Buy Side | How to Apply for Student Loan Forgiveness in October – The Wall Street Journal


Rebecca Safier
If you have hefty student loans, chances are you are anxiously awaiting details of the Biden administration’s plan to wipe out a big chunk of that financial burden.
In August—citing the fact that more than 45 million Americans owe more than $1.6 trillion in federal student loans—

President Biden promised to cancel $10,000 in student loans for most middle-class borrowers and for some, up to $20,000. 
Applications are set to begin in October, according to the Department of Education—although it has not yet announced a date. You can sign up for updates on the U.S. Department of Education’s Subscriptions page, which will notify you when the application is up and running. 
For now, here’s what you need to know about how to apply for student loan forgiveness so you can get all your ducks in a row. 
The Biden administration is offering widespread loan cancellation to qualifying borrowers, and for some the process may be automatic. But don’t count on this. Unless the Education Department already has your income information—for instance, if you recently applied for an income-driven repayment plan—you’ll need to fill out an application to get your loans forgiven. The deadline to apply is Dec. 31, 2023. 
“So far we don’t know who exactly will be automatic and who won’t be, so better to be safe than sorry and apply,” says Meagan Landress, financial coach and certified student loan professional.
The application will be available in October, though there’s no specific opening date as of the time of writing. As for how to apply for student loan forgiveness? “The application will be very short and very easy to complete,” says Michael Lux, attorney and founder of The Student Loan Sherpa. It won’t require your Federal Student Aid (FSA) ID or any supporting documents.
The Education Department recently shared a preview of the application, which will require your: 
This application will be available in both English and Spanish and on both mobile and desktop devices. Submitting it will mean that you’re applying for loan forgiveness, meet income and other eligibility guidelines and will provide proof of income by March 31, 2024, if requested. Before submitting the application, you’ll need to check a box certifying “under penalty of perjury” that the information you provided was true. 
The Education Department will notify you when the application becomes available if you subscribe to its newsletter on its

