Everything You Need to Know

Do you have federal student loans? You probably have lots of questions right now.

President Joe Biden announced a first-of-its-kind federal student loan cancellation plan Aug. 24 that would wipe out up to $20,000 worth of federal student loans for millions of Americans.

The process may be automatic for some borrowers. Others will need to fill out an online application, which is expected to go live by early October.

The pause on student loan repayments has also been extended one final time until Dec. 31 — but there’s a lot to figure out before 2022 is over.

Details on the nuts and bolts of this executive order continue to evolve. We’ll know more in the coming weeks, but here are answers to some of our readers’ most pressing questions.

Frequently Asked Questions About Student Loan Forgiveness

1. Who Qualifies for Student Loan Forgiveness?

Any federal student loan borrower earning less than $125,000 a year ($250,000 for married couples) is eligible for $10,000 in loan forgiveness.

Borrowers who went to college on Pell Grants can receive $20,000 in forgiveness. (Pell Grants don’t have to be repaid but are given based on financial need.)

Eligibility will be based on your adjusted gross income. If your AGI was less than $125,000 for either 2020 or 2021, you’re eligible.

2. Do You Need to Apply to Qualify for Loan Forgiveness?

Possibly.

Loan forgiveness should be automatic for borrowers who meet the income requirement and recertified their income this year with the U.S. Department of Education.

For example, if you enrolled or reapplied for an income-driven repayment plan on studentaid.gov and submitted your most recent tax return, you shouldn’t need to do anything else.

You Might Have Apply for Loan Forgiveness if …

Otherwise, you’ll need to fill out an application to receive federal student aid forgiveness. The application is expected to go live on studentaid.gov by early October.

Once it’s available, the sooner you can submit your application, the better. This is a first-of-its-kind program, so there’s bound to be delays and hiccups. Give yourself a buffer before the student loan pause ends Dec. 31.

Once you apply, it may take four to six weeks before your student loan balance is adjusted.

3. Which Student Loans Don’t Qualify for Forgiveness?

Private student loans don’t qualify for forgiveness. Some loans granted through federal programs may not either, especially those that weren’t eligible for the payment pause. Full details haven’t been released yet.

The following loans may not be eligible:

• Federal Family Education Loan (FFEL) Program loans not held by the U.S. Education Department that are current.
• Federal Perkins Loans not held by the U.S. Education Department, both defaulted and not defaulted.
• Health Education Assistance Loan (HEAL) loans not in default.

Some FFEL Program and HEAL loans were guaranteed by the government but owned by private companies. It’s estimated that about 5 million borrowers have a commercially held FFEL loan.

If you have commercially-held FEEL loans, contact your loan servicer. You may be able to consolidate your FEEL loans into the Direct Loan Program and benefit from cancellation.

4. What’s the First Thing I Need to Do if I Qualify for Student Loan Forgiveness?

Make sure all your information — including your email, phone number and address — is up to date with your loan servicer.

They’ll reach out to you in coming weeks with more details about student loan forgiveness.

This is also a good time to get familiar with your loan servicer’s website and how much you currently owe.

5. It’s Been a While. What If I Don’t Remember Who My Loan Servicer Is?

You can login to studentaid.gov to access all your loan information, including your servicer.

If you’re having trouble resetting your password, finding your username or unlocking your Federal Student Aid account, you can call their information center at 1-800-433-3243.

6. Will I Get a Refund if I Made Student Loan Payments During the Covid-19 Pause?

Yes, according to the U.S. Department of Education.

You can get a refund for any payment (including auto-debit payments) you made since March 13, 2020.

Details are still murky. Studentaid.gov suggests contacting your loan servicer to request that your payments be refunded.

7. I Only Had the Pell Grant for a Year — Or I Only Received a Partial Pell Grant. Do I Still Qualify for the Full $20,000?

Yes, if you received a Pell Grant at any time, you qualify for forgiveness.

8. How Do I Find Out If I Had a Pell Grant in College?

Login to studentaid.gov. You’ll need to retrieve your login credentials if you haven’t signed in for a while.

Once you’re in, hover over your name in the upper right hand corner and click Dashboard.

