Student Loan Forgiveness: What Is It?

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Student Loan Forgiveness debt relieves borrowers of their obligation to repay part or all of their federal student loan debt. These borrowers have taken out loans for their post-secondary education. Some types of loans can be forgiven, but eligibility is limited to borrowers in certain public service, educational, or military occupations.

Forgiveness of Student Loans

As the name implies, loan forgiveness means a debt (or part of a debt) that is forgiven—relieving the borrower of its obligation to repay. Although any student loan can theoretically be forgiven, student loan forgiveness generally applies to U.S. government-issued or government-backed loans.

Therefore, the widely publicized forgiveness programs do not apply to any privately issued loans, such as those issued by commercial banks or lenders like Sallie Mae.

Borrowers with eligible loans may be eligible for forgiveness. They must apply for forgiveness and may have to continue making payments until their application is approved.

There has been a growing concern about student debt because of the collapse of several for-profit colleges and the pandemic-induced economic crisis of 2020. The issue of broad loan forgiveness, not just for public service employees, repayment plan participants, or those who have been defrauded by their college, has become widely debated.

FAQs on Student Loan Forgiveness

President Joe Biden’s proposed debt relief package, including up to $20,000 in federal student loan forgiveness for millions of borrowers, and plans for a new income-driven repayment system, was sadly toppled when the U.S. Supreme Court shot it down. Following the unfortunate verdict, his administration hinted that default and delinquency rates might skyrocket if payments were to resume without the cancellation scheme. As a result, on Friday afternoon Biden unveiled measures to give those struggling with student debt some breathing room as they move back into repayment.

How did Biden’s student loan forgiveness program turn out?

During the final day of the Supreme Court’s term in 2022-23, the court ruled against Biden’s plan to forgive $441 billion in federal student loan debt. There is no Biden student loan forgiveness plan at present, so millions of borrowers will have to begin paying back their student loans beginning in October.

As soon as possible, the White House said, the president would take steps to provide debt relief to as many borrowers as possible. The FAQs listed below are in reference to Biden’s original student loan relief program, which is currently suspended. At the moment, it is unclear whether the administration will propose a new broad student loan relief program.

Eligibility for student loan forgiveness

Does student loan forgiveness apply to everyone?

You must have federal student loans and earn less than $125,000 per year (or $250,000 per household) in order to qualify for debt forgiveness.

Up to $20,000 in forgiveness is available if you received a Pell Grant during your education.

Are there any types of student loans that qualify?

Forgiveness is available for all types of federal student loans, including direct subsidized and unsubsidized loans, and graduate and parent PLUS loans. If you qualified for the federal student loan payment pause, your loans are eligible.

FFEL and Perkins loans that aren’t held by the federal government are ineligible for forgiveness, however. All other borrowers in this category cannot currently receive forgiveness, but those who applied for a direct consolidation loan before September 29, 2022, should be eligible.

Forgiveness is also not available for private student loans.

If I received a Pell Grant, how do I know?

In order to check if you received a Pell Grant, log into your account on the Federal Student Aid website. Click on the “Aid Summary” page to view your loans and grants, as well as the status of your accounts.

Do I still qualify for a Pell Grant if I only receive a partial Pell Grant or only receive it for a year?

Regardless of the size or frequency of your Pell Grants, you can still qualify for forgiveness up to $20,000.

If I default on my student loans, what should I do?

With the Fresh Start program from the Department of Education, you may be able to return any remaining defaulted federal loans to good standing if your loans are in default. Direct loans, Federal Family Education loans, and Perkins loans held by the Department of Education are eligible for Fresh Start.

What are the eligibility requirements for parent loans and graduate-level loans?

You may qualify for forgiveness if you have parent PLUS loans or grad PLUS loans.

Can FFEL loans be forgiven?

If your Federal Family Education loans were eligible for the student loan payment pause in effect since March 2020, you may qualify for forgiveness.

Even if you weren’t eligible for the payment pause, you might still be eligible for forgiveness if you consolidate your FFEL loans into a direct consolidation loan before September 29, 2022.

FFEL loans are currently held by private lenders. Borrowers with these loans are not eligible for forgiveness.

Is it okay if I have never graduated or am still in school?

You can still qualify if your loans were disbursed by June 30, 2022, even if you never finished your degree or are still in school.

Is it possible to use student loans for something other than a bachelor’s degree?

Federal student loans can be forgiven even if you have used them for community college, a trade program, a professional degree, or another alternative certification.

Is there a limit to the amount of student loan debt that will be forgiven?

Those who received Pell Grants will receive up to $20,000 in debt cancellation, while those who did not receive Pell Grants will receive $10,000.

The amount of relief you receive is capped at the amount of your outstanding debt, for example, if you qualify for $10,000 in relief but have an $8,000 balance, you will only receive $8,000 in relief.

