What’s Up With Student Loan Forgiveness?
By now, most people know the basics of the recent Loan Forgiveness that came from an August 24 Executive Order from the Biden Administration. $10,000 of one-time loan forgiveness to borrowers, for most Federal Student Loans (defined further as most Federal Student Loans held by the Education Department), and an additional $10,000 of one-time loan forgiveness (total of$20,000) to borrowers who received Pell Grants (which go to low income students). There are income caps of $125,000 for individual borrowers and $250,000 for households, to be eligible for forgiveness. That seems pretty simple, right? To follow is the practical information, some advice, and some things to watch out for in the next week, or so, especially with lawsuits that have been filed to challenge the legality of the Executive Order.
For more of the Student Loan Debt Forgiveness details directly from the government, including which loans are eligible, click here.
To start, what many people tend to miss when any law is passed is that regulations/rules need to be written to fill in all of the details. Do I need to apply? How do I apply? Are my loans eligible? How are the income caps calculated? So, we really need to wait and understand the details before we actually know whether the loan forgiveness applies to a specific individual’s loans.
Some of the regulations/rules has been dribbling out, and there’s been some changes from the original announcement. So, I’ll go through what information is already available.
There will be an online form to apply for the loan forgiveness that can be accessed at studentaid.gov. It’s recommended that you sign into your account or create an account if you don’t have one. That form is scheduled to be available this month. Another benefit to accessing your account is that you can see what types of loans you received and also see whether you received Pell Grants. When you apply for the forgiveness, the government will use your records to automatically determine whether you did have a Pell Grant. If so, and/or if your loans are eligible, you’ll receive the forgiveness.
There were changes to the original guidance on which loans would be eligible. Guidance was recently released indicating that Federal Family Education Loans (FFEL) and Perkins Loans held by private banks and backed by the federal government are not eligible for one time forgiveness. Only those FFEL and Perkins loans held by the Education Department are eligible. Previous guidance indicated that these loans could be consolidated into Federal Direct Loans and become eligible, but that’s no longer the case unless that consolidation had already occurred. This change is going to impact eligibility for about 800,000 borrowers.
As I indicated above there are lawsuits being filed against the legality of the debt forgiveness. One lawsuit in Wisconsin was dismissed for lack of standing. That generally means that the party filing the lawsuit isn’t able to show harm to themselves. But the judge didn’t rule on the issue of Constitutionality or overall legality. The judge left open the possibility that other lawsuits, filed by a truly injured party, could succeed on the merits. That said, he didn’t rule on the merits either way in this case. Oral arguments are to be heard this week on another lawsuit filed by six states claiming that the law will harm their state’s tax revenue, along with other claims about the legality of the order. This lawsuit is asking for a “stay” or pause while the merits of the case are worked out. It appears that the stay will either be issued or denied by the end of this week. The government has indicated that it will not grant any forgiveness until this decision is made. So, stay tuned!
Moving forward, if you think you may be eligible for this one-time forgiveness, you need to pay very close attention. As soon as the form is available to submit for forgiveness, I recommend filling it out & submitting it. Don’t let potential future changes to the plan, prevent you from getting forgiveness because you didn’t act with urgency. To stay up to date as the government sends out more information via email, click here to sign up to receive those emails.
Finally, whether or not someone receives debt forgiveness, many borrowers owe more than the $10-20K than will be forgiven. The average student has $32K in student loan debt & many people have much more than that. If you’d like to put together a solid plan to eliminate your remaining student loan debt, along with any other debt that you may have, click here to setup a Complementary Consultation & find out if a Financial Coach can help you. We’ll discuss how you can start living the life that you want to live, without the stress of having debt & the big monthly payments that come with it. Debt doesn’t go away on its own. Without a plan, it tends to get worse over time.
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