Determine If You Qualify and How To Take Advantage of the New Student Loan Forgiveness Program
When the Biden administration announced the federal government will cancel up to $20,000 in student loan debt for millions of Americans, it made headlines everywhere. As the facts of this program are coming out and people have questions about this new student loan forgiveness program, we wanted to give you the rundown.
Read on to learn about this program, how its different from past programs, who qualifies, and what steps to take if you do qualify if you are one of 43.9 million borrowers who will likely feel some financial and emotional relief from this program. As financial coaches, we know the best thing you can do is use this to propel your life and finances forward so let’s talk about how you can do that!
Three Things About the Student Loan Forgiveness Program
First things first, this is a new program. Yes, there have been loan forgiveness programs around for a while, but this program is new, different, and bigger.
Second, this program does a lot more than just cancel some student loans for people, so even if you don’t think you qualify for loan forgiveness, please continue to read the rest of this post.
Third, please share this post. There’s a lot of people who will feel hope for the first time in probably a while, and there are a lot of people online throwing shade as if this is some handout for lazy people. It’s crucial for those with student loans to feel encouraged because they have the potential to do things they couldn’t before.
The Problem With Student Loans
I won’t spend too much time talking about the student loan crisis in our country. Let’s just say it’s an absolute disaster and has been for quite a while. The problem needs to be addressed from many perspectives, and one of those ways is by canceling some debt for borrowers and providing relief.
We have hard-working, driven clients at Fiscal Fitness who have been paying their student loans for over 10 years and owe more today than when they graduated college.
Imagine having a mortgage-size debt payment every month and knowing that no matter how long you pay for it, you will still have it. Forever. Clients often say, “I’m going to have these until I die.”
And it’s not just students. It’s parents of students who took out loans too. They’re stifling, suffocating and depressing.
For many Americans, the student loan crisis has resulted in a tragic impact of having no hope, no motivation to do better financially, and it’s robbed people of a desire to strive for more. The payments on student loans have prevented millions of people from buying homes, investing in real estate, starting families, launching businesses and so many other opportunities that make life better.
There’s been a lot of debate about if this program did too much or not enough, if was justified or just a political ploy. I don’t want to talk about any of that. I want to focus on the outcome and what this relief means for people because that’s way more important the political hot takes.
Details About The New Student Loan Forgiveness Program
The program provides relief for student loan borrowers by canceling up to $20k in debt, but it does a lot more than just forgive debt. It alleviates the burden of student loans in other ways:
ONE – It extends the pause on federal student loan payments through December. So get ready because in January, those payments will be starting back again. (Pssst… I tell you how to prepare for that in the video above at around the 5:50 mark.)
TWO – It lowers the payment amount required from 10% of income to 5% of income. This is essentially cutting the payments in half for millions of borrowers who have student loan balances remaining. That’s built in cash flow relief each month. The average student loan payment in the US for 2021 was $393, and it’s going up each year. That means almost $200 more a month in most peoples’ budgets.
THREE – The program also fixes some of the issues with the Public Service Loan Forgiveness Program (PSLF). This program has been around for a while but was a total tragedy in execution. The program honors those who work for nonprofits, in the military, for local, state, national or tribal governments, to have loans forgiven. Unfortunately, execution of the program meant less than 1% of people who applied were actually approved.
There have been changes recently that have improved the program. They include:
- Streamlining the application process, making it more accessible for people and making the requirements simpler and easier to prove.
- Instead of re-applying year after year, you can simply submit proof of income now.
- Allowing credit for years worked even if you don’t work the full 10 years.
- Regulatory changes to ensure effective implementation of the program going forward, so we’re not back in the same situation.
FOUR – It increases the income floor for those loans that require a payment. If you make a certain amount of money or less, you were not required to make payments on your student loans. The floor for those numbers has increased. 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.
Who Qualifies For The New Student Loan Forgiveness Program
Individuals with federal student loans making less than $125,000 a year as an individual or $250,000 married can have $10,000 canceled. Federal student loans include Parent PLUS loans and PLUS loans used for graduate school. It does not mean private student loans or Federal Family Education Loans (FFEL).
That eligibility is based on your Adjusted Gross Income from your 2020 or 2021 tax return.
You did not need to graduate in order to qualify. If you completed 2 years of school, didn’t get your degree, and have federal student loans, you can still qualify.
Pell Grants Specifics
If you received a pell grant for school, you can bump up the cancelation amount from $10k to $20k. Not sure what a pell grant is?
The Pell grant is a government subsidy that helps low income families get to college. It is a grant based on financial need. The thought is that those who received a Pell Grant likely required more student loan assistance in order to get through college so this is a way of lifting up those with a true need.
A Short Qualification Checklist
Ask yourself these questions to better determine if you qualify for this program:
- Do you have federal student loans? Parent PLUS loan? Or PLUS loan for graduate school? (All types of loans qualify)
- Is your Adjusted Gross Income on your 2020 or 2021 tax return $125k (single) or $250k (married)?
If you said yes to both, you likely will be receiving up to $10,000 in loan forgiveness.
- Did you receive a Pell Grant for higher education?
If yes, you likely will be receiving up to an additional $10,000 in loan forgiveness.
What To Do If You Qualify for Loan Forgiveness
First, make sure your loan service provider can locate you. Check and update your phone number, email address, and home address with your loan provider. This is the name on your statements. Not sure who your servicer is? Go to studentaid.gov. There’s a link in the top navigation that says, “Who is my loan servicer?” (or you can just click here). The website has been crashing due to high traffic, so be patient if you can’t access it right away.
Second, take screenshots right now of your current loan balance and rate. You also should go to creditkarma.com and download your credit report. With this massive change, errors and issues are bound to occur. Keep an eye on all of these things to ensure everything happens as it should.
If you are on an income-based repayment plan currently, which means you have already submitted your income to the Dept of Education, you don’t need to do anything to apply. But keep an eye out for any communications from them if they need to verify anything.
For others, there will be an application, but it’s not available yet. The Dept of Education is estimating this will be available by the end of the year, so again, keep checking studentaid.gov for updates or follow us on Instagram or join our Facebook group because we’ll be sure to give updates as well.
Also, be on the lookout for scammers. With this new program, unfortunately there will be people trying to take advantage of it. The only people/organizations you need to talk to about this program are your loan servicer and the Department of Education. Noe one else.
It’s lot to take in. So to recap…
Here’s a quick ACTION STEP checklist for you:
- Only talk with Dept of Education or your loan servicer and no one else – do not fall for scams.
- Print/Download/Take a screenshot of your current statement
- Print/Download/Take a screenshot of your credit report as of today
- Update your contact information with your service provider
- Keep an eye out for any updates and communications
- Make sure you’re following us on IG and on our mailing list. As updates become available, we will keep you posted.
A Financial Coach’s Thoughts On What This Student Loan Forgiveness Program Means For Most People
If you are one of the people who is getting any portion of your student loans forgiven, I want you to know I’m genuinely really happy for you.
I know how much student loan debt has likely weighed on you and held you back from achieving other goals you have for your life.
I know about all the times you’ve thought about the loans and the balance has felt insurmountable.
I hope this helps in some small fashion.
You’re going to see a lot of posts where people gripe about you receiving this and you might feel ashamed or start to question whether it’s “fair.”
Other peoples’ opinions don’t matter (including mine).
Make the most of this. Take it and let it propel your life forward.
The amount of good you can do in this world when you’re not stressed is amazing, I know it.
You are worth it.