Borrowers have questions about student loan forgiveness. We have answers

Last week, President Biden laid out a sweeping plan to cancel up to $20,000 in federal student loan debt per borrower. To get that maximum, individuals must earn less than $125,000 a year, or less than $250,000 a year for couples, and must have received a Pell Grant in college. Non-Pell borrowers who meet those income requirements qualify for $10,000 of forgiveness.

Beneath this seemingly straightforward plan, though, is a mountain of uncertainty about how, exactly, it will work. Naturally, borrowers have questions. Here are the answers we know so far:

1. Do I have to submit an application for loan forgiveness?

Most likely, yes. Those income rules we mentioned will require most borrowers to verify their income with the U.S. Department of Education. About 8 million people already have income information on file with the department; they should qualify to have their debts canceled automatically. But everyone else will have to submit an application to be considered.

The Education Department says that application will be available in early October and will take 4-6 weeks to process. Borrowers can sign up for email updates here.

There isn't currently a deadline to apply for forgiveness, but the administration recommends submitting applications before Nov. 15. That way the department has more time to process millions of applications before the student loan payment pause ends on Dec. 31.

2. What kinds of loans are included in Biden's forgiveness plan?

Undergraduate loans, graduate loans and Parent PLUS loans managed by the Department of Education are all eligible. Biden's plan only applies to federal student loans, though; private student loans are not eligible for forgiveness, even if they began as federal loans. If you're unsure what type of loans you have, contact your loan servicer.

3. My income fluctuated a lot during the pandemic. Which income year should I look at to see if I qualify for forgiveness?

According to a senior White House official, a borrower's income from either 2020 or 2021 must meet the loan forgiveness income requirements (less than $125,000 a year for an individual, or less than $250,000 a year for couples) in order for that borrower to qualify for loan forgiveness. More information on how to document your income will be available in the coming weeks.

4. Why does everyone keep saying "up to" $10,000 or $20,000?

You may have noticed in our coverage we always say borrowers are eligible for "up to" $10,000 or $20,000 of forgiveness. This language comes directly from the Education Department, and it's less confusing than it may sound.

Basically, if you owe $7,000 in student loans and qualify for $10,000 in forgiveness, you'll get all $7,000 erased, but that extra $3,000 won't be going into your pocket. That stays with the federal government.

One thing to keep in mind: If you made loan payments during the pandemic pause, and your loan balance is now below the baseline $10,000 or $20,000 for Pell recipients, you may want to ask for a refund so you can take advantage of the full forgiveness amount. More on that below.

5. I kept paying off my student loans during the payment pause. Can I get that money back and have more of my loans forgiven?

The short answer is yes. Many borrowers kept paying off their federal student loans during the payment pause because, with interest also paused, it was the perfect time to reduce their debts. These borrowers need not worry: They can still benefit from Biden's new loan cancellation plan, even if they paid off their student loans during the pause.

According to the Education Department's office of Federal Student Aid, "You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020). Contact your loan servicer to request that your payment be refunded."

Just remember, it will be a process, and you should make sure you qualify for some level of cancellation, either the baseline $10,000 or the $20,000 for Pell recipients, before requesting your refund. Once the refund is issued, your student loan balance will increase by the value of the refund. For example: Say you currently owe $7,000, after paying $2,000 during the moratorium. Once you receive your $2,000 refund, your balance will grow to $9,000. Your next step, then, will be requesting cancellation for that new total under Biden's plan.

Copyright 2022 NPR. To see more, visit https://www.npr.org.