Student Loan Forgiveness & What You Need to Know
Earlier this year, President Joe Biden announced his student loan forgiveness program and this week the floodgates opened with folks beginning to apply as a beta version of the application is now available on the Federal Student Aid website. There’s a lot of confusion in the news about who is eligible for refunds and forgiveness so we would like to address what we know.
You’re eligible for loan forgiveness if you had an annual federal income below $125,000 individually or $250,000 if you’re married or head of household in 2020 or 2021.
The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Loan forgiveness is only available for federal student loans from the Direct loan program that were disbursed before June 30, 2022. Qualifying loans include Direct subsidized and unsubsidized, grad Plus loans, parent Plus loans and consolidation loans.
Anyone with Department of Education owned federal loans can request a “refund” of all amounts paid after March 13th, 2020 through the end of the payment freeze. Once you apply and confirm with your provider, you should get a refund back within 6-12 weeks and you may see this via electronically or check.
Please note that when you request a refund, the amount that you paid during the payment freeze will be added back to your student loan balance. That amount is still eligible for cancellation and can be eliminated after you apply for loan. For example, if you had a loan balance of $15,000 and paid down $8,000 during the payment freeze to bring it down to $7,000 remaining, you can ask for a refund of $3,000 to bring your balance back up to $10,000 so that you can apply for maximum loan forgiveness.
Not all borrowers need to apply for the refund. The refunding process may be automatic for certain borrowers who are eligible for student loan forgiveness and for those who made voluntary payments during the freeze that brought their balance below the maximum forgiveness amount (either $10,000 or $20,000). Folks will be offered an automatic refund for the difference. The automatic process is contingent on what financial information you have on file with your provider.
It is not yet clear if the refunded money will be considered taxable income or how it will be reported to the credit bureaus. It’s a smart idea to log back into your loan provider and ensure your password and username is up-to-date and also that you’ve signed up for the Department of Education’s newsletter so you’ll be notified about any new developments.
For those affected, this process may not be straightforward, so if you have questions, please reach out to your ACM Wealth Advisor.
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