How student loan borrowers can prepare to apply for forgiveness

(The Hill) – In a matter of weeks, the Biden administration is set to unveil an application for student borrowers to sign up for up to $20,000 in loan forgiveness.

In the effort announced last week, some borrowers can apply for forgiveness of up to $10,000 and double that amount for Pell Grant recipients.

The administration said up to 43 million borrowers can see relief as part of a broader program, and most of these borrowers make under $75,000 per year.

Applications are expected to decline by early Octoberand borrowers will have a short window to apply if they want to see the relief come into force before the end of the year.

Here are some key steps current student borrowers can take to prepare for the application process.

Log in to your student aid account

It’s been a while since many student borrowers have had to pay off their debt, and some new borrowers haven’t yet done so thanks to a year-long pandemic freeze on payments set for the next few months.

One of the first things experts are urging borrowers to do in the coming weeks is log into their accounts at StudentAid.gov. There, borrowers will be able to view a breakdown of federal loan and grant information as well as track and manage their federal loans.

“Some borrowers, depending on when they enroll, may need to establish 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 had that ID when they were students.”

Gentry stressed that borrowers should make sure now “that their contact information is up to date” with the loan servicer and the Department of Education on their StudentAid.gov account.

The agency said about 8 million borrowers could be eligible for automatic relief if “relevant income data is made available” to the office. But borrowers will also be able to apply for forgiveness in early October if the agency does not have that income data.

Borrowers who continue to make payments during the pandemic may also be eligible for a partial refund.

More details are expected to come out about the plan in the next week, but borrowers can also sign up update on the department’s main website.

Find out which loans you have

President Joe Biden’s forgiveness plan likely won’t solve personal loan debt, experts say, though there are questions about whether borrowers with certain loans will be excluded. by private lenders will be able to see relief.

in in particular, experts are waiting for more information on how the department will handle Federal Family Education Loan Program (FFELP) loans.

FFELP loans “are issued by private and state lenders, but they are guaranteed by the federal government,” Gentry explained. “So what that means is that if one of those borrowers defaults on their loan, the government will pay the private and nonfederal entities that are the lenders to replace their losses.”

“When we moved to 100 percent direct lending a little over a decade ago, some of them [FFELP] The portfolio of lenders was purchased by the federal government … so those loans that were purchased at that time basically became like federal loans,” he continued.

However, Gentry said some FFELP loans are held commercially still owned by private lenders and the state.

“We are still waiting for more information about what the community is holding commercially [FFELP] the loan will have to be made to access forgiveness, will there be a way for them not to take action to receive forgiveness or will they have to consolidate,” he said.

Check your income eligibility

Eligibility for relief extends to borrowers with incomes of less than $125,000 for individuals and $250,000 for married couples and heads of households.

Experts say that the amount will be based on the income earned in 2020 and 2021, so borrowers should have that information.

“Borrowers should make sure that they have access to those tax returns so that they have a sense of what their income was reported in that year,” Katharine Meyer, fellow for the Brown Center on Education Policy at the Brookings Institution, said.

“My policy reading will be based on the lower of those two, so they need to know which household income is lower in those two years,” he said.

Meyer also said that borrowers shouldn’t worry too much about the tax implications of this forgiveness program, noting “an exception to repaying the debt that is forgiven now that runs until the end of 2025.”

However, there are questions raised about borrowers having to pay some state taxes for dependent relief where they live.

Contact with other programs

Many borrowers may participate in federal income-driven repayment plans and may be eligible for Public Service Loan Forgiveness (PSLF).

The Department of Education now lists four income-driven repayment plans online that have different durations and payment thresholds depending on factors such as higher education level and income.

Under the current PSLF program, borrowers with government jobs or who work in nonprofit organizations can qualify for forgiveness after 120 eligible monthly payments, or a decade of consistent payments.

Experts are urging borrowers to quickly apply for the program before the October deadline.

“One potential area for confusion that borrowers will face in the coming months is the dual deadline for submitting potential forgiveness, and the process for applying for the temporary public service loan forgiveness program,” Meyer said. “The program has a deadline of October 31.”

That deadline is important, Meyers said, because of the temporary nature of the Department of Education’s eligibility requirements for the PSLF program which is set to lapse.

“These are things like counting previous payments that weren’t made on an income-driven payment plan for forgiveness,” he said.

“Many people may need to consolidate their loans in order to qualify for the program,” he added. “The consolidation should not affect the eligibility of the loan to be forgiven whenever the process is rolled out. But I can see how many borrowers would be confused about that.

Prepare that budget

Borrowers will have until the end of next year to apply for the broader forgiveness program announced last week. But they are advised to apply by November 15 if they want to see the relief come into force before the end of the year – which is when the current pandemic freeze on payments will expire.

The moratorium, which also applies to interest accruals, was extended last week until December 31, marking the seventh time the moratorium has been renewed since it was first implemented in March 2020.

However, the Biden administration has made it clear that it will not shoot for an eighth extension, which means many borrowers will likely have to prepare for regular payments for the first time in years.

A report issued by Education Data Initiative earlier this year put the average monthly student loan payment at about $460. But borrowers can pay more or less depending on their repayment plan.

For example, the Department of Education states on its website that some borrowers may qualify for zero dollar payments if they make a certain amount.

“If you’re in financial trouble and you expect to be in financial trouble, you can explore your options with loan services,” says student loan expert Mark Kantrowitz. “Don’t wait until December 31st to call the loan provider.”

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