The White House recently forgave up to $10,000 to student loan borrowers as part of a larger debt forgiveness program. There are still quite a few questions to be answered, but here are some key points to know.
Pell vs. non-Pell: Loan forgiveness of up to $10,000 is available to non-Pell Grant recipients and up to $20,000 for Pell Grant recipients. Only Federal student loans are able to be forgiven. Loans held through a private lender are ineligible for this program.
No Surplus: The amount of student loan forgiveness available depends on how much you still owe and the timing of your payments. If you only owe $8,000 in federal loans but qualify for $20,000 of relief, you will not be receiving the surplus of $12,000 unless those payments (or a portion of them) were reduced/paid during the federal payment freeze. What does this mean? Check out this example from Forbes:
“If you made payments and paid off your federal student loans during the federal payment freeze—or reduced your balance to less than the forgiveness amount—you can get a refund of your payments to maximize the value of this forgiveness opportunity.
For example, let’s say you had $10,000 in federal student loans in March 2020. Due to the 0% interest rate, you decided to pay back your loans aggressively and made extra payments throughout the pandemic. Today, your loan balance is $2,000. If you’re eligible for Biden’s forgiveness plan and didn’t take any action, you’d qualify for just $2,000 in loan cancellation.
But if you request a refund, you could potentially get $8,000 of your payments returned to you. With your student loan balance returned to $10,000, the government would forgive that full amount. Thanks to this program, you’d get $8,000 in cash to use for your other financial goals—and you’ll still be free of student loans.
It’s important to note that the Department of Education has not yet released precise details about how student loan refunds will work with Biden’s new forgiveness opportunity, and some experts recommend borrowers wait to request a refund until official guidance is available. Borrowers can sign up for notifications from the Department of Education to get the latest information.”
Income Cap: Borrowers with pandemic-era salaries under $125,000 (for individuals) or under $250,000 (for married couples or heads of households) are eligible for relief.
Loan Dates: Federal loans taken out after June 30, 2022, do not qualify for loan forgiveness. There is also no promise for future forgiveness.
Application Process: Depending on your lender, you may already be approved and have your account credited by the end of the year. However, an application is expected to be released in the coming weeks before the student loan payment pause ends on December 31, 2022.
Is This Guaranteed: There have been talks about challenges to this forgiveness, so all concerned parties are encouraged to stay up to date on all news, apply and follow all given steps in a timely manner, and keep documentation of their process.
Be Aware: As more details are released, scams may also pop up. Remember to practice caution and good business sense if someone contacts you about your student loans.
More details can be found in “FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most.”
Sources: https://www.forbes.com/advisor/student-loans/student-loan-payment-refunds/
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Published for the blog on September 8, 2022 by Allos Investment Advisors®, LLC.
