NEW YORK (AP) — President Joe Biden’s student loan forgiveness program. announced in August, will cancel up to $20,000 of debt per borrower. The application process is now open and the administration says the forms should take five minutes to complete.
Borrowers who apply before mid-November should get a discount before Jan. 1, when loan payments are expected to resume after a pause during the pandemic. Some Republican-led states have filed lawsuits to try to prevent the cancellation, but the Biden administration says it’s confident the challenges won’t succeed.
Here’s how to apply and everything you need to know:
WHO QUALIFIES FOR STUDENT LOAN FORGIVENESS?
You are eligible for a rebate of up to $10,000 if your loan is held by the Department of Education and you earn less than $125,000 individually or $250,000 for a family. If you have been awarded Pell grants, which are reserved for undergraduate students with the greatest financial need, you can be forgiven for up to $20,000. If you are a current borrower and a student dependent, you will be eligible for relief based on your parents’ income, rather than your own.
A major lingering question is what will happen to students with FFEL loans held by companies that did not refinance by September 29. For the moment, these loans are not eligible (even if they were initially going to be eligible). The administration said it was looking for “additional legally available options to relieve” these borrowers, but nothing has been announced yet.
HOW TO REQUEST A LOAN FORGIVENESS?
Go to studentaid.gov and under the Student Debt Relief section, click “Apply Now”.
Be prepared to enter some basic personal information. The form asks for: name, social security number, date of birth, phone number and email address. It does not require documentation of your income or student loans.
Next, review the eligibility rules and confirm that you are compatible. For most people, this means certifying that they earn less than $125,000 per year or that their household earns less than $250,000 per year. If you meet the eligibility requirements, check the box confirming that everything you have provided is true.
HOW LONG DOES IT TAKE TO RECEIVE FORGIVENESS?
Once the form is submitted, the Biden administration says processing should take four to six weeks. The Department of Education will use its existing records to ensure that your loans are eligible and to search for applicants who may exceed income limits. Some will be asked to provide additional documents to prove their income. The Ministry of Education estimates that the verification request will take approximately half an hour, including time to review and upload tax documents.
Most borrowers who apply before mid-November should expect to see their debt forgiven before Jan. 1, when federal student loan payments are expected to resume after a pause during the pandemic.
WILL THE FORGIVENESS OF STUDENT LOANS DEFINITELY HAPPEN?
Things could get more complicated, depending on the results of several legal challenges. The Biden administration faces a growing number of lawsuits trying to block the program, including one filed by six Republican-led states.
A federal judge in St. Louis is currently weighing the states’ request for an injunction to stop the plan. Biden said Monday he was confident the lawsuit would not upset the plan. “Our legal judgment is that it won’t,” he said, “but they’re trying to stop it.”
HAS THE STUDENT LOAN PAYMENT FREEZE BEEN EXTENDED?
The payment freeze has been extended one last time, until December 31. The freeze began in 2020 as a way to help people in financial difficulty during the COVID-19 pandemic and it has been extended several times since. It was due to expire on August 31.
Interest rates will remain at 0% until repayments begin. Under an earlier extension announced in April, people who were in arrears before the pandemic will be automatically brought into good standing.
IS GRADUATE STUDENT DEBT ALLOWABLE?
Yes, federal student loans taken out to cover advanced degrees are eligible for forgiveness.
WHAT IF THE BALANCE ON MY STUDENT LOAN INCLUDES A LOT OF INTEREST?
The interest itself is considered part of the balance for the purposes of this program. The pardon will remove $10,000 from the total balance you owe.
WILL I PAY TAXES ON THE AMOUNT I AM REMITTED?
At least a few states have said they plan to tax forgiveness, including Indiana and Mississippi, and it’s unclear whether others will change their tax rules to exclude canceled student debt. Previously, Congress eliminated taxes on loan forgiveness through 2025.
ARE PARENT PLUS LOANS ELIGIBLE?
Parent Plus loans are included in the forgiveness plan, subject to the same $250,000 income cap for families that applies to the remainder of the cancellation.
