By Kelvin Lee
Last week, President Biden announced up to $20,000 in student debt forgiveness and an extension on the pause of federal student loan repayments. This is what the white house had to say:
The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). No high-income individual or high-income household – in the top 5% of incomes – will benefit from this action. To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.
Do You qualify?
To qualify, two criteria need to be met. First is income. As noted by the department of education, only those with an individual income below $125,000 or $250,000 married are eligible. Look at your 2020 or 2021 Adjusted Gross Income (line 11 on the Form 1040) on your tax return if you aren’t sure.
Next is the type of student loan you have. Only FEDERAL student loans will qualify, private and commercially held ones do not. Loans under the William D. Ford Federal Direct Loan Program, Federal Family Education Loan Program, Stafford Loans, Parent PLUS Loans, Grad PLUS Loans, and Federal Consolidation Loans are all examples of those that qualify (also payments for these loans made during the pause starting March 13th, 2020, are eligible for refund). If you’re unsure, contact your loan servicer.
The loan forgiveness amount will also be subject to whether the borrower was a Pell Grant recipient. Borrowers who received a Pell Grant in college and meet the income threshold will be eligible for up to $20,000 in debt cancellation, and those that did not receive a Pell Grant and also meet the income threshold will be eligible for up to $10,000 in debt cancellation.
What should I do next?
A formal process hasn’t been announced yet for qualified borrowers; however, the Department of Education has provided some guidance:
Nearly 8 million borrowers may receive relief automatically because the relevant income data is already available to them. If they don’t have your data, the administration will launch an application which should be available by early October. Once a borrower completes the application, they can expect relief within 4-6 weeks. Borrowers are advised to apply before November 15th to receive relief before the payment pause expires on December 31, 2022.
We would advise eligible borrowers to subscribe at www.ed.gov/subscriptions for updates on the application and debt forgiveness process. So far nothing is certain, and there is a possibility that the Supreme court could block President Biden’s loan forgiveness program before its launch.
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