Student Loans 2022, aka: W-T-F?!
Things are changing pretty rapidly when it comes to this proposed student loan forgiveness plan - including on whether or not it will actually happen. We’ll try our best to cut through the chatter, and give you only what you need to know.
Updates Here
None yet, but keep checking back! ____________________________
Okay, guys. You asked, and we’re finally answering. But we gotta say.
All the updates on student loans are f*cking crazy right now. Like, crazy. And we have lots of opinions about it all, including (but not limited to):
The shame-based and intentional usage of the word “forgiveness” to describe a end-stage capitalistic tactic to trap workers in an endless corporate death spiral;
The fact that some legislators - and average people - actually don’t want this to happen because “they paid their loans off” and “it’s not fair;”
The fact that the law used to forgive these loan amounts could have forgiven up to $100,000 of student loan debt per borrower;
The fact that interest rates weren’t even addressed at all;
And a f*ck ton more.
That’s not what this blog is about.
This blog isn’t going to have our typical, hilarious and biting commentary on all things financial (we’re devastated, too). This blog is about giving you the basics of the forgiveness program, so you can know what the f*ck is going on, and figure out what the f*ck to do about it. And we’re gonna lay it out for you in 4 parts:
Qualifying for Forgiveness
Applying for Forgiveness
Bonus: Payment Refunds
What to Do Now
Let’s f*cking dive in.
1.Qualifying for Forgiveness
Is this a program, or a one-time initiative?
This initiative will provide one-time relief, and is not a recurring program.
Who qualifies for student loan forgiveness?
If you’re unmarried, or are married and are filing separately from your spouse, you must make less than $125,000/year in adjusted gross income (AGI) to qualify (line 11 on your form 1040 tax return)..
If you’re married and filing jointly, you must make less than $250,000/year in adjusted gross income (AGI) to qualify.
This information is taken from the borrower’s 2020 or 2021 tax return data.
How much in student loan debt is being forgiven?
If you received a Pell Grant in undergraduate school, you will be granted a maximum of $20,000 in student loan forgiveness. This applies even if you received a Pell Grant in undergraduate school, but your loans are graduate school loans.
If you did not receive a Pell Grant in undergraduate school, you will be granted a maximum of $10,000 in student loan forgiveness.
What’s a Pell Grant?
Pell Grants are specific federal student loans that are given to undergraduate students who have displayed exceptional financial need, and who have not yet received an undergraduate, associates or professional degree.
How does someone find out if they received a Pell Grant?
If you went to undergraduate school after 1994, you will be able to find this information by going to your StudentAid.gov profile profile and searching under the “My Aid” tab.
If you went to undergraduate school before 1994, this information will not be found online. However, the Department of Education has a record of everyone who has ever received a Pell Grant. Recipients of Pell Grants before 1994 will still receive the full forgiveness benefit.
Are private loans included in debt forgiveness?
No. Only federal student loans qualify for this student loan forgiveness program.
Is forgiveness per loan, or per borrower?
The Biden Administration’s student loan forgiveness plan is per borrower. Below is an example of how this would work between a parent-and-child student loan situation:
If you are a parent who took out loans for their child, and the child also received a Pell Grant, the parent is not eligible for $20,000 in forgiveness. They would only be eligible for $10,000.
In this situation, if the child also has loans under their own name, they would be eligible for $20,000 in forgiveness. The parent would be, separately, eligible for $10,000 in forgiveness.
If someone has less than $10,000 in remaining student loans, will they still receive the entire $10,000? Likewise with $20,000?
No. Both the $10,000 and $20,000 numbers are the maximum amount of debt forgiveness.
For example, if you have a remaining $7,000 in student loans and qualify for $10,000 in forgiveness, $7,000 will be forgiven. You will not be able to claim the remaining $3,000 in some other form.
There is, however, an exception to this rule. See below under “3. Bonus: Payment Refunds” for details.
What about Federal Family Education Loan (FFEL) Program loans?