Parent Plus loans differ from other federal education loans in that they can be used to cover non-tuition expenses, such as books and student board and lodging. As of March 2022, parents of 3.6 million students owed more than $107 billion in Parent Plus loans, according to the Department of Education. This represents about 6% of the total amount of federal student debt held by Americans.
If a parent received a Parent Plus loan on behalf of a student and the same student received a direct loan, both would receive relief, as cancellation is per borrower, not per student. This means that everyone who has federal student loans held by the Department of Education and meets the income requirements is eligible for cancellation.
WHAT IS A PELL GRANT AND HOW DO I KNOW IF I HAVE ONE?
About 27 million qualified Pell Grant borrowers will be eligible to receive up to $20,000 in rebate under the Biden plan.
Pell Grants are special government grants for low-income Americans, which can currently receive up to $6,895 per year for about six years.
According to the Department of Education, nearly all Pell Grant recipients came from a family that earned less than $60,000 a year, which said Pell Grant recipients typically have more difficulty repaying debt. than other borrowers.
Pell grants themselves usually don’t have to be repaid, but recipients usually take out additional student loans.
“This additional relief for Pell borrowers is also an important element of racial equity in the cancellation,” said Kat Welbeck, civil rights attorney for the Student Borrower Protection Center. “Because student debt exacerbates existing inequalities, the racial wealth gap means that students of color, especially those who are black and Latino, are more likely to come from low-income households, have student debt and borrow more.”
To find out if you have a Pell grant, check any emails you’ve received that describe your FAFSA award.
HOW MANY PEOPLE WILL THIS HELP?
About 43 million Americans have federal student debt, with an average balance of $37,667, according to federal data. A third of them owe less than $10,000. Half owe less than $20,000. The total amount of federal student debt is over $1.6 trillion.
WHAT IF I HAVE ALREADY PAID MY STUDENT LOANS? WILL I SEE A REPAIR?
If you have voluntarily made payments since March 2020, when payments were suspended, you can request a refund for those payments, according to the Federal Office for Student Aid. Contact your loan officer to request a refund.
WHAT REIMBURSEMENT PLAN DOES THE MINISTRY OF EDUCATION OFFER?
The Ministry of Education has proposed a repayment plan that would cap monthly payments at a maximum of 5% of the borrower’s discretionary income, up from 10% currently. Borrowers will need to apply for the repayment plan if approved, which can take a year or more.
For example, under the proposal, a single borrower earning $38,000 a year would pay $31 a month, according to a government press release.
The amount considered non-discretionary income will also be increased, though the department did not say how much.
Discretionary income generally refers to what you have left over after covering necessities like food and rent, but for student loan repayment purposes it is calculated using a formula that takes into account the difference between the borrower’s annual income and the federal poverty level, as well as family size and geographic location.
“The difficult thing about income-based repayment is that it doesn’t take into account your other debts, such as paying your rent,” said Kristen Ahlenius, financial adviser at Your Money Line, which offers training in financial literacy. “If someone is living paycheck to paycheck and their rent takes half of their paycheck and their car payment takes the other half, they have to choose. Unfortunately, the income-contingent reimbursement does not take this into account, but it is an option.
Student Debt Relief offers a calculator to help you determine your Discretionary Income.
WHAT IF I CANNOT AFFORD PAY EVEN WITH A LOAN FORGIVENESS?
Once payments resume, borrowers who cannot pay risk becoming delinquent and possibly defaulting. This can hurt your credit rating and mean you don’t qualify for further help.
If you’re struggling to pay, check to see if you qualify for an income-tested repayment plan. You can find out more here.
The Biden plan also includes a proposal that would allow people with undergraduate loans to cap repayment at 5% of their monthly income. Proposals like this can take a year or more to implement, and it’s unclear what the fine print will be.
If you worked for a government agency or non-profit organization, you may also be eligible for the Civil Service Loan Forgiveness Program, which you can learn more about here.
Collin Binkley contributed to this report from Washington.
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