page. Make sure to check “NEW!! Federal Student Loan Borrower Update” upon sign-up so you don’t miss this important news. 
After submitting your application, you should receive loan forgiveness within four to six weeks. If you apply by Nov. 15, for instance, you could see loan forgiveness by the end of the year. 
With legal challenges and so many borrowers applying, there are likely to be some bumps in the road. 
“There’s no way to know how the forgiveness process may play out,” says student loan lawyer Adam Minsky. “Some new lawsuits have been filed against the Biden administration seeking to block loan forgiveness, and it’s possible these lawsuits could interfere with the program.”
Six states—Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina—have brought lawsuits against the loan forgiveness plan (Arizona also separately filed its own challenge). In a document defending its plan, the White House states, “The Department will not discharge any student loan debt under the debt relief plan prior to October 23, 2022.” 
If a federal judge grants an injunction on the forgiveness program during a hearing on Oct. 12, furthermore, the program could be paused for the duration of the lawsuit (or even eliminated entirely). 
With all these issues popping up, it’s a good idea to apply as soon as the application becomes available and to save all your documentation (e.g., screenshot any loan forgiveness you receive) in case rules change in the future. 
While you cannot yet apply for student loan forgiveness, it’s not too early to start preparing. One thing you can do is to sign into your Federal Student Aid account and review your loans. 
Passwords sometimes expire, so check if yours is active or needs to be reset. Once you’re logged in, look over how much you owe, who your student loan servicer is and what your interest rates are. Update your contact information so you don’t miss any important communications.
Sign up for the Department of Education’s newsletter so you’ll be notified about how to apply for student loan forgiveness when the application becomes available. Once it’s online, consider applying right away so you can receive loan forgiveness as soon as possible. 
If you still have a balance after receiving loan forgiveness, review your options for repayment ahead of the new year. Federal Student Aid’s Loan Simulator tool can help you review your loans on different repayment plans and find one that fits your budget. 
“January will almost certainly be a chaotic time for the [student loan] servicers,” says Lux. “Getting everything figured out now will save a ton of headaches in 2023.”
You can also explore your options for forbearance and deferment, both of which pause payments temporarily. Forbearance is typically granted for 12 months at a time, while deferment times can vary but may last for up to three years. Keep in mind, however, that your loans may accrue interest if you pause payments through these programs, causing your loan balance to grow. 
You might also check out alternative options for student loan forgiveness, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. If you don’t need federal protections, you could also consider refinancing your student loans for better rates
By reviewing your options for repayment plans and forgiveness programs now, you can make informed decisions about your federal student loan debt in the months to come. 
The Biden administration is offering up to $20,000 in student loan forgiveness to borrowers who owe federal loans and meet income guidelines. Any eligible borrower will receive up to $10,000 in forgiveness. If you received a Pell Grant in college, a type of aid reserved for undergraduate students with demonstrated financial need, you could get an additional $10,000 in forgiveness for a total of $20,000. You can check whether or not you received a Pell Grant in college by signing into your Federal Student Aid account
To qualify for loan forgiveness, your adjusted gross income must have been less than $125,000 per year as a single tax filer or $250,000 per household if you’re married. These income thresholds apply to the 2020 or 2021 tax year. 
If you were claimed as a dependent on your parents’ tax return in 2020 or 2021, the government will look at your parents’ income to determine if you’re eligible. 
Current students can qualify for loan forgiveness as long as their loans were disbursed after June 30, 2022, and they meet other requirements. 
You don’t need to have graduated with your degree—you can still qualify for forgiveness of your student loans. 
If your student loans were in default before the emergency forbearance (i.e., you missed payments for 270 days or more), you could still qualify for forgiveness. In the past couple of years, the government paused collections on defaulted student loans. In April 2022, the Education Department announced that defaulted loans will enter current repayment status when the moratorium ends. Borrowers will regain access to federal protections and get a fresh start with their defaulted loans. 
Thanks to the 2021 American Rescue Plan Act, which waived taxes on loan forgiveness through 2025, you won’t have to pay federal taxes on the forgiven amount. However, some states, such as Mississippi and North Carolina, may levy state income taxes. If your state charges a tax rate of 5%, for example, expect to pay about $500 in taxes on $10,000 in loan forgiveness or $1,000 on $20,000 in loan forgiveness. 
This widespread student loan cancellation is only available for federal student loans from the Direct loan program that were disbursed before June 30, 2022. Qualifying loans include Direct subsidized and unsubsidized, grad Plus loans, parent Plus loans and consolidation loans. 
When the administration first announced loan forgiveness in August, it appeared that borrowers with other loan types, such as Federal Family Education Loans (FFEL) and Perkins loans, could make those loans eligible by consolidating them with a Direct consolidation loan. The FFEL loan program closed in 2010, and Perkins loans ended in 2017. 
In late September, however, the Education Department said that privately-owned FFEL and Perkins loans are not eligible for forgiveness, even though they are federally-guaranteed. Now, the guidance is this: “As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans.”
This rule reversal could exclude more than 800,000 borrowers from student loan forgiveness, reports NPR. If you hold a mix of loan types, your Direct loans will still qualify. However, any privately-owned FFEL or Perkins loans will not at this time. 
Some good news for borrowers who kept paying their loans during the emergency forbearance, though—the government may refund those payments. If you qualify for $10,000 or $20,000 but paid off your balance to a lower amount in the past couple of years, the government should refund that amount. Note that refunds are not available for payments made before March 13, 2020. If this situation applies to you, contact your loan servicer to request a refund. 
When the Biden administration announced its plans for up to $20,000 in loan forgiveness, it also introduced other changes to federal student loans. 
For one, the administration extended the emergency forbearance through the end of 2022. The emergency forbearance was initially introduced in March 2020 in response to the Covid-19 pandemic and has been extended several times since. For the past couple of years, borrowers have not had to make payments on their federal student loans, and interest has been frozen at 0%. 
Most recently, this forbearance was set to expire on Aug. 31, 2022. With this latest extension, it will end on Dec. 31, 2022. According to the administration, this latest extension will be the final one. Assuming no additional extensions, borrowers can expect to resume repayment on Jan. 1, 2023. 
Besides extending the student loan freeze for another four months, the administration also announced its plans to introduce a new income-driven repayment, or IDR, plan. Currently, borrowers have four options for income-driven plans: 
All of these plans reduce your payments to 10%, 15% or 20% of your discretionary income while extending your repayment terms to 20 or 25 years. If you still have a balance at the end of your term, it will be forgiven. 
With the newly proposed income-driven plan, your payments on undergraduate student loans would be capped at 5% of your discretionary income. You could also receive loan forgiveness after just 10 years of repayment if you owe less than $12,000, a whole decade (or more) sooner than what’s currently on offer. 
At this point, it’s not clear when this new income-driven repayment plan will be implemented or how it will treat graduate school loans. 
“They haven’t been super clear on this,” says student loan consultant Jan Miller. “However, I anticipate that only borrowers who don’t have any grad school debts will get the 10-year loan forgiveness.” 
Once this plan is available, though, it could offer lower payments and a faster loan forgiveness timeline than the current IDR options, at least for borrowers with undergraduate student loans. 
If your student loans are on one of the current income-driven plans, you may need to recertify your income in the months to come. IDR plans base your monthly student loan payments on your family size and income and require recertification on an annual basis. 
Recertifying your income and family size only takes 10 minutes or less, and you can complete the process online on the Federal Student Aid website. Usually, you need to provide proof of your income with verifying documents, such as tax returns. 
Until June 30, 2023, however, the Department of Education is allowing borrowers to self-report their income online or over the phone. You don’t have to upload supporting documentation, which could make the recertifying process quicker and easier. 
Note that you can choose to recertify your IDR plan ahead of your annual deadline if your circumstances change. 
“If your income has decreased since the pandemic started and your payments are going to be too high for you, you can always request a recalculation,” says Miller. “You don’t have to wait until your recertification deadline, but can ask for a recalculation immediately to lower your payment based on your new lower income.”

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