Student loan forgiveness application formally opens

David Rhoads said the application for student loan forgiveness was so easy, he was still in bed as he filled out the form.

"I did it in bed just as I was waking up, probably took less than a minute or two," he wrote to CNN on Monday, adding that he submitted the form during the beta testing period over the weekend.

Rhoads, who lives in Chicago and works as a data scientist, said he has been paying on his loans since he finished graduate school about 10 years ago.

“I was staring down the barrel at restarting payments," he said, referring to the pause on loan payments during the Covid-19 pandemic. “I was pumped whenever I saw they were going to do the student loan forgiveness."

With that forgiveness, the $12,000 he owed will be cut down to about $2,000, he said.

"If I have to move, have to switch jobs, this makes it easier — one fewer payment to worry about," he said, adding that he plans to use the extra money to create an emergency fund, save for retirement and to get ahead on a down payment to eventually buy a house.

President Joe Biden is canceling some federal student loan debt, making a once pie-in-the-sky idea a reality. The application officially opened Monday, allowing low- and middle-class federal student loan borrowers to apply for up to $20,000 in debt relief.

There are upsides and downsides.

On the one hand, student debt cancellation will deliver financial relief to millions of Americans, potentially helping them buy their first homes, start businesses or save for retirement – all investments that may take a back seat to pay off student debt. Loan forgiveness could also help narrow the racial wealth gap, some experts say.

But broad student loan forgiveness also shifts the cost – likely hundreds of billions of dollars – to taxpayers, including those who chose not to go to college or already paid for their education. Loan cancellation could also add to inflation while doing nothing to address the root of the problem: college affordability.

“Forgiving debt does not affect college affordability at all,” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank, and former director of the nonpartisan Congressional Budget Office.

In fact, it might even drive up the cost of college, he said. If prospective students have reason to believe that a future president may cancel their debt, they may be more willing to borrow more money – and colleges, in turn, may decide to charge more for tuition and fees.

Biden has acknowledged that college affordability is a problem and called for making community college free – but that move would require an act of Congress. The proposal was cut from the Biden-supported Build Back Better bill, which passed the House but stalled in the Senate.

Christopher Gregory, who is an associate dean at Framingham State University, said he is thankful for any student loan assistance but believes the issue of the high interest rates on the initial loans needs to be addressed.

Gregory told CNN he does a lot of work with the financial aid office of the Massachusetts-based college, trying to give students options to complete their degrees efficiently so that they can “take advantage of the investment sooner rather than later."

Many young people don't understand the implications of loan interest rates and what they mean after they graduate, he said. By lowering rates, the country would be "sending a message" to these students that we do want to invest in their success, Gregory said.

"College education is an investment in an individual as well as a community investment, so more folks should question why government-backed loans were set at 8% to begin with," Gregory wrote to CNN.

Aside from his students, Gregory said his family will also benefit from the partial loan forgiveness. He said though he graduated with an undergraduate, Masters and a PhD debt-free, he is working a full-time job and two part-time jobs to help his wife pay off her loans. She became disabled and was not able to work after she completed her doctoral degree, Gregory said.

"It makes perfect sense to pay our bills and our loans that we take out," he said, but with high interest rates, Gregory said they ended up paying “three times the amount of the original."

The Student Loan Protection Center is praising President Biden's plan to forgive some student loan debt but says there is more that needs to be done to address the problem.

SBPC executive director Mike Pierce said the move was a "major step forward to help free millions of American workers and families from the weight of the student loan debt crisis."

In a statement, Pierce said the program is a result of people speaking out and the Biden administration listening.

"The door to transformational debt relief is now officially open, millions have already walked through it and we must ensure no borrower is left behind," Pierce said.

The SBPC is a nonprofit that advocates for ways to ease the burden on student loans. According to the center, 45 million Americans owe nearly $1.7 trillion in student loan debt.

Congress passed a bill at the end of September that would allow divorced couples to separate their consolidated federal student loan debt, potentially making some of them eligible for President Joe Biden’s student loan forgiveness program.

The bill was signed by the President on Oct. 11, according to the White House.

