Student Loan Forgiveness, Part II
Since I last wrote about the announced student loan forgiveness plan a few weeks ago, there have been a few questions and developments. Today’s post*** will cover some of that, whether you should request a refund for payments made between March 2020 and the announced plan, and whether you should continue paying until forgiveness occurs.
Will I get $20,000 of forgiveness if I ever had a Pell Grant*?
As far as I can tell, yes! If you ever had a Pell Grant, for any amount, and you make under the income limits** ($125,000 for single filers, $250,000 for joint filers), you are eligible for up to $20,000 in forgiveness. The “up to” just means that if you owe less than $20,000, they are not going to give you a refund. The same “up to” language applies if you are eligible for $10,000 in forgiveness. If you owe less than $10,000 you will still only receive forgiveness on what you owe.
Should I request a refund?
If, because you have been making payments between March 2020 and the announced forgiveness, you now owe less than what you would receive, you should automatically get a refund for the difference. So, if you owed $10,500 in February of 2020 and paid $1,000 over the last two years and now your balance is $9,500 but you would receive $10,000 in forgiveness, you will receive a refund (i.e. money back to you) for $500. You must have made these payments during the period of March 2020 to present and have a balance less than what would have been forgiven.
If, after forgiveness you still will have a balance, there is no need to request a refund. The progress you’ve made between March 2020 and today is huge – your payments have had a greater impact because of the 0% interest for the last two and half years. When loans accrue interest and we don’t pay off that interest in full (which was happened for a lot of people and is part of the new relief plan – if a person’s monthly payment doesn’t eliminate the interest every month, the interest will be forgiven), the interest becomes part of the principal, and we then pay interest on interest. So, for the last two years, with 0% interest, your payments have gone only to principal and no interest has accrued nor has any become more principal. If you have not suffered other financial hardships during the last two years, this is an excellent time to really make a dent in your debt.
How will I get my student loans forgiven if I am eligible?
For a lot of people, relief will happen automatically and relatively soon. Automatic relief will happen for about 20% of borrowers, and it will happen if your income information is in the system. I imagine this would be the case if you are on an income-based repayment plan or had to verify your income in years 2020-2021. If your income is not on file, or you’re not sure, in early October the Department of Education will release an application which you can submit. The Department indicates that once the application is received, individuals should see debt cancellation happen within 4-6 weeks. Once your debt is cancelled, you will get an email from your servicers and studentaid.gov. It will be important to fill out this application immediately. In January 2023, interest and payments will resume and it will be great to pay less interest on loans because the balance is smaller.
What steps do I need to take to prepare for forgiveness?
Log into studentaid.gov and make sure all your contact information is up to date. You can receive email and text updates (if you opt-in for text updates). Similarly, make sure your contact information is up to date on your servicer’s website. If you haven’t created accounts with studentaid.gov or your servicer, now is the time to do so.
Additional questions and share your wins!
Have any other questions about student loans or the relief plan? Feel free to write! Also, share your wins when they come! This a great thing to celebrate together!
*You can check whether you received a Pell Grant by visiting studentaid.gov and on the front page of your account, click “My Aid.” This page will tell you what, if any, grants you received.
**Income limits are based on 2020 or 2021 income limits and on adjusted gross income (AGI). You can look at your tax filings to see what your AGI was during these years. Your AGI appears on form 1040 line 11. It appears that the Department of Education will be using the lesser income of these two years.
***This information has been gathered from https://studentaid.gov/debt-relief-announcement/one-time-cancellation. You can sign up to receive direct information from the Department of Education at https://www.ed.gov/subscriptions.