The Biden administration is rolling out its new, sweeping initiative to enact broad student loan forgiveness for millions of borrowers. The plan will provide up to $20,000 in student loan cancellation for qualifying borrowers.
The initiative will become active within a matter of weeks, according to the Department of Education, with an application available by early October. In the meantime, here’s what student loan borrowers can do to get ready.
Review Your Student Aid Record For Pell Grants, Which May Increase Your Student Loan Forgiveness Award
Under the Biden plan, a key element that will determine the amount of student loan forgiveness for a borrower is whether the borrower received a Pell Grant as part of their financial aid package. Pell Grants are a type of federal student aid awarded to low-income families that does not have to be repaid. Borrowers who received a Pell Grant can get up to $20,000 in student loan forgiveness under the Biden initiative. Borrowers who did not receive a Pell Grant can get up to $10,000 in student loan forgiveness.
You can preview your loan forgiveness eligibility now by reviewing your student aid record at StudentAid.gov, the Department of Education’s federal student aid portal. Your online Student Aid account will display Pell Grant information.
Check Out Your Federal Tax Return for Income Eligibility for Student Loan Forgiveness
To qualify for Biden’s student loan forgiveness plan, borrowers must earn under $125,000 in annual income, or $250,000 if they are married.
The key metric in determining income eligibility under Biden’s plan is the borrower’s Adjusted Gross Income (AGI) as reported on their federal tax return. The Education Department recently clarified that the borrower’s AGI must be within the income limits in either 2021 or 2020. Review your federal tax return for the last two years to see if you qualify. And if you requested a filing extension for tax year 2021, now might be a great time evaluate your projected AGI with your tax preparer before filing.
Evaluate Repayment Plan Options For After The Student Loan Pause Ends
In conjunction with the student loan forgiveness announcement, the Biden administration also extended the ongoing student loan payment pause to December 31. That means that billing will resume in January or February. The administration indicated this would be the final extension of the pause.
Now is a good time to re-evaluate your repayment plan options, particularly in light of student loan forgiveness eligibility. Borrowers with a reduced principal balance may no longer qualify for certain income-driven repayment plans if they no longer have a “partial financial hardship” based on their income levels relative to their federal student loan debt. And borrowers who were previously on a Standard, Extended, or Graduated repayment plan will be able to have their loan balances re-amortized, potentially resulting in a lower monthly payment, according to the Education Department.
Borrowers can review repayment plan estimators at StudentAid.gov.
Review Other Student Loan Forgiveness Opportunities
The Biden administration estimates that close to 20 million borrowers may have their student loan balances completely wiped out under Biden’s student loan forgiveness plan. Other borrowers will be left with remaining balances to be repaid.
But borrowers with remaining balances may still have additional opportunities for relief — some of which are time sensitive:
- The Limited PSLF Waiver temporarily relaxes the rules governing Public Service Loan Forgiveness, a student loan forgiveness program for borrowers who have been working in nonprofit or government jobs. Time is running out to apply, as the waiver ends on October 31.
- The IDR Account Adjustment provides a one-time, retroactive fix that may allow millions of federal student loan borrowers to advance their progress towards eventual loan forgiveness. The Education Department indicates that borrowers who have been in repayment for 20 or 25 years may get their balances forgiven through the initiative. But some borrowers — in particular, borrowers with commercially-held FFEL student loans — may need to take action before January to benefit.
- The Education Department is in the process of finalizing a settlement to resolve a lawsuit brought by borrowers over stalled Borrower Defense to Repayment applications. Borrower Defense to Repayment provides for loan forgiveness for borrowers who were misled or defrauded by their schools. There is a short window of time for borrowers who attended a list of covered schools to apply for relief through Borrower Defense to get at least some benefits from the settlement.
Evaluate Whether Consolidation Is Necessary to Get Student Loan Forgiveness
Government-held federal student loans, which include all Direct-program student loans as well as some FFEL loans and Perkins loans held by the Education Department, can qualify for the $10,000 or $20,000 in student loan forgiveness under the Biden plan. Essentially, if your loans have been covered by the ongoing Covid-related student loan pause, they can qualify for Biden’s student loan forgiveness.
But commercially-held FFEL loans do not automatically qualify for the relief. The Education Department has indicated that these borrowers can consolidate their loans via the Direct consolidation program to benefit. Similarly, Direct loan consolidation may also be necessary for these same loans to qualify for relief under other temporary initiatives, including the Limited PSLF Waiver and the IDR Account Adjustment.
However, Direct loan consolidation does not always make sense for borrowers, and there could be some downsides, including interest capitalization and the loss of an interest rate reduction. Borrowers can review the pros and cons of Direct loan consolidation here. In the meantime, the Education Department has indicated that it is exploring a possible expansion of the Biden student loan forgiveness initiative to include commercially-held FFEL loans, although there is nothing concrete yet.
Sign Up For Student Loan Forgiveness Updates
The Biden administration has indicated that a student loan forgiveness application for the $10,000 or $20,000 in loan forgiveness should be available on StudentAid.gov by early October. Borrowers can sign up for alerts via email or text message so you can get notified when the application is live.
Further Student Loan Reading
5 Major Updates On Biden’s Student Loan Forgiveness Initiative
Biden’s Student Loan Forgiveness Could Be Taxable In Some States
If You Went To These Schools, You May Qualify For Student Loan Forgiveness: Here’s What To Do