Striking Update for Student Loan Forgiveness: Who qualifies?

US President Joe Biden made a recent announcement for student loan forgiveness with Education Secretary Miguel Cardona on August 24, 2022 in the Roosevelt Room of the White House in Washington, DC. He announced a plan to wipe out significant amounts for student loan forgiveness on tens of millions of Americans, saying he would cancel $10,000 in debt for those earning less than $125,000 per year and $20,000 for those who had received Pell grants for low-income families.
The debt forgiveness, although less than what some Democrats had been pushing for, later came by “All of this means people can start finally to climb out from under that mountain of debt,” Mr. Biden said in remarks from the White House. “To finally think about buying a home or starting a family or starting a business. And by the way, when this happens, the whole economy is better off.”
Mr. Biden also announced that a pandemic-era pause on student loan payments, which has been in effect since March 2020, would expire at the end of the year. The timing for the debt relief is uncertain; the Department of Education said it would set up an application process by the end of the year.

Across the United States, 45 million people owe $1.6 trillion for federal loans taken out for college — more than they owe on car loans, credit cards or any consumer debt other than mortgages.
Mr. Biden has been agonizing over how to address the student debt issue for months, under pressure from progressive Democrats who say debt forgiveness is necessary to address racial disparities in the economy. But critics say widespread debt forgiveness is unfair to those who tightened their belts to pay for college. And some economists have raised concerns that debt relief will add to inflation by giving consumers more money to spend.

The White House sought to address the economic concerns by targeting the relief.
Students who received Pell grants will be eligible for $20,000 in debt forgiveness on their loans. About 60 percent of borrowers have received Pell grants, and the majority come from families making less than $30,000 a year. The Education Department estimates that 27 million borrowers will qualify for up to $20,000 in relief

Will the Student Loan Forgiveness make Inflation worse?

The Biden administration’s forgiveness of up to $20,000 in federal student loans will either make inflation worse or won’t have much impact at all.
The Committee for a Responsible Federal Budget (CRFB) asserts that the debt relief would “wipe out the disinflationary benefits of the Inflation Reduction Act,” which was passed into law earlier this month.
It estimates that the executive action will cost an “astronomical $400-$600 billion” and has previously estimated that $10,000 in forgiveness would add 0.15% to the personal consumption expenditure price index, a commonly used gauge for inflation.

Economists at the left-leaning Roosevelt Institute pointedly disagree with the CFRB’s assessment, arguing that any inflationary effect would be “small” and offset by the resumption of student loan payments on Jan.1, 2023

Mr. Biden’s economic advisers, however, made the case that by resuming loan payments and pairing the loan forgiveness with income caps, the cancellation would have a negligible effect on rising consumer prices. Arindrajit Dube, an economist at the University of Massachusetts, Amherst who consulted with administration officials on student loans, said in an interview that the additional consumer spending spurred by the bill would be a “drop in the bucket” in the U.S. economy and unlikely to add to inflation.

Who Qualifies for Student loan Forgiveness?

Those who make less than 125,000 dollars will qualify for loan forgiveness with the exact parameters for qualification said to announced shortly.
This is to say that Individuals who are single and earn $125,000 or less will qualify for the $10,000 in debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your income is $250,000 or below. If you received a Pell Grant and meet these income requirements, you could qualify for an extra $10,000 in debt cancellation.

How much of my Debt could be Forgiven?

President Joe Biden announced Wednesday that most federal student loan borrowers will be eligible for some forgiveness: up to $10,000 if you didn’t receive a Pell Grant, which is a type of aid available to low-income undergraduate students, and up to $20,000 if you did.

Did I receive a Pell Grant?

There are good chances that you receive Pell grant as part of your financial aid package while at college: Of the estimated 43 million borrowers who will benefit from the administration’s forgiveness plan, more than 60% are Pell Grant recipients, according to the White House.

If you’re not certain whether you received a Pell Grant as part of your financial aid package, you can check your account on studentaid.gov. On the main page of your account, there’s a section titled “My Aid.”

Which Loan Qualify?

Estimately, 37 million borrowers will qualify for student loan forgiveness on their loan type (and then as long as they also fall under the income cap), because their debt is under what’s called the William D. Ford Federal Direct Loan Program. That includes Direct Stafford Loans, and all Direct subsidized and unsubsidized federal student loans. Under the Direct program, Parent Plus and Grad Loans, are also eligible for the relief.

Additionally, the Education Department said that any loans it holds qualify. That means the roughly 5 million borrowers who have a commercially held Federal Family Education Loan (FFEL) may be excluded. (About the same number of borrowers have FFEL loans that are with the government and they need not worry.)
Borrowers eager to know if their FFEL loans are commercially held can go to Studentaid.gov and sign in with their FSA ID. The information should be available at the “My Aid” tab.

If you pay your monthly loan bill to one of the government’s loan servicers, you should be able to get the forgiveness, Kantrowitz said, but if your payments are sent to another private lender, you’re probably out of luck. All private student loans are also excluded.

Can Student Loans be Forgiven?

Will the Loan Forgiveness Trigger Taxes?

Student loan forgiveness won’t trigger a federal tax bill.

That’s because the American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025 — and the law covers Biden’s forgiveness, too, according to a fact sheet from the White House.

Could Canceling my Student Loan Debt Affect my Credit Score?

For many loan borrowers, credit scores won’t be dramatically impacted
Borrowers who have made payments on time and for whom debt forgiveness covers the full amount of their loans could see a slight bump in their scores, Lynch said.

On the other hand, if a loan was in default when it was canceled, under older FICO models that are still in use, a credit score could dip.

Borrowers with few credit accounts ( thin credit profiles) and not much diversity in the mix of credit they carry — could see a drop in their scores. And if a borrower lacks other installment loans, eliminating the student loan (which is a type of installment loan) could negatively impact their score, Lynch said.

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Can I Refinance My Student Loans?

FAQs

Wat is the loan cutoff date for cancellation?

Student loans taken out after June 30, 2022, won’t be included in the relief.

Do I have to do anything to get forgiveness?

Yes, you will have to input your income data and request the loan forgiveness in the application to be launched by the Education Department.
Additionally, the department said it already has the income data for nearly 8 million borrowers because they were enrolled in income-driven repayment plans that already required this data. This means that these people may get automatic cancellation.

What’s going on with the payment pause on federal Student loans?
It has been extended until Dec 31st. Payments will resume come January according to Biden’s announcement.

How do I make sure I really get Forgiveness?

Take a photo or screenshot of your current student loan balance as recommended by experts. That way you can make sure it drops by the correct amount once forgiveness happens.