The Biden Administration and the Department of Education recently announced a three-part plan to help federal student loan borrowers. Borrowers are eligible for relief if their individual income is less than $125,000 or $250,000 for households. The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients. Relief is capped at the amount of the loan balance, so the amount will not exceed what is due on the student loan itself.
Many borrowers with income information already on file with the Department of Education may automatically receive student loan forgiveness. For those that do not have income information on file, will need to apply. The Department plans to open an online application in mid-October with a four to six week turnaround time once the application is submitted.
This post is a short summary of the announcement. Details and deadlines may change as the program rolls out. For full information and updates visit: https://studentaid.gov/debt-relief-announcement/
How will forgiveness be applied to student loans?
For borrowers with multiple separate student loans, the Department of Education has indicated this may be how relief is applied
Defaulted Department of Education-held loans;
Defaulted commercial FFEL Program loans;
Non-defaulted Direct Loan Program loans and FFEL Program loans held by the department;
Perkins Loans held by the department.
If the borrower has multiple loans in a specific type of loan program (such as multiple Direct student loans), the department will apply the relief in this order:
Loans with the highest interest rate
If interest rates are the same, student loan forgiveness will be applied to unsubsidized loans first then to subsidized loans.
If the interest rate and subsidy status are the same, the department will apply the loan forgiveness to the most recent loan.
If all conditions are the same, the department will apply relief to the loan with the lowest combined principal and interest balance.
What Happens to the Remaining Loan Balances after the $10,000-$20,000 Student Loan Forgiveness?
Borrowers with remaining balances will need to watch for updates from the Department of Education and their loan servicer to determine remaining balances and set up payment plans. The Education Department has confirmed those with a remaining balance following forgiveness could have their loans re-amortized and potentially reduce their monthly payments.
What Happens to the Remaining Loan Balances after the $10,000-$20,000 Student Loan Forgiveness?
Borrowers with remaining balances will need to watch for updates from the Department of Education and their loan servicer to determine remaining balances and set up payment plans. The Education Department has confirmed those with a remaining balance following forgiveness could have their loans re-amortized and potentially reduce their monthly payments.
