Millions of people are eligible for the student loan forgiveness plan. Here’s what you need to know to see if you qualify.
On Aug. 24, President Joe Biden announced the student loan forgiveness plan. For those who qualify, $10,000 would be waived and $20,000 would be waived if the borrower received pell grants. This news raised many questions about who qualifies, how to apply and what happens if you have already paid your loans.
Every year, 30% to 40% of undergraduate students take out loans. It’s estimated that 43 million borrowers are eligible for relief.
So, who does qualify?
Borrowers qualify if their individual income is less than $125,000 or $250,000 for married couples. This is an effort to help those in the middle and lower class find relief. Borrowers in any finance bracket will also have their payment plan paused one last time until December 31st, 2022.
While there isn’t a specific date for when forgiveness applications will be released, the U.S. Department of Education stated that they would probably open in early October. It is recommended to sign up for updates on their website.
There are two more important dates borrowers should know. Borrowers should apply for forgiveness no later than Nov. 15. It can take four to six weeks for the request to clear, giving people time to have debt eliminated before the pause ends on December 31. The Department of Education will continue to process applications even after the pause expires.
This forgiveness program brings up the concern for those who have paid off their loans. Luckily, some may qualify for a refund.
If a borrower has made payments since March 2020 on federal student loans that are eligible for the pause, they will be able to be refunded. Those who did not qualify for the payment pause or made any payments before the pandemic will not qualify for a refund.
The refund process will be automatic for those who are eligible for loan forgiveness and for those who voluntarily made payments during the pause that brought the balance of their loans below the maximum forgiveness amount.
If the borrower did pay the loan in full during the pandemic, they will have to request the payments back and ask their student loan servicer for the refund.
So what does this mean for future borrowers?
As part of the forgiveness plan, the goal is to also make the loan system more manageable in the future. The Department of Education is proposing a new repayment plan that protects more low-income borrowers. This would mean payments for undergraduates would be at least 5% of their income. This will mean that the average loan payment will be lowered by $1,000 for current and future borrowers, half of the rate that people must pay now.
For more details about the student loan forgiveness plan, the White House has posted a fact sheet on their website.