Relief is here for (some) student loan borrowers
Federal student loan borrowers may get up to $20,000 of their debt forgiven. Here’s what you need to know.
Breaking News
(The regularly scheduled In My Humble Opinion is being paused for Breaking News this week.)
On Wednesday, August 24, President Biden announced there will be up to $20,000 of forgiveness on federal student loans. The majority of borrowers will receive $10,000 of forgiveness, but those with a Pell Grant get an additional $10,000 – bringing it up to $20,000.
In addition, there will be one final extension to the pause on federal student loan payments. Student loan borrowers should expect that payments will be required starting January 1, 2023.
This only applies to federal student loans. Private loans are not included.
Federal Family Education Loans (F.F.E.L) may also be ineligible.
Who qualifies?
This isn’t wide sweeping forgiveness for everyone with federal student loans. There are income caps, which are determined by your adjusted gross income (AGI) on your tax return.
Single filers earning under $125,000 will qualify for $10,000 of forgiveness.
Married and filing jointly who earn under $250,000 will qualify for $10,000 of forgiveness (so $10,000 each if you both have federal student loans).
Those with Pell Grants, who also fall into one of the categories above, will get an additional $10,000 in forgiveness for a total of $20,000.
Even folks who have been in default before can still be eligible, especially if you’ve been able to benefit from the student loan payment freeze.
Loans that were taken out after June 30, 2022 are not eligible.
What about Parent PLUS loans?
Yes, Parent PLUS loans are going to be eligible – even if it was the parent who took out the loan for their child’s education. Check in with your parents to see if they took a Parent PLUS loan out for you!
How to apply
That’s the $10,000 (or $20,000) question right now. It’s not 100% clear when or how you’ll need to submit an application for forgiveness.
The prevailing thought right now is that those on an income-driven repayment plan may see automatic forgiveness because they already have to recertify their income each year. This means their servicer already knows if they qualify. Others will likely have to submit their tax return for verification. Again, this is a guess.
Wait to see if you receive a message from your servicer and, of course, continue to just monitor news reports about the process. Rumor has it the Department of Education should have an application process set up by the end of the year.
And just a heads up, you should probably just chill on even trying to find an answer for a week or so. I tried to just access the Department of Education’s “Who is my loan servicer?” tool and was met with this delightful message.
What if I’m on an income-driven repayment plan?
Your income-driven repayment plan payments won’t probably change – at least for right now. Those are based on your income and household size, and need to be recertified annually, so even a lump sum payment won’t alter your payment right away – unless it brings you down to $0!
There is a proposal to reduce the percentage of income you pay each month. Current plans are capped between 10 and 15 percent of your discretionary income – but there might be a change to reduce it to 5 percent. This won’t be available until 2023, but worth keeping your eye on.
Will I owe taxes?
Fun fact, sometimes the amount of student loans forgiven are taxed as income at the end of the year. That’s a real horrifying treat for some folks who get to the end of an income-driven repayment plan only to be slammed with a huge tax bill.
Fortunately, this forgiveness program will not be taxing you on the $10,000 – or $20,000 – that’s forgiven.
Be wary of scams!!!
Scams always come flooding out whenever there is a new student loan announcement.
You will not have to pay anyone for help with getting your loans forgiven!
Be wary of anyone who calls/texts/emails claiming to be offering help with enrolling you into a program to receive forgiveness. And double check that messages from your student loan servicer are indeed from them and not a dupe.
You should always go directly to your student loan servicer when in doubt.
There are 10000% going to be issues with roll out
Let’s just be honest – this isn’t going to be a #flawless roll out. There are millions of borrowers and the servicers always seem to be more than happy to screw up. It will be on you to ensure that you properly apply for forgiveness and monitor that it’s going through properly. Keep monitoring for updates from the Department of Education as well as keeping tabs on your account. It never hurts to screenshot when changes occur!
Have more student loan questions? Check out this previous post.
Smash That Subscribe
The Wednesday newsletter recently featured a three-part series about how to negotiate:
A critical part of negotiating is understanding your market, which includes asking your coworkers about their salaries. Obviously, this can be an uncomfortable discussion to navigate. But why not try asking random strangers on the street?! I kid, a little. But that’s just what some folks are doing on TikTok and Instagram.
Salary Transparent Street aims to increase pay transparency by asking people “how much do you make?” in man-on-the-street style videos. You can find them on Instagram here and TikTok here. My favorite thing is that it helps normalize how simple and matter of fact this conversation can really be!
Next week will be the return of Helping Hand! Do you have a money problem you want help with? Email the details to team@brokemillennial.com.