Student loan forgiveness: Who qualifies and how to apply

President Joe Biden announced on Aug. 24 that his administration would forgive between $10,000 and $20,000 of federal pupil loan debt for debtors making lower than $125,000 per yr.

Federal Pell Grant recipients who meet the revenue necessities can be eligible for $20,000 in pupil debt forgiveness. 

In the announcement, Biden additionally mentioned he prolonged the scholar loan pause for a “final time” by Dec. 31, 2022. 

VERIFY has acquired many questions from our readers about what the scholar loan forgiveness plan means for them, together with if they’ve to apply for loan forgiveness and whether or not debt forgiveness will likely be thought of taxable revenue, amongst others. 

Here’s what we all know proper now in regards to the Biden administration’s pupil loan forgiveness plan.

Sign up for the VERIFY Fast Facts day by day Newsletter

Is the $125,000 revenue restrict for people or married {couples}?

Borrowers are eligible for pupil loan forgiveness if their revenue is lower than $125,000 for people, and lower than $250,000 for married {couples} or heads of households, in accordance to a White House fact sheet and the U.S. Department of Education.

If an individual’s revenue in both the 2020 or 2021 tax years was beneath these revenue caps, they’re eligible for debt forgiveness, senior officers with the Biden administration mentioned. 

Will you robotically obtain pupil loan forgiveness? 

Nearly 8 million debtors could also be eligible to obtain automated forgiveness as a result of the Department of Education has related revenue information.

Abby Shafroth, director of the Student Loan Borrower Assistance Project on the National Consumer Law Center, informed VERIFY that roughly 6 million out of the 8 million debtors are these whose households lately accomplished the Free Application for Federal Student Aid (FAFSA).

The different 2 million debtors are those that recertified their revenue as a part of an income-based reimbursement plan. 

But the Department of Education probably doesn’t have revenue information for hundreds of thousands of different debtors since they haven’t been required to replace it in the course of the pupil loan fee pause, in accordance to Shafroth and Jessica Thompson, vice chairman on the Institute for College Access and Success.

More from VERIFY: Yes, some federal pupil loan debtors will want to apply for debt forgiveness

If the division doesn’t have your revenue information, you may full an utility that grew to become accessible on Oct. 17, 2022. People have till Dec. 31, 2023 to apply.

The utility was launched in a “beta” format on Friday, Oct. 15. Any pupil borrower who utilized in the course of the beta launch is not going to have to reapply to obtain forgiveness.

The type is presently online-only, though it may be stuffed out each from cell and from desktop. It is available in two languages: English and Spanish.

More from VERIFY: Yes, the scholar loan forgiveness utility is now open

Who qualifies for Pell Grants and how are you aware if you happen to acquired one?

Pell Grant recipients, who will obtain $20,000 in pupil debt forgiveness in the event that they meet the revenue necessities, make up greater than 60% of the scholar loan borrower inhabitants, in accordance to the White House. The Department of Education estimates that roughly 27 million debtors with Pell Grants will likely be eligible for up to $20,000 in pupil debt reduction.

Pell Grants are usually awarded to undergraduate students who “show distinctive monetary want.” Unlike loans, Pell Grants don’t have to be repaid except under certain circumstances.

The quantity a borrower receives by a federal Pell Grant award relies on their Expected Family Contribution, value of attendance at their faculty, standing as a full or part-time pupil, and plans to attend faculty for a full tutorial yr or much less. Pell Grant quantities change yearly and the utmost award for the 2022-2023 faculty yr is $6,895. 

A borrower’s faculty can apply Pell Grant funds immediately to their prices, pay the borrower immediately, or mix these strategies, the Department of Education mentioned.

If you’re unsure whether or not you acquired a Pell Grant when taking out pupil loans, the best method to test is to log into your Federal Student Aid account at studentaid.gov, Thompson mentioned. 

You’ll discover the information about whether or not you acquired a Pell Grant in your aid summary page.

Thompson added that you simply shouldn’t want to show you’ve ever acquired a Pell Grant to the Department of Education.

“They should be able to identify, and certainly have the data to know, who has ever been disbursed a Pell Grant,” she mentioned.

It’s unclear proper now if the Biden administration will launch one other method for debtors to confirm this information.  

More from VERIFY: Yes, there’s a method to test if you happen to acquired a Pell Grant

Do Parent PLUS Loans qualify for debt forgiveness? 

Parent PLUS loans, that are issued to dad and mom of dependent undergraduate college students, are meant to complement different monetary help presents. These debtors are eligible for pupil loan forgiveness, senior Biden administration officers informed reporters. 

Parents with these loans and college students are every eligible for debt forgiveness, the Department of Education confirmed in an electronic mail to VERIFY.  

