Five Ways Student Borrowers Can Prepare to Apply for a Forgiveness
In a few weeks, the Biden administration is expected to unveil applications allowing student borrowers to enroll for up to $20,000 in loan forgiveness.
As part of the effort announced last week, some borrowers will be able to apply for up to $10,000 in forgiveness, and double that amount for Pell Grant recipients.
The administration says up to 43 million borrowers could see relief under the sweeping program, and the vast majority of those borrowers earn less than $75,000 a year.
Applications are expected to drop in early October and borrowers will have a short window to apply if they want to see the relief take effect before the end of the year.
Here are some key steps student borrowers can take now to prepare for the application process.
Log in to your student aid account
It’s been a long time since many student borrowers had to pay off their debt, and some new borrowers have yet to do so thanks to a pandemic repayment freeze that’s been going on for years and is set to expire in the coming months.
One of the first things experts have urged borrowers to do in the coming weeks is to log into their account at StudentAid.gov. There, borrowers will be able to see a breakdown of their federal loan and grant information as well as track and manage their federal loans.
“Some borrowers, depending on when they were registered, may have to create an FSA first [Federal Student Aid] ID to log into that student aid account,” said Rachel Gentry, director of government relations at the National Association of Student Financial Aid Administrators. “Some borrowers already have this ID when they were students.”
Gentry stressed that borrowers should now ensure “that their contact information is up to date” with their loan officers and the Department of Education in their StudentAid.gov account.
The agency said around 8 million borrowers could be eligible for automatic relief if their “relevant income data is already available” in the office. But borrowers will also be able to apply for a discount by early October if the agency does not have this income data.
Borrowers who continued to make payments during the pandemic may also be eligible for a partial refund.
More details are expected to be released on the plan in the coming weeks, but borrowers can also sign up for updates on the department’s main website.
Find out what loans you have
President Biden’s forgiveness plan is unlikely to relieve debt from private loans, experts say, although there are questions about whether borrowers with certain loans issued by private lenders may see relief.
In In particular, experts are awaiting more information on how the department will handle loans from the Federal Family Education Loan Program (FFELP).
The FFELP loans “were issued by private and public lenders, but were guaranteed by the federal government,” Gentry explained. “So that means if any of those borrowers were to default on their loan, the government would pay the private, non-federal entities that are the lenders a substitute to kind of make up for their losses.”
“When we moved to 100% direct lending just over a decade ago, some of those [FFELP] the portfolios of the lenders were purchased by the federal government … so the loans that were purchased at that time essentially became like federal loans,” she continued.
However, Gentry said some of the commercially held FFELP loans are still owned by private and public lenders.
“We are still waiting for more information on what the people who hold commercial [FFELP] loans will have to do to access the discount, if there will be a way for them to not have to take action to receive the discount or if they will have to consolidate,” she said.
Check your income eligibility
Eligibility for relief extends to borrowers with incomes below $125,000 for individuals and $250,000 for married couples and heads of households.
Experts say the amount will be based on income earned in 2020 and 2021, so borrowers may need to have this information.
“Borrowers should make sure they have access to these tax returns so they can get an idea of their reported income in those years,” said Katharine Meyer, a fellow at the Brookings Institution’s Brown Center on Education Policy. .
“My reading of the policy is going to be based on the lower of those two, so they should know which of their household incomes was lower in those two years,” she said.
Meyer also said borrowers shouldn’t worry too much about the tax implications of this forgiveness program, noting “a tax exemption for debt forgiven at this time that extends through the end of 2025.”
However, questions have been raised about borrowers who may have to pay state taxes on the relief depending on where they live.
Become familiar with other programs
Many borrowers may participate in a Federal Income-Based Repayment Plan and may be eligible for Public Service Loan Forgiveness (PSLF).
The Department of Education currently lists four income-based repayment plans online that have varying durations and earnings thresholds based on factors such as level of higher education attained and income.
Under the current PSLF program, borrowers in government jobs or working in nonprofit organizations could be eligible for forgiveness after 120 eligible monthly payments or a decade of consistent repayment.
Experts have urged borrowers to act quickly to apply for this program before the October deadline.
“One potential area of confusion that borrowers are going to face in the coming months is the dual deadlines for submitting a potential forgiveness and the process for applying for a temporary waiver from the Public Service Loan Forgiveness Scheme,” said Mayer. “This program has a deadline at the end of October 31.”
That delay is significant, Meyers said, because of the Department of Education’s temporary relaxation of eligibility requirements. for the PSLF program which is set to expire.
“It’s things like counting past payments that haven’t been made under an income-driven repayment plan toward forgiveness,” she said.
“Many people may need to consolidate their loans to qualify for this program,” she added. “This consolidation should not affect the eligibility of these loans to then be forgiven each time this process is rolled out. But I could see how confused a lot of borrowers would be about this.
Prepare this budget
Borrowers will have until the end of next year to apply for the broader discount scheme announced last week. But they are advised to apply before November 15 if they want to see the relief take effect before the end of the year – when the current pandemic refund freeze will expire.
The moratorium, which also applies to accrued interest, was extended last week until December 31, marking the seventh time the pause has been renewed since it was first enacted in March 2020.
However, the Biden administration has made it clear that it is not aiming for an eighth extension, meaning many borrowers will likely have to prepare to make regular payments for the first time in years.
A report released by the Education Data Initiative earlier this year puts the average monthly student loan payment at around $460. But borrowers can pay more or less depending on their payment plan.
For example, the Department of Education notes on its website that some borrowers may qualify for zero dollar payments if they make less than a certain amount.
“If you’re having financial difficulty and expect to encounter financial hardship, you can explore your options with a loan servicer,” says student loan expert Mark Kantrowitz. “Don’t wait until December 31 to call the loan officer.