You’ll see two side-by-side pie charts, one for the amount of loans you owe and one for the amount of grants you received. If you received a Pell Grant, it will tell you under the chart, along with how much money you received.

9. Does this Loan Forgiveness Apply to People Currently Enrolled in College?

Current students with loans are eligible for this debt relief, according to The White House.

But if you’re considered a dependent student for financial aid purposes, eligibility will be based on your parents’ income, not your own.

The application for student loan forgiveness will close by Dec. 31 — so any federal student loans you receive after that date won’t be eligible for this program.

Don’t expect widespread student loan relief like this again either. Biden has been firm on $10,000 in forgiveness since he was on the campaign trail and his administration hasn’t signaled any interest in another round of loan cancellations like this.

10. Are Parent PLUS Loans Eligible for Forgiveness?

Yes, Parent PLUS qualify for student loan forgiveness.

11. Are Graduate Student Loans Eligible?

Yes, PLUS loans for graduate students are eligible.

12. Do I Still Qualify for Forgiveness, Even if I Didn’t Finish My Degree?

Yes, you just have to have federal student loan debt and meet the income requirement.

13. Is It $10,000 in Forgiveness Per Borrower or Per Loan?

Student loan forgiveness is granted per borrower, not per loan.

14. Do I Qualify for Forgiveness if My Loans Were in Default?

Yes. Your federal student loans will be eligible, even if you were in default prior to the COVID-19 payment pause.

Your loans will also remain in good standing — they won’t go back to default status — for a full year after payments resume. During that time, you can make long-term payment arrangements and stay out of default for good.

The U.S. Department of Education is calling it a “fresh start.”

15. I Have More Than $10,000 or $20,000 in Loan Debt. How Will My Monthly Bill Change Once Payments Resume?

Payments will be recalculated after the loan forgiveness is applied to your balance. But details haven’t been released yet on how that will work.

If the cancellation wipes out a big part of your student debt, your monthly payment will likely shrink. If you have a six-figure balance, your monthly payment probably won’t get much smaller.

If you’re enrolled in an income-driven repayment plan, your monthly payment may change — whether a big chunk of your debt is canceled or not.

The Biden administration has proposed lowering the parameters for how income-based payments are calculated. For example, borrowers pay 10% of their discretionary income now. The new rule drops that percentage to 5%.

16. Will Student Loan Forgiveness Improve My Credit Score?

Probably.

If a big part of your student loan debt is erased, your credit score will improve because it will reduce the overall debt shown on your credit reports.

If your student loans were in default prior to the pause, your credit score could really get a boost, thanks to the Fresh Start initiative.

Fresh Start will last one year after payments resume. During this time, all borrowers with eligible defaulted federal student loans will have their debts marked “current” to credit reporting agencies.

If you make long-term payment arrangements with the U.S. Education Department during this time, your loans will be transferred to a non-default loan servicer and the default status will be removed from your credit reports.

If you have defaulted federal student loans, you can make payment arrangements by visiting myeddebt.ed.gov, contacting your loan holder or calling the Default Resolution Group at 1-800-621-3115.

If you’re hoping for a positive bump in your credit score, check your credit reports starting in mid- to late-October.

You can check all three of your credit reports for free once a week until the end of 2022 at the federally authorized AnnualCreditReport.com.

17. Do I Have to Pay Federal Taxes on the Forgiven Debt?

No, you won’t owe federal taxes on canceled student loan debt. State income taxes may apply.

18. Are There Other Federal Student Loan Forgiveness Programs I May Be Eligible for?

Yes.

The Aug. 24 executive order is the broadest cancellation of student loan debt in history, but the Biden administration has been steadily chipping away at targeted relief for borrowers since the pandemic.

The result? A patchwork of other student loan forgiveness programs implemented by the White House since Dec. 31, 2020, including debt cancellation for people with permanent disabilities, military veterans and those defrauded by certain schools, like ITT Tech.

You can read up on all the federal student loan forgiveness programs here.

It’s smart to reach out to your loan servicer to see if you qualify for any other programs. They can also help you pick the best repayment plan for your budget and tell you how to apply.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.

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