“If both the student and the parent received a Federal Pell Grant, each person would be eligible to receive the additional $10,000 in debt cancellation,” the division added.

More from VERIFY: Yes, Parent PLUS loans are eligible for debt forgiveness

Do graduate loans additionally qualify for debt forgiveness?

Yes, debt accrued from federal graduate loans is eligible for forgiveness if the loans are held by the Department of Education, in accordance to Shafroth and different consultants.  

“We have confirmed that graduate student borrowers will be included in this cancellation,” Thompson mentioned. “So again: same income thresholds, same amounts.”

More from VERIFY: Yes, graduate loans are eligible for loan forgiveness

Are present faculty college students eligible for pupil loan forgiveness?

Current faculty college students with loans are eligible for debt reduction, the White House says in its truth sheet. If the borrower is a dependent pupil, they are going to be eligible for reduction based mostly on their dad and mom’ revenue fairly than their very own ($125,000 for people or $250,000 for {couples}).

The cancellation announcement particularly applies to present college students who took out their loans earlier than July 2022, consultants informed VERIFY. 

More from VERIFY: Yes, some present faculty college students qualify for pupil loan forgiveness

Can you get a refund if you happen to made funds in the course of the pause?

Yes, you will get a refund if you happen to paid federal pupil loans in the course of the fee pause.

Borrowers who paid between March 13, 2020, and Aug. 23, 2022, and now owe lower than the $10,000-$20,000 threshold, ought to request a refund to allow them to get the total quantity forgiven. 

Any quantity paid after Aug. 24, 2022 that brings a borrower beneath the edge will robotically be refunded with out the borrower requesting it. 

More from VERIFY: Yes, you will get a refund if you happen to paid federal pupil loans in the course of the fee pause

Will pupil loan debt reduction be handled as taxable revenue?

No, pupil loan debt reduction is not going to be handled as taxable revenue in your federal revenue tax return, in accordance to the White House. 

This rule was established by the American Rescue Plan of 2021, which specified that pupil loan forgiveness wouldn’t be taxed by 2025.

States may determine to tax cash forgiven by the federal authorities as revenue. So far, no states have introduced that they’ll tax forgiveness, and at the least one has mentioned it is not going to.

More from VERIFY: You received’t have to pay federal taxes on pupil debt reduction, however states may tax it as revenue

Are some loans excluded from debt cancellation?

Borrowers with FFEL Loans and Perkins Loans that aren’t held by the Department of Education are excluded from pupil debt forgiveness, Shafroth mentioned. These loans additionally haven’t been included within the fee pause that started in March 2020.

The American Bar Association explains on its website that FFEL Loans are often issued by banks, financial savings associations and credit score unions, fairly than the federal authorities.

Perkins Loans aren’t owned by the Department of Education, both. They’re issued by faculties, although they use funds offered by the federal authorities, in accordance to the American Bar Association. 

These debtors beforehand had the choice of consolidating their FFEL and Perkins loans that aren’t held by the Department of Education to be eligible for pupil debt reduction, however they should have already accomplished so earlier than Sept. 29, 2022. 

More from VERIFY: Yes, a change to the scholar loan forgiveness plan excludes some debtors from reduction

Though personal pupil loans don’t qualify for the federal debt forgiveness plan, both, there have already been some focused pupil loan cancellation applications for these debtors. One of those is the Navient settlement, which cancels loan balances for about 66,000 debtors with sure qualifying personal loans. 

More from VERIFY: No, the Navient settlement doesn’t cancel loans for federal pupil debtors

If you have got lower than $10,000 or $20,000 in debt, will your loans nonetheless be forgiven?

The Department of Education explains that reduction is capped on the quantity of an individual’s excellent debt. 

For instance, people who find themselves eligible for $20,000 in debt reduction however have a steadiness of $15,000 will obtain $15,000 in debt reduction. 

Does the scholar loan forgiveness plan change something for income-driven reimbursement? 

To tackle issues about month-to-month funds, the Biden administration is proposing a rule to cut back the quantity for month-to-month funds from 10% to 5% of an individual’s discretionary revenue. This is your revenue after taxes and different residing bills. 

The rule would additionally assure that no borrower incomes beneath 225% of the federal poverty line may have to make a month-to-month fee on their pupil loan debt. Borrowers’ unpaid month-to-month curiosity would even be lined so no one’s loan steadiness will develop so long as they make their month-to-month funds. 

Additionally, loan balances can be forgiven after 10 years of funds, fairly than the prevailing 20 years, for debtors with $12,000 or much less in debt.

VERIFY digital journalists Emery Winter and Erin Jones contributed to this report. 

More from VERIFY: Yes, Biden proposed full debt forgiveness for college kids of HBCUs and public schools on the marketing campaign path