By: Gaby S. Dominguez
The concept of student loans has always been heavily debated. The cost of education continues to rise, so the need for financial aid inevitably becomes more imminent, along with the fear of the financial demands of paying back the money borrowed.
Recently, the Biden administration announced its federal Student Loan Forgiveness plan, that is aimed to cancel loans for eligible borrowers. Eligibility for forgiveness is based on the following:
- A single individual has to have income of less than 125,000.
- For married couples, the income limit is $250,000.
You can check your adjusted gross income (AGI) for 2020 and 2021 via your tax return on the front page, specifically line 11, which is called your Form 1040 [1].
If you check the boxes for eligibility, then you may receive forgiveness up to $10,000 if you did not receive a Pell Grant. You can check your Pell Grant status via the website: www.studentaid.gov [1]. If you did not receive a Pell Grant, you may receive up to $20,000.
Although, as a higher education expert Mark Kantrowitz stated, you need to be “cautiously optimistic” when applying for forgiveness [1]. A large percentage of borrowers will be eligible for forgiveness as most debt types are under relief, but it gets tricky in terms of private lenders. As a result, they (who is they?) are currently exploring ways to ensure that anything commercially held can also benefit from this new plan, including borrowers with the Federal Family Education Loan (FEEL) program [2].
To determine if you qualify for Biden’s forgiveness plan, you can visit www.studentaid.gov and fill out the “federal direct consolidation loan application”. Otherwise, you can transfer your loan to the Direct Program by contacting your loan servicer [1].
It is important to note, that any relief will be limited at the amount of debt that is outstanding. Therefore, if you owe less than the amount forgiven, you will only receive the amount you owe.
Additionally, any loans taken out after June 30, 2022 are not eligible.
If you work in the government, the military, or at a nonprofit, you may qualify additional benefits under the Public Service Loan Forgiveness Program, or PSLF [2]. Note that the deadline to apply for this benefit is October 31, 2022.
You may be questioning, but what does this mean for anyone eligible? There will be a pause in repayment of student loans until January 2023. This static time allows for any borrowers to have more cash to use for daily living or other debts. In addition, any remaining balances will be re-amortized, so your monthly payments will be re-calculated after forgiveness, which could reduce the payment in return [2].
In conclusion, if you have outstanding student loans be on the lookout for the official application for forgiveness to be released in the next month or so. Additionally, be sure to register for the Department of Education’s subscription page, so you are notified exactly when the details are released.
As always, you should consult with your financial or tax advisor, evaluate your eligibility.
Soon enough you may benefit immensely from this forgiveness!
Footnotes:
[1] CNBC, Annie Nova, Here’s everything we know (so far) about Biden’s student loan forgiveness plan, September 7, 2022 https://www.cnbc.com/2022/09/06/all-we-know-so-far-about-bidens-student-loan-forgiveness-plan-.html
[2] College Inside Track, Susan Whalen, Student Loan Forgiveness Details, September 7, 2022 https://collegeinsidetrack.com/student-loan-forgiveness-details/