This will depend upon whether or not this loan is federally or privately held.
Your FFEL Loans - and Perkins Loans - are eligible if your servicer starts with “Dept. of Ed” or “Default Management Collection System.” This means your loans are federally managed. This information can also be located under the “My Aid” tab on your StudentAid.gov profile.
Some FFEL Loans are privately held. Currently, privately held FFEL Loans are not eligible for student loan forgiveness. However, the Biden Administration is currently assessing whether or not to extend eligibility to these borrowers.
FFEL Spousal Consolidation Loans - or spousal consolidation loans - are not eligible.
Are defaulted loans eligible for forgiveness?
Yes, defaulted loans are eligible for forgiveness.
Additionally, the Fresh Start Initiative - launched in April of 2022 - may be able to bring the remainder of your student loans out of default when repayments begin.
2. Applying for Forgiveness
Do borrowers have to do anything in order to qualify for student loan forgiveness?
Borrowers will have to submit an application through the Department of Education in order to be considered for this one-time loan forgiveness program. This application is not currently available. Top administration officials have stated the application should be available to the public in early October of 2022.
Is there a deadline to apply for student loan forgiveness?
Borrowers will have until December 31st, 2023 to apply.
What happens after a borrower is approved for forgiveness?
If you still have a balance after forgiveness has been applied, your loans will be re-amortized, and you will then get a new payment amount based on the new balance.
How will forgiveness be applied if a borrower has multiple loans?
There is an order of forgiveness for borrowers with multiple loans, which is as follows:
Defaulted loans held by the Department of Education;
Defaulted commercial FFEL loans;
Non-defaulted direct loans and FFEL loans held by the Department of Education
Perkins Loans held by the Department of Education
If you do not have any defaulted loans, then forgiveness will be applied to your first direct loan.
If you have multiple direct loans, forgiveness will be applied to the loan with the highest interest rate first.
If interest rates are the same, then forgiveness will apply to unsubsidized loans first (aka, loans that began accruing interest from the date of disbursement).
How will a borrower know if their application for forgiveness has been accepted?
After you submit your application, your loan provider will let you know if you qualified for forgiveness, and then give you a breakdown of where the forgiveness has been applied. You may also receive a text message from the Department of Education.
Will relief be automatic?
While the timeline currently varies, the Department of Education and the Biden Administration anticipate relief for accepted applicants to arrive within 6 months of acceptance.
3. Bonus: Payment Refunds
What about payments borrowers made during the pandemic?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 gave student loan borrowers a break from making repayments through the pandemic. If, however, you made any loan payments during that time, you are eligible for a refund on those payments.
If borrowers request a refund on payments made during the pandemic, will this render them ineligible for loan forgiveness?
No. You may apply for a refund on payments made during the pandemic, and still be eligible for forgiveness.
What payments are eligible for a refund?
Any payment made towards an eligible loan between the dates of March 13, 2020 and December 21, 2022 is eligible for a refund.
What loans are eligible for a refund?
The loans must be a federal student loan, including:
Direct subsidized loans
Direct unsubsidized loans
Parent PLUS loans
Grad PLUS loans
Direct consolidation loans
Federal Perkins loans held by the U.S. Department of Education (ED)
Federal Family Education Loans (FFELs) held by the ED
Defaulted FFEL loans not held by the ED
Defaulted Health Education Assistance Loans (HEAL) loans
Are there situations where borrowers should not apply for a refund?
During the pandemic, interest rates on student loans went down to 0%. Therefore, any payments made during this time frame went directly towards your principal, rather than interest charges. Making payments during this time helped many borrowers significantly chip away at their debt.
If you are not in any current, significant financial hardship and wish to retain the gains you may have made on your debt during the pandemic, not requesting a refund may be in your best interests.
How would a refund on payments work in conjunction with the proposed $10-20,000 loan forgiveness program?
