Student management

Federal student loans will be canceled in this order

If you have multiple student loans, the Ministry of Education determines how the relief is applied. Here are the loans that will be forgiven first.

An online application for student loan forgiveness is slated for release in early October, but many people still have questions about how the Biden administration’s debt relief plan will work.

People are eligible for up to $10,000 in student loan forgiveness under the plan if their income was less than $125,000 for individuals or $250,000 for couples in 2021 or 2020. Those who received a scholarship Pell through college and who meet the same income thresholds can receive up to $20,000 in relief.

But how will the relief be applied for borrowers who have multiple credits? VERIFY reader Ellen S. texted the team asking in what order the loans will be forgiven, and whether that’s based on factors like loan age or interest rates.

Here’s what we know about how student debt relief will be applied to your loans.

More CHECK: Quick Facts About Student Loan Forgiveness


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If you have defaulted loans

For borrowers with multiple loans, the Department of Education will forgive those in default first.

If your loan payments continue to be past due or delinquent, the loan could be in default. When a loan is considered in default varies by loan type. Some federal loans are considered in default if someone does not make scheduled loan payments for at least 280 days.

Overdue loans that are held by the Ministry of Education will first be pardonedfollowed by Federal Family Education Program (FFEL) Business Loans.

If you have no outstanding loans

For those with no outstanding loans, the Department of Education will apply student loan forgiveness in the following order:

You can find the type of loan you have by logging into your Federal Student Aid (FSA) account and selecting “My Aid” from the drop-down menu under your name. In the “Loan Breakdown” section, you will see a list of each loan you have received.

If you expand “View Loans” and select the “Show Loan Details” arrow next to the loan, you’ll see more detailed names of your loans.

Your servicer’s name will start with “Dept. of Ed” or “Default Management Collection System” if your FFEL or Perkins loans are held by the Department of Education. Servicer names can also be seen in the “My Help” section. .

More CHECK: Yes, you can get a refund if you paid federal student loans during the payment break

If you have several loans of the same type

The Department of Education also outlined the order in which it will apply student loan forgiveness for people who have more than one loan in the same type of program, such as the Direct Loans Program.

If you have multiple loans of the same type, the ministry will first apply relief to the loans with the highest legal interest rate. “Statutory” simply refers to the interest rate set by federal law, said Jessica Thompson, vice president of the Institute for College Access and Success.

Again, your interest rate can be found by logging into your FSA account.

If your interest rates are the same

If you have multiple loans with the same interest rates, relief apply first to non-subsidized loans before subsidized loans.

Direct unsubsidized loans are available for undergraduate and graduate students, and there is no need to demonstrate financial need. Borrowers must pay interest on unsubsidized loans.

Subsidized loans, on the other hand, are available to undergraduate students with financial need. The Department of Education pays interest on these loans while a student is in school at least half-time, for the first six months after a person has left school, and for a period when Loan repayments are postponed called deferment.

Most borrowers who have subsidized loans also have unsubsidized loans, Thompson told VERIFY.

If your interest rate and subsidized or unsubsidized status are the same

If you have several loans with the same interest rate and they are all subsidized or not, the Ministry of Education will apply a discount to the most recent loan.

If your interest rate, grant status and loan age are the same

If all of the above factors are the same, student loan forgiveness be applied to the loan with the lowest combined principal and interest balance first.

Principal refers to the amount you have taken out for a student loan.

What if your first canceled loan is less than $10,000 or $20,000?

If the first loan the Ministry of Education will forgive is $5,000, for example, and you qualify for relief of $10,000, the relief will be applied to the next eligible loan you have.

“The discount will be applied until an eligible person’s $10,000 or $20,000 student debt is forgiven, in the order of application indicated by the department,” Thompson confirmed in an email. .

More CHECK: Yes, there is a way to check if you have received a Pell grant

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