How to prepare now to apply for student loan forgiveness
HOUSTON, TEXAS – AUG 29: Students study at Rice University Library on August 29, 2022 in Houston, Texas.
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The US Department of Education could have its application for student loan forgiveness pending as early as the next few weeks.
Borrowers could start to see their balances reduced or eliminated by the end of the year, according to a ministry spokesperson.
Here’s how to prepare to be ready for the jubilee.
1. Make sure you qualify based on your income
President Joe Biden announced last week that most federal student loan borrowers will be eligible for some remission: up to $10,000 if you haven’t received a Pell grant, which is a type of assistance available to low-income undergraduate students, and up to $20,000 if you did.
Relief will be limited to borrowers earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
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How to know if you qualify for student loan forgiveness
Review your recent tax returns to confirm that your income has fallen below these thresholds. The Department of Education will take into account the so-called Adjusted Gross Income, or AGI, which may be different from your gross salary.
To confirm your AGI for 2020 and 2021, locate line 11 on the first page of your tax return, known as Form 1040.
2. Make sure your loans are eligible
The vast majority — about 37 million borrowers — will be eligible for the forgiveness based on their type of loan, because their debt falls under what’s called the federal William D. Ford Direct Lending Program. This group includes direct Stafford loans and all subsidized and unsubsidized direct federal student loans. Under the Direct program, Parent Plus and Grad Loans are also eligible for relief.
If you are one of the 5 million borrowers with a Federal Family Education Loan (FFEL), your debt is actually held with a private company, not the government. To ensure that you are included in forgiveness as soon as possible, you may wish to consolidate your loan into the Direct Lending Program.
If you don’t want to consolidate your loans, however, the Department for Education says it will work in the coming months with private lenders to ensure FFEL borrowers still get the discount.
You can check your loan type at studentaid.gov and log in with their FSA ID. Then, go to the “My help” tab.
It’s not quite clear yet what applying for student loan forgiveness will look like, but it’s a good idea to have all the relevant documents on hand proving you qualify, experts say.
About 8 million borrowers who have been enrolled in income-based repayment plans may not have to certify their income because the government already has their data.
For everyone else, it may be helpful to keep the tax returns you dug up for Step #1 and print your loan records from Step #2.
When you log into StudentAid.com, the scholarships tab allows you to find out if you received a Pell scholarship during your undergraduate years and if you are eligible for $20,000 aid. If you received a Pell grant, take a screenshot or print the document confirming this fact.
Also print a screenshot of your current student loan balance so you can later verify that your debt has decreased by the correct amount.
Borrowers can register now on the Department of Education website for updates on the student loan cancellation process, including when the application will be ready.
A spokesperson for the US Department of Education said it could take about eight weeks after getting all the necessary information from a borrower until their debt is cleared.
The deadline to submit a pardon application will be December 31, 2023.
– CNBC’s Kate Dore contributed reporting.