Does your student loan qualify for forgiveness?
This week’s headlines about student debt forgiveness have many borrowers wondering if they would qualify for help.
Under the administration’s plan, anyone earning less than $125,000 (or married couples earning less than $250,000) will be eligible for federal student loan forgiveness of up to $10,000. Up to $20,000 in loan forgiveness will be available to borrowers who meet income limits and qualify for Pell Grants, which are given to students from families of extremely limited means.
But there are many different types of federal loans, and the administration has not offered guidelines specifying which ones can be forgiven. Instead, he said any loan taken out directly from the federal government would be included in the debt relief program. These loans — the main form of federal funding since 2010 — make up the bulk of student debt.
What about FFEL, Perkins and HEAL loans?
Here’s where things get murkier. The Federal Family Education Loan, Federal Perkins Loan, and Health Education Assistance Loan programs offered loans guaranteed by the federal government but issued by schools or private lenders. The Department of Education holds some FFEL and Perkins loans, but some of these (and all HEALs) are held by third parties.
When the federal government suspended loan repayments and interest charges during the pandemic, the relief only applied to direct loans, government-held FFEL and Perkins loans, and direct loans, FFEL, Perkins and HEAL in default. Any loan that has had payments and interest suspended will be eligible for the $10,000 to $20,000 forgiveness, said Abby Shafroth, director of the Student Loan Borrower Relief Project at the National Consumer Law Center.
To find out if your FFEL or Perkins loans might be eligible, go to your account on the Federal Student Aid site (studentaid.gov) and call the list “My Loan Servicers”. If the administrator’s name is preceded by “DEPT OF ED”, this loan is held by the federal government.
Many people may not know if their old loans are federally held because they had no choice when they took them out, Shafroth said. The loans they received depended on the financial aid programs their school participated in while they enrolled.
So, will people with private but federally backed loans be included in the new forgiveness effort? The White House says yes, although, again, the Department of Education has yet to issue guidelines for lenders.
A White House spokesperson said by email that the Department of Education “will work with private lenders to ensure that federal borrowers of commercial student loans are also eligible for relief, including private loans FFEL, Perkins and Heath Education Assistance Loans which are consolidated into the Direct Lending Scheme.
It’s not a done deal, however, Shafroth said. “It’s something they’re working on, finding a way forward, and I commend them for that.”
How about consolidation loans?
If you refinanced your private and federal loans into one with a private lender, it is private and therefore ineligible for forgiveness.
But if you’ve combined your federal loans — direct or guaranteed, such as FFEL or Perkins — into a federal consolidation loan, that loan will be eligible for a discount if each has disbursed its funds by July 1. In other words, if you took out a federal student loan in July and then consolidated it with your old federal loans, the new consolidated loan would not qualify.
Shafroth said it was a good idea to turn all FFEL and Perkins loans into a federal consolidation loan. This would not only eliminate doubt about eligibility for loan forgiveness, she said, but open up other potential benefits of the reforms undertaken by the administration.
For example, borrowers who will not see their full balance repaid and who work in government or non-profit organizations should consolidate now to take advantage of the temporary extension of the civil service loan cancellation program, she says. The program, which wipes out all federal loan debt for people who make 10 years of payments while in public service, waives some of its usual eligibility requirements through Oct. 31.
Another example: certain loans guaranteed by the federal government are not eligible for income-based repayment plans unless they are part of a consolidation loan. In an income-driven plan, borrowers typically pay 10% of their discretionary income each month for 20-25 years, after which any remaining balance is paid off.
The Department of Education is in the process of review of payment records for these plans, give borrowers credit for months when payments were suspended and for months spent in long forbearance periods. This process, which will not be completed until Jan. 1, Shafroth said, will allow borrowers to have their balances released sooner.
What if I’m in default?
Shafroth said defaulted direct federal loans should be eligible for forgiveness. If your loan collections have been interrupted during the pandemic, it’s a good sign that it could be forgiven if your income is below the ceiling.
About 7.5 million people have delinquent student loan debt.
Are we sure of these details?
It is important to remember that the administration’s proposal largely exists in the form of announcements and information sheets, not yet in something as formal as a law, regulation or decree. The companies that handle student loans, which will be the focus of much of this effort, have yet to see guidance from the Department for Education.
“This was news for everyone,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance. “There are a lot of regulatory things that we need to work on and understand.”
Historically, he said, there have been statutory or regulatory obstacles to some of the actions the White House has announced its intention to take.
“It will be a collaborative effort between us and the [Education Department] to find a way forward here,” Buchanan said.
It is also possible that critics of the plan will file lawsuits in an attempt to block it. Some claim that the ministry does not have the authority to write off debt on such a large scale — an issue President Biden raised last year, though the administration has since released a legal opinion claiming he has this power.
Shafroth said she was optimistic the pardon plan would survive.
“It’s one thing for opponents of debt cancellation to talk about it in the media and on Twitter,” she said. “It’s quite another thing for them to actively try to recoup billions of dollars in financial aid from 43 million working and middle class Americans.”
Are Parent Plus loans eligible for forgiveness?
The short answer is yes.
The longer answer is that it depends on income. Yes – if the parent’s income is less than $125,000 for someone filing taxes as a single person or $250,000 for a married couple.
Can current or new students get debt forgiveness?
Current students, yes, if their loans are direct federal loans and they meet income limits. But the relief only applies to loans issued before July 1.
This means that students who have not started college or who have not yet taken out a loan will not be eligible for loan forgiveness from this program in the future. Current students with qualifying loans will also not be able to add new loans to the discount mix.
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Am I automatically eligible for loan forgiveness?
In some cases, yes. If you follow an income-based repayment plan and have kept your information up-to-date, the government knows how much money you earn and should apply the appropriate amount of loan forgiveness to your account.
But if you follow a standard repayment plan – that is, you pay the same amount each month, regardless of your income – you must complete the documents that the Ministry of Education will provide you with in the weeks to come. To be notified of updates, subscribe to emails from dapartment.
What if I have already repaid my loans?
Congratulations! You no longer have student debt.
For people who recently paid off their loan, there might be a way to get some money back. The Fresno Bee pointed out that you can get refunds for payments made after March 2020 and the resulting balance canceled under the program. Be sure to read the fine print if you try this.
Where can I find more information?
The Times covered several aspects of this issue:
To dig deeper into these issues and answer your questions, the Times hosted a Twitter Spaces conversation on Thursday with staffers Jon Healey, Jessica Roy, Eli Stokols and Debbie Truong. You can listen to a replay here.
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