(Bloomberg) — The Biden administration’s announcement that qualified borrowers can get up to $20,000 in federal student loan forgiveness drew initial cheers from many of the 43 million Americans eligible for debt relief. Then came a barrage of questions.
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The Department of Education has offered some information about what borrowers can expect and will release more in the coming weeks.
For now, there are several key dates to be aware of: Applications will open online in early October and will take four to six weeks to process, the department said. That means borrowers will have until Nov. 15 to fill out forms, according to a chart released by Education Secretary Miguel Cardona, in order to receive forgiveness by the end of the pandemic-era payment freeze on Dec. 31. Applications close next year on December 31, 2023. Separately, applications for a limited extension of the Public Service Loan Forgiveness program close on October 31.
Here are some steps you can take to prepare for when the apps become available:
1. Check if you are eligible.
If you earned less than $125,000 in 2020 or 2021 — or if you’re married and both you and your spouse earned less than $250,000 — and you took out federal student loans before June 30, 2022, you’ll qualify for forgiveness. The number to check is your adjusted gross income, or AGI, on tax returns from either of the last two years.
Pell Grant recipients will receive up to $20,000 in debt forgiveness, and holders of other types of federal loans will receive up to $10,000. All federal student loans—including undergraduate loans, graduate loans, spousal loans, and Parent PLUS and Graduate PLUS loans—are eligible.
Borrowers should note that forgiveness is not per loan, but rather per borrower – meaning that if you have taken out multiple federal loans for your own education, or one loan for yourself and one Parent PLUS loan for a child, the your forgiveness is still limited to $10,000 or $20,000, said financial aid expert Mark Kantrowitz. Pell Grant recipients who received a Pell Grant and other federal loans are still eligible for the full $20,000 in forgiveness, even if their grant was less than that amount.
2. Check if you need to fill out an application.
The vast majority of borrowers will need to fill out an application to receive relief. However, about 8 million borrowers will be automatically enrolled in the program because the Department of Education already has access to their income information. This includes approximately 6 million current students who recently completed the Free Application for Federal Student Aid and another 2 million borrowers who have income-based repayment plans and have submitted income information for 2020 or 2021. The Department of Education will contact borrowers who are automatically entitled to share them.
If you are not in this group, you will need to fill out an application.
3. Sign up for Department of Education updates, make sure your contact information is up to date with your loan servicer.
To ensure you are notified when the forgiveness application goes live, sign up for updates on this Department of Education webpage by selecting “NEW!! Federal Student Loan Updates” and entering your email address.
Next, confirm with your loan servicer that your contact information is current. If you’re not sure who your loan servicer is, you can check your personal dashboard at studentaid.gov.
4. Compile your 2020 and 2021 tax returns.
The purpose of the application is to gather income information to determine eligibility, so borrowers should have 2020 and 2021 tax returns available in order to find their adjusted gross income.
5. Decide if you want to consolidate your eligible personal loans — and if you do, start right away.
Private loans, including Federal Family Education Loans (FFELs) that are backed by the government but originally held by private companies, are not eligible for relief — but borrowers with FFEL loans can consolidate them into direct federal loans to become eligible. They can do so by going to the federal student aid website and filling out an application (available here), Kantrowitz said.
Applicants who wish to consolidate their loans into Direct Loans to be eligible for forgiveness should begin that process immediately, Kantrowitz said, as it can take 30 to 45 days to process the consolidation, and the department recommends borrowers to submit applications until November 15.
6. Check if you are entitled to a refund for any payments you made during the pandemic.
Payments made during the pandemic pause can be returned and then forgiven. In some cases, the department said, the refunds will be automatic: Borrowers who apply for and successfully receive student loan forgiveness will automatically be refunded the amount of their voluntary payments if those payments “bring your balance below maximum amount of debt relief you’re eligible to receive but didn’t pay off your loan in full,” according to the department’s Frequently Asked Questions.
Other borrowers with direct loans, FFELs or Perkins held by the Department of Education can still get refunds and then forgiveness for voluntary payments made during the pandemic — they just need to contact their loan servicers.
7. Consider other forgiveness and repayment options.
The one-time loan forgiveness program is not the only option available to borrowers. Last October, the Department of Education announced a one-time extension of eligibility for public service loan forgiveness. Applications for this program are due October 31 and are available on the student aid website.
The department is also undergoing a one-time adjustment to income-based repayment plans to address past counting and eligibility inaccuracies. This adjustment is automatic, so you don’t need to worry about an app. But only Direct Loan borrowers are eligible, meaning those with FFEL loans who want to qualify must consolidate those loans into a Direct Loan. More information is available on the student aid website.
The Department of Education proposed a new income-based repayment rule that would cap monthly bills at 5% of discretionary income, instead of 10% — cutting payments in half for many borrowers. Those rules likely won’t be finalized until several months into 2023, student loan experts say, but borrowers should keep the potential change in mind for planning purposes.
Borrowers defaulting on Direct Loans, FFEL loans and Perkins loans held by the Department of Education are eligible for the Fresh Start program, which was announced in April and runs for one year after the payment freeze ends on Dec. 31. The department will reach out to eligible borrowers “in the coming months” with instructions on how to access the program, according to the aid website.
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