The student loan crisis has reached a breaking point as the average student loan balance totals tens of thousands of dollars. Many students have found that their balance grows due to high-interest rates even as they make payments. This has prompted many to call for a forgiveness program to relieve low-income and middle-income borrowers.
Although this proposal proved politically divisive, it came to fruition on August 24, 2022, when President Biden announced that the White House would roll out a partial forgiveness initiative. This announcement garnered a predictably mixed response, but if you’re one of the many students who may benefit from it, there are a few things you should know. Find out when the student loan relief program is launching and how you can take advantage of it.
What Is Student Loan Relief?
Student loan relief is a federal initiative to lessen the burden of debt that many people face from student loans. Loan forgiveness is a form of relief wherein borrowers have eliminated part or all of their debt. In the case of the program that Biden announced, students will be able to have up to $20,000 forgiven.
This includes $10,000 for all student debt accounts and $20,000 for debtors who received a Pell Grant while attending school. In addition to the forgiveness program, Biden announced that relief efforts would include an extension of the pause on repayments and a new income-based repayment plan.
How Do I Check Whether I Received a Pell Grant?
If it’s been many years since you attended college, you might not remember whether you received a Pell grant. Luckily, it’s easy to check. Borrowers must log onto the Federal Student Aid website and find their aid summary. This page will provide the details of all the funding you received while in school, including your student loans and any Pell Grants you may have received.
What if You Have Less Than $10,000 in debt?
Students who are eligible for student loan forgiveness — but with a balance of $10,000 or less — will have the entirety of their loan forgiven. They will not receive any surplus payment to account for the difference between their balance and the $10,000 sum.
How Do You Qualify?
Qualifying for federal student loan relief is simple. The only criteria that you must meet concerns your income bracket. Loan forgiveness is available to individual borrowers with an adjusted gross income of less than $125,000 annually and $250,000 for married couples. For loan forgiveness, lenders will consider borrowers’ income from 2020 or 2021.
What Happens if You Are a Student Currently?
Some — but not all — current students will also be eligible for loan forgiveness under Biden’s plan. If the student is a dependent of their parent, eligibility will be contingent upon their parent’s income and subject to the aforementioned $125,000 and $250,000 thresholds.
Students who are not dependents will be eligible for relief student loans based on their income. Students should note, though, that loans disbursed after June 30, 2022, do not qualify for forgiveness — so if a student began school after this date, they would not benefit from Biden’s debt relief program.
Do You Have to Apply for Student Loan Relief?
Biden’s announcement also provided information on the process students would need to follow to take advantage of the program. According to the announcement, there is no application necessary if the U.S. Department of Education has up-to-date information for your income on file. This will be true for most borrowers who have enrolled in income-based repayment plans for their student loans. If this applies to you, debt cancellation will be automatic.
Those whose information is not on file with the Department of Education must apply. The application will ask questions about the student’s loan balance, servicers, and income level. The White House has not yet announced when the application will become available, but sources project that it will go live in early October.
How Long Will It Take for Forgiveness to Process?
It’s unclear how the timeline for debt relief student loans will play out. Many sources have speculated that processing may begin as soon as early 2023. Experts predict that the process itself will take between four to six weeks after this point. Borrowers can confirm that their lender applied forgiveness to their account by checking their account balance and staying on top of communications from their loan servicer.
What Else Is Changing About Federal Student Loans?
A few other significant changes are coming to the student loan system that may affect borrowers. The biggest of these changes is introducing a new income-based repayment plan that will lower many borrowers’ monthly payments. This new plan mandates that borrowers’ repayments should not exceed 5% of their discretionary income — and most lenders define discretionary income as the amount of your income left over after you pay your living expenses and other necessary expenses.
Most notably, many borrowers will not have to make any payments. The announcement indicated that borrowers who earn less than 225% of the federal poverty level would have to make monthly payments. This figure translates to about $15 an hour — which is more than double the federal minimum wage — so many borrowers will experience immediate relief from their debt.
Finally, the new program mandates that after ten years of repayments, students who had an initial balance of $12,000 or less on their loan will have the remaining balance forgiven. Public employees who seek relief on student loans through the Public Service Loan Forgiveness program can also expect increases in the amount of relief they are eligible for.