.
To confirm Pell grant eligibility, borrowers can typically access this information through their loan servicer's online account or by contacting the Department of Education directly.
U.S. Students Eligible to Check Pell Grant Status on Studentaid.gov for Loan Forgiveness Eligibility
Washington, D.C., Feb. 14 - American students can visit the official federal student aid website, Studentaid.gov, to determine if they received a Federal Pell Grant while attending college. Information regarding Pell grant receipt is accessible on both the account dashboard and the My Aid page.
Borrowers may also use these platforms to ascertain their outstanding loan balances and loan types. Those who obtained a Pell grant prior to 1994 will not find their Pell grant information online, yet remain eligible for the proposed $20,000 student loan forgiveness initiative. Eligibility is contingent on the receipt of at least one Pell grant.
The Biden administration has affirmed that qualifying borrowers who have received Pell grants will receive the additional debt relief automatically. For borrowers with defaulted federal student loans, eligibility for the relief program still applies. Those with a remaining balance on their defaulted loans after cancellation can anticipate the opportunity to exit default later this year through the Department of Education's "Fresh Start" initiative as part of their resumed loan repayments.
Borrowers should expect changes in their monthly payments moving forward. Those who retain debt following either $10,000 or $20,000 in forgiveness may experience recalculation of their monthly payment amounts if enrolled in a standard repayment plan, which mandates fixed payments to ensure loan repayment within 10 years. Borrowers currently enrolled in income-driven repayment plans are unlikely to witness changes in their monthly payments due to the forgiveness, as these payments are based on household income and family size.
The government's pandemic-related pause on federal student loan payments has been in effect since March 2020, and no further payments are currently required.
Additionally, President Biden announced a new income-driven repayment plan that would cap monthly payments at 5% of discretionary income for undergraduate students and 10% for graduate students, while also forgiving the remaining balance after 10 years of on-time payments.
U.S. President Joe Biden Announces Proposed Income-Driven Repayment Plan for Federal Student Loans
In his August announcement, President Joe Biden unveiled plans to introduce a new income-driven repayment plan for federal student loan borrowers. This proposal aims to make loan repayment more manageable by capping payments at 5% of a borrower's discretionary income, down from the current rate of 10%. Additionally, the plan will reduce the amount of income considered discretionary and forgive remaining balances after 10 years of repayment instead of the current 20-year period.
The proposal also includes covering a borrower's unpaid monthly interest, which could significantly help those whose monthly payments struggle to cover their interest charges, causing loan balances to escalate beyond the original amount borrowed. The new plan is currently undergoing a formal rulemaking process, with provisions expected to take effect later this year.
During the pandemic-related pause on federal student loan repayments, which began on March 13, 2020, borrowers who made payments can request a refund from their loan servicer. This story has been updated with additional information.
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