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A Welcome Relief (But Not For All): Student Loan Forgiveness

by Lawrence Rand | October 18, 2022

After years of public debate and swirling rumors about the size and scope of student loan forgiveness, the specifics of President Biden’s plan have finally been revealed.  This is welcome news for millions of borrowers, however there are important caveats to this unprecedented executive order.

Forgiveness Qualification:
There are roughly 45 million federal student loan borrowers in the United States, and although this plan will provide relief for a broad swath of Americans, approximately 8% of borrowers will not qualify for forgiveness because of income caps.

The Education Department has indicated that to qualify, borrowers must have earned under $125,000 in income, or $250,000 if they are married, in either 2021 or 2020. The key figure is the borrower’s Adjusted Gross Income (AGI) as reported on their federal tax return.
Loan Eligibility:
The Education Department confirmed that nearly all government-held federal student loans, including undergraduate loans, graduate loans, and Parent PLUS loans, are eligible.  These government-held loans include:

  • Federal Direct student loans
  • Defaulted federal student loans
  • Some FFEL-program loans and Perkins loans held by the government.

FFEL-program loans held by private, commercial lenders are not automatically eligible, however FFEL borrowers can receive this relief by consolidating these loans into the Direct Loan program.
It should be noted that private student loans are excluded.
Application Details:
The Education Department indicates that a student loan forgiveness application will be made available in early October. The application should be a straightforward attestation of income and can be accessed online via the Department’s StudentAid.gov website.

While officials are encouraging borrowers to submit the application by November 15th so that they can receive loan forgiveness by the time student loan payments restart on January 1st, 2023, borrowers will have a full year to submit their application.
The Education Department confirmed that borrowers who have a remaining balance following the student loan forgiveness award and are repaying their loans under a Standard, Extended, or Graduated repayment plan will have their balances re-amortized.  The department will recalculate your monthly payment on your new balance, potentially reducing your monthly payment.

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