Have you been wondering Will Loan Forgiveness Happen? Borrowers who make less than $125,000 as an individual or $250,000 as a family will get up to $20,000 back.
On August 24, after months of rumors, President Joe Biden gave details about his plan to forgive student loans.
Federal student loans can be cancelled for people who earn less than $125,000 and filed taxes as an individual or less than $250,000 and filed taxes as a married couple. Those who got a Pell Grant as part of their aid package will get $20,000, and those who didn’t will get $10,000.
With an executive order, the plan could help up to 20 million people get rid of their student loan debt. If there are no legal challenges, people will be able to apply for cancellation in October. Some borrowers could have their loans automatically canceled if the Department of Education already has information about their income.
During his campaign for president, Joe Biden said that each borrower would get $10,000 back on their student loans. Now, President Biden has said that the government will forgive up to $20,000 in federal student loan debt for each borrower who is eligible. In the news release, they also said that the federal student loan payment pause would be extended, among other things. Here are some of the most recent announcements and other events. This article will keep getting updated as more information comes out.
Latest Student Loan Forgiveness Updates
On August 24, 2022, President Biden said that people who make less than $125,000 a year (or $250,000 for a household) would get up to $10,000 off their federal student loans, while Pell Grant recipients would get $20,000 off.
Also, federal loans won’t have to be paid back until the end of 2022. After that, payments will start again. Soon, the Education Department will explain the plan in detail and tell people how to fill out an application to get the forgiveness.
Aside from the forgiveness part, Biden said that income-based repayment plans would be limited to 5% of discretionary income, down from the 10% limit that is in place now.
Before the latest announcement, the Biden Administration focused on getting rid of student loans that were used to attend for-profit colleges like Corinthian Colleges that were found to be cheating their students. The Education Department said that on June 1, 2022, it would forgive $5.8 billion in loans for these schools.
The Public Service Loan Forgiveness program is also being changed to “restore the promise of PSLF,” according to a fact sheet from the Education Department. A key part of the change is a one-time waiver that will let payments from all federal student loan programs, even ones that weren’t eligible before, count toward the Public Service Loan Forgiveness program. On October 31, 2022, these changes will end.
On August 19, 2021, the Department of Education said that more than 300,000 borrowers who have a total or permanent disability will get $5.8 billion back on their loans. The Social Security Administration’s data would be used to help the Department of Education find borrowers who are eligible for the automatic discharge.
Other Recent Changes to Student Loan Forgiveness
The U.S. Department of Education and the Justice Department are looking into whether the President has the legal power to use executive action to forgive up to $50,000 in federal student loan debt. No plan has been made for when these reports will be made public. Congress hasn’t yet confirmed key policy advisors in both departments, so there could be delays.
The Domestic Policy Council at the White House will think about how student loan forgiveness should be targeted, whether it is done through executive action or through laws.
Scams that promise to forgive your student loan debt in exchange for a fee should be avoided. When student loan forgiveness is put into place, it will probably be free and happen on its own. On the StudentAid.gov website, the U.S. Department of Education will post a new message.
So far, this is what Biden has done for borrowers:
The loan payments that were put on hold with no interest by President Trump have been extended by the White House. The grace period for federal student loans is set to end on December 31.
Other targeted loan forgiveness:
The Department of Education has also made changes to existing loan forgiveness programs. It is estimated that about 1.7 million people have had $34 billion in loans forgiven since Biden took office.
A new payment plan based on income:
With the new IDR plan, how payments are made and how much income is counted will change. Most people who sign up should see their monthly payments cut in half or more.
Relief on defaulted loans:
On August 18, the White House announced a program to start over for more than 7 million people who haven’t paid back their student loans. Not paying back student loans has serious consequences, such as losing tax refunds and Social Security checks and hurting credit for a long time. Most of the consequences of default are taken care of by the Fresh Start program. This is done by getting rid of the penalties and making the loan rehabilitation process cheap and easy for borrowers who want to fix their loans and make a payment plan.
If the loan forgiveness only applies to federally held student loans, borrowers with FFELP loans might want to combine them into a Federal Direct Consolidation Loan. If you consolidate your FFELP loans, you may be able to get a break from payments and no interest until May 1, 2022.
The main risk of consolidation is that it resets the clock for making monthly payments to qualify for 25-year forgiveness in a plan that is based on income. Also, if a student borrower is getting discounts from the FFELP lender, they will lose that benefit if they consolidate. The interest rate on Direct Loans goes down by 0.25% for people who sign up for AutoPay, but there are no other discounts. Other than that, there are no major problems with consolidation.
Borrowers who want to lock in low interest rates may want to wait before refinancing their federal loans into private loans. For loans that qualify for the payment pause and interest waiver, the interest rate is effectively 0% until August 31, 2022. So, in the short term, refinancing will make the borrower pay more. Borrowers with high interest rates may want to look into student loan refinancing options, especially as the Federal Reserve starts to raise its target Federal Funds rate. On the other hand, people who have private student loans and refinance them into a new private loan do not risk losing forgiveness.
Borrowers who still have jobs and can keep making payments on their student loans shouldn’t pay extra on their loans. Instead, they should save the money or pay down other debts. It’s a good chance to start or add to your emergency savings. Most of the time, a borrower who wants their loan to be forgiven shouldn’t make extra payments when they don’t have to. This is because making extra payments reduces the amount of forgiveness they will get. After the details of how student loans will be forgiven are made public, borrowers can use the money they saved to pay off debt as needed.