The recently announced loan cancellation from the Biden Administration means millions of borrowers will have up to $20,000 forgiven. Millions more may qualify for up to $10,000 of loan forgiveness.
The Department of Education also announced an extension of the payment and interest freeze and a new repayment plan.
We are still awaiting details on eligibility and implementation. However, based on what we already know, there are several steps that borrowers can take to ensure they maximize any potential loan forgiveness.
Ask for a Refund on Prior Payments
The Covid-19 payment and interest freeze has been in effect since March 2020. Though not required, many borrowers have chosen to make extra payments to reduce their federal loan balance.
If you have made extra payments, you can request a refund on those payments. You don’t have to show a financial hardship or any specific circumstances; you just have to ask for a refund.
Call your federal loan servicer to submit a refund request.
This step is crucial for borrowers with balances under $20,000.
Check Out the Limited Waiver on PSLF
During his press conference announcing the forgiveness program and new repayment plan, President Biden highlighted his fix to the Public Service Loan Forgiveness program, the PSLF Limited Waiver.
This program allows many borrowers who were previously denied PSLF to get their loans forgiven. It fixes many of the biggest issues facing PSLF borrowers.
Unfortunately, the Limited Waiver expires on October 31, 2022. Notably, this means the Limited Waiver ends before repayment restarts.
If there is even a slight chance that you have worked in a public service job, start investigating the PSLF Limited Waiver before it ends.
Set a Reminder for One Month from Now
We don’t have all the details, but we know that some borrowers will have to provide income verification to show that they qualify for the $10,000 or $20,000 of loan forgiveness. To be eligible, single borrowers must earn below $125,000, and married borrowers must earn below $250,000.
We also know that the Department of Education will have a portal to submit the necessary documents. However, that portal does not exist yet.
If the Department of Education moves quickly, you can submit income information to document your eligibility next month.
For some borrowers, such as those on IDR plans, income verification will happen automatically.
However, we still don’t know exactly who falls in the automatic category and who will require manual action. Set a reminder, mark your calendar, and do whatever it takes to revisit this issue once more information becomes available.
Don’t Try Borrowing New Loans
Current students can still benefit from today’s forgiveness announcement, but they must have older loans to qualify.
Specifically, any loan taken out before July 1 is eligible.
Any new loans borrowed for the upcoming fall semester will not qualify for cancellation.
How do I find out if I received a Pell Grant?
Knowing whether or not you received a Pell grant is massive detail for the Biden forgiveness plan.
If you received a Pell Grant, you can have up to $20,000 forgiven. If you never qualified for a Pell Grant, your maximum forgiveness is $10,000.
To check your federal loan and grant history, log into the federal student loan database. The dashboard shows all student loans and grants. If a Pell grant isn’t displayed, you probably never had one.
Dealing with FFEL Loans
This article initially suggested that borrowers with privately-held FFEL loans should consider consolidating their loans into a federal direct loan.
Sadly, as of September 29, consolidation is no longer an option to address this eligibility issue.
Options for Private Student Loans
If your student debt is with a private lender, options to convert the debt into federal loans are extremely limited.
At this point, the best thing you can do for any private student loan is to make sure you have a fixed-rate loan instead of a variable-rate loan. Inflation is a major concern for student loan borrowers. Locking in a fixed-rate loan is the best way to ensure that inflation doesn’t mean a bigger monthly payment.
Hurry Up and Wait
Today’s news is huge for student loan borrowers.
It is natural to want to know how the forgiveness will apply to your debt and when to expect it to happen.
Unfortunately, we don’t know yet. For now, the best you can do is to make sure you understand your loan situation and that you are prepared to act when the time is right.