4 things student-loan borrowers need to know about getting debt forgiveness

  • Oops!
    Something went wrong.
    Please try again later.
  • Biden recently announced up to $20,000 in student-loan forgiveness for some federal borrowers.

  • While 8 million will receive relief automatically, others will need to take additional action.

  • Here are four things borrowers should know about their debt before the year ends.

It's hard to escape the student-loan forgiveness conversation these days.

Last week, President Joe Biden finally announced what millions of Americans were waiting years to hear: up to $20,000 in student-debt cancellation for Pell Grant recipients making under $125,000 a year, and up to $10,000 in relief for other federal borrowers under the same income cap. With Biden promising to approve $10,000 in debt cancellation on the campaign trail, borrowers were anxiously awaiting that pledge coming to fruition — and now, approximately 20 million borrowers will soon see their entire student-loan balances wiped out.

"We've never walked away from that sense of possibility that drives this country," Biden wrote on Twitter. "Getting student loan debt relief to borrowers that need it is about extending the power of possibilities to every American. Not just those at the top."

While the announcement marked a significant turning point in the student-loan forgiveness conversation, it's nowhere near the end of the road — and borrowers should be aware of steps they must take before the year ends to ensure they do not miss out on any additional targeted relief.

Most borrowers will have to apply for loan forgiveness

According to the Education Department, around 8 million federal borrowers will automatically receive student-loan forgiveness if their income information is readily available, and details will be forthcoming on what that means. But for the majority of borrowers, they will need to apply through an online form to self-certify their income. While it's unclear what information exactly borrowers will need to provide, the White House said the application will become live in early October. After submitting the form, it should take four to six weeks to receive relief.

Given that timeline, the administration recommends applying by November 15 to receive relief before the student-loan payment pause expires at the end of the year, but the application will still be available after that point.

Student-loan payments are resuming January 1

Along with the announcement of student-loan forgiveness, Biden also extended the student-loan payment pause an additional four months, through December 31. This came just one week before payments were previously scheduled to resume on September 1. Biden noted this is the "final" time he will be extending this pause. He's done so five times while in office.

"Student loan payments pause is going to end," Biden said in his remarks. "I'm extending to December 31st, 2022, and it's going to end at that time. It's time for the payments to resume."

Temporary relief for public servants is expiring soon

In October 2021, the Education Department announced reforms to the Public Service Loan Forgiveness (PSLF) program, which is intended to forgive student debt for government and nonprofit workers after ten years of qualifying payments. Leading up to Biden's presidency, 98% of applicants were being denied relief to the program, which is why the department established a temporary waiver through October 31. It would allow any past payments to qualify for forgiveness, even those previously deemed ineligible.

However, borrowers only have two more months to make use of that expanded relief. Despite push from Democratic lawmakers and advocates to extend the waiver, the department continues to message October 31 as the final day public servants can access the benefits.

Studentaid.gov has additional information on accessing the waiver and eligibility requirements here.

A new plan to make monthly payments more affordable is on the way

The majority of student-loan borrowers will still have debt balances after Biden's relief hits their accounts. To ease the burden of those monthly payments, the Education Department is planning to roll out a new income-driven repayment plan as part of its regulatory proposals.

Specifically, the proposal would require borrowers to pay no more than 5% their discretionary income monthly on their undergraduate student loans, forgive remaining student debt for borrowers with balances under $12,000 after 10 years of payments, and prevent interest from adding onto a borrower's principal balance as long as they stay current on their payments.

The new plan is entering a period of public comment before being finalized and implemented next summer.

Read the original article on Business Insider