8 million student borrowers will get automatic forgiveness
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Under President Joe Biden’s landmark student loan forgiveness plan, up to 8 million people could get automatic debt relief, according to the White House.
Overall, most people with federal student debt will be eligible for a rebate: up to $10,000 if they did not receive a Pell grant, which is a type of aid available to students low-income undergraduates, and up to $20,000 if they made it. Assistance is limited to those earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
Those who will get automatic loan cancellation are those for whom the US Department of Education already has income data and can therefore verify eligibility without waiting for an application.
Here’s what you need to know.
Who is eligible for automatic loan termination?
To automatically verify income data for some borrowers for tax years 2021 or 2020 (whichever is lower), the Department of Education plans to use data obtained through the free help app federal student body, or FAFSA, as well as through income-based reimbursement plans.
The FAFSA is how families apply for college financial aid each year, while income-based repayment plans allow borrowers to repay their loans more affordably by capping their monthly bills at a share of their income. Both require proof of income; however, since the government only cares about 2020 or 2021 revenue, the timing here will be important.
If you recertified your earnings on an income-based repayment plan in 2021 or 2022, you may qualify for automatic cancellation, said higher education expert Mark Kantrowitz. For the FAFSA, meanwhile, you’ll need to have it filed for the 2022-23 academic year, he said.
Do I still need to apply for relief if the government has my income data?
Yes. Experts say that even if you think the government already has your income information, you still need to go through the formal application process when the application goes live, which the Department of Education says will happen. will produce by “early October”.
“With any new government program there is a risk of glitches, so it’s best to apply just in case,” Kantrowitz said.
How quickly will forgiveness come?
Borrowers could see the loan cancellation reflected in their accounts within six weeks, Kantrowitz said.
“They should also receive a notice from the loan manager when they receive the rebate, indicating how it was applied to their loans,” Kantrowitz said.
Was my income below the limits?
Relief will be limited to borrowers earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
Review your recent tax returns to confirm that your income fell below these thresholds in 2020 or 2021 (either will work). The Department of Education will take into account the so-called Adjusted Gross Income, or AGI, which may be different from your gross salary.
To confirm your AGI for 2020 and 2021, find line 11 on the first page of your tax return, known as Form 1040.
What’s next after cancellation?
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A smaller monthly student loan payment “is an opportunity to re-examine fundamentals like cash flow,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
“Money that was once used monthly to pay down debt can now be used to increase savings or investment,” he said.