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Student Loan Forgiveness ─ What We Know as of Sept. 1

The student debt relief plan has given schools and students some clarity regarding federal loan forgiveness and payment resumption. However, details are still emerging from various sources and sites.

Here’s what we know regarding borrower eligibility and implementation details as of Sept. 1, 2022.

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Who is Eligible?

To qualify for $10,000 in federal student loan forgiveness, a borrower must have:

  • A federal annual income below $125,000 (for individuals) or $250,000 (for married couples). A borrower’s 2020 or 2021 family Adjusted Gross Income (AGI) can be used for this.
  • Loans with a first disbursement date prior to July 1, 2022.

Who is Not Eligible?

Not all loans qualify for forgiveness. These include:

  • School-held Perkins Loans and commercially-held FFELP loans. However, a borrower can consolidate them into a federal consolidation loan to make them eligible.
  • Any new loans first disbursed on or after July 1, 2022.

Additional Forgiveness and Refunds

  • Borrowers who received Pell Grants while attending school qualify for up to $10,000 in additional loan forgiveness.
  • Borrowers with DEFAULTED federal loans still qualify for loan forgiveness.
  • Borrowers who made payments during the payment pause are eligible for a refund. We cover those details here.
  • Borrowers with loans first disbursed both before and after July 1, 2022 may only have a portion of their total loan debt forgiven, even if they do not exhaust the full $10,000 ($20,000 for Pell students).

How to Apply?

  • Most borrowers will have to submit an application to be considered for this one-time loan cancellation. This application should be available in October.
  • Borrowers will have until Dec. 31, 2023 to apply for forgiveness. Anyone with a balance on Jan. 1, 2023 will go back into repayment.
  • We suggest borrowers check their AGI for 2020 and 2021. If either year is below the income threshold, they should plan on filling out an application.
  • Qualifying borrowers should sign up for email and text alerts through their FSA account. They’ll receive a notification if they automatically qualified for a credit. If they don’t, they will receive notification when the application is available.
  • Loan forgiveness will NOT be subject to federal income tax. Some states are expected to treat this as income and subject to state tax. We will keep you updated as new information comes out.

How is Forgiveness Being Applied?

For borrowers with multiple qualifying loans types, ED will apply the relief first to defaulted Direct Loans and FFELP loans, then active Direct Loans and finally Perkins Loans. For loans of the same type, pay down will occur in the following order:

1. Loans with the highest statutory interest rate. You can find historical interest rates here.

2. If interest rates are the same, unsubsidized loans first, then subsidized loans.

3. If interest rate and subsidy status are the same, the most recent loans.

4. If interest rate, subsidy status, and disbursement date are the same, the loan with the lowest combined principle and interest balance.

5. Repayment will resume on Jan. 1, 2023. We actually believe them this time, but all bets are off if there is a legal challenge.

Get Help Counseling Your Borrowers

Student Connections is the industry leader in student loan counseling and default prevention services. We are driven by our passion to help borrowers navigate the ins and outs of student loan repayment ─ and in this case, receive the full amount of loan forgiveness they are entitled to receive.

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