Biden’s student loan forgiveness application is coming soon. Here’s what you need to know

By Katie Lobosco, CNN

    (CNN) -- The application for President Joe Biden's student loan forgiveness plan is expected to go live as soon as this week.

Announced in late August, the plan will deliver federal student loan forgiveness to millions of low- and middle-income borrowers.

Individuals who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 annually in those years will see up to $10,000 of their federal student loan debt forgiven.

If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness.

In addition to federal Direct Loans used to pay for an undergraduate degree, federal PLUS loans borrowed by graduate students and parents may also be eligible if the borrower meets the income requirements.

Facing mounting legal challenges to the student loan forgiveness policy, the Biden administration announced some last-minute changes to the program last week. Borrowers are still awaiting final details on the policy.

The Department of Education regularly updates the Federal Student Aid website with information on the forgiveness program.

Here's what we know so far:

How to apply

The application has not been released yet but the Biden administration has said it will come out sometime in October.

The online application will be short, according to the Department of Education. Borrowers won't need to upload any supporting documents or use their Federal Student Aid ID to submit the application.

"Once you submit your application, we'll review it, determine your eligibility for debt relief and work with your loan servicer(s) to process your relief. We'll contact you if we need any additional information from you," the department said an email to borrowers last week.

Borrowers will have more than a year to apply. The deadline will be December 2023.

To be notified when the process has officially opened, sign up at the Department of Education subscription page.

When will forgiveness start?

About 8 million people are expected to receive student loan forgiveness automatically because the Department of Education already knows what their income is, likely due to previously submitted financial aid forms or income-driven repayment plan applications.

It's unclear when exactly debts will be discharged. But due to ongoing lawsuits, the government has agreed in court to hold off canceling any federal student loan debt before October 17.

Last-minute eligibility change

The Biden administration scaled back eligibility for the program last week, as it faces mounting legal challenges to the policy.

The program will now exclude borrowers whose federal student loans are guaranteed by the government but held by private lenders. The administration has said the change could affect about 700,000 people.

The Department of Education initially said these 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 as long as the borrower consolidated his or her debt into the federal Direct Loan program.

But the agency has reversed course after six Republican-led states sued the Biden administration, arguing that forgiving the privately held loans would financially hurt states and student loan servicers.

Now, privately held federal student loans must have been consolidated before September 29 in order to be eligible for the debt relief.

Borrowers can opt out of the program

The White House clarified last week that borrowers will be able to opt out if they don't want to receive the debt forgiveness.

The Biden administration's announcement came hours after a borrower sued, arguing that he would be forced to pay state taxes on the amount canceled -- an expense he would otherwise avoid.

There are a handful of states that may tax the debt discharged under Biden's plan if state legislative or administrative changes are not made beforehand, according to the Tax Foundation.

Ongoing legal challenges

There are currently at least three significant lawsuits aiming to block the Biden administration from implementing its student loan forgiveness plan.

Republican states are leading the charge. In addition to the lawsuit filed by six Republican-led states that say they could be hurt financially by the forgiveness plan, Arizona Attorney General Mark Brnovich also filed a lawsuit last week.

Brnovich, a Republican, argues that the policy could reduce Arizona's tax revenue because the state code doesn't consider the loan forgiveness as taxable income, according to the lawsuit. The complaint also argues that the forgiveness policy will hurt the attorney general office's ability to recruit employees. Currently its employees may be eligible for the federal Public Service Loan Forgiveness program, but some potential job candidates may not view that as a benefit if their student loan debt is already canceled, the lawsuit argues.

A federal judge has already denied the request in the third lawsuit -- from a borrower who sued arguing that they would incur a bigger state tax bill due to the loan forgiveness. The plaintiff, a public interest lawyer at the Pacific Legal Foundation, has until October 10 to file a revamped lawsuit.

How much will the program cost?

The nonpartisan Congressional Budget Office said in a report released last week that the student loan cancellation could come at a price of $400 billion but noted that those estimates are still "highly uncertain."

The Biden administration argues that the CBO's cost estimate should be viewed over a 30-year time period and came out with its own analysis two days later. It said the program will cost an average of $30 billion per year over the next decade and $379 billion over the course of the program.

Beware of scams

The Department of Education is warning borrowers of scams related to the student loan forgiveness program that ask for payment in return for help getting debt relief.

"Make sure you work only with the US Department of Education and our loan servicers, and never reveal your personal information or account password to anyone," it said in an email to borrowers.

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