The Biden administration released significant new details last week on its plan to implement wide-scale student loan forgiveness.
Under the new initiative, millions of federal student loan borrowers will be eligible for $10,000 in loan forgiveness, or up to $20,000 if they received Pell Grants. To qualify, borrowers must earn under $125,000 per year in income, or $250,000 if they are married.
Here are the new updates that student loan borrowers should know about.
Student Loan Forgiveness Application Details
The Education Department indicates that a student loan forgiveness application will be made available in early October. The application should be a fairly straightforward attestation of income, and can be accessed online via the Department’s StudentAid.gov website.
The Department anticipates a four to six week turnaround time once an application is submitted. While officials are encouraging borrowers to submit the application by November 15 so that they can receive loan forgiveness by the time student loan payments restart in January, borrowers will have a full year to submit their application.
The Department recommends logging in to your StudentAid.gov account to ensure your contact information is up to date. You can also sign up for alerts.
Some borrowers who already have recent income information on file with the Department of Education may receive automatic relief. But the Department encourages everyone to apply, anyway.
Details on Student Loan Forgiveness Income Guidelines
The Education Department has indicated that to qualify, borrowers must have earned under $125,000 in income, or $250,000 if they are married, in either 2021 or 2020. That means borrowers can use their income as reported in either of those years. The key figure is the borrower’s Adjusted Gross Income (AGI) as reported on their federal tax return.
Loans That Are Eligible for Student Loan Forgiveness
The Education Department confirmed that nearly all government-held federal student loans, including undergraduate loans, graduate loans, and Parent PLUS loans, can qualify. Government-held loans include all federal Direct student loans, as well as some FFEL-program loans and Perkins loans held by the government. Defaulted federal student loans also qualify.
FFEL-program loans held by private, commercial lenders do not automatically qualify for student loan forgiveness under the Biden initiative. However, the Education Department confirmed that FFEL borrowers “can receive this relief by consolidating these loans into the Direct Loan program.”
Since Direct loan consolidation does not necessarily make sense for all borrowers, the department is also working on a fix to potentially expand access to FFEL borrowers without needing to consolidate.
How Student Loan Forgiveness Will Be Applied
The Education Department has indicated that it will utilize a “waterfall” method when applying the $10,000 or $20,000 student loan forgiveness award for borrowers who have larger balances. The department says it will prioritize the application of loan forgiveness in the following order:
- Defaulted Department of Education-held loans;
- Defaulted commercial FFEL Program loans;
- Non-defaulted Direct Loan Program loans and FFEL Program loans held by the department;
- Perkins Loans held by the department.
For borrowers who have multiple loans in a specific type of loan program (such as multiple Direct student loans), the department will apply the relief in this order:
- Loans with highest statutory interest rate will get first priority.
- If interest rates are the same, student loan forgiveness will be applied to unsubsidized loans prior to subsidized loans.
- If the interest rate and subsidy status are identical, the department will apply the loan forgiveness to the most recent loan.
- If the interest rate, subsidy status, and disbursement date are all the same, the department will apply the loan forgiveness to the loan with the lowest combined principal and interest balance.
Remaining Loan Balances Will be Re-Amortized After Student Loan Forgiveness
The Education Department confirmed that borrowers who have a remaining balance following the student loan forgiveness award and are repaying their loans under a Standard, Extended, or Graduated repayment plan will have their balances re-amortized. That means that the department “will recalculate your monthly payment based on your new balance, potentially reducing your monthly payment. Your loan servicer will communicate your new payment amount to you.”
Education Department officials told borrower advocates during a call last month that many borrowers may see resulting reductions in their monthly payments by potentially hundreds of dollars per month as a result of the re-amortization.
Further Student Loan Reading
Biden’s Student Loan Forgiveness Could Be Taxable In Some States
How To Get Up To $20,000 In Student Loan Forgiveness Under Biden’s New Plan
Biden Announces Historic Student Loan Forgiveness Of Up To $20,000 And Extension Of Student Loan Pause: Key Details
If You Went To These Schools, You May Qualify For Student Loan Forgiveness: Here’s What To Do