How To Prepare For The Student Loan Debt Forgiveness Program

Student loan debt forgiveness…..

Who would have thought that possible a few years ago? I didn’t.

Some people have been appalled at the thought of having a person’s loans forgiven since in the end taxpayers will probably foot the bill one way or another.

Others see it as repayment for universities overcharging students for decades. While annual inflation was around 2% for the past decade or so, on average, university tuition costs doubled.

Don’t believe me? Here is an article from Intelligent.com that describes this in detail.

The logic of people with high amounts of student loan debt for modestly paying jobs is how can a person making $50,00 upon graduation with over $100K+ in student loan debt financially survive? How are these absurd education prices supposed to be reasonable for the average consumer?

Whatever your belief, student loan forgiveness will soon become a reality for a lot of people.

Due to President Biden’s administration, you may qualify for student loan forgiveness.

In this article, we will define what is the Biden administration’s student loan forgiveness program, who does it help and does it not help, when to apply, how to prepare, and much more.

Let’s get started!

What Is The Student Loan Forgiveness Program?

President Biden, Vice President Harris, and the U.S. Department of Education have announced a three-part plan to help student loan borrowers by lowering overall payments.

In their plan, the first part is to offer 1 final extension of the student loan repayment pause. This pause will conclude on December 31, 2022, and student loan payments will resume in January 2023.

An application will be available soon and you have until December 31, 2023 to submit it.

The second part of this program, and the most talked about, is to provide debt relief to thousands of the more “at risk” borrowers (borrowers most likely to be delinquent / default on loans).

If you were a Pell Grant recipient and have loans through the U.S. Department of Education, you may be eligible for up to $20,000 in student loan debt relief.

If you did not receive a Pell Grant and have loans through the U.S. Department of Education, you may be eligible for up to $10,000 in student loan debt relief.

In addition to this, borrowers who are employed by non-profits, the military, or federal / state / local / tribal government may be eligible to have ALL of their student loans forgiven through the Public Service Loan Forgiveness Program (PSLF).

These are temporary changes and if interested, need to be applied by no later than October 31,2022.

Complete details can be found at PSLF.gov.

The third part of the program is to make the overall student loan system more manageable for both current and future borrowers. The Biden administration is proposing a rule to create a new income-driven repayment plan that will substantially reduce future monthly payments for lower- and middle – income borrowers.

Here is what this rule change would do for borrowers:

Require borrowers to pay no more than 5% of their monthly discretionary income in loan payment.
- The most recent income-driven plans have a cap of 10% of monthly discretionary income. This is a HUGE change.
- The downside is that while it lowers payments, it will probably take you a lot longer to pay off the loans.
Raise the amount of income that is considered non-discretionary income and is protected from repayment plans.
- In other words, there is a smaller amount of allowed discretionary income AND the payment is capped at 5% of this discretionary income. Combined with the above changes, this should greatly lower monthly student loan payments.
Loan balance forgiveness after 10 years of payments for borrowers with loan balances of $12,000 or less.
- Currently 20 years, DITTO on the HUGE change aspect of this feature.
- Also, it did not say “consecutive” payments. For example and the way the wording reads, if you paid for 5 years, took a forbearance for 3 years, and then continued 5 more years of payments, you should still be eligible.
The program will cover the borrower’s unpaid monthly interest.
- For example, as long as the monthly payment is met, your loan balance cannot grow due to interest stacking up.

Most people are focusing on the second part of this plan, the loan forgiveness, and is the most talked about. This is what we will cover today.

Eligibility Requirements For Student Loan Relief (Forgiveness)

There are actually very few requirements listed for receiving student loan debt relief.

The first one is a person’s adjusted gross income (AGI).

Individuals who earn less than $125,000 annually or married couples / heads of household who earned less than $250,000 annually will qualify.

The basis for determining this is your 2020 and 2021 tax forms.

If curious what your AGI was in those years, look at Line 11 on the front page of your federal tax return (aka Form 1040) to determine eligibility.

The second major requirement is if those student loans were funded by the federal government or private loans.

Currently, most student federal loans are eligible including:

Federal Family Education Loan (FFEL) loan programs
Undergraduate and graduate Direct loans (both subsidized and unsubsidized)
- Also includes Direct Stafford loans
Parent PLUS and grad PLUS loans / consolidation loans

The unfortunate part is that the currently eligibility does not include private loans and/or any federal loans consolidated into private loans.

I have read that there are ongoing discussions occurring to see if these private loans will be included as well. Stay tuned.

Also worth noting, if you are currently in default on your student loans, you may still be eligible! Fill out the application because you never know! 😊

Can People Opt Out?