Is it necessary to apply for student loan forgiveness?

Probably. Nearly 8 million borrowers have their debt forgiven automatically since the Department of Education already has their income data. Everyone else will have to submit their information online through a simple application.

Can you tell me when the student loan forgiveness process will begin?

Since the Department of Education already has their relevant income information on file, some 8 million borrowers will receive their debt cancellation automatically. Other borrowers will have to submit a simple online application. Once their application is submitted, borrowers can expect their debt cancellation within four to six weeks.

What are the steps I need to take to find out if my student loans have been forgiven?

Keep an eye out for any correspondence from your servicer via email or mail, and check your loan balance regularly online once your loan is forgiven.

In the event that I owe more than what has been forgiven, what should I do?

Starting in 2023, borrowers who have loan balances greater than the amount forgiven will resume making payments. Your payments will be recalculated based on your new lower balance, potentially lowering your monthly payment. A new monthly payment amount will be communicated to you by your loan servicer.

After some of my debt has been erased, will my monthly payments be adjusted?

The loan servicer will recalculate monthly payments after forgiveness is processed, so borrowers should stay up-to-date on this information by checking their loan servicer’s website and reading any emailed or mailed correspondence.

Is this kind of debt forgiveness likely to occur again?

There are no indications that mass student loan debt forgiveness will happen again in the future. The Department of Education can continue to forgive student loans owed to predatory schools. However, this kind of broad forgiveness is improbable to occur again for now.

Will Biden be able to forgive student loans?

As a result of multiple legal challenges to the plan, forgiveness of federal student loans has been temporarily halted while the Department of Education appeals the court’s decision. There are growing questions surrounding the legality of Biden canceling federal student loans.

For the latest information, borrowers should refer to StudentAid.gov or subscribe to notifications from the Department of Education.

Is the pause in student loan payments still in effect?

Forbearance of federal student loans has been extended a final time until June 30, 2023, to protect borrowers while legal issues surrounding forgiveness are resolved. Payments will resume 60 days after forgiveness is permitted to proceed or the matter is otherwise settled in the courts. If no resolution is reached by June 30, payments will resume 60 days later.

Based on what tax year does the income cap apply?

The debt relief program is available if your adjusted gross income (AGI) for either the 2020 or 2021 tax year was less than $125,000. Married couples who file jointly or anyone who files as the head of household will qualify if their AGI is less than $250,000.

Is the forgiven amount tax deductible?

A provision in the 2021 American Rescue Plan Act (Biden’s Covid-19 relief bill) exempts student loan forgiveness from taxation until 2025.

How about state taxes?

In thirteen states—Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin—canceled student loan debt may be subject to state income tax. Before deciding how the Biden administration’s new student loan relief program will affect you in terms of your state tax bill it is recommended that you consult your state’s Department of Revenue or speak with a tax professional.

Can I expect to receive a tax form for forgiveness?

IRS Form 1099-C, “Cancellation of Debt,” is typically used for reporting debt forgiveness, but the IRS has instructed student loan providers not to file it for borrowers who qualify for the Biden tax exemption.

Is forgiveness going to affect my student loan interest deduction?

The Department of Education set the interest rate on federal student loans at 0% in response to the pandemic during the last few years, so no federal student loan interest has been deducted. Even if some of your debt is canceled, you will be able to claim an interest deduction if you resume paying interest and federal loan payments.

What is the new repayment plan?

Any unpaid interest will be covered by the Department of Education, so interest won’t accrue and your loan balance won’t grow if you pay your monthly payments.

Any remaining balance after 10 years of regular payments is forgiven if you borrowed $12,000 or less.

Discretionary income: what does it include?

After paying for essentials like housing and food, discretionary income is the remaining income. The difference between your annual income and 150% of the poverty guideline for your family size and location is your discretionary income when applying for federal student loans.

As a result of increasing the amount of income that is protected from repayment, the new repayment plan calculates discretionary income more favorably. No borrower will be required to make a payment if they earn less than 225% of the federal poverty level (about $30,578 for 2022).

Is this plan available to everyone?

There has not yet been a release of the eligibility criteria for this repayment plan.

Some income-driven repayment plans require you to meet certain income thresholds, while others are open to anyone with a federal student loan.

Can I enroll in this plan when it becomes available?

Currently, this plan is merely a proposal and must go through several more administrative steps before it can be made available to borrowers.

If I can’t pay off my loans, are there any other income-driven plans I may sign up for?

You can choose from five income-driven repayment plans for federal student loans. The exact rules vary by plan, but you’re likely to be capped at 10% to 20% of your discretionary income. If you make payments for 20 or 25 years, any remaining balance can be forgiven. Not all federal loans are eligible for this plan.

Use Federal Student Aid’s Loan Simulator to see how different repayment options will affect your loans if you’re not sure which is best for you.

 

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