Student loan forgiveness plans announced by President Biden, Vice President Harris, and the US Department of Education include loan relief of up to $20,000 to facilitate working and middle-class federal student loan, borrowers.
Student Loan Forgiveness Plan
Loan forgiveness is an exemption of loan repayment, either in part or full. The question is how to claim this loan forgiveness. This article is a resource to answer this question.
Eligibility for Student Loan Forgiveness Plan:
- The candidate should have a financial need.
- He should be a US citizen or eligible non-citizen.
- He should be enrolled in an eligible degree or certificate program at a college/career school.
- If the candidate’s parents have died during military service in Iraq or Afghanistan after the incident of 9/11, Federal Pell Grant or Iraq and Afghanistan Service Grant is offered to such candidates.
- A criminal record or a sexual offence can affect eligibility for federal student aid.
- Pell Grant, Federal Supplemental Educational Opportunity Grant, and Federal Work-Study programs can be offered to candidates having intellectual disabilities.
- Usually, no financial is offered to the homeless or in foster care, but they can get federal student aid if they meet the eligibility criteria.
Three-Part Student Loan Forgiveness Plan:
1.Extension of the Student Loan Repayment Pause
Since President Biden took office, nobody has paid even a single dollar as loan payments because an extension due to pandemic related economic crisis was given in student loan repayment by the Biden-Harris Administration.
2. Public Service Loan Forgiveness (PSLF) Program (to low- and middle-income families)
The US Department of Education would offer up to $20,000 in debt relief if you received Pell Grant in college and $10,000 if you did not receive Pell Grant in college.
This will smooth the transition back to repayment and help borrowers prevent default once payments resume. Or married couples.
This relief is granted to those borrowers whose individual income is less than $125,000 or $250,000 for heads of households or married couples.
Public Service Loan Forgiveness (PSLF) program exempts remaining federal student loans after 120 payments.
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Transformation in Public Service Loan Forgiveness Program:
The Administration has proposed long-term changes to the Public Service Loan Forgiveness program. These changes in PSLF will facilitate loan forgiveness to borrowers working in public service.
It is specifically allowed that there will be more payments to be eligible for the PSLF program; this includes partial, lump sum, and late payments.
Moreover, the changes in PSLF program also allow specific deferments and forbearances, such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service – to count toward PSLF.
These temporary changes to the PSLF program are beneficial as millions of borrowers have received additional credit for forgiveness.
The administration is also improving the existing student loan forgiveness program by reducing monthly payments.
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How to Receive Debt Relief?
- To qualify for PSLF, you should be an employee of a U.S. federal (military service), state, local, non-profit organization or tribal government.
- The individual must have Direct Loans and make 120 qualifying payments.
- Without applying, almost 8 million borrowers may receive loan relief unless they opt out. Borrowers are eligible for loan relief automatically because the relevant income data is already provided to the U.S. Department of Education.
- Some borrowers’ income data is unavailable to the U.S. Department of Education. A simple application will be launched in October by the Administration for such borrowers. There is no requirement to upload documents or have an FSA ID for application submission.
- A sign-up is required on the US Department of Education subscription page for receiving notifications.
- The debt relief is expected within six months of application submission.
- It is recommended that borrowers apply by mid-November to get loan forgiveness before the payment pause expires on December 31, 2022.
- The application process will be continued by the Department of Education even after the pause expires on December 31, 2022.
3. New Income-driven Plan For Existing And Future Borrower
There are income-based repayment plans within the U.S. Department of Education. A new income-driven repayment plan on Biden-Harris Administration’s proposal is in the pipeline; this new plan will significantly reduce monthly payments for lower and middle-income borrowers.
According to the rule proposed for a new income-driven repayment plan:
- In the new plan, the borrowers are supposed to pay no more than 5% of their discretionary income monthly on undergraduate loans.
- The recent income-driven repayment plan requires a 10% payment from the borrower.
- The amount of non-discretionary income is raised; consequently, it is protected from repayment.
- It ensures that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment.
- After 10 years of payments, the loan balance will be forgiven.
- This relief is given after 20 years of repayment in the existing income-driven repayment plan for borrowers with loan balances of $12,000 or less.
- The borrower’s unpaid monthly interest will be covered and prevented from mounting up, unlike existing income-driven repayment plans.
- It ensures that borrowers’ loan balances will not grow as long as they make their monthly payments, even when they are $0 because their income is low.
Teacher Loan Forgiveness Program
Teacher Loan Forgiveness Program will allow forgiveness of up to $17,500 on your direct subsidized and unsubsidized loans if you are a full-time teacher for five consecutive academic years in a low-income school or educational service agency.
Bottom Line:
- These federal student loans are beneficial because they grant student loan forgiveness.
- The loan forgiveness by the federal government can be in part or full under special conditions, meaning you can be exempted from remaining loan repayments either partly or fully.
- Another benefit of student loans is that you may qualify for your loan discharge.
