Student Loan Forgiveness: Who Qualifies and Income Limits

This story has been updated to reflect new information released on Friday.

It’s official: millions of Americans are set to get up to $20,000 in student loan forgiveness.

President Joe Biden announced the plan Wednesday, saying federal student loan borrowers earning less than $125,000 will receive $10,000 in debt forgiveness, while borrowers who received need-based Pell Grants during their studies will be eligible for a $20,000 rebate.

The ministry estimates that some 20 million borrowers could see their loans completely wiped out. The pardon “will give working and middle-class families a break as they prepare to resume federal student loan payments,” Biden said in his announcement.

Monthly payments are now expected to resume on January 1, 2023.

Biden’s long-awaited move comes after an intense debate that has divided many Democrats and policy pundits over whether the loan forgiveness would worsen inflation or be seen as a handout for affluent, college-educated Americans. . The loan cancellation plan could cost between $469 billion and $519 billion, according to the latest projections from the University of Pennsylvania. The administration, meanwhile, estimates the plan will cost $240 billion in student loan repayments that the government will no longer collect over the next decade, National Economic Council Deputy Director Bharat told reporters on Friday. Ramamurti.

Republicans critical ad as insult to taxpayers who have already paid off their loans or who have chosen not to go to university. Others argued it was a good first step, though it still fell short of the automatic $50,000 per borrower waiver that some Democrats and advocates, including the NAACP and Student Borrower Protection Center (SBPC), Wanted.

“This progress is historic, but it’s just the beginning,” SBPC executive director Mike Pierce said in a statement. “Debt-free higher education remains out of reach for most people. On our current journey, tens of millions of families will continue to struggle under the weight of student debt for decades to come.

Debt forgiveness on this scale is unprecedented in the history of federal student loans. Experts say implementing the policy will be an operational challenge that could last for months, particularly because there remain outstanding questions about the legality of Biden using his executive power to cancel the loans.

It’s a developing story, and the administration hasn’t shared many details. Here’s what we know so far about who qualifies for student loan forgiveness:

Student Loan Forgiveness Income Limits

People with existing federal student loans who earn less than $125,000 per year are eligible for the rebate. The threshold for married couples filing jointly is $250,000. The announcement did not expand on the income threshold beyond saying it will be based on “annual income during the pandemic”.

Jessica Thompson, vice president of the Institute for College Access and Success (TICAS), said administration officials confirmed in a call Thursday that income eligibility would be based on adjusted gross income, which is your total income minus deductions (you can find this on your tax return).

The threshold will be based on 2020 or 2021 income. If your income was below the threshold in either of those years, you qualify, according to senior government officials.

There is no sliding scale, so any borrower below the income threshold who meets the other eligibility criteria will receive the full amount of the forgiveness.

About ninety-five percent of borrowers are still covered by those income limits, according to the ministry.

Which borrowers are eligible for additional relief?

If you received a Pell grant while in college, you are eligible for an additional discount of $10,000, for a total of $20,000. This detail allows relief to be more targeted to borrowers from low- and middle-income backgrounds.

Most Pell Grants go to students from households earning less than $40,000, and almost all go to households earning less than $60,000, according to the department. These students are more likely to have student loans and to borrow larger amounts. For example, more than 8 out of 10 Pell Grant recipients graduating from four-year colleges have student loans and their average debt is $4,500 more than their peers, according at TICAS.

If you are unsure if you received a Pell grant during your studies, you can log on to StudentAid.gov. You will need to create a Federal Student Aid ID if you do not already have one.

What types of student loans are eligible for forgiveness?

The forgiveness applies to most types of federal loans that were disbursed before June 30, 2022. This covers: direct loans (subsidized and unsubsidized) for undergraduate students, Direct PLUS loans for graduate students and borrowing parents, and direct consolidation loans. Loans that were in default before the pandemic forbearance are also covered.

Also included are certain Perkins loans and Federal Family Education Loan Program (FFEL) loans. Here’s the important caveat: the ad says the discount only applies to “department-held” loans. This would exclude the majority of FFEL loans, which are backed by the federal government but held by private lenders.

Private student loans do not qualify, even if you originally had federal loans but refinanced them to a private loan.

Not sure what type of debt you have? If you know who your federal loan manager is, you can log into your account to see what type of federal loan you have. (These are the companies that handle reimbursement for the federal government, like Nelnet and MOHELA.)

You can also see what type of federal loans you have by logging on to StudentAid.gov. You will need to create a Federal Student Aid ID if you do not already have one.

Private loans will not be reported in any of these places. For more details on these debts, you will need to speak to your private student loan officer (depending on who you borrowed from, this may be the lender or a separate company). If you’re not sure if you have private student loans, request a free credit report at annualcreditreport.com.

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Refinance my loan

What are my options if I have FFEL loans that are not eligible?

Thompson of TICAS says administration officials have confirmed that borrowers with older commercially held FFEL loans can consolidate their loans into the direct lending program to access loan forgiveness. When you consolidate multiple loans, the result is a new loan, but this will not affect your eligibility for forgiveness, regardless of the rule around the June 30 disbursement deadline. There will likely be more details released on this, but for now you can read more about the consolidation here.

Does it matter where I attended college or if I graduated?

No. Although there was speculation that the pardon might be limited to students who attended public colleges, this detail was omitted from the final plan.

You do not need to have graduated to cancel your loans.

Are current students eligible for Biden’s loan forgiveness?

Yes. If you are currently enrolled in college and have already borrowed from the federal government, you are covered by the plan. Loan forgiveness applies to loans that were disbursed before June 30, 2022. Note that the effective date means that if you are borrowing for this upcoming academic year and your loans have not yet been disbursed , these loans are not eligible.

Borrowers who are dependent students will be able to receive relief based on parental income, rather than their own income.

Are borrowing parents and graduate student loans eligible?

Yes. While some expected debt relief to be limited to undergraduate debt, the final plan includes parents who have taken out PLUS loans to help pay for a child’s education, as well as loans taken out for graduate programs.

For parent loans, the additional discount related to Pell Grant recipients is attached to the student. So if a student received a Pell grant and borrowed student loans, they would be eligible for up to $20,000. Their relative would be entitled to an additional $10,000, for a total maximum of $30,000 in rebate (assuming they meet the income thresholds).

What should I do to obtain forgiveness?

At this time, borrowers can’t do much except make sure their contact information is up to date with their loan officer.

Eventually, however, the majority of borrowers will have to opt for student loan forgiveness, so to speak. For this, the ministry will announce further details “in the coming weeks”.

The announcement says the app will be available no later than the end of the year, when the COVID-19 payment pause is expected to end.

If the Department of Education has data about your income on file – if, for example, you recently submitted documents to recertify an income-based reimbursement – ​​you may be eligible for an automatic rebate if you complete the other Conditions of eligibility. The ministry says there are about 8 million borrowers in this group.

Either way, experts warn it will be a lengthy process that will likely be challenged in court, so borrowers shouldn’t expect to see their accounts updated anytime soon. .

For more information, see the latest news from the Department of Education here.

Have questions about how student loan forgiveness works? Email us at [email protected].

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