Requesting a refund on payments made during the pandemic while also applying for student loan forgiveness is of maximum value to borrowers. Doing this may also result in money directly in your pocket.
For example:
You had $10,000 in student loans remaining before the pandemic.
During the pandemic, you used the 0% interest opportunity to reduce your total amount of student loans remaining.
During the pandemic, you repaid $3,000 in your student loan debt.
The remaining $7,000 is now eligible for student loan forgiveness.
However, if you request a refund, you could potentially get $3,000 returned to you as physical cash to use for your other financial goals.
How do borrowers apply for a refund on payments made during the pandemic?
To request a refund, you must contact your loan servicer, which may have changed during the pandemic. To verify who your provider is, log into your account on StudentAid.gov.
Once this information is verified, call your student loan provider via phone. Numbers for providers can be found here.
Expect long wait times, as many borrowers are calling their providers for assistance on these new programs.
Do borrowers still have to apply for student loan forgiveness if they have contacted their providers about payment refunds?
Yes. After your payments are refunded, most borrowers will still have to apply for the federal student loan forgiveness program.
4. What to Do Now
Will student loan forgiveness actually happen?
No one is really sure. The program itself relies heavily upon the Higher Education Relief Opportunities for Students (HEROES) Act of 2003. This law was most recently used by the Trump Administration to pause payments on federal student loans during the height of the COVID-19 pandemic. However, it was initially signed into law with the aim of assisting only military members and their families.
Republicans in Congress have already demanded an oversight hearing on the Biden Administration’s proposed student loan forgiveness plan. Some GOP senators and conservative groups are even considering suing the Biden Administration in order to halt the program, saying that the program is fundamentally, legally unsound.
As of date of publication, there have been no lawsuits brought forth to challenge the legality of this student loan forgiveness program.
Should borrowers wait for a legal decision to be made before doing anything about their student loan debt?
No. We highly recommend, as with all financial matters, to be as proactive as possible now as to avoid any anxiety or confusion in the future.
When will student loan repayments begin again?
Forbearance on student loan repayments will expire on December 31st, 2022, which means payments will begin anew on January 1st, 2023. The Biden Administration has stated this is the last time student loan repayments will be paused.
What should borrowers do now?
Reach out to your student loan providers to ensure your paperwork and contact information is up to date in regards to your current payment plans. For example, this may include recertification of income for income-based plans.
Update your contact information on StudentAid.gov so as to not miss important notifications or deadlines regarding the forgiveness program.
Confirm your income. This can be found on Line 11 on the front page of your most recent tax return, known as Form 1040. Remember, the Department of Education will be looking at your adjusted gross income (AGI) rather than your gross salary. These are two different sums.
Apply for the student loan forgiveness program as soon as you are able.
Reach out to your student loan provider with any questions now, rather than later. They will likely be inundated with questions as the December 31st deadline approaches.
What should borrowers not do now?
Do not fall for scams. Remember - there is no fee to apply for student loan forgiveness. Do not give out your personal information to anyone who calls you out of nowhere, or who sends you emails out of the blue. If you are unsure of the validity of a contact, reach out to your student loan provider.
Do not refinance your federal student loans. Refinancing your federal student loans may put them under the purview of private instutitions rather than the federal government, which would automatically disqualify them from forgiveness of any kind.
Like we said… it’s all f*cking crazy. There are a lot of moving parts. There are gonna be some lawsuits, and probably a really weird website application which is going to bring up even more questions that we may or may not have the answers to right away.
But this is what we know, and this is what you can do right now in order to be prepared for whatever else is coming our way. Be proactive. Do your due diligence. Get your paperwork in order and those deadlines in your calendars. Because while we can’t control everything coming out of Capitol Hill, we can control what we do now to maximize this opportunity.
Disclaimer: The information provided in this blog is for educational purposes only and does not constitute financial or tax advice. Reach out to The Freelance CFO team with any questions regarding specific financial concerns, or seek the services of a fiduciary.
