Student loan forgiveness: How those in college now could get a break, what's ahead

Anyone who is back on campus — or just unloaded an SUV packed nearly to the roof to move their child into the dorm — has to be wondering if, somehow, all this talk about student loan debt forgiveness means that they might be getting a break, too.

Do college students who are currently enrolled in school and who have taken out loans for the past few years qualify for loan forgiveness? Or is this a deal that applies only to those who graduated or dropped out of college already?

As one might come to expect, the answer isn't one size fits all.

It's a good idea to review the rules, and study the details, as more information is released and take a few steps to prepare yourself.

Many students who are currently enrolled in college are eligible for the forgiveness but there are limitations.

Can I get loan forgiveness if I'm still in college?

One caveat is that only loans that were first disbursed by June 30 are eligible. Federal student loans that were taken to pay for tuition or room and board for the current 2022-23 academic year are not eligible, according to Mark Kantrowitz, author of "Who Graduates from College? Who Doesn't?"

A college freshman who just started taking classes this August or September isn't going to qualify.

And students cannot back up the truck and take out more loans now in order to qualify for the federal student loan forgiveness program first announced by President Joe Biden on Aug. 24.

Another key point: Eligibility would be based on the parent's income, not the student's income, Kantrowitz said, if the student who is currently in school is a dependent student as defined by the Higher Education Act of 1965.

If a dependent undergraduate borrower is still in school and the parents are divorced, Kantrowitz said, the loan forgiveness will be based on the income of the parent who completed the Free Application for Federal Student Aid or FAFSA.

If the borrower is still in school and independent, federal student loan forgiveness would be based on the borrower's income. If the borrower is no longer in college, it is based on the borrower's income.

More: Who qualifies for forgivenessHow to know the application deadline, get a refund if you paid during pandemic.

Many borrowers will need to apply for student loan forgiveness — and the online form is expected out in early October. But about 8 million or so borrowers are estimated to be covered automatically because their relevant income data is already available to the U.S. Department of Education. Automatic relief is likely for those still in college, Kantrowitz said, because the department has income data on hand for these borrowers.

Up to $10,000 in federal student debt will be forgiven if you did not have a Pell Grant while in college. But up to $20,000 in federal student loans can be forgiven if you had a Pell Grant in college.

Income limits apply — an individual's income must be less than $125,000 or less than $250,000 for married couples to qualify.

You can go to StudentAid.gov/DebtRelief to keep up with what's likely to be a complex process involving student loan forgiveness.

Do parents qualify for student debt forgiveness?

For the first three quarters of the 2021-22 academic year, more than 10.6 million federal student loans were taken out to cover college bills. That includes Parent PLUS loans, as well as student debt. Some loans wouldn't be forgiven because income limits apply, the dollar amount of forgiveness is limited and some loans are taken out for the same student.

It may be possible for both the parent and the student to benefit from the new student loan forgiveness program. But that, too, can be complicated and a bit confusing.

In many cases, parents take out a Parent PLUS loan to fill the gap when students in bachelor's degree programs run up against the federal student loan limits. Based on the latest data, which covers the 2017-18 academic year, the average federal Parent PLUS loan debt for bachelor's degree recipients was $34,929 at graduation, according Kantrowitz.

About 12.5% of those graduating did so with some Parent PLUS loan debt, Kantrowitz said. The amount owed builds as interest is added on the unpaid debt year after year.

The parent, though, would not qualify for up to $20,000 in debt relief on the Parent PLUS loans even if the student received a Pell Grant in college.

And a parent who took on Parent PLUS loans for two or more children will only see up to $10,000 forgiven. The limit on forgiveness applies to the borrower.

"If a dependent student received a Pell Grant, up to $20,000 in debt relief will be applied to the student's loan — not to any loans their parent may have taken out," the Education Department notes.

Many parents, unfortunately, can still be dealing with their own loans taken out when they were in college. In that case, a parent borrower who received a Pell Grant for their own studies may be eligible for up to $20,000 in relief on their own college loans, the Education Department noted.

"Otherwise, the parent borrower may be eligible for up to $10,000 in debt relief."

How do you apply for student loan forgiveness?

Students who graduated or are no longer in school typically will need to apply to see their loans forgiven and the parent will need to apply to see their Parent PLUS loans forgiven. Both should apply, Kantrowitz said.

Borrowers should aim to apply before Nov. 15 to receive debt relief before the pandemic-related payment pause on most federal student loans ends Dec. 31.

But the Education Department noted that it will continue to process applications as they are received, even after the pause expires in December.

You'd actually have until Dec. 31, 2023, to apply, but you'd want to apply as soon as possible.

More: How forgiveness helps parentsParents may see debt relief as new student loan forgiveness program rolls out

According to the Education Department, you can get ready to apply for debt relief now by logging into your account at StudentAid.gov and making sure that contact information is up to date. If you cannot remember your user name and password — your FSA ID — the site has tips on how to access your account.

If you don't have a StudentAid.gov account (FSA ID), the Education Department recommends that you should create an account.

Make sure your loan servicer has your current contact information, too.

Private student loans are not eligible for loan forgiveness. If you consolidated federal loans into a private loan, the Education Department notes, the consolidated private loan is not eligible for debt relief.

What if I'm a high school senior and going to college next year?

Students who are heading to college in a few years should not bank on seeing their student loans forgiven.

"Don't count on broad student loan forgiveness happening again," Kantrowitz said. "It was a one-time event and the majority of borrowers were still left repaying their student loans."

Republicans are highly critical of Biden's bold move to cancel such a sweeping amount of federal college debt — and legal challenges could be ahead. Biden's taking a chance here, claiming such authority exists during a national emergency, such as the COVID-19 pandemic, to cancel student loan debt under the HEROES Act of 2003.

At one point, even Biden was skeptical of an administration’s ability to take such action.

Student loan forgiveness offers financial relief and enables many families to move forward.

But it doesn't fix the college debt trap.

"It does not go far enough in addressing the root of the problem: a postsecondary education system that has seen tuition rise three-fold in the last 30 years. That same system will put future borrowers in peril," wrote Andre M. Perry, senior fellow at Brookings Metro, a research program within The Brookings Institution.

The plan, he stated, doesn’t address the "massive tuition hikes that have become the norm in postsecondary education. Colleges and universities take advantage of society’s need for people to go to college by capitalizing on a student loan program that floods the market with cash." Perry would like to see universal higher education, similar to the K-12 arena, where students don't need to take out a loan for certain public, higher-education institutions.

Kantrowitz agreed that loan forgiveness isn't a complete solution to the student loan problem. He maintains that a better solution is to increase grants so that low-income students do not need to borrow.

Kantrowitz's tips — many that I've included in several columns over the years — remain useful, even though many students will still need to take on a great deal of debt ahead if the high cost of college is not addressed.

• Borrow only what you need, not as much as you can. In general, it's important to understand how interest will build and drive up your overall costs. Every dollar you borrow, Kantrowitz notes, will cost you about $2 by the time you repay the debt.

• Cut your expenses while you're in school, so you don't have to live like a student after you graduate.

• Aim to have total student loan debt at graduation that is less than your annual income. If you're likely to make $40,000 a year, don't borrow $80,000. If your debt is less than your annual income, you should be able to repay your student loans in 10 years or less. Otherwise, Kantrowitz notes that you will struggle to repay your loans and will need income-driven repayment or extended repayment to afford your student loan payments, which may mean that you're in debt for two decades or more.

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: Student loan debt forgiveness: Your questions, answered