Everything you should know about student loan cancellation
With the Biden Administration's announcement of student loan forgiveness, I am sure many of you have questions about how to go about taking advantage of this money. I am definitely excited to get rid of my student loans!
Read below to have your questions answered, and I will keep you updated on where to find the application when it is released.
How much debt relief will be given?
Pell Grant recipients will be given up to $20,000 in debt relief
Borrowers with loans held by U.S. Department of Education will be eligible for up to $10,000 in debt relief if their individual income is less than $125k (or $250k for households)
Which loans are eligible?
Undergraduate and Graduate Direct loans
Parent PLUS and Grad PLUS Loans
Consolidation Loans (loans disbursed on or before June 30, 2022)
Federal Family Education Loan Program Loans held by U.S. Department of ED
Perkins Loans held by U.S. Department of ED
Defaulted loans (held by U.S. Department of ED or commercially serviced subsidized, unsubsidized, parent PLUS, grad PLUS, and Perkins)
Will they apply the relief to higher interest loans first?
They will apply the relief in this order:
Apply relief to loans with highest statutory interest rate
If interest rates are the same, apply to unsubsidized loans prior to subsidized loans
If interest rate and subsidy status are the same, apply to the most recent loan
If interest rate, subsidy status, and disbursement date are the same, apply to the loan with the lowest combined principal and interest balance
Will my loan forgiveness be taxed?
Not on the federal level, but it could be subject to state and local tax.
How do I apply for student loan forgiveness?
If the U.S. Department of Education has your income data then you won't have to apply. Otherwise you will have to apply (application should be available in October).
How will the loan forgiveness be applied if I have multiple loans?
In this order:
Defaulted ED-held loans
Defaulted commercial FFEL Program loans
Non-defaulted Direct Loan Program loans and FFEL Program loans held by ED
Perkins Loans held by ED
What if I continued to make payments during the COVID-19 payment forbearance?
"You will automatically receive a refund of your payments during the payment pause if:
you successfully apply for and receive debt relief under the Administration's debt relief plan, AND
your voluntary payments during the payment pause brought your balance below the maximum debt relief amount you're eligible to receive but did not pay off your loan in full.
For example, if you're a borrower eligible for $10,000 in relief; had a balance of $10,500 prior to March 13, 2020; and made $1,000 in payments since then—bringing your balance to $9,500 at the time of discharge—we'll discharge your $9,500 balance, and you'll receive a $500 refund.
Other borrowers can still receive refunds on voluntary payments made after March 13, 2020 by contacting their servicer. It's important to note that these refunded payments will increase your loan balance and your monthly payments. If you expect to have a balance after discharge is applied and wish to request a refund, you can do so by contacting your servicer until Dec. 31, 2023
If you consolidated your loan after March 13, 2020, refunds aren't available for any voluntary payments made prior to the consolidation." -Federal Student Aid
Is there a due date for the student loan forgiveness application?
You'll have until Dec. 31, 2023, to submit your application for student loan debt relief.
More info can be found at: https://studentaid.gov/debt-relief-announcement/one-time-cancellation