The short answer is yes.

Borrowers can choose to opt out of this program.

Some people have been weary about participating and even have sued the federal government over the student loan forgiveness program because they claim that the state they live in will charge them state income tax for accepting the loan forgiveness.

This is something to also consider.

Some states (i.e., Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, Wisconsin) may charge state income taxes since they will treat the loan forgiveness money as earned income. Hopefully, the federal government steps in and resolves this.

Let’s play devil’s advocate and assume that some states charge income taxes on this forgiveness money. For the sake of argument, let’s assume that they charge a 3% tax rate. On $10,000 of student loan forgiveness this amounts to paying $300 to save $10,000….. seems like a no-brainer to me! 😊

How To Apply

A sneak peek was given to Yahoo News into the information that the government will probably ask for and includes the following:

Name
Social Security Number
Date of Birth
Email Address
Phone Number

Borrowers will also be asked to check a box certifying your income is under the threshold along with being asked to sign an agreement confirming that all information you provided is accurate under penalty of perjury.

If there are any discrepancies between the information provided by the borrower and what information the Department of Education currently has on file, you may be contacted with a request for additional information / documentation.

To be automatically notified when the application is open, sign up at the Department of Education subscription page.

The application process is expected to take 6+ weeks once completed. Given that 8M+ people are expected to apply to this program, the sooner you apply, the faster you may be able to receive forgiveness.

Since the deferment ends December 31^st and if you manage to apply right away, you may have the forgiveness completed before you need to start re-paying the remainder (if any) of your student loans.

As far as when the portal will open, it is supposed to happen sometime in October and in fact was supposed to have occurred already.

It literally could happen as soon as this article is published.

How To Prepare To Apply

Next, we’ll discuss how to get ready to apply.

Find Out If You Qualify

The first thing to do to determine if you qualify is to check your 2020 and 2021 Form 1040 tax returns on line 11. If your AGI is less than $125,000 for single filers or $250,000 for married filing jointly / head of household then you have a great chance of being accepted.

Next to determine if you have federal or private student loans, set up an account at StudentAid.gov.

If you have federal-backed loans, then you qualify.

If you have private loans, don’t fret, still apply. The rules are literally changing by the day, and you may become eligible down the line.

Finally, to be notified when the process has officially opened, sign up at the U.S. Department of Education subscription page.

Determine How Much Relief You Might Receive

Use your StudentAid.gov account to confirm if you have or have not ever received a Pell Grant. If you have one, you may receive $20,000 in forgiveness.

If no Pell Grant, you’ll only be able to receive $10,000 in forgiveness.

Look under “My Aid” section of your account to find out whether or not you received a Pell Grant.

Next, compile a record of your loans and loan amounts. This way, you can double-check to make ensure their online information is accurate.

Lastly, when you create your StudentAid.gov account, ensure your contact information and all relevant data is current.

Contact Your Loan Servicer

If you have any questions about your loan forgiveness, reach out to your loan provider sooner rather than later.

Once the program opens, I expect the system to be flooded with people applying and wanting their questions answered.

It’s better to have those questions answered now than weeks or even months down the line.

Important Dates To Remember

Here is a list of key dates to watch out for in the coming months.

October 2022

The forgiveness program is supposed to open literally any day now. Key an eye out for email updates on the Department of Education and studentaid.gov sites.

Once the application is available, you’ll need to fill out and submit as quickly as possible since the system will be flooded with people doing the same thing.

November 15^th, 2022

Once you submit your application and if approved, you can expect relief within 4-6 weeks. The Department of Education recommends filling out the application before Nov. 15 to receive forgiveness before payments resume in January.

January 1, 2023

Federal student loan payments will resume at the start of next year. The Biden administration extended the pause a final time through Dec. 31.

December 31, 2023

The Department of Education said the application for student loan forgiveness will remain open through the end of next year, but you may not receive relief before the payment pause period ends if you don’t fill it out before mid-November.

Beware Of Scams

There have been reports of companies calling people stating they can get your loan discharged, forgiven, cancelled, etc. for a fee and may also ask for your private information.

This is an outright scam.

You should never have to pay for help with your student loan forgiveness.

Make sure you only work with the U.S. Department of Education or your loan servicer.

You can report scam attempts to the Federal Trade Commission (FTC) by calling 1-877-382-4357 or by going to their site at reportfraud.ftc.gov.

Wrap Up

I hop you found this information helpful. Whether you agree or not to what is happening, if you deserve relief go and apply.

A key part of achieving financial freedom is to minimize expenses. If you can save or delete an expense, it’s worth looking into.