Until 2006, married couples were allowed to consolidate their federal student loan debt into a single joint loan. The idea was that it could make repayment simpler by allowing the couple to make a single monthly payment. But it also made couples jointly responsible for the debt, and there’s been no way for couples to separate their student loans later on, even in the event of divorce or domestic abuse.

Couples’ consolidated loans are also excluded from some federal student loan relief plans like the Public Service Loan Forgiveness program, which cancels outstanding balances for some public sector workers after they make 10 years of qualifying payments.

The consolidated loans might also be ineligible for the loan forgiveness plan, officially launched on Monday, which will provide up to $10,000 of debt cancellation for individuals who make less than $125,000 a year and married couples or heads of households who make less than $250,000 annually. Those qualifying borrowers who also received a Pell grant while enrolled in college are eligible for up to $20,000 in student loan forgiveness.

The bill allows borrowers with a joint consolidation loan to jointly submit an application to the Department of Education to separate their debt into two separate loans. The loans would be split proportionately based on the original loan amounts, according to a statement of support of the bill from the White House. The bill also allows survivors of domestic violence or economic abuse, or borrowers who are unable to reach the other borrower, to submit an individual application.

Once the debt is separated, each borrower will have a Direct Consolidation Loan, which can be eligible for student loan forgiveness – as long as the borrower meets the income qualifications.

Americans who received Pell grants to help pay for college will receive more help than other borrowers from the Biden administration’s student debt relief initiative.

Those who qualified for a Pell grant as undergraduates will have up to $20,000 of their student loan debt forgiven. To be eligible, borrowers must make less than $125,000 a year if they are single and less than $250,000 a year if they’re married or head of a household.

What is a Pell grant?

Pell grants are a type of federal financial aid for undergraduate students with “exceptional financial need,” according to the Department of Education. Unlike loans, they typically do not need to be repaid. About 6.3 million undergraduate students received roughly $27 billion in Pell grants in fiscal year 2020, according to the Congressional Research Service.

How much is a Pell grant?

The maximum award for the 2022-23 academic year is $6,895.

But the amount students receive depends on a number of factors, including their expected family contribution to the cost of college, which is determined by their federal student aid application.

Also considered is how much it costs to attend the college, as well as whether the student is enrolled full-time or part-time and is going for the full academic year or less.

Who is eligible?

There is no set income threshold for eligibility. Instead, it is determined by the information included in the FAFSA, which looks at the family’s income, assets and the number of children enrolled in college, among other factors.

But nearly all recipients come from families with incomes of $60,000 or less, according to the White House. And two-thirds of those awarded Pell grants have family incomes of $30,000 or less.

How can you check if you received a Pell grant?

They can log into their Federal Student Aid account at Studentaid.gov and check both the grants and loans they have received.

The Department of Education is warning people to be on the lookout for scammers trying to take advantage of student loan borrowers.

Because the application process deals with your personal and financial information, here are some things you can do to protect yourself and your money.

Do not:

• If anyone contacts you promising debt relief or loan cancelation for a fee, do not give them money. The department said the application is free and you do not need to pay anyone to take advantage of the plan.
• Officials say don’t give your personal information to someone you don’t know. The department recommends calling your loan servicer if you are unsure.
• You should also never give your FSA ID or account information or password to anyone. “The Department of Education and your federal student loan servicer will never call or email you asking for this information,” the email said.

Do:

• The department said it is a good idea to create an FSA ID at StudentAid.gov. While you don’t need it for the debt relief application, officials say, it is an easy way to access information about your loan. It also sets up a route for the FSA to contact you directly — and help you protect yourself against scammers.
• Make sure your loan servicer has your most current contact information, the email from the department recommends.
• You can report scammers to the Federal Trade Commission at reportfraud.ftc.gov.

There will also be actions at the state level, including reports for states about scams in their jurisdictions. And the White House will work to coordinate between departments and agencies for a scam prevention effort — including the Federal Trade Commission, Consumer Financial Protection Bureau, the Education Department’s inspector general, secretaries of state, state attorneys general and others.

CNN’s Betsy Klein and MJ Lee contributed to this report

A US district judge could decide soon whether to temporarily block President Joe Biden’s student loan forgiveness program from taking effect after hearing a motion for a preliminary injunction last week.

That could put student loan cancellation on hold until the judge issues a final ruling on the case.

Asked at the end of his Monday remarks about litigation challenging the plan, Biden said he thinks the administration’s plan will hold up in court.

Six Republican-led states filed a lawsuit last month challenging the legality of the policy and are asking the court to grant a preliminary injunction, which could put student loan cancellation on hold until the judge issues a final ruling on the case.

The Department of Education opened its official application for the student loan forgiveness program on Monday. The Biden administration aims to deliver debt relief worth up to $20,000 to millions of borrowers before federal student loan payments resume in January after a nearly three-year, pandemic-related pause.

The motion for a preliminary injunction was heard by District Judge Henry Edward Autrey, who was appointed by former President George W. Bush.

The lawsuit was filed in a federal court in Missouri by state attorneys general from Missouri, Arkansas, Kansas, Nebraska and South Carolina, as well as legal representatives from Iowa.

After hearing from the lawyers for both parties, Autrey declared a recess and told the attorneys they would hear from him soon.

The states argued in court documents that the Biden administration does not have the legal authority to grant broad student loan forgiveness. The states also argue that the policy would hurt them financially, as well as the revenues of a student loan servicer based in Missouri known as MOHELA.

Other lawsuits: The Biden administration is also facing several other lawsuits over the student loan forgiveness policy. Two of the lawsuits have already been dismissed. One ongoing lawsuit was filed by Arizona Attorney General Mark Brnovich, and another was filed last week by a conservative group, the Job Creators Network Foundation, on behalf of two student loan borrowers in Texas who do not qualify for the full $20,000 in debt relief under Biden’s program.

CNN's Maegan Vazquez, Sam Fossum and Betsy Klein contributed reporting to this post. 

Federal student loan borrowers can now apply for up to $20,000 in debt forgiveness, thanks to a new plan announced by President Joe Biden in late August.

The administration officially launched the application Monday, following a brief “beta period” over the weekend during which its team assessed whether tweaks were needed.

Not every student loan borrower is eligible for the debt relief — only federally held student loans qualify and private student loans are excluded.

Where can you find the application?

You can complete the short application at: Studentaid.gov

What kind of federal loans are eligible?

There are a variety of federal student loans and not all are eligible for relief. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans, are eligible.

But federal student loans that are guaranteed by the government but held by private lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan by Sept. 29.

The Department of Education initially said these privately held loans, many of which were made under the former Federal Family Education Loan program and Federal Perkins Loan program, would be eligible for the one-time forgiveness action – but reversed course in September when six Republican-led states sued the Biden administration, arguing that forgiving the privately held loans would financially hurt states and student loan servicers.

Defaulted Federal Family Education Loans and defaulted Perkins Loans are still eligible for the debt relief even if they are privately held.

What year is the income threshold based on?

Eligibility is based on a borrower’s adjusted gross income for either tax year 2020 or 2021. Adjusted gross income can be lower than your total wages because it considers tax deductions and adjustments, like contributions made to a 401(k) retirement plan.

Will I have to pay taxes on the amount of debt canceled?

Borrowers will not have to pay federal income tax on the student loan debt forgiven, thanks to a provision in the American Rescue Plan Act that Congress passed last year. But it’s possible that some borrowers may have to pay state income tax on the amount of debt forgiven. There are a handful of states that may tax discharged debt if state legislative or administrative changes are not made beforehand, according to the Tax Foundation. 

Are current students eligible for forgiveness?

Yes, some current students are eligible. Eligibility for borrowers who filed the Free Application for Federal Student Aid, known as the FAFSA, as an independent will be based on the individual’s own household income. Eligibility for borrowers who are enrolled as dependent students, generally those under the age of 24, will be based on parental income for either 2020 or 2021.

What about debt from grad school?

Yes, if your income meets the eligibility threshold.

Find more answers to your questions here.

CNN's Christine Romans explains who Biden